Karen M. Gibler
J. Mack Robinson College of Business
Georgia State University in Atlanta
Trying to time house resales to the peak of the market is rather like trying to time stock sales. It is always difficult to recognize the turning point.
For most homeowners, it should be a more comprehensive decision than just, "When can I sell to get the highest price?" Families should consider what their opportunity costs are by remaining in a house they do not want.
First, if they wait to sell their current house until prices rise, then the price of the replacement house they want to purchase may similarly rise, including the risk of rise in mortgage rates. So their additional profit from the sold house is simply used to pay a higher price on the replacement house.
If the replacement house would provide the family greater happiness, then they are forgoing enjoying that new neighborhood, better school, shorter commute or whatever they are hoping to gain in a new house. All this comes at a cost.
If a family has already moved and the house they want to sell is sitting vacant or is occupied by a renter, then they have to consider the revenue versus carrying costs of maintaining ownership of their old home. By waiting to sell, they may obtain a higher price. But meanwhile, the house may be costing them money that will offset any increase in price.
Michael J. Highfield
Associate professor of finance, Robert W. Warren Chair of Real Estate
Head of the Department of Finance and Economics
Mississippi State University in Starkville, Miss.
We have all heard about the large number of homeowners who have negative equity in their homes. As prices rise, this negative-equity issue eases, and the homeowners are more likely to list their property for sale. This increases the supply of available homes, slowing down growth in housing prices.
So what should homeowners in this situation do? First, if you live in an area where prices are increasing rapidly, don't expect this rate of increase to continue indefinitely. There will be diminishing returns to waiting longer as underwater homeowners begin to list their homes and buy-and-lease investors begin to lose interest due to decreasing returns.
Second, qualified first-time and trade-up homebuyers are currently getting historically low rates on 30- and 15-year mortgages. Rates will not stay this low forever. The Federal Reserve has been keeping rates artificially low through "quantitative easing," and they have indicated that they will relax their bond-buying programs when the economy reaches specific employment thresholds. When that happens, rates will move higher, and I believe that they will move quickly.
In sum, if you are looking to sell, know your local market and recognize that changes are coming. To quote an old adage, "Don't step over a dollar to pick up a penny."