“It’s a seller’s market!”

“Now is a great time to sell!”

As a San Diego homeowner, you’ve probably seen this phrase on one piece of real estate marketing mail after another for the last few years. It can be hard to discern if it actually is a great time to list your home or the Realtors who mail in your neighborhood are just saying that to get you to call them.

While it is a seller’s market and a great time to sell, it helps to have context for those statements:

In my last blog post, I took a look at the median sales price of homes in a few different San Diego housing markets. Many local markets are reporting prices we haven’t seen in ten years or more. In some areas, the median price for a detached home has far surpassed its 2006 pre-recession peak. But home values can’t continue to rise indefinitely. I believe we will see a decline in home values in the months to come as interest rates rise and the housing market peaks.

Interest rates have steadily risen nearly every week since the beginning of the year. Bankrate.com shows current interest rates for a 30-year fixed rate mortgage hovering around 4.5%.

As interest rates rise, they limit buyer purchasing power. According to a recent article from Rismedia, “If interest rates rise 1 percent and all other economic factors remain the same, purchasing power for homebuyers will decrease by just over 11 percent; therefore, every quarter-percent (0.25 percent) rise of interest rates reduces homebuyer purchasing power by 3 percent.” This means that someone who might have been able to purchase your home a few months ago might no longer have the buying power to do so, shrinking the pool of potential buyers for your home. The higher the value of your home, the more you will likely feel the effects of that shrinkage. Rising interest rates will help bring down prices at the top end of the market, as homeowners who are serious about selling might find themselves making concessions on price to get their home sold.

Once your home sells, you will likely need to purchase a replacement property. If you wait too long to sell your home, you might find yourself conceding on your sale price AND entering the market with less purchasing power that you would have had just a few months ago.

Finally, if your home is aging, you should keep in mind that you likely have some big-ticket repairs on the horizon. Depending on its composition, your home’s roof will need to be replaced every twenty to thirty-five years. The lifespan of a furnace is about fifteen to twenty years. Most appliances last no more than fifteen years. Waiting to put your home on the market means you could end up footing the bill for these repairs in order to sell the house, taking a hit on price to get your home sold, and then entering the marketplace with a lighter wallet and reduced purchasing power.

There’s one other point you should also keep in mind: the new tax law lowered the mortgage interest deduction from $1.1m to $750,000. In 2018 and going forward, your state, local, and real estate taxes are put into one pool for deductibility purposes. Between the three of them, you only can deduct up to $10,000 total. It’s hard to predict how these tax changes will impact the real estate market, but they do cumulatively place a heavier financial burden on the buyer.

If you’ve been on the fence about selling, it might be time to get off the fence and put a “For Sale” sign in your yard. I’d be happy to meet with you to discuss the specifics of your situation. Give me a call or send me an email to set up an appointment!