Wednesday, August 17, 2011

How We Avoided Blowing up in the Bubble

I hesitate to trumpet "good works" as I walk that fine line between explaining myself with real-life example and self-righteous arrogance. Yet I also want to defend my theoretical views of life with practical application. It's been nagging me since I published my last piece about the economy and how we all ought to just get along. So, I'll just go for it.

In 2005 while the real estate bubble was expanding a few years still before it popped, my office reorganized and transferred me to Utah. We had to move fast which worked well when the housing market was as hot as pancakes slipping off the griddle at Scout camp. We loved the house we had in Albuquerque and decided we would sell and try to match it as closely as possible in value here. We were absolutely shocked when our realtor told us how much we should ask for our existing home. That was the market we were in, so we listed.

The next morning, not 24-hours later, we had two offers. They were both pretty close to our asking price which was more than we thought it was worth but what we needed to end up in comparable housing after the move. One offer was from a family that qualified for a VA loan. The other, slightly higher, appeared to be from a speculator who would have likely flipped it or rented it out before flipping. The realtor advised that we could counter both and my response was, "You mean we can start a bidding war?" He said that was the idea. I said, "Couldn't we just accept the offer from the nice family with the VA loan?" He said, "Sure." We could do whatever we wanted. My wife and I briefly discussed and with no hesitation went with the VA loan offer.

When we went to Utah for house-hunting, we had a 24-hour window to find a new home. It was a very difficult day with another realtor here not finding anything that seemed right. After the realtor went his way, we stumbled, actually were very specifically guided by unseen powers, to exactly the right house in which we have been very happy these past nearly six years. The price was so close to the transaction in Albuquerque, it was all clearly miraculous.

We could have qualified for much more house here. In fact, we could have qualified for one of those castles on the hill (well, at least a mini-castle), even on one of those no-interest-type loans. Just as we instinctively felt that the booming market was crazy, we also thought the concept of a no-interest loan was rather ridiculous on its face. I mean, I'm no economist (as I keep saying) but I was smart enough to realize that the real estate boom could only go so far and any no-interest loan or any stretching of ourselves, hoping for increase value in equity, would not be a very smart gamble if the boom were to bust, or even slow down.

Maybe we should have used our self-interest and played the "free market" to maximize our gain in Albuquerque and apply it to better housing or some other investment here. I could even have taken equity out of that Albuquerque deal and invested in gold jigging all the way to the bank (or maybe a falling out with my marriage partner as the gold blew to dust). Instead, we have a great home, satisfaction in making a patriotic family in Albuquerque comfortable, and general financial peace and calm. I couldn't afford any more wealth.

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