People who already have a home usually need the funds from the closing to secure their next purchase. A “move-up” buyer purchases homes during a depressed market, meaning they usually have one to sell. Timing becomes very important and negotiations become more involved. Neither party is forced into short-term housing or find themselves in rent-back situation because closing dates couldn’t match up. It’s important to work closely with your Realtor and lender. Ask for frequent updates to know things are headed in the right direction. The idea here is for all the stars to align, for everyone involved.
Paying the price
Interestingly, if a Seller wants to sell his home to take advantage of a “hot” market (when prices are fairly high) they generally are faced with the reality of securing that purchase within the same “hot” market, and can expect to pay a premium on the other side as well. In a very real way, things even out. Having said that, the way some areas are rebounding quicker than others it is possible for a Seller to sell for a higher price in an area that currently has much more demand than the area they are moving into next. This could be an inter-state move or it could even happen in the same county.
Obviously, economic patterns will change over time. They always have. Since The Great Depression of 1929, we have had quite a few periods of declining markets not only here in the USA, but globally as well. No matter the length of time between depressed markets and/or higher interest rates, you wouldn’t want to wait over a period of years to buy a home, would you? You would still potentially miss out on a substantial amount of equity and appreciation by waiting over long periods of time. Not to mention the losses you would have incurred in paying rent that you’ll never see again.
Putting the recession into context
Among all of these economic shifts, according to the U.S. National Bureau of Economic Research (the official arbiter of U.S. recessions) the sub-prime mortgage crisis was a disaster. It began in December 2007 and ended in June 2009, and thus extended over 19 months. Of course this is common knowledge today and the country is still rebounding from the tremors felt along the way. According to Wikipedia, there are several “narratives” attempting to place the causes of the recession into context, with overlapping elements. Four such narratives include:
- There was the equivalent of a bank run on the shadow banking system. This includes investment banks and other non-depository financial entities. This system had grown to rival the depository system in scale yet was not subject to the same regulatory safeguards. Its failure disrupted the flow of credit to consumers and corporations.
- The U.S. economy was being driven by a housing bubble. When it burst, private residential investment (i.e., housing construction) fell by nearly 4% GDP and consumption enabled by bubble-generated housing wealth also slowed. This created a gap in annual demand (GDP) of nearly $1 trillion. The U.S. government was unwilling to make up for this private sector shortfall.
- Record levels of household debt resulted in a balance sheet recession. Especially once the housing prices began falling in 2006. Consumers began paying down debt, which reduced their consumption, which slowed down the economy.
- U.S. government policies encouraged home ownership, even for those who could not afford it.
2015
Many “boomerang” buyers are starting to come back into the market. This is due to their time on the sidelines being almost up because of a short sale, or foreclosure they may have had to suffer through. However, once they eagerly return to the game, sources predict a large upswing in home sales. Additionally, a subsequent decline in the rental market which for several years now has been white hot.
Today’s buyer would be very wise to run a credit report and find out the reality of their situation. It’s also good to look at what programs they might qualify for with regards to home ownership. This is easier said than done but if home ownership is still something you strive for – it is entirely possible to go out and get it done!
