RE bubble bust on the horizon, now what?

[Sam]

OK, so you have a 100% reliable crystal ball.  It tells you that your home value will begin to decline at a 5% annual rate starting 6 months from now.  The decline will continue for 4 years.  So at the end, you lose 18.5% before inflation, or 28.5% including 3% inflation.

You have six months warning, what would you do?  Here is the constraint:  You can not move out of the city, for various reasons - jobs, families, friends, way of life.  You must stay in the same city.

PS:  Please do not hijack this thread.

 

[Scrooge]

You sell the house and rent for 4 years?  8)

 

[brewer12345]

I stay where I am. Transaction costs and the pain of moving don't outweigh the potential loss.

 

[Mach1]

Hang in, take potential loss and move on.

 

[tryan]

...short the housing hedge fund; then check the crystal ball for the next superbowl winner and bet the house in Vegas.  

The correction in housing will just be a drop in the bucket compared to your winnings.  

 

[youbet]

I wouldn't even consider putting the family through the ordeal of selling - finding a new place to buy or rent - moving - settling in, etc., for that kind of chump change.

If there was some other compelling reason other than $$$, such as wanting to relocate anyway, I would take market direction into account in my planning.

 

[Scrooge]

I stay where I am.  Transaction costs and the pain of moving don't outweigh the potential loss.

Well, it's a highly personal decision. For example, you have a wife and a small child, so your moving costs (money, aggravation, etc) would be higher and you would need to rent a reasonably big place for the family to live in and raise the child(ren). I don't have a family and have been known to live in hotels for months at a time -- didn't make any difference to me except that I was pocketing the per diem  8)

On the other hand, my problem is the thousands of books (all lovingly cataloged and arranged) that I own. I am yet to decide how many of them I want to keep and until then any move would be likely painful, involving the headache of renting storage space etc. On paper it sounds like the right thing to do, but it will likely take me another year+ until I am ready to sell, and who knows where the market will be then?..

 

[wabmester]

If you're happy with your home, I wouldn't do anything with it.

If you're thinking of buying a home,  I would continue renting.

If you have more than one home, I would sell the "extras."

If you own stocks sensitive to the real estate sector or discretionary consumer spending, I would lighten up.

(Disclaimer: I sold my "extra" house in May.   I sold my long-held COSTCO stock at 56.   And I told my BIL to postpone the purchase of the $900K tract house he was eyeing.)

 

[samclem]

OK, so you have a 100% reliable crystal ball.

This stipulation makes tryan's answer the best.

What would be the alternative?
1) You could "live in the same town" but buy downscale on "the other side of the tracks" (will you like the neighbors? Good schools? Gonna come out in the morning and find your car up on cinder blocks?)
2) Sell and rent nearby? Then you'd face many more potential moves.

About the only thing I'd consider in the "unusual" starting circumstances proposed is to sell the house I'm living in contingent on the buyer leasing it back to me for some period of time. Maybe you could find somebody who didn't have a crystal ball and believes prices will go up, and who could use the tax write-off if it doesn't. I'm not sure if an ironclad lease could be drawn p that would prtoect you sufficiently.

"Jill, rememember when Dad made us move four times in four years because of that whacky glass ball he kept in the basement? I sure cried a lot about leaving my friends."

PS: Please do not hijack this thread.

If you stayed in the house, would it be better to pay off the mortgage, or invest that money (maybe by shorting RE stocks).

 

[Sam]

check the crystal ball for the next superbowl winner and bet the house in Vegas.  

Sorry, this is a RE only crystal ball.   

 

[Nords]

The decline will continue for 4 years.  So at the end, you lose 18.5% before inflation, or 28.5% including 3% inflation.
You have six months warning, what would you do?

Pretty much the same thing we did last time-- hang on, keep visiting open houses, and think about picking up a bargain at the bottom.

When the decline is at its worst, down 18.5%, then we'd find an upgrade (which, in this strange crystal-ball universe has also lost 18.5%).  Our $100K house would only sell for $81.5K but we'd be buying a $200K house for $163K.  We'd lose $18.5K equity on the first transaction and make it up on the second, although of course we'd be out a hassle of closing & moving costs.

I don't want to move out of our current residence.  When the next decline bottoms out then we're gonna buy a distressed condo, rent it out to the local military market, and wait for the recovery.  If our kid wants to return to Hawaii from the Mainland then at least she'll know where to find an affordable rental.

"Jill, rememember when Dad made us move four times in four years because of that whacky glass ball he kept in the basement?  I sure cried a lot about leaving my friends."
If you stayed in the house, would it be better to pay off the mortgage, or invest that money (maybe by shorting RE stocks).

Sounds like a bunch of moves through a military training pipeline!

If the crystal ball only does real estate then I'd get a 125% HELOC and short the housing companies.

PS:  Please do not hijack this thread.

(*Brief pause to wipe off a coffee-spewed monitor.*)

Sam, you either have a wicked sense of sarcastic humor, or you're one of those guys who runs the streets of Pamplona waving red flags at the bulls.

If you truly want a no-hijack thread you're going to have to volunteer yourself to Dory for moderator duty... or start your own board!

 

[rs0460a]

You have six months warning, what would you do? 

Absoutely nothing.  We built our current house in '94.  Paid off the mortgage in '99.  Only residents are my DW & 2 dogs (4 BR - 2 story), and I belive we'll "keep it" till they take us "out in a box"...

- Ron

 

[brewer12345]

Only residents are my DW & 2 dogs (4 BR - 2 story

So you sleep in the car, then?

 

[HFWR]

Nah, there are two empty doghouses...

 

[wabmester]

On the other hand, my problem is the thousands of books (all lovingly cataloged and arranged) that I own. I am yet to decide how many of them I want to keep and until then any move would be likely painful, involving the headache of renting storage space etc. On paper it sounds like the right thing to do, but it will likely take me another year+ until I am ready to sell, and who knows where the market will be then?..

PURGE!   I hated moving.   I am an extreme pack rat.   I got rid of a bunch of stuff as part of the move -- ebay, craigslist, freecycle, sold to the new buyers, gave to my listing agent, etc.   And I still managed to fill our 600 sq ft garage to the rafters and rented two storage spaces.

I too have thousands of books, but it's not rational.   I rarely refer to 99% of them.   I might save a few for my kid.   But I can't figure out why I keep the other 3000 of them.   Maybe I can burn them to keep me warm if we run out of fuel.

 

[brewer12345]

I too have thousands of books, but it's not rational.   I rarely refer to 99% of them.   I might save a few for my kid.   But I can't figure out why I keep the other 3000 of them.   Maybe I can burn them to keep me warm if we run out of fuel.

I am in the same position. But I figure that I could probably heat our home for the winter with all the junk mail we receive, so no need for burning books.

Heh, my daughter refers to what the mailman rides around in as the "junk mail truck."

 

[Cut-Throat]

I stay where I am. Transaction costs and the pain of moving don't outweigh the potential loss.

ditto

 

[Scrooge]

I too have thousands of books, but it's not rational.

Er, who said anything about it being rational? 

I rarely refer to 99% of them.   I might save a few for my kid.   But I can't figure out why I keep the other 3000 of them.   Maybe I can burn them to keep me warm if we run out of fuel.

I don't think you understand. I could only wish I had 3,000 books. I bought this house 13 years ago because I had 8,000 books then and needed more space. Of course, once I had the extra space, it only got worse. Much worse. I donated 600 volumes a couple of months ago and didn't even notice the difference...

 

[wabmester]

I don't think you understand. I could only wish I had 3,000 books. I bought this house 13 years ago because I had 8,000 books then and needed more space. Of course, once I had the extra space, it only got worse. Much worse. I donated 600 volumes a couple of months ago and it didn't even notice the difference...

We're here for you, Scrooge. Take a hose and soak them well. Now sprinkle yeast spores generously around your bookshelves. Raise the room temperature to 80F. Your problem will be solved in a few weeks, and your home will smell like fresh sourdough bread.

 

[Scrooge]

Well, I don't know if I would go that far, but I think I am making baby steps in the right direction. I spent an hour earlier this week going through my software and slimmed it down from 4 boxes to 1.

Next on the agenda: about a hundred (very) old computer and science books that I will never touch again.

P.S. Sorry about hijacking the thread, but in some cases excessive clutter does affect your ability to move

 

[wabmester]

Next on the agenda: about a hundred (very) old computer and science books that I will never touch again.

Oooh.   If they're pre-1975, send me a list!   My collection compulsion in this area is pretty extensive.

 

[Sam]

Sam, you either have a wicked sense of sarcastic humor, or you're one of those guys who runs the streets of Pamplona waving red flags at the bulls.

It sounds like a compliment, so thank you  

Anyway, thank you all for your input.  I must say I'm very surprised at your responses.  I anticipated "sell and rent" from the majority.  Turned out that Scrooge and I are in the minority.

 

[donheff]

I don't think you understand. I could only wish I had 3,000 books. I bought this house 13 years ago because I had 8,000 books then and needed more space.

Back in the day I used to drag books arouind from place to place. I finally went cold turkey and donated all but a few to a school book fair. How about vinyl LPs? I lost a large collection in a hazy period I try not to think about but DW had hundreds when I married her. When we noticed that we were only listening to CDs I moved the whole lot to the back of the basement. An unnoticed leak, followed by mildew took its toll and I solved the problem by tossing the whole pile. DW didn't understand and still gives me grief 15 years later

 

[rs0460a]

So you sleep in the car, then?

I'm only allowed in when my DW (and both dogs) allow it...  : : :

 

[CCdaCE]

I'm going to go out a limb here and say "stay put". What difference does it make what value it is, especially if it's going down - less taxes, etc., if you have to stay put anyway. You have to have a place to live.

It's not like the landlord is ever going to reduce your rent when you sell and move elsewhere. Over the time period, you'd be paying the same rent for a lesser value house/appartment.

Like Nords said, "double down" and buy another when the housing market is at its low.

-CC