Bigger Home Now?

Is now any time to be thinking about buying a bigger home? The answer to that question in a honest to goodness, unqualified: It depends. First, do you have equity in you home at its current value? If not, do you have the cash reserves to pay off the difference and still put a down payment on another home? And also, how is your job situation (and that of your spouse, if his/her income will be necessary to make this purchase? There is no crystal ball and no one can claim to have one. But we do have indicators and many of them are good for the foreseeable future. The Pasadena Star News is just one example of them Click here. So once you know you can afford to sell you house and that you have a down payment (ideally 20% to avoid mortgage insurance), you are still wondering whether you should buy now. After all, you are sure that within the next five years your home will increase in value, now that the worst appears to be over. That may be true, but here’s a little math that may help you reason it out for yourself: For simplicity’s sake, let’s say you bought your home for $100,000 and it has dropped 10% in value. So now it’s worth $90,000 in the marketplace. And you want to buy a home that went for $1 million at the time you bought your home. So it’s come down 10% as well. Now it’s worth $900,000. So while you lost $10,000 on your purchase, you are saving $90,000 on the purchase of your bigger home, because it dropped $100,000 in value. Same 10%, different price tags. Usually in the real world of Southern California the next move up would not be so dramatic, but it’s easier than trying to show it on a $213,000 home in Long Beach’s Eastside moving up to a $340,000 home in the Los Altos neighborhood, which is a lot more common. So you get the point. In my opinion your decision should be based on whether 1. You can afford to sell you home at its current value, 2. You can afford to buy your new home (interest rates should not be a factor as they remain low, and just eased down a bit), 3. Your area of employment has been growing and shows stability, and you’ve discussed it with your family, financial advisor and any other trusted source with knowledge about your situation. Your realtor should help you after you make this decision, just to avoid any appearance of bias. This is not to talk you out of it, but to help point out anything you may not have considered. Because all told, for many people now is the ideal time to sell and trade up.
Here is a recent article in the Washington Post that addresses this very issue. Click here

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