Why is it a good time to sell and buy?
This is a question that I am asked regularly and quite literally was JUST asked this question walking into a lunch appointment by a friend Ive known for years. My honest answer is, It depends on your situation and motivation.
2020- "the year of the Covid pandemic turned out to be pretty much exactly OPPOSITE of what everyone thought it would be from a sales perspective. IT WAS GANGBUSTERS! You could sell a doghouse or tent for $100,000, figuratively speaking of course. But really, it was crazy. Bidding wars, appraisal gaps, escalation clauses...things we just were not used to seeing were happening and quite honestly, it made my head spin for one, but also made me very nervous for the near future....and queue May/June of 2022...rates increase, inflation is rising quickly, people are panicking, buyers are on the sidelines, builders are sweating...OH NO! Before I touch on why now is a good time to sell or buy based on your situation and motivation, I'd like to touch on my experience over the past 15-16 years in the Real Estate business.
2008- financial crisis and beginning of recession. Prior to 2008, the market was kicking A$$! Home values were up, rates were great (historically), homes were selling, people were making money..things were good..very good.. The problem that occured that was a big culprit to the financial crisis was that pretty much everyone with a pulse could obtain a home loan. I was even informed that there was something called a stated income loan for which you would state your income with little to no proof and you could obtain a loan. No I have not validated this, but common sense and the name seems like it was enough. Fraudulent loans, fraudulent behavior between lenders/appraisers/realtors may or may not have been in the mix..all of it fueled the bubble burst. Hi, my name is Troy Stiller and I decided to get into the Real Estate business in late 2007. Smooth move genius...haha. Luckily I was broke, extremely driven and I was NOT going to fail. It simply wasn't an option no matter what and I hustled my ass off and not only made it through, but excelled through.
Ok so from 2008-2013, I saw significant decreases in home values. Everyone did. Many did not want to believe it and thought I was going to get into a fist fight at many listing appointments when I expressed my market value for a clients home..but fortunately..for my sake I did not. I cannot fight. HOWEVER, MANY SELLERS WERE OK BRINGING MONEY TO TABLE TO SELL THEIR HOME AND PAYOFF THEIR CURRENT MORTGAGE. Yes, I put that in all caps! I remember one instance that a client of mine needed $30,000 to payoff a mortgage on his primary home for which he owned for 3-4 years..and he did it no problem. Anyone, if anyone is reading this..you may be asking how or why? This is where the SITUATION AND MOTIVATION comes in.. So this particular client sells short of whats owed on his home, brings $20,000 to the table to pay his mortgage off and is OK with it? Yes..and here is why. Its simple..he wanted to upgrade to a bigger/nicer/ home. Allow me to explain.. heres the scenario.. and I will use easy numbers for ease... Client purchases home in 2004/05 for $200,000 at a 6% interest rate.. Lives there for 3-4 years, Market crashes, Values plummet, and left him with a home value $20,000 short of what's owed on it. So..in 2004/2005 (when he purchased his home..) the client missed out on another home (bigger, better, more expensive ) that they liked way better. Well... now the home that he originally liked better was on the market..in foreclosure for $220,000 and was originally listed for $300,000 back in 2004/2005. ( Now..don't get me wrong there were a few cosmetic items needed to get the way they wanted, but overall, it was a steal.) So...seller eats $20,000 to sell his home, but ends up buying a bigger, nicer, better, for $220,000 and now is UP somewhere likely in the $50,000 range in equity AND secured a 4.5% interest rate.
The moral to this story is that the market affects all properties...just not yours. If yours decreased by 10% of value..so did the neighbor..and maybe more depending on the price point. They wanted to upgrade and saw an opportunity to take their family to a newer, bigger, more suitable home at a steal of a price. Today, that home is probably worth $475,000 and the likely refinanced to below 4% and maybe even down below 3% depending on timing. They won!
So with this scenario, it made sense for them to take it on the chin..to then come out smelling like a rose later. If they were wanting to downsize, this scenario may not be great and I'll put in numbers below and explain.
Typically we interpret market changes by % either increase or decrease. If a market is down by lets say..10%, one could have a home valued at $400,000, less 10% is now at $360,000. If they were looking to downsize cut in half with a home at $200,000..less 10% would be $180,000. So, that person would realize a loss of $40,000 based on current market conditions, only to make up $20,000 on the buyside. Make sense?
So..when someone ask me if its a good time to sell/buy, my answer is usually followed by a question of situation and motivation. Once we all figure that out together, I can give my honest opinion and advise them the best way I can based on this information.
In conclusion, todays market is NO WHERE NEAR the market in 2008-2013. I know..I lived and breathed the market since entering the business. The massive GAINS that we saw over the past 2-2.5 years were so great that home values would have to really take a massive hit to even touch where they were in 2013 for what I call "The Bottom." The major difference between now and then is that rates are higher than they've been since 2001 hovering around 7%. Lets not forget to mention that 7% is historically a low rate. We ALL got spoiled for a LONG time with below average rates and its just a hard reality for people to grasp. Those rates are LONG GONE and we are not likely to see those in our lifetime.. Prices have fallen approx 10-12% for which buyers are now understanding that. "I can buy a home for less than in 2020-2022, get a higher interest rate...but they know its temporary. Why??? because rates will likely drop/flatten and the buyers intention would to refinance later....in turn.. WINNING. What will happen when rates do decrease?? Prices will likely creep back up because we are still in an unbalanced LOW inventory market.