Irrational Exuberance Invades the Housing Market
Selling your primary residence for more than the original purchase price could be a zero sum game.
A breathlessly enthusiastic young man recently called me from India claiming to represent an investment group that wanted to buy our home in Katy, Texas. He said they would pay more than our asking price. I politely said "NO, our house is not for sale.”
My reasoning is simple. If you sell your home in the middle of a housing bubble, you will buy your next home in the middle of the same bubble, and bubbles burst, which we all learned while taking a bath as small children.
The insanity of increased real estate prices really accelerated after the Trump tax cuts. It made the rich and the “would-be” rich wealthier and many of those blessed found ways to roll their good fortune into real estate.
Suddenly, home owners everywhere were receiving calls from companies that were buying up communities in bulk, the way Sam’s Club and Costco buy chicken soup by the truck load.
Climate change did its part too. Wild fires burned down 100,000 structures in the recent decade, and in other places, hurricanes, floods, tornados and artic blasts filled in the gaps.
The worst fires were in California, where real estate was already too expensive. If your home burned down in California, you could move to Texas and use your insurance settlement to buy a much bigger home than you lost in the fire.
Then, a perfect storm literally hit Texas. I use Texas as an example because I live in Texas, but this story has been repeated in many parts of the country.
While Californians were moving to Texas and buying our relatively cheap houses, our region was hit in rapid succession with Hurricane Harvey, the pandemic and then “Snowmageddon”. Texas was already ripe for a housing bubble and of course, everything is “more” “better” and “bigger” under the Lone Star, right?
As a result of our local housing bubble, the 2100 square foot home that Linda and I bought for $80,000 in the late 1990s is now worth a nose bleeding sum, considering its size, age and condition.
Several months ago, our next door neighbor sold an almost identical home for $300,000.
So, being the entrepreneur I am, I asked my new friend from India to make us a serious offer. He said they could pay around $300,000. Wow, $300,000 !!! “That’s great”, I thought during a brief moment of lapsed judgement.
So, we can sell our home for $300,000 and then buy an identical home for $300,000, minus our pool and treehouse, but since nothing in our price range has a pool or a tree house, we would immediately miss our old house.
For a moment, I felt a little dizzy as the idea of selling our humble abode was stricken with vertigo. Then, my fanciful round trip to the land of OZ became a lesson in economics that the Wharton School should teach.