Bubble Ahead? 5 Signs It’s Time to Sell Your Home

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You’ve waited for years to regain enough equity in your home to put it on the market. Is now the time?

According to the National Association of Realtors, the December median home price of $198,000 was up about 10 percent from the year before. And there’s no shortage of buyers out there. The number of home sales in 2013 was the highest since 2006.

But that’s history. What’s important now to potential sellers is where we go from here. Will prices continue to rise, or should you get out while the getting’s good?

I’ve been wondering the same thing. I have a nice profit on a house I bought as an investment a couple of years ago and I’m now considering selling. To find out if that’s a smart idea, I went to real estate analyst Jack McCabe. Watch the results in the video below, then read on.

As McCabe said, “Yes, now is a great time to sell and it’s going to be for at least the next two or three years. … Probably by 2017, we’re going to reach a flattening period, then we’re going to see prices decrease again.”

Other analysts agree. The most famous, Nobel Prize winner and Yale professor Robert Shiller, told CNBC in December:

In the housing market, it has its own momentum right now as people see it coming back. We’re sort of in the beginnings of another housing bubble. … We have a futures market that’s predicting the increase won’t stop until after 2018 so we still have time to go, but it might be weaker.

In short, the huge nationwide gains in housing prices of the last few years are probably winding down, but there’s no reason thus far to rush for the exits.

But whether you’re like me and are thinking of cashing in on a real estate investment, or you’re one of the millions of homeowners determined to never again be trapped by falling housing prices, it pays to know the factors that foretell a falling real estate market.

Here are a few:

1. Rising rates

Last week’s Freddie Mac survey of mortgage rates showed the average rate for a 30-year, fixed-rate loan at 4.37 percent. While still low, it’s far above the 3.4 percent of the fourth quarter of 2012, and it’s expected to keep climbing, with Freddie projecting a rate of 5.3 percent by the second quarter of 2015.

Every increase prices more potential buyers out of the market. Says Freddie Mac:

However, if rates continue their upward trend, it will be difficult for many families to purchase a home without seeing some income growth. Rising home prices and interest rates along with little to no income growth has resulted in a substantial erosion of homebuyer affordability over the past year. Therefore, jobs and income growth are necessary for 2014 to turn in another gold-medal performance for the housing recovery.

As I warned in the above video, “Rising rates are a trend that’s not your friend.”

2. Idle inventory

Like anything else, the price of housing is established by supply and demand. If demand remains stable, an increasing supply could lead to lower prices.

Nationally, housing inventory at the end of 2013 was 1.86 million homes for sale, a 4.6-month supply. A stable real estate market is one with about a six-month supply.

So at year’s end, inventory nationally was a bit tight, a factor that would suggest higher prices. But since all real estate is local, the supply of inventory in your local market can be a good leading indicator. Most local real estate agents can supply you with this number.

3. Duration of listing

The longer it takes to sell a home, the weaker the market. The weaker the market, the more likely prices will fall.

The median time on the market for homes nationally was 72 days in December, up from 56 days in November. Two months does not a trend make, but this is another number to keep an eye on, especially in your local market. Again, ask a local real estate agent.

4. Selling price

This one is obvious. Gradually increasing sale prices are a sign of a healthy market. Falling ones are the opposite.

While nationwide we’re still seeing increasing prices, growth is slowing. Because of the magnitude of the gains we’ve experienced over the last several years, that’s not all bad. After all, if housing prices continue to grow 10 percent or more per year like they have the last several, homes will no longer be affordable and we’ll be in bubble territory.

But keep your eye on local prices. Small gains in average sales price? Good. Falling prices? Not good.

5. What’s your purpose? 

A big part of the decision to keep a property or sell depends on why you own it. For example, I bought an additional house for the reason I buy stocks: to buy low and sell high.

If you own a home as a primary residence, your approach will be different. Unless you expect a repeat of the cataclysmic housing collapse we experienced several years ago, there’s no reason a temporary stagnation, or even a small decline, should persuade you to sell your home and become a renter.

And in the end, as I said, real estate is local. If you own a home in an area with rising incomes, increasing jobs and population growth, you’ll dodge practically any bullet.

Have you decided to sell your home recently? If so, did you sell it for more or less than you expected? Let us know in the comments below or on our Facebook page.

Allison Martin contributed to this post.

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Comments & discussion

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  • Elizabeth Bennett

    Hmmm, what’s my purpose? Well, unlike the author, I don’t have enough money to buy property as an investment. That would be nice. When I bought my house, my purpose was to … oh raise my family in my home .. to pay the sucker off … and retire in that house. I have hung on to that house with both hands, white knuckles, through the getting laid-off from an investment co. during the recession … unable to find a job for 9 month’s! I think the author needs to keep his audience in mind. “Sell your house off because a flattening period” is coming! And live where? In a rental? For more than what I pay now per month on my mortgage? What would be the purpose? Oh yeah … because my house is going to lose money. Right. Well … I’m 14 years into paying my house off. I’m half-way there. My house has lost money before. And I get what you’re trying to say. But Wow! Most people I know who have bought houses, have bought them for exactly the same purposes I have. And they WILL hang on to their homes if at all possible. To have that home to RETIRE in … to leave to their children. I don’t have much – but I ‘ve managed to hang to my home.

    • Sue Romeu Healey

      That’s exactly what we are going through right now Elizabeth. We are 12 years into paying off our home. I lost my full time job back in Jan. 2013 and am only working part time. My husband is about to lose his full time job unless he decides to move with the company. On that note we have been trying to decide and are leaning towards possibly renting our home out for a few years and relocating with the company. We may have to rent in the area the company is moving to. Our thought is we might be able to come back here in a few years to stay in the house or sell it and move to a retirement area. We are in a real pickle trying to figure out what would be the best thing to do. Hang on to your home if you can Elizabeth. We are sure trying to do the best we can here as well.

      • Elizabeth Bennett

        Maybe the author will post a comment on this too, but I think your idea of renting your home for a few years and relocating with your husband’s company sounds like a good idea. That way you are able to keep your home and your husband is able to keep his job. Then, when you come back, you can decide what you want to do, either keep your home home, paying it off and living in it as your retire, or moving to a retirement area. You could even rent your home again and rent in a retirement area. With 12 years into having your mortgage paid off, I just think it’s worth it to hang on to your home … if at all possible. This is just my own personal opinion.

  • Kent

    And if you are in one of the lower income tax brackets, don’t even think about buying a house. The mortgage deduction and property tax deduction will both come up short for you. The higher your income, the more you benefit from these government subsidies that only look like a deduction on the surface.

  • senior3citizen

    It’s near impossible for s senior citizen to sell their paid off – no mortgage home living on social security alone. What money you get selling the home will go toward maybe 5 yrs cost of a senior living facility. I’ve outlived living where I am and would like to live in a senior retirement facility with people of my age, with many benefits I don’t get in the subdivision I am living in.

    • Elizabeth Bennett

      I don’t understand … truly. When you retire, your house is paid off .. you have no mortgage to pay, right? Why would it be so hard to sell your paid-for, no-mortgage house? Seems like that would be the easiest- house to sell. I suppose there’s capital gains taxes, right? OK .. but what else am I missing here? So what is the answer, if it’s NOT to pay off your house & live in it when you retire? You would rather live in a sr-living facility because you want to be around people your own age … which tells me you are single. And the benefits you are talking about are what? Playing tennis? Going on day-exercusions together? I am truly scared of growing old now. I just don’t know what to do. Should I sell my house before the bubble bursts within the next 3 years and put that money in a retirement fund? And just what … go live in an apt. somewhere? But I would have to pay monthly what I pay now. This article has done more to confuse and upset me … But I’m glad u posted what u did. It gives me something MORE to think about.

    • Elizabeth Bennett

      why isn’t what you get from selling your paid-off home ALL profit? You should be making a MINT off your house! I can see deducing $6K to $12K to pay the selling fees … and the capital gains taxes … I guess that’s what they are called .. but after that, you should be making a wad of money off your paid-off house! I don’t understand! Living on social-security has nothing to do with it … nor living alone! Am I right here? If your house is paid off, when you go to sell it, all that equity is YOURS. If your house is worth $200,000.00, then deduct $10,000.00 to pay the realtor, NO MORE, then pay your taxes, slap the rest in something that’s going to pay you compound interest, and you’re golden. If you want to buy something in a sr. living facility, put down your 20% and live off the balance. Talk to an investment atty. – or advisor, of which I’m neither. I just don’t see why it would be so hard for a sr citizen to sell their paid-off house. I’m curious. Because that was something I was going to do when I retired … use my paid off house as my retirement fund, per se’.

  • Ticobird

    There is a big difference between a house and a home. I’d venture to say that the vast majority of homeowners are just that – homeowners and not merely house owners. I don’t have any more time to go into this but I think you get my drift.