by Steve Harney on March 24, 2010
In Monday’s blog, 5 Good Reasons to Buy That Home NOW!, I discussed why now was the best time to jump in and buy a home. Today I want to discuss why now is also the time to sell a house you own. It might seem contradictory to claim that it is the best time to buy and the best time to sell. But actually both statements are true because of same reason – government stimulus.
The reason more people should be jumping in to buy is because of the Homebuyers’ Tax Credit and low interest rates. Combined these two situations will dramatically lower the ‘cost’ a buyer will pay even if home prices continue to soften.
Selling now makes sense because, once these advantages disappear, there will probably be a drop-off in demand. And we all know that ‘price’ (which the seller is most interested in) will be determined by supply and demand. So let’s go over those 5 good reasons to sell NOW!
1.) The Homebuyers’ Tax Credit will expire next month
Obviously the purpose of the tax credit was to entice buyers to purchase houses. But what will happen to demand once the tax credit ends? Many feel that the program dragged buyers forward. By that I mean that buyers who had planned to purchase later in the year may have moved up their plans to take advantage of the credit. The only question left is how badly will demand drop-off? Less demand usually equates to lower prices. Below is a graph that shows the dramatic reduction in demand after the Tax Credit was initially supposed to expire in late November:
2.) The Fed is about to exit the MBS purchase program
The mortgage industry has returned to the standard that every buyer must ‘qualify’ for their mortgage. If interest rates rise, the mortgage payment rises also. As a result, there will be fewer buyers who qualify at each price point.
In yesterday’s post our resident mortgage expert, Dean Hartman, explained that interest rates will rise as we proceed throughout the year. That will have a negative impact on demand.
3.) Many of today’s sales will not create a buyer
In a normal market almost every sale creates another buyer. However in today’s market many of the sales are short sales or foreclosures. They do not create an additional buyer. Again DEMAND DOES NOT INCREASE.
4.) There is a ‘shadow’ inventory of foreclosures coming to the market
There is a large volume of foreclosed properties which are currently being held by banks. In the near future these houses will come to the market at discounted properties. How many? In an article in the Wall Street journal this past week titled How Many Homes Do Banks Have Up Their Sleeves? the following estimates were reported:
Barclays Capital uses foreclosure data from mortgage securities to estimate that there are slightly more than 600,000 homes in the process of foreclosure.
RealtyTrac, which examines public records, estimates the number is closer to 700,000.
Independent housing economist Tom Lawler combines data from Fannie Mae, Freddie Mac, the Federal Housing Administration, Federal Deposit Insurance Corp., and securitization trusts to conclude that there are actually about 500,000.
As these properties come to market there will be an increase in supply of homes. This will create downward pressure on prices.
In addition, more and more families are finding it difficult to keep up with their mortgage payments. And once they fall behind, they are finding it almost impossible to catch back up.
Last week Housing Wire ran an article titled In Housing, a Supply Problem of Epic Proportion . The article reported:
To understand the depth of the problem here: we’ve already got 4.7 million loans either 90+ days delinquent or in foreclosure, according to LPS data.
How do these numbers compare to numbers in the past? Here is a chart from the LPS report showing both foreclosure and delinquency percentages over the last fifteen years:
The 90+ day delinquencies will eventually end in either a foreclosure or a short sale. Again an increased supply of distressed properties can only negatively impact prices going forward.
5.) It isn’t always about the money
If you are considering whether or not to sell your home there must be a reason. Perhaps it is time to move-up to that dream home on the water. Maybe the time has come to downsize and have the freedom to travel more. Maybe you miss the rest of your family who now live in a different part of the country.
Selling a home should not ONLY be about the money. Sometimes it is about moving ahead in your life and doing the things you want to do or need to do. Don’t let money get in the way of living your life.
What does this mean to you?
If you are thinking of selling your house, consider the theory of supply and demand. After this spring, demand might wane because of the exiting of government support and the supply of distressed properties will probably increase dramatically. Now is probably the time to sell.