Excellent Question! I am so glad you asked, and there are so many factors, this is a long post. (If you start to get tired, at least skip ahead to 5-C, you do not want to miss what very few if anyone is talking about)
Interest rates are incredibly low. This can affect you in three ways.
a. If you are going to buy a home, then you are obviously going to be able to purchase more home with lower rates.
b. In the same way, rates will affect your pricing as well. Once rates start going up (and they will), your homes appreciation, will slow, stagnate, or even fall.
c. And something that you may not consider, the urgency will be gone from buyers. Sure, there will always be buyers. But, right now, buyers are worried that they are missing out on a great opportunity to buy when the market is off it's highs and the interest rates are so low.
2. Recovery to the highs of just a few years ago will not be seen anytime soon.
a. Home prices grew well in advance of the affordability index. In other words, home values appreciated well above where they should have. Will that happen again? I am sure it will. It happened in the late 80's through early nighties. Then it happened in the mid 2000's. So, you only have to wait 10-15 years. (If then, if you read further, you will see why this may never happen again)
b. Home prices were pushed up because buyer's buying ability continued to increase. The ability to get a loan at that time was much easier, and many loans were made that should never have been made. They had stated income loans, and if the person's occupation didn't 'reasonably' make that amount, then they would just do a 'no doc' loan. The lender was able to charge a higher interest rate, and the buyer was able to get a home that they would not otherwise have been able to. And, of course, real estate is always going up, so it was a smart...'investment'.
c. Appraisal guidelines have gotten much stricter. The reality is that an appraisal is an opinion of value. And, appraisers are licensed or certified, they train under a mentor and they are required to perform their work ethically. Unfortunately, appraisers have proven to be corruptible on occasion. To combat this, the lenders have tightened the guidelines to require appraisers to provide much more documentation. Additionally, now, the appraisers have an appraisal management company review the appraisal even before the underwriter. So, even actual appreciation is harder for the appraiser to prove. And, as we progress in the information age, so many things are put to computer modeling. Home values are no different. As this has become more prevalent, the appraiser's discretion has become less so, and there is no reason to expect any reversal of this trend. So, any rapid rise in prices above the affordability index will be harder than ever to realize.
a. Believe it or not, there are many more buyers than there are houses. Our total inventory is about 3 month’s supply of inventory. And, this number is a little skewed because if we had more houses, we would have more sales. And, with sales occurring so quickly, agents struggle to keep their system updated and a large percentage of homes that are ‘available’ in the MLS systems are actually already under contract. So, the actual number is LESS than a three month’s supply. In many areas, homes below the median price point for the area are actually at less than a two month’s supply.
b. Many homes that are priced right and in good condition are getting multiple offers and selling for above list price. (not kidding)
c. Buyers are less selective, because they have to be less selective. 18 months ago, your home had to look like it belonged in Better Homes and Gardens to get market value. And, if not, your home would just sit on the market for months, or even years. Now, so long as the home is in reasonably good condition, buyers are willing to pay full market price. Remember, there is a sense of urgency combined with the scarcity.
d. Homes, especially below $150,000.00 are being purchased at an alarming pace by investors. And, believe it or not, these investors are paying market value for homes. Why? They are basing their decisions on market rent and the low price of money. Foreclosures are first offered to owner occupants and non-profits. And, owner occupants are given preference for these homes. So, these investors now focus their efforts on sales from regular homeowners, just like you.
4. You are buying in the same market that you are selling in. Assuming of course, that you are actually buying another property. And, assuming of course that you have a good agent, like the wonderful and eloquent writer of this fine informational blog. Shameless promotion, which of course is the kind of promotion you need when selling your home. ;)
a. This has been a valid point for the entire time of the down market. Especially if you were moving up in homes. However, many people were so upside down, that this was not even a possibility.
b. The only way this doesn't prove out is if you are downsizing. I would still point out that you would be purchasing a home at what is most likely a much lower interest rate and that could greatly offset any losses that you would take on.
5. Your competition is coming.
a. As the message gets out more and more about the market, there will be more and more listings from other owners. That will give the buyers more selection and they can be pickier.
b. There is still a lot of foreclosure inventory that isn't on the market. Now, much of this has been sold to foreign investors and hedge funds, and it is being used as rental property. So, this may not come on the market anytime soon. And, banks, most likely, aren't going to turn loose of a bunch of property at the same time crashing the market again. But, they will start to offer more and more as time goes along.
c. Builders are coming back....and at prices that will compete or even undercut you. So, the buyer will have a choice between your lovely home or a brand new home with the latest finishes and upgrades for about the same price, if not even lower.
i. Before a brick is bought, before a foundation is poured, historically, a builder has to first purchase and develop the land. However, with the recent real estate implosion, many builders went out of business. That left large tracts of land and subdivisions that had already been developed there to be snatched up. And, snatched up they were… and for pennies on the dollar. In most cases, these already developed lots were purchased for less than ten cents on the dollar. Do you think that doesn’t factor into the bottom line?
ii. The builders that have been sitting on the sidelines have been operating on a shoestring budget with a much smaller infrastructure. And, much of the land in our area has been acquired by large national builders that can produce a home at an even lower cost per square foot due to standard blueprints and materials sheets. They are able to cut the time of production and the waste of materials. They, bottom line are a leaner, meaner hungry competitor that is just salivating at the current market and lack of inventory.
iii. Despite our improvement in the housing market, the job market has not improved. Therefore, these builders will be able to hire skilled craftsman at a much reduced price. Many of these people are still looking for work or vastly under employed, so they will come cheaper.
I know that this is a long, long post. But, there are so many factors that indicate that the best time in the next three years or so to sell your home, that I wanted to make sure I pointed them all out. And, explain them to a point that you can see this isn’t just a ploy to get listings, but a heartfelt urging of you not to forego a great opportunity to sell your home and accomplish your goals.
And, as with everything on this blog, this comes from the perspective of a Georgia Realtor and Inactive Certified Residential Appraiser with 15 years of experience in the Metro Atlanta area, and more specifically, the Gwinnett, Hall, Forsyth and Jackson counties. If you are outside of these areas, all of these factors may not apply to you. And, if you are in any of these counties and would like me to come show you the market specific to your area, and your neighborhood, contact me. Every market is location specific. Every price point offers different statistical variables and is affected by different market influences.
You can contact me via phone at 678-318-4977, via email at email@example.com, or via the contact form on this website.