Last week my husband and I were outside working on our home’s curb appeal. We’ll be listing the house for sale soon as we have plans to move this fall. A neighbor came across the street and asked how things were going. After a bit of small talk I mentioned that we would be listing the home soon which meant he would have new neighbors (again). Then, he said: “yeah the market is so hot. We’re going to list our house too. We don’t know where we’ll go but with these prices, we want to sell.”
Don’t misunderstand, if you have to make a move this is a different story. But if you’re looking to make a move just because you can see the appreciation in your property I urge you to think twice.
For starters, the market is changing. Whether you feel it yet in your area the data shows inventory is on the rise. In fact, the number of active listings nationwide increased 11% from May to June. As lack of inventory was a major driver in the sharp increase in prices over the last year, this is a metric to keep an eye on. Of course there were other factors which led to the market hysteria such as the price of lumber (down 40% in June, by the way) and mortgage rates we haven’t seen in this lifetime.
Second, even if the market isn’t slowing down you still face a fundamental problem – buying at a premium. Your home might have appreciated by 15% (or more) in the last year but so did the home you’re looking to purchase. Even downsizing might mean taking on a similar mortgage payment as the loan you have now. So what should you do?
Well, if you haven’t already – look into a refinance. Interest rates are still quite low and if you haven’t capitalized on this environment you should look into it. A refinance could lower your monthly payment and decrease your loan term producing significant savings over the life of the mortgage. In addition to these benefits you might have an opportunity to eliminate your mortgage insurance. If you’ve seen a dramatic increase in property value read this article about eliminating PMI.
You do have an opportunity to undo what might have been a prior bad decision. Being “overhoused” is a legitimate financial problem in this nation. If your current mortgage payment is more than 25% of your net income I’m talking to you. If you’ve been in your home for longer than two years you most cases you’ll qualify for the Section 121 exclusion. In summary, a married couple can exclude $500k and a single filer can exclude $250k in profit from the sale of their primary residence. In a still warm real estate market you could decrease your housing expenses by selling and committing to renting in the short term. Contrary to popular belief, renting is not “throwing away your money”. Living in a home you cannot objectively afford is your true financial downfall.
The bottom line is this, don’t just sell your home because you see dollar signs. If you don’t have to move, now likely isn’t the time. If you’re overhoused, consider using this opportunity to rent until the market cools. Finally, if you’re sticking to your current home look into decreasing your payment by either refinancing or eliminating PMI. If you have questions about any of these options our team is here to help. Give us a call, schedule a meeting, or send us an email and we’ll help you weigh this decision.
The Hey Money team, including Kristen, are available 12 hours a day, 5 days a week to help guide you through major life decisions like selling or buying a home. To start your subscription today, go here!