Jed the Economist predicted some changes in the market – here is his #3:
Repeat Buyers Take Center Stage.
2013 was the year of the investor, but 2014 will be the year of the repeat home buyer. As prices rise, buying homes will become less attractive to investors as well as first-time homebuyers, but repeat buyers will be able to offset the higher price of the home they buy with the higher price from the home they sell.
This idea probably looks sexy from his perch in the ivory tower, but on the street it is much harder to accomplish.
Yes, there will be people who won’t mind paying more for the next one if they can get more for theirs. The difficulty is with the logistics.
If you are thinking of moving up or down, here are the choices:
1. Offer to purchase a home, contingent upon selling yours. While this provides great convenience to you, there’s not much chance any seller will go for it. If it is a decent house and priced correctly, there will be enough non-contingent buyers that you’ll get kicked to the curb by the listing agent who won’t give you the time of day – even if you are the highest bidder.
2. Sell yours first, and rent. This is the best solution if you want to use the equity in your home to buy the next, but nobody likes the double-move. Plus, if the prices keeps moving and/or your criteria is so tight that few homes are a match, you could be left waiting for a while.
3. Buy first, then sell. If you can use other money for your down payment, and qualify for the payments on both homes, you got it made. My rule-of-thumb is that you need to pay 50% more for your next house to make it worth it – spending 10% to 20% more only gets you another bedroom or bigger yard. How many people can qualify for their current house, AND the new house that is 50% higher-priced?
4. Leave town. You still have to juggle one of these three options, but if you move to a cheaper area then the qualifying for both loans is a little easier.
5. Take an ARM. There are lenders now who will allow you to rent your old house, and apply the new rent amount towards your income for qualifying purposes. But you will get a portfolio product, which means a 7-year, or 10-year ARM, not a 30-year fixed rate.
None of these options look very appealing to most homeowners, and it’s one of the main reasons the inventory has been as low as it has – staying put is usually the best alternative.
To accomplish a move-up, you have to be really motivated – either the old house is killing you, or you have money burning a hole in your pocket.
If the market will be depending on the move-up buyer as a primary source of sales, it’s going to be a slow year.