Should I sell now, rent, and then buy next year?

Question

Hi!

I’m wondering if I should sell my house now while prices are high, and then rent for 6 months to a year, and then buy something once prices and interest rates go down as they are predicted to do?

I have a few concerns about this (not necessarily listed in order of importance):

• 1. We      have a dog and a cat, which makes finding rentals harder.
• 2. Finding      6-month or flexible rentals is difficult.
• 3. Rentals      are expensive in this area, but I am willing to move to a cheaper nearby      city if needed. However, rentals are still likely to be close to the same      price as a monthly mortgage payment.
• 4. Considering that rent is likely to be about the same as mortgage, does that completely negate any profits made from selling high and buying low? (Assuming we are able to buy low next year)

I understand that markets can change and predictions could end up being inaccurate, thereby blowing any benefits whatsoever, but allowing for the risk, is it possible for this idea to be profitable?

Thanks!

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Titus Coleman · Answer

@Rebecca Dee

While selling now is most likely the best time, seems like an overall risky move in my opinion. A lot of the (real estate focused) economists I follow point toward a 2021-2022 market downturn. I really don’t think prices will drop significantly in 6 months. Considering the eviction memorandum will most likely continue, don’t think we’ll see enough inventory on the market to drop prices.

I think this strategy makes more sense if you are moving from a big city (LA, SF, NYC) with high costs to a much cheaper city/state. The difference in value would go much further. It could also work if you had the option to sell now then stay with family for a year or two.

Ned Carey · Answer

@Rebecca Dee We have had historically low interest rates for a very long time. We are overdue for interest rates to reverse and go back to there historical averages. A real estate market change could simply mean we stop going up in price and simply level off for several years.

While I strongly believe we will see opportunities for real estate bargains in the near to mid term. (6 months to 3 years) those opportunities may not be in the type of house you would like to buy to be your home.

To sum up, let me just say go back and read @Jaysen Medhurst's post

Jaysen Medhurst · Answer

Only a fool tries to time the market, @Rebecca Dee.

Jaysen Medhurst · Answer

Who's predicting prices and interest rates are going to go down in 6 months to a year, @Rebecca Dee. My local market is hotter than it's been in years and the area where I focus my investing has not slowed down one bit. The Fed has lowered rates, yield on the 10-year treasury is nearing 0.5%, Jamie Dimon said on the most recent JPMorgan Chase earnings call said he couldn't see rates going much lower due to the cost of originating and servicing retail mortgages. So, maybe rates could drop another 50 bps, but with so much uncertainty and volatility right now, no one really knows.

If you're ready to act, act.

Rebecca Dee · Answer

@John Colburn

Hi John! Thanks for responding. That's a good point about sellers being unlikely to accept lower prices initially. I was just talking to my mom about that very thing and then I check here and you mention it as well. I was saying, what if, despite what forecasts say about there being more inventory due to increased foreclosures, what if there will be increased inventory due to eager sellers trying to cash in on this year's high sale prices? If they don't NEED to sell, they are unlikely to shift their expectations downwards quickly. If they don't get what they want, they'll just take their house off the market and wait.

Well, I guess for now, I'll just continue getting this house ready to sell and buy/sell when we're ready and not try to time the market.

John Colburn · Answer

I agree the real estate market is red hot.   The challenge is that real estate prices will take 3 to 4 years to go down, and it will not happen in 2021.

A good example is in 2006 the market was super hot.   Everyone was making money and felt the market will continue rising for at least a few more years.   Housing prices remained high from 2007 through 2009, but there were no buyers and the sellers were not willing to lower prices and take a loss.   In 2008 folks realized the prices would not come back and started to default on the loans.    House prices did not go down until 2010.   From 2010 through 2013 there was much value in the market.

Timing may not be on your side if you sell and wait for the market to go down.

Rebecca Dee · Answer

@Jaysen Medhurst

Hi Jaysen. Thanks for responding. I got my info re mortgage interest rates and house prices going down in 2021 on a few different websites that I found from doing an internet search on the questions "house prices 2021" and mortgage rates 2021".

I agree about the heat of the current market. That's why I am tempted to sell my house right now. I have an "entry level" ranch in an area that doesn't have a whole lot of ranches. They sell well here.

Of course, on the other end of that, is that I have to buy something else and prices are high and inventory is low. I am looking to upsize (we need more room), and it is financially more sensible to upsize in a slower market. Even if I have sell low, since I would be buying more house, it is better to buy more house a lower price. Especially when rates are low. So, that makes me think next year is the best time to do this if I go the traditional route of buying and selling at the same time, since both prices and rates are predicted to be lower.

But then I thought, what if I could do both? Sell now during a seller's market, rent somewhere, and then buy during a buyer's market. I haven't heard of anyone doing this, however, so that leads me to think that it might not make financial sense since paying rent means NOT building equity. Well, I'd be building my landlord's equity, but you know what I mean. Haha!

@Titus Coleman

Hi Titus! Thanks for responding! I was wondering the same thing, about whether the eviction moratoriums and also the foreclosure moratoriums might get extended. Currently, I'm reading that foreclosures are likely to begin in earnest next year, leading to more housing inventory. With fewer buyers able to purchase the increased inventory, prices are likely to drop. But if the powers-that-be decide to extend the foreclosure moratorium, then those houses will not be on the market and prices may remain fairly stable since the lack of inventory could be a good match for the lack of eligible buyers (due to continued economic hardship), thereby keeping prices stable.

Also, election results and other variable could impact the economy and change all of the current predictions. One thing I learned when I bought this house (my first home-buying experience) was that people, even experts, are not great at predicting markets. I bought in 2007 and "They" were saying that it was the best year to buy because prices were much lower than they had been (compared to 2005) and that they would be going up again soon. Then of course, 2008 happened and prices went down-doobie-do-down-down, and they offered that stimulus to buy and everything. Ugh!

Oh well. We waited out the market and values went back up, but it is NOT fun being upside down on a mortgage, that's for sure!

So anyway, I totally understand the risk, but I'm wondering, even if the markets and rates do go as planned, if it makes financial sense to pay someone else's mortgage by renting for as much as a year, to take advantage of two different housing markets: selling while prices are high, then buying while prices are low.

Too bad I don't have family nearby that we could bunk with. You are right - that would be a great way to minimize that risk.

Should I sell now, rent, and then buy next year?

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