‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Jacob Passy at TheBigMove@marketwatch.com.
Dear MarketWatch,
Real-estate prices are at an all-time high here in Kitsap County, Wash. I’m looking to retire and move out of state in about two years. Would it be worth it to try to sell our home now when prices are high, and rent for the next two years? Or should we stay in the house and hope the market stays high?
Sincerely,
Stay or Go
Dear Stay,
It’s more than understandable that you want to ensure that you can secure the best selling price possible for your home. After all, homeownership is one of the main drivers of wealth accumulation for most Americans, and that money certainly comes in handy in retirement.
We’re smack-dab in a seller’s market right now, in most markets at least. As you are well aware, home prices are on the rise, so you’re sure right now to score a strong price for your home. And I applaud your instincts — greed can be a person’s downfall.
But reading between the lines of your letter, I actually think you want to ask a different question entirely: Are we in the midst of a housing bubble? And, if so, would you get more bang for your buck on a house if you sell up now and rent for two years? No one can really see into the future, and I’m sure if you polled economists back in the early 2000s, most would not have foreseen the coming housing market crash and resulting recession.
“Timing the sale of a house to maximize profits is a little bit like trying to time the stock market — you only know the prices have peaked after they start falling,” says Rick Sharga, executive vice president at real-estate data firm RealtyTrac.
“We’ve now reached the stage where prices are rising at a speed that was only really matched in the run up to the Great Recession,” said Jeff Tucker, senior economist at Zillow Z, -4.48% ZG, -3.31%.
That’s especially true in your neck of the woods. In Kitsap County, home prices are up 15.9% compared with last year, Tucker said, a truly stunning price appreciation. In fact, that figure is even higher than in nearby Seattle, where home prices are up 12.8% year-over-year.
The past provides useful context
Prices are rising today for a very different reason than in the early aughts. The current increase in home prices is being driven by supply and demand.
In the wake of the Great Recession, home-building activity all but came to a stop, and it’s only in the past year that it’s gotten back to pace it was at before then. Home construction didn’t keep pace with household formation, meaning there are a lot of renters desperately looking to buy homes right now who can’t find much for sale.
Plus, the pandemic has pushed the timeline forward for younger adults, with millennials now entering the home-buying market in droves. And they’re not looking to buy in downturn, urban areas.
With the pandemic prompting the wide-scale adoption of the remote working lifestyle, people are looking to get more bang for their buck by moving to places that are further afield since they won’t necessarily need to commute to an office every day in the future. Places like Kitsap County especially stand to benefit from these trends.
That’s all a very different situation from the run-up to the Great Recession. The last housing bubble was caused by speculative credit practices. In short, lenders made it way too easy to get a loan, leading to scramble and construct more homes.
Many home buyers found themselves saddled with debt they couldn’t afford, and disaster ensued. Lending standards have improved significantly since then — and have even become more stringent throughout the coronavirus crisis.
Renting isn’t always cheaper than owning
You don’t say to what extent you’ve investigated the cost of renting in your area, but let’s just say there’s a reason why people want to own their own homes. If your mortgage is paid off, the costs of rent alone could be much higher.
At the same time, Seattle is one of the cities nationwide that has seen rent prices drop because of the pandemic, economists said, so there could be bargains to be had if you plan to relocate across the Puget Sound during this interim period.
But you also must consider the ancillary costs. Selling now and renting temporarily means paying for at least two moves — if not more, because after all your landlord could opt to sell or decide not to renew your lease. If you’re downsizing, it may be difficult to get all of your possessions at once, so then you’ll be footing the bill for a storage unit.
“ ‘Even in a strong housing market, it doesn’t make sense to sell and then pay more each month in the same market until making a permanent move.’ ”
“Even in a strong housing market, it doesn’t make sense to sell and then pay more each month in the same market until making a permanent move,” says Elizabeth Miller, founder and president of Summit Place Financial Advisors in New Jersey.
“With employers generally more open to remote work options these days, perhaps you should request the option to work remotely on an indefinite basis, and you can buy your retirement home out of state now,” says Danielle Hale, chief economist at Realtor.com.
There’s just as much of a chance that home prices will continue to rise in your dream retirement destination, so perhaps now is a good opportunity to look into taking that leap.