Follow the Momentum

Southland Home Prices Tumble Fast LA Times Article. Eventhough we do live on an island, the ramifications of California and other sliding markets will affect us all – to some extent. We are fortunate to have a finite amount of land here on Bainbridge Island, not to mention an even more finite amount of waterfront land. However, no matter how badly someone wants to move to our happy little island, if they can not sell there house in LA, or some other falling market, they probably can not afford to buy a house here. More of the reality is that the equity people thought they had is no longer there. Their freedom to move is no longer there.

My husband and I bought our first house in California in 1998 and during 97-99, many of our friends bought their first houses as well. One of my good friends moved out of her original house in early 2004 and said that the equity they had gained was like winning the lottery. Her analogy always stuck with me and that is how I always tried to think of our equity, as a bonus, trying not to think of it as our income or an ATM machine. Luckily, when we moved, we still had a nice chunk of equity. But we did not sell at the height of the market, and as a Realtor, I know we could have gotten 100-125K more if we would have sold a year earlier. But, when it was time to put that sign on our front lawn, it was time to put the sign on our front lawn. My husband had a good job offer, and we were ready for a change. The year before was not the time for us to sell.

And, where were we moving? We were moving out of a falling market, into the growing Seattle market. A tough move. The buy was not easy. Houses in Seattle were $100K more than the previous year and we had $100K less, easy to do the math, we were $200K off. But, here is the silver lining, and something to relate to folks in markets like LA. The market there is falling, and most likely will continue through 2008 into 2009, but here in the Seattle area we are growing or stable at best. My husband and I squeaked into a house in the Bainbridge market. Trying to be smart by purchasing in a popular neighborhood near town, we have kept our equity, and perhaps gained a few dollars as well.

Our old house? Well, no matter how much I loved it, it is worth less money now, than when we sold it. But, we did not lose that money. We have kept our equity, and hopefully it will continue to be safe up here.

If you are in a declining market, but you can sell, sell. Take any equity you have and look for a growing market. If you do make that move, the money you lost is more likely return. Waiting out your current market means you have to follow it to the bottom. Sit there a while, then ride back up. That is probably not the momentum you want for your investment.