A year ago we ran this post on "Geo-Arbitrage" - the idea of selling your overpriced home (while you still could have back then), cash out, and go buy a place for cash somewhere else or just wait the whole thing out. Best a few folks out there wish they had done that a year ago...
So it was nice to see the MSM version of this idea today. Only a year later. After it was too late.
Articles like these - "GET OUT WHILE YOU STILL CAN!", will only make the collapse spin out of control faster. Everyone head for the exits!
The concept is good though. Why work when housing loot in a lot of cases (if you can sell) is more (tax free) than you'd save in a lifetime?
Here's my post from last year:
As advocated in Life 2.0 (good book - read it last year - on sidebar now) - the idea is to cash in on your house in over-valuedburgh, and buy low (or rent) near cornfields. Small town America. Where $100,000 gets you a great house. I'd suggest foreign countries too for this idea. Central America, Mexico, Eastern Europe, etc.Cash in. Don't stress about $. Raise your kids right. Retire early. Slow down.Anyone doing it? It is tempting...
And here's the MSM today (on Yahoo's homepage):
Take your home equity and run
If you live in a high-cost metropolitan area, the equity in your current home can buy a heightened lifestyle somewhere else.
While in certain parts of the country home prices have leveled off or headed south, housing price disparities in different regions mean that some people have more equity than others by virtue of their locations.
Extra equity is an added benefit to the American dream. You can manage this equity in one of several ways. You can sit on it and hope that the real estate market in your area doesn't tank. You can tap your equity and use it -- generally not a good strategy since you have to pay it back. Or you can cash it out and move to an area where the housing dollar buys more for the buck.
Homeownership will always be the American dream, but being a slave to a mortgage can be a nightmare.
44 comments:
Thought you might appreciate this comment thread on the broker outpost forum.
Loan defaults and the L/O's legal responsibility..
"What if your good borrower decided to stage a coup? It is happening in this kind of housing slump when good borrowers cashed out 100% or even 125% and defaulted on the first payment. He did that because he sees the value declining and he thought that he could use somebody else to buy his next home! Why stay upside down and pay the high mortgage when you alredy got all the cash you needed?"
"If you are one of those unfortunate L/Os who ran into this situation and the lender starts claiming damage to your broker with whom you hang your DRE license, what would you do? Could you quit and change broker with impunity? Could you prove that you originated loan in good faith with no fraud, no manipulation, etc. but you couldn't foresee why a 700+ borrower with a good income and credit history would have done this. Some may have cashed out entire home equity to provide a retirement income in overseas havens! Especially in the million dollar home price ranges, the temptation to cash out 100% and leave is there."
Keith and everyone
check out this article
http://www.forbes.com/free_forbes/2007/0226/110.html
denial anyone?
Sold the house in Sacramento area last August, and now have enough to pay cash for the nicest home I've ever owned in my home town. Problem is my job in the bay is very unique and quite rewarding, so we rent and try and keep up with inflation in CD's. Don't think I want my now 2 year old in CA schools though...
central illinois you can find great houses for $50/sf
2,000sf = 100K
Rather than sell and rent, I sold most of my real estate investment properties and paid off all debt. No mortgage, no debt, life is good.
I have several friends that bought flipper houses, against my advise, in Cape Coral Florida. The bust there has turned into denial. One of my friends is $725k in debt and his property value has dropped to $500k. Does anyone have $225k to give him?
I told to bail now, no matter the cost. He told me he's going to hold on, paying $6k a month! What he doesn't understand is the market in Florida won't turn around until after 2011. He ARM resets next year. The panic stage won't start until 2008. Casey Serin was early.
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Keith I preached this same concept to many folks last year and they laughed at me.
My grandmother used to always say.
"The same thing make you laugh will make you cry".
So to all the folks who thought "It's different here" (In The OC)... while relying on Suzanne's reserch. You should have listened to Keith's
RayNLA
central illinois you can find great houses for $50/sf/
Yea, but then you have to live in Central Illinois.
This is all very well for the lucky sellers, but what if it becomes a mass exodus and they end up driving up home prices in the areas where they move to? This actually happened in parts of Oregon and Washington where a lot of Californians cashed out during the boom and bought a larger house "up north". Local home sellers got wise to this trend and bumped up their prices accordingly. The folks from CA still thought they were getting a bargain (and indeed they were compared to the craziness they left behind), but home prices were slowly being driven out of reach of local families. Just a thought....
The jackass that wrote that Forbes article hasn't talked with my next door neighbor.
Nice things about renting: you're not tied down and your kids can go to town on someone else's place.
Hmm...I see it wasn't only Oregon and Washington being affected by cash-rich CA sellers driving up prices.
Ben's blog posted this article earlier today:
“The tremendous amount of money from real estate gains coming out of California helps explain why this relatively small group is often blamed or credited for rising housing prices in Central Texas, even though the majority of California transplants have median incomes no higher than those in the areas into which they are moving.”
“(Realtor) John Rosshirt said California buyers are accustomed to much higher home prices and generally are prepared to pay more than buyers from Texas. This has a ripple effect on the market, Rosshirt said, because buyers who lose out on one house to a California buyer with a higher bid often are willing to pay more the next time.”
Full article:
http://www.statesman.com/news/content/news/stories/local/02/10/10migration.html
Is this a reason for "mini-bubbles" appearing in the most unlikely places? What will happen to these bubbles now that sales and prices are tumbling in CA?
About that Forbes article; I thought only realtwhores put their picture on print communications?
Oh wait:
"Oil may rise, oil may fall."
but
"[Pulte] earnings that will bounce back by 2008."
i.e. housing always goes up! Do I owe him 6% for reading this?
just be happy that the buyer next door who paid that irrational price by borrowing the money from the bank, that issued 10 dollars of debt, for every dollar of deposits, has in most places(California excluded from prop 13} placed an irrational property tax upon you ( that will compound every year} and that that tax will not change until your property is sold, if it could ever sell, at those assessments and appraisals
perhaps it is 10 times to high priced in relation to the cash deposits
I think a lot of people have been doing this, My small Texas town has grown quite a bit over the last two years, with many people moving in from the Northeast and California.
Heard on the evening news that the average rent in the DC area is supposed to go up 50 dollars a year for the next three years. It was up about 4% this past year.
I checked rents online in an upscale suburb inside the beltway and found a one bedroom rented for
$1150-1400 a month.
One bedroom condo prices were generally above $175,000. Tack on condo fees of $200-500. and one percent taxes, maintenance, advertising ... investors may find they cannot rent out condos purchased in the near future for a profit, yet people shopping for primary residences have been buying bargains. A lot of expensive inventory sat for months without full price offers ... that was the case during the boom also.
Am not sure how long the market will be down. If they cut back government spending to reduce the growth of the debt and control inflation then prices here might drop some. It is hard to rent with rents going up and a history of long term price growth.
Duh!
Anonymous said...
central illinois you can find great houses for $50/sf
2,000sf = 100K
February 10, 2007 5:47 PM
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Look at Danville, IL. Center east on the IND. border. Big Victorians for $50-55,000.
Anonymous said...
Keith and everyone check out this article
http://www.forbes.com/free_forbes/2007/0226/110.html
denial anyone?
February 10, 2007 4:40 PM
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Just yours.
Buy low, sell high?
What a concept!
We did just this, it is the best thing we ever did. We purchased our old house in Scottsdale in 2004 for $815. We then sold in in 6/06 for $1.535. We have taken the money we made and purchased our house outright for $817. Now we are saving for retirement and look to retire at 55. Being 39 and having no mortgage is rare. We are in smaller house (with 3 kids) but we have the best vacations and can't wait to retire in 15 years. People can do it if they are willing to downsize. Unfortunately, most people don't want to live modestly. But I would highly recommend it!
Big Hat, No Cattle.
Small Hat, a lot of Cattle!
thanks for the link to that fisher article... I can sum up my opinion in three letters...
W T F ?!?!
That guy is delusional or something.
(Or he's got a few "investment" new build houses he's trying to sell off?)
Real Estate 101,
I'm there with you, I've dumped all of my real estate investments, my last home closes this month, I'm buying an RV and touring the country, eventually going to wind up in TN/NC where I"ll either hang out till the dust settles or I'll buy a modest place on acreage for cash with money left over. I've dumped 12 houses onto the local market in 6 months, selling to mom and pop "investors". I think they are making a mistake banking on appreciation, because that bank is closed here in WA.
I have 2 pieces of land in NC that I bought with profit from land sales in WA that I still have to unload, I have them on fire sale prices, will be using all of the "creative" financing that I can, cash back, inflated appraisals, whatever it takes.
IF only I had bought one year earlier and sold 1 year later, I'd be a millionaire :-) Trying to tell my friends, sell now don't fight over 5K on your house, you'll lose more than that this summer.
Take care, hunker down if you have a fixed loan, mine were ARMS, I had to sell.
Tony in WA
Hehe thanks for the chuckle...I thinks I'll go buy another house...why not...I must get in before I am priced out ....Forever...forever..forever..Forever...forever..forever
http://tinyurl.com/28dcpc
Hey, I did this ... sorta, I didn't own but got out of Northern CA and bought near the corn fields, and heck there is even a sheep farm near my house.
Cool.
Cow_tipping.
What a bunch of bull that Forbes story is. Basic economics (and common sense) says that prices could not continue to rise. Since only 2% of Americans are millionaires, it was simply a matter of time before the supply of people to buy properties at sky-high prices would run out. With average income around $40,000 or so, who actually believes that starter homes will keep rising past $500,000 and beyond????
And now the clock is ticking down to the economic time-bomb of all those interest-only mortgages converting to full payments and the foreclosure circus that will follow.
I was one of those lucky people that cashed out at peak market . I didn't know about the bubble and it was just luck that I sold at that time . I owned my house I sold for a very long time so I wasn't even a flipper .
I don't think the demand factor will be present to make it possible for people to get out of dodge ,unless a seller has alot of equity .
Yep. Thanks Keith and gang for pointing out that a.) history repeats itself and b.) as Mencken said nobody lost money underestimating the intelligence of the average american. Back in 87 during the housing collpase in Texas many new yorkers sold out and moved to texas to buy a better life for a fraction of the price. Of course save for D.C. and SF most of the bubble areas (Vegas, FL) are not fit for people who are not services workers, scammers, realtors) are not good places to have a career or educate a family. Yes if you can cash out live somewhere else, rent for a year in France, England even. Costa Rica, New Zealand. It will be fun, you get to pull your head out of the REIC propaganda and have a better life--"stability" as currently defined seems to consist of toiling away to pay some mortage in a suburban development in say Vegas, Phoenix, Miami think of the horror of that for 5, 10 15 years. Cash out, rent--live!
Geoarbitrage only works if your job is equally movable as cash. Unless you're retired, it isn't for most people.
Myself, the only feasible jobs are all in the highest cost areas, San Diego, SF, NYC, DC, London, etc.
This is absolutely insane, and whoever lent this money deserves losing it:
This house sold for 230,000 in 1993.
It just sold for 1,600,000.
http://tinyurl.com/34roht
That's almost a 7x increase in price.
Please people. Don't pretend you didn't see a crash coming
Ok, here's another one.
01/23/2007: $2,350,000
03/22/2004: $646,000
http://tinyurl.com/2brnsd
That's 1.7 million dollars difference. If things go bad, and it looks like they are, some investor, lendor or whatever is going to lose 1.7 million and that's just one house out of millions(?) in Los Angeles.
I'm going to be piling on the put contracts for lenders.
By the way, many other houses in this area are selling for less so the crash has already begun, for example:
http://tinyurl.com/ysuhxs
This one is only a few blocks away from that last one.
WTF????
It isn't stopping!
Despite all you hear about lenders being reigned in, this kind of just is still going on!
http://tinyurl.com/34roht
This house sold for 1,650,000 a few weeks ago. It's only 896 sq feet in size, 2 bedroom, 1 bathroom. That's $1,800 per square foot. This is like 3 times the price of the comps in the area and even those are already insane! Even if you were Zha Zha Gabor and put down GOLD PLATING at $670 per square foot for this entire house, that still wouldn't justify the price premium over the comps.
Anyone familiar with this area knows it's near the Trader Joe's in West LA. Just a boring, run down old L.A. neighborhood.
I don't care if you are the richest Arab Oil sheik in the world. Who would be so stupid as to pay that much for a house when other similar houses nearby are selling for 1/3 the price?
And before you tell me "it must be an error", there is ANOTHER house in this list of comps that sold for $2,120 per square foot only a few blocks away.
http://tinyurl.com/2pl5qp
Anyone else doubt that the California Crash isn't going to take out the entire mortgage industry in this country and maybe the world?
Sorry to belabor the point. Here is a list of comps of house prices from Beverly Hills. This is where many of the richest people in Los Angeles live:
http://tinyurl.com/2pl5qp
Notice the per square foot prices. None of them are above those West LA prices quoted above, and West LA is almost next to gangland Culver City, Palms and Venice.
There's more to life than cheap housing. We sold our house in California and bought a house in a small town in rural Iowa. What a shock it was when we saw how backwards it was there. Needless to say, we got OUT of there and are now back in California.
Believe me, there's more to life than a cheap house! There is something called "quality of life."
Anonymous said...
There's more to life than cheap housing. We sold our house in California and bought a house in a small town in rural Iowa. What a shock it was when we saw how backwards it was there. Needless to say, we got OUT of there and are now back in California.
Believe me, there's more to life than a cheap house! There is something called "quality of life."
February 11, 2007 9:42 AM
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BINGO, location premiums do have a logic & rationale behind them. Making a house a home is a very personal and subjective decision making process that includes quality of life. Such is impacted upon by the neighborhood as well. Price, while important, it is not the be all to end all in regards to concluding it where you can live.
To all the high comps in CA; you really should watch some ebay category closely. People pay 100% difference for the same stuff everyday, and not only on small ticket items. Why would housing be different?
And that Forbs article is nonsense, as generally all articles which make concrete forward looking claims are.
California is beyond a "location premium", as the current prices will consume any quality of life one has left after any "real" mortgage.
I don't look to housing comps for today's market direction; there's always an eager FB around the corner, especially in a zero recourse state. Look to the capitol supply. Do you really think stated income/option ARM products will again be >50% of CA originations in 2008?
www.ml-implode.com
I can't wait until I can't afford a home!
then it might seem that the ^new world order* people have theived "your" land, house, money, time, peace of mind and freedom and "security", and have the political power to change the rules and taxations on what is now "their" properties, or take their government cost of living pay increases, for being government help, to pay the expenses, if whe 50% are likewise employed, a new communist state of USA
@anon February 11, 2007 6:14 PM:
Interesting, so by that logic we will soon be U.C.S.R. - Union of Chinese Socialist Republics! If, as I understand, China is the one buying the mortgage securities, then they will be the ones holding the titles.
6:14 PM is correct, if I can understand his fractured English. The government aparatchiks won't go down without a fight, and they have guns and badges and judges on their side. They will tax you to death and feel justified about it.
Wait until their pensions come due.
Keith,
I remember the article. I even clicked on your amazon ad and bought a book and made you a buck. Good book by the way. Read it and was ready to sell and move to another state.
I forgot to consider one very important factor, family. My wife said she was cool with the move but made it very clear she would be VERY sad being away from the family. It then hit me FAMILY is more important than buying a house cash. Theres no point in having a paid off house, nice toys, etc..if you have an unhappy wife and family. Those house-debtors that are maried will understand. I dont have a toxic mortgage, I bought pre-bubble, low rate, mortgage payment is less than what it would rent so I stayed.
On the flip side...prices are still going up here in Socal but not as much. I can still sell my home for a nice price to some sucker and make out BIG. My neighbor just did and moved to Texas. I FOR SURE thought my opportunity for geo-arbitrage was long gone but I still can unload on some sucker it seems!! Go figure.
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