It’s 2022 and the market is thriving. Prices in most areas are up by double digit percentages, rent growth has been just as strong, and the pandemic may be a thing of the past soon. Everyone you know who sold their house in the past 12 months got more than they expected. The spring market is here and you’re thinking about whether you should make the big move yourself. So the question comes up – when is the right time to do it?
Here are a few of our thoughts around the subject:
- We are 12 years into what is normally a 5-7 year market cycle. The economy ALWAYS corrects itself at a certain point and it’s usually when people feel the most excited and think the market will keep going up forever. If you are holding an uncomfortable amount of debt, expecting your income to lower in the next few years, or have just been thinking about building your emergency fund back up – now is a great time to sell out and do so. Read our in-depth article on how to prepare for a market shift.
- Mortgage rates are rising which affects affordability more than most people think. A 1% rate increase on a mortgage is equivalent to a 12-13% increase in payment. This means that if you were approved for $400,000 in April of 2021, today your lender will only approve you for $352,000. The bottom line is you may have to budget more than you think on your next home.
- Rents are now higher than ever across the board. We have properties that saw 10-15% increases in a single year. This means that it is easier for a home to cover its own expenses if you keep it and rent it out instead of selling it. If you can clear your mortgage payment by about $300-$400 (ex: your mortgage is $2,150 and your home could rent for $2,500), you may want to consider renting instead of selling to continue to build your net worth.
- Have you lived in your home for at least 2 of the past 5 years? If you have, you are exempt from capital gains tax up to $250,000 (or $500,000 for a married couple). This is one of the few major tax breaks that the IRS gives homeowners – and it’s worth considering especially if you have a significant amount of equity OR you’re planning on downsizing or re-investing some of the money after your sale.
- Will you be able to find another house in your price range? And do you need to sell your current home to purchase a new one? It can be tricky to sell your home in a market where selling is easy and buying has grown difficult and competitive. In this seller’s market, it’s more likely you’ll win an offer if you put down more or all cash and waive inspections or appraisals (A.K.A. taking more risk overall). Is this something you’re willing to do? We dive into all the details in our article, ‘Balancing buying and selling a home at the same time.’
- If you’re not willing to put down a lot of cash or waive contingencies, what will you do in the meantime if you sell quickly? It is much easier and faster to enter into a lease, but are you willing to make that commitment for up to 12 months? Are you willing to lose your security deposit if you vacate early? As stated earlier, rent prices have increased, so it could be more expensive to rent something as big as your desired home. Make sure you consider that an affordable rental could be smaller in size, and you may need to pay for additional storage space. Check out our post discussing the differences between being a renter and a homeowner.
With all of the factors that go into making the decision, the answer isn’t often obvious and expectations don’t always meet reality. Having all of the right information up front about timelines, potential sale (or rental) price, and mortgage rates makes the choice much easier which is why it’s important to have a good team on your side guiding you through the process. Happy selling!
Rodney Ross and Lia Martin
April 14, 2022