Not such a crazy idea, three years on

Co-workers must have raised their eyebrows at us too after we cashed in and became renters back when the housing bubble was still inflating. Naturally, you expect home prices to plummet as soon as the check is deposited but it almost never works that way.

Still, it's probably better to sell while prices are going up rather than to bear the agony of chasing prices down - maybe for years - as you reluctantly give back gains for which you already had plans.

A nice article by Peter Y. Hong in today's LA Times tells yet another tale of someone who went against the crowd when nearly the entire crowd was going ga-ga over real estate just a couple years ago.

Our friends said we were crazy. Relatives asked whether we were in financial trouble. But in April 2005, my wife and I bailed out of the American dream. We sold our two-bedroom Pasadena condominium and became renters again.

We got nearly three times what we had paid for the place nine years earlier. It seemed to us like a staggering profit -- and a sign that the market had been pumped up beyond reason.

That's why we decided to rent instead of buying another house right away. We wanted a place with a yard and a third bedroom, but we weren't willing to pay the sky-high price or take out an exotic mortgage to buy something our income did not justify.

So our plan was to take our profit and wait for prices to return to Earth. The madness had to end, we thought.
When we held our one open house, the frenzied strangers who poured into our living room only deepened my sense that reason had given way to something like mania. But even if I had picked up some of their exuberance and doubted myself, there was no time to reconsider. The place sold in a week -- to a corporate economist -- while repairs were still underway, including one job that left a 3-foot-wide hole in a ceiling.

I wondered what it would have taken to deter those eager buyers. Asbestos? Rats?

By the time the excited throngs cleared at the end of the first day, I no longer doubted my belief that the bubble was about to burst.
...
I'm still renting too, but unlike Kiesel (an executive vice president of the Pimco investment firm who also sold his house and now rents), I'm an amateur when it comes to investing money. Our proceeds have been in certificates of deposit while we wait to dive into homeownership again.

As a general rule, financial planners don't advise people to sell their house at a profit and invest in stocks or mutual funds.

But more than a few financial planners did recommend borrowing against home equity to buy stocks or investment real estate - I once heard "untapped" home equity referred to as "dead money" by one particularly dim bulb in the business of dispensing investment advice.

And, naturally, the fact that an economist bought the condo at the height of the bubble is just too good to be true - sometimes I wonder how the dismal duo is doing these days.

Economists...

Peter's big mistake was not buying dumb old gold coins back in April of 2005, or any good natural resource or mining stock fund for that matter - he would have easily doubled his money. Of course, if he had done that, his friends and family probably would have had some sort of intervention or something, "We just sold our house and we're puttin' all the money into gold! Woo hoo!"

Not such a crazy idea, three years on.