5 Reasons to Sell Your House
Whenever I write articles on the state of the economy, I receive a slew of emails asking the same question: “Should I sell my house?” Most people who write asking whether the time is right to sell their property, haven’t really thought all the issues through. Most are merely considering selling their house because money has become tight. Here’s a typical example:
My wife and I bought a £246,000 house on interest only mortgage with a high street lender for 3years. This period ended last month.
Over the last 4 months I have been unemployed and we have been struggling to pay this mortgage.We now have one and half month payment arrears.
We have also have debt about £46,000 on credit cards and loans to pay. This has also put a dent on our credit rating as we struggle to pay as well.
Our house is now valued at £350,000. Should we sell it to sort ourselves out of these debt or is there any way out of this hell? I don’t want the house repossessed but it is a matter of time. At the moment our monthly income is around £2,400 after tax.
The issue is not whether to sell the house, but how to manage their finances. Sadly, I receive way too many of these types of inquiry. However, I received the first sensibly written query yesterday:
My wife and I are concerned that this may be the top of the residential real estate market in our area. We have talked this over, and we think the equity in our home may be at a peak. We are both willing to rent. In fact, we have talked about moving to a region that has a much lower cost of housing. What do you think?
Such a note reflects a joint decision – which buying and selling a house ought to be. It reflects an awareness of economic options. It reflects an understanding that things are not as they seem. Here are a few reasons to consider selling your house now.
Five Reasons to Sell Your House - Now!
Reason 1 to Sell Your House: Interest Rate Increases
When rates go from 5% to 7%, that’s a 40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate. The housing bust still has a very long way to go.
For example, if interest rates are 5%, then $1000 per month ($12,000 per year) pays for an interest-only loan of $240,000. If interest rates rise to 7%, then that same $1000 per month pays for an interest-only loan of only $171,428.
Even if the Fed does not raise rates any more, all those adjustable mortgages will go up anyway, because they will adjust upward from the low initial rate to the current rate.
Reason 2 to Sell Your House: House Values Will Plummet
Home prices couldn’t be more disconnected from fundamentals. In many areas, individuals who make the median income can’t afford a median priced home. For this reason alone, current home prices cannot be sustained. Experts are predicting price drops of 25 to 60 percent in large areas.
US house prices are down 14% from the peak in March 2007. US residential real estate was valued at $US21 Trillion in March. A fall of 14% since March means that $US2.94 Trillion in valuation has disappeared from millions of Americans’ balance sheets. That’s close to 22% of America’s annual GDP.
Reason 3 to Sell Your House: Renting is Cheaper
Renting is almost always cheaper than buying. You know why? Because when you rent, you pay for a roof over your head and that’s it. When you buy, you pay for a roof over your head, you pay the bank for the privilege of borrowing money, you pay property taxes to the government and you pay any and every maintenance fee associated with the upkeep of your house. Imagine how much money you can save every month because you chose to pay rent rather than all of the other costs associated with owning. Now imagine what you could do with that money every month. Sounds nice, doesn’t it?
Reason 4 to Sell Your House: There is a Housing Glut
Sales of new US homes plunged in August 2007 at the fastest rate since modern records began, prompting fears that the US economy is sliding into a full recession. Total sales dropped by 8.3% in August. They were down 21.2% during the past year. Worse, US median house prices fell 7.5% to US$225,70o as distressed builders tried to clear the glut of their homes.
Reason 5 to Sell Your House: The Value of the US Dollar
The spot future close of 77.62 on the USDX ($US index) on September 28 was the lowest in the history of the index - going back to March 1973. There are NO support points left on the USDX. This is an intensely dangerous situation. Behind the US Dollar and the USDX stands the savage economic fundamentals of the situation the US is now in.
There is a huge US current account deficit of $US 860 Billion. In fiscal 2007 which ended on September 30, the Treasury officially added $US 501 Billion to its funded debt. The US credit expansion rolled out an additional $US 3.757 Trillion (annualised) in the second calendar quarter of 2007.
These fundamental US global imbalances will have to be brought back into real balance with the rest of the world. There exists a real potential to cause an unstoppable fall in the international value of the US Dollar. When that happens, foreign holders of US$ will sell en masse, causing a global economic collapse, already widely reported on many financial blogs.
House Selling Calculators
- beautiful rent-vs-buy calculator from NY Times
- rent-vs-buy calculator using historical price trends
- sell or hold from landlord’s point of view
Other Housing Crash Blogs to help you decide whether to sell your house.
With thanks to Gary North and The Privateer.
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