I’m sure you’ve heard that the real estate market is coming back on strong right now, especially where we are in Silicon Valley. If you bought your home before 2007 you might have thought you’d be in it for just a few years and you had planned to move up, but you didn’t because of the market. Now that the market is hot again, you might be re-thinking your situation. If you are like many of my clients, you might have put off moving up because:
- You had less equity in your home than you expected so you don’t have as much cash to put down on your new home as you had planned.
- Your savings were hit hard by the stock market crash and you had less of a cushion than you wanted.
- You weren’t certain about the real estate market and weren’t confident about moving.
But things have changed now, haven’t they? The stock market is up and your savings account has recovered. You might have less equity in your home than you did before real estate crash, but you have way more than you did at the bottom. It’s clear now that the real estate market is moving up.
So what do you do now? What’s stopping you from selling your existing home and moving up into the house and neighborhood that you want? Why shouldn’t you buy up now? Why should you?
Let’s start with why you should not move up.
Your next home is likely to cost you more every month because:
- In California you are likely to have a bump in your property tax.
- If the home you are considering is worth more than your current home you’ll either need to bring extra cash into the deal, or you will have a larger mortgage.
You’ll spend some money on the transaction:
- It costs money to sell your existing home. In round numbers you can expect to spend maybe 7% of the selling price of the home for a real estate commission and closing costs, and you might have a tax hit.
- It costs money to get into the new home. You’ll have loan fees and escrow fees and possibly some taxes.
- You’ll have to invest some money in moving, even if you do it yourself.
So then, why should you move up to your next home?
Most folks decide to move up for both financial and emotional reasons.
Let’s look at the financial reasons first:
- Interest rates are at an historical low right now. The longer you wait, the higher your interest rate (for the next 30 years) is likely to be.
- Whenever you make the move, only then will you begin paying off your next loan. The sooner you move, the sooner you will pay off the mortgage on the home you want to live in for the rest of your life. For this reason alone, now is definitely good.
- Higher-priced homes tend to appreciate more than lower-priced homes. The longer you wait, the greater the price difference between the two properties becomes.
- Years from now, when you’re ready to retire and it really matters, you’ll have considerably more equity in your home if you move up now, rather than later. You can access this equity when you need it later either by selling, refinancing, or using a reverse mortgage. Either way, you’ll have more equity to access.
And then the emotional reasons:
- There’s a reason you want to move. A better school, a better neighborhood, or more desirable (or even more livable) home. The longer you wait, the longer you have to live with less than what you want, and the longer you put off having what you really want.
- Moving is stressful. We acknowledge that. But in our experience, people don’t put off moving forever. If this is you, you’re going to go through that stress eventually. The sooner you take the plunge the sooner the stress part is over, and the sooner you can begin to enjoy all the wonderful things that will make you forget about the stress.
You should not “buy up” if you are not truly ready. If have barely enough income to afford the home of your dreams, or if your job is not secure, or if you do not have sufficient cash reserves, I recommend you stay where you are until you’ve resolved your situation.
However, if you are going to move up at some point, if your income is sufficient to comfortably support the new housing payment, if you are decent savers and have reasonable reserves, and if you feel secure in your job, then the timing is just about perfect; this market was made for you.
If you want to understand the precise short-term and long-term implications of buying up, please click here or on the link to the right entitled “Move-Up Buyer Analysis.” You can enter your own data into the analysis to see exactly how much more you’ll be spending each month, and how it will impact your family’s finances for years to come.
My name is Casey Fleming, and I originate mortgage loans throughout California. I am a mortgage broker based in Silicon Valley. What I do differently than other mortgage advisors is that I educate my clients by giving them rich, relevant, meaningful information to help them make informed decisions.
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