How’s the market, is it a good time to buy or sell a home? This is a question that I am constantly asked when speaking to almost anyone about the current state of the real estate market, and if I am being honest – I would prefer not to give a straight answer. The reason being is that, I can in good conscious give you a reasonable argument in any direction.
“Of course it’s a good time to buy. Interest rates are at historic lows and borrowing money is cheap. You should buy now and lock in a low interest rate!” On the other hand, interest rates and asset prices have an inverse relationship. Consequently, (among other factors), home prices are so high because interest rates are so low. “If you wait until rates go up a little, then asset prices will drop and you can purchase your home at a cheaper price.”
Well what about selling, is it a good time to sell? Again, it can go either way. “Yes! You should absolutely sell now. We have been in a 10 year bull market and a period of economic expansion since the 2008 mortgage crisis. If you look back at history, the economy goes through cycles of expansion and contraction to one extent or another every 5-7 years. Therefore, if history is any indicator then we are due for some degree of a correction and you should cash out now while we are at the peak!”
But wait…What about the other side of the coin? Well new constructions are selling like hotcakes, however if you have a home that is older and outdated, then maybe you shouldn’t sell now. For the most part the overwhelming majority of today’s buyers want a home that is new or newly renovated - turnkey, with the white kitchen, quartzite counter tops, the light neutral paint colors, new or refinished hardwood floors, and fresh moldings throughout. So, if you have an older home then buyers are going to want a very steep discount. First, they will take into account the cost of the work to be done. Which unfortunately, labor and material costs are very high right now. Second, in today’s world where usually both spouses/parents are working, many buyers simply don’t want to deal with the hassle of renovating a home. As a result, you can take an extra chunk off the purchase price simply because a buyer doesn’t want to deal with a “fixer upper”. It is an inconvenience for them, and time is money so if they can’t get it at a steep discount then they will most likely pass. In conclusion, if you have an outdated home, unless you’re willing to sell it at a discount then maybe you should wait, or consider renovating first.
The point I am trying to make here is that there are so many variables that come into play when deciding if now is the right time to buy or sell a home, that it’s really not a question that can be given a straight answer. Yes, there are a few truths that are undeniable and have a big impact on the decision. Inventory is relatively low, interest rates are as well, and it is more of a seller’s market. Yet, the fact remains that no one has a crystal ball and we are in a time where there is so much economic and political uncertainty that who knows what the future holds. Trying to time the purchase or sale or your home is like trying to time the stock market. No one knows what the future holds and there are too many variables to accurately assess, analyze and understand the cause and effect relationship between that it’s simply not practical for the majority of consumers to be able to consistently time a residential purchase correctly. For instance, one minute trade talks with China are going very well, and the market is up. The next day trade talks are deteriorating and the market is down. One day the fed is going to hike rates, the next there will be not rate hikes for all of 2019, and the next day there is a good chance of a rate reduction before the end of the year.
Thus, how do you correctly answer the question – is it the right time to buy or sell?
Well, if someone wants a generic answer then I would say, generally speaking it is a good time to sell. Interest rates are historically low, housing inventory is also relatively low - while buyer demand remains strong, we have been in a period of economic expansion for 10 years, and based on history we should soon be due for some type of correction, contraction, or even recession. However, that of course is not a 100% guarantee and our economy could remain strong for the next 6 years. Conversely, if you want to buy, then for all of the reasons just mentioned you may benefit from sitting on the sidelines for a while longer, seeing if “history repeats itself”, and then swoop in to buy at a significantly reduced price. Once again however, there remains the possibility that the economy remains strong for another 6 years and you’ve now pushed off your purchase (and potentially your’ life) for an unreasonable amount of time, while continuing to throw money away on rent.
…And so, all of this brings me to the point I have been wanting to make all along. My preferred way to answer the question of, “is it a good time to buy or sell a home?” is to ask more questions; because like most things in life, the answer is not black and white. It is gray and situational. The reason being is that most times a home purchase or sale is due to a life event – you just got married, you are having your first kid, you are having your third kid, you got a divorce, all of your kids have now moved out, you are re-locating for work, etc. The right way to answer this question, is to understand the motivation for buying/selling, discussing the persons finances, talking through the alternative options, and knowing how long a person would plan on staying in there next place. Only until you get a full scope of the picture can you accurately advise someone on whether or not a home purchase or sale would be a wise move at a particular point in time.