A $200,000 'loss' - and happy with it

Century 21 CEO's home is worth 15% less than when he turned down a cash offer in '04, but he's focusing on the gain.

Being the CEO of one of the nation's largest real estate firms didn't stop Tom Kunz from becoming one of those homeowners who's been hurt by the downturn in the housing market.
But not surprisingly, given his position as CEO of Century 21, Kunz thinks the investment he made in his former home in Tuscan Ranch, Calif., was still a good one, even if the value has tumbled about 15 percent over the last three years.
During a recent interview about the state of the current real estate market, Kunz noted that he bought the home for $340,000 in 1998. When he moved to New Jersey from California in 2004 to become CEO of the firm, he had a $1.3 million cash offer for his home. But he turned it down and decided to rent the house instead. A relative now lives there.
This month a former neighbor who has an identical home in the same subdivision sold the house for $1.1 million, Kunz said.
It's the type of decision that could give many homeowners and investors sleepless nights. But Kunz said it's important for him and many homeowners who find themselves in similar situations to look at what they've gained, not the theoretical loss they might have had.
"I could sit here and say, 'Oh I lost $200,000.' But I've still made about a $700,000 profit," he said in the interview late last week about the problems facing the housing market.
In fact, Kunz has seen about a 14 percent compound average rate of growth on his home investment, before inflation, since he bought it in 1998. But if he'd sold in 2004 at the higher price, he would have seen about a 25 percent rate of return.
Monday, the latest reading from the National Association of Realtors showed the glut of existing homes on the market last month jumped to a 16-year high. Sales fell last month and the median price of home fell from a year earlier the 12th straight month.
But as scary as those types of numbers might be, Kunz argues that this is a good time, not a bad time, for those who want to move to be getting into the market. He said home prices in many other markets would allow someone to trade up to a bigger home in a way they could not when sales were strong and prices were rising.
"Those are the kinds of things I think consumers need to sit down and take a look at, rather than just looking at the results the national association is putting out," he said. "I'm not saying they're not accurate. I'm just saying they don't apply to every individual market equally."
Even the National Association of Realtors' own sales report says that some potential buyers are having trouble making purchases, given the upheaval in the mortgage market that's caused lenders to tighten loan standards.
"Some buyers with contracts have been scrambling when loan commitments did not materialize at the last moment, while other potential buyers are simply waiting for the mortgage market to stabilize," said Lawrence Yun, the Realtors' senior economist, in the monthly sales report.
Other economists say most sellers aren't as willing to take Kunz's view, noting that the stubborn desire of some sellers to hold out for the price their home used to be worth is one of the problems for the real estate market.
"The average person buying or selling only does it a few times in their lives. It's driven as much by emotion, and by what their neighbors did a year or two ago, as where the market is today," said Mike Larson, a real estate analyst at independent research firm Weiss Research. "You do get a bunch of stubborn sellers, they may not realize how much the market has turned down, or how much inventory they're competing against."
Larson said that Kunz isn't completely wrong that this is a better market for buyers than where the market was during the boom years. But he said he doesn't think the people should be entering the market now unless they need to move for a job change, to start a family or for some other compelling reason.
"It's certainly a heck of a lot easier being a buyer now than in '06 or '05," he said. "The question is how much easier will it be a year or two from now. I tend to think the downturn has at least until the back half of next year to run, perhaps into '09.
"If you have to buy now, you'll find some bargains," he added. "But if you can wait it out, time is on your side."