I'm often asked by visitors to Open Houses if they should move, or expand their current home. Of course, as a real estate agent, getting a commission for helping them find a new home, and one for selling their current residence, helps me support the economy. However, that is not always the best piece of advice.
When someone asks if they should consider an addition, it is pretty clear they are attached to their home, and probably the neighborhood. My first questions are about their current house, and their relationship with the neighbors. If there is a strong bond, then expanding the house, within reason, is probably a more pleasing option.
Of course, you can overbuild for a neighborhood. If you have homes that do not exceed 2000 square feet in size, and suddenly you expand to 4500 square feet, you may never recoup the expense. Usually people only need one or two more rooms, or larger rooms, or an additional bathroom, and these are not excessive.
Cost can be a big factor. It is not just the price of the house that is important. Check the taxes. In California, value is based on the purchase price of the property, and you may move into a newer area that has Mello Roos assessments. So, you could have a current tax bill of $ 1500 / year and move to a slightly larger home and face a tax bill of $ 10,000 / year. ( Always have your agent check the projected tax bill based on the sale price, not the current tax rate of the owner ). You may also have association fees. Your new purchase may have higher payments, plus there are the costs of getting the loan, the sale of your home, and fees associated with moving.
Your current home may be your castle, and it has been molded to your way of living. A new home will require changes to accomodate your family. Do you have the energy for the work ?
Of course, you may have postponed moving for a long time, and now you simply need a new home. In that case, this is a good time to make that purchase. Interest rates remain relatively low, prices are down, and deals are awaiting you.
Finally, if you are concerned about the fact your home will net less now than two years ago, keep in mind your new home will cost less than two years ago. The relative value should remain the same, but the lower prices do mean lower tax assessments.