patrick.net

I agree with the Prop 13 complaints. I am categorically against taxation policies which try to socially engineer away fundamental societal problems. The unintended consequences are almost always worse than before the taxation "solution".

One thing Prop 13 does do which may be viewed as positive is protection against rapid, irresistible gentrification. When living on the North Side of Chicago in the early 90s I witnessed what happens in a state with no property-tax limits/caps/protections. Whole neighborhoods of seniors would be displaced in 2 year cycles as the county religiously reassessed homes every 24 months.

Ha HA,
I have more than enough to buy that 99k house, plus have almost 50k left over. Think about it- that means that basically, I could work at Wal-mart for 10 bucks an hour and probably save more per capita than someone in the bay area owing 80% of the mortgage on their tiny house. Nashville has about a 2% unemployment rate- which is lower than the Bay area, plus their economy is growing extremly fast. All evidence that the area will likely do a Bay Area switcharoo in about 5-10 years. I've looked at jobs too, and in fact get calls from headhunters looking for people to relocate there. Right now is the time to move to places like this if you want the best of both worlds- affordability and a dynamic growing economy.

My rule of thumb for buying the first home is, no more than 1/3 gross salary on a 15-year fixed mortgage payment. Yes, it means living under my means and getting a smaller home. My rationale is, if I am doing better a few years later, I can always upgrade, having built more equity on the first home, it is better than signing away 30 years on a home that may not fit my needs 10 years down the road.

newsfreak,

what you described pretty much fits what I am looking for, and I am ok if the land doesn't come with a house. How do you establish comp for such a property? thanks.

HARM wrote:

> Some prefer even simpler rules of thumb:
> median price is no more than 3-4X of gross median household income
> (or closer to 5-6X incomes in expensive coastal states)

It is important to look at census track data (or at least zip code data) when you compare median income to home price ratios. The ratios have historically been higher in good areas, and lower in bad areas. Whenever home prices get way out of line they will always go down (or up) since everything reverts to the mean…

I called a friend from business school a while back when the Wall Street Journal reported that Salinas was the least affordable city in the US comparing the median home price to the median income. My friend (that grew up in Pebble Beach) recently sold his home near his parents in Pebble beach and moved inland to get his wife and kids out of the fog. His $1.5mm 4,000 sf view home on a couple acres in the Corral de Tierra area (just over the hill from the Carmel Valley) is technically in Salinas (where 6 miles east farmworkers live 6 to a room) but the home is just a little overpriced by historic multiples since family incomes in his area are many many times higher than other parts of Salinas). One other thing to consider is that family income data is close to worthless in high end areas where people make a lot of money.

> pay no more than 10X annual equivalent rent (cap-rate = 10 or better)

You could never buy a nice house in a nice part of CA at 10x gross (a GRM of 10), if things get under 15 you are doing OK.

A 10% Cap rate is an above average return for an apartment and a way above average return for a SFH. You will be lucky to ever get a decent home in CA for an 8% Cap and you are doing OK if you buy at a 6% Cap (I am talking real cap rates with a vacancy factor and real expenses).

The main things to think about when buying a home is do I have a stable income stream that looks like it will stay the same or increase (despite what they think the income of a typical residential mortgage broker will not be increasing any time soon)and can I afford the fixed rate mortgage and other costs of owing this home right now with my current income.

FormerAptBroker,

I have a friend who also lives in Corral de Tierra, it is a nice area, but totally out of place in Salinas, which is a crime-infested neighborhood. I drove by on the wrong side of the freeway, and you see iron bars, guards with guns in front of banks, just a very depressed and scary place to live. Then you drive across the freeway, keep going on for a few minutes and arrive at the generally new neighborhood with lots of Lexus and BMWs, quite outta place I should say. The rest of the Salinas Valley is just farmland.

Your friend's place is a bit overpriced because that neighborhood is full of BA commuters (at least my friend is), so they are applying BA thinking when buying. The median income of that subdivision is like 4-5 times of Salinas.

My high level, conceptual rule-of-thumb:

Assuming a long-run efficient market (this is just theoretical, so hold the complaints),

Rent + Average Market Index Return + Inflation =
PITI + Maintenance + Premium( Inflation + regional population growth ) + X

where Premium is the Regional desirability premium and
X is the qualitative/psychological/cultural ownership benefit

This equation will almost always be out of balance because the RE market is not efficient (or as efficient as the stock market), and prices are sticky compared to stock prices.

I'm more concerned when the equation is out of balance by a lot, and the RE bulls are claiming that X has permanently shifted to 10X or more what it was when things were in more sane equilibrium. I'm willing to accept that some areas can have permanently (or nearly permanently) high Premium multipliers. For the foreseeable future, warm will be more desirable than cold, coastal more desirable than inland, good job markets more desirable than weak job markets.

I'll look and see if I can find the fundamental theory I base this thinking on. The short version is that *over the long run* real-estate will not produce returns greater than Inflation + Population Growth, with pop'l growth being itself a weighting of "housable population", allowing for more efficient housing of people (denser). All I've tried to do is conceptualize a shorter-term equilibrium situation.

I don't think that Rent = PITI under any normal circumstance; usually this happens only in depressed areas. Normally Rent PITI; but that's because of massive, secular job losses.

One last important thing: when comparing prices between regions it is important to use regionally adjusted Real-Dollars, not Nominal-Dollars. There are massive inflation disparities between many areas, so talking about non-adjusted numbers has absolutely no bearing on affordability. (Sure you can "cash out" when stepping into lower inflation, but you get to do this exactly once, so make it count. No do-overs).

Hey,

So does this article mean that we can now "SHORT" the housing market?

http://money.cnn.com/2006/03/22/real_estate/playing_the_home_price_market/index.htm?cnn=yes

Scott J.

Errata (my greater/lesser than signs were taken as tags):

Normally Rent PITI; but that’s because of massive, secular job losses.

Normally Rent less-than PITI. In some areas of Toledo right now, Rent greater-than PITI; but that’s because of massive, secular job losses.

Randy is right on citing rent=PITI is hard to achieve. Even when BA was depressed in 1992-1995, rent was still lower than PITI by quite a bit in good neighborhoods. We had higher interest rate back then, when I bought, the 30-year rate was around 10%, for 20% down, traditional 30-year loan, there was no way you could breakeven based on rent=PITI principle.

Rent=PITI didn't apply for at least last 30 years for BA's good neighborhoods, and it is unlikely to apply going forward.

SFWoman Wrote:

> Proposition 13 is the stupidest thing I have ever seen. I pay 1/4 the property
> taxes of my new next-door neighbor, who owns an identical condo.

I truly believe that ALL people should be treated equally by the government and everyone should pay the same property and income tax rates (and have to get the same test scores to get in to state run colleges).

It is crazy how out of whack things are getting with Prop. 13. My parents that bought on the Peninsula in the late 60's for about $100K pay about $2K a year in Property Taxes today. If I bought the home that sold near them a few months ago for $4.8mm I would be paying about $55K a year in Property Taxes…

Prop. 13 gets worse for most people (and better for people like me). If my parents (and all their neighbors) leave their homes to their kids under Prop. 13 I can move back to the Peninsula and (along with my childhood pals) take over their low tax basis for the rest of my life. Under Prop. 13 people like my parents can also leave up to $1mm of real estate to their kids that will stay at the low tax basis. You are probably thinking big deal, $1mm of real estate is not much, but it is $1mm of "assessed value", so I can inherit dozens of Peninsula rental homes and apartment units and for the rest of my life pay super low Property Taxes (my parents bought some West Burlingame rental homes for under $25K)...

Scott J,

Of particular note the unexpected amount of "retail" interest in the Housing Futures! This has got to feel like a God send for all of the institutions out there that are over exposed to risky loans. I like Bob Shiller and all of the good work that he has done but this really starts to flirt with the "derivative warnings" Warren B. has tried to steer us clear of. Go ahead, make risky loans! Forget about it! (Just make sure you have your hedge in place and then price it into the cost of the loan) Hey, we're providing a SERVICE by underwriting billions in sub-prime loans and propping up the bubble! We're just doing what any good businessman would, right? I can hear it now.

panicearly,
Yes, as a matter of fact I grew up there. That was almost 10 years ago, and the area changes drastically every time I visit. Basically, the shitty living condtions in Ca, NY, MA, AZ, ect ect make cities like Nashville, Dallas, Austin, Raleigh, and other such places look almost like paradises.Many of them are totally diffrent than the way they were when was a kid, and in fact are getting outright nice places to be.I agree with you that while 99k sounds like a steal, if that area too is experiencing a boom, then those prices will come down further still. The worry I have is that every other person my age I talk to also has plans to get the hell out of CA, so with ALL of these people making a break for it, sooner or later this will have an effect on prices elsewhere, and lo and behold, here we go again. I think it is entirely possible that once CA burns itself out, other parts of the country could become new boom spots overnight.

Also, I thouroughly believe that if you buy now, you're helping to hold up the high prices and your'e part of the problem. If you wait and buy after the correction, you're part of the solution. :-)

Nomadtoons has a great point. Like many here, I think we are due for a 50% correction in CA. But even if it happens, I still am not sure that we will stay, though I do love it here. Why?

First, the 50% correction might take a really long time. If I have to wait 7 years, it's not worth it. By the time my kids finally have a backyard 7 years from now, they won't want to play in it any more. We've already missed out on the whole painting-the-nursery thing, becuase we didn't have a nursery, we live in an apartment. I don't want to miss out on the treehouse too. A couple of years is no big deal, you've got to be patient, but 5-7 years is something else again. A 50% discount doesn't mean as much to me if it'll take 7 years to get it.

Second, even if prices do fall by 50%, they will still be pretty darn expensive. My older coworkers all have houses that are worth $975k-$1.5mm. Even when prices fall by 50%, they'll still cost $500-$750k! That is a lot of money! You basically have to dedicate your entire life to paying for your house. In my native Chicago, I can buy much a house in the suburb with the best schools in the whole metro area today, for $370k. A $370k house is one that can be paid off in a reasonable time. It's on the high end of affordable, but it's affordable if you have a good job. A $750k house, on the other hand, becomes your life's work.

Third, and this is more applicable to SoCal than the lovely NoCal, CA really is on the decline. The decline is irreversable. SoCal really is becoming Northern Mexico. The illegals are excellent people and we are lucky to have them, but their numbers are so great, and they are so poor, that they really are ruining the place. If I wanted to live in Mexico, I'd move there, but I don't, so I haven't. Unfortunately, Mexico is coming to me. Traffic has gotten worse. The city is getting dirtier and more crowded every single day. The character of the place is changing. And there is no real prospect that these things will abate. I mean, are all the illegals going to go home? Nope. Will traffic decrease by 50% for some unknown reason? Nope. SoCal just isn't that pleasant a place to live any more. Even if it is cheaper, I am still not so sure that I want to live here. In light of this, the Midwest and South really are looking good these days.

@astrid,
Welcome back!

@nomadtoons,
Thanks for the links, but they were so large they were skewing the test display for this page --had to trim them down. I'd recommend using TinyUrl.com, really helps.

all,
Of course I agree with the negative sentiments here on Prop. 13, and I've often pointed out how badly it redistributes the tax burden to new owners/young families, primarily to benefit... wealthy Boomers.
I don't buy all that crapola about "it's keeping grandma from being evited" or "forcing government to spend less". What it's really about is protecting the housing ATM for Generation #1.

Regarding Prop 13, I truly believe that if a homedebtor refi's his/her house, they are effectively re-selling the house to themselves and the house should be assessed at the new mortgage level. Bought the house in the 70's for 50K and have refi'd it up to 600K? Well then you are taxed on 600K.

Seattledude,
Good question. I ask myself the same question a lot. Basically, it's because I came here to develop my skills in graphic design. Out here, there's a real pressure to be the best, and learn ahead of the curve. In essence, I forced myself to become a better designer thanks to all the competition.There seems to be a number of design firms starting in a lot of the places I am scoping out, so by the time I move, the jobs will be there, and I will be a highly trained, professional designer in high demand due to less competition. The other thing is that renting here is just about the same price as renting anywhere else. I am not ready to move because I want to have more than enough to buy outright, and then have retirement well on it's way. Perhaps moving to a cheaper place would be a mistake job wise, but if I have all those expensive things that a high wage job requires paid off, then the job factor becomes less important and I can focus on other things- like a family or perhaps saving up for a new truck. Basically, as a renter in a not as glamourous location( alameda), sharing a large house with 2 others, I live cheap and save tons. I can stand to stay a few more years racking up more savings- savings that do me no good in CA, but might as well be future house payments in the making elsewhere. It's all relative, and I am young. I figure that by the time I do move, I'll appreciate what I will be buying somewhere else that much more. It'll be sweet!

RE: Moving out of state in seach of cheaper housing & better lifestyle

I really have to weigh in here in favor of views expressed by nomadtoons2 and others who have described how much better/cheaper life can be outside of California's rat race. Most of my family who were born here have already long since moved on, and I will most likely be joining them at the earliest opportunity. I also used to believe that jobs in the South/midwest were always few, low-paying and far between. The fact that I had to live hand-to-mouth on shitty $6/hr jobs for two years while living in Atlanta during the 91-95 recession didn't help my perspective.

However, since then I have visited family in NC, AL, and KY many times and I have a totally different outlook. It's true that most jobs still pay somewhat lower than CA, MA or NY, but the gap is rapidly closing, especially for IT and other skilled professions. And it's truly astonishing to see just how much more your RE dollars will buy you there. And how much better the environment is in terms of crime, poverty, pollution, traffic, crowding, illegals, etc.

As someone who is socially liberal-libertarian, I understand the "blue state" trepidation about potentially living among people who may have a radically different (and maybe hostile) cultural bias/worldview, but I believe such problems can be overcome. It's almost always possible to find relatively progressive communities/enclaves where other transplants and like-minded Southerners live, especially in larger cities.

For those of us who are not content to "wait it out" in CA for 5-7 years, moving out is really the only viable option.

SQT,

as senior, your dad can transfer his prop 13 tax base to anywhere within CA, as long as the new property is of less or equal value of his old home. It is called prop 60 or 70, you can google it.

On top of this, if your dad's annual income is below a certain line and he is over 65, they can apply for deferring all property tax until they die, and you as their beneficiary will need to come up with cash to pay all the accrued tax plus interest when you inherit the home.

For those of us who are not content to “wait it out” in CA for 5-7 years, moving out is really the only viable option.

Let me re-phrase that: "For those of us who are not content to “wait it out” in CA for 5-7 years and are unable to find a rental that provides what we want in a neighborhood we want to live in, moving out is really the only viable option."

Surfer X,

Right on bro! I have done re-fi's and the whole process felt exactly as you describe. You're basically "buying" your house all over again, that's why they do another appraisal! So what do we do with this new higher appraised value? We sweep it under the rug and pocket the cash of course!

HARM,
you hit it right on the nose. Indeed, there are places in parts of the country that still are almost stifflingly conservative, but at the same time, a place that is more liberal is never that far away. I can recall going to Asheville, NC and seeing on the people walking around with lip rings, tie-died shirts, bumper stickers, etc. Just about any metropolitan area is somewhat liberal, and forward thinking, hence my only requirement is that the place I move to must either be in or near a metropolitan region.

Ray W,

Don't you mean buying Top Ramen with your credit cards?

SQT,

As far as I remember, only one spouse needs to get past 65.

http://www.boe.ca.gov/proptaxes/faqs/reappraisal.htm

Well, a lot of us stay for psychological reasons. I stay for three reasons. First, my wife's family is here. My in-laws are 80 and 81 (wife is 10 years older than me -- hmm, she'll qualify for prop 13 relief in only 21 years, I'll have to factor this into our purchasing decision :) and I don't want to move away and deprive them of the opportunity to see their grandchildren.

Second, while I can get a job that pays about the same, or maybe just a little less, in other cities, having practiced all over the country I am firmly convinced that the best lawyers in the US are here in CA. The quality of work here is head and shoulders above that in Chicago, for example. Becuase the quality of your opponents is so high here, work is more interesting and challenging. I am sure that this is true for people in many other lines of work as well. For example, the smartest tech people are still in the Silicon Valley, the best creative people are in Hollywood, etc. There are excellent tech people and creative people outside of CA, of course, but CA is still the mecca for these fields.

Third, if I am going to leave, I want to do it on my own terms, not becuase I have been driven out.

Anyway, can't speak for Nomadtoons and HARM, but that's my reasoning.

As an owner, I am for amending prop 13 so that the tax base gets reassessed when HELOC / refinancing happens. As surfer-x stated, it is effectively a sale. If a senior needs to refi to get by, perhaps it is in his best financial interest not to retire here.

However, I do appreciate the fact of locking in 2% gain each year, and it doesn't matter at this point when I am still young. I would like to retire near Silly Valley if I can help it, and expecting every senior to be able to come up with cash to pay the reassesed tax driven by nouveau riches is ridiculous.

I also think the reassement of value should be based on financing, not on cash transaction basis. For example, there are somethings that I would like to do to my house, but I am not doing it because of the fear or resetting the assessment base at the top. However I don't need financing and can pay out of pocket. Why should I be punished by *saving* money and doing touch-up work on my own property? If someone doesn't save up, and obtain financing to remodel, then he is essentially banking on the current value of his home to obtain financing, so he is also effecting putting his home on market. Therefore, he should be punished, not me.

Joe,
Seems like you have good reasons for staying. Family is one reason I am not totally tied to this area. As far as creativity goes, I expect this to change since most people who are creative cannot afford to buy anything here, thus I expect other regions of the country to dillute California's industries sooner or later. Perhaps those of us who move will be the new Bohemians that make the change.

Politically, taking out prop 13 will be very hard, I can imagine every homeowner voting against it. People are selfish, as simple as that, when you become a homeowner, you will think and act the same.

However, there is a very good chance of getting it amended, like what surfer-X susggested. Define MORE events at which tax base needs to be re-assessed. Currently, we are already facing such events, like remodeling, adding space, etc. So adding such events will be much easily accepted by the existing homeowners.

Honestly some existing homeowners are also disgusted by the run-up in price, especially if they are not the refi type. We don't treat our residence as ATMs, and if the ATM "owners" go to hell, let them. So adding HELOC/refi to the tax reset events can at least win some support from the existing homeowner base, help release more inventory to the market in established neighborhoods, and provide more tax revenue.

I think this is politically doable.

HARM Says:

> Of course I agree with the negative sentiments
> here on Prop. 13,
> I don’t buy all that crapola about “it’s keeping grandma
> from being evicted” or “forcing government to spend less”.

I feel that Prop. 13 is totally unfair, but it is keeping seniors in their homes and forcing government to spend less. For this to be "crapola" HARM will have to agree that all the old ladies in the Marina and inner Richmond have an extra $1,000 a month or so to pay market rate taxes and that the government would not spend every extra penny of tax money that got (like they have throughout US History with few exceptions).

@Joe Schmoe,

I can certainly understand not wanting to leave bc you have family here (not an issue for me --mine bailed out years ago), and wanting to practise in a high-caliber law/tech/creative hub. I'm not a lawyer and don't know where you practised, but I don't know that I'd be so quick to write off the other 49 states. Surely, there have to be some excellent law firms outside of CA.

As to leaving on one's own terms, I'd have this to say:

The housing bubble-market is something completely beyond my direct personal control. I cannot keep greedy idiots from flipping or buying overpriced properties with monopoly money. If I am going to buy, then I want to do it on my own terms, not because I have been "forced" to purchase a $750K crackhouse with an NAAVLP.

If getting what my family wants/needs means leaving this state then I shall do so of my own free will and without regret. No one is "forcing" me against my will.

FormerAptBroker

the problem of our tax law is, it promotes spending and borrowing. Prop 13 is supposed to help careful, conservative seniors staying at their homes and not driven out by events beyond their control, like neighbors bidding up the price of comps in the neighborhood. Nobody should be blamed for events beyond his control.

However, if a senior is carefully planning his financial future, he should save towards retirement and plan his ongoing fixed cost, which in no circumstances should prompt him to refinance from time to time to draw money out. Or, he should perhaps do a reverse mortgage after all. Or better still, he should sell out, pocket the profit and move to a place with much lower cost of living.

Until you start to punish borrowers with tax law, they will continue treating their home as ATM.

I feel that Prop. 13 is totally unfair, but it is keeping seniors in their homes and forcing government to spend less. For this to be “crapola” HARM will have to agree that all the old ladies in the Marina and inner Richmond have an extra $1,000 a month or so to pay market rate taxes and that the government would not spend every extra penny of tax money that got (like they have throughout US History with few exceptions).

Well, this isn't a Prop. 13 thread, so I don't want to get too heavily into debating its pros/cons here (see NIMBY Laws and California Housing Prices). So I'll just make a couple of quick points:

I'd feel bad if old ladies in the Marina were evicted from their homes solely due to tax reassessment. However, I have yet to see a valid case where this has actually occurred --either before or after Prop. 13-- and I suspect it's something of an urban legend used to justify bad public policy.

And even if it were true, then I have a simple solution: sell your house and move somewhere cheaper. If you're a retired grandma, then why exactly are you entitled to live in the heart of a major metropolitan area at a steep discount, while young struggling families (with bills/problems of their own) must pay their fair share of taxes PLUS yours? Most retired people I know (including my dad) have done exactly that and did quite well.

That being said, I'm not against amending Prop. 13 to apply only to retired low-income seniors. I just don't see any societal benefit to giving Rich McBoomer a free ride at my expense.

My last point is that Prop. 13 hasn't stopped politicians from spending like drunken sailors, and no proposition ever will. The best we can do as voters/citizens is to stay vigilant, and when you see excessive waste/corruption, vote the bastards out --and convict them if necessary.

HARM,

you just need to look at the reality about proposing any changes. Are there more homeowners or fewer homeowners who are voters? I don't know, but I suspect there are at least just as many homeowners as renters in this state. Now will homeowners vote for getting rid of prop 13 regardless of moral reasons? The answer is obvious. Human beings are selfish. I am not defending it on moral ground, I am defending it on selfishness.

If you want to get something to change, you need to unite the most interest groups as you can. Are homeowners all of ONE single interest group? No. There are many homeowners with different agenda, different financial situation, different age groups. So you need to target those who are cloest to YOU in terms of agenda so that they jump on board. That way, you can chip away prop 13 gradually. And one day after you become a homeowner, you may not want to get rid of prop 13 yourself!

How do we chip away prop 13 bits by bits? You take away the part that is most easily abused, the refi and HELOC part. Do you know that under the current law, refi means you lose your property status of anti-deficiency? That means, if you refi once for a lower interest rate, to extract equity, or whatever reason, if you happen to miss your payment later, you won't be protected by the state's anti-deficiency law (google if you don't know what it means). Therefore, refi is already a significant even in other legal aspects.

So, why can't we just bring in more events to force some marginal buyers who didn't manage their finance carefully to relinquish their residnce, bringing price down for the would-be buyers? A lot of the purchase of homes in CA in the last few years are by people without voting power, so if you target them as the group to be adversely affected, you have a good chance. If you target the established owners who have voting powers, you have a much slimmer chance.

Here's a thought since we're on the whole revolutionary change and action topic, why isn't there a free publication on the streets that is anti-housing? Just like the East Bay Express, and all those plastic boxes full of real esate, wouldn't it be just as noble of a cause to have a publication that counters the pro-real estate craze and helps the general public to be more ecucated on the topic? Perhaps a small newsletter of sorts, but something that voices the 50% of Californians who are priced out. I don't get why local liberals are so antimate about protesting things like the war, bush, ect, yet never protest about housing and lack of affordability. This effects every single person in the state on some level, thus I am really surprise the left hasn't picked up on it.

@Owneroccupier,

All good points --thanks. Eliminating the refi and HELOC part is a great idea, but now that most (virtually all?) CA homedebtors have refi-ed over the last few years, this may not be politically feasible in the near future either. As you said, "Human beings are selfish", and they tend to vote in their self interest.

One idea I had was to propose extending Prop. 13 to ALL homedebtors. In other words, everyone (not just lucky boomers) would have their property tax capped at 1978 assessed values (+2% per year compounded, as allowed by Prop. 13). This would dramatically LOWER taxes for anyone who bought in the last 25+ years and level the playing field at the same time WITHOUT raising taxes a penny for anyone in the state.

This would essentially call the bluff of Prop. 13's backers --it would expose their rationale that Prop 13 is all about "lowering taxes" or "helping poor grandmothers" to be a complete lie. They would vehemently oppose it (of course) because it would mean giving up their "special" advantage over f@cked younger buyers.

Of course, the other side could counter-argue that the new proposition was all about "cutting taxes and wasteful spending in Sacramento" (stealing Prop. 13's thunder) while correctly accusing anyone who opposed the measure as a selfish hypocrite.

Harm, SF Woman,

I think (as an Oregonian) I'm starting to understand just how CA became such a mess.

I'm a senior (sheltered from tax increases) in a desirable area. B/c federal tax law was re-written in the 90's I now have the option to either sell and be exempt from having to pay capital gains and move to a more affordable area or; simply re-fi and do my equity extraction thing, stay exactly where I am at and enjoy not only lower taxes but also write off the interest on my second mortgage to effectively show little or no taxable income?

When we have created a scenario where people could walk away with tax free money but elect to go the equity extraction route, we're bound to have problems.

Owneroccupier,

When you say "miss a payment" are you referring to missing a HELOC/2nd or first mortgage payment or are we talking about the tens of thousands in Orange Cty. that still haven't paid 2005's property taxes but are still writing off all of that mort. int?

DinOR,

what i meant was facing pre-foreclosure and foreclosure situation. In the event of foreclosing on major residence, anti-deficiency law doesn't apply if the homes has been refinanced, in the state of CA.

In at the Rise,

Firstly remain calm! If you move to another state why would you need to buy right away? Even if you stayed in CA at your same job (while it lasts) you shouldn't feel compelled to buy or put anything down if you do. I don't know what rents are going for in your area but I have a nagging sense of dread that if you don't take the money off the table you might regret it. There will be other houses.

NIA