October was the most active new purchase month in the past two years, giving us some great momentum going into the winter. With inventories at 10-year lows and buyer activity building, this should be a wild winter for Buyers chasing their perfect home. To give you a snapshot for the cause of inventory decline, over the past 90 days sales were up 22%. Meanwhile, the number of new listings placed on the market fell 6% compared to last year, which accelerated area appreciation rates.
Appreciation Momentum is Growing
2012 vs 2011 % Change in Price per Square Foot – SE Michigan
These growth rates are a combination of fewer lower-priced homes for sale and a growing rate of appreciation. Separating the two is not an exact science, however it appears that at least a third of the growth rate (or 6%+-) is a true value increase.
Should I stay or should I go? A great song by The Clash, but with prices rising, also a good question for today’s Sellers, “Sell now or wait?” Since housing is not just about the financial gain, the answer depends as much on a Seller’s personal housing goals as timing the rate of appreciation. However, if they are looking to move up to a larger home, there is no doubt they should be looking now. The math is clearly in the Seller’s favor!
Should I Stay or Should I Go?
Current Home Value $100,000
Value in Two Years $118,000
Gain by Waiting $18,000
New Home Value Today $170,000
New Home Value in Two Years -$201,000
Gain by Buying Now $31,000
Loss by Waiting ($13,000) $31,000-$18,000
Plus: Cost of Extra Interest +($18,000) 3.7% mortgage vs. 5.5% in 2 yrs
Total Cost of Waiting 2 Years ($31,000) per $100,000 of home value
*Assumes a 10 year holding period. For simplicity, does not consider closing costs or tax effects.
Right now, a first-time buyer has all the best pieces in their favor to buy. Rising rental rates, low home prices and low interest rates make a once in a lifetime combination. Those downsizing should consider the future interest rate increase, which makes a move today worthwhile. A 1% rise in interest rates will offset a 12% rise in appreciation. We anticipate strong appreciation over the next couple of years, but not 12%. Though, interest rates most certainly will rise 1-2% in the coming years. Anyone who is considering selling in the next few years should be making plans now, so they can test the market in 2013.