A Housing Recovery Starting in 2012?

In March 2005, my husband and I closed escrow on a $517,000 3+2.5 house (not 4+2.5, as records say) in San Marcos, California, in northern San Diego County. We thought the house was drastically overpriced, but that was the way the market was then.

We are financially conservative people. We had just sold our house in Riverside, California, a three-bedroom plus bonus room plus den that we’d purchased brand-new in 1999 for $182,000, for an unbelievable $450,000, cashing out nearly $250,000. But now a new job had brought us to San Diego County.

We considered renting; we looked at several rental houses. In the end, though, we decided to buy because: 1) we had three dogs and three cats and didn’t want to be hassled about it; and 2) we thought we needed a tax writeoff. To keep the payment low, we put $200,000 down and took out an interest-only loan that became adjustable in five years, figuring we probably wouldn’t be there that long anyway.

Big mistake. My new job fizzled and my husband got a new one in L.A. In early 2007, we needed to sell. Buyers were scarce, and prices were dropping. What to do?

Our real estate agent kept telling me that this was a temporary drop and that recovery was likely in a month or two. If you contacted her today, she’d probably be saying the exact same thing. And she probably truly believes it.

But having been through a similar downturn in the 1990s, I wasn’t so sure. Since no one was coming to look at the house, I might be forced to turn the place into a rental. I consulted two well-known property-management firms in the area.

I explained my situation, and they both told me the same thing:

• You can rent the place, but you’ll be in a negative cash flow for several years.
• The market is going to get much, much worse.
• We’re at the beginning of a five- or six-year downcycle. Prices won’t bottom out until 2012.
• Drop the price and sell now if you can. You’ll be better off in the long run.

Considering that these people stood to make thousands of dollars from me if I hired them, their words carried a great deal of weight. I realized that we had to sell now or lose most of our down payment.  I dropped and dropped my price until it finally sold for $483,000. Factoring in the real estate commission, we lost $70,000; if you include all the improvements we made (new landscaping; new granite; new carpeting), you can tack on another $12,000).

Do I regret it? Yes, I regret choosing to buy instead of rent in 2005. But I don’t regret unloading the house. Prices for the same floorplan in the same neighborhood have fallen to below $400,000. We would have been several hundred dollars in the hole every month, not counting repairs and maintenance. We would have had to refinance in 2010, after which time our payment would have been higher and our cash flow even more negative. And we would have been landlords, which neither of us are cut out to be.

We’re just grateful to have the majority of our money back and safely in the bank. We have peace of mind.

This story in the Modesto Bee quotes experts who also see 2012 as the first year things might start to improve. The story is focusing on one geographic area, the northern San Joaquin Valley, but it might hold true for other farther-flung areas as well. It’s one of the first times I’ve seen real-estate industry people — in this case, new-home builders — acknowledge that recovery might be years away.

The headline of the story, “No Recovery for New Homes Seen in 2008″ hints at the hopefulness of agents and consumers, who want this thing to be over. But if history is an example, it won’t be anytime soon. I’m betting that those property managers, who have lived through several ups and downs, have it right.

Recent Redfin posts:
Three Countrywide Foreclosures
Where Have All the Foreclosures Gone?