People tend to be really shortsighted when it comes to home prices.
People get excited with the thought of selling their home and "extracting profit". But how do you extract profit?
You still need another home, right?
Unless you plan on downsizing then you are going to buy similar or larger to what you just sold. If your house value went up 30%, then likely the rest of your area did too. So if you want to buy something new, then all your profits go back to something that is the same as you already have. In the end you just end up in a similar home, but now with a worse interest rate.
So where's that value extraction that everyone gets so excited about.
Thats why home sales aren't happening right now. People fantisize about their home value but when they go to sell they realize they will probably end up worse off than when they started.
For example. Let's say you bought a home for $300k and now it is worth $400k. Let's say they owe $250k on it. Nice 30% value, huh? Great, sell it. Now you have a cool $150k burning a hole in your pocket. But then you remember, oh i don't have anywhere to sleep tonight. So you go and buy a home that is similar to what you just sold. Well all those houses now cost $400k, thats why you were able to sell yours for that price in the first place. So now you use the $150k of money that you "extracted" as a downpayment on another $400k home and guess what, you're back to a $250k loan, which is exactly where you started. You didn't gain anything. Just now you are paying 6.5% interest on it instead of 3.5% interest. Which means your monthly mortgage actually increased by ~$650 a month for the same house. Great deal, huh?
People get excited with the thought of selling their home and "extracting profit". But how do you extract profit?
You still need another home, right?
Unless you plan on downsizing then you are going to buy similar or larger to what you just sold. If your house value went up 30%, then likely the rest of your area did too. So if you want to buy something new, then all your profits go back to something that is the same as you already have. In the end you just end up in a similar home, but now with a worse interest rate.
So where's that value extraction that everyone gets so excited about.
Thats why home sales aren't happening right now. People fantisize about their home value but when they go to sell they realize they will probably end up worse off than when they started.
For example. Let's say you bought a home for $300k and now it is worth $400k. Let's say they owe $250k on it. Nice 30% value, huh? Great, sell it. Now you have a cool $150k burning a hole in your pocket. But then you remember, oh i don't have anywhere to sleep tonight. So you go and buy a home that is similar to what you just sold. Well all those houses now cost $400k, thats why you were able to sell yours for that price in the first place. So now you use the $150k of money that you "extracted" as a downpayment on another $400k home and guess what, you're back to a $250k loan, which is exactly where you started. You didn't gain anything. Just now you are paying 6.5% interest on it instead of 3.5% interest. Which means your monthly mortgage actually increased by ~$650 a month for the same house. Great deal, huh?