One of the mathematical realities is that when real estate prices have come down like they have here, you can often take advantage. Here are some of the key drivers and some gotchas.
- This only works if you can find a buyer for your current place.
- This only applies if you want to move up to a higher value property. If you're just cashing out or downsizing, this math won't apply (or in the case of downsizers, would be reversed in a bad way).
- If you can find a buyer for your current place, but you're one of the bears who thinks prices will come down much more in the near future, it would still make sense to wait.
All those caveats aside, if you can find a buyer, want to move up, and you think prices are going to be pretty stable or we're at the bottom, now is a great to upsize. As an example, if you bought a condo for $400K in 2005 and could have sold it in 2007 for $460K but now can only sell it for $380K, don't assume it's a net loss. If you decide to move to a larger unit or perhaps a town home that would have cost $650K in 2007 but now can be had for $550K, you "lose" $20K on your condo sale but save $100K on your new place.
Another way to think about it is if you wait till the market is hot to sell your current place, you'll be selling into a hot market but you'll also be buying into a hot market for your next, more expensive place.
Two alternate scenarios are non-simultaneous transactions. One is where you sell into a hot market and then buy when the market softens. These people are the biggest winners but the opportunity to do this has passed and it's hard to know when the market is about to turn.
The other is where you buy into a hot market and subsequently sell into a cooler market. These people are the most unfortunate lot since they pay top dollar for their new place and sell their old place at a discount. My advice is if you can find a buyer and need to move up, now's a great time.
Here's a related article explaining on Seattle couple that did this from MSNBC.
This article is based on a fallacy.
@Joe, can you elaborate?
Sure, you are not saving $100,000 on your new place. It is no longer worth the price it was at its absolute peak. It is worth, lets assume, the price it could fetch on the open market today. When you sell your new place, you will then have a loss or gain on the newer, bigger place you purchase but it will have nothing to do with what its peak value once was.
Agreed. Comparing the townhome’s current $550K price to the 2007 peak price of $650K to claim a $100K savings is no more meaningful a comparison than, say, to its 1995 just built price of $200K and claiming you overpaid $350K for that townhome. The only “what its worth” date that matters for this comparison is how much it was worth the day you paid for it.
I actually agree with a lot of what Joe and Mark are saying. Nevertheless, many sellers are so fixated on their “loss” of previous equity that they forget they’re getting their new place at the lower price as well.
Another way to think about it is that if you wait till the market is hot till you trade up, you’ll be buying into a hot market as well. Thus, there’s a good chance your larger, new home might cost a lot more in a hot market than the difference you get from selling your existing home at a higher price.
The context in this article is true in general. It makes more sense to move up in a bear market and move down in a hot market.
This is based on the fact that if all the homes are losing/gaining value at the same rate percentage wise, the price of the more expensive house will move more in pure dollar terms.
I have to agree with Wendy – The time to move up in life is in a bear market. This is when money is made in life using a long-term strategy. When the market is “hot,” it has a tendency to reflect overly inflated values that will ultimately take large hits in the short term; thus, you essentially overpaid.
Anyway, I suppose the whole point to Wendy’s article is that all things are relative in the market, and I completely agree with her point. Who cares if your value is going up or down as long as all other values around you are moving in parallel/conjunction with your value, contingent you are in the market for the LONG term?
Sell and rent for the next 3-5yrs. RE Agents will NEVER tell you it is a bad time to buy. All last year they have been saying ‘we are at the bottom’ or ‘buy nor or else’. Reality is prices keep sliding with no real end in sight. With Microsoft and Boeing laying off and economy getting worse, this is not going to get better anytime soon. At best, we have a L shaped recovery with no real rise till 2012 or later