Small investors caught in last week's Wall Street sell off learned the hard way how not to buy a home and some California markets learned how vulnerable they could be to stock market flips.

"Anybody who is close to purchasing a home has no business keeping down payment money in the stock market," says Eric Tyson, personal finance counselor and author of "Personal Finance For Dummies," (IDG Books, $19.99), which devotes a chapter to home buying.

After stock values plummeted last week, consumers in various stages of home buying transactions were forced to scramble for alternative down payment money or larger loans, according to mortgage brokers in Silicon Valley where stock options and related benefits swell paychecks.

"We had one last week debating whether to close escrow and finally succumbed, but went for a higher loan amount and secured a down payment from relatives instead of selling stock that had fallen," said Stephanie Noryko, of Granite Financial in Cupertino, CA.

Some weren't so lucky and had to postpone their efforts after financially faulty home buying strategies left them holding the bag.

"People are just not cognizant of the risk and there is greed occurring," Tyson said.

Wall Street rallied Monday, April 17, after the previous week's sell off, but some stocks remained in the grips of a bear market. Many technology stocks staged only negligible come backs and remained down 50 percent or more from early year highs.

With technology stocks' true values in question, experts say it could be some time before they return to their previous peaks. So may never manage what's expected to be a more difficult climb back up.

That's particularly tough news for some Northern Californians who live in the nation's top five most expensive housing markets and banked on stock options and other investments to help them overcome the high cost of housing.

Stock market proceeds were used in 23.9 percent of fourth quarter 1999 home purchases in the San Francisco Bay Area, more often than anywhere else in the state, according to the California Association of Realtors.

Tyson said those who must now come up with alternative financing will be more vulnerable to the effects of an economic down turn. Smaller down payments could force some buyers to add the cost of private mortgage insurance to higher monthly mortgage payments.

"What's going to happen if you are forced to sell your home in a down market? You could lose all of your down payment if the market falls 10 or 15 percent," Tyson said.

Stock market investors in the home buying mode should have moved housing funds into less risky vehicles long ago.

"If you are going to buy a house that money should be in something safer like short term bond funds or money market funds," said Tyson.

The idea is to purchase liquid investments with no penalties for withdrawal.

"Otherwise you keep it in stocks and stocks drop 50 or 70 percent and that puts a real monkey wrench in your plans to buy a house," he added.

Those hit hard should avoid the Las Vegas-syndrome. Gamblers who lose money attempt to regain their losses by sticking it out at the tables only to lose more.

Instead, it's a good time to see an investment counselor sort out any losses.

"Don't put money in the stock market you don't plan on keeping there for five to seven or 10 years. Some people will say, 'But look what I earned in just a year.' That's the kind of greed that's permeating and maybe this recent correction has gotten rid of a little bit of that," says Tyson.

Published: April 21, 2000

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.