I like that discussion forum because we have knowledgeable people from all over the United States participating.
Below are my edited comments to some excellent points made by one of our astute members.
In response to Interest only loans are 61% of California Mortgages posted by honeyoneohone:Timing is everything. It seems pretty typical for the higher-priced homes to take the biggest drop when we have these periodic dips.
Yes, especially in less desirable locations like towns with few employment choices when the main employers are not hiring. Buying a home just before a big layoff in a small town can be a disaster.
ECRI's Leading Home Price Index (see below) shows the price decline that occurred when we were scaling down military spending and got out of Viet Nam in 1974 and 1975. There was an even bigger bottom in 1982 after the Japanese bubble burst. I remember MANY lost everything in California from having too much leverage after that big run between 1974 and 1979 where real estate looked like it couldn't miss. Notice that the run we've had since the 1995 bottom has gone longer and higher than the 1974 to 1983 cycle.
I bought my first home in 1984, a bit after the big bottom. I upgraded from a townhouse in a good location to a home in a top location in 1994, just before the next major bottom. When I upgraded in 1994, I used stock market gains for half the down payment and home equity for the other half. Now my home equity is up by a factor of 10 at least. Like stock investing, it is best to buy real estate AFTER major declines because it gives you some downside protection. When you buy when prices are setting new highs, you have no idea if it is a top or if prices will continue higher.
IF I was a real estate speculator (investing after huge run-ups is speculating) then I'd pay ECRI for their monthly newsletter to get the latest update on the LHPI since that index should give you a heads up before the market turns down. For more info, see our Forum ECRI Data where CNBC regular guest, Lakshman Achuthan, answers your questions about the economy, indicators, real estate bubbles, etc.
