Trading Up in a Down Market: The Benefits
I’ve blogged before about the benefits of trading up or moving up in a down or flat market like we have here in San Francisco (i.e. going from your “starter home” to one that has more room and the location you really want).
However, I never took the time to actually lay out what I mean. Here goes.
You bought your starter condo for $600,000 at the top of the market which was 2004/2005. The place you really wanted (we’ll call it your dream home) was worth about $900,000 back then.
Say San Francisco home values are down about 10%. It may be more or less depending on your location and property type but for the sake of this example, let’s use 10%.
Your condo is now worth $540,000, a $60,000 decline.
Your dream home is now worth $810,000, a $90,000 decline. See where I’m headed with this?
If you chose to sell your condo at the reduced price and move up to the bigger home, you will end up saving money.
The difference between your “starter” and your dream home was $300,000 at the peak. The difference is now $270,000.
Net savings = $30,000
If you sell in a down market, you are also buying in a down market. If you wait for the rebound in a year or two, your dream home will also have rebounded.
Don’t look at your real estate plans as a single, isolated event. It’s gotta be in context. Consider your entire transition from one home to the next.
A good way to start is to find out what your home is worth AND what your dream home is worth. See if the math makes sense.