Anyone who has attempted to buy a home in the Charlotte metropolitan area in the last two years or so is well aware that the real estate market is very favorable to sellers. Homes priced at their full fair market value often receive multiple offers upon entering the market, and it is not unusual for homes to go under contract above—often well above—the listing price. The main reason for this remains a lack of available homes for sale and a continuing abundance of buyers who are ready, willing and able to make the purchase. The numbers tell the story. Inventory of homes for sale in the Charlotte area is down almost 50% from levels of only a year ago. In July of 2019, there were 10,629 homes for sale in the region. In July of 2020, that number was only 5,580 homes. Listing prices are also far above levels of only a year ago—up 16% over the previous year. And closed sale prices are averaging 10.6% higher than last year. So is this a good time to sell a home?
Of course it is, all other things being
equal. One of the fundamental rules for
investing is that you sell into a rising market. You don’t wait for the market
to peak because the thing that follows a peak is likely a decline—sometimes an
extended decline in values. In just the
last year, the median
sale price rose 8.1% (April 2019 to April 2020). In an age
when mortgage
interest rates continue at historic lows—about 3.29%
for a 30-year fixed rate mortgage, and about 2.76% for a 15-year fixed rate
mortgage—an annual return on investment of over 8% is something to brag about.
When faced with very healthy
year-over-year returns on investment and a market that continues to rise, many
seasoned investors decide to take their profits before a market reversal. Of course, many homeowners have other
personal considerations. The family home
may be their single largest financial investment, but there are also emotional
and familial considerations associated with the decision to sell or buy a home,
and not everyone is willing to put their children in new schools or go through
the inconvenience of a move in order to take profit out of their home. Some prefer to tap into their growing home
equity by taking a home equity loan. But
a loan really just mortgages what should be profit, albeit at a low rate of
interest in today’s market. If the
upward trend in home values subsides or even reverses, a home equity loan can
become a debt trap—something many homeowners regretted from about 2010 to about
2015 or so.
Those who are able to take advantage of
this market and cash out their gains are likely to be rewarded. Homeowners who are ready to downsize or who
have held investment property for rental come to mind. It would take a significant period of time
for most people to save $100,000 or $200,000, and in many cases homeowners have
more than this in equity in their homes—“profit” that can easily be realized in
the current real estate market. Is it
time to sell? The data indicate it
is.
