'You'll sell your house...and rent!' insisted the headline -- one of many "predictions" included in a side bar that ran with a recent U.S. News & World Report's cover story "2003 Outlook" (Dec. 3, 2002-Jan. 6 2003 issue).

"You'll sell your house...and rent!" because, the article continued, "Plummeting residential rents in big cities like New York and San Francisco will push some home owners to cash out the equity windfalls they've accrued in their homes. The smart money will rent until real-estate prices inevitably fall back to Earth," the prediction continued.

Until? Until when? One year? Two? Then what? Use what's left from rental payments to buy a home? Or should you toss out your mortgage for smaller lease and invest the difference in a stock market that's slid for three consecutive years? Perhaps you should wager what's likely your most valuable asset on the mere hope that prices will somehow be just where you need them and that inventories will be soaring in a buyer's market when it's your time to buy again.

Perhaps you should take the next flight to Las Vegas.

None of the respected news magazine's "predictions," including "Paris bids adieu to TV porn", "Seniors get a prescription break", "Fast food will go gourmet" and "Oil prices will drop", among other gems, offered any substantiation or discussion of pros and cons.

"It's irresponsible for any writer to recommend such market timing without clearly discussing the huge drawbacks -- the biggest being the enormous transaction costs in selling and then buying again. These can easily total 15 percent of the sales price of your home. What they should be saying is that in costly markets, now's a good time to consider selling if you were otherwise thinking of moving, for example, a retiree trading down," said Eric Tyson, a financial counselor and co-author of the best selling "Dummies" guides to home buying, selling and mortgages.

If you sell your home to rent, presumably with plans to buy again when rents begin to rise, you'll face tremendous costs in a short period of time -- if the recent history of the real estate market is any indication.

You'll have to sell one home and pay commissions, attorney's fees (where applicable), taxes (if your profit is more than $250,000 for single taxpayers, $500,000 for joint returns -- a distinct possibility for those with "equity windfalls"), title insurance, title transfer costs and all the other fees associated with selling a home. Then, you may have to put a deposit on a rental unit and even if you pay rent equal to your past mortgage you'll lose all the tax benefits of a mortgage.

When you decide to buy again, if all your equity hasn't been lost renting, if your investments don't equal your costs to buy and sell, you'll be in the hole by the thousands of dollars in mortgage financing costs, title insurance, inspections and other costs that go with buying a home.

"There are many reasons somebody who can afford to buy a home might choose to rent instead, but it doesn't make any sense for somebody who owns a home now to sell it and try to 'time' the real estate market," said Terry Feinberg, executive vice president of the Arizona Multihousing Association in Phoenix.

"Closing costs can be a significant percentage if you're trying to do two transactions (sell, then buy) in a 12-18 month window. The loss of the mortgage deduction could easily eclipse any savings from reduced rents, and there's the hassle (and cost) of moving twice," said Feinberg.

The costs could be exacerbated if you aren't savvy enough to know exactly when to get out of and back into the home ownership market.

"It's madness. If whoever advocates such a plan can accurately predict the time and depth of the real estate market's undulations, and then guarantee it, I'll drink from the same bottle," says Stephen J. Hanleigh, 2002 president of the Santa Clara County Association of Realtors in San Jose, CA.

"Real estate is a long-term investment meant to provide security and stability, as well as a chance to have a life. It is not just about making quick bucks," said Hanleigh broker-owner of Realty Center in San Jose.

Even if you are imbued with some sort of super temporal sixth sense that allows you to clearly see into the future, you may not be able to find a buyer or seller -- specifically because of the market you are trying to beat.

"Even though it can be difficult to sell your home during favorable market conditions, it can be really difficult to sell under unfavorable market conditions when prices are falling," said San Diego broker and investor Robert Campbell, who authored "Timing The Real Estate Market."

Renting can win out over buying, but that's often before you've put a financial stake in buying a home.

"Renting can make sense from both an economic and lifestyle standpoint. Renting provides much greater flexibility than ownership. Anybody who has concerns about falling home prices, and who might have to move in the next five years, could certainly benefit economically by continuing to rent," said Feinberg.

Campbell takes the argument further, siding somewhat with U.S. News & World Report's prediction. He says there are instances when renting is a better deal then owning a home.

He says the longer you own your home, the smaller the tax benefits and the greater the appeal for renting. Factor in zero maintenance costs and a cheaper rental that comes with reduced transportation costs because it's closer to work and other services, and renting can give you a financial edge, says Campbell.

"Just like any investment that is subject to the ups and downs of market cycles, there are times when it is wise to sell and go to cash to protect one's financial security that may have taken a lifetime to create from potentially destructive market forces that can wipe it out in a matter of a year or two," Campbell says.

"Paying rent is not like burning money when real estate prices are falling, even when you factor in tax deductions for mortgage interest and property taxes," he adds.

Other reasons for selling a home in exchange for a rental could include unemployment or underemployment that creates a default or foreclosure scenario. Selling to avoid a blotch on your credit report could be a good idea. Later, credit report intact, you can return to the home buying market -- provided you can afford it.

In the past several decades, housing costs have never slid as much as they've previously soared. And, compared to the ride up, the slides have been short lived. Catching a roller coaster isn't easy.

"The bigger problem, I think, is the risk of getting priced out of the market. It's a gamble to sell your home and wait for the market to crash, and I do think that people doing so have to be prepared to find out that prices can go up as easily as down, and they may end up in a far less desirable house or location when all's said and done. I personally would not recommend doing it," said Mary Pope-Handy, a real estate agent with Windermere Silicon Valley Properties in Los Gatos, CA.

Published: January 8, 2003

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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.