Is Now a Good Time to Sell Your Home?
With home prices rising to higher and higher levels, more and more
homeowners have been wondering if the time is right to take the
appreciation in their current homes and get out before the market begins
to cool off. While there is no way to tell when the housing market is at
its top, the housing mania we have seen does have some troubling
similarities to the dot.com boom that typified the late nineties.
No doubt the housing boom has some viability to it, and unlike a stock a
house represents a real item, of real value. In addition, the boom in
housing has been fueled by record low interest rates, and by many new
mortgage products, including interest only mortgages and negative
amortization loans.
These new mortgage products are part of what many people perceive as the
inherent danger of the current housing market. In many hot parts of the
country, like California, so-called interest only mortgages in which
homebuyers pay only the interest due on the loans for a number of years,
represent up to half of all new mortgage loans. The downside of these
loans happens, of course, after the initial interest only period has
ended. For many such loans, that day of reckoning is fast approaching,
and it remains to be seen what kind of effect this will have on the
market.
Over the past few years, there has not really been a bad time to sell a
house. The overall trend has been, and continues to be, up. What seems
to be changing is the rate of price appreciation. While up until
recently waiting only a couple of months could mean getting an extra 10%
or 20% for the home, the rate of appreciation seems to have slowed for
some of the hotter markets around the country.
Housing marketing is cooling gradually
At the beginning of the year, the National Association of Realtors
issued a forecast predicting that the market will normalize during 2006.
While in 2005 the average appreciation rate for existing homes came in
at 13%, with large segments of the market seeing far greater gains, that
trend is not expected to continue. While the National Association of
Realtors expects the market for new and existing homes to remain strong,
it also foresees a price appreciation of a more modest 5%.
What this means is that while the long predicted bursting of the housing
bubble has not happened (and many experts believe it will not occur),
there are definitely indications that the easy money has already been
made.
Harder to sell now
Other sign that the optimum time to sell a home may be past is the fact
that inventories of unsold homes are on the rise, with the fastest rise
seen in some of the hottest real estate markets. For instance, the
inventory of unsold homes in the suburbs of Boston has raised by more
than 50% since January 2005, according to the MLS Property Information
Network, Massachusetts.
In past few years, sellers of even marginal properties were often able
to realize more than the asking price, due to the frequent bidding wars
that often broke out in the hot market. These days buyers will have
greater room to negotiate, and to ask sellers for concessions such as
help with closing costs. While the market is in no way dead or even in
serious decline, it does seem to be becoming more of a buyer's market.
Moreover, many home owners may realize they can't even afford to sell
after they do the math. There are costs involved in selling a house,
this including loan payoff, real estate commission, closing cost,
property tax, attorney cost and all these costs add up. Nevertheless,
the common reason that home owners can't afford to sell is because they
borrowed too much. (Find out what are the
costs of selling a house here before you put your house on market!)
Is this a good time to sell your home?
The run up in home prices over the past few years have left many
homeowners, especially those living in hot markets, with tens of
thousands, or even hundreds of thousands of dollars in potential
profits. The idea to cash in the house and make a tidy profit while
hoping the market to cool with the intention to find some bargains later
is a high stakes bet. Unless you're
'house flipping', otherwise it probably makes more sense for current homeowner,
who is benefiting from a low mortgage rate, to stay where they are.
Real estate market has a cyclical trend with ups and downs. To cash out
now so you can buy again in twelve or eighteen months later is similar
to stock day trading. It is not an excellent idea to speculate for most
people as they're not dealing with just money but with a real asset with
real value. Most importantly, it is where the family is living in. And
if home owner sells their house now, they just have to buy another house
that's just as equally expensive if not more!
Besides, home prices may never drop, and if they keep rising, you could
find yourself priced out of your preferred market. Even if prices do
drop, you may lock in less of your profits than you think as selling and
moving will cost you approximately 10 percent of your home's value.
Moreover, if interest rates continue to rise in the meantime, you may
face with a more expensive mortgage and force to buy a smaller house
later.
However, the move to sell now and make a profit is perhaps less risky
proposition for those homeowners who are seeking to downsize their
lifestyle or who are near their retirement, to move to a less expensive
area. The key challenge in a hot market, even for homeowners with
substantial gains, is finding a suitable property at an affordable
price. Many homeowners have found that buying a smaller home is a good
way to lock in the gain on an appreciated home, as is moving to a less
expensive housing market.
There are plenty of affordable housing markets left around the country.
According to National Association of Realtors, some fast growing cities are still cheap
such as Tucson, AZ (median home price $177,300), Lakeland, FL (median home price $108,000),
Jacksonville, FL (median home price $150,700) plus dozen more. These cities may be less vulnerable to
failing real-estate prices simply because they haven't experienced the
wild, double-digit growth seen elsewhere. And those people moving to
these areas are often quite surprised at how far their housing dollars can go.
That said, the downside with
these cheaper markets is that it may not give you as much future
appreciation too. But if your goal is to protect your equity rather than
grow it further, cash out your home profits to a less frenzied market
can still work pretty well.
Furthermore, there is always the rental market. In most of the hottest
housing markets around the country, rental price appreciation has not
kept pace with the rise in housing prices, meaning that many former
homeowners are opting to rent for a year or two while they wait for home
prices to stabilize. This can certainly be a good strategy, and it can
leave smart homeowners with a great deal more home for their money in
the long run.
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