Updated September 9, 2021
Moving is a big deal, and the decision of whether to sell your house now or wait is rarely an easy one. But in 2021, perhaps more so than any other moment in history, sellers have received sign after sign that it’s an opportune window to put their house on the market — at least from a financial standpoint.
So let’s talk about what’s going on.
In case you missed it, the pandemic launched a home buying spree of epic proportions. A struggling economy sent mortgage rates to low levels while many Americans sought out bigger, better homes to spend their days working from home and ride out the health crisis.
A tidal wave of demand was met with a sorry amount of housing supply as a result of material costs, supply chain disruptions, and years of chronic underbuilding in the new construction industry. Early in the summer, it looked like mortgage rates were going to climb, but then they dropped again amid Delta variant fears.
It’s only as of recently that small signs of the market cooling have emerged, but conditions still remain highly competitive. That said, no one knows exactly when things could change, adding more urgency to the equation.
Here are the key market indicators painting a picture of the situation, and why time may be of the essence:
Seller’s market reigns supreme
In Q2 2021, 98% of top real estate agents said it was a seller’s market, up from 79% the year before, according to data from HomeLight’s Top Agent insights survey for Summer 2021. During two and a half years of tracking agent reports of market conditions in our quarterly surveys, we’ve never had such a high percentage of agent respondents describe their locale as favoring sellers.
Supply is inching upward, but it’s still tight
The inventory of unsold homes increased to 1.32 million, or 7.3%, from June to July. While NAR predicts that new home sales are likely to increase along with inventory in coming months, the housing supply is still limited. Currently, homes are selling at a median of 17 days, faster than 22 days a year ago, and supply is down 12% from the same period in 2020.
Fortune notes that the largest wave of millennials (those born between 1989 and 1993) are hitting their 30s, an age when people traditionally buy their first homes. Sheryl Palmer, CEO of home building company Taylor Morrison, told CNBC that even as the economy improves and mortgage rates rise, the lack of supply and the overwhelming demand for housing that began before the pandemic “is something that will be with us for years to come.”
Home prices boomed this year
Consider that 94% of metros saw growth in June 2021 to the tune of 23% average price gains nationally. Twelve metro areas, eight of which are in the South and West regions, reported price gains of more than 30% from one year ago.
Analysts have suggested that the strength in the market has been driven by people moving away from urban residences to suburban homes, the normalizing of remote work untethering buyers from any particular location, and the appeal of low mortgage interest rates.
Nationwide, the average homeowner gained $33,400 in equity between Q1 2020 and Q1 2021, a remarkable boost, according to data from real estate analytics company CoreLogic.
It won’t last forever
The current housing market has pushed many buyers to the point of fatigue. The share of first-time buyers in the total market dropped to 30% in July from 31% in June and 34% a year ago, likely because of the lower supply of homes in their price range and competition with all-cash buyers.
In our survey, 54% of agents nationwide had seen or heard about buyers backing out of purchase contracts because of remorse over an inflated price. Housing experts agree that the pace of price increases we’ve seen during the past year and a half isn’t sustainable — some buyers have already had no choice but to bow out — so make hay while the sun shines and before a correction materializes further.
Favorable selling scenarios
Now that we’ve gone over what’s happening in the market, you need to put that knowledge within the context of your own situation and needs. Here are some circumstances that real estate experts say make selling an attractive option in today’s market.
You’re trading up.
If you hope to sell your single-family home and upgrade to one that suits your family’s needs better, now is a great time for many sellers to do it, says Stacey Glenn, a top real estate agent in Fort Myers, Florida. “If for no other reason than your ability to lock in a 30-year mortgage with ultra-low interest rates,” Glenn says, which she notes won’t stay this way forever. However, you’ll need to weigh the advantages of low mortgage rates against the recent increase in home prices.
You’re looking to maximize retirement funds.
Going back to that same CoreLogic analysis: Homeowners nationwide with mortgages (roughly 62% of all properties in the American Community Survey) have seen their equity rise by nearly $1.9 trillion since Q1 2020, an increase of 19.6%, year over year.
If you’re near retirement age, selling your home now could benefit your savings, as well as your lifestyle. In our Summer 2021 industry survey, 60.5% of real estate agents nationwide said retirees in their market are seeking to capitalize on current market conditions, a number that rises to 73.4% in the Northeast. Agents describe a sense of “carpe diem” brewing among this seller group.
Curious to know where your home equity stands? Estimate your home equity with this simple formula: subtract your home’s estimated market value from your current mortgage balance. HomeLight’s Home Value Estimator, which pulls data from several leading sources to get a real-time value estimate based on current market trends, can help you assess your home’s current worth.
Remember, though, that it’s a ballpark figure; you won’t know exactly how much you’ll net at the sale until you go through the selling process and account for all fees, repairs, and taxes.
You’re OK with renting for a stint, even if it means renting from the buyer.
Depending on where you’re located, you might find few feasible options for homes to buy or even rent. Yet the net profit might be worth some short-term inconvenience, such as storing your belongings. “We have that situation right now with one seller, who got an offer immediately. It’s $50,000 more than she thought she’d get for the home,” Glenn says. The seller decided to take the offer.
If you can’t make feasible short-term arrangements, you can stay in your home a little longer by selling with a leaseback. This effectively turns the buyer into your landlord for a number of months, say, three to six.
“You take a little bit of a lower price on the home because you’ve got someone who’s willing to give you a leaseback,” Glenn says. “We have the title company hold back about $10,000 in the net proceeds, and it stays in the escrow account until the buyer’s agent can go and do another walk-through after they [the previous owners] move out. Just to make sure that the home is in the same condition.”
Your house needs some work.
Because of the heavy competition and influx of cash buyers, now could be the time to sell your home for a relative premium, even if it has a few flaws or some dated bathrooms. One of the benefits of operating in a seller’s market is negotiation leverage; when you have multiple buyers competing for your home, you may not have to concede to the same level of repair work that you would in a more balanced market.
If your home needs more than a touch-up to be marketable, now is also a good window to request a cash offer as low inventory encourages investors to improve their offers. For homeowners who value speed, certainty, and simplicity, HomeLight created Simple Sale, a platform that provides you with a full cash offer whenever you’re ready to sell. Answer a few quick questions about your home and timeline, and you’ll receive offers in 48 hours or less. If you decide to accept the offer, you get to pick the move date.
You also can talk with your real estate agent about which repairs are musts. If there’s an issue that will crop up during the home inspection that makes the home uninsurable to a financing buyer, you’ll likely need to address it.
When to wait to sell
Even if all of this sounds promising, you might still want to wait to sell your home. And that’s OK, too! “There are a lot of factors you have to consider when you are planning to move out of your current property,” says Todd Schroth, a top-selling agent in Wekiwa Springs, Florida. “What’s your long-term plan? Have you identified where you want to move once you sell? Are you moving up or are you moving down? Are you moving out of the area?”
Here are a few situations when selling right wouldn’t necessarily be the right move, despite current conditions.
You recently refinanced your home.
Because mortgage rates have hovered at the low 3% since 2020, many people have refinanced their higher mortgage rates instead of opting to buy a new home. According to Freddie Mac, refinancing activity in 2020 reached its highest annual total since 2003, climbing to $772 inflation-adjusted dollars in single-family refinances. More recent statistics show that refinancing is still going strong. In early August 2021, refinancing applications increased 0.9% from the prior week and 2.9% from one year earlier.
If you’re one of the many homeowners who refinanced in 2020, you will likely want to hold off on selling for now. Refinancing isn’t free, and closing costs total between 2%-5% of the loan amount. It may take several years to accumulate enough interest savings from your lower rate to offset those initial expenses, which is why lenders typically recommend that you don’t refinance if you have plans to sell soon.
You can’t afford a new place in the current market.
The recent rise in home prices can be a double-edged sword. It’s great when you’re on the sell side, but is it worth cashing out now if you’ll have to sacrifice those profits to buy high? Regardless of low mortgage rates, you need to make sure that your budget will work for the current market and type of property you desire.
“With my clients, we take a look at the equity position that they have. Do they have enough money to sell it and have a nice down payment for the next property, or can they sell it, walk away even, and get similar financing on the next home?” says Schroth. “We’re not looking at $400,000 houses when they can only afford $350,000.”
Keep an eye on local real estate to help you make a decision. With reports that inventory is creeping up in recent months and values may be rising at a slower rate in some areas, this fall and winter could present a chance to sell on the heels of the price run-up as some fresh housing stock hits the market.
You haven’t built much equity yet.
Similar to evaluating your home equity when you’re considering trading up, you don’t want to move when your home is considered “upside down,” i.e., you owe more than the property is worth.
“If the value’s $200,000 and you owe $210,000, that’s obviously a sign you should wait or rent the property out before you sell it,” Schroth says.
Because the bulk of your monthly mortgage payment at the outset applies toward interest, it usually takes about four to five years for your home to build enough equity to make it worth selling. In addition, you’ll need to make sure your profits from the sale will cover all your selling fees. A recent analysis at HomeLight found that it costs $31,000 to sell a house in 2021.
You’d pay hefty capital gains taxes.
To avoid having to pay capital gains taxes on your home sale, you’ll need to have owned the home and lived there for at least two of the five years leading up to the sale. As long as you meet these criteria, you can exclude up to $250,000 (or $500,000 if you’re married and filing jointly) of “capital gain” on your main home. In other words, if you just bought your primary residence, it may be in your best interest not to sell it for at least two years. If you need help determining how much you’d owe in taxes, reach out to a tax advisor for assistance.
You’re not mentally prepared to sell.
Americans stay in our homes an average of 10 years before deciding to sell them, according to NAR’s 2020 Profile of Homebuyers and Sellers. That’s a lot of time to accumulate memories. Sometimes the emotional cost of selling the house doesn’t outweigh the potential financial benefits.
“I want to find out what their situation is and advise what I feel I would do. If it’s, you know, ‘my grandparents have had the home for 50 years,’ it’s not a good time to get them out yet. Maybe we need to wait a little longer,” Schroth advises.
Where to go from here
Even if you keep pace with up-to-date information about the housing market and your equity situation, deciding whether to sell now or wait often comes down to a battle between your heart and mind. While now may seem like the perfect time to sell on paper, there is no deadline.
When in doubt, talk with a top real estate agent who knows your local market inside and out to help you weigh both your personal and financial motivations. “It’s not just a purchase and a sale,” Glenn says. “It’s your house. It’s your life.”
Header Image Source: (Ben White/ Unsplash)