The housing market is messed up. But one could say that housing is always messed up because it is an imperfect market. Since every home is distinct, the actual value is the price one person is willing to pay for it at a particular point in time. Here are 10 things to understand when buying or selling a home.
1. A home is not like a stock, it is like a car. When you buy a stock, you expect it to go up in value and often pay you dividends as you hold it. When you buy a car, you expect it to drop in value as you pay for repairs over time. If your home is a car, understand that you may wish to spend money on something that you enjoy or you may wish to have a more utilitarian version, and don't expect to make a bunch of money on your sale. Of course you need to factor in the cost of living somewhere, but by the time you include the potential earnings on your down payment, the taxes, insurance, and upkeep, it is not a clear advantage to own over renting.
2. There are not good or bad real estate markets, there are better or worse. A time like this, where there is uncertainty around COVID-19, we are potentially going to see an increase in apartment vacancies. The economy is on shaky footing, but this may be offset by low interest rates and people wishing to move to take control of something. This probably makes this a more bad than good real estate market, but only on the margins.
3. Real estate is filled with micro-markets, so any blanket statement is usually wrong. Every home is its own micro-market. Starter homes, lake properties, suburban or urban, floor plans are all micro-markets. Some micro-markets may be more popular than others for a period of time, but none stay that way forever.
4. You are selling your past to someone who is buying their future. These are not the same things. It's great that you have fond memories of your home, but your buyer is buying the memories that they hope to create, not yours. Don't get upset when you are trying to sell your home and people aren't appreciating the things that you valued. It's not personal.
5. Chances are if you are selling high, you are buying high. Micro-markets aside, if the market is more good than bad, you are unlikely to maximize your sales price and steal your next buy. Everyone wants to do that, but unless you are buying what no one else wants, it isn't going to happen for you.
6. You may downsize, but you are unlikely to down price. Unless you are moving completely out of a hot area, you usually end up buying less space for the same amount of money. There are lots of reasons to downsize, but raking in the cash is probably not one of them.
7. No housing decisions are irreversible. They can be expensive to fix, but they can be fixed. The longer you stay in a home, the better chance you have of making back the brokerage commissions when you sell. That's why you shouldn't consider buying unless you have a minimum 3-to-5-year time horizon. But if you find yourself in a situation where after a year or two you really hate where you live, it's time to try to fix it. You should probably wait a year to decide because there is an adjustment period to any new housing situation. After a year, if you know you made a mistake, then it's time to put the pen to paper to see how much it will cost you to make a change. One thing you may choose to do is rent for a while after you sell as a way to get a better sense of what you want.
8. People buy based on payments. How much home you can afford is usually determined by the going interest rates. You will pay more on your mortgage for the same priced home if interest rates are 10% rather than 3%. In this low interest-rate environment, you can get more home for your payment. If interest rates turn against you when you sell, though, it will be harder for your buyer to finance their purchase.
9. Sellers get anchored on a price and are slow to move off it. If you want to know how a particular area is faring look at the number of days homes for sale are on the market first and inventory. Sellers set a price based on things like the money they have into their home, what they need to get out of their home, and what homes nearby sold for a year ago. They get a number in their head and it takes a while to dislodge it.
10. Your home is how you live, so buy the entire place, not just the space. Where you are is more important than what you buy. We get used to the what in a house; the where has a much longer impact.
Just because the real estate market is messed up, doesn't mean your decision making process has to be.