Should we cut our losses and try to sell our house now?

Question

We bought a house on the way down from the peak in our area, but the bubble was really bad here (Merced, CA). Some are forecasting that our house will lose 30% value over the next 2 years ($100,000 off of a $285,000 purchase prise). Then it would take another 5 years to get back to the level we bought it at. I love our house, but I am freaking out. If you were in my shoes, would you try to sell now with the idea of renting for 2 years or just tough it out? We can afford the payment and our jobs are secure.

Answer 1

Stop reading the news reports.

This is your home and not an investment.

1. You can afford the payments. Assuming you do not have any interest rate resets that change that just continue to make the payments.

2. You say your jobs are secure. Even better. Assuming you are correct continue to work in the same jobs and enjoy the benefits.

3. The price will not drop by $100K unless there are too many homes and too few people to live in them. By CA standards the price you paid is pretty affordable. The house prices will tend to reflect the wages and the total employment. If a house was to drop to $185K then it is likely the rent will cover the mortgage so investors would be able to buy them as rentals.

4. There are parts of the US that never saw a house price boom over the last 6 years. Where you buy a house for under $100K and when you sell 5 or 10 years later you might get the same $100K for the property. Upstate NY, much of the Midwest down to Texas are all locations that never saw a boom in many communities.

Yet people still like their homes, they continue to raise a family, they do the maintenance and plant gardens. They do not rent even when some homes cost less to rent than own. Renting is more of a lifestyle choice. When people want to live somewhere long term they tend to buy as they figured that they will eventually pay if off. That and there is no hassle from a landlord.

Suggestions...

Find a good coffee shop or bookstore and treat yourself to some fun. It sounds like you are married so take your other half out to dinner or to a movie. If you should get more exercise please focus there rather than on the latest house price prediction. Continue to enjoy the life you have and worry less about what prices might do in the next 2 years. Buying a house to be a home is more about living your life than betting on the future house prices.

Freaking out is bad for your health.

On statistic says foreclosures are at an all time high. What they mean is 199 people out of 200 are not in foreclosure. Only 1 out of 200 is in foreclosure. Is the glass half empty or half full when the count is 199 vs. 1?

If you do want to 'speculate' about the future prices then be ready to buy another 1-3 houses in the area if prices drop significantly. That will lower your total costs (dollar cost averaging). If you are buying property that is solid and will rent for more than it costs then you are improving your portfolio while having others pay off the mortgage.

If that sounds too radical then I would really just ignore the current noise about house prices. You own a home and not a house. Enjoy the home and make it comfortable for you to live there a long time. Spend less than you make, budget for a rainy day and otherwise enjoy your life. If you are there for 8 years you might not even notice that prices went down before going up.

Unless you sell who is to say that the price of your home has gone down? Really.

Paper loses are not real until you sell. If you need to relocate for family or career reasons and the market is down then seriously consider renting your present home rather than selling when you move out. That way you can time your sale to the market and not to a personal move.

Note that prices might be wobbling in some areas. The last survey was pretty negative yet it shows 77 metro areas where prices were up, 79 where prices were down and 8 with no change. This was the first time the areas that were down was greater than the number of areas that were up. The greatest rise was 18% and the greatest fall was almost 8%. Even when things are bad not all areas are seeing falling prices. Note many of the areas rising now were areas that did not rise much since 2000.

Go to my blog and look for the article "There is No US Market". Check the graphs where 12 cities are compared with the data going back to 1988. Notice how some did boom while others were closer to normal or flat?

Unless everyone is leaving Merced people will still need a home. Renting or as owners they need a place to live.

Answer 2

I am NOT an agent, but I can look your house up in the MLS and tax records and give you pretty specific advice. I have nothing to sell you, so don't worry.

I am familier with this area as I invest there. Email me if you want [e-mail]

If not, in general....unless you will HAVE to sell in the next couple of years just ride this out. You only loose money if you sell, if you are not selling it doesn't matter what evlse is happening in the neighborhood.

Houses are being foreclosed in the area because of all of the "creative financing" the financial sharks sold people on. People unwittingly bought homes that there is no way they could afford long term. It is really sad, because so many were deceived because of the profit made by the mortgage broker. If you have a regular loan, and you sort of sound like you do,, you will be OK.

Answer 3

Forecasters don't know squat. You look at any forecast for anything 2 years ago and see how well they did. Was anybody predicing gas at $3+ a gallon back then? Or that unemployment would be at 4.5%?

Economic forecasting is just a guess. Don't act rashly on someone else's guess.

Look, unless you plan on moving to a different area any time soon, just stay in there and enjoy your home. You'll be paying down the mortgage as you go.

2 years from now the market could be down, or level, or up. Nobody really knows. It's only over the longer term can you rely on housing prices to increase.

Answer 4

Neither option is wise. You can't let the house without permission from your loan company. It is unlikely that they would agree without extra fees and a hike in the interest rate anyway. Selling up and renting is even worse as you will be at the mercy of a landlord. You may find a nice place to rent only to have it whipped from under your feet for numerous reasons. Your problem is that apparently you chose an unsuitable property to buy. You may feel trapped now but believe me it will be out of the frying pan and into the fire. My advice is to be patient. Wait for the property prices to climb (they always do long term) keep paying off the mortgage and in time you will be in a good position to sell and buy a decent place. Improve your credit position too over time. This probably isn't what you want to hear, but is really is sound advice. Nothing ever beats home ownership. We all had to start off in modest/unsuitable places. Play the long game and you will win.

Answer 5

What exactly are your losses? We hear all of the time how our homes are the best investment we can make. The reality is that your house is a liability whether it keeps its value or loses it unless someone other than you is paying the mortgage. Now, whoever said your house will lose $100K off of a $285K purchase price is not too good at mathematics. Your best bet would be to remain in your home, waith out the "bubble" and at worse case scenario, your house will probably retain its value over the next 5 years. Right now you are not losing "money", you are not gaining equity. Equity is not money, it's value. If you sell your home you lose your equity and money because you now have to shovel out extra money to rent an apartment. At least you can write your interest off in a home. There is no interest to write off in an apartment unless you own it.

Best wishes...

Answer 6

Just like holding a stock, you make no money and you loose no money until you sell. It's your home, not an option. Live in it, enjoy it, cherish it. When you feel like moving, then sell it. The market will bounce back and trust me, there is no 30% drop coming in the market. Try flat to -10% at worst. Trust me, the doom and gloomers always come out when there is just a little news. The overall economic envirnment is way too strong.

The real reason the housing market is flat or a little down was due to overbuilt newer homes. Too much supply. Banks are clamping down on investment builders so things will even out in a year or so.

Answer 7

If you're offering your $285,000 house in Merced (beautiful country, ain't it?) for $185,000, please put me on the list of buyers. What I'm truly trying to convey is that land never is a losing proposition. You may have paid a little more than what the current market demands but it WILL rebound.

When I was a teenager, I wish I had taken my father's advise to buy vacant land between Los Angeles and San Diego. Most of you don't remember, but I can recall taking the 5 to S.D. and the only homes we saw were in San Luis Obispo and Oceanside. Between was nothing but open land and farms.

In other words, buy property!!! There will NEVER be more available than what exists now and there will NEVER be less people interested in it. Don't sell! Aquire!!

Answer 8

before you cut your losses. do some research. go to the local chamber of commerce and find out if some new developments are being planed in your area, new building or business in your area raises the property value. go to the city find out what they are planing on doing with the infrastructure, and city districts. city districts change every few years to adjust to population growth and your part of a much bigger area than you thought you where. if nothing is planed you can always rent out your home and get a cheap apartment. new york, chicago, L.A are infamous for that. but when your up against the fence you have to do what you have to do

Answer 9

If you can afford it, why do you want to move? Living in your own house, is always more enjoyable than living in an apartment or condo.

The problem is that you look at a house as an investment...it is...but it isnt........
Its a place to live, enjoy, and build memories with your family FIRST....and a hedge against taxes second...

You said you love the place....so what does money have to do with it?....any decision made in haste, is a bad decision....whether it is buying or selling.

Answer 10

You don't lose any money on your home if you don't sell it. Who cares what everyone else says it's worth?? If you love the place and have plenty of money to pay for it then stay there. Unless the entire city or neighborhood is being overridden by gangs and going downhill the home value will definitely come back up and eventually exceed what you paid for it.