Why Should I Move Up in a Down Market - Puma & Associates Realty
Many sellers in today’s market wonder if they should wait to sell until the market recovers. If your plans are to move up into a higher priced home it is a much better financial investment to make the move in the current down market rather than waiting on appreciation.
Here is an example of a home owner selling a $200,000 home and buying their $400,000 dream home:
If you have a home valued at $200,000 today, it was most likely worth around $250,000 several years ago (assuming 20% depreciation). If you plan to wait for your home to appreciate, your future dream home will also appreciate at the same percentage, possibly priced higher than you can afford. A home currently priced at $400,000 was most likely worth around $500,000 several years ago (again assuming 20% depreciation). If you wait to sell you could possibly profit $50,000 more on the sale of your home but you would most likely have to pay $100,000 more for your dream home, which results in $50,000 more to make the move when the market recovers rather than in the current down market.
The current low interest rates also make the decision more cost effective to act sooner than later. As of November 19th, 2010 Bankrate.com shows the average 30 year fixed rate mortgage at 4.55%. Historically 4.55% is very low, so as you are waiting for your home to potentially appreciate mortgage rates will most likely increase. It is impossible to determine how high rates may be but we will use a conservative estimate is a 1% increase in rate to 5.55% for our calculations below. Our calculations below will also assume a 20% down payment.
| Moving up in today’s down market | Waiting on appreciation to make a move up | |
|---|---|---|
| Sale price of your dream home | $400,000 | $500,000 |
| Loan amount after 20% down payment | $320,000 | $400,000 |
| Principal and Interest payment | $1,631 | $2,284 |
If you sell your home and move up in today’s down market your payment for the same dream home will be $653 less per month. Over the life of a 30 year mortgage your savings will be $235,080. Even though you would receive an extra $50,000 more if you waited to sell your home you would also have to put down $20,000 more down payment, leaving you effectively $30,000 in additional funds. So, if we subtract this $30,000 in future potential profits from the $235,080 savings over the life of the loan, overall you will end up paying a total of $205,080 less for the same move today rather than waiting for the market to go up.
You could also capitalize even more if you decide to rent your home and still make the move into your dream home. This will allow you ti capitalize on the future potential appreciation of both homes along with the saving hundreds of thousands of dollars over the life of your new loan.
Click to find out how much could save by selling your home today and moving in to your dream home
