Your neighbor just sold their house for how much? Housing prices continue to soar, with Zillow estimating they could climb 21% in 2022, bolstering the already-steady gains of 2021. A real estate market this appealing might leave you wondering if now is the right time to sell your home. But it’s important not to let the dollar signs in your eyes obscure any potential downsides. Here are four questions to ask yourself before putting a sign in your yard.
1. How much will my next house cost?
Receiving a sky-high offer is a dream come true, but it’s not as fun when the shoe is on the other foot, and you’re the one making the frenzied bid. In most cases, rising housing prices impact the entire market so unless you are moving to a lower-cost area or downsizing, you might have trouble finding an affordable new property, despite making a tidy sum from your sale.
To figure out how rising prices might impact you when you purchase your next property, conduct due diligence to determine the price point of the type of home you hope to buy. You may need to consider other options to reduce your next housing cost, such as choosing a condominium over a house or moving farther away from the city core. Since many workplaces are shifting to permanent remote work, you might even be able to relocate somewhere with a lower cost of living.
As you do the math, don’t forget to include costs associated with buying and selling real estate, such as the agent commission, mortgage-related closing fees and even the costs of packing and moving your belongings.
Having a complete picture of your future housing costs can help temper your interest in moving – especially if you do love your current home.
2. What are the tax implications?
While your home provides a roof over your head, it’s also considered an investment and thus is subject to capital gains taxes. Fortunately, real estate is often exempt from capital gains, as long as it has been your primary residence for at least two years out of the previous five.
There is a limit to the exemption, which currently is $250,000 if you are single and $500,000 if married. So as you consider the amount you will be making from a potential sale, make sure you consider any taxes you may be incurring. [Can link to in-depth story on houses and taxes when live]
3. What should I look for in my next property?
As you get swept away in the excitement of a hot real estate market, selling a beloved home can lead to regret if you choose your next property too hastily, so make sure you don’t jump into a sale before you know what you want in your next house.
First, start by evaluating your current home – what do you love about it you want to replicate in your new property and what has always bugged you that you’d like to avoid? For example, maybe you need similar outdoor space but you also want to have an attached garage to make it easier to haul in groceries.
If you’re thinking about moving to a new, potentially more affordable area, consider how it will impact you from a lifestyle perspective. If you have a young family, how is the school district? Does the neighborhood have parks and other amenities? Is there retail and dining nearby? Is the area walkable? If your employer does require or encourage you to return to the office, is your commute manageable? If you’re intending to age in place, does the area and property itself offer universal design?
4. How will I finance my next house?
If you’ve received a windfall and are intending to move to a more affordable property, you might be tempted to buy the new home in cash rather than getting a mortgage. But believe it or not, that’s not always the best strategy.
Many homeowners find it’s preferable to get a home mortgage, especially while rates are still close to historical lows. That can free up your cash for other needs, such as saving for retirement or bolstering an emergency fund where you can access it as needed rather than having it tied up in a “non-liquid” asset – one that can’t easily be converted into cash. In addition, paying cash rather than borrowing could deprive you of a mortgage-related tax write-off.
Today’s real estate market has many homeowners wondering if they are giving up money by sitting on the sidelines, but wading in cautiously after considering all your options is always the best financial strategy. If you determine now is the time to buy a new home, Valley Bank is here to help. Contact us today to find out more about our mortgage process and options.
