How I Lost Big in the Real Estate Market Crash

Lost

You would think that a Financial Planner would know better. But even after a decade of studying economic cycles, I’ve learned the truth of the old adage, “The only constant in life is change.”

Markets are unpredictable. Sometimes the stock market goes up when bad news is reported. Other times it goes down even though all economic news is good. Countless individuals, companies, and even the most advanced supercomputers have made numerous attempts to try and predict the movement of unpredictable markets. Every now and then success is found, but never on a consistent basis.

 

And thus was my personal experience with purchasing a home. I watched the home ownership movement surge in the early 2000’s. Living in San Diego at the time, I watched as home prices began to rise with double-digit appreciation.

 

Having never owned a home, I longed to take part in this movement. But prices rose so high and so quickly that I knew San Diego would not provide a suitable entrance into the real estate market. So I packed up the family and we moved to Arizona!

 

It was a beautiful first home. Brand new construction in a brand new community. It was a ground floor opportunity like I hadn’t seen before. And I seemed to buy at just the right time. After the purchase in 2003, property values continued to increase steadily. By the time I sold just over a year later, the home had appreciated by over 30%.

 

I congratulated myself by having timed that cycle well, walking away with a handsome gain. I had sold because my business required a move back to San Diego. Even better, now seemed the right time for me to enter the San Diego real estate market. After all, I had just seen 30% appreciation on an Arizona-priced home. So 30% appreciation on a San Diego-priced home sounded even better!

 

Fast forward a few years, throw in a credit crisis and a bursting real estate bubble, and in retrospect I had made one of the worst financial decisions in my consumer life. I bought my San Diego home in 2005, and although the values continued to increase for a short time after that, this was not one of my brighter moments in timing economic cycles.

 

After seeing about 10% appreciation on my home in the first year, it subsequently began a decline that ended up causing the home value to be cut in half. A 50% loss from the peak!

 

Hopefully there aren’t too many moments in one’s life that require a do-over button, but when one comes around, the lessons one learns can be priceless. Such was my experience with real estate. At least I hope I learned my lesson!

 

More from this contributor:

Taking Small Steps to Build a Financial Dream Home

Four Ways to Take Control of Your Finances

Five Ways Financial Planning is like a Trip to the Grocery Store