If you’re torn between listing your property now or holding on to your home for a few more years in the hopes of growing your investment, the answer is clear: Sell Your Home in 2017.
This year is the prime time to get the most equity out of your home. According to CNN Money, sellers who sold their properties in the first quarter of 2017 saw an average equity increase of $44,000.
But don’t expect this seller’s market to last forever. REIT (Real Estate Investment Trust) executives, who own or finance income-producing real estate, have recently noted that growth in the real estate market is moderating this year due to the potential for rising mortgage rates.
According to Jennie Moshure, a Keller Williams realtor who ranks in the top 5% of buyer’s agents in the Atlanta region, “We’re in the tenth year of a cycle, so it’s about time for the market to start cycling down. Statistics show that within the next eighteen months to two years you could be looking at another dip in the housing market. If you want to get the most amount of money for your property, now really is the time to do it.”
What is A Seller’s Market? (And How Do We Know We’re In One?)
Realtors look at the number of homes on the market and how quickly they are expected to sell to gauge the current market conditions. In broad terms, a balanced market exists when there’s a consistent equivalence between the number of buyers and properties available. In this market, all listed properties are expected to sell within a six-month period.
When an area is flooded with listings, buyers have more to choose from, which results in properties staying listed for over six months—creating a buyer’s market. In neighborhoods with fewer houses available, listings get snapped up quickly as multiple buyers are vying for a single property—resulting in a seller’s market.
So, is residential real estate in the U.S. currently a seller’s market?
CNBC has gone so far as to label spring 2017 as “strongest seller’s market ever,” a claim substantiated by the continued rise of sales prices. In fact, the National Association of Realtors reports that the national median sales price for existing homes has risen 5.6% over last year, and 1.1% in just the last month alone.
Let’s look at the specific reasons why you should sell your home in 2017.
The Highs and Lows of the U.S. Real Estate Market in 2017
There are three key factors that make 2017 a seller’s market in most regions across the United States: low inventory, low existing home sales and low interest rates. If you’re the seller, these lows translate into significant highs for the return on your investment.
1. Low Inventory with Stable or Increased Demand
As recently as April 2017, the National Association of Realtors stated that low inventory is a major issue in many markets. A report prepared by the Joint Center for Housing Studies of Harvard University points to a slow growth rate in the nation’s housing supply.
In new construction, the report says, “housing completions in the past 10 years totaled just 9.0 million units—more than 4.0 million units less than in the next-worst 10-year period going back to the late 1970s.” The outlook for existing home sales is even more drastic—“only 1.65 million existing homes were for sale in 2016, the lowest count in 16 years.”
As Moshure explains, “The less there is to choose from, the more in demand your property is going to be. Buyers are gobbling up exactly what’s out there and not leaving this slew of homes that in a buyer’s market, no one may want.”
While available inventory is dipping, the national pool of buyers is expanding—especially for more modest homes. Business Insider has noticed an upswing in millennials ready to buy their first house and baby boomers looking to downsize in retirement.
With these two demographics in fierce competition, engaging in bidding wars over the same types of properties, this puts the control into the seller’s hands.
2. Low Existing-home Sales Means More Control
For retailers, a decrease in sales often indicates a decrease in demand for their product. The opposite is true with real estate. A decrease in existing-home sales is most likely a result of low inventory, while demand may stay the same or even increase.
And according to the NAR’s April report, national existing-home sales slipped 2.3 percent in April but then increased 1.1% from that number in May. If the number of existing-home sales are down in your region, this is all the more reason to get your home on the market—especially if your home has some obvious flaws. If existing home sales are picking up in your area, you’d better jump on selling your home in 2017 to catch the wave before it becomes a buyer’s market again.
As Moshure points out, a buyer with fewer homes to choose from will make concessions they won’t usually make.
If you put your house up for sale now, while the 2017 real estate market is still in the seller’s court, you’ll be in a position to set the contract terms. You could even try to sell your home as-is—though we don’t usually recommend that—and possibly save money on repairs and improvements that buyers would request in less favorable market conditions.
3. Low Interest Rates Mean More Buyers Chomping at the Bit
When you’re not the one buying, it’s easy to overlook the impact that mortgage rates have on a sale. It all comes down to affordability.
As the NAR’s affordability index demonstrates, lower rates allow buyers to qualify for mortgages on more expensive properties. Higher rates means a higher mortgage payment for your buyer, which reduces the amount of money they can afford to pay for a home.
Moshure explains it this way, “If the rate jumps from four to five percent, it’s the equivalent of the house price jumping from a $500,000 house to a $550,000 house. So, that one percent hike in the interest rate increases the cost of the house by ten percent.”
The result is that a buyer who can afford a $500,000 home at a four percent interest rate can only afford a home under $450,000 at a five percent rate. In other words, when interest rates rise, the difference comes out of the seller’s pockets.
According to the U.S. Department of Housing and Urban Development’s National Housing Market Summary for the first quarter of 2017, the it’s more difficult than ever to afford owning a home. The NAR Composite Housing Affordability Index which measures median household income relative to the income needed to purchase a median-priced house, has dropped to 160.3 from 166.00 in the previous quarter.
But you haven’t missed the opportunity to sell your house for top dollar just yet. The index is well above its historic norm of 129 and mortgage rates are still low.
With current interest rates hovering at lows around 3 and 4%, this means that more of your buyer’s mortgage payment goes toward the purchase price. With that extra money going towards the purchase price, buyers can afford a more expensive home than they could at a higher rate.
All of this serves to increase the pool of buyers vying for your home and opens up opportunities to sell at more expensive list prices.
A Good Economy Increases Buyer Confidence
The economy is looking up these days in a number of ways. Unemployment rates have steadily declined, with the Bureau of Labor Statistics reporting a rate of 4.3 for May 2017, a low not seen for over ten years.
Giving us a snapshot of the U.S. economy, the Federal Reserve Bank of New York indicates that labor market conditions remain solid and revisions to the GDP estimates show stronger growth in 2017’s first quarter than originally reported.
People are more likely to invest in an appreciating asset like real estate when they aren’t worried about losing their jobs. This financial security translates into a positive for anyone looking to put their home up for sale because they’ll find more buyers in the market for properties when they list.
My Home Sold! Now What? Aren’t I In a Bad Place As a Buyer?
Sure, selling during current market conditions is great, but what happens once your home has sold and you’re now a buyer in a seller’s market?
The fact is, interest rates are going to go up.
When they do, you stand to make less profit on your home sale and you’ll pay a higher price for your new home. You need to sell now if you want to get the equity boost for your property and take full advantage of the low interest rates when you head out into the market as a buyer.
Moshure explains it this way, “People who bought three or four years ago, with a plan to stay in their homes seven to ten years, they have gained a ton of equity. Equity that they probably won’t see gained again in their lifetime in that short a period of time. If they can take that equity and buy their dream home at these interest rates and lock it in, it’s the perfect time to do it.”
Technically, equity increases each time home sale prices reach new highs, a fact that tempts some homeowners into hanging on to their houses for too long.
But remember, that equity increase is only on paper, unless you sell while the market’s hot.
When sales prices decrease—as projections expect them to—that equity you’ve gained will reduce right along with it. So, if comparable homes in your area are selling for thousands more than you paid for yours, don’t wait. The time is ripe to ring up your realtor and sell your home now.