In our local area, prices have been depressed for a while. California and Florida are the top two states for foreclosures and short sales, REO's etc. This had caused a pretty negative effect on our markets. But actually in the early 2000's boom years, most of our areas were up about 35% in value appreciation. So, it's all relative isn't it? If we are now down about 15% to 20%, we are still ahead. And, if you subscribe to the real estate concept of buying and holding until the time is right to sell, well you might want to think about the following too.
Is there a reason to sell in a down market rather than wait for that 15% to 20% in price appreciation to regain in your area? You might think I am crazy, but just look at this analysis... (I am using round numbers for ease of illustration.)
Say your home was worth $300,000 three years ago.
Maybe you lost 20% in value in the last year and a half.
That's $60,000, so your home is now worth $240,000.
Say the home you wanted to purchase was $500,000 three years ago.
Maybe they lost 20% in value in the last year and a half.
That's $100,000, so their home is now worth $400,000.
The GAP between your home and the new home is closer than it would have been two to three years ago.
Sell 3 years ago $300,000
Buy 3 years ago $500,000
Difference $200,000
Sell now $240,000
Buy now $400,000
Difference $160,000
What does this mean to you? It means $40,000 less in down payment or mortgage. If it is $40,000 less in mortgage at 6% interest, that's $240 per month less in monthly mortgage payment you are paying for 30 years!!! Compound that for a nice savings.
Then in California our property taxes are approximately 1.25% of the sales price.
3 years ago - $521 per month in property taxes
Buy now - $417 per month in property taxes
Savings $104 per month
Add on the fact that our interest rates are almost at the lowest of low that it has ever been and you will save more on your monthly payment than almost any time in history. The bonus for most areas will be that the conforming loan rates are about to rise, when President Bush signs the bill. This is huge for us in California where it could rise from $417,000 to $729,000!!! This would make a huge difference for people wanting to refinance or purchase. If you don't own real estate, now may just be the time to look at buying with prices at a low point. And, it may be time to look at selling and moving up?
What do you think?
For more on this topic, visit my blog http://activerain.com/blogsview/278172/This-IS-Last-Year
Refreshing to see someone else understands the situation.
I have been telling possible sellers this for some time now. Especially if they are going from a New York home to a Florida or some other state that has declined more than ours. One client moved from here to Fl and your formula went like this; his home here 3 yrs ago was probably $675,000 and the home he bought was $429,000 then(It was a new dev so we know the price then). Our market here is down about 15%. In that part of Fl 30%, he bought his home for $300,000. This is the opposite directions as your example, but because there was such a big difference in drop is worked to his advantage. He lost $102,000 on his home but saved $129,000 on the one he bought and got some incentives from the builder.
An excellent summation of how this works!
Here's another scenario on saving money by selling rather than waiting. A friend of mine was forced to sell a second home back in September of 2007 (to avoid foreclosure) for what he paid in the first place, around $265,000. He complained bitterly, even though I pointed out that he needed to do this or face the sheriff's sale gavel. His buyer thought he would "flip" the property and after closing, dumped about $25,000 into it, only to find that the market hadn't finished bottoming out. The "smart" buyer who was hoping to make nice money on the flip lost big time..the property sold recently for around $250,000.
Michelle - that is what I try to do so buyers and sellers can really understand. Thanks for validating that.
Terrylynn, What I think is that you are right. On top of your great points you could add "holding costs" to the months waiting for the price to rise. And, they may not. How much will they have lost then? Or, they could try to sell as a FSBO and save money not having to pay for a Realtor. They can waste their advertising dollars on a FSBO site with a 2,000. virtual tour for no one to see. Sit and wait by the phone while they're waiting for a call and have strangers knock at their door during Sunday dinner that may really want to rip them off while they use their bathroom.
Humm... I think you hit my ramble button. Good post. Deb
Terrylyn,
As they say everything is relative. I like your spin on this!