The Teeter Point: Is now the time to sell?

As a Realtor, I am always wanting to be on top of the market, because I have access to everything in the MLS.  Lately, clients have looked around at different areas throughout the metroplex and when running comp analysis I have started to notice a lot more negotiations are happening.  Multiple properties that were once listed at inflated prices compared to the market averages based on the Average price per Sqft, have now started to make price adjustments, lowering the price along with longer times on market.  As I predicted, and what the federal government is trying to do to combat high inflation, is starting to show up.  Raising interest rates to around 7.355% according to Nerdwallet.com, has creating an environment where there are less buyers because it is less attractive to purchase a home with a high interest.  Analyze your amortization schedules where your monthly payment on your home divides up between your Principal, Interest, Taxes, and Insurance, known as PITI at Bankrate.com.  You will see that for example if your remaining loan on your home is $250,000 with a 4% interest your principle to pay down your home would be between $4,000-$5,000 per year.  Meaning you will pay down your home by lets say $4,800 per year, which in the past market was also accompanied by increase in value of your home per the market with possibly an increase of $20,000 in equity per year.  We are now in a different market.  Now, we have to do the math.

After analyzing much of the market, there has been numerous instances where homes lets say are listed around $400,000 as the original list price, and are having to drop the price down to $350,000 after a month.   Within that previous month, homes have been selling lower due to negotiations and less buyers putting multiple offers due to higher interest rates.  Lets say you could have sold your home at $400,000 but now the market will only allow $350,000 based on a comparable analysis and homes sold around your area for a certain Price per Sqft.  By waiting one or two months you now had missed out to capitalize on $50,000 in equity.  I hear people say “why would I go rent when I may pay $400 extra on an apartment when I could just keep paying down my house?” Or the other question of “If I sell now, what home will I be able to buy?  I will just turn around and take my equity over to a more inflated other home.”  That was true just a few short months ago, but with interest rates now above 7% possible reaching up to 8%, you have to do the math.  Lets say you do sell your home now and capitalize on the inflated market making an extra $50,000 then go rent while the market starts dipping to wait to be able to purchase your next home with the extra equity you gained.  The math would go like this.

Selling now:

$50,000 increase in profits by selling now

House payment was $2,000 and now you are in an apartment paying $2,400 (not appealing at first thought) but then,

You realize that your principal you are paying for your home anyways might have been around lets say $5,000 (paying down your home for the year).

You now are taking that $5,000 and are paying it in rent BUT you made an extra $50,000 so really your profit is $45,000.

Lets now say you stay in your home for another year:

At the rate that the market is analyzing at and interest rates on the rise, your home value drops with the market at minimum $50,000 (possibly more) at the rate they are lately.  The math would look like…

You have paid your home down by $5,000 but lets say lost $50,000 in equity due to market changes.  Your actual profit then would look like after a year at around $5,000.

There is a teeter point where the market levels out and then starts to come down.  Based on analysis and running many comps throughout the DFW Metroplex, I feel we are pretty much at that teeter point where if you are sitting on some great equity, this may be a good time to sell your home and capitalize on it.  The next step would be waiting it out till the market drops and more negotiations can happen, then purchase your next home.  I have to admit, I wish I would would have waited another year to sell my previous home, but I was looking at this market saying if I had a home I would sell it so fast right now, go rent, and wait until I can purchase another home as the market starts dipping and interest rates go up.  If you purchase a home with a higher interest now, you can always refinance when interests rates drop in the future and lock in at a lower interest rate.  I have done that on previous homes.

If you find yourself at a place where you are not sure what your home is valued at and in your area what the market is showing, I do enjoy running comp analysis of the market, so I would not mind running an analysis for you.  That way you can have an idea of what your equity is currently, and give you some insight on whether the market based on what has previously sold is going down and by how much and at what rate.  Then you can pray about it and see if it would be worth selling, capitalize on the inflated market, rent for a bit to wait until the market dips, and then look for your next home.  I always look at the housing market very similar to the stock market in that “You gotta know when to hold ‘em and know when to fold ‘em”

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