January 2nd’s The Economist notes,
“House prices are still far above their fair value in many countries – though no longer in America.”
Of course, the article does warn that “a further downward leg is possible since past housing busts have pushed priced below their fair value…” but those of us in the San Francisco real estate market have seen time and again that SF is the last to go down and the first to go up (or, at least, amongst the last and first.)
So what if you own a home in, say, Bernal Heights or Mission Dolores and you’ve been thinking of selling your home for a little while now?
You’ve been waiting for some signs of market stabilization but are growing anxious because you really could use some more space. Or, perhaps, you want to move out of San Francisco to new pastures. Well, most agree that the worst is probably over yet no one I’ve heard of expects home prices to appreciate anytime soon. If you’re waiting for your value to go back to where it was in 2005, you may be waiting a long time.
The truth is that no one rings a bell when the downturn is over. We must look for subtle clues and take a leap of faith. Complex real estate markets like ours today offer superb opportunities for those wanting to sell their current home and buy another one. It’s “against the herd” thinking but it’s tried and true.
For example, say home prices are down 20% off the peak in Bernal Heights or another SF neighborhood.
If you’re home was worth $900,000 at the peak of the market, it’s now worth $720,000. This is a loss of $180,000 BUT the home you want to buy in Noe Valley was worth $1,400,000 at the peak. This same house is now worth $1,120,000 which is a decline of $280,000.
Essentially, if you sell your home and upgrade in a down market, you’ll SAVE money. In this example, it is $100,000 in savings. Plus, you’ll be leveraging yourself into a nicer home that has more potential to appreciate in the future. Add in today’s interest rates and the improved quality of life you’ll have for your family and this starts to look pretty good, right? (It goes without saying that this scenario will not work for everyone. You’ll need to have stable employment and equity to qualify for the home purchase.)
If you want to move out of San Francisco, you’ll probably be in even better shape. The San Francisco market has declined much less than most of the country. Last year, I helped clients sell their Bernal Heights listing and relocate to Merced where the market has declined much more than here in the Bay Area. When you look at both sides of the transaction, they did very well.