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Homeowners Continue to Trade Up

An interesting trend I’m starting to see around my area is a segment of homeowners still trading up even in a declining market. While I find it rather unexpected, I believe the local conditions make such a move both feasible and favorable.

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First, by trading up, these homeowners are opting to sell their homes at either a small or negligible loss so they can purchase a property in a prestigious neighborhood at a steep discount. These are usually million dollar neighborhoods with a few distressed homes that are being sold for 30-40% discounts, even steeper drops than more modest and affordable neighborhoods. Often, they are able to get such a home for little more than what

they paid for their current home. Similarly, townhouse homeowners are able to trade up to single families with a bit of financing lifting and foresight.

While taking a loss is hard for anybody to stomach, I commend these homeowners for using this situation to get into a home that otherwise would have remained out of reach even in times of easy credit. The calculus is cold and brutal. For a loss of around $30-100K, they’re able to save $300-500K on a prime property. This is not for the faint of heart.

Meanwhile, another group of homeowners are trading up by actually going against the prevalent trend and moving out into the exurbs. Out there, they can easily buy a home twice as large for half the price. Plus, many of the homes are nearly brand new, having sat empty since the housing bust. This is possible as the telecommuting culture is pretty mature in the Bay Area and many technical workers don’t ever have to show up at the office, negating the enormous burden of high fuel costs.

Of course, the first strategy is predicated by a belief that home prices in California are not about to revert back to the national median. As for the second, it’s a great way to hedge against further price declines since prices in the exurbs are already at the national median.

Michael Cheng

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