Why didn't you buy in 2000-2002?

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TRock_IHB

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Now that most of us on this blog have seen the signs of impending doom for months--and are hunkering down for it--I think it is important to look back into the past at how we responded to the increasing bubble. I figure that the often used cliche of "hindsight is 20/20" applies here. If we knew what was going to happen, most of us would have bought as much house as possible, right as prices were going up, and then cashed out in late 2005 to early 2006. Of those of us who saw it coming, what stopped you from buying at that time, then cashing out later with a good profit? I happened to have bought two homes at that time, not knowing if prices were going to up or down, using 30yr-fixed financing, being prepared for either direction. I would love to say that I was smart and knew what I was doing, but in reality, it was dumb luck as I had no knowledge of housing cycles.
 
Bought a home on Naples Island in 2000 by really stretching. Sold in August in 2005 with total awareness of re cycles. I wasn't smart, but I did know what I was doing.
 
<p>In March 2001 I had just turned 29, and was shopping for my 1st starter home with my new fiance, when presto --- my job transferred me up to Silicon Valley for what was to be a 2 year rotation. Touching down in San Jose, I remember the first place we looked at was a brand new 1500 sq ft. 3 bed, 2.5 ba townhome --- priced at $435K. At the time, I would have expected to get the same place in LA/OC for around $250 - $300K. I looked at my (now) wife and said "these prices up here are f'ing crazy, let's just rent until we move back in 2003. Well, 2 years turned into 5 --- and we finally move back to Irvine in March 2006 to find that the party was over. In hindsight, we would have been wise to buy something in Irvine way back in 2001 and just rent it out --- but we were too preoccupied with our relocation, upcoming marriage and subseqent first child to even consider being absentee landlords. So for me, career and life got in the way....I was mad for a long time, but reading this blog has been great therapy ---- and has converted me from a bitter to a happy renter. </p>

<p>Everything happens for a reason, and who knows --- maybe if I had gotten into the party back in 2001, I might have become one of the greedy fools using their house as an ATM for the last 5 years, and now owe $735K on that $435K townhouse --- and be at best stuck up in the Bay Area because I could not sell, or at worst be reading the IrvineBKYblog instead of the Irvinehousingblog.... </p>
 
awgee,


Do you find predicting housing cycles easy to do? Or was there a significant amount of uncertainty even with your knowledge? I am starting to believe that it may at least be easier than predicting stock prices, or at the extreme, futures prices. This is because it seems these cycles last for years rather than days or minutes respectively. I think for me, with the way this cycle is going, and with the helpful from the comments from this blog, I would like to be able to call the next housing bubble and have my grandkids take advantage of it. My kid is not even out of diapers yet, so grandkids would be many many years from now...
 
TRock - The re cycle seems to be much more predictable and easy to read than any other cycle that I am aware of. That said, although the uptrend and downtrend are easy to see, the actual tops and bottoms elude me. I am way early in my perception of the top or bottom of just about any market. Just a guess, but I would say the re trends are easier to see because there is less noise. An re trend, once moving is more like a train, whereas the stock market is more like a rollercoaster with a bunch of ups in the major downtrends and downs in the major uptrends.<p>

As regards uncertainty, I find I am very uncertain about stock trends. Even the major trends are confusing.<p>

I am ignorant on futures, but I think the actual commodities cycles are indentifiable and think we entered a long term commodity bull market about five years ago.<p>

I think you will be able to take great advantage of the next housing cycle. Unlike many in here, I don't think price will be much of an identifiable factor for recognizing the bottom, but rather affordability, sentiment, and market psychology will be better indicators.<p>

If one considers 1990 the last top and 1995 the last bottom and 2006 this cycle's top, then there were five years between the last top and bottom and eleven years between the next bottom and top. I see no reason to think the length of time between this top and bottom will be any less than five years and quite possibly longer because the creative/caustic lending during this last mania was, IMO, more extreme than the during the last mania. Also, this downturn started during a financial and employment bull market. As the economy goes through it's normal bull to bear cycle, what effect will that have on an already downtrending re market?<p>

The trend is your friend, or, It is easier to ride a horse in the direction it is going. I have found that it doesn't take alot of brains to recognize the re cycle, but it does take alot of fortitude or something to do the exact opposite of the crowd. It is spectacular to find this blog where there are other like thinking folks.<p>

The one difference I have is I have no animosity towards the flippers. I don't care how much they risked or didn't risk. As far as I am concerned, this is still America, and one is free to profit as much as one can, as long as one profits legally.
 
<p>In that time range I had just moved to SoCal and wasn't yet making enough money to afford buying anything that was better than living in an apartment.</p>

<p>My income started rising just as the market started taking off, and like CK, looked around and thought "this is f-in crazy".</p>

<p>SCHB</p>
 
I bought in Fullerton in 1998, sold in 2004 and immediately bought again in Tustin; sold in Jan. 2006 and have to say that at the start of it all I was oblivious, by 2004/2005 I knew I'd be getting out soon...but the husband at the time really wanted to buy...the timing of the divorce of course did help me...
 
When I first moved to California in 2001, I lived in San Diego, and my income wasn't stable enough to warrant buying.





When I moved to Irvine in 2003, I saw inflated prices rising and knew it would prove to be a bad time to buy.





If I had been an owner, I probably would have strongly considered selling in 2004. The conditions looked like the top, and if Option ARMs hadn't come along, I believe it would have been the top. There are sometimes exogenous events which drive markets in directions nobody can predict. At this point, I can hardly conceive of an event which could save our housing market, but perhaps I just lack the proper imagination?





I do think housing markets are somewhat easier to predict than securities markets because they do trend to trend for extended periods of time. However, with the extremely high transaction costs and the low degree of liquidity, I don't think it is a good market to trade. Think about it: flippers are only successful for about 2 years out of every 12 year real estate cycle. That is hardly a way to make a living.
 
<p>In 2000, I bought a 2/1 800 sq ft bungalow in the Belmont Heights section of Long Beach for 225K - it was during a small dip in pricing. I sold it 1 yr later for 67K more than I bought it for and bought a big new house in Corona for 299K, rolled the LB profits into that purchase. </p>

<p> HATED that commute, so sold that for break even 1 yr later and bought a 3/2 English Tudor in Pasadena (2002) for 480K. Relationship break up forced the sale of that in 2003, only profited 22K on that sale due to some renovation costs that ate the profit. </p>

<p>In 2/2003 bought a small ocean front condo for 315K in a high rise on Ocean Blvd. in Long Beach, a building I thought was severly under-valued. I was right (and the r.e. market was kind to me)....I sold exactly 2 yrs to the day for 515K. I thought we had hit a peak here, so I rolled my CA dollars into Connecticut r.e. and bought a house there in 8/2005. The r.e. downturn there started about 8 months prior to ours here, so the house I bought was 50K less than original list price. While on paper, I have lost approximately 15% of my value there, I plan to summer there in retirement, so I've kept it and rent it out for a slight loss that over the years, will end up being a break even with the rent I charge. It's a long term hold for me, so the temporary 15%, or even 40% worse case scenario, doesn't bother me.</p>

<p>Now I rent and wait. I will be buying in Palm Springs when I think we've gotten close to a bottom....or when I find the perfect place (that I qualify for !) And that's my experience. I have followed pricing trends, and it did take some courage to sell my ocean view condo in 2/2005.. but I KNEW I was doing the right thing. </p>
 
IR,





I've read most of your very informative posts here and know that you have as good or better understanding of the housing market than most. Given that your income was unstable from 2001-2003 and knowing what we know now, <em>could</em> you have taken an option-ARM and made a killing on the housing market? Or was it just not possible financially? I guess what I'm trying to figure out is that were you similar to awgee in the sense that you saw it coming but just could not practically act, or was it that your assessment of the data did not give you enough faith to act/buy?
 
For some of us, the answer is quite simple, we were not in a position to buy. I was still a junior back in 2000. By 2002, I was in grad school, although I have TA/RA/Fellowship, I did not have any extra money to buy a house. I did not graduate until the first half of 2006, and by then, the real estate market was at its peak already.
 
<p>I arrived in late 99 and saw the double digit appreciation going on already. My employment situation didn't become stable until early 2003 and by then I knew something bad was going to happen. What I didn't expect was a 360k SFR in RSM to hit 600k a few years later. 2003 would've been the top had lenders not Gone Wild.</p>

<p>People have quit bugging me to buy but they still pester my roommate. I tell her to tell them that if housing is such a damn good investment, they should buy a house and rent it to her. Better yet, put up a down payment for her and do an equity-sharing arrangement. </p>
 
<p>I had no clue whatsoever about real estate cycle. Was preparing for my wedding in '02. Didn't have a care for anything else. Right after the wedding, we started a business. With the wedding cost and business start up. We were figuratively flat broke. Real estate was not even in our mind. </p>

<p>While struggling, we hear and see family and friends making a killing in the real estate market. Of course, we wanted in. Purchase our current condo/townhome in '05. Yes, 2005 =). Missed the boat as they say it. Sometimes, I just think I was born unlucky money wise. </p>

<p>But through it all, I still am madly in love with my wife. </p>

<p> </p>

<p> </p>
 
<p>Oh, may I share this with you guys. Can you believe in '05. I actually took out a 2 yr option ARM. It's due to reset this August. Yes, one more month. I suppose someone is watching over me up there. Because I finally was able to refi 2 weeks ago. </p>

<p>Since my marriage, I don't know how many similar situations I have been in. Whereby I escaped with the skin of my nose.</p>
 
reason - Thanks for sharing your situation.<p>

I bought my second home in the summer of 1990 with 20% down at what must have been the absolute peak of the market. Within five years, my home had lost approx. 30% of it's value and I was upside down on my mortgage. It hurt and it truly bugged me, and I thought if I just held on long enough, things would come back and my home would appreciate. I did, they did, and it did.<p>

It doesn't sound like you are unlucky money wise. It sounds as if you are gaining experience. Good Luck with your refi and your home.
 
TRock,





I could have easily taken out an I/O or Option ARM at any point during the rally. Like OC Fliptrack, I did not believe the rally would last, and I did not anticipate the lenders actually putting people in Option ARM loans. The risk was just too great, and I did not want to start worrying about trading in houses. The transaction costs are way too high, and in a down market, real estate is very illiquid. Most owners are in denial right now, and when they finally come out of their denial, they will discover just how illiquid housing can be.
 
<p><em>Most owners are in denial right now, and when they finally come out of their denial, they will discover just how illiquid housing can be.</em> </p>

<p>I think the illiquidity is pretty clear right now. Everyone I ask with their home on the market says and admits things aren't moving.</p>

<p>In my opinion, it's a matter of how much pain the motivated sellers can take in terms of carrying costs. When they can't take it anymore, they will be forced to accept the equilibrium price.</p>
 
TRock,





Like you I didn't miss the boat, but I did not do as well as I should have either. I bought some condos in Irvine in 1999-2001, then moved to Placentia in 2002 and bought another condo there. In hindsight, I should have just stayed in Irvine and bought bigger town-home or detached condos instead. Living in Irvine back in 2000 was very enjoyable and I had a great social life and many friends here. Placentia was like a graveyard in comparison. I'm happy to have finally dumped that place and moved back to Irvine.





Had I cashed out of all my mutual funds and bought as many investment properties as I could in Irvine, or Apple stocks in 2001, I might have made enough to retire already. But we can all dream right?



 
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