Whether home prices are going to go up or down is crystal ball guesswork. But Home Bay’s team of real estate experts have been talking shop, and we can say with confidence that unless you plan to hold on to your home for at least three more years, now may be a great time to sell. Let’s review why.
The Economy is Putting Downward Pressure on Home Prices:
On the surface, it would appear that there’s nothing happening to put upward pressure on home prices. The US job scene isn’t pumping like it used to, and the economy isn’t expanding like it used to. Business leaders in the Wall Street Journal and other trade publications agree that this slow growth economy is the new normal.
But does that matter to your home sale? The state of the economy is closely tied to the health of the housing market, and in theory, if the economy just creeps along, the housing market will keep stride.
Interest Rates are Super Low:
If a slower economy means slower growth in home values, why have housing prices gone up significantly over the past five years? In large part, housing prices have gone up because they’ve been manipulated. Governments worldwide have taken action to keep interest rates at historic lows in an attempt to prop up the economy and the housing sector. That, of course, begs another question…
How do interest rates impact housing prices? Right now, interest rates are so low, they can’t go lower. In fact, economists are predicting interest rates are going up, and soon. Low interest rates lower monthly payments for prospective home buyers, which means those buyers can afford to pay more for a home than they could if interest rates were higher. That trend puts upward pressure on home prices.
On the other side of the equation, rising interest rates puts downward pressure on home prices. Again, this happens because most buyers look at their mortgage payment as the baseline for what they can afford. If a buyer shopping at today’s rates wants their mortgage to be no more than $2,500 per month, the most expensive home they can buy may be $385,000. But if the rates go up, making mortgage payments go up, the most house they can afford may drop down to $350,000. That means, all other things being equal, housing values are likely to go down if interest rates rise, as predicted.
How to Decide if Selling Now Makes Good Financial Sense:
It’s very likely that you’re set to make money on your home if you sell now (learn how to use home value estimators to find out what your home is currently worth). But that doesn’t necessarily mean you should sell now, even if economic changes are set to cause your home value to stagnate or decrease when interest rates rise. To decide which path is best for you, you need to analyze your situation by considering (1) what you plan to do with any money you make on your sale, and (2) what it will cost you to live after you sell.
If you are planning on spending your sales proceeds to pay for a wedding or buy a new car, you’re probably better off leaving your dollars in the piggy bank known as your house for now. Similarly, if your post-sale housing costs (say, a pricey rental property) will eat up the profits from your home sale, it’s probably also better to stay put.
But by contrast, if you plan to move in with family or you have a less expensive rental option that will allow you to save the money you made on your home, it may be an excellent time to sell. For example, soon-to-be retirees set to downsize are in a great position to take advantage of the current market. Downsizing often means a significant reduction in monthly living costs, and if you’re poised to make a nice profit on your home, using sale profits to beef up your retirement fund will be very rewarding.
Need help deciding if the timing is right to sell your home? Leave a comment or send us an email! We’re happy to provide feedback and to help you make the call.
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