The Math of Buying Now!
Now that I can FINALLY SELL MY HOME . . . . . . . .
The good news for many of you is that you actually can sell your home now with average sale price jumping 3.3 % in January, 1.5% in December and an overall trend upward of 10.9% SINCE AUGUST. The market is absolutely red hot. Combine this with a historic ratio of list to sales price of 99%, this indicates that properties are scarce and hard to find.
Which brings us to the crux of the current market. Yes, you can sell your existing home now and go buy the home you want. My recommendation! Do it now! and here is the math behind it. Rates are at a historic lows with current rates hovering around 4% and possibly even less. You will likely not be able to buy at these interest rates combined with depressed market prices again anytime in your lifetime. With that being said, if you are moving up, the math is very simple and goes as follows:
You basically have two options, bite the bullet and make your move now or wait for the market to go up to improve the amount of equity in your current home. The reason to do it now is very simple. Even if you take a loss on the home you are selling, that loss will be offset by the depressed price of the home you are purchasing on the back side. Or if you are capable, buy the new home now and hold the existing home as a rental as the market goes up. If that is not an option, the math is still pretty easy.
If you are moving up in value, the home you are selling will likely appreciate around 10% in the near term. The home you are purchasing will likely appreciate at the same rate as the one you are selling and if the new home is more expensive than your current home you will actually lose money (albeit a hypothetical loss). Here is an example. If you can currently sell your existing home for $150,000 and buy the one you want for $250,000 TODAY, and they both go up 10% because you decided to wait till you had more equity in your existing home. When the first home is worth $165,000, you will likely pay $275,000 for the second home. A net hypothetical loss of $10,000. The home you sold went up $15,000 BUT THE ONE YOU WANTED TO BUY went up $25,000.
The pitfall here is to imagine yourself (and me) as the world's greatest negotiators. It is not reallistic to believe that you can sell your existing home for top dollar because the market is red hot and then turn around and because of our collective negotiating genius, be able to steal a home on the flip side.
This may occur on rare occasions but it is not likely or the proper model on which to be making financial decisions.