If you are thinking about selling your home and downsizing, there are a few factors you should consider. Find out about them here.
Why would I sell my home?
Most of us have a reason we would consider selling our home – to cash in on its equity, to pursue a new job or move to a better neighborhood, to upsize or downsize, or simply to be closer to friends and family. It is likely that you already have your own reason in mind. You’re not so much wondering why you would sell your home, but why you would sell your home now.
The answer to this question can be found in three little words: in real estate, “timing is everything.”
Good news: if you’re among the millions wondering ‘should I sell my house now or wait until later,’ then this blog might just be perfect timing. And if you’re wondering about your next home if you did sell, you’re going to want to keep reading.
2021 Is a Seller’s Market
The housing market is not just hot right now, it is “one of the hottest housing markets in US history.” It is not just booming, it’s “historic.” The explanation for this is uncomplicated – we now stand at an intersection where historically tight supply meets unprecedented demand. Here’s what you need to know about this extraordinary moment.
Tight supply means houses are selling for more than asking price and spending less time on the market
During the height of the COVID-19 pandemic, the amount of available housing inventory plummeted as new building slowed, a foreclosure moratorium was instituted nationally, and potential sellers became wary of strangers wandering through their homes. The result was an alarming housing shortage.
With the country now beginning to emerge from the pandemic, the problem has yet to improve. In fact, it has actually gotten worse. In June of 2021, the national inventory of homes actively for sale had decreased 43.1% from June of 2020. Simply put, houses for sale are scarce, and with so few to choose from, sellers have all the power.
Unsurprisingly, prices are skyrocketing. Nationally, the price of existing-home sales rose 23.4% in June of 2021 from June of 2020, while almost 50% of homes sold for more than their list price. Low inventory means buyers are bidding above asking price, without contingencies, and often in cash. On top of that, the amount of time homes spend on the market before they go under contract is down. According to NAR, properties only remained on the market for 17 days in June 2021, while an astonishing 89% of the homes which were sold had been on the market for less than a month.
It can be mentioned, the great state of California is exceeding these lofty national averages. Median home price in the state have continued to hit all-time highs four months in a row starting in March 2021, and was up 30.9% in June from the same time in 2020; 70% of houses sold that month did so for more than their asking price, while only being on the market for an average of seven days before going under contract as reported by C.A.R. Additionally, the state is also home to three of the top seven markets with fastest-growing home values nationwide (San Diego, Riverside, and Sacramento).
In California and elsewhere, historically tight supply is raising home prices to unheard-of levels. But there is more …
Mortgage rates are historically low, increasing demand for houses
Mortgage interest rates have been at historic lows for most of the past year. At the end of July 2021, the average rate for a 30-year-fixed-rate loan was 2.78%, not far away from an all-time low of 2.65%. For comparison, it was nearly 5% at the end of 2018.
Low-interest rates mean that buyers can save thousands of dollars over the lifetime of their home loan, pushing many new buyers into a market already short on supply, spiking demand, and further strengthening the position of sellers.
With COVID-19 restrictions lifting, home buyers are out in force
With the worst of the pandemic (hopefully) behind us and COVID restrictions ending in many places, those buyers who had been waiting for things to go “back to normal” have rushed to the housing market, eager to make up for lost time. Housing market activity was up 22.9% in June 2021, compared with June 2020, while, all told, over 6 million home sales are expected in 2021, up 6.6% from 2020.
But is this normal the new normal? That is to say …
Will the Housing Market Cool Off?
You may be thinking, if the market is headed upward, why sell now? Why not wait for the price of your home to grow further? It comes back to timing. The housing market is very cyclical; the pricing goes up and down over time. The question is, how long will the current trend continue? How much longer will the momentum last? To answer, we might look to some warning signs on the horizon.
The mortgage rate is expected to rise in late-2021
Freddie Mac forecasts the mortgage rate will rise to 3.4% by the end of 2021, and close in on 4% by the end of 2022. If this is correct, many of the buyers currently flooding the market will retreat and demand will decrease.
Housing supply is rising
Remember that historic housing shortage? Experts estimate it will be ongoing for at least another six years, but inventory is starting to rise slowly but surely. As the economy reopens, builders previously stifled by COVID restrictions are rushing to build new homes. Alongside them, sellers who had been waiting for the return of normal are now listing their homes in big numbers. In June of 2021, newly listed homes on the market were up 5.5% nationally compared to June of 2020.
On top of that, the federal foreclosure moratorium, which prevented people from losing their homes during the pandemic, is set to end in most places at the end of July, meaning some will lose their homes, and many of those houses will go onto the market, often at a discount which lowers local prices.
Now is the best time to sell your house
It’s simple: in real estate, things can change quickly. The housing market might look dramatically different a few months from now, as supply continues to increase, and rising mortgage rates push down demand.
Right now exists an unprecedented opportunity for sellers to take advantage of an historic seller’s market. If you are looking to get the highest price for your home, in the shortest amount of time, now might be the best moment to sell in any of our lifetimes.
Should I Downsize?
Of course, the obvious caveat of a booming seller’s market is, if you sell your house now, you re-enter that booming market as a buyer. You may wonder, will you be able to find your next home amidst tight supply? If you do, will you be able to afford it? And then, will the cost of buying cancel your profits from selling?
For many, the solution to these concerns is clear – downsize, that is, move to a smaller or less expensive home. In fact, downsizing might be a greater opportunity than you realize.
The financial benefits of downsizing
Consider a housing market where prices have jumped over 20%, as was the case nationwide in June. Your $500,000 home now sells for $600,000, while you buy the $250,000 home you are downsizing to for $300,000, You made $100,000 extra on the sale of your home, and paid $50,000 more on your purchase, giving you an extra $50,000 in your pocket.
It’s more than that though. Your new downsized home will likely have lower utility bills, lower property taxes, and require less spending on maintenance and upkeep. Indeed, a Homes.com survey found that 62% of those who downsized said spending less was a major upside to their move. Downsizing is not just a way to realize immediate financial gains, but a way to promote financial health in the long term.
Downsize your home; upgrade your life
It’s not just boomers and empty nesters; increasingly, downsizing is the strategy of choice for people seeking to live by the mantra of ‘less is more.’ These days, many Millennials, Gen Xers, and, yes, Baby Boomers, are looking for freedom and flexibility in their living arrangements, for more energy-efficient and sustainable homes; they want to live in pleasant walkable communities instead of far-off suburbs, to simplify their lives and free up time for experiences. And yes, they want to save money.
Smaller, healthier homes, more money, and more freedom. The Washington Post called it “Downsizing the American Dream.”
So, should I sell my house now and downsize?
The decision to sell your home is a personal one, and the right time is different for everybody. That said, the housing market is currently in the midst of an unprecedented boom. At the same time, many are recognizing the financial and lifestyle benefits of downsizing to a smaller, more flexible, more sustainable home. It might just be the perfect storm to sell your house now and downsize.
Remember, timing is everything.
