Get The Facts on Buying or Selling in a Down Market
Posted by Pam & Joanna | Visited 934 times, 1 so far today | Currently 1 Comment »
Everybody wants to know how to best time the market when buying or selling a home. Especially if you’re thinking about buying in a down market where home prices are still declining. Will they go lower? Should you wait?
Consider these facts to answer your questions
- If you are a seller wanting to move up to a bigger and better home, now could be the best time. The longer you wait to sell, the lower the price of your home could fall.
- If you sell and buy simultaneously, you’ll still be ahead of the game because the price reduction on the purchase is greater than the loss on the sale.
Consider ‘Loss’ versus ‘Profit’
- Let’s say your present house is worth $300,000, but because of high inventory and few buyers, you must reduce your price by 10%. So instead of receiving $300,000, you would get $270,000, and ‘lose’ $30,000.
- But Consider this; Lets say you bought this home 10 years ago and paid $100,000, your still ahead $170,000, less the cost of the sale, aren’t you? (Don’t include the monthly payments you made, you would have paid that if you were renting anyway, and would not have enjoyed the tax write off)
- Let’s also say you’re planning on purchasing a ‘move up’ home for $500,000 in the same distressed market, you would very likely buy that house at the same reduced rate 10% or $450,000. This would mean you saved $50,000.
Let’s Review the Numbers
- You ‘lost’ $30,000 on the sale of you home
- But you ‘made’ $50,000 on the purchase of your new home
- Doesn’t that put you $20,000 ahead?
Don’t Forget The difference Interest Rates Make
- Each 1/2 point increase in interest rate takes $25,000 in purchasing power from you
- Each 1 point increase in interest rate takes $50,000 in purchasing power from you
- Each 2 point increase in interest rate takes $100,000 in purchasing power from you….(you get the picture, don’t you?)
Purchase Price versus Interest Rates
If you put 20% down and qualify for an 80% loan, here are your principal and interest payments on the following purchase prices;
- $425,000 sales price, at 8.25% interest = $2554 payment
- $450,000 sales price, at 7.75% interest = $2579 payment
- $475,000 sales price, at 7.25% interest = $2592 payment
- $500,000 sales price, at 6.75% interest = $2594 payment
- $525,000 sales price, at 6.25% interest = $2586 payment
The payments are almost identical, however, the home you can afford to buy at 8.25% is $100,000 less than the home you can afford to buy at 6.25%. If you wait for prices to further decline, the perceived value could be lost due to higher rates.
The bottom line is, the best thing to do is weigh all the facts in your own situation. Don’t believe everything you see or read in the news, they’re in the business to sell “news”, and unfortunately, doom and gloom sells newspapers. Make an informed decision, run your own numbers.
Elizabeth Weinhab of about.com contributed to this article.
Excellent article and well thought-out. It explores some concepts that escape many people, except those who prosper in volatile markets. Well done.