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Bubble Sitting Sounds Too Risky

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Bubble sitting is to houses what shorting is to stocks, you sell your house and rent an apartment with the hopes that you can buy your house (or a similar one) back later at a lower price. With all the lists of overpriced home markets out there, you’d think this would be a killer strategy. The only problem is that all those same publications with those overpriced lists probably had pundits claiming real estate is safe when the bubble was expanding. Home prices never decrease! They’ll plateau but they won’t fall because people can always continue living in their house! (I believe that reasoning on a personal level, I don’t know how true it is from a macro perspective)

There’s a CNN Money article about bubble sitting, they advise against it, and so do I. There are so many quality of life issues when you talk about going from a house to an apartment. Sure you don’t need to check on the sump pump and your electricity bills are slimmer but you also don’t have all the space. Plus, selling a house is not like selling a stock, the process is expensive and extremely time consuming.

It just seems way to risky for the payoff.

{ 2 comments, please add your thoughts now! }

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2 Responses to “Bubble Sitting Sounds Too Risky”

  1. LAMoneyGuy says:

    I agree that selling to bubble sit isn’t generally advisable, but only because of the transaction and moving costs. I don’t agree that home prices never decrease. I personally witnessed significant home price decreases in southern California about 15 years ago. People will stay in their house if they are able, but because so many bought with risky loans (ARMs, I/O, or the dreaded Neg Am) and stretched their budgets, they may not have that option. Will prices go down 10-15%, or as much as 30-50%? I have no idea. I suspect the former is more likely, but I wouldn’t be stunned to see the latter in the “bubble” areas.

    I was in the investment industry in ’99-2002. I saw, heard and believed all the pundits who said that stocks may dip, but “it’s a new era” and prices will keep going up. True, but there are periods of great loss along the way. Stocks don’t require you to send in more money every month to keep them. Houses do. I also saw the layoffs by Merrill Lynch, Morgan Stanley, Goldman Sachs, Schwab, etc in 2001-2002. The real estate industry is about to go through a similar contraction of jobs. I’m not looking forward to how this will negatively impact the economy. We have seen low wage growth over the last three years, but strong consumer spending. We in the PF blog community criticize people for living beyond their means, and this is justified. But the biggest reason for our country’s negative savings rate for the first time since the Great Depression was the HELOC and cash our Refi money that people spent.

  2. jim says:

    I mentioned the “housing prices never decrease” merely as something the pundits said while the bubble was expanding, I think in the short term they can decrease on a case by case basis unless you’re in an extremely inflated area (as you are) where lots of the ownership is by way of inflation-exposed ARMs.

    I’m worried about how the bubble has increased the spending of consumers, despite no real wage growth as you mentioned, because eventually that credit will have to be repaid and spending will decrease, affecting our economy as a whole. The US has become too comfortable with the idea of debt, at every level from the government all the way to individuals, and the ramifications will be sweeping.

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