Q: I have a fixed-rate mortgage at 5.99 percent that doesn't have to be refinanced until 2016. I know I will want to move to a more suitable place before then, but if I sell now at current low prices, I will have very little equity left to put down on a new condo.
If I stay here, I will have to spend money on a new furnace and other repairs. I've seen nice places at low prices, but I can't afford to own two condos, and I don't want to rent this one out.
So, would I be financially better off to sell at a loss and buy something else at a bargain — or stick with this place until prices rebound?
A: Your question accurately describes the entire real estate market — which is nearly at a halt, except for those buyers who have cash and don't have a home to sell before they buy.
The problems of those who are being foreclosed or forced to sell have affected millions of other Americans who are now stuck in place because the entire housing market has slowed to less than a crawl.
You don't need to refinance, because your current rate is reasonable. And you're not being forced to sell. But the choice of where you will live now, and as you age, is being taken away from you by the market. (I'm guessing that the word "suitable" means you would choose a different place or neighborhood for later years — if you could.)
This logjam of real estate waiting to be sold is depressing the current market, along with the foreclosures that are tied up in the banking system. Nothing is really moving. The only people who can buy are those who have cash — and no home to sell as a pre-condition to their purchase. Even they are having trouble getting their bids for foreclosed homes approved by the financial institutions that own the properties.
Meanwhile, those who would like to buy the properties that are now listed at tempting low prices realize they must sell their own homes first.
How will it end?
At the moment, there is no end in sight. It's a distinct possibility that even if the economy recovers somewhat, and even if interest rates remain low, the lack of jobs could keep demand from pushing prices higher. Meanwhile the supply of "wish I could sell" continues to grow, even though the homes are not yet listed.
There is another possibility. There is a chance that inflation could break out — triggered by rising commodity prices and fueled by the billions of dollars in liquidity created by the Fed, and now sitting on the books of the banks and other institutions. A rising tide of inflation could encourage those with cash who are sitting on the sidelines to buy now — or to buy a new home before the old one is sold. But inflation would also bring higher mortgage rates.
Which brings me back to your question. A new generation has learned the lesson of the early 1980s: Real estate prices don't always go up, and real estate is not a "liquid" market.
Home prices will rebound in the future. But we have no idea how long that will take. In the meantime, there is no way that you, or any ordinary homeowner, should take the risk of owning two properties, unless you can cover the taxes, heating, insurance, etc., for at least two or three years.
You should list your current condo for sale — and hope that someone with cash (or very good credit) and no house to sell first comes along to make an offer. Then, and only then, can you make the decisions about the next home to buy. It's an old Savage Truth: Don't go shopping if you don't have the money!