What about those that made money?

[Alex_angel]

We keep on hearing on how the economy is going to the crapper because of these bad loans and these owners that have to forclose etc… But for every buyer there has to be a seller, correct? I have yet to hear any stories about the boat load of people that hit the mini-lottery selling their homes over the last 4 years at 100-300% profit. For all of those that are in dire straights aren’t there a bunch of people who are now on easy street from selling theit $75k condo purchase in 1999 for $450k in 2005? I know that a big percent of these home purchases are new homes but I am not sure what the percentage of new vs. resale is. I would love to see some stats on those that made some huge cash and have money to dip into the economy.
Personally I know of more people that have made some great cash than those that are in trouble today.
One lady I know that makes $65k a year is living in a $1 million CV home and is paying less per month than I am in rent. She cashed out HUGE on a del mar heights homes that she purchased 6-7 years ago. Another guy I know moved here in 2001, bought a San marco home for $170, sold it for $540 in 2004. He moved back to Atlanta and bought a $4000 sqft home with a basement for about $380k. Another one guy I know owned 3 condos near UCSD that he bought for 60-90k years ago and sold off each one and made well over a million dollars. I have about 10 more stories of people like this but I don’t have one to tell about anyone that I know that is in forclosure trouble. For almost everyone that is in trouble there is someone that made out very well.

[Alex_angel]

I meant SDSU not UCSD

[Bugs]

Nobody disputes that there are a lot of people who are in a stable situation and who are not at risk right now.

However, those people are not participating in the buy-sell market and they have nothing to do with whether the market goes up or down. All the action is on the margins and from what we’re seeing the size of those margins and the pressures being brought to bear are on the increase.

The guy who sold out in 2005 and took his equity out of state basically timed the market and came out ahead. Good for him. Dreams can come true in America. The lady who purchased her home back before the big runup and then leveraged it into the nicer CV home is probably in an okay situation but it might depend on how she set up her financing. If she used an ARM and she has less than 20% down she might end up having a problem at some point.

Bottom line – it’s not how much you make that counts, it’s what you can keep. And timing counts.

[mydogsarelazy]

I think what essentially happened is that the bubble exaggerated the economic differences between different age groups.

My wife and I both sold properties at good moments. She sold her house for three times what she paid for it, and I sold my weekend home for six times what I had paid for it. So, we are going to be fine financially.

But what about my nephew who earns $90k, is newly married and lives in San Luis Opisbo? Or my niece who with her fiance has an income over $100k but lives in the Bay Area? They are renters and are quite concerned about when, if ever, they might be owners.

People that have owned for awhile are in great shape, maybe better than ever if they hadn’t taken money out of their homes, but young people are just dazed. They are thinking “timing, timing, timing” like no generation before them.

JS

[JWM in SD]

“People that have owned for awhile are in great shape, maybe better than ever if they hadn’t taken money out of their homes, but young people are just dazed. They are thinking “timing, timing, timing” like no generation before them.”

Yes, Yes, Yes!!! This is exactly correct. This is why I responded to AN that I didin’t care about people who bought 18 years ago (assuming that they didn’t HELOC themselves into a bad position). They are irrelevent to some degree in this market.

Even though my wife and I make a lot of money relatively speaking we don’t have the equity cushion from having been in the right place at the right time. Any downpayment we have is CASH$$$ savings and you better believe I am gaurding that with my life because of how difficult it is save a lot money in the face of rising inflation and stagnant wages.

[davelj]

“Those that made some huge cash” fall, generically, into the following (broad) categories:

1. Bought a long time ago and the equity cushion has built up over time (and they didn’t use the equity for toys, etc.);
2. Built up equity in a first home bought a few years back (or more) and traded up to a more expensive house during the bubble but used a lot of equity from the first house for a downpayment;
3. Built up equity in a home (or homes) and sold out during the bubble and moved out of state or are renting;
4. Bought a long time ago but used up their equity for toys, etc.
5. Built up equity in a first home and traded up to a more expensive home during the bubble but didn’t roll over much of the equity built up in the first home (again, toys, “investments,” etc.);
6. Built up equity in investment homes and then flipped these homes and put the equity into MORE “investment homes” spreading out the equity into smaller slivers for each “investment” (i.e., they levered up their early winnings).

While there are plenty of people in groups 1-3, who should be fine as this fiasco unfolds, the problem is that those in groups 4-6 were the marginal buyers/borrowers during the bubble. And these folks are dead. And as we can recall from Econ 101, everything important in finance and economics happens “at the margin.” The marginal buyer, in the aggregate, has disappeared and won’t be back for quite some time.

[nla]

I guess, we belong to Category 2. Bought our first house for 189K in 1998, sold it in 2002. Rolled everything that we made to our current house, which we bought that same year before the prices went really crazy. At the peak of the market, we probably have an equity of more than 600K. According to Zillow, the value of our house went down more than 150K from the peak. But we’ll be OK, our income to debt ratio is about 22% and we don’t have any debt but our mortgage.

[BuyerWillEPB]

but young people are just dazed. They are thinking “timing, timing, timing” like no generation before them.
———————————–

Well, like one generation, the ones who went throught the Great Depression and WWII.

That would be my grandparents. In todays environment, I ask myself what would my grandparents do.

[sdduuuude]

I think this is a good question. I used this argument a couple of times when powayseller was on her “60% drop” rampage.

I guess the two answers are:
1) Yes people sold houses for a lot of money, but many re-financed cash out. i.e. what was their equity? Keep in mind, spending has outpaced income recently, so there are a bunch of sellers who got out, but not necessarily with alot of money to play with.

2) For those who are sitting on some cash made from selling near the top, I would suspect their money won’t come into the game until very late.

I think this money will help mitigate the size of the price reductions to some extent, but won’t bring the recovery any faster. The market will flounder for a long time while that money sits on the side and waits. Still a long way to go before that money comes back to the game.

[an]

“Yes, Yes, Yes!!! This is exactly correct. This is why I responded to AN that I didin’t care about people who bought 18 years ago (assuming that they didn’t HELOC themselves into a bad position). They are irrelevent to some degree in this market.”

You really misread my post. I never said that people who bought 18 years ago will affect the market. What I meant to say is just like those who bought 18 years ago, if YOU buy a place a can sustain the payment for 18 years, you’ll be sitting pretty too. Maybe not as pretty as the guy who bought 2-5 years after you bought today but I’m pretty sure you’re still sitting pretty none the less. Like you, I don’t have that equity cushion either so my down payment will be cash I saved up. Hence for me, it’s all about “timing, timing, timing” because I want to be sitting prettier than the next guy 18 years from now :-).

[tugg49]

I’m on a hillside out in Lakeside and I’m watching my neighbor tear apart his 40 year old 900K house he bought at the peak. He and his wife are always complaining about the shoddy work they are finding under the carpet/wallboard. It’s unreal the money they are plowing into their house.

But, I always remember my neighbor when he cashed out and moved back to Georgia. All profit….He hit the jackpot and was grinning like a cheshire. He was a wise real estate investor/speculator. I’m sitting well with a 300k home-hoping to be like my wise ex-neighbor. With a 900k comp (HAH!) maybe I should sell.

[no_such_reality]

Bottom line – it’s not how much you make that counts, it’s what you can keep. And timing counts.

Too true. Attempting to time is usually a fools game. Although sometimes, rough direction is obvious.

That said, as AN pointed out, long term (really long term) 20+ years, you’ll likely come out ahead, depending on what you buy and provided you only look at the house. Would you be better served buying a little further down? Maybe to probably. How much better is open to speculation.

There’s several other posters on other blogs that are very bullish on real estate long term, they also are current long term owners. They’re trapped.

They’re not financially trapped, mentally trapped. The thought of losing their $300K based property tax to move up to something in the low million range stops them cold. The net/net, slightly better house, slightly bigger payment, but a whopping extra $10,000+ in property taxes. Which makes it a lot bigger payment, even if they roll their equity forward. They’re likewise mentally trapped from even making a lateral move as it results in a likely $6000 additional property tax.

[JWM in SD]

“That said, as AN pointed out, long term (really long term) 20+ years, you’ll likely come out ahead, depending on what you buy and provided you only look at the house. Would you be better served buying a little further down? Maybe to probably. How much better is open to speculation.”

In my opinion, that assumption could be driving with the rearview mirror and extremely dangerous right now. We are headed into uncharted territories. The last time the macroeconomic picture for the US looks it does now was in the late 1920’s. To me, the probability of the long term RE hold has diminshed somewhat in the past couple of years and I’d rather wait it out to see what happens.

[an]

“I’d rather wait it out to see what happens.”

I think most of us here rather wait as well, me included. But long term RE holding is still a viable option. When I say long term, I mean really long term, not 5-10 years. Even with the depression of 1929, RE price still recover…eventually.

[Bugs]

I would agree that trying to time the RE markets to its extremes is improbable. However, I think it’s very possible to get the general direction right. Unlike the securities markets, the RE markets move very slowly and it’s possible for anyone on the outside to know what’s happening with a particular property without having to rely on the word of an insider (like a CEO or CPA of a company). You guys can and do watch what happening with the number of sales vs. the number of listings and can read the general direction of pricing trends. The rest is just patience.

[Author]

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