With home prices rising to higher and higher levels, more and more homeowners have been wondering if the time is right to take the appreciation in their current homes and get out before the market begins to cool off. While there is no way to tell when the housing market is at its top, the housing mania we have seen does have some troubling similarities to the dot.com boom that typified the late nineties.
No doubt the housing boom has some viability to it, and unlike a stock a house represents a real item, of real value. In addition, the boom in housing has been fueled by record low interest rates, and by many new mortgage products, including interest only mortgages and negative amortization loans.
These new mortgage products are part of what many people perceive as the inherent danger of the current housing market. In many hot parts of the country, like California, so-called interest only mortgages in which homebuyers pay only the interest due on the loans for a number of years, represent up to half of all new mortgage loans. The downside of these loans happens, of course, after the initial interest only period has ended. For many such loans, that day of reckoning is fast approaching, and it remains to be seen what kind of effect this will have on the market.
Over the past few years, there has not really been a bad time to sell a house. The overall trend has been, and continues to be, up. What seems to be changing is the rate of price appreciation. While up until recently waiting only a couple of months could mean getting an extra 10% or 20% for the home, the rate of appreciation seems to have slowed for some of the hotter markets around the country.
Housing marketing is cooling gradually
At the beginning of the year, the National Association of Realtors issued a forecast predicting that the market will normalize during 2006. While in 2005 the average appreciation rate for existing homes came in at 13%, with large segments of the market seeing far greater gains, that trend is not expected to continue. While the National Association of Realtors expects the market for new and existing homes to remain strong, it also foresees a price appreciation of a more modest 5%.
What this means is that while the long predicted bursting of the housing bubble has not happened (and many experts believe it will not occur), there are definitely indications that the easy money has already been made.
Harder to sell now
Other sign that the optimum time to sell a home may be past is the fact that inventories of unsold homes are on the rise, with the fastest rise seen in some of the hottest real estate markets. For instance, the inventory of unsold homes in the suburbs of Boston has raised by more than 50% since January 2005, according to the MLS Property Information Network, Massachusetts.
In past few years, sellers of even marginal properties were often able to realize more than the asking price, due to the frequent bidding wars that often broke out in the hot market. These days buyers will have greater room to negotiate, and to ask sellers for concessions such as help with closing costs. While the market is in no way dead or even in serious decline, it does seem to be becoming more of a buyer's market.
Moreover, many home owners may realize they can't even afford to sell after they do the math. There are costs involved in selling a house, this including loan payoff, real estate commission, closing cost, property tax, attorney cost and all these costs add up. Nevertheless, the common reason that home owners can't afford to sell is because they borrowed too much. (Find out what are the costs of selling a house here before you put your house on market!)
So, is this a good time to sell your home?
The run up in home prices over the past few years have left many homeowners, especially those living in hot markets, with tens of thousands, or even hundreds of thousands of dollars in potential profits. The idea to cash in the house and make a tidy profit while hoping the market to cool with the intention to find some bargains later is a high stakes bet. Unless you're ' house flipping', otherwise it probably makes more sense for current homeowner, who is benefiting from a low mortgage rate, to stay where they are.
Real estate market has a cyclical trend with ups and downs. To cash out now so you can buy again in twelve or eighteen months later is similar to stock day trading. It is not an excellent idea to speculate for most people as they're not dealing with just money but with a real asset with real value. Most importantly, it is where the family is living in. And if home owner sells their house now, they just have to buy another house that's just as equally expensive if not more!
However, the move to sell now and make a profit is perhaps less risky proposition for those homeowners who are seeking to downsize their lifestyle or who are near their retirement, to move to a less expensive area. For example from New York City, to a less pricey market, such as Atlanta.
The key challenge in a hot market, even for homeowners with substantial gains, is finding a suitable property at an affordable price. Many homeowners have found that buying a smaller home is a good way to lock in the gain on an appreciated home, as is moving to a less expensive housing market. There are plenty of affordable housing markets left around the country. And those people moving to these areas are often quite surprised at how far their housing dollars can go.
Furthermore, there is always the rental market. In most of the hottest housing markets around the country, rental price appreciation has not kept pace with the rise in housing prices, meaning that many former homeowners are opting to rent for a year or two while they wait for home prices to stabilize. This can certainly be a good strategy, and it can leave smart homeowners with a great deal more home for their money in the long run.
Andrew is the web owner of "Home Selling Tips: How to buy and sell house fast", a website that provides informational guide on home buying, home selling, home mortgage loan, real estate investment and more. You can visit his website at: http://www.buy-and-sell-house-fast.com
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