Don’t get bummed out…

I’m speaking at an event that we’re hosing at our office today on the topic of Real Estate Market Trends. As I was preparing I researched all of the current market numbers for our County market and for the little market area that I focus upon surrounding Milford, Michigan. Just looking at the numbers it became obvious how to answer a question that I had posed for myself as a topic that I would cover – Should I buy now or wait? What was much less obvious and is somewhat harder to answer is the Yang question in the Yin and Yang world of real estate – Should I try to sell now or wait?

If you want to sell or perhaps need to sell, it is easy to get bummed out by what you hear and see of the current market. It’s so obviously a Buyers Market that is easy to become discouraged, if you are a seller. There is no way to sugarcoat what has happened to home values – they are down 25-30% from their high mark in 2004-5. In just a little over 4 years everyone has lost ¼ or more of the value that they thought they had in their homes.
For people who bought between 2003-2006 that is a very real and very serious loss of equity that is not going to come back in less than a decade.

For people who have owned their home for 10-20-30 years and did not take equity out through refinancing, this is a paper loss; which is no less painful to deal with, but with much less real impact. The $80-100,000 that many paid for the homes in the 70’s and 80’s is now only worth $200,000 and not the nearly $300,000 that it was worth 3-4 years back. Don’t get bummed out. You still did OK on that investment, just not as well as you thought you would. Hopefully the equity growth that you had planned for in your house isn’t the only things you had in mind to fund your retirement.

So, getting back to the question – Should I sell now? – the answer is yes, if you have to or want to, in order to move on with life. Things aren’t going to magically turn around and all of that “lost value” rush flooding back into your home. Once we bottom out and start to see appreciation again, instead of the constant loss of value, we will more than likely return to what was the normal appreciation rate historically. That was about 3-4% per year, prior to turning into a much steeper level of increase in the late 90’s and early 2000’s. We cranked along at 8-10% per year appreciation for a period during those “bubble years.” What we have seen over the last 2-3 years is a rapid fall back down to the levels that we should have been at (and sometimes well below that level as the correction overshot the mark) had we stayed at the historic appreciation level during those years.

So, if you had decided to wait out the market, you’ll have quite a wait. It may be better, especially if you’re at a life stage where waiting for a decade is not a real good option, to bite the bullet on the “loss” that you have taken and get on with life. If you’re buying anything else – going either up or down in size – you’ll get some of your loss back by getting a good deal on that new place. Of course downsizers may not recoup all of their loss, but at least a good deal on what you are buying can take some of the sting out of the situation. Obviously this is a great time to be moving up in the market. The bottom line is not to be frozen into inaction by concerns over paper losses. Life goes on and you must, too.