Like many, you may have been sitting impatiently on the fence for the last three years hoping for a miracle that would allow you to sell your existing home without sacrificing too much more equity … and buy at today’s price and interest rate.
At least once a week I get a call from a previous client or someone “just checking out the market,” wanting to do exactly that. And, who absolutely wouldn’t want to buy a house with the bargains out there??!!
Let me try to help you make a bit of sense out of this type of scenario.
The latest statistics from the Office of Federal Housing Economic Oversight (OFHEO) and Federal Housing Finance Agency (FHFA) indicate that home prices in Washington State, overall, lost approximately 8.67% from the end of 3rd quarter 2010 through 3rd quarter 2011, but gained 111.07% for the 20 year period ending 3rd quarter 2011. Okay .. math … 111.07% divided by 20 years = 5.55% a year appreciation!
Now, assuming that housing prices are getting to the bottom end of their free-fall, let’s also assume that housing prices will continue to appreciate overall at a safe rate of about 5% a year for the next 20 years. There’s still going to be some skidding when reviewed on the short term, but remember that real estate is a long term investment — 10-20 years.
Continuing with assumptions, let’s presume that housing prices in Washington State might fall another 7-8% over 2012 (I think that sounds like a bit much, but my crystal ball is a bit cloudy, so who knows? Note, that The Housing Predictor anticipates an approximate drop in the Seattle area of about 5.1%.)
So … your current house valued today at, say $250,000, might be worth approximately $230,000 or maybe $235,000 by year end. Yikes … another nosebleed of $15,000-$20,000. Perhaps you owe approximately $150,000-$200,000 … and you’re paying around 6% in interest on your mortgage. (Quick math … $200k at 6% = principal & interest payment is approximately $1,200 a month – but you’re paying more than that because you haven’t refinanced since 2008 and your house was worth more and your loan was bigger. I’m guessing you’re probably paying around $1,600 a month principal and interest.)
You want a bigger house, different neighborhood, lower interest rates. And you can buy that for, say, $275,000-$300,000 at today’s prices. At the end of the year 
(assuming you wait until next December), those houses might be priced at $255,000-$280,000.
Let’s look at what that means to your pocketbook by comparing interest rates.
Right now, rates are sitting right around 4%. They move around a bit … but let’s say 4% just for talking sake.
Analysts have been surprised that rates have stayed as low as they are, so let’s presume they go back up to 5%. If you buy in January rather than waiting until next December, your purchase might look like this:
|
Today’s Price |
Price at End of 2012 |
|||
|
Purchase Price |
$275,000 |
-7% |
$255,000 |
|
|
Down Payment |
20% |
($55,000) |
20% |
($51,000) |
|
Amount Financed |
$220,000 |
$204,000 |
||
|
Principal & Interest Payment |
4% |
$1,050.30 |
5% |
$1,095.12 |
Interesting … buying now at a higher price still saves about $45 a month over waiting until year end and paying a bit more in interest.
Now, let’s look back at that historical trend for appreciation. Conservatively, let’s say that house gains in value 5% a year overall for 20 years.
Therefore, if you buy a house today at $275,000, twenty years from now at 5% a year (hmmmm, 100% increase), historically, that house could be worth approximately $550,000. Plan to keep the house 10 years? How about approximately $412,500?
Should you sell … and buy new in 2012? “I” think so; personally I expect prices to start to rise in 2013. But, of course it has to make sense to you. If you plan to buy a home and believe you’ll be able to stay in it for 10 years or more, then absolutely.
If your overall payment on a replacement home is within your budget, you have the funds to close the sale of your old home and a new one, then let’s get going while rates are amazing and prices are too!
*man on fence graphic thanks to Flickr, Michael Kuhn
