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Move up in Down Market, Move Down in Up Market

If you’re considering moving up into a bigger and better house, now is the time to do it. If you’re consider retiring into a smaller place like a less expensive condo, best to wait this market out and do so in a seller’s market. Home Buying Financial Decisions

Let’s examine what happens when you move up into a bigger home. A couple we’ll call Steve and Mandy want to sell their home worth $300,000 and buy a better home worth $500,000. In the down market homes have lost about 30% of their value. Therefore Steve and Mandy’s home is valued at 30% less than $300,000, or $210,000. That’s right, they loss $90,000 in value on their home. Psychologically they are depressed about losing their home’s value and don’t think it’s a good idea to move up right now. But what happened to the value of the home they’d be purchasing? The home worth $500,000 has dropped in value by $150,000, now valued at $350,000. So even though Steve and Mandy lost $90,000 on their home, they are gaining $150,000 in value on the home they’ll be purchasing. All in all they’re gaining $60,000 in home value by making a move up in the down market.

The opposite is true if they waited to move up until the market gets better. If the market increased by 30% then their $300,000 is now home is valued at $390,000, a $90,000 gain. This makes them feel great and motivates them to buy a better home. But the home they’re purchasing is now worth $650,000. Their net loss is $60,000 by waiting until the market improves to move up.

The moral of the story is that even though you’re instinct might be to wait until the market gets better to move up, it makes financial sense to do it now.