Is Now the Right Time?

Is now the right time to ______________?    You can fill in the blank with whatever you would like.  In real estate the answer will always be "whenever it makes the most financial sense to do so!" Let's insert a few phrases to determine the best answer for each.

 1.   Is now the right time to sell my home?   If you just want to sell your home only to get the most money out of it, now may not be the best time.  Home prices are falling and until we see a decline in inventory they may continue to do so.  Foreclosures are one of the primary culprits to the amount of inventory we have on the market.  But, as we will see in the next example, it still may make financial sense to sell in this market. 

2.   Is now the right time to be a "move-up buyer."  The vast majority of people who sell their home eventually buy somewhere else relatively soon.  Many of these people are "move-up buyers."  Move-up buyers are those that sell their house so they can buy a bigger house or so they can move to a more desirable area/neighborhood.  If one has enough equity in their home, this is a great market to be a move-up buyer. 

• Why?  The money that you will loose in the sale of your current home will most likely be made up on the purchase of your new home.  
  

• How?  (based on a real life example) Let's say you purchased your current home 7 years ago for $150,000.  Let's say you paid off around $10,000 toward the principle during that time.  That puts you around $30,000 equity.  Three years ago you probably could have gotten around $200,000 but you were not ready to sell.  Today, the market value of your house is around $170,000.  Not near as much as if it would have sold for $200,000 in 07, but at least you're still ahead.  The house you would like to buy is considerably larger and sits on a larger lot.  Three years ago houses in that neighborhood similar to the house you want to buy were selling for about $300,000. Now they have dropped to about $240,000.  That is a $60,000 difference on the purchase price. In 2007 your Net Gain would have been $60,000.  In today's market your net gain is $90,000 (30K from the sale + the $60K difference in price). 
  

This example does not even account for the money you can save on the record low interest rates that we are currently enjoying, which leads me to the final question:

3.  Is Now the right time to buy my first home?  On the surface this seems like a simple cut and dry questions but there are quite a few variables.  For most people I would say yes!  It is an amazing time to buy.  First time buyers don't have to worry about selling a home in order to purchase.  There are some amazing deals to be had in the real estate market today, and the interest rates are unbelievable (if you don't thinks so, ask someone who bought a house in 1982 at 18% interest compared to today's interest rate under 5%.)

But there are those that should consider the state of the market before buying.  Those that are only going to be in an area for a short amount of time, the days of buying a house and selling it a year later for profit are mostly over (for now).  Be prepared to live in the house for at least 3-5 years, and if you buy new construction, be prepared to live there until the neighborhood is complete.  If the market slips again, new construction will always be able to slash their prices to gather customers.  You on the other hand will most likely not be able to do that.

The reality is that the market we are in is here to stay for the foreseeable future.  In time home prices will rise and interest rates will rise as well.  Don't be the person looking back 5 years from now wishing you would have made a move.  Assess your situation and make the move if it makes the most financial sense for you. 

Photo courtesy of www.freedigitalphotos.net

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