Act Now or Wait?
I’m reminded of the classic Alka-Seltzer commercial from the 60’s …Oh What a relief it is … the market is getting better! As I speak with friends, clients and those in the cash register line, I often hear folks delighted to hear the news, which I always couch in the caution “But every Market is different… Where do you live?”
For almost all markets, we have seen a dramatic turn around from the bottom of the market in late 2010… early 2011. For those that haven’t shown improvement, there should be major concern… real improvement may never occur for some markets. It is my sincere hope that this doesn’t describe your market… But some people do own real estate in such markets… There is more than one such market within readership distance of this column!
As the public becomes a bit more excited about or at least at ease with the return of the real estate market, I often hear the complaint that so much value was lost between 2006 and today that they will wait a while longer to recover that loss in value before acting to sell their homes and move on with their lives. While that response is understandable… it may not be well informed.
I can’t think of any better way to communicate an accurate picture of the market and what all the experts (including myself) see as the factors that define the market and what home-owners need to know as they make the decision to Act Now or Wait!
While I realize that the use of charts and numbers may seem daunting, these charts are simple and straightforward in the way they illustrate the dynamics that should influence your decision to act or wait. So let’s begin by looking at your current home.
Current Home Likely Appreciation Over The Next 5 Years
The consensus opinion is that we are returning to a normal level of appreciation of real estate. Due to a shortage of homes for sale, the recent appreciation rate has been a bit more than the average appreciation rate of 3%-to-4% per year. However, the norm and expected appreciation rate based on current trends and mid-to-long-term projections is between 3-4%.
Using a fictional value of $100,000 (making it easier to readily translate to your own situation), you can see from the above chart that there is likely to be a considerable appreciation (by recent standards) in home values…
Remember not every market will behave exactly like this… but it’s a good starting point for looking at the likely outcomes. Yes, I know you’ve heard about double-digit appreciation rates… but those are not occurring in our markets… They are occurring in California, Arizonia, Florida and other places that were the hardest hit by the economic crisis. Fortunately, that is not what happened here.
With that projected increase in value, it is understandable that many are shifting into a wait to act mode. But the value of your current home is not the only factor to be considered if your plans include buying another home. If buying another home, there are two other critical factors to consider. What’s happening or likely to happen in your target market for the home you will eventually buy and what is happening with interest rates. To evaluate those factors, take a look at he following charts…
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