A couple in their early 40s who own a small tech firm are determined to finally sell their 5,000-square-foot colonial-style house in favor of a place twice the size in the same swank neighborhood.
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“The new house is the lure. It has a swimming pool, tennis courts and two full acres of land. That compares with the postage-stamp lot where they now live. The couple, who have two elementary-school-age boys, wants an ideal place where the kids can host playdates and parties for their friends,” says Lauren Davis, the Sotheby’s agent handling the couple’s transactions.
Davis is amazed by the recent upsurge in home listings in her suburban area as well as across the nation. She’s especially surprised by the number of owners willing to sell during the typically slow hot summer months rather than waiting until fall.
Indeed, the number of U.S. properties now actively on the market has increased by more than 36% in the last twelve months, according to Danielle Hale, chief economist for Realtor.com, the home listing company.
She estimates that American homeowners are sitting on a record $17 trillion in equity. An increasing number are tempted to sell their present property to climb to a higher rung of the property ladder.
The couple selling a colonial house for a trade-up move are fortunate to live in a community where inventory remains in short supply. They’re confident that their present house will sell quickly for at least the full asking price. But not every neighborhood is so strong for sellers. That means some would-be sellers are waiting for mortgage rates to fall before attempting a trade-up move.
Obviously, no economist or real estate analyst can perfectly predict the direction of your local housing market. That leaves it to households to decide their own course.
Here are a few pointers for potential trade-up sellers:
-- Reconsider your reasons for selling.
Anxiety can prevent people from moving ahead, even when it’s against their interest. But those convinced that now is a good time to buy a bigger home shouldn’t let unwarranted fears constrain them, says Michael Crowley, a real estate broker and past president of the National Association of Exclusive Buyer Agents (naeba.org).
He says one way to put your fears about real estate in perspective is to reexamine your original reasons for moving to a better house. Has your family outgrown its small space, meaning that your kids must share bedrooms? Are your plans for a home-based business on hold?
“It’s worth remembering that life is short and delaying your sale may not yield the financial advantages you expect,” Crowley says.
-- Review statistics on demand for homes in your area.
In many areas, inventories of unsold homes are still very tight or shrinking, making multiple bids commonplace. But in other neighborhoods, the inventory balance is gradually getting better for those seeking to move up. And in still other areas, the picture is mixed. It all depends on your target market
Suppose, for instance, that you’re selling a property in a starter-home community in great demand by millennials trying to break into homeownership. Meanwhile, you’re intending to buy in a luxury-home neighborhood where there’s an ample supply of properties and buyers don’t outnumber sellers. In that case, you could do well on your dual transactions.
“Starter-home buyers are still having a crazy time trying to burst into ownership,” Crowley says.
If you live in an area with many available housing options, you can afford to take somewhat more time to make your selection and seal your trade-up deals. But Davis cautions against waiting indefinitely to buy in any area that remains red-hot.
-- Locate an experienced mortgage lender to help assess your plans.
Not sure whether you want to go forward with a trade-up move? Worried that the numbers or your credit history could scotch your chances for better housing?
If so, Eric Tyson, author of “Personal Finance for Dummies,” recommends you visit the office of a mortgage lender who can analyze your personal situation and determine whether you’d be eligible to buy that bigger house you have in mind.
Even if you’re confident you can qualify for a mortgage on a bigger home, it’s good to gain preapproval to enhance your chances of acquiring your dream house.
As always, lenders want certainty that any mortgage they originate will be solid. This means you’ll need to be prepared to answer the lender’s request for documents.
“Don’t assume that lenders are less stringent than they were in the immediate aftermath of the Great Recession of 2008. That’s why it’s good to have an expert look at your financial documents before committing to a sale and trade-up move,” Tyson says.
As proof of income, many mortgage lenders currently insist on much more documentation than the customary pay stubs and W-2s. They may also require federal tax returns. Also, most lenders now want proof that the funds you’ve amassed for your down payment have been in your savings or checking accounts for some time and weren’t just borrowed last week from a family member.
“In all likelihood, moving up to more luxurious quarters means proving you have the assets and earning power to handle your monthly mortgage payments,” Tyson says.
(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)