An improving real estate market and economy along with lower unemployment rates have lulled many homeowners thinking about selling their homes, into a false sense of security. The primary question is still:
“Should I sell now at market prices, or demand a higher price, even if it takes more time to sell?”
There is reason to believe Warren Buffet’s strategy of “selling when everyone is buying”. The risks associated with waiting to sell are mounting. Consider the following:
1. Mortgage rates are increasing steadily – 30-year fixed mortgage rates increased to 4.48% at the end of December, compared to 3.35% a year earlier. The average home mortgage rate for decades prior to 2005 was around 7.5%-8%, so there is plenty of room for rates to increase. Although there are no big headlines associated with this issue, home sellers are reminded as rates increase, fewer buyers are able to purchase homes.
2. Tighter lending standards – Banks have become very sensitive to the risks associated with lending to unqualified individuals. This also impacts the pool of buyers able to purchase homes.
3. Appraisal values – As the supply of homes drops, many sellers believe they can demand higher prices. But if appraisers can’t justify price increases from previous sales, buyers won’t qualify for higher mortgages.
4. Higher prices – Sellers can’t assume that higher prices will automatically benefit them. Once again, the pool of buyers able to afford a home shrinks as prices go up and median income stays flat. As prices continue to rise, the buyer pool will continue to decrease.
In addition to issues that are presently impacting the Real Estate Market and home prices, also consider the following major challenges the industry will face in the future:
1. Funding of the U.S. deficit of over $17 Trillion – The deficit will increase consumer borrowing costs for literally everything. As more income goes to necessities, less is available to pay for home purchases.
2. Inflation – Inflation on everything including; labor costs, material costs, energy costs, healthcare costs, and food costs, is likely to impact both buying power and consumer sentiment in the coming months.
3. Healthcare Costs – Initial cost estimates for Obamacare will continue to rise, taking an even bigger bite out of consumer budgets.
As proof of the impact the above issues are having on buyers, in December, the National Association of Realtors recently reported that home purchases dropped 4.3% from a year earlier, after rising during prior periods. Yet, despite existing challenges, real estate prices and sales have risen to the point of making the sale of a home advisable for home sellers. With the challenges we could face later, this window of opportunity may close sooner than you think!