Suppose I am two years away from paying off my house; I owe 20 grand and it’s worth 100. I am contemplating moving.
Scenario 1: I sell now, put my 80K down on a 200K house.
Scenario 2: I wait two years, sell my house, and use whatever it sells for as down payment on a house equivalent to that 200K house I looked at back in '12.
Which is the smarter play?
My first thought is that it would not make much difference; whatever the market value change in my current house will be roughly equivalent to the change in House B, and it will be a wash.
However…suppose my house increases 10K over the next two years. Assuming the other house appreciates at the same rate, it will go up 20K (or 10%), and will therefore cost me 10K more if I wait vs. buying now.
The other consideration is that if I wait two years, I will likely have ~20k more to put down than if I do it now.
I realize that you can’t predict market trends, and not all areas appreciate/depreciate equally, etc. I’m just looking for a rule of thumb here. Sell now and buy now, or wait two years.
There are surely other variables or nuances I am missing.
Yeah, I think this is one of those "you pay your money and you take your chances " sort of things. It’s really not possible to predict outall that well. Another factor to think aboutis interest rates–some people are predicting they’ll remainlow for a while, but who knows. Seems best to base the decision on non-monetary factors.
First of all, you have 2 years of mortgage payments to spend on the current house, so you have to factor that in. If you’re counting on a percentage appreciation in the value of the two houses, you’re better off getting the percentage increase from higher priced house. But the rule of thumb to apply here is to invest within your means. Your ability to pay the higher mortgage, and absorb the losses that you might occur as a result of speculating are the more important factors.
One thing to keep in mind, and maybe this is what you’re getting at, is the way interest is paid on mortgages. With two years left on your mortgage, you’ve paid most of the interest already. For example, I currently have two years left on a mortgage, and only 15% (and decreasing monthly) of the payment (excluding taxes) goes towards interest. Just 5 years ago that was 40%. I also have a mortgage with 29 years left on it, and currently 75% of the payment goes towards interest. Paying more upfront saves you much more in the long run than paying more at the end.
So, assuming $120,000 loan vs $100,000 loan with a 5% 30 year mortgage, the savings in interest is about $20,000. Selling your current house now, the savings on interest on the remaining $20,000 in loan is going to be way less than $20,000. So, obviously, putting more down is better. That is disregarding any appreciation differential between the two houses.
My advice though, is don’t worry about that. If you know you want to move sometime in the next two years, start keeping your eyes open for good houses. When you see something you like, which is a great deal, take it. There’s no hurry, so missing a good deal doesn’t force you to take a less good deal, you just wait for the next one.
I have no cite, but have been told by several real estate professionals that smaller/cheaper houses tend to appreciate slightly faster as a percentage than bigger ones. (All other factors being equal, of course.) They’re preferred investments as rentals, and experience slightly higher demand because more people qualify for a mortgage big enough to buy them.
Even if that’s true, the more expensive house is probably appreciating at a higher dollar value, even if the percentage is lower, especially over a shorter period like 2 years.
That said, I’m with the others: buy the house you can afford at a time that fits your personal needs. Don’t look at a house as an investment unless you’re a landlord or a builder. And even then, don’t underestimate the elevated risk created by leveraging assets.
There can be vast differences in how different markets responded to the housing crash. There are some towns in Northern New Jersey where prices are edging up quickly and houses are often subject to bidding wars. Meanwhile, houses in adjacent towns will linger on the market for months. It may well be that the house you own now will not appreciate, while the house you want will appreciate beyond your budget (or vice versa). Even if you are moving in the same town, there are micro markets within towns.
My advice would be as follows; If you are moving upmarket, do it now. If you are moving downmarket, wait.
However, it is still basically a tossup. God knows I am no real estate guru.
Agreed. I think that having a 2 year time frame to find the best deal for the best house in the best location is the most valuable thing about the situation. You find a house and they won’t budge on the price? So what? Wait for the next deal.
More money and happiness will result from this factor than from a couple of grand either way on the strict monetary decision (which you can’t predict anyways).