[jyl]

Oh, remember how we've been saying if you stay in the house for 10 years it is very unlikely you will lose money. Anyway you've said it and so have I.

Well, there are exceptions - in really big real estate bubbles.

If you bought in Los Angeles at the peak in 1991 and held for 10 years, you roughly broke even in terms of the nominal dollar price. But you lost about 7% in commissions and other fees, to get in and out of the house. And if you say inflation averaged 2%/yr over that decade (just eyeballing the chart), over 10 years that is 22%. So in real inflation-adjusted dollars (i.e. real purchasing power) you lost about 29% for your 10 years of trouble. That's before adding up the excess of your monthly costs (mortgage, maintenance, insurance, etc) over the cost to rent a comparable house!

In the meantime, over in the stock market, from 1991 to 2001 you would have made about 220% in nominal dollars (SPX from 380 to 1214, using midyear prices) or about 198% in real inflation-adjusted dollars.

Some of my LA friends had this experience. They bought a very nice house in 1990 for what was a pretty significant sum back then. House market busts, house is re-appraised for 2/3 of its purchase price. He gets a job in New York that he has to take (no job in LA), but he can't walk away because he'd put 50% down. So they carry the house, pay the mortgage, rent it out and lose money every month, for over ten years. Sometime around 2002 (can't recall) they finally sell it. It sells for a couple hundred thou more than they paid. But over the ten or so years, they lost their shirt.