Selling a house in a hot market

[heygrey]

I am in a hot market as well. There is zero chance I would sell my house right now, gambling on the market cooling so I could build/buy my dream home in a few years. It's like trying to time the stock market and that rarely ends well. The rental market in my area is just as hot, so for many people paying rent isn't saving money. It just saves you the headache of being the one to do repairs on the property.

My husband works in lumber (in canada, but his company also has a mill in the states and he keeps up to date on the current climate of their industry). I would not bank on lumber being significantly cheaper in the near future. It's hard to predict much past ~2 years because governments can change the trajectory, for better or worse, but right now it's not favouring the consumer at all.

[goldengirlz]

I’m not totally clear on what you would gain by selling — the chance to buy new construction?

I live in a perennially hot market. People have been waiting for “the next crash” since 2011. I was certain I bought at the peak in 2016, but if we had waited, we would have been priced out of our neighborhood (already our, like, fifth choice) by the following year and our home value has only appreciated since.

If you love your house, don’t do this. It’s risky. You’re not a speculator. A house is first and foremost a place to live.

[mcsangel2]

I think this would not turn out the way you imagine it would.

[heygrey]

Apr 23, 2021 22:22:59 GMT -5 marie3246 said:

I love my neighbors and street but there are things I want to do to my house to make it how I want (expand the kitchen add a pool). So it seems like it would make more sense to take the huge profit and in a few years build exactly what I want.

I am being kind when I say this - you are being very short sighted and it is going to shoot you in the foot. Unless you have significant money to bring to the table to add to the profit from your house sale, this is not a gamble I would take.

Current market trends for lumber/building supplies are not suggesting a downshift in the next few years. And if it takes a decade, inflation will be at play so prices will still be as high or higher than they are today. Land will cost more. Your money will be sitting in a bank, you'll be paying rent (which is throwing away money in your case, since you currently have a mortgage and are building equity on a property that has already appreciated significantly), and the dream house you want will cost more than your current house sale can afford. 

If your dream house comes on the market, buy and sell then. But don't sell now and hope you're at the top of the market and realize in 3 years you left a couple hundred thousand on the table by not waiting. 

[minzy]

What does the other half of the “we” think about this idea?

Right now, our market is very hot, too. Zillow, for what it’s worth, says my house is worth $170k more than we bought it for. But I love where we live. I love the house itself, the neighbors, the neighborhood, the community. I’ve put down roots here and am incredibly involved in what happens. My husband likes to send me listings closer to where my office is about to be, but we joke that I am like Leonardo DiCaprio in The Wolf of Wall Street, “I am not fucking leaving!” (In fact, in a way, I am taking my old job back as an insurance policy against a potential future merger for his company, so we would be less likely to leave this area.) If I did try to buy something else here in the future, it would basically be my current house. So we’ll just sit with the equity. ETA: I can see how $700,000 would make this a tougher call, though. But I still think my answer would be the same (for me).

My friend lives nearby and has outgrown her townhouse and has talked for years about more space. They are planning to take advantage of this madness, sell, and then rent for a year or two, and then buy again. I guess it makes sense for them to do that financially because they want out anyway, and they would make a lot. I’d hate the upheaval of moving again multiple times at this stage of my life, but if it works for them (and you), go for it. How we all gauge certain factors will be different.

[minzy]

I added an ETA right as you typed but yeah, $700k is a lot (and different than my scenario). If you’re up for it and can weather whatever comes, go for it.

[origami]

Would you have to pay taxes on a gain that large? I’m not sure which state you’re in.

[kadams767]

I guess my thinking is, though, that isn’t a true $700k profit since you’re likely going to need to sink the majority of that money into a new house if you plan on buying again in a similar area. So you’d be selling your house for $X just to buy another house also worth $X? If that’s the case, you haven’t really made any money. You’re only coming out ahead if you buy lower or somehow get a better house for the same price. And in that case, your “profit“ isn’t $700k, it’s the delta.

[cosmowife]

Apr 24, 2021 7:32:19 GMT -5 kadams767 said:

I guess my thinking is, though, that isn’t a true $700k profit since you’re likely going to need to sink the majority of that money into a new house if you plan on buying again in a similar area. So you’d be selling your house for $X just to buy another house also worth $X? If that’s the case, you haven’t really made any money. You’re only coming out ahead if you buy lower or somehow get a better house for the same price. And in that case, your “profit“ isn’t $700k, it’s the delta.

Yes, I agree with this. If you buy a similar house to your current house that just happens to be much more expensive, you haven’t actually made money. And if the value goes down after your purchase, you’ve effectively lost money. The only time that this might work would be if you were moving to an area with a lower cost of living. I’ve considered doing this - I could sell my current house for a large profit and then buy a lovely house for much cheaper near my parents and sister (in a different state). But, then I’d be living in that state (which is the state that I couldn’t wait to get away from after college).

[origami]

I’m not an accountant but from what I understand married couples can exclude up to $500k. Over that you’d pay capital gains. I’m not sure what state rules apply. There may be ways to reduce that.

[Velar Fricative]

I would not do this unless I were moving to a lower COL area. Too much of a gamble for me to take, personally.

[dr.girlfriend]

Unless you were moving to a different area, I wouldn't. We bought technically during the "crash" in 2008, but prices were still crazy -- the people who bought our house for $135k in 1997 sold it to us for $300k. It stalled out in value for awhile, but now similar houses are going for more than $450k. We would definitely have been priced out of the neighborhood if we had tried to time it.

[ny96]

We sort of did this and it didn’t work out for us. In 2018 we had a plan to sell our townhouse and move into a rental for 6 to 9 months while we “timed the market” and took our time finding the right house. We also needed the equity in our townhouse to buy a new house.The weekend we sold our townhouse we went looking for rentals and were quickly disappointed in the selection, so the following weekend we went to a million open houses and purchased a house that is lovely, but small and doesn’t quite work for our family. Now we are looking at remodeling or selling again. I honestly don’t know what we would have done differently because the townhouse was also too small, but I know now that prices continued to climb and competition has only gotten fiercer so I know that most likely we would have had a frustrating 6-9 months or more in a rental and still not found the right house.

[goldengirlz]

The other thing I would not assume is that a new construction home would be priced around the same as an older home. The builder is paying a large premium in construction costs right now, and will pass those costs on to buyers. And if there IS a dip, the catalyst is likely to be higher interest rates so borrowing will be more expensive.

Larger picture though: what we’re witnessing is a fundamental re-ordering of the economy. As more companies allow permanent remote work policies — and more Baby Boomers start to retire — people are moving around the country and bringing their equity with them. Do you have a sense of WHO, exactly, is spending $1.4 million on a home? If it’s a lot of transplants from NY, CT and California, who’s to say that’s not sustainable for a long while?

I live in California. There is NOTHING on the market at that price. I WISH I could get a decent house for $1.4 million, but the tiny 1950s ranch I live in with no yard (let alone a pool) is worth more than that. When we see a nice home here for $1.4m, we immediately think, “What’s wrong with it?” If THAT is the mentality of the people you’re competing with for houses — people who are thinking “wow, what a deal!” — I don’t think you can bank on such a quick crash.

But anyway. It sounds like your mind is made up and you’re not looking to be talked out of it.

[just]

If it were just the two of you, and you’re risk takers and like to gamble - maybe. But with three kids and a dog? Oooof - no way. Presuming your rental will be smaller so you’d need a storage unit, possibility of a new school district, pet premium, rent inflations.

But I’m not a risk taker.

[goldengirlz]

One last point (I promise ... maybe): we DID just have a dip, back in March 2020. The stock market crashed and so did home prices (at least around here.) They sank because there was so much craziness and uncertainty in the world that buyers were staying put — and the only sellers were people who needed to move quickly. Plus anyone funding a down payment with stock (which is a lot of people) saw a big hit to their portfolios.

A crash (or a dip or whatever you want to call it) isn’t always “yay, everyone else’s circumstances got worse but mine stayed exactly the same.” Usually home prices take a hit because things are in the crapper.

[coffee]

After owing a home, and having children, which their needs change very quickly, there is not enough $$$ for me to move to a rental. In 2.5 years in our new home we have done so many changes. From nurseries to big kids rooms, and office, playroom to movie theater. Added a play set in our yard. I feel perfectly fine buying quality furniture for the house, and making changes since I get ownership. I would not “invest” in any changes in a rental. I would not buy quality furniture since I wouldn’t know if that would work for our “future hose”. I would always feel in that limbo, which I don’t like while having young children.
Of course, that’s a personal feeling. But at the end of the day, if you own a $600k- $1.5m house your needs are way more than covered. The rest of the money, in my opinion, is to be comfortable and enjoy life. Living in a rental is not what I would picture just to “get more extra money”, which as mentioned before, is just an illusion, and might not be realistic.
I would only move if I want/need. Not for the illusion of a profit.

[turkletsmom]

I would be really tempted too by that $700k increase. I mean, damn that's good. But I wouldn't sell until I knew the new prices with the builder. Plus- who's to say they don't delay those plans or whatever.
If I generally liked my house and neighbors, I'd do a cash-out refi and add in the pool and renovations to make the current house perfect. Then I'd add in the left-over equity calculation to my net-worth spreadsheet and pop some champagne lol.

[Susie]

We are selling in a hot market right now.  We secured our purchase first, then listed our house for sale 8 days ago, on Friday, for 35% more than we paid in 2008.  We had 18 showings in the first two days, and got 5 offers, all above asking.  We chose from best and final offers on Monday, and accepted an offer that was about 46% more than we paid in 2008.  We had 3 different buyers all offer that same top price, 2 of whom had to lose.  One of those buyers also lost after bidding on our neighbor's house the week before.  I felt for them, but they just didn't have the strongest offer.  Winning a best & final situation is so difficult, and it takes luck in addition to speed and money.  

While we were house hunting for our purchase (and casually prepping our house to list once we found it), we saw one house that was listed for $499,500. It had 43 showings in 2 days, and went for a contract price around $600k. It was last sold in 2012 for $395k. WTAF. There were lots of disappointed buyers on that one.  We got our new house for about 4.6% over asking (which was already an insane appreciation vs. last sale price in 2019) and felt like we did great.  

So all of that is to say... yes, you can command a top price for a house right now.  But you can't really control the timeline on finding and winning a new place.  Plus a lot of your found money on the sale will get eaten up because you'd buy high too.  Rentals are also price high and inventory is low, because people want to do exactly what you are thinking of, selling high, renting for a bit, and buying lower when things cool down.  Because of all that, HELL NO would I list my house for sale without a firm plan of where we were going next.  We waited until we were through attorney review, inspection, and appraisal on our purchase before we listed ours for sale.  I wanted to be in a place where we felt fairly secure that the deal was probably going to go through, because we knew ours would get snapped up.  

The one exception is if you could move in with family.  That's what our sellers are doing, and I'm sure they're going to make a killing with that strategy.  Sell, ride out the high market with family, and then buy lower.  Good deal if you can swing it.

[sadlebred]

Would you really be happy--I mean REALLY happy--with a spouse, 3 kids, and a big dog in a small apartment for several years?

[tacokick]

I think this really only works* if you want to sell and move to an entirely new, cheaper area and buy sooner rather than later. I’m not sure why this new development would be so much cheaper if it is close to you yet would have better houses.


*if your goal is save some of the money

[cosmowife]

Apr 24, 2021 13:07:40 GMT -5 Susie said:

The one exception is if you could move in with family.  That's what our sellers are doing, and I'm sure they're going to make a killing with that strategy.  Sell, ride out the high market with family, and then buy lower.  Good deal if you can swing it.

There is literally no amount of profit that could convince me to do this lol.

[kate1482]

We have a similar market. Dh and I have kicked around the idea of moving but it only makes sense if we moved to a lower cost of living away from the coast. Our neighbors sold their house and moved to Texas and were able to buy an (amazing!) house for 800k and not have a mortgage. If we sold and wanted to buy again in the same area the replacement cost of what we have now just doesn’t pencil.

[Deleted]

**I** would do this in a heartbeat. However, we are (presumably) older, no kids, no pets, and plan to downsize with our next move. In your situation, i dont think i would.

[icedcoffee]

$700k increase?!? Thats insane and makes me wonder if there’s more to the story that should be considered. I mean our prices are crazy but we’re talking a $150k increase (20%) not almost doubling the price.

Makes me think prices may not drop where you are as much as you think they will which makes this a very risky proposition.

I have a house to live in though and rarely worry about the resale value.

[scm1011]

We’re also up about 700k in equity since we bought and I have considered this, but I just don’t see the market dropping around here. It might slow or stagnate, but I just don’t see prices coming down and I’m not willing to take that gamble with 2 young kids in tow.

[dancingirl21]

We are in a perfect position to sell and take a huge profit, and we still aren’t doing it.

We bought our house 4 years ago. Since then we’ve put in almost $100k to it. New roof, finished the basement, just completed an entire gut job of the kitchen, new hardwood floors on the first level, redid the porch, and many other smaller updates. Even with putting that amount of money in, we would make anywhere from $100-200k if we sold right now.

We are being relocated for DH’s job for 2 years. But we won’t stay there permanently - we plan to come back. We have definitely kicked around the idea of selling and sitting on profit for 2 years, while renting (paid by his company) in the new location, and buying something else here when we come back. Ultimately, though, there’s no guarantee this market will shift and we can’t take that risk. To be fair, this home has everything we need and want, so there’s even less reason for us to sell.

But it seems like this “problem” is everywhere. We are hugely struggling to even find a rental home in the new location. We’ve gone so far as starting to work with an investment company that buys single family homes and we will rent from them. A house came on the market there Friday morning, the realtor we are working with did a virtual walkthrough with me 2 hours later, and the investors put in an all cash offer that afternoon. The sellers asked for best and final yesterday. The investors put in an offer $10k over asking, all cash, no appraisal, very quick close and we still lost. So it’s insane out there right now.

[aprilsails]

If what you are saying is true about lack of inventory and people being in a lottery system for new builds, there is absolutely no softening happening in your market in the short term. Your house price is not about to suddenly drop, no matter how high it seems to you. There is still space to climb. If you cash out now you will likely regret it. I can really only see markets flattening, not suddenly dropping, and I’m in an area with 60% increases over 3 years.

Cashing out is only advisable when relocating or downsizing. I also don’t see the big advantage in selling. If you need a pool you could put one in now. It will cost you likely more to put one in the new house in 2-4 years, and in the meantime you still don’t have a pool. You are sacrificing a lot of current happiness for a potential future payout that I don’t even see. In the meantime, you will lose a portion of your cash paying rent (the delta between your current interest payment and the cost to rent a place).

[Susie]

Apr 24, 2021 17:08:06 GMT -5 cosmowife said:

Apr 24, 2021 13:07:40 GMT -5 Susie said:

The one exception is if you could move in with family.  That's what our sellers are doing, and I'm sure they're going to make a killing with that strategy.  Sell, ride out the high market with family, and then buy lower.  Good deal if you can swing it.

There is literally no amount of profit that could convince me to do this lol.

Oh for sure, same here.  That's why securing our purchase first was imperative.  I just see the financial advantage for someone with different circumstances!

We're in the two kids and a dog camp, with one kid in public school, so maintaining an address in our district and only moving once were firm requirements of this whole process.

[redheadbaker]

I don't usually post here.

If your dog is anything larger than 25 lbs, you're going to have a hard time finding a rental that will allow it, and an infintely harder time if the dog is a German shepherd, husky, Great Dane, dalmatian, akita, doberman or pit bull (or a mix of any of those breeds).