The real estate market is full of ups and downs. So when the market in your area is at the boiling point, should you strike while the iron is hot to buy or sell?
When you’re thinking about testing the waters with either a home purchase or sale, there’s a lot to consider before you make a decision.
Get expert advice before you make a jump into or out of a market. Here are some tips to get you started.
Determine just how hot your market is
Unless you actively seek out financial news, it may be difficult for many homeowners and potential buyers to know whether or not their market is at its peak.
“When you’re in a frothy market, you’ll typically see double-digit increases in values from one year to the next,” says Bridget Burgess, a client adviser at Seattle-based Laird Norton Wealth Management. “Once you’re seeing that, people walk away with a sense of urgency.”
Once buyers and sellers determine that their market is doing well, they often feel the need to act quickly. However, when it comes to real estate, it’s not always best to make a move just because a market is showing healthy signs.
Consider the long term
Real estate, more than any other type of investment, is emotionally charged. Though some buyers may purchase real estate with emotional detachment, most of us are thinking about a place to call home.
A red-hot real estate market can trick us into thinking that we need to only think about the bottom line.
“A frothy market might distract you from where the real estate might fit in your overall picture,” explains Kristi Mathisen, managing director of tax planning at Laird Norton Wealth Management. “Instead of selling, there could be a possibility of moving a home to be a rental home or giving your home to your children. A frothy market encourages people to focus on one transaction. Don’t let the market drive you into a decision.”
Just because there’s an opportunity to sell doesn’t necessarily mean that it’s the right move for you. When you are thinking about selling, be sure to analyze where you are in your life.
Are your kids young, or have you been an empty nester for years? Are you close to retirement, and are you considering moving out of town? These are the types of questions to ask yourself before you make a move.
When you’re a buyer, a peak market can be a little bit riskier. Ask yourself if you’re comfortable with being upside down on a home if the market potentially collapses. Determine whether it makes more sense financially to rent or buy. Online calculators can help you figure out the best option.
What worked before doesn’t work today
The landscape of homeownership is completely different today than it was even a couple of decades ago. Wages have been stagnant for some time, and it’s not as easy to “grow into your mortgage” as it used to be.
Low mortgage rates also make it difficult for a buyer to refinance in the future.
“In the old days – when mortgage rates were five, seven, or nine percent – the usual advice was this: ‘Buy the biggest house you can finance. Try to get the worst house in the best neighborhood and fix it up,'” Mathisen says. “The idea was to stretch to buy now and refinance later to lower your payment. This advice is now questionable because mortgage rates are already at historically low levels (about 3.5 percent for 30 years; 2.8 percent for 15), so it’s unlikely refinancing can ever save a current buyer money.”
Take your time
The important thing to remember is that it’s smart to take your time to think about real estate decisions. After all, home sales and purchases cannot be undone quickly or easily – if at all.
It’s also crucial to make sure that your mortgage is not the only investment that you have, and to diversify, advises Burgess.
When you take the time to carefully calculate the costs, benefits, and purpose of the property you want to sell or invest in, you’re much more likely to arrive at a decision that will be the best for you and your family.
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