Photo (cc) by Pure3D Visualisierungen
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.