Getting out while the getting's good
January 17, 2008 7:41 AM   Subscribe

Should we try to sell our house in a down market?

Nearly two years ago my husband and I bought a house in the 'burbs. It's a decent enough place, not as swank as many in the neighborhood, but in pretty good repair and the decor is "updated" (read, bland). We had little saved for a down payment, and the mortgage is enormous. We can afford the monthly payment (& the mortgage is fixed, so it's not going up), but we're not putting much in savings. He just took a new job a couple towns over, and, since I do all the driving in the family, it's increased my commute by about 50%. I hate driving this much in traffic and I don't like the size of our carbon footprint.

I want to sell the house. I'm getting increasingly anxious about the financial burden this house represents. The market is very slow in our area and now is a terrible time to sell. According to Zillow.com our house hasn't lost value from when we bought it, but based on the sales I'm seeing in the neighborhood, I'm not sure that's true. Everything seems to stay on the market for months and months and ends up selling for tens of thousands less than the initial listing. I think we're on the cusp of a real recession and the market will continue to fall, but there's no way to know for sure.

If we did sell, we could get a place (maybe buy, probably rent) closer to Mr. Libraryhead's job in a more walkable area. This area also has access to public transportation so I wouldn't have to drive him to work. Coincidentally this area is a lot cheaper than where we live now. Based on sampling Craigslist, our combined savings on the mortgage and utilities could be as much as 50%. We'd probably have less space (we have more than we need now -- just filled up with clutter) and less or no yard, which would be a loss for the kids and the dog and the garden, but we could mitigate that by looking for a place with a park within walking distance. On the down side we would be moving out of one of the best school districts in the state into one of the worst, but I suspect we'd move again before the kids start school anyway.

Other factors: We have a two-year-old girl and I'm two months' pregnant with our second. I'm working part-time now, but will likely quit my job once the baby comes. My income is a negligible contribution to the family coffers, as most of it goes to pay for childcare and commuting costs. Our friends are spread all over the metro area, maybe a little closer to the new town. Family is out of state.

So, should we try to sell? Wait till spring or list it now? Put some money into fixing it up a bit or just get out? Mr. Libraryhead believes we won't be able to sell the house so we should just stay put and deal. I look at the prospect of driving on route 3 during rush hour for several years and I want to kill myself.
posted by libraryhead to Work & Money (36 answers total)
 
The market is very slow in our area and now is a terrible time to sell.

If you can afford to pay your mortgage, do not sell right now. You don't need a new house, your husband needs a new job.
posted by ThePinkSuperhero at 7:43 AM on January 17, 2008 [2 favorites]


Just put it out. Sounds like you are rotting away in your current neighborhood.

If noone wants to buy your house you haven't lost any money. A house is just stuff. If you don't want it, get rid of it.
posted by uandt at 7:57 AM on January 17, 2008


According to Zillow.com our house hasn't lost value from when we bought it, but based on the sales I'm seeing in the neighborhood, I'm not sure that's true.

Apropros of nothing, I wouldn't put a lot of faith in Zillow.
posted by jerseygirl at 8:01 AM on January 17, 2008


can you talk to a realtor and see what they think you can get from your house? of course that means there has to be one you trust which you may or may not have.

you can put your house on the market and not take the offers if they are too low. the frightening part about that is the longer it is on the market, the less buyers will expect to pay. so that lowball offer you get at first might look pretty good in a year. i know the people that i bought my house from would have rather had the earlier offers they turned down than what we ended up paying for it. when you say homes go for thousands less than they are listed for - is the original listing reasonable or high to begin with? i am of the very uneducated opinion realtors in my area have not adjusted to the declining market in the asking prices of houses. the adjustment doesn't come until noone wants to pay that much.

you have great reasons for moving, but the two that are pro keeping the house are biggies - losing money and schools.
posted by domino at 8:02 AM on January 17, 2008 [1 favorite]


The market is very slow in our area and now is a terrible time to sell.

This is very much a comparative, terrible in comparison with 2 years ago maybe but in another 2 years today may look like pretty golden. If the market keeps going down as you expect then you might be better off getting out nowand making the savings on rent, the trouble with answering a question like this is that it does all depend on what the market will do and that's never an absolute. If the market does continue to go down the only reason to stay would be if staying is going to be pretty long term, i.e. enough that you can ignore the downswing and will be there long enough for value to go back up again in the future. When you add all your general unhappiness on then it sounds like you should get out.

My libraryhead is wrong on one front: you will be able to sell your house, just maybe not for as much as he'd like to get, which is perhaps coloured by what it might have been worth a little while ago - this is irrelevant, only what the house will bring now or in the future is relevant. If the market does keep dropping, what you can get today might start to look quite healthy in a few years.
posted by biffa at 8:04 AM on January 17, 2008


I'm with uandt. Put up a sign and see what happens. You don't lose a thing but a little time and the occasional inconvenience of having to bug out if someone wants to show the place.
posted by jquinby at 8:04 AM on January 17, 2008


Have you thought of renting? There are a number of academics present in your area, and I think if you planned this right: advertising the house to college departments and HR offices, etc, that you could find a worthwhile tenant while freeing you to look for a new house. Remember, in a down market, it's usually better to keep your house then sell and if you can prove that the house can get a rental income, then you can booth the sale price of the house when you do decide to sell.
posted by parmanparman at 8:12 AM on January 17, 2008


If you need to convince Mr. L, you could try estimating saved fuel costs from a closer commute.
posted by amtho at 8:23 AM on January 17, 2008


to parmanparman, on the possibility of renting it out: We're way up in Andover -- not anywhere near the academic zone. Also, there's a house down the block that has had a for-rent sign out for something like a year. The rent they're asking is about $1000 *less* than our mortgage payment.
posted by libraryhead at 8:30 AM on January 17, 2008


You could rent out the house and rent an apartment closer to your husbands work, not worrying about selling the house till the market picks up again.
posted by chunking express at 8:32 AM on January 17, 2008


to parmanparman, on the possibility of renting it out: We're way up in Andover -- not anywhere near the academic zone. Also, there's a house down the block that has had a for-rent sign out for something like a year. The rent they're asking is about $1000 *less* than our mortgage payment.

Well, that's a problem. I can understand the down market. Lawrence has always been a down-selling-momentum kind of place. I think in this case, you have two options. The first, to buck up and hold out until your second child is a year or so old, so after whatever stimulus package Ben Bernanke or President Bush comes out with. Or, privately list the house. That means, going to a realtor and putting out feelers for a quick buyer and taking the first or second bid and moving quickly.
posted by parmanparman at 8:37 AM on January 17, 2008


Your third option, that I forgot to mention, is to find a swap and trade houses with people who live in town and want to live in the suburbs (yes, they do exist). This is not rare. You basically find a willing partner, and then the more interested party pays the escrow cost of close and takes over the mortgage (somewhat more complicated than I make it out to be, talk to a Realtor.)
posted by parmanparman at 8:39 AM on January 17, 2008


This is what I mean about a swap. Looks like they want to be where you are.
posted by parmanparman at 8:44 AM on January 17, 2008


There is no reason not to sell it if you can. You'll sell low, but if you buy relatively soon then you also buy low. The thing to look at is how much a new mortgage would cost given the current rates (which may be worse than you currently have)
posted by zeoslap at 8:57 AM on January 17, 2008


TPS wrote: If you can afford to pay your mortgage, do not sell right now. You don't need a new house, your husband needs a new job.

Or he needs a bicycle/car/scooter of his own, so that you are not chauffeuring him all over the county twice a day.

Talk to three or so experienced real estate agents and see what they think the house would sell for, and in how long. Remember to allow for the 6% or so in commissions, be realistic about what a buyer might demand ($10,000 for a new roof? foundation needs work? floor needs refinishing?), and how you will deal with the hassle of keeping the house in show-ready condition with two small children and a two-career household.

And, don't be casual about the decision to move from a good school district to a bad one -- what if you don't or can't move? Nor should you trivialize the benefit of having a yard with kids and a dog -- having to walk both kids and dog every time they want open space gets old real fast.

Right now you are managing on basically one income (you say that yours is going to transportation and childcare expenses). That is actually a nice safety net -- if he lost his job, he could stay home chasing rug rats and you could pick up the income slack. It is much scarier when everything is dependent on both people working -- then an illness or firing or divorce will cause much more pain. If he raises his income, or you find a way to cut costs, or your income becomes more than ceremonial, your budget will have far more breathing space in it. So I think you should look first at ways of giving yourself space and relief now before taking the big step of selling the house and moving. Getting your SO mobile without needing you to drive him would be a really big improvement in your life, and would actually allow you to perhaps earn more money (because that is a couple of hours a day free to do other things) or pay less childcare or take a class or whatever it is that is missing right now.

Reading some of the better personal finance blogs might give you some windows into how other people are managing these sorts of decisions, although in the end it always comes back to the specifics of your own situation. The only one I ever read is this one, and only once in a while at that, but there are hundreds if not thousands to choose from.
posted by Forktine at 9:01 AM on January 17, 2008


If rent will cover the mortgage, then rent the house and buy another. You can depreciate the house over the next few years, since it's essentially a business expense. Talk to a real estate attorney.
posted by electroboy at 9:04 AM on January 17, 2008


If the market is bad, prices fall across the board, right? This means in theory you could sell your house and take a loss, but you could also buy another house and it would be cheaper, too. Don't worry too much about how much money you gain or lose, look at what the outcome will be.
posted by PercussivePaul at 9:19 AM on January 17, 2008


Here is the thing: If you sell the house, you should try to buy another one. House prices are low just now, you will not get what you would have, or will in a year or two. So if you sell and rent, you are loosing wealth. But if you buy another, maybe more affordable house you sell low and buy low and so come out better, or at least not as worse.

Renting out the house and buying a new one is an even better option if you can get the rent. Remember though, you have to cover expenses as well as the mortgage payment.

If it makes you feel any better, I am in the same position in danvers, and I work in Andover.
posted by d4nj450n at 9:23 AM on January 17, 2008


Wait, what am I missing? Why doesn't your husband just drive himself to work?
posted by desjardins at 9:29 AM on January 17, 2008


Why doesn't your husband just drive himself to work?
He's partially blind.

hey, d4nj450n, I know where you can get a great deal on a 4-BR colonial, just down the road from work...
posted by libraryhead at 9:32 AM on January 17, 2008


I'm the world biggest housing bear, but I zillowed a couple of houses near your location and the appreciation curve 2001-2006 in your neighborhood doesn't look too bad.

I really can't give any advice, but I can dump my theories and stuff:

1) Prices 2003-2006 were driven up by free-money lending practices. That party is over and it ain't coming back until the present financial sector imploding is as forgotten as the S&L crisis of the late 80s.

2) But, Congress is going to do all they can to buttress falling prices. One tool in their toolbox is raising the conforming limit from $417K to $625,500 (what it is outside the lower-48). This would help your present home value tremendously because you are apparently right in that zone.

3) Should wage inflation come to the Boston area, renting would also be a squeeze unless you find a rent-controlled place. I don't see wage inflation in the cards though.

4) Your state may be a no-recourse state. No-recourse means you can walk away from your mortgage if it is the original "purchase money" loan (hasn't been re-fi'd) and your lender is stuck with the fallout. There's a new law on the books cancelling the federal taxes associated with this event, effective retroactively to Jan 1, 2006:

Under the new law, a taxpayer does not have to pay federal income tax on up to $2 million of debt forgiven for a qualifying loan secured by a qualified principal residence (e.g., one to buy or renovate a residence). The change applies to debts discharged from Jan. 1, 2007 to Dec. 31, 2009.

You would still likely have to pay state income tax on your lender's loss, however.

Your choices:

1) Hang in there
2) Try to sell, see what happens
3) Rent it out
4) Walk away

aside from the quality of life issues, you need to get accurate numbers on the costs of each option. Also, don't worry about your household carbon footprint now. You have more important things to put into order.
posted by panamax at 9:33 AM on January 17, 2008


On the down side we would be moving out of one of the best school districts in the state into one of the worst, but I suspect we'd move again before the kids start school anyway.

Other factors: We have a two-year-old girl and I'm two months' pregnant with our second.


So, you'd sell now, and then buy again (in the same district?) in 3-5 years? How important is that second part to you? To me, that sounds like a lot of transaction costs. And it sounds like you risk selling low and then buying high (or at least, as the market is recovering, so whether it's higher depends on how far it falls).
posted by salvia at 9:41 AM on January 17, 2008


On the down side we would be moving out of one of the best school districts in the state into one of the worst, but I suspect we'd move again before the kids start school anyway.

I'm in the minority on this, and I appreciate how hard things are for you, but this is the single most important reason not to sell. You'd have to move back in 3 years. In three years this housing crisis will likely be behind us, or at least the market would have returned to normal. So in effect you'd be selling low and buying high. In other words, you may not be able to move back in to the area.

Furthermore, if you sell now and the house sells for even a few tens of thousands less than you paid, you are going to have to absorb the difference. That's going to eat into whatever saving you could accrue by moving someplace cheaper.
posted by Pastabagel at 9:51 AM on January 17, 2008


Let me clarify one more thing:

We had little saved for a down payment, and the mortgage is enormous. We can afford the monthly payment (& the mortgage is fixed, so it's not going up), but we're not putting much in savings.

Yes you are. The savings is equity you are putting into the house. And don't forget that if you rent, you lose the mortgage interest deduction, and what you pay in taxes may go up.

Talk to a tax planner or financial adviser, because your situation is a complex, multivariable problem the solution to which depends on very specific data.
posted by Pastabagel at 9:53 AM on January 17, 2008


salvia: the market is teetering over the abyss now that the collateralized debt pipeline has seized up and lenders either have to find grade-A borrowers with 5-10% down or borrowers that can squeeze under the FHA ($360K) or GSE ($417K) limits.

This CDO pipeline was the source of money that funded these jumbo loans that enabled buyers to bid up prices way, way past equivalent rents.

The only question is the speed and extent of the fall, and how many ledges we hit on the way down to price levels that are correlated again with people's actual incomes and not the fictitious"stated income" on their loan applications.

I saw this movie play out firsthand in LA, 1989-1992, and in Tokyo 1992-2000; what remains now is a slow, slow grind of home valuations back to the traditional 3:1 income ratios.

I do agree about the transaction costs. Assuming their house can sell for $400K, that's $20K on every transition.
posted by panamax at 10:00 AM on January 17, 2008


The savings is equity you are putting into the house

actually at this point in their amortization the house is in fact losing more valuation than their principal pmts.

The point about the tax benefits of paying interest is important though. The $1000 spread between renting and buying in the same area should be adjusted by the $900/mo or so in tax benefits ($400K x 8% interest/PMI/prop tax x 35% marginal rate).
posted by panamax at 10:04 AM on January 17, 2008


In three years this housing crisis will likely be behind us, or at least the market would have returned to normal

I see no arguments as to why this cycle is going to be any different from the 1989-1996 boom-bang-bomb cycle.

For the present situation, what will hold up prices in the poster's neighborhood is regional employment. I see a defense plant in that neighborhood. Nobody knows what defense spending going into that plant and the Boston area in general is going to look like in 3 years, it may be slashed 50% or may be increased 50%.

Right now, the current meltdown IS the market returning to normal. 2003-2006 was the anomaly due to free-money interest rates, negative-am, stated-income, subprime, non-owner-occupied "innovations" that juiced the market way, way past affordability norms.

I made this graph from the Fed's Flow of Funds report last week to get a better visualization of the situation. I call it "Flight of the Challenger II".
posted by panamax at 10:19 AM on January 17, 2008


panamax, you sound like you know what you're talking about, but all this real estate/finance jargon is a bit Greek to me. When you say "the appreciation curve 2001-2006 in your neighborhood doesn't look too bad" does that mean that prices didn't spiral too much out of control so they don't have as far to fall? What difference does it make that our house is (according to Zillow) in the bottom 20% of houses in our zip code?
posted by libraryhead at 10:30 AM on January 17, 2008


In my personal opinion, financially, the hardest part of having children is when they are preschoolers and you have all the childcare costs AND all the costs of buying/getting things for a new house. If you hold out for a few more years it will improve (like you, in the early years I also wanted to go back to renting because I thought the next 25 years of my life were going to be that hard financially). It does not make financial sense to plan to buy/sell a hours that you will move out of in the next couple of years. You say you can afford the house now on one income, I would stay where you are. Housing prices are cyclical and if you have the attitude you will be in the same house for 20 years the monthly ups and downs of the local market won't upset you.

But, your husband's commute sounds really frustrating for you. Is there any possibility of dropping him off somewhere to use public transportation to get the rest of the way to work and limit your own commute? Otherwise, well both my husband and I have turned down dream jobs that had brutal commutes, sometimes you just have to choose quality of life over the better job. Can he get a closer job? I do not know you area at all but it sound like you live in suburbia and Mr Libraryhead works in a more urban area? If there are a lot of commuters from your hometown to his work town, maybe you can put up a Craigslist post or use another local rideshare site to look for transportation for him (or even from somewhere you can drop him off on the commute to your own work).
posted by saucysault at 10:44 AM on January 17, 2008


libraryhead, I only know what i get from blogs, which means I know a lot of words and macro facts but don't have an RE industry-level on-the-ground understanding. If you have any questions about the terms, feel free to list them here.

I was looking at the zillow graph of a house that sold close to you recently ( 25 Wild Rose Dr Andover MA 01810 )

Going to the 10-year scale I see a relatively smooth appreciation curve from the low of 1999.

All things being equal in the status quo we find ourselves, I see a retracement to the 2002-era pricing as highly likely over the next 5 years or so. For the house in question that would mean $425K, a fall of 15% of its present market price of ~$500K, which isn't too bad in the scheme of things.

I really don't know what factors are involved in your neighborhood though. For that, you'd need to find a good realtor to help you out.
posted by panamax at 11:03 AM on January 17, 2008


libraryhead: We're way up in Andover...

Andover? Good grief, and you're driving him in? What about the commuter rail? But the trouble is, you mention the job is "a couple towns over," which doesn't sound like it's further in. Even so, there are busses that run out there.

You might feel like this is cruel, but it's for both of your good. It's a huge expense to drive, it will cost much, much less for him to ride a little. Both people sometimes have to make sacrifices.
posted by koeselitz at 11:51 AM on January 17, 2008


Thanks, everyone. You've given me a lot to think about -- and talk to Mr. Libraryhead about. Believe me, we're working all the public transit options, but the best we can find involves 3 busses and some narrow-margin transfers and means he misses breakfast and/or dinner with the family, which is not a good solution in my mind. Hopefully some westbound commuter will find our rideshare ad and save the day.
posted by libraryhead at 12:18 PM on January 17, 2008


"On the down side we would be moving out of one of the best school districts in the state into one of the worst, but I suspect we'd move again before the kids start school anyway. "

Your oldest will start school in three years. With two commissions, closing costs, moving costs, taxes (we have a sales tax on property here) etc. it is rarely worth it to buy a place to live for only two years. Yes during the bubble it made sense (sort of) but that is an outlier that doesn't apply now. So if you do sell you'll be a lot better off renting for those 2-3 years IMO. Especially if you can rent for $1000 less than your mortgage.
posted by Mitheral at 12:26 PM on January 17, 2008


Good luck navigating your options, libaryhead.

IMV, "walking away" could be a viable option for you if MA is a non-recourse state.

Morally, the reason you had to pay so much in the first place was because the entire financial system started making zero-down loans to anyone who could fog a mirror, so sticking the money-holders with the pain of the fall-out is karmically just, and the Federal IRS change no longer taxing you for this loss to the lender is icing on the cake.

Credit-wise, a foreclosure is a big black mark for 3-10 years, but you'd be joining a population of millions with a new foreclosure on their records.

But DO get a grip on the difference between renting costs where you want to be and the true costs of your present mortgage. When you factor in the benefit of the mortgage, PMI (which is deductible now), and property taxes on your Federal and State taxes, buying is a lot better deal than it looks on a month-to-month basis.

Even with perfect information deciding on the best course of action will be difficult.

The best solution is either the property swap option above, or finding a nice, stable place to rent that you would want to remain in for the next 7-10 years, move, stop paying the mortgage, mail the keys to the bank, save the difference, and re-enter the market next decade with a 20% down payment ready.
posted by panamax at 12:41 PM on January 17, 2008


If you are in MA do not rent the house out. MA rental laws favor the renter. See http://www.gis.net/~groucho/landlord.html
posted by andreap at 4:33 PM on January 17, 2008


I ended up doing something similar a few years ago. It ended up costing me 15 grand, but it's been one of the best decisions I've made. But, of course, you're mileage will vary.
posted by brandnew at 5:34 PM on January 17, 2008


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