In 2005 I watched the real estate craze from a front row seat in San Diego. My home value rocketed up to insane levels. Those with homes were drunk with excitement on how much money their home was worth. I got suspicious, just like I got suspicious during the craze of the dot-com days. After lots of research, which included reading the 2nd edition of Irrational Exuberance, I came to the very unpopular opinion that the party was about over and home prices would plummet.
Irrational Exuberance by Shiller, Robert J. – This is still one of the greatest books ever written on investor psychology. Highly recommended.
I was told by many people that:
- Real Estate never falls in value.
- Once you sell in California, you are forever priced out.
- I was making a mistake.
Well the house sold in early 2006 and I escaped to the rental market where I have been ever since. We all know what happened next. Real estate prices fell hard. However, up until yesterday I did not have a hard number to tell me what would have happened to me personally had I not sold my home.
My old house was sold in February 2010 for $200,000 LESS than what I sold it for in 2006. And this is after the new owner put $100,000 of upgrades into the home, including a swimming pool.
On March 9, 2006 in the post Won the Lottery, I said this:
Yesterday, I received the money for the sale of that house. It was A LOT of money. The amount of profit was insane. I am another winner in the California home seller lottery. The reason I’m a winner is because I’m not buying another home. More on that topic in another post.
Well that “another post” I referenced 4 years ago is today. The reason I didn’t buy another another home is because I believed a price collapse was coming. Prices did collapse and I got away clean. Vindication.
Good man…I made a similar move but it was in ’03 that I sold after doing much research not long after the 911 catastrophe and the dot com bust. A year and a half later I bought a mobile home on a small lot that nobody wanted because they were to busy upgrading to bigger homes and suv’s.
Looking forward to your follow up post.
@Ed – I rewrote the last paragraph for clarity. When the stock market collapses again, but fails to recover, I will post “Vindication 2″.
@MAS- How do you know your vindicated BEFORE the collapse of the stock market?
@Ed – There are several posts in the 2007-2008 range where I encouraged readers to get out of the stock market. Similar to housing, I was told by the majority that I was wrong. If it plays out like I think it will, then I will be vindicated. If not, then I’ll be wrong.
Okay, but to be truly vindicated, recquires that your money is kept in the safest possible way without getting burned. I assume your holding all cash at the moment. When the collapse takes place you might not find yourself as vindicated as you thought, especially with all the secret monetization that seems to be taking place. Are you in other currencies too, I know your not in metals?
@Ed – I have no long positions. I am invested in short mutual funds and in cash. I’m still firmly in the deflation camp. No foreign currencies or metals. The CNBC crowd thinks this is a “V” shaped or “checkmark” shaped recovery. I think our situation is more like Japan 1990-present or the 1930s.
If I’m wrong, I’ll do a post saying so. You may recall that I posted on my nutritional errors in February. I expect to be wrong from time to time. Part of the game.
I don’t think your wrong at all about the direction were headed, but I don’t think holding all cash is the answer either. I expect everyone to get burned, including myself, just some not as bad as others.
Think about posting another financial piece about where you think things are headed now- I enjoy your thoughts. How bleak and for how long do you think the downturn is likely to be? How does our economy rebound? 20 lost years like Japan is a frightening thought. Holding cash for 20 years?
@Paul – I don’t have any long term predictions, so thinking 20 years or even 10 years out is not something I am doing. Right now I think we are looking at something between Japan 1990 and USA 1930s. I think the market will move in a choppy sideways pattern for years.
Maybe I will do a full financial post soon.