Selling a House? Don’t Overprice It
There is no doubt
that the housing market is coming back nicely. What, if anything, could
slow down the current momentum? We believe it may be sellers’ over
exuberance when it comes to pricing. There is little doubt that house
prices have appreciated over the last twelve months in most regions of
the country. However, with both the inventory of homes for sale and
interest rates increasing, we have to be careful to not over judge what
the market can bear.
Trulia just reported that asking price shave jumped dramatically and the increase is accelerating:
- Year-Over-Year prices jumped 10.7%
- Quarter-Over-Quarter prices jumped 4.1% (16.4% annualized)
- Month-Over-Month prices jumped 1.5% (18% annualized)
No expert is
expecting home prices to shoot up 18% in the next twelve months. If
anything, price appreciation may slow as rates and inventories increase.
Investors will begin to slow their purchases and the first-time buyers
expected to take their place will be working within a pre-set budget in
many cases.
Buyers’ Purchasing Power
Let’s
look at an example: A young couple is looking for a home and have
predetermined that their budget will only allow them to spend $1,000 a
month on a mortgage. At today’s mortgage rate of 4.5%, they could afford
a $200,000 mortgage ($1,013 principal & interest). However, if
rates jump to 5%, they would have to lower their mortgage amount to
$190,000 in order to keep their monthly payment where they need it
($1,020). At 5.5%, the mortgage would need to be no more than $180,000
($1,022).
The Impact on Prices
This decrease in
buyers’ purchasing power will have an impact on home values going
forward. We do not believe it will cause a decrease in prices. However,
we do believe it will likely cause current rates of appreciation to
slow.
If
you are thinking about selling your home, don’t get carried away with
current headlines about home price increases that have taken place over
the last twelve months. Instead, call a local real estate professional. They will be best prepared to explain where prices are headed over the next six months.
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