Selling Too Soon in Uncertain Market Puts Former Homebuyers' Equity at Risk
Dear Monty: We bought our first home in 2021. We paid $287,400 for it. We saved our $30k down payment by living on one income (we both work) for the first six years of our marriage. My wife just received a big promotion, but we have to relocate. To prepare to sell, we obtained three estimates of value. They average $300k. We will lose money because we will not get our whole down payment back after paying the commission. Reading media reports, we thought our home was worth more. We don't know whom to believe. What is your take on the current real estate market?
Monty's Answer: Today's real estate market needs to be clarified. The U.S. Census Bureau stated that the median value of an owner-occupied home in 2021 was $244,900. One year later, the Federal Reserve of St. Louis said the median sale price was $372,000. The National Association of Realtors (NAR) reported a median price of $378,400. Statista stated that the median sale price was $392,600. In 12 months, these statistics suggest the median home values increased by over $125k using the most conservative results. You are not alone in wondering whom to believe.
According to the U.S. Bureau of Labor Statistics, we have over 15,000 economists. Keep in mind that the vast majority of them that are still employed missed the 2008 meltdown. Anecdotally, with a post-pandemic economy never experienced, these folks have theories. Still, none of them can be sure what will happen. Some predict a recession of varying degrees, while others are bullish and ignore the old signals that preceded prior recessions. Still others are not making predictions. Also, all these organizations have their own constituents, so there may be a reporting bias. Another possibility is that they may have different sources of information they trust over other sources. Predicting the future is complicated.
Yet another factor to consider is the distribution of housing and regional economies. For example, nearly 60% of the U.S. population lives in the Eastern region. Median home values in New York are over $400k compared to Wisconsin in the Midwest region, with a median home value of $260k. These values are reflected in the U.S. totals and skew the results.
Local economies also affect home prices, so the same kinds of differences we see in the regional economies are at play in local economies. And finally, individual transactions are the final variable to consider when reading these reports. In every market, some homebuyers and sellers will benefit more than others for various reasons. This fact raises the possibility that you have overpaid for your home. If you did, the seller of that home benefited. The seller could have done better if you made an intelligent bargain and bought at the low end of the value range. Buyers were not trying to bargain in 2021.
The media loves statistics. While statistics are beneficial and have many applications, taking them with a grain of salt and not making significant decisions based on what you read or hear is advisable. This writer stopped making predictions in 2008 when I missed the meltdown.
Richard Montgomery is the author of "House Money: An Insider's Secrets to Saving Thousands When You Buy or Sell a Home." He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty, or at DearMonty.com.
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