Is the best time to upgrade house during a down market?
Is the best time to upgrade house during a down market?
So inspired by a few posts here about the housing market cooling, the realization that my wife and I were too conservative when we bought our first home 4 years ago, and the want to upgrade sooner than expected (probably in next 3 years), I’m thinking it’s better to upgrade in a cooling market than a hot market?
One thought is that if current home is worth $500k and the prospective new home is $900k, and the market moves down say 10%, you win on the upgrade — $50k lost value but saving $90k on the upgrade means you’re +$40k on the cool market transaction vs in a hot market. But the other thought is that you could be stuck with your home not selling for a while when you’ve already found the new home (and you need the current home equity).
Just looking for general advice and/or experiences from folks who’ve been around the block.
One thought is that if current home is worth $500k and the prospective new home is $900k, and the market moves down say 10%, you win on the upgrade — $50k lost value but saving $90k on the upgrade means you’re +$40k on the cool market transaction vs in a hot market. But the other thought is that you could be stuck with your home not selling for a while when you’ve already found the new home (and you need the current home equity).
Just looking for general advice and/or experiences from folks who’ve been around the block.
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Re: Is the best time to upgrade house during a down market?
Construction costs are still way high and contractors often not really available. Materials are limited, slow to deliver and prices are high. Construction costs and contractor availability will likely be much better during a recession. I don't think it has much to with prices in the housing market directly. I've done some DIY remodel this summer. It's taken forever to get basic materials together and they were all expensive.
Re: Is the best time to upgrade house during a down market?
Sounds like some complex timing of the housing market to me.
Even though I've been around the block a few times, I can't refute your logic because I don't understand it.
Even though I've been around the block a few times, I can't refute your logic because I don't understand it.
Re: Is the best time to upgrade house during a down market?
When I say upgrade, I don’t mean do a renovation, I mean sell your current home and buy a nicer house.
- simplesimon
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Re: Is the best time to upgrade house during a down market?
It makes sense in theory, but rarely do all houses in the same local rise and fall by the same %. Buy what meets your personal and financial needs.
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Re: Is the best time to upgrade house during a down market?
Then the best time is when you find what you really want and can afford it. If you are buying / selling in the same region, you probably have the same market conditions on both sides. Of course, a recession is a good time to buy almost anything if you have money. Having a house for sale on the lower price end of the local market may make it easier to sell if things are going soft.
Re: Is the best time to upgrade house during a down market?
Put it on a spreadsheet. Capture transaction cost, closing cost, realtor fees, moving cost, decoration, new furniture, increase in maintenance cost, property taxes, etc. When you see the number, then decide whether it's worth it or not.
Time is the ultimate currency.
Re: Is the best time to upgrade house during a down market?
Switching costs are fairly high so I only do it when my needs change materially. Most of the time that means that my new house is in a different city/state/country. But I am approaching the age where I might consider a major shift from our current house with a big lot to either a small one or condo. I can't see trying to time the switch.
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Re: Is the best time to upgrade house during a down market?
Typically yes.... only because market for higher end homes usually becomes softer in economic downturns than mass- middle market ones. Assuming you have a desirable, moderately priced home.... it will still sell quickly.
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Re: Is the best time to upgrade house during a down market?
We sort of did this just out of pure luck on the timing. We sold our house this summer (market was still very hot in our area) and are renting in our new location for at least a year. Prices new location are recalling starting to come down, so I’m thinking we might have nailed it on the timing, although we weren’t trying to time the RE market. Again, just pure luck. We moved for health reasons, not because we wanted to cash in on the market.
“Superhuman effort isn't worth a damn unless it achieves results.” ~Ernest Shackleton
Re: Is the best time to upgrade house during a down market?
That’s great! I’m not looking to sell now buy later although I have thought about it sometimes. I’m just thinking that in a soft market it makes sense to upgrade because the top of the market drops faster than the middle of the market. This of course assumes you’re not in a financially precarious situation.Shackleton wrote: ↑Wed Aug 10, 2022 11:47 am We sort of did this just out of pure luck on the timing. We sold our house this summer (market was still very hot in our area) and are renting in our new location for at least a year. Prices new location are recalling starting to come down, so I’m thinking we might have nailed it on the timing, although we weren’t trying to time the RE market. Again, just pure luck. We moved for health reasons, not because we wanted to cash in on the market.
Although the current market is softening, desirable houses by me are still going for well above asking so not there yet.
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Re: Is the best time to upgrade house during a down market?
Hot market is bad, because few upgrade houses are available.
Really cold market is bad, because you can't sell your present house.
Somewhere in between. Think the three bears.
Really cold market is bad, because you can't sell your present house.
Somewhere in between. Think the three bears.
Re: Is the best time to upgrade house during a down market?
We did this in 2010. We sold our existing home (bought near the height in 2005) for 50k less than we paid for it, but talked the seller down 100k off the price of the place we ended up buying. Exactly like you outlined in your original post, we lost on the sale of a lower value home but more than made up for it on the higher priced home we were buying. We also had the slow sale situation you mentioned happen to us and we ended up carrying both houses for a few months due to the slow market making our old house harder to sell than it normally would have been. The choice came down to waiting it out for a better offer or taking the 50k below what we paid offer. I forget what the mortgage payment was, but we ended up coming to the conclusion that we weren't likely to get a "better enough" offer that outweighed the months of mortgage we would likely have to continue paying while we held out for a better offer so we just took it.
Re: Is the best time to upgrade house during a down market?
Assuming you are staying in the same (rough) area then the level of the stock market doesn't much matter.
The house prices are either up or down relative to when you purchased your current house and will go up or down in the future.
Housing prices down now means you sell your current house for less and purchase your new house for less then if prices in your area were broadly higher.
If you want the prices to be down for the selling/purchasing then you mostly care about the local economy rather than the stock market. Housing prices in Youngstown, Ohio were much cheaper in, say, 1985 than they were in, say, 1975 even though the stock market was up. This was because the Youngstown economy had been destroyed when the last steel mills closed.
- quantAndHold
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Re: Is the best time to upgrade house during a down market?
The last time we did this was in a down market. It took us a year to sell our old house for a loss. When it finally did sell, we bought a house that had been on the market for a year. It has done fine (10x appreciation in 25 years), but the house we sold has done just as well. We bought this one for lifestyle reasons, not because we thought it was a better investment.
Bottom line is it’s easy to buy in a down market, harder to sell.
Bottom line is it’s easy to buy in a down market, harder to sell.
Re: Is the best time to upgrade house during a down market?
This type of market timing is no different than stocks in my view.
* How do you define an "up market" vs a "down market"
* What is the criteria used to know when you should make the purchase? It could go even lower...or higher again. No one knows.
* You also see posts about people who waited for the "down market" who then wished they had gone ahead and bought during the "up market", because those prices were still lower at some points than what is currently available in the most recent "down market".
* It is also a bit simplistic to only consider the headline price of the home. For example, what about the mortgage rate of your current home vs the new one? $$$
It's simply a guess and you make your best decision, with the outcome only known in hindsight.
* How do you define an "up market" vs a "down market"
* What is the criteria used to know when you should make the purchase? It could go even lower...or higher again. No one knows.
* You also see posts about people who waited for the "down market" who then wished they had gone ahead and bought during the "up market", because those prices were still lower at some points than what is currently available in the most recent "down market".
* It is also a bit simplistic to only consider the headline price of the home. For example, what about the mortgage rate of your current home vs the new one? $$$
It's simply a guess and you make your best decision, with the outcome only known in hindsight.
Re: Is the best time to upgrade house during a down market?
This could work if you are changing locations ie. VHCOL to less. A lot harder if within the same neighborhood.Jags4186 wrote: ↑Wed Aug 10, 2022 9:05 am So inspired by a few posts here about the housing market cooling, the realization that my wife and I were too conservative when we bought our first home 4 years ago, and the want to upgrade sooner than expected (probably in next 3 years), I’m thinking it’s better to upgrade in a cooling market than a hot market?
One thought is that if current home is worth $500k and the prospective new home is $900k, and the market moves down say 10%, you win on the upgrade — $50k lost value but saving $90k on the upgrade means you’re +$40k on the cool market transaction vs in a hot market. But the other thought is that you could be stuck with your home not selling for a while when you’ve already found the new home (and you need the current home equity).
Just looking for general advice and/or experiences from folks who’ve been around the block.
- quantAndHold
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Re: Is the best time to upgrade house during a down market?
My impression here (San Diego) is that things are still selling reasonably quickly (2-4 weeks on the market), but prices are down a bit from the peak, and the multi-offer bidding wars aren’t happening. So, it’s more of a “normal” market.
- squirrel1963
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Re: Is the best time to upgrade house during a down market?
All things being equal, you are probably better off up-sizing in a down market and down-sizing in an up market, but unfortunately all things are not equal and there are a lot of considerations, for instance the change in pricing of 900k houses during up/down markets are not necessarily identical to 500k houses, and general considerations are difficult to make, especially if you change neighborhood.Jags4186 wrote: ↑Wed Aug 10, 2022 9:05 am So inspired by a few posts here about the housing market cooling, the realization that my wife and I were too conservative when we bought our first home 4 years ago, and the want to upgrade sooner than expected (probably in next 3 years), I’m thinking it’s better to upgrade in a cooling market than a hot market?
One thought is that if current home is worth $500k and the prospective new home is $900k, and the market moves down say 10%, you win on the upgrade — $50k lost value but saving $90k on the upgrade means you’re +$40k on the cool market transaction vs in a hot market. But the other thought is that you could be stuck with your home not selling for a while when you’ve already found the new home (and you need the current home equity).
Just looking for general advice and/or experiences from folks who’ve been around the block.
Including the current house, my wife and I lived in 5 different houses from 1996 to now, across real estate boom and bust cycles and we actually got lucky, we never lost on a house (i.e., always sold it for more than the purchase price) and actually made a really good profit on 2 of them. We didn't try to time the market, we just moved when we had to and got lucky. Our experience by no means typical, and I think it's more about lucky than anything else, although it helped the fact that we always lived in HCOL areas dominated by high tech (SF bay area and Seattle) where house prices have been going up for a very long time.
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Re: Is the best time to upgrade house during a down market?
These “upgrading” takes often end in tears when one realizes that bigger sometimes is not better at all. We all know many people who left a great normal size house in a good location for an oversized mess in a marginal location.
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Re: Is the best time to upgrade house during a down market?
Upgrading does not always refer to upsizing - there are many more attributes to housing than size alone.
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Re: Is the best time to upgrade house during a down market?
Sure, if you are using cash or equivalent to buy "more house" (whatever that might mean), and the price of "more house" has recently gone down in your market, then you will be better off for that price decline. It is true you need to do this in marginal terms (the price of "more house" being the cost of the new house minus the proceeds from selling the old house, all including transaction costs). But still, I think it is true as a practical matter that in most markets, if prices are generally going down, so will the price of "more house" in most cases.
I agree this would be marketing timing if you saw prices going up and were waiting in hope they would go back down. But if you are just asking whether market prices going down for durable goods like houses is a generally a good thing for buyers of those durable goods, then obviously that is usually so.
Anecdotally--we ended up "upgrading" our house (in this case, same neighborhood, considerably larger/nicer house and plot) in 2008, which as some might recall was definitely interesting timing. And in our case, we ended up buying the new house before selling the old, and then we ended up renting out the old house for a couple years before finally selling it. We broke even (actually a little better) on the rental net of carrying costs, so it all worked out fine.
But I do think our experience, and similar experiences by others, is instructive on the important of liquidity in addition to price. Meaning if a down market is also a relatively illiquid market, you might need to be patient to realize the full benefit of buying "more house". And of course there is always a risk of continued price declines making the marginal cost difference increase as you wait.
I agree this would be marketing timing if you saw prices going up and were waiting in hope they would go back down. But if you are just asking whether market prices going down for durable goods like houses is a generally a good thing for buyers of those durable goods, then obviously that is usually so.
Anecdotally--we ended up "upgrading" our house (in this case, same neighborhood, considerably larger/nicer house and plot) in 2008, which as some might recall was definitely interesting timing. And in our case, we ended up buying the new house before selling the old, and then we ended up renting out the old house for a couple years before finally selling it. We broke even (actually a little better) on the rental net of carrying costs, so it all worked out fine.
But I do think our experience, and similar experiences by others, is instructive on the important of liquidity in addition to price. Meaning if a down market is also a relatively illiquid market, you might need to be patient to realize the full benefit of buying "more house". And of course there is always a risk of continued price declines making the marginal cost difference increase as you wait.
Re: Is the best time to upgrade house during a down market?
I did my major home upgrades during the peak of the market as I felt my house was a better investment at the time (I consider my house part of fixed income - it is paid off - and I'm going to be here a long time.) I'm certainly glad I did that as when my upgrades finished - all the prices shot up - and things became unavailable with very long waits. I'm always investing in the market though.
Knock on wood - I've been very fortunate.
Knock on wood - I've been very fortunate.