Plan for the worst and hope for the best. This is a reasonable course of action if you’re planning to sell your current home and buy another one in the current market.

There are good reasons to do so for some homeowners whose homes no longer work for them. Interest rates are lower than they were a year ago (hovering around 6 percent at the beginning of September 2008) and home prices have dropped in many places.

Plan for the worst and hope for the best. This is a reasonable course of action if you’re planning to sell your current home and buy another one in the current market.

There are good reasons to do so for some homeowners whose homes no longer work for them. Interest rates are lower than they were a year ago (hovering around 6 percent at the beginning of September 2008) and home prices have dropped in many places. In general, there are more homes to choose from. And, there’s less competition from other prospective home buyers. This gives buyers more opportunity to negotiate.

Trading homes in a soft market can be particularly advantageous for homeowners who want to trade up to a more expensive home. They may sell their current home for less than they would have a couple of years ago. But, they will probably pay less for the more expensive home.

Price declines haven’t been uniform across all price ranges. But, if prices in your area have declined approximately 10 percent since last year, and your home would have sold for $500,000 then, it might sell for $450,000 today. The upside of the equation is that the house you want to purchase now for $900,000 might have sold for $1 million a year ago. You would come out $50,000 ahead.

Several years ago, it was far less risky to buy a new home before selling the old one. Qualifying for financing was also less rigorous. Many marginally qualified buyers were able to arrange financing to enable them to buy before selling.

Some of those buyers who bought first before the August 2007 credit meltdown found themselves in hot water when the housing market slowed and financing became more difficult to obtain. In some cases buyers were left with two houses and multiple mortgage payments that stretched their ability to pay.

To help defray the costs of owning two homes, some owners rented out the old house to cover some of the costs of carrying the property. It became difficult for some owners to stay current on mortgage payments if the property was encumbered with a low-interest-rate mortgage that adjusted to a much higher rate. Many of these properties have ended up in foreclosure.

HOUSE HUNTING TIP: Most homeowners would prefer to know where they’re going to live before selling their current home. However, given current market conditions, you should buy before selling only if you can qualify to buy the new house and keep the older home should it not sell quickly.

Most homes sell if they are priced right for the market. But, to be on the safe side, be extremely conservative in estimating the probable sale price of your current home. And, factor in the possibility that it will take longer than you anticipate to sell.

An option for some sellers is to keep the current home as an investment. If you plan to take this approach, be sure to consult with your tax advisor regarding the tax consequences of converting a single-family residence to a rental property.

To avoid the risk of falling short of what you think your current home will sell for, consider selling it before you buy a new home. This may mean moving to an interim rental. If prices are soft in your area, the risk of losing out on home-price appreciation while you rent rather than own a home is slim. You might even get a better deal on the new home by waiting awhile before buying.

THE CLOSING: Selling first and renting for awhile also removes the pressure of buying whatever might be available, which may or may not suit your long-term needs.

Dian Hymer is a nationally syndicated real estate columnist and author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer’s Guide," Chronicle Books.

***

What’s your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription
×