A House of Cards or a Brick House?
Summer 2017 ended up being a typical summer – slower open houses, fewer motivated buyers, albeit enough to absorb current inventory levels, and isolated pockets of price adjustments (increase and decrease). The listing price continued to be a crucial piece of marketing a property as it dictated the kind of activity level generated. Poor preparation to homes equated to fewer dollars in the seller’s pocket. We did not see a significant change to average prices and buyers were left wondering what the market was going to do in the coming quarters. There were a few pocket neighborhoods that experienced a bump to prices, but those locations started lower than comparable competing locations. Inventory was lower than previous summers, which influenced buyers’ fear on what to expect through year-end and into 2018. Though we may not know where the market is going, we know some facts about the current climate that should be considered when deciding whether to buy or sell real estate today:
Affordability Concerns – Affordability continues to be a real concern and will be even more apparent as rates rise.
Low Interest Rates – We are still sitting near all-time low interest rate levels, which helps fuel our market.
High Prices – Home prices are at all-time highs, but no one knows how much runway exists before a change.
High Equities – Stock markets are at all-time highs with many companies appearing infallible despite showing no path to profitability.
Think real estate prices are high? What about the equities market?
Much of the money to buy homes in our area comes from equities, so the rise in stock prices have given a huge boost to buying power. That, plus low interest rates and a strong job market has made for an ideal buying spree for the past several years in our area. I often hear, “Wish I would have bought earlier,” because prices are up so high. But how has it fared compared to stocks? I knew company stocks had gone up dramatically, but didn’t even know exactly how much until I ran the data and I was surprised at the outcome; I’m on the flip side of the conversation saying, “I wish I would have bought Tesla stock earlier.” If we say real estate prices are high, shouldn’t we say the same about the stock market? Homes are required to support the competitive job market, which is why I’ve been watching the job market so closely to try to gauge when hiring will slow or retract. It is a fact that prices are at an all-time high, but the unknown is how long the streak will continue. With that, life must continue and we need to decide what makes most sense for your situation today. There is still a lot of liquidity locally and even though prices are up dramatically over the past several years, it is unclear when it will change. However, the change can happen quickly, so we need to stay prepared. Real estate is a long-term purchase and isn’t one to be transacted every few years.
Good Reasons to Sell Today
Price: Prices are at the highest point ever and you want to cash out for several life reasons.
Hedging your Bets: Maybe you feel the market is about to turn, so you want to capitalize at the highest point.
Diversification: You want to utilize the profit from your home to investment alternatively.
Good Reasons to Buy Today
Life Changes: Life doesn’t stop (marriage, children, better job and better home/neighborhood) and you want to improve your lifestyle.
Buy/Sell Concurrently: Buying a more desirable property and selling your existing home. You will end up in a more desirable living environment and benefit by selling in the current market climate (least risk exposure).
Diversification: All your assets may be in one place, so you want to diversify. Consider buying one property now, then a buying cadence thereafter so you can take advantage of any market correction (dollar cost average).
Low Interest Rates: secure a historically low interest rate, which will keep your monthly borrowing cost low (possibly even lower than your monthly expense if buying after prices drop and rates increase).
Bad Reasons to Sell Now
No Plan: Having no plan is planning to fail – what will you do with the proceeds (pay taxes, invest, put under mattress, etc)?
Where’s Home: Where will you live and how will you get there? You may think selling is a great idea now, but not having your next home lined up may put you in a very bad position.
Bad Reasons to Buy Now
Speculation: You plan to buy now and flip it for a quick buck. Whether remodeling or rebuilding, the profit you expect to make can be washed away extremely quickly if the market turns during your project.
Upgrade Later – Think you’ll buy now and upgrade in a few years to a larger home or better location like others have done in the past several years? Don’t bet that we will see double digit growth year over year and use this property as a leap frog opportunity soon.
How much longer will the cycle continue?
There are many potential catalysts, such as pending tax reform, debilitating legislation to industries, rising interest rates (affordability), alternative investment opportunities, global political climate, etc. More than any time before, it is important to make sensible decisions for your family goals before making a buy/sell decision. Hindsight is always 20∶20, but we can make a sound decision for you based on your wants and needs.