When Should I Sell My Home?
By Martin Brown
There is a good chance that your home’s appraised value is higher today than it has been in the past. Obviously, as I say whenever I write about real estate values, your home’s appraised value is greatly dependent on your local market. While broad generalizations about real estate pricing trends are an important part of national economic news, the specifics about what homebuyers or sellers can expect is all relevant to the market in which they are looking to buy or sell.
As to when you might be able to sell your home, the short hand explanation for the economic crises of late has become those three little words being bandied about as of late by our news media: “Wall Street Bailout. Here’s how, and why:
1. What exactly happened—and what it means for you.
Unfortunately what that implies, and what is really going on are two different issues. To the extent that Wall Street investment banks placed heavy bets on subprime mortgages (along with “Main Street” banking institutions) and are now sitting with a lot of non performing loans, this $700 billion federal buyback of troubled mortgage securities is a “bailout.”
What has happened in reality, however, is a seizing up of the credit markets. Wall Street’s price swoons this past week were not about the perceived value of any given stock in the retail, service, high-tech, or other markets sectors; rather it reflects a bad case of jitters investors have when they look at the future and see the real possibility of a recession and the negative effects that will have on all businesses. If values are going to drop, you want to get out when the price is higher than it will supposedly be tomorrow, a week, or a month from now. When there are a lot more sellers than there are buyers for those stock shares, prices drop, and sometimes, as we saw last Monday, those drops can be both sudden and dramatic.
Those sliding stock prices, while indeed painful, are not of the actual problem; they are simply a very visible symptom of a problem referred to as a “credit crunch,” which is an outgrowth of a general lack of confidence in our economy as a whole.
2. What you should do now: wait out the “crisis” in confidence.
In a story I wrote last month, I explained that confidence is the motivating factor that makes all economies move forward or fall flat. Over confidence can lead to an overvaluation of everything from stock prices to real estate values, whereas the absence of confidence can have the opposite effect. In a financial panic, something that has happened many times in American history, big investors holding millions of dollars of assets and Main Street people holding relatively small investment portfolios, both rush for the exits looking to hold on to whatever value they have and ride out the storm.
Right now that mentality has taken hold of our financial institutions as well and that has caused our credit markets to seize up, commonly referred to as the credit crunch. It is this seizing up of credit that Treasury Secretary Paulson and Federal Reserve Chairman Bernanke have been trying to resolve with this “bailout” plan. To inject enough liquidity, $700 billion, into the marketplace by buying up these non-performing loans, and therefore restart the economy.
3. What we’re waiting for: Credit to be available again, for both the home buyers.
But now comes the $700 billion dollar question. Regardless of the action taken last week by both houses of Congress: Is the credit crunch behind us or still ahead?
The answer to that question has more to do with whether you can sell your house right now than just about any other factor; making this one of the rare times when national news affects every real estate market from Bangor, Maine to San Diego, California. When credit is not available, commerce quickly grinds to a halt. For the farmer this means no financing to help plant next year’s crop; for businesses this means no bridge loans to make payroll, or a multi year loan to finance an expansion; and for Main Street this hits everyone who uses credit rather than cash, takes out a car loan, or is hoping to finance the purchase of a home. If you’re thinking, “Gosh, that’s all of us,” now you’re seeing the big picture. The seizing up of credit is like the economy having a heart attack. It’s not fatal, improvement will come over time, but the path to getting well again can be long and difficult.
4. What to do in the meantime: hold your powder . . .
Returning to that all-important question: “When can I sell my house?” Right now, with winter coming to North America, you should hold if you possibly could until February of March of 2009. There is no guarantee that this crisis will be behind us by then, but hopefully the economy will have recovered from this financial crisis and credit, the lifeblood of every economy, on or off Main Street, will return.
5. . . . And, finally, do your homework.
In last week’s article on signs that the real estate market is about to make a comeback, there are a number of indicators I discuss such as: local employment, available housing inventory, the number of days the average listing stays on the market, and more, that I suggested buyers have their real estate agents research before jumping in with an offer. All the same rules apply to the seller. When the housing market starts moving again, my guess is that at first there will be a shortage of inventory and that is the sweet spot you want to hit.
In spite of all our modern technology one economic reality remains as true today as it was in the days of the Pharaohs. Supply and demand sets the value of things, be that a single share of Google or the roof over your head. A slow and uncertain real estate market is not the time to look for buyers making good offers on the home you’re hoping to sell. But watch the market carefully and insist that an agent wanting to earn a commission on the sale of your home, do their homework and bring you solid, actionable market information. The right time for you to sell might come sooner than you think. Arm yourself with the numbers and watch for the time to make your move.