Sell Now, Buy Now, or Wait?

By Ken Urman, Realtor 

The question I am asked most often this year is, “Should I sell now or wait until prices increase more?” This is not an easy question to answer because much depends upon the amount of your

mortgage and the amount of equity you have in your home. Yet several considerations suggest that this is a good time to buy and to sell a home.

The factors to consider are:

1.       Mortgage rates, although still at record lows, are beginning to rise.

2.       A mortgage rate increase of even ½ point will cost hundreds of dollars more per month.

3.       The average U.S. net worth has reached an unprecedented level; this is certainly the case in the Seattle-Bellevue-Lake Washington area.

4.       High-paying employers in the area are hiring, increasing both the demand and the price of available homes.  Seattle jobless rate is now under five percent.

There is an extreme imbalance in our area between demand for homes and homes currently on the market. Many homes, particularly in highly-desirable neighborhoods, are receiving numerous offers that are significantly above listing price. This creates a very advantageous market for sellers. Throughout the U.S. homeowners are caught in negative-equity situations, owing more than the current value of the home. Many of these homeowners cannot afford to sell.  This contributes to the buyer-seller imbalance. Add to this people who want to move to a more desirable location or a larger house and newcomers to the area, and the result is a very competitive market.

As mortgage rates rise, the actual price of a home also rises. As long as mortgage rates are at historic lows, the actual cost of purchasing a home is far less than it will be as mortgage rates increase – and they will increase, probably to six or seven percent in the next few years. This is a strong argument for buying now. Look at the difference in total cost of a home purchase at a higher interest rate:

Purchase of a $750,000 home with $250,000 down payment and a loan of $500,000

15 years at 4%   Monthly payment = $3,698.44                    Total Interest = $165,719.13
15 years at 7%   Monthly payment = $4,494.14                    Total interest = $308,945.44

30 years at 4%   Monthly payment = $2,387.08                    Total interest = $359,347.53
30 years at 7%   Monthly payment = $3,326.51                    Total interest = $697,544.49

Clearly, higher interest rates make a home more expensive to purchase.

Whether you are considering buying or selling, rising interest rates make it beneficial to act now. In a seller’s market, sellers may get a higher price for their homes due to competitive bidding. Further, sellers can expect to benefit from lower interest rates on their next home purchase. Buyers are able to invest significantly more in the house and pay less interest if they buy while mortgage rates are low.

Some people in the real estate profession are predicting a very troubled trade-up market in two or three years as interest rates and home prices rise. I agree with this prediction, particularly in a luxury home market like Mercer Island and the communities surrounding Lake Washington. The current extreme supply-demand imbalance is driving both competition for available homes and prices of those homes. When interest rates reach six or seven percent, it will become more difficult for owners of mid-range homes to trade up. The high salaries paid by many local employers will also continue to push prices higher. I have no doubt that, in the long run, you will be happy with the outcome of either a sale or a purchase now.

To schedule a free consultation to evaluate your options as a seller or as a buyer, please call 206-230-0833 or 206-499-4948. I’ll be happy to come to your home, and I’ll bring the coffee.