Selling While Home Prices Are High

Selling while home prices are high. If you’re tired of living in your home, or it’s no longer right for you at this stage in your life, you should sell it and move.

By Ilyce Glink and Samuel J. Tamkin

Q: The way the real estate market is going, if my husband and I sell our house, we will more than likely sell high and be buying high, making it a “wash.” I know that no one can predict the future, but if we are buying high this year, do you think that we will get our money back on the “new” house in 8 to 10 years? By the way, I love listening to you on WGN when I’m at work!

A: No one we know can truly predict the future of real estate. Real estate economists have been predicting that mortgage interest rates will hit 5 percent for a 30-year fixed rate mortgage since 2012 – and we’re still waiting, which is good news for the millions of homebuyers and owners who have purchased or refinanced with some of the lowest interest rates in history over the past couple of years, in particular.

Selling while home prices are high.

Still, you’re right. If you stay in the same neighborhood, you tend to sell high and buy high or sell low and buy low. If you switch neighborhoods or if you sell a totally redone home and buy a small fixer-upper, you can often make that work in your favor.

For example, if you live in one of the priciest homes in your metro area and buy a home in a less expensive area, you’ll likely pocket some cash because your new home will likely cost less than the home you’re selling, even if the home you’re buying is at the top of the market for that neighborhood.

So, to capitalize on the opportunity, you’d need to buy a home that needs fixing up (so it’s less valued by other buyers who either don’t want to do the work or who are cash poor and can’t afford it). Or, you’d have to switch neighborhoods, cities or even states. Chicago has relatively high housing costs compared to some parts of the country. If you trade a home in Chicago for one that’s in Boise, ID or Arizona or California, you’ll have to think about the price disparity. If you sell a home in Chicago for $1 million, that will buy you a small, 1200 square foot house in Santa Barbara, California, but a 6-bedroom, 4-bath home on a nice lot in Boise.

The future of housing prices

Which leads us to the next part of your question: What will happen to housing prices going forward?

If the National Association of Realtors is right, there is a serious shortage of homes to buy. NAR estimates that there are 5 to 6 million homes missing, which is one reason that prices are climbing so quickly. But given that the U.S. is only building around 1.25 million homes/year, it will take a number of years to catch up. That means, housing prices are likely to stay where they are or increase over the next few years.

But, and this is a big one, mortgage interest rates have been at all-time lows for awhile. The moment that the 30-year fixed-rate loan rises above 3.5 percent, the market pauses. If we see interest rates shoot up for any reason (like, inflation rising above expectations, an issue with oil production or shipping, or even Covid), it’s likely that the housing market will respond and owners will have to drop their prices in order to unload their properties.

Selling a home for a profit

Back to you. Should you be selling while home prices are so high. You could sell your home now at the sky high price, bank the profit (up to $500,000 would be tax-free for you and your spouse; $250,000 for homeowners who are single) and rent until you either find the right property or decide to move elsewhere. Rents are rising as well, but you would have most of your capital available to you. Or, you could sell and buy something new, and enjoy living in a different home, which may rise in value (or not) over the next few years.

We’ve never been the kind of people who have tried to hedge the real estate market. We leave that to the pros. But at the end of the day, if you’re tired of living in your home, or it’s no longer right for you at this stage in your life, you should sell it and move. Because even if you stay there, prices could decline and you’ll be wishing you made a different decision and locked in some of those profits.

If you can make money on your property, that’s great. But Chicago real estate is appreciating last out of the top 20 metropolitan areas, according to the S&P CoreLogic Case Shiller Index, and according to the Federal Reserve of St. Louis, Chicago’s home prices still haven’t caught up to where they were in 2006.

So, decide what will make you happiest, regardless of whether you’ll make money over the next 10 years or not. And, if you can’t decide, then sell (to bank your profits) and rent until you find the next place you really want to live.

©2021 by Ilyce Glink and Samuel J. Tamkin.