Moving Up in a Down Market
Now may be the time for the prudent home buyer to make the big move. I have four good reasons why 2010 is the time to make the move up to more square footage, a new lifestyle dwelling, an easy access floor plan, or a greener home. My top four reasons:
First, consider the net loss from the sale of a current home compared to the net gain from the purchase of a new home. Sellers in today's market might experience a 10% loss compared to selling a year or two ago, but they would benefit from the market decline when they purchased their new homes. Typically, a seller's new home will be twice the value of his or her previous home. It may look like this: Seller A's home was valued at $150,000 one year ago and sells at $135,000. Seller A experienced a 10% loss or $15,000 in her mind's eye. Seller A returns to the real estate market as Buyer A and purchases a home at $270,000. This home was valued at $300,000 in the previous year. The net gain to this buyer, now turned seller, is $10,000. This is my top reason to move up in a down market. Prices of higher priced homes have generally declined more than prices of lower priced homes.
Second, the buyer tax credit adds another $6,500 incentive to make the move up in a down market. Sellers who have lived in their current residences for at least five years are generally eligible for the new move up tax credit. If a home owner considers the price his current home would bring and the adjusted savings he will receive on his new property, plus the federal tax credit, the move up scenario sweetens.
Third, the current interest rates. With home mortgage interest rates well below the forty year average, most loan applicants are receiving a thirty year, fixed rate below six percent. Add up the net gain in purchasing up in a down market, the move up buyer tax credit, and the current low rates, and the consumer interested in purchasing a new home has a prudent decision to make.
Fourth, we may be experiencing the final months of the buyer's market. With inventory on the downturn and the number of sales on the rise, the number of homes available per buyer may soon be in a balanced position where neither buyer nor seller has an advantage. After careful consideration of the long-term financial gains for moving up in a down market, it is also important to consider the lifestyle enhancement reasons that influence the move up.
We have experienced a lengthy thirty-six to forty months of housing recession and it has produced an enormous amount of pent-up buying demand in individuals and families who want or need to move. The reasons for the pent-up desire to move vary from wanting more space to a desire for a greener or more energy efficient dwelling to wanting to be closer to employment or family. Whatever the reason, now is clearly the best time.
Author Steve Hansen, Tami & Steve Team, Real Estate Coach and Speaker (Coldwell Banker Burnet)