My Home Value Has Fallen So I've Decided Not To Move
When somebody says "Joe, my home value has fallen, I've decided not to move at this time," my first thought is to ask "why?"
But before we get to the four logical questions you should ask yourself before you make a relocation decision, I encourage you to truly consider this scenario, because it is happening daily all over the country.
So what do you do when you want to move, but your current home has fallen in value further than you had imagined?
You got all excited about moving up, or downsizing, or being on the lake, or having that extra room .... only to find out the money you thought you would have from your sale of your home is not there. So what do you do?
Believe it or not, there is a logical sequence of questions that will help you make the best financial decision in this circumstance.
Stay Or Go?
Most homeowners know that the Tallahassee real estate market dropped significantly since 2006.
And most of them know that the market decline means home values today are about where they were in 2004 for most parts of our market area.
But most are shocked when that information translates to their own personal home.
So what do you do? Do you wait for your property value to recover and then make the move at a later date? Or do you go ahead and make the move now, even though it will be tougher to pull off due to a lower (or negative) home equity situation?
Questions To Consider
Here are the questions I think you need to ask yourself before you can make the decision to stay or go:
- Do you plan on spending more or less on the next home?
- Are you capable of moving should you decide to do so?
- Are the homes you would consider for a move rising or falling in value?
- Do you think mortgage interest rates will rise or fall in the foreseeable future?
So let's look at each question and consider the ramifications of your potential answers:
- Do you plan on spending more or less on the next home? First of all, your home has a value today, and I strongly believe that if you wait long enough, its future value will go higher. Why? Because Tallahassee is growing and the cost of construction is only going higher, thus eventually your home will sell at a higher price. But so too will all the other homes in town. So if you are waiting to get your equity back, your replacement home is going to cost you more. If you are downsizing, that change in value works in your favor ... so your best financial decision is to stay in your current home until the value returns to where you would like it to be. But if you are buying a larger home, the gain you'll recover in your home will be less than the appreciation in the more expensive home. So if you are moving up, then your best financial decision is to make the move now. Think of it this way ... as you are personally recovering in the housing market, do you want to live here ... or there? The gain you'll get here is less than the gain you'll get there.
- Are you capable of moving should you decide to do so? Logic and economics might tell you to move, but if you need a loan from a lender and you do not qualify, the decision for you will be easy (there will be no decision to make). Unless of course you consider non-traditional financing methods. If you think you cannot move, but would like to move, take the time to sit down with an expert and explore you options. Worse case scenario is you will spend a few hours for naught.
- Are the homes you would consider for a move rising or falling in value? This is another variable that will impact the economics of the decision to be made. If the replacement home that you are considering is still losing value, you might not be in that big of a hurry to make the move. Make sure you work with an expert on supply and demand so that you'll be able to make an informed decision.
- Do you think mortgage interest rates will rise or fall in the foreseeable future? What are you thoughts on the state of the mortgage market? If you think rates will decline, you might want to wait to get a better rate. If you think rates will be rising, have you calculated the increased cost of ownership of the new home, whether downsizing or moving-up? A lot of people who plan on downsizing will be shocked to find a smaller and less expensive home will have a higher monthly payment when the mortgage market returns to traditional levels.
Should You Wait For Your Home's Value To Recover?
While your decision truly comes down to the factors addressed above, let me get you to consider the non-economical side of the equation as well.
Assuming you are considering staying where you are at now "until the value returns," let me suggest that regardless of where you live, your value will be rising in the coming months and years. So ...
- if you stay in your current home, your current home will continue to appreciate and you will gain equity
- if you move to a new home, your new home will continue to appreciate and you will gain equity
So, that begs the question .... where would you like to live as your home continues to appreciate and gain equity?
If you really want to move, then move! You gain nothing by staying, except that somehow you can tell yourself you lost less money. The reality is that you have already lost the money, and you will gain money in the future regardless of where you live, so where do you want to live while the real estate world rights itself?
If you plan on borrowing money, today's interest rates are not going to last forever. At some point in the future, we will all look back and say "I wish I had bought or refinanced in 2013." Rates today are higher than last year, and I suspect next year will bring higher rates as well. Why? Because historically, interest rates are typically moving towards the 8.5% level. Today, they are half of that.
I hope this analysis helps you consider all of your options before you make the decision to stay or to go. If you would like to discuss your options and make sure you're making the most sound decision that you can make, just drop me a note and we can schedule a time to review your personal situation and opportunities.
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