Friday, October 7, 2022

Should I sell or should I stay?

Sounds like a song from the Clash in the 1980s... it is however a valid question for would be sellers in this current real estate market we find ourselves in. It genuinely depends on what your current situation is and what your new purchase would be when you move. In general local markets move closely together. Sometimes there can be certain sectors of real estate that take a bigger hit than others or out perform the broader market. Key neighborhoods can also over or under perform relative to the regional trends, but broad trends tend to effect to region equally. 

Sellers that have a large equity position should be motivated to sell prior to a negative value adjustment as lower prices erode their equity. This is especially important if the home has a mortgage balance. As home values decline they tend to drop faster than the mortgage balance and that create inequity for the seller when they go to repurchase. If the seller is downsizing locally or moving to a more affordable area, then selling now is prudent. 

Sellers thinking about moving up may want to rethink that position in this market. This runs counter to my own best interests, but it is sound advice. Most homeowners sitting on a house with a mortgage are at a much lower rate. Many refinanced including myself, when rates were in the 2's and 3's. With rates now in the 7's and 8s the cost to move up will be substantial. That being said, if prices start falling the opportunity to make that move up could collapse and then the seller is likely stuck for a few years.

A seller that is free and clear or has a very small mortgage balance (less than 30% LTV) looking to move laterally or downsize is in a good position either way. Selling now allows them to capture maximum equity and they could benefit from softening prices when they close and repurchase 30 to 45 days later. If they wait and the market erodes, the price they get is lower but the price they pay on the next smaller house will also be proportionately more reasonable. 

Sellers that should be wary in these current market trends are those with a higher LTV in excess of 80% as they could lose their equity position if they wait too long. Every seller is unique and potential sellers are wise to contact their trusted agent and loan officer to get the facts of their specific situation before deciding on a course of action.

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