Selling now & renting until a crash?

[brandy0331]

DH is talking about selling our house now, which would get us around $150,000 profit. We could then rent his parent’s much smaller but decent rental house until the market drops, when we would buy land to build a new house on or just find something else that we like. This entire idea freaks me out a little. I’d be fine living in the rental for a year or two at most (especially since the rent will be super cheap allowing us to save even more). Is he crazy? Is this something we should even consider?

[Accountingcat]

I would do it if I knew I had a rental that I liked! I'm assuming you've lived in the house for over 2 years? That would be better for gains taxes. I mean the only worries are:
1) the market doesn't decrease in 2 years (I'm sure it will)
2) what if we have a recession (would you have a job to finance a new house)

I don't know about your situation but right now might be the only time I'd ever be able to make a profit on my house after the improvements I've made and I'd love to save the property tax money!

ETA: I guess I should also add for context that I don't have children so I would only be uprooting myself & another willing adult. If you have kids, would it effect their schooling?

[AdaraMarie]

I don't know what I would do or what is the right answer, but I think things to consider are taxes on the gain if you don't buy again right away and the possibility that of housing prices go down but interest rates go up it might offset any benefit to waiting.

[ssmjlm]

If I was planning to do a build of my own then I would sell now and rent and hope material pricing comes down in the next couple years. You can buy the land and work on paying it off while renting with lower COL. The only issue is, some construction loans require 20% down, so you would need that cash on hand when you do go to build.

If I was planning to sell and then buy once the bubble pops, I'm not sure if/when that would happen and it depends on your area. I'm in an area with a lot of overpriced real estate because we have old homes that need significant work or new spec houses that are cookie cutter and upgrading some of the finishes/fixtures would be $$$.

[brandy0331]

We’ve been in our house for 8 years. We have one child but moving into the rental wouldn’t require a school change or any additional commute. The house is a lot smaller. I’m guessing around 1500sq ft with a smaller yard. It’s my husband’s grandparents’ old house, so our in-laws would probably rent it to us for less than $1000 a month. We would need to get one of those storage boxes for my husband’s garage crap.

[brandy0331]

I’m in lowerDelaware FWIW.

[brandy0331]

Feb 18, 2021 8:58:28 GMT -5 AdaraMarie said:

I don't know what I would do or what is the right answer, but I think things to consider are taxes on the gain if you don't buy again right away and the possibility that of housing prices go down but interest rates go up it might offset any benefit to waiting.

I definitely worry about the interest rates going up. We are Veterans so that should help I would think, as we have a VA loan now.

[icedcoffee]

I don't know, but we've also been watching the prices in lower DE as we'd love to buy something near the water. The prices out there are cuckoo right now. Would love to see the prices drop. Are you near the water? If so, I'm guessing you'll have to wait until people decide they'd rather have a vacation than a second home and start selling.

[ellipses84]

If you have a guaranteed, decently priced rental that will work for you doing worst case stay at home orders, and you don’t plan to stay in your current home much longer anyways, I would. Moving is a PITA, but that’s a lot of savings. The only concern would be will prices keep rising in your area? Even if that’s the case, it seems like the rental would give you a lot of flexibility and budget to find a property you really love.

[ellipses84]

If you have a guaranteed, decently priced rental that will work for you doing worst case stay at home orders, and you don’t plan to stay in your current home much longer anyways, I would. Moving is a PITA, but that’s a lot of savings. The only concern would be will prices (and interest rates) keep rising in your area? Even if that’s the case, it seems like the rental would give you a lot of flexibility and budget to find a property you really love. What would your long term plan be if the rental wasn’t an option?

[goldengirlz]

We’ve tried to crunch the numbers on this because we’d like to buy a new place too and the market is ridiculous.

I think you’re making a big assumption here, which is that you’re selling at the height of the market. The truth is, we don’t know that ... it’s just based on our collective gut feeling that what goes up must come down. But there’s no clear catalyst to suggest that the market will face a downturn — I’m not saying it WON’T but all of our predictions have been wrong to date. And there’s still a ton of pent up demand in every hot market.

So the risk is that the market may continue to climb for longer than the next year or two — or that prices will stabilize but interest rates will increase, making the net effect a wash. Also consider that the next “crash” might not be as dramatic as 2009; it could be a more modest correction. Meanwhile, you lose additional gains in equity (unless you invest that money and hope you get similar or better returns in the stock market.)

We’ve decided that sticking it out in our current home makes sense because at least we’re riding the overall housing market — if it goes up, we gain equity; if it goes down, we lose equity but have more buying power because prices will be lower. (Half of our down payment is also coming from stocks, so I do think being diversified is beneficial.)

[brandy0331]

Feb 18, 2021 14:55:33 GMT -5 icedcoffee said:

I don't know, but we've also been watching the prices in lower DE as we'd love to buy something near the water. The prices out there are cuckoo right now. Would love to see the prices drop. Are you near the water? If so, I'm guessing you'll have to wait until people decide they'd rather have a vacation than a second home and start selling.

I wish we were on the water. That area is always insane. DH works down there. We are actually in lower Kent county.

[heygrey]

I wouldn't do it unless I could be okay in the rental for upwards of 5 years. It is too hard to predict exactly when/where the market will correct. Like buying stocks, timing the housing market is incredibly difficult to do successfully. You could stand to lose more gain on sale and potentially pay more for building if prices don't correct in the timeline you've set.


We thought we would be in our last apartment maybe 5 years? We were there 10 years and 3 months. The market that we expected to correct, or at least plateau, continued to climb. Our rent was cheap so we were able to save more by staying, but the market didn't behave like we anticipated and it seriously impacted our plans. Eventually we were able to buy, but none of it worked out the way we would have predicted.

[simpsongal]

If you're confidently "done" w/your house, I would do it. Even if you decide to buy a different house rather than build, it'll be easier to make offers w/o contingencies for selling your current house. The fact that you're renting under market means you're saving money. Obviously you'll need to make sure you can tolerate the smaller house, which I'm guessing might be a bit run down as well.

Other consideration - can you fit your furniture into the rental?

[sdlaura]

I wouldn't assume that there's going to be a dip. I've thought there should be one for a long time now. I see it like predicting interest rates-very hard for people to do reliably. So you may never see prices drop as much as you think they should.

We have thought about this, given that we live in a high cost of living area and our house has doubled in what it would sell for versus when we bought it. But ultimately we have made our house exactly as we want it, and it's in our perfect location, and there aren't any rentals I would want to live in as much. Plus not knowing what will happen with house prices in the future.

[sicilygirl]

Feb 18, 2021 8:58:28 GMT -5 AdaraMarie said:

I don't know what I would do or what is the right answer, but I think things to consider are taxes on the gain if you don't buy again right away and the possibility that of housing prices go down but interest rates go up it might offset any benefit to waiting.

Just putting it out there - when you sell your personal residence, the gain calculation is independent of the decision to purchase another home, meaning that whether or not you buy another house afterwards has no bearing on the gain from the sale of your current home.

[sillygoosegirl]

I wouldn't, unless you need/want to move for other reasons.

- Transaction and moving costs will eat a lot of your profit.
- There is no guarantee that prices will crash.
- If your new mortgage when you buy again is at a higher interest rate, that will erase a lot of the benefit of buying a house at a lower price.
- Not moving twice is worth a lot to me.

[niq]

I have no idea how to think about the housing market right now. Lending just isn't in the same place it was as 2004-7, banks are in better shape because of Dodd-Frank and being less risky, and a lot of people have better finances now because they can't spend money on a lot of things they usually would.

If my long term plan involved moving to a lower COL area, doing it now makes a lot of sense. But just moving within the same metro, even if it's from a high cost city to a medium-cost suburbs, doesn't feel like an improvement.

[mcsangel2]

I wouldn't do it. I've seen a number of conversations online talking about the housing market saying this is not a typical bubble. It's specifically tied up in the US economy and the rock-bottom interest rates we've had for years now - the stock market and real estate are the only places to invest that get a return right now. And even when interest rates eventually go up, those holding property will probably keep it. Some people think the US is turning into the UK in that respect, they have much lower rates of home ownership there.

[carrotsmakemefat]

If you want a reset I’d sell and rent for a couple years.

Here is what I’ve heard: watch your rental prices. When those start to go down you’ll notice housing prices will also go down. That signals a price reset.

My realtor is also convinced we will see some short sales in the next 6-12 months. She has no reason to admit that as we’ve been looking with her for a year and she has yet to make commission off of us. But that’s her thought process.

[silvercrayon]

We are getting ready to start our custom build. We have talked to several professionals about the price of lumber. Everyone seems to agree that it will stabilize, but they doubt the price will drop.