Friday, June 17, 2005

More Sell Homes to Lock in Big Gains

By Adam Shell, USA TODAY

Looking to cash in on a red-hot housing market that has lifted prices an estimated $5 trillion in the past decade, some homeowners are selling and pocketing the profit.

Home values have more than doubled in the past five years in some states, and the median price of existing homes nationwide topped $200,000 for the first time.

Real estate agents in hot markets say more of their clients have sold their homes to lock in gains or are considering the move.

Although it's impossible to quantify such activity, and the National Association of Realtors estimates the numbers are small, anecdotal evidence suggests house-rich folks are cashing out. Unlike a typical situation where sellers take profits and plow them into bigger homes, some people worried about an upcoming price drop are getting out of real estate altogether:

HOME PRICES

Q1 median home prices, alphabetical list
Q1 median home prices by percentage change

•Penny Dorneman, 47, and her husband, sold their three-bedroom ranch in Milford, Conn., banked the $128,000 profit and now rent a two-bedroom, $2,885-a-month apartment in Boston. "We have a lovely nest egg," she says. "Like us, people are saying, 'Let's sell now and buy again after the bubble bursts.' "

•Art Munson, 64, of Toluca Lake, Calif., recalls not being able to sell a home during a tough patch for real estate in the early '90s. He sold a home recently for nine times what he paid for it in 1979. He now rents a two-bedroom apartment for $2,500 a month. "I felt like it was time to go."

•Roberta Murphy, a sales associate at Windermere Exclusive Properties in La Costa, Calif., says a client sold his house after a job transfer and will "stay cool for a while" before deciding whether to reinvest the $255,000 profit in another house.

•A client of Coldwell Bank agent Terrence Cook, worried that prices are nearing a top, recently put his Sarasota, Fla., condo up for sale.

For Ken Koegl, 63, a retiree from South Lake Tahoe, Calif., the idea of cashing out "just started going through my mind." A broker told him his main residence, bought in 1993, is worth $400,000 more today. Koegl, who owns three homes, isn't shying away from real estate, but thinking of selling and going back to Texas, where housing prices have posted modest gains. "I'll sell high and buy low," he says.

The huge potential profits to be made might have many others contemplating similar moves. Dean Baker, co-director of the Center for Economic and Policy Research, estimates $5.2 trillion in "bubble wealth" has been created since the real estate boom began in 1996.

Still, the decision to sell one's home — and uproot the family and give up the mortgage tax deduction — should not be taken lightly, especially if the decision is driven by the market.

"How do you know where the top or bottom is?" Murphy says. One of her clients, figuring prices had peaked, sold a home 18 months ago in the high $500,000s. "The same homes are now in the high $700,000s," she says.

There are circumstances where selling in a hot market makes financial sense, Murphy and others say. People with second homes or rental properties might consider reducing their exposure to real estate and reinvest the proceeds elsewhere. Older people with big houses who want to scale down also have an incentive to sell, as do those in or nearing retirement looking to hatch an instant nest egg.

In such cases as those, the prudent move can be to take the money and run. "We have been in a long housing bull market, and taking some chips off the table is perfectly fine," says Kurt Brouwer of financial advisory firm Brouwer & Janachowski.