Should you sell your home now? The economy has shown signs of life recently. The stock market has rebounded. Unemployment rates are improving and so is consumer confidence. And interest rates remain low. If you take into account how a mortgage works, you understand that low interest rates bring buyers into the market. (If anything, you might think these are reasons to buy a house instead, but read on.)
If you’ve been waiting to sell your home, this improved situation might sway you. When you put all this together, it might finally get you to put that “For Sale” sign up on the front yard. Is it the right move? Lots of people are downsizing now. They are selling their large homes and buying a condo or smaller homes instead. Why not you?
You will benefit if you have realistic expectations. Home prices are probably not going to be strong for a while. Don’t expect to get top dollar for your homestead. Sales were hot for a short period last year, but that was while the homebuyer tax credit was being offered. Once it expired, so did the housing market.
The supply of homes for sale is still tremendous. Banks are sitting on huge stockpiles of inventory they took back from your neighbors who couldn’t afford the mortgage payments. There are over eight million homes for sale, and that equates to an eight-month supply. The normal supply is about six months, so the market has a 30% greater supply than normal. And you know what excess supply does to price, right? It kills it. Don’t expect top dollar for your home.
Foreclosures are flooding into the banks, and there are plenty of homeowners who are more than 60 days late on their mortgage payments. Some banking experts expect from three to eight million homes to be foreclosed on this year alone. These mavens go on to suggest that banks offer less than 30% of their inventory for sale at any one time. They don’t want to flood the market and sink prices any further if they can help it.
What does this mean to you?
It’s going to be tough for you to get top dollar for your cottage when there are so many cheaper properties available. Still, if you sell your home yourself, you might be able to offer a lower market price but still make out OK.
Why do you want to move?
Having thoroughly depressed you, let’s see if we can’t offer some hope. If you are planning on selling your home and then hoping to buy another residence, this might be the very best time to do it despite depressed price levels. Sure you’ll get trashed when you sell your home, but you’ll get your new dream house for a song and a dance. If you approach this well, you should do fine.
And don’t forget about low interest rates. If you can afford it, a very smart strategy is to buy a more expensive home now. You can take advantage of the low rates and you can potentially make more money when your mansion’s price recovers.
Let’s take an example. Assume your current home is worth $250,000 and you want to buy one that is worth $500,000. You do this and five years later, both have increased by 10% in market value. Your prior home went up by $25,000. Your new home went up by $50,000. That’s a spicy meatball!
But if you are selling your large home and considering buying a condo at a lower price, this may cost you. You’ll lose more on your current home than you’ll save on the condo.
Of course there are reasons to move that have nothing to do with money. You might want to be closer to family or farther away from those hillbillies currently living next door. There are trade-offs of course. Just be realistic about why you want to move, and make sure you temper your decision with your financial realities.