When homes were appreciating at a fast clip, first-time buyers couldn’t buy fast enough. They were afraid of being priced out of the market. Many were. Repeat buyers — homeowners who wanted to trade up or down — didn’t want to sell their current home before buying a replacement. They were determined not to miss out on equity buildup.
In today’s housing market, there’s little chance that home prices will skyrocket in the near future. On Oct. 26, the Standard & Poor’s/Case Shiller home-price indices showed deterioration of growth rates in both their 10- and 20-city composite home-price indices for August compared to July 2010.
At the end of November 2010, Moody’s Analytics forecast a continued decline in home prices through the first half of 2011, noting that some areas will do better than others.
HOUSE HUNTING: Now is a time when you can sell your home first, rent for awhile if necessary, wait for the right home before you buy and, in some places, buy at a lower price than you would pay if you bought before selling. You also avoid the financial risk that can arise if you buy first and then find it difficult to sell your home for the price you want or need.
A downside to selling first is that you may have to go through the inconvenience of moving to interim housing before buying and moving into your next home.
You can possibly avoid an interim move if you’re buying in a market where there are plenty of homes for sale that appeal to you. In this situation, include a provision in the sale contract for your existing home that entitles you to rent your current home back from the buyers for awhile.
Don’t be surprised if the cost to rent back is higher than what you paid per day to own the home. Typically, when sellers rent back from the buyers, they pay the buyers’ cost of ownership — principal, interest, taxes and insurance (PITI).
A couple who sold their home in the hills above Oakland, Calif., before buying their trade-up home in neighboring Moraga were able to rent back the Oakland home for long enough to move directly from the old home to the new one. These move-up buyers were disappointed with the sale price of the home they sold, but were thrilled with the discounted price they paid for the more expensive trade-up home they bought.
It could take months or longer to buy a home in an area where there are few homes for sale and the well-priced ones are snapped up quickly, sometimes with multiple offers. In this case, you’re usually better off going to an interim rental. It will probably cost less per day and you won’t be under pressure to buy quickly.
In this market, you need to buy a home that will work for you long term. It’s worth the wait. Also, your buyers’ lender probably won’t allow a multimonth rent-back.
By selling first, you free yourself of homeownership expenses, which often run higher than rent. And the equity in your home will be liquidated and available to use for a down payment on the new home. Repeat buyers who won’t realize much, if any, cash from the sale of their home will at least be in a better position financially to qualify if they need a mortgage in order to buy.
Buyers in excess-inventory markets are often able to buy contingent on the sale of their home. But they tend to pay a higher price than they would if they had cash in hand.
THE CLOSING: Offers made contingent on the sale of your home have little chance of succeeding if there are multiple offers.