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Risks of trading up to larger home

In soft market, move could spell financial disaster

Few homeowners cheer when home prices soften, but a soft market can actually benefit homeowners who have been waiting for a prime time to move up to a larger home or to a more expensive home in a better neighborhood. Let's say home prices declined 10 percent in your area during the past year. This decline affected all price ranges equally. So, if you owned a house that was worth $600,000 last year, it would be worth only $540,000 today. However, if the trade-up home you hoped to buy was out of reach financially at $1.5 million, you can now buy it at a discounted price of $1.35 million. Although you lost $60,000 in value on the home you want to sell, you'll pay $150,000 less on the home you want to buy. So your transaction costs will run $90,000 less than they would have a year ago. This sounds great on paper. However, there are several variables to consider before forging ahead. In the first place, the depreciation rate may not be equal across all price ranges. In many ar...

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