Lately I have been in contact with several homeowners who are considering their options when it comes to selling their home. However, unlike most homeowners, these people are in an equity position with respect to their home; they are not in distress or facing foreclosure, they are simply weighing their options.
Regarding what the market is doing, is it a good time to sell right now? The answer is that it depends. Taking San Diego as a general barometer of real estate health, what we have is a bifurcated market that is segmented into activity at the low and high end. As home values rise above $500,000, there are apparently fewer and fewer buyers willing to enter the market. For one thing, most people who could be approved for a larger amount a couple of years ago can’t because of stricter lending standards. Other buyers choose to go for a lower price as we have all had a healthy dose of humility and (hopefully as a nation) are moving in the direction of living within our means.
I have clients who are looking to buy homes over $500,000 and are patient and strict in their needs and wants. They can hang in there and find a place that works on all (or most) of the levels. It’s a buyer’s market as you approach $1 million in price, but there are still buyers out there. Don’t get it wrong; this is not the market of 2007 and 2008 where we saw very little activity no matter what came up in the market. If a well-priced, well-liked home is available, chances are there is a multi-bid scenario. The best advice would be to be prepared, know what you like and be ready to jump in once the opportunity presents itself.
Bargaining and price cuts are common for houses that don’t hire right away, so when it comes to selling your home for the highest price, it’s never been more important not to overvalue your home. Use the expertise of your real estate professional to accurately assess your home’s value and consider selling it for a little less than that value. For a buyer to move into a property in this part of the market, the buyer needs to get a good deal to proceed, and price concessions certainly work.
For the lower end of the market (below $500,000) activity remains strong and there are several buyers out there. I’ve seen a decline in activity levels since homebuyer credit first expired, and I’ve seen an increase in new listings, and by most accounts, the real estate community expects a good deal and a steady stream of foreclosures and short sales to continue for the next 18-24 months. All of these variables point to further stabilization in price because, while there is still a lot of distressed inventory that needs to change hands, there are buyers ready to snap up these properties.
Demand and supply are more in balance than at the beginning of this year, so if one were to sell their property today at the low end of the market, it would not be normal to expect a dozen offers in the first week as it has been in the last 6-10 months. Of course, if an amazing property that is well priced comes on the market, again, the buyers are out there and they will come in droves. However, if the property has its “problems” and its price isn’t amazing, it won’t sell right away like it has in the recent past. For a seller at this market price, doing the little things to make your home stand out from the competition is key. Lean on your real estate professional and get the best tips and tricks that are inexpensive and will make your property shine the best it can. If it looks good and is priced well, it will certainly sell. If it’s too expensive and dirty, expect it to languish on the market.
There are similarities for a seller in the low-end and high-end market, and they have to do with making sure their property is priced right for the market and is well displayed. As a seller, you are competing with distressed properties, and while the distressed property does not always show up well, is priced to move in, and is priced well enough, most buyers may overlook the condition and cosmetic issues.
The main differences between the high and low end are the large number of buyers at the low end compared to the high end. It is certainly more difficult to sell a house over $750,000 today. A seller at this price point has to do a lot to sell their home because market activity languishes at this price point. As we move up the price point into the $1 million+ range, this is even more apparent. In many cases, sellers must agree to significant or massive concessions on price or terms for a buyer to purchase their property.
So why would you consider selling your home now?
Well, consider the future. Ask yourself if you think your home’s value will increase dramatically in the near future (within the next 3-5 years). If you were remotely considering selling your house, and you think waiting for now is the best decision, how much more do you think your property will increase in value in that time period? Will it go down in value? What is the cost/benefit? Is there a big difference at all? Is now a good opportunity to move up?
These are the questions that will get the answers you need to determine whether or not this is a good time for you to sell. I can’t make a general statement because it always depends on your life situation and your general wants and needs. However, I have been advising clients that their best move at the moment may be to sell. I don’t see real estate values increasing dramatically anytime soon.
They are leveling off, and this is a great thing, and we can expect modest growth and appreciation at the lower end of the market and this will continue in the short term. For the high end of the market, the image is much less clear. I can see a flat line level of growth or even depreciation and reduced real estate values in the short term for high end and ultra high end luxury real estate. If one was considering selling their house at the higher end, one should take into account a potential reduction in real estate value and then consider the potential to appreciate again at current (and hopefully higher) values when selling in the next 3-5 years. years.
Therefore, time may be on your side when it comes to selling your home at the higher end of the market. And for the lower end of the market, timing may not matter at all because there won’t be an exceptional turnaround for at least a while, but what else matters in this decision?
Interest rates
I think there is a general consensus that in the future we will be experiencing high levels of inflation. This is due to the extraordinary levels of debt that the US is taking on. The most common way to tackle inflation is to raise interest rates. Interest rates for home mortgages right now are at historically low levels. They are stupidly low and stay that way for a long time because of what is happening in Europe and the Gulf right now.
Basically, everyone expects these interest rates to go up, so when you sell your house in a year or two and interest rates have dropped from 5% to around 6%, that’s a difference in monthly cost to the buyer average about $400 a month, $4,500 a year, and $143,000 for the life of a 30-year mortgage. That 1% makes a big difference, and that’s only 1%…what if it goes higher than that? This will weigh on a buyer’s mind in the future at the time he is looking to buy, and will cause a buyer to lower his purchase price range. Your house was affordable (today), but in a future environment of rising interest rates, that is no longer the case and a group of buyers will turn back to other less expensive homes.
When opportunity is abundant and it’s easy to do something today, it’s also very easy to be indifferent and do nothing about it. However, when it’s hard to do something that was once easy, you’re punishing yourself for not taking action when you could have gotten ahead. For sellers in this market, both at the high and low ends of the market, there is a real opportunity for you.
The promotion market has never looked so good! The upper end of the market is slow and the lower end is very active. That means that for those of you who are planning to move to a bigger house, now is the best time to do it. It’s easy to see that you could sell your current home for a fair price in a good amount of time and could drive down the potential price of the larger, more expensive home. Add to this the ability to finance this home at a surprisingly low loan rate, and you can see the inherent opportunity for move-in buyers.
For those just looking to get out, there is an opportunity cost on the table for not acting now vs. waiting in the form of stagnant overall growth (near-zero net change) in value and a high potential for rising interest rates for the prospective buyer in the future. When you also factor in all of your property’s upkeep costs, it may be the right thing for you to consider selling your place now to take advantage of the market activity.
Ultimately, the word is opportunity. It is available for those who are ready to take action. Be sure to consult your real estate professional and be prepared for some work to get your home in tip-top shape. For more information on this topic and what you can do to help sell your home, check out my website: http://www.michaeljwolf.com or feel free to contact me personally. I wish you the best of luck and the best of fortunes for all your real estate projects.
