By Aune Tietz
MSNBC today posted a story about a local couple who wanted to sell their condo to move into a house, but was hesitant to sell now because their condo had lost value since the peak in 2007. That is, until they did the math and realized they are actually better off now, than they would have been 2 years ago.
It's a simple argument: everything went down with the market by about the same rate, but in absolute terms the more valuable properties lost more. Assume your current home was valued at $400,000 in 2007, and lost 18% of it's value since ($72,000). The house you want to upgrade to was $600,000 in 2007, it also lost 18% of its value ($108,000). By upgrading now, instead of 2007, you'll get $72,000 less for your current home, but you also have to pay $108,000 less for your new home, so you are $36,000 better off now than you would have been in 2007.
This is a simplistic example. Homes of all types, price ranges, and neighborhoods, did not decline at the exact same rate, so your mileage may vary, but the general principle holds true. The more valuable homes lost more in absolute dollars. So in general, if you are upgrading, now is a better time than 2 years ago.
And the differential in decline rates between home types, or neighborhoods, may very well be in your favor, again especially if you are upgrading.
Consider the couple from the MSNBC story again. They were upgrading from a condo to a single family house. According to Northwest Multiple Listing Service data reported earlier this month, the median sale price for transactions closed in March was down 15.4% from March 2008 or single family houses, but only down 8% for condos for the same periods. So they got a double upgrade benefit, once for upgrading in price range, twice for upgrading in home type.
Bottom line, if you are thinking about upgrading, don't fret about what your current home could have fetched in 2007, you are very likely to be better off by having waited until now.
It's a simple argument: everything went down with the market by about the same rate, but in absolute terms the more valuable properties lost more. Assume your current home was valued at $400,000 in 2007, and lost 18% of it's value since ($72,000). The house you want to upgrade to was $600,000 in 2007, it also lost 18% of its value ($108,000). By upgrading now, instead of 2007, you'll get $72,000 less for your current home, but you also have to pay $108,000 less for your new home, so you are $36,000 better off now than you would have been in 2007.
This is a simplistic example. Homes of all types, price ranges, and neighborhoods, did not decline at the exact same rate, so your mileage may vary, but the general principle holds true. The more valuable homes lost more in absolute dollars. So in general, if you are upgrading, now is a better time than 2 years ago.
And the differential in decline rates between home types, or neighborhoods, may very well be in your favor, again especially if you are upgrading.
Consider the couple from the MSNBC story again. They were upgrading from a condo to a single family house. According to Northwest Multiple Listing Service data reported earlier this month, the median sale price for transactions closed in March was down 15.4% from March 2008 or single family houses, but only down 8% for condos for the same periods. So they got a double upgrade benefit, once for upgrading in price range, twice for upgrading in home type.
Bottom line, if you are thinking about upgrading, don't fret about what your current home could have fetched in 2007, you are very likely to be better off by having waited until now.
Claire Zaner
Karissa Webster
Allen Jaworski
Aune Tietz
Danny Adamson
Jason Wall
Glenn Roberts
Marjie Cunningham
John "Mack" McCoy
There's also the benefit of those lower interest rates, which means about a 20% lower payment on the same amount borrowed.
It's also possible to trade down in this market if you have equity. Some people, retired or near it, might be looking for a smaller place. They could buy now while prices and interest are both low. Then they could rent their bigger place out for anything short of 5 years and still get the $250,000 ($500,000 for married couples)exclusion from taxes, provided that law is still on the books when the time comes. Hopefully values will have gone up substantially by then.