Timing is important when making investment decisions. If we were clairvoyant we would buy when prices were the lowest and sell at their peak. That may apply to equities, precious metals and bonds but even the best prognosticator of the real estate market would find it impossible to always adhere to the money-making rule of buying low and selling high, when buying and selling the family home. That’s because unlike other investments, we live in our homes. Families are emotionally and physically tied to them. Stocks can be purchased and sold with a mouse click. Not so with the family home.
Another issue that affects buying and selling a home is that we often don’t control the timing. Things happen along the way of life which determine whether we should own a home, where it’s located, how large it is and when to sell. So regardless of where prices are sometimes we just need to buy or sell a home.
That said, one of the more frequent questions folks have been asking me recently is: Should they sell now or wait a few months and make more money?
Notwithstanding any unforeseen calamity, the future direction of home values will depend upon a number of factors. Subsequently, a better question than “should I sell today or wait” would be: “What are the risks of waiting?” Naturally, every situation is different but here are a few considerations if you are debating whether to sell today or wait awhile.
A rising tide lifts all ships. Increasing home values generally affect all homes in the same region. If postponing selling a home in order to gain more equity for your future purchase, it is likely the future will find all homes have increased in value as well. However, this rule doesn’t necessarily apply if you are relocating out of the area. Not all regions of the country are experiencing a real estate renascence.
The impact increasing interest rates will have on homebuyers is an unknown risk of postponing a selling decision. It is no longer a question of when rates will increase. We have already seen rates jump a full percentage point from their lowest in late April and early May. The question is how high they go from here and how soon. Will future homebuyers be as enthusiastic about buying when rates are at 5 percent as they were when they were at 3.5 percent? Not likely. They will buy but they will be more mindful about the price.
Investors have played a big role in the market’s recovery by purchasing a big chunk of the excess inventory. That’s about come to a stop in our region. In part, investors have become victims of their own success. Their enthusiasm for acquiring entry-level homes reduced inventory and drove up prices. Increasing prices and interest rates have now driven investors out of our region and shopping elsewhere.
Increasing home values have salvaged many underwater homeowners. Short sales and REO listings have dropped from 60 percent of our available listing 2 years ago to only 10 percent today. The jump in property values has also provided an opportunity for many homeowners, with little or no equity, to finally consider selling. The supply of homes for sale is beginning to rise. This could be a seasonal increase but it is a welcome trend for buyers.
According to Stan Humphries, chief economist for Zillow, “It has always been a matter of time before more supply came on the market to meet this demand as homebuilders built more new homes and sellers entered the market to capitalize on recent robust appreciation in their own homes.”
And so where are the new home builders? Well, there are a few new but expensive homes available in South El Dorado Hills and a handful more, in more expensive Serrano but most new home sales are taking place in Placer and Sacramento Counties. Building new homes in El Dorado County has met fierce resistance from the NIMBY (not in my back yard) folks. A new home in a new community is a preference for many buyers but shoppers will likely go to another county to find one.
New homes built in Folsom or Rancho Cordova will keep resale prices in check. Many of our county residents already work in Sacramento County. If they cannot find an affordable new home here, they will simply buy in another location closer to their work.
So based upon the uncertainties of the market place, the sure bet for homeowners considering selling now or a year from now would be to contact their agent today. But wait.
In a recently released report, Zillow shows home prices in some parts of the Sacramento region could be near their all-time highs within 12 months. Zillow’s forecast projects homes in El Dorado County will have reached 71.6 percent of their peak values by April of next year.
Looking back, our county’s peak median sales price hit $525,000 in the spring of 2006. Last month our median selling price was $343,000 or 65 percent of our peak. Based upon Zillow’s projections our median selling price would be $395,000 by next spring which is another 15 percent increase from what we are seeing today.
Zillow’s projections, however, are based on the continuation of the appreciation rates we have experienced over the last six months. Most of us paying attention to our investments know that past performance is no guarantee of future results.
Ken Calhoon is a real estate broker in El Dorado County. He can be reached at kencalhoon.com.