Sell Your Home and Trade Up Today? - From Irrational Exuberance to Irrational Pessimism!
Thursday, February 12th, 2009Had lunch with a friend yesterday and we were talking about the economy and he said he had a term to describe it and I liked it. He said remember when Alan Greenspan coined the term “Irrational Exuberance”. My friend Jim said he thinks what we have now is “Irrational Pessimism”. I really liked that for a quick one (okay two) word saying of the current state of affairs.
We are all so “scared” of what might come, or what might happen and we eat up whatever the media will serve and then we repeat it out through our social networks, our coffee or water cooler talk, on the golf course, etc. So we are flooded with this negative pessimism and it affect all of us individually and as a whole as a society. When pessimistic and “scared” we do what instinct teaches us and we “retreat” either by choice or circumstance we tighten our belts. We actively try to spend less. We go out to eat less. We shop less. We buy less. This creates the spiral it seems we have entered, spend less, more job loss, more unemployed people, spend even less, more job loss…
My comment back to my friend was yes I agree with “Irrational Pessimism” but I wonder if anyone in history has ever identified any one particular thing or event (like after the depression or even major recessions) that had instantly or rapidly changed the nations or the globes combined psyche in a moment. Because I believe if we would all think and act positive at the same time, half of our problem would go away. I know your saying “Oh no not that Think Positive crap”! Well yes and no. I don’t believe that by thinking positive alone that you can accomplish anything.
As Tony Robbins says, you can sit in your living room and “bliss out” and still starve to death. People need to take action. And because I am a Realtor, I would hope that action included trying to buy or sell a house. I would definitely stress the buy right now (even if it involves a sale of your home for a discount) because Its a great time to trade up. If the market is down 10%, 20% or even 50% and you go from say a base value of $200,000 (from two years ago) and trade up to $400,000 home (from two years ago).
Look at the math. Say we are down 20% that would be $40,000 so now your home is worth $160,000. Say you have a growing family or just want a nicer place and you always liked this house that was $400,000 but you couldn’t afford it. That same house today assuming down 20% as well is only $320,000. So the discount on your home if you want to look at it that way is $40,000 and the discount on the one you are buying is $80,000, so essentially you can pocket that extra 40K in equity when the market returns and even surpasses the last highs.
Notice a few things too though, the next home is still twice as much as your home, but if you believe as I do that your home will come back to what it was worth two years ago, then it only makes sense that you should believe the other home will go back to where it was two years ago. Thus at least on the surface this seems a pretty solid formula.
Obviously areas vary, but I believe most places the higher end homes have been hit even harder, so I think you will usually see say a $200,000 home down say 15% or worth $170,000, while the bigger higher end home is down the full 20% or on $400,000, discounted $80,000. So the potential gain in equity is even larger than looking at it from a simple and straightforward manner.
If you have a solid (as solid as anyone can be) job or source of income and you have a decent credit score, then now is a great time to borrow. The income/cash flow is key and the top deciding factor right now. People without enough cash flow or in markets where banks fear further declines are still having trouble getting loans. Many are requiring larger down payments but if you have some equity in your home (at the discounted price), then this can be tapped or used to buy up.
So depending on your situation if you can qualify the rates are great and its a great time to Trade Up! Trade up today!
Montrose, Colorado 81401
The San Juan Mountains, Montrose Colorado at Bridges of the Black Canyon Golf Course
If you would like more information about Montrose, Colorado - ”A Beautiful Place to Live, That Gives You a Sense of Being Home” please call me (Chris Ormsbee) at (970) 209-0252 or talk to your Realtor in your area about your market and what might make sense for you.
And by the way, why don’t we just all try to be a little more optimistic (think positive but not irrationally exhuberant) and take at least one action a day that would demonstrate that and see if it makes a difference.