What?!? That can’t be true — selling in a buyer’s market makes more sense? The answer is, it often does.
Conventional thinking is conventional
Most people think that it makes the best sense to sell in a seller’s market. But wait, where are you moving to? You need to live somewhere else, remember. Indeed, if you are moving into a smaller home, it absolutely does make sense — but if you’ve outgrown your current home, you’re better selling when the market isn’t as hot. This addresses when you’re buying and selling in the same market (which most people are), and that you are a move-up buyer, who is someone moving into a larger, more expensive home.
Yes, you will get more from selling during a seller’s market. And of course, everyone wants to get the most from selling their current home. So how is selling during a down market possibly a win?
You don’t get it both ways
Unless you’re buying in a hot seller’s market and moving to a different area with a slower, buyer’s market, you can’t have your cake and eat it too. You are selling but also buying, so make sure you look at the whole picture. And since the winds are rarely at your back both ways, which is better?
When is the money made in real estate?
Question: Which of these homeowners is in a better equity position? Is it the person who bought in 2007, or the person who bought in 2011? The type of home, location, etc. doesn’t matter — the only thing to consider is when they bought. The answer is 2011. Why? Because prices were down across the board in 2011, whereas they were still flying pretty high in 2007. And the answer to how well you bought often rests with when you buy.
Yes, it’s counter-intuitive
If you sell in a seller’s market, you’re hitting a home run on your sale, as opposed to hitting more of a double in a slower market — not as enjoyable on the face of it. But, when you’re shopping for something new, do you prefer to pay retail or to get a deal? Of course, you want a deal! Guess what you won’t get when you’re buying a more expensive home in a seller’s market — that’s right, a deal. You’ll pay prices at full retail-plus. Period.
In this example, you own a home that at the height of the market was worth $500,000, also showing it in a market down 10%. Your equity starts at $300,000. You are looking to move into a more expensive home which at the height of the market was valued at $800,000 and at $720,000 in the down market —down that same 10% as what you’re selling.
You make $50,000 less on the sale of your home during the down market. But you buy your next home for $80,000 less than you would have in a strong market. Cha-ching! That’s the sound of your net worth going up! Oh, and let’s not forget that if your loan amount is less, your monthly payments will be lower. That is a $60,000 swing to the positive for you in addition to the gain in equity when the market swings back more in the favor of sellers. And that, in a nutshell, is the hidden beauty of buying when the market is not at its peak.
The market is always in flux. Any specific snapshot in time can be extreme to the upside or the downside, but over the long haul it has proven on the whole to be a great investment. With that in mind, when the market does come back and is favorable to sellers, guess who’s “made the most of the down market”? Hopefully you.