A couple of years ago I spoke to Julia, a woman whose family’s needs and wants had evolved beyond their home and neighborhood. Unfortunately the house was no longer worth what they owed. Like a lot of people, they felt shackled to their home. Every so often Julia emails. “How about now?” Although the market is improving, values are still quite low. It will be at least a year before Julia can get out without writing a big check. Telling people they are under water has become a part of our job these past five years and seven months. (But who is counting?) For some owners like me, who bought in 2007, it is going to take years to breathe air again.
Julia wrote back. Her family has decided to move anyway. They are working with a lender to qualify for a new mortgage with the plan to rent their current home. Julia was just one example among many of our clients who are fed up watching these low interest rates and attractively priced homes. Now that prices seem to be headed up again, they are betting on their current home appreciating. They are also locking in a low price and low interest rate on new homes. I think this phenomenon might help explain why there are so many buyers and so few sellers in our market today. The buyers we are seeing out there, after all, are not all first time buyers. We know this because even more expensive “move up” homes are selling these days. A lot of them already own a home, yet the offers they write are not contingent on selling it first. They are like Julia, Josh, Robin, Steven, Margaret, Tom, Bill and Jessica, and probably hundreds of others in Tacoma.
Each of these people adds to the pool of buyers but do not add a corresponding house to that pool. So this phenomenon is partially behind the inventory imbalance. But far from casting blame, I thank these people for igniting our market!
There are some things to consider if you are considering buying without selling first. Here are a few. Becky Thompson of Wells Fargo, says that if you don’t have a lot of equity in your current home you might not be able use rent as a debt ratio offset when applying for a mortgage, even if you have a signed lease. By and large you will have to qualify for both mortgages, but you might be surprised to find how much you can qualify for. Particularly if you do not have experience as a landlord, you might consider using a property management company in order to ensure you have qualified renters, that you don’t run afoul of landlord tenant laws, and that the call in the middle of the night regarding a plumbing leak does not go to your phone. You need to think about wear and tear on the home. A tenant will not care for things exactly as you would. If your home is in pristine condition you might consider what it will look like a year or two after becoming a rental. You will want to have cash reserves available for repairs or to cover the mortgage between renters.
Mark Melsness of Windermere Property Management says there is a strong market for rental housing between $1,400 and $1,800 per month, fueled by military families and people who had to short-sell their homes.
Before doing anything, it is worth gathering information. Call us to find out what your home is worth. As this market is hot, you might be pleasantly surprised.