Movin’ On Up – How the Spread Works for You Should you wait until the market rebounds to sell your home? And yet, some potential sellers wonder if they’re better off waiting to sell until the market recovers. It really depends upon your ultimate goals of course, but if you’re at a stage where you need a larger home, then read on.
This week at our local marketing meeting we had a Mid Year Market Review. One of the broker panelists talked about this being one of the best move-up markets EVER! Let’s talk more about that. What makes it so?
Low, low prices! Very few areas of the country have been immune to the decline in values. And for many areas (especially those with the first and steepest declines), have stabilized and even ticked up slightly during the spring selling season while anxious buyers worked to comply with the First Time Home Buyer’s credit.
Low, low interest rates! There was rumor that interest rates would tick back up after the first quarter of the year, and that has not come about. Instead, we’ve seen rates dip, to unbelievable levels.
Do the math. Low prices and low interest rates in turn bring lower rates on insurance premiums and lower property taxes. When those variables are combined, you have two possible outcomes – either a lower total monthly mortgage payment, or more buying power.
So let’s say that in your location, home prices have declined an average of 25% over the past several years. Back then your house would have been worth $400,000. Let’s use a factor of 7.5% just for example’s sake for commissions plus other costs of selling. And on the purchase side, we’ll use a 2% factor for closing costs.
Your Current Home Then Your Home Value Now $400,000 $300,000
-30,000 less costs to sell -22,500 less costs to sell
370,000 net proceeds 277,500 net proceeds
Your Move-Up Home Then Your Move-Up Home Now $800000 $600,000
16,000 closing costs 12,000 closing costs
816,000 total cost then 612,000total costs now
The two columns below really illustrate the power of the spread. This is the difference between what the cost of selling and purchasing was at the market peak, compared to what it could be now. The spread really works in your favor in this type of market.
Your Net Then Your Net Now
$816,000 move-up sales price then $612,000 move-up sales price now
370,000 cash from sale of home 277,500 cash from sale of home
446000 net cost of move-up home then 344,500 net cost of move-up home now
$446,000 net cost of move-up home then
344,500 net cost of move-up home now
101,500 less today
That larger house cost you $101,500 less today than it would have before. Not only that, but the cost of owning that home is less over time, considering you can lock in a 30-year fixed rate loan at exceptionally low rates and count on that payment staying at an affordable level. And an added bonus? You’re paying property taxes bases on that lower rate. So if you’re toying with the idea of a larger home, maybe it’s time to run the numbers. Arming yourself with what-if scenarios can help you map out your future, and lay a plan out for success.
Karen Crowson, Realtor® Alain Pinel Realtors (925) 784-6208 Karen@KarenCrowsonHomes.com Tri Valley real estate for buyers and sellers in Livermore, Pleasanton, and Dublin. I can also help you in the surrounding areas of Alameda County and Contra Costa County including Castro Valley, San Leandro, San Lorenzo, San Ramon, Danville, Brentwood and Mountain House