Clients have asked me if they should put their home on the market now or wait for values to rise. I wanted to share my answer with you. This year is probably the optimum year to sell, because of interest rates rising.
If you’re thinking of selling your home, be sure to ask me for a Comparative Market Analysis (CMA), comparing your home with recently sold comparable properties. My complimentary CMA will help you decide where you stand in today’s market.
Full Analysis
This year is the best time we’ve seen in the last five years to sell a home, but the window of favorable conditions prevailing now won’t last forever. If you’re in a position to sell your home or you’re thinking of doing so, this year seems the best window to do it.
Four factors make this time appealing to sellers:
- Interest rates are low, but predicted to go up soon.
- Nationally there is very little inventory coming onto the market, and this is very acute in south Florida.
- There are more buyers qualified and ready to purchase homes than sellers putting their homes up for sale.
- And we are witnessing an upward movement in home value both nationally and locally.
Interest rates are the limiting factor in this scenario. Most analysts expect mortgage rates to increase by year’s end – see this round-up of opinion from many professionals at BankRate.com. The common feeling is that rates will edge up to the 3.9-4.0% range, from the 3.5-3.7% of the last six months. (And in fact rates have already been creeping upward. Last year we saw clients close around 3.3-3.5%)
The Fed has been holding rates down to protect the home market. As the market gets healthier, rates will rise. If you’re thinking of refinancing, you should do it now or face higher rates. And if you’re thinking of selling, interest rates are what you need to consider.
Most homeowners who sell their home will buy another one, either upgrading or downsizing, or simply relocating. As the market slowly recovers, gains in home values are still quite slight, and tenuous. Low inventory makes a seller’s market, but this alone can’t force home prices up by much. Higher mortgage rates, on the other hand, make a distinct difference to the number of buyers in any price range, as well as your costs of buying your next home after selling.
The interest rate determines what financing a buyer can qualify for. Every quarter-point rise drops a tier of buyers out of the market for a certain price point. Here’s the arithmetic.
- A buyer with an annual income of $40,000 will qualify for a monthly payment of $933.
- A 200K loan at 3.5% over 30 years = $898 monthly payment
- A 200K loan at 3.75% over 30 years = $926 monthly payment
- A 200K loan at 4.0% over 30 years = $955 monthly payment
The leverage of interest rates on the buyer pool is significant. As rates rise and lenders increase their yield on loans, they may loosen their buyer qualification guidelines, but this will follow at quite some interval behind rates rising because banks will protect their balance sheets first.
In summary, a window exists now for you to sell your home in a seller’s market buoyed by the news of home value gains, and also to finance your next home at low rates. As rates rise, buyers will fall away, your next home will become costlier, and any gain in your selling price may well not match the increased costs to you.
Remember that even in a seller’s market it’s important to price your home right. A seller’s market only means there are more qualified buyers than properties for sale, and this makes it easier to get full price fairly rapidly. But supply and demand alone will not drive up prices blindly. More often it drives buyers into other options such as renting or staying put in their own home. Overpricing will tend to stagnate a market still taking baby steps to recovery.
The most common mistake a seller can make is to list a home not priced to sell. The home will stay too many days on the market, and this will diminish its attractiveness in the eyes of agents and their buyers.
For all of these reasons, the best time to take the greatest margin out of selling your home is now, for a limited time.
Call me for a CMA on your home now, and let’s see where you stand in this window of opportunity.
