Reader Question: Is America in a housing bubble? We think today’s out-of-control real estate market is crazy. We are attempting to downsize our lifestyle with a smaller home. In two instances, we made an offer, and someone outbid us. Our home is free and clear, so we are cash buyers. We don’t want to sell until we know we’ve got a place to go. Unfortunately, there are not many homes to look at, so we don’t want to sell our house first and end up compromising on our new home. Home trade-in programs and iBuyers are costly. What other options are available to us? Author note: We addressed this question in a recent column on April 5, 2021. Here is another option.
Monty’s Answer: While no one knows for sure what will happen with our economy, including the housing sector, many economists are scratching their heads trying to understand the data to be able to predict the future. Predicting outcomes is a big part of their work. Economists are sharing their thoughts and have very different views of the future. Here is an article authored by John Mauldin warning of a coming tsunami. And here is another article by Alan Blinder explaining our booming economy (you get the drift but partially behind a paywall).
One current solution is to buy a new home now and sell your existing home after. While the interest rate will be favorable, the risk is selling the old house. We have a strong seller’s market today, and you may get a premium quickly. There are also hyper-local pockets in most areas where a quick sale at a significant premium price is not likely. Here is an old story about owning two homes that I beieve is regularly repeated across our country today. Here is another option.
Sell your home and rent for a year
Sellers are not selling because they are fearful they won’t find a replacement they love due to a lack of inventory. Suppose someone would sell in this market at a premium, move twice, and buy after the bubble bursts. In that case, it is conceivable they could save a significant amount of money.
According to Move.com, the average local household move costs $1,250. According to the Washington Post, home values plummeted over thirty percent following the 2008 meltdown. If this next bubble burst happens, and the value declines are similar, it is easy to see the savings. Real estate agents will not like this option unless they are in the property management business.
This strategy makes sense even if there is no bubble. Suppose the idea of a double move is palatable to you. In that case, the advantage of the strategy is that you will have realized your current equity before you make the next purchase.
Maybe I like the idea because I am in the process of doing it myself. I sold my big home a few months ago, and I am renting until I find a house I really like so I don’t have to compromise.