Itâ€™s all about the spread â€“ the difference between home values now and what they might be in the future.
Let me demonstrate with some fictional numbers: if your home is worth $100,000 in the current market and the home you wish to move up to is $200,000, you have a spread of $100,000. If the market increases 10%, then your home will be worth $110,000 and the home you are buying will be listed at $220,000, or a spread of $110,000.
In this scenario, if you wait until home values increase 10%, it will cost you $10,000 more to move then than if you do so now.
Another factor to add to the equation is the cost of the money required to make the move. Again, itâ€™s about the spread, but the spread this time has to do with loan percentages. Letâ€™s imagine that you financed the entire existing $100,000 for your existing home and the going rate at the time was 6.5%. If you move up and secure a larger home at $200,000 and finance at the same rate, you would simply double the mortgage amount for a payment of $1,264.14.
If you managed to finance your new purchase at 5%, you would have a differential of 1.5% a payment of $1,073.64 and an actual spread of $190.50 a month. Over a five year period of time, this spread would add up to $11,430 of savings.
The last spread to consider is property taxes. If you bought your existing home for $50,000 and it is currently worth $100,000, in California, because of Prop 13, you are still only paying yearly property taxes of $625.00 a year. If you purchase a new home now for $200,000, your yearly tax bill will shoot up to $2,500.00 for a spread of $1,875.00 a year. This spread will exist for as long as you own your new home. However, if you wait to move up until the new home is worth $250,000, your new tax bill will be $3,125.00, or a spread of $2,500.00 a year. Every year for as long as you own the home. That is quite a spread.
When you consider that the actual numbers involved in a move-up are much higher, the spread numbers become truly significant amounts of money. Wise investors look at all the options and then manage the spread to their advantage. Iâ€™d recommend that you put all the numbers on a spread sheet and crunch various scenarios.
And you may discover that with current low prices, low interest rates AND lower taxes, the spread may be saying that now might be a very good time to move indeed.