You’re beginning to feel a little cramped in that starter home that looked so perfect several years ago.
There just aren’t enough bedrooms anymore, or adequate storage space, or a big enough backyard for the kids and the dog to play. Or maybe there is another one on the way — a baby, not a dog.
Many Sacramento-area residents are facing a similar dilemma these days. While that tiny bungalow made perfect sense back when you bought it, you are quickly realizing that you have long since outgrown your home.
The logical answer would be to move up to a larger property, but many homeowners fear that the soft housing market would make buying that dream home difficult, if not impossible.
The surprising fact is that this may actually be a great time to move up — precisely because of the housing slowdown. Yes, home sales and prices have been sluggish for the past couple of years. And chances are that your home isn’t worth what it was at the peak of the market a year or two ago.
But savvy homeowners are beginning to discover that the math actually works in their favor when they move up to a more expensive property.
It’s true that you probably won’t get every dollar you would like when you sell your existing home. Depending on the price range and location there may be a larger than normal inventory of properties on the market and fewer qualified buyers.
So, of course, prices need to be competitive in order to sell. Valuations have dipped in many communities, in some cases back to levels of three or four years ago.
Now for the good news: That larger, more expensive home that you’ve had your eye on has dropped even more — in some cases, much more — than your current home.
So the difference between your existing home and the next one is probably much less of a step up than you might have imagined. And if you’ve been in your home for more than just the past few years, there’s a good chance you’ve built up equity that could be used to buy a larger home.
Plus, those individuals who are in starter homes are finding that thanks to the $8,000 first-time homebuyer credit, there is increased demand, allowing these homes to sell faster.
Walter Maloney with the National Association of Realtors said it’s important for homeowners to do the math.
“Obviously, if you’re selling for less than you could have gotten two years ago, you’re disappointed, but you really need to look at your bottom line,” he said. “If you’re trying trade up, whatever you’re going to trade up to is going to sell at a discount, too. You need to look at your net.”
Let’s say, for example, that your current home has declined 20 percent from its peak of $350,000, then you may net $70,000 less when it comes time to sell. But at the same time, it’s a good bet that the higher-priced home you’re considering has also dropped in value by 20 percent — if not more.
So a home that was $600,000 at its peak, for instance, may be on sale for $480,000, or $120,000 less, putting you ahead of the game when you trade up.
Getting into a larger home isn’t the only reason consumers typically think about moving up. Others consider “trading spaces” because of job relocations or a desire to get into a certain school district or simply because they’ve been pining after that dream home in a nicer neighborhood.
While the financial savings on the larger home is a major benefit, there are other reasons why the soft housing market may work in your favor right now:
• Strong buyer’s market at upper-end. There just is not as much competition for more expensive homes as there is in the entry-level market. Most of the home sales this year have been low-priced and distressed properties.
• Record affordability. Price declines and low interest rates have combined to offer buyers record affordability, as calculated by the National Association of Realtors’ national index.
• Entry level homes are in greater demand. While you may have outgrown that little bungalow, there are lots of potential buyers who would be interested in moving in when you’re ready to trade up.
Bob Bronswick is president and COO of Coldwell Banker in Sacramento/Tahoe.
