We have a year or more of improving real estate market conditions behind us. Yet, many home sellers are using the same strategies they were using when market conditions favored buyers. This may not make sense. If selling a residence prior to purchasing another is not a requirement, it may be far better financially to purchase a home now, then wait until the future to sell the property that won’t be used. Let’s look at the following scenario to see how this works:
A homeowner wishes to buy another home but doesn’t want to keep the home they have. The homeowner has waited several years prior to listing their home for sale in anticipation of prices recovering. The strategy paid off and prices have risen 12% in the past year alone. The house the homeowner is selling will now sell for $500,000. The homeowner wants to buy another for $400,000. In the homeowners mind, it now makes sense to proceed with selling their home as they begin their search for their next property. If they buy for $400,000, they have the home they want and have put $100,000 into their reserve account.
Wait a minute! Financially this doesn’t make sense based on what is likely to happen in the future if appreciation continues at the same 12% pace. What if the homeowner could afford to buy another home without selling? Let’s say the homeowner buys the $400,000 home, but waits until next season to sell the home they already have. At 12% annual appreciation, the $500,000 home the homeowner wants to sell would then be worth $500,000 x 112% = $560,000. By waiting to realize the extra 12% increase in value, the homeowner now has $160,000, much more than he would have had by selling too quickly.
What is the message?
If you buy your next home now and wait a little longer before you sell your existing home, it makes sense to do so. In other words: “BUY NOW & SELL LATER” when real estate market prices are increasing by double-digits!