Every move-up buyer needs to ask, ‘Is now the right time to trade in my home?’
First in a series
Friday, January 10th, 2014
Issue 02, Volume 18.
Do you know this family?
Many of our local residents have felt trapped in a home for years as they struggled to "do the right thing" and keep their mortgages current while neighbors all around bailed out of their homes and left entire neighborhoods blighted.
Those who stayed often wanted to protect their credit as well as leading and teaching their children valuable lessons by leading by example.
A typical Temecula-Murrieta first-time buyer in the pre-collapse period (2000-2007) wanted to "get in" a new home while they could still afford it. Many bought smaller homes with growing families. A common strategy was to buy small now, live in the home for a few years allowing for equity to build, and then sell for a profit and move-up to a larger home that their growing family could grow into.
Unfortunately, the collapse took place and many good families were stuck in their current home that could not continue to keep up with the demands of their family. Perhaps that has changed and now may be the time to sell your home and move-up (or down) to a home that meets your current and future needs.
Of course there is no way to say with any certainty of what the future brings – even in housing. As a trained professional, your REALTOR should have a good understanding of the local market and the numbers I am about to go through.
Temecula real estate market
Looking at just the Temecula market – all inclusive of only houses or "single family residences" as the industry refers to them – in 2012 there were over 11 percent more homes sold than 2013. Despite fewer home sales in 2013, the average Temecula home sold for 23.77 percent more in 2013 than it did in 2012. Despite the numbers, there are many frustrated buyers in the marketplace looking for that perfect home.
The tone of the major forces behind the value increase has to be that the distressed properties (foreclosures, short sales, etc.) are becoming scarce, and homeowners are now selling homes with equity in what is referred to as a "standard sale".
The year 2013 saw nearly a 35 percent increase in the number of standard sales from 1,065 in 2012 to 1,432 last year. Standard sales are selling for a lot more too, with the average standard sale in Temecula in 2013 being $421,876.
In 2012 there were 308 bank-owned homes – or REOs as they are known in the industry – and 703 short sales, whereas in 2013 there were only 96 REOs in all of Temecula and 315 short sales. A combined loss of distressed inventory of over 53 percent or 602 distressed sales (includes numbers from other categories as well) fewer than the year before. Most local industry experts agree that 2014 will have even fewer distressed sales that 2013. This is a positive indicator that the economy in general is changing for the better.
What are the costs of moving up?
There really isn’t any way to accurately predict what will happen in the market in 2014. For the sake of discussion let’s look at a typical homeowner that thought about selling their home last year but decided to wait until the prices went up and they could take more money out of their home.
There are several factors when looking at the cost of buying a home. First there is the purchase price. Keep in mind since loan down payments, closing costs, and property taxes are all based on very specific percentages of the very specific value at the time of sale, the more you pay, the more out of pocket you’ll have to come up with. In this article, I will only be addressing the principal and interest (P&I) of a mortgage payment.
The future cost is only an estimate based on conservative projections based on historical local data (that is available to review). All numbers represented in this article are exclusively for Temecula and only include single family residences or houses. Considering the overall Temecula real estate market grew by 23.77 percent year over year from 2012 to 2013, I am using a very conservative 4 percent increase in values for 2014 – ask yourself is this realistic or will it be higher or lower? You decide, but I believe 4 percent is very conservative.
Then there are interest rates. A year ago rates hovered around 3.5 percent then they went up to over 4.5 percent and have since relaxed in the 4.35 percent area. There are a lot of factors in place but to paraphrase Oprah, "That’s a subject for another article."
Nearly every industry expert has weighed in believing that 2014 will see interest rates settle in around 5.5 percent. For a point of reference, 7 percent was always considered a very good rate – just ask any Baby Boomer you know.
Looking at the above chart the typical home would have sold last year for $421,882 and this year with the 4 percent increase it should sell for $438,770 – a profit of $16,888. However, purchasing the new larger home this year will cost an additional $21,108. Think of it as a $4,220 penalty for waiting.
If you had made the jump early last year and could have secured a 3.5 percent mortgage, your payment would have only gone up by $354 for the larger home. Today, at 4.5 percent interest, your monthly expense will be a difference of $663 – or a $209 a month difference. Wait until later in the year and risk a 5.5 percent interest rate and your monthly cost for the same home will be $560 per month (just P&I) than it would have cost last year at 3.5 percent. Buy it today at 4.5 percent and you’ll still be paying $309 more than last year.
We have all heard that "time is money" and it has never been truer than when you want to move up in a growing market.
Call us today and get the information you need to make the right decision. The info is free, call now! (951) 296-8887.
Questions regarding available inventory and/or other real estate matters contact Mike Mason at Mike@GoTakeAction.com. Mike Mason, Broker/Owner of MASON Real Estate Cal. BRE: 01483044, Board of Director of your Southwest Riverside County Association of Realtors® (SRCAR), Traveling State Director, California Association of Realtors® (C.A.R.).
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