Why Now May Be a Good Time to Move up to a Larger Home

You’re beginning to feel a little cramped in that starter home that looked so perfect several years ago. There just aren’t enough bedrooms anymore, or adequate storage space, or a big enough back yard for the kids and the dog to play. Or maybe there is another one on the way – a baby, not a dog!

Many residents are facing a similar dilemma these days. While that tiny bungalow made perfect sense back when you bought it, you are quickly realizing that you have long since outgrown your home. The logical answer would be to move up to a larger property,
but many homeowners fear that the soft housing market would make buying that dream home difficult if not impossible.

Surprisingly this may actually be a great time to move up – precisely because of the housing slowdown. Yes, home sales and prices have been sluggish for the past couple of years. And chances are that your home isn’t worth what it was at the peak of the market two or three years ago. But savvy homeowners are beginning to discover that the math actually works in their favor when they move up to a more expensive property.

It’s true that you probably won’t get every dollar you would like when you sell your existing home. Depending on the price range and location there may be a larger than normal inventory of properties on the market and fewer qualified buyers. So, of course, prices need to be competitive in order to sell. Valuations have dipped in many communities, in some cases back to levels of six or seven years ago.

Now for the good news: That larger, more expensive home that you’ve had your eye on has probably dropped even more – in some cases, much more – than your current home. So the difference between your existing home and the next one is probably much less of a step up than you might have imagined. And if you’ve been in your home for more than just the past few years, there’s the possibility that you’ve built up equity that could be used to buy a larger home.

Plus those individuals who are in starter homes are finding that thanks to the $8,000 first time home buyer credit there is increasing demand for homes like yours. As such, homes at this price point are selling more quickly, sometimes with multiple offers.

Walter Maloney with the National Association of Realtors said it’s important for homeowners to do the math. “Obviously, if you’re selling for less than you could have gotten two years ago, you’re disappointed, but you really need to look at your bottom line,” he said. “If you’re trying to trade up, whatever you’re going to trade up to is going to sell at a discount, too. You need to look at your net.”

Let’s look at the example used in an April 23, 2009 MSNBC article entitled Math smiles on move-up buyers. The article reported, “Chris and Lori Kristen got $20,000 less than they might have in 2007 when they sold their Seattle condo earlier this year, but they purchased this suburban home for $425,000--$86,000 less than the home’s peak value.”

The article went on to report, “Their mood brightened when they began shopping in the spacious neighborhoods of this suburb northeast of Seattle and found a 3,000-square-foot, four-bedroom split-level on a half-acre of towering fir trees that they wound up buying for $425,000. That’s $86,000 less than the $511,000 peak value placed on the home by real estate Web site Zillow.com, $64,000 below the original asking price of $489,000 and even well below the final asking price of $438,000.”

Getting into a larger home isn’t the only reason consumers typically think about moving up. Others consider “trading spaces” because of job relocations or a desire to get into a certain neighborhood or simply because they’ve been pining after that dream home. While the savings on the purchase price of a larger home is a benefit, there are a number of other reasons why the soft housing market may work in your favor right now:

• Strong buyer’s market at upper-end. There just is not as much competition for more expensive homes as there is in the entry level market. Much of the home sales this year have been low-priced and distressed properties. “This year’s peak home buying season is suffering from the absence of move-up buyers,” said Jim Gillespie, chief executive officer of Coldwell Banker Real Estate Corporation. Less competition can mean lower prices and greater bargaining power for those individuals who can afford to make the jump.

• Mortgage rates are still near historic lows. Traditionally, low interest rates make homes more affordable. While it is easy to lament the recent decline in your existing home’s value, interest
rates may play an even greater role in how much home you may be able to afford when it comes time to moving up. According
to Brendon Riordan of Princeton Capital, a one-percent hike in interest rates can increase monthly mortgage payments just as much as a 10 percent increase in price. He went on to note: “With 30-year fixed rate mortgage hovering in the low 5 percent range, buyers may be able to stretch their housing dollars further than they think.”

• Record affordability. According to the National Association of Home Builders August 19, 2009 article entitled Housing Affordability
Continues to Hover Near Highest Level in 18 Years, “Bolstered by affordable interest rates and low prices, nationwide housing affordability during the second quarter of 2009 continued to hover near its highest level since the series began 18 years ago, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) released today.” The article went on to report, “The HOI showed that 72.3 percent of all new and existing homes sold in the second quarter of 2009 were affordable to families earning the national median income of $64,000, down only slightly from the record-high 72.5 percent during the previous quarter and up from 55.0 percent during the second quarter of 2009.”

• Entry level homes are in greater demand. The hottest segment of the housing market this year has been the low-end. In some cases, there are multiple offers for the best properties. Adding to the demand is the $8,000 federal tax credit for first-time buyers that’s due to expire before the end of the year. So while you may have outgrown that little bungalow, there are lots of potential buyers who would be interested in moving in when you’re ready to trade up.

• Housing market showing signs of improvement. While no one can say for sure whether we’ve bottomed out, there have been many encouraging signs in recent months that the housing market is stabilizing and perhaps turning the corner. In its August 21, 2009 report entitled Strong Gains in Existing-Home Sales Maintain Uptrend, the National Association of Realtors reported, “For the first time in five years, existing home-sales have increased for four months in a row, according to the National Association of Realtors®.” The article went on to report “Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 7.2 percent to a seasonally adjusted annual rate of 5.24 million units in July from a level of 4.89 million in June, and are 5.0 percent above the 4.99 million-unit pace in July 2008. The last time sales rose for four consecutive months was in June 2004 and the last time sales were higher than a year earlier was November 2005.” It may be a good idea to think about trading up while it’s still a buyer’s market.

Making the decision to move up to a larger home is just the beginning, of course. There are a myriad of issues that go into selling your existing home and getting into that larger move-up property. That’s where a professional Realtor can help. Working with a seasoned agent who knows your market may be the best move you’ve ever made!