Has your home’s value decreased? Buy a more expensive one!

trading-upIf your home has decreased in value and you are thinking about selling it, it’s hard to see any silver lining. However, if you have other resources and have been thinking about buying a larger home, this is, surprisingly, the best time to “trade up.”

Here’s why…

I recommend that homeowners consider home ownership a long term investment in the residential real estate market. Most people plan to “stay invested,” buying and selling several homes in their lifetimes, or stay in the same home for decades. Most people enter the residential market when they first buy a home. They leave the market when they sell their last home or leave their last residence to heirs. People might trade up into a more expensive home or make a lateral move or two to something of similar value before downsizing in retirement as “empty nesters.” If you don’t sell your home and completely step out of the housing market by renting for a long time or traveling the world for few years, you stay invested. Similarly, you are no longer invested if sell your home and move to a completely different market, like moving from Boston to Florida. In these cases, you might want to carefully consider your relative position in each market.

Here is an example of how trading up could look when the value of your home is down:

2006: The value of your home (either just purchased or not) – Home A: $500,000

2012: Your home has decreased in value 15%. Current value Home A: $425,000

2012: You purchase your dream home – Home B: $750,000

2027: 15 years later the market has recovered and gone up a total of 30% since 2012

The value of your home – Home B: $975,000

The value of your old home – Home A: $552,500

You benefit in the long run, because you purchased the more expensive home in a lower market. Your home is down today, but the more expensive home is down more!

The point is that it doesn’t make sense to put off selling your home, because you can’t get what you want for it. Sell when it makes sense in your life to be in a different home. Your investment in the residential real estate market will take care of itself in the long term.

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Comments

  1. David Russell says

    Thanks for the information, Larry. Goes to show that sometimes the best financial strategy is counterintuitive!