Q. Should I wait to sell until property values go up? Or, is this another housing bubble that I’m going to get caught in? Thanks, Justine
A. The answer depends on how far underwater your house is and your tolerance for risk.
Also, as far as the bubble question, that’s a matter of opinion. But I’ll give you some data to help you decide what solution is best.
First, should you wait to sell? I would say that you should be looking at your finances first; then decide what your best course of action should be. If you can’t afford your home, then either do a loan modification or sell it.
If you know that a loan modification won’t really help — because what you owe is more than what you can afford, even with help — then selling should be your top priority.
Now, how long should you wait before you sell? Well, property values are increasing at a pretty good clip right now — more so than most people thought we would see. I would, however, caution that you still need to keep realistic expectations. Will your house appreciate 5 percent to 10 percent more this year? It might. I would say that range, depending on the condition and the location, could be realized.
So, my question back to you is: Will you be able to do a standard sale. For example, if your house is worth $400,000, will you be able to sell it for $420,000 to $440,000 and be able to pay off your lender, the real estate agent and other closing costs before your budget forces you to miss payments?
There is a chance that your home will appreciate more than this in the short term. That is, however, a much riskier bet. Keep in mind that once you start missing mortgage payments, it’s going to be two years before you’re able to buy again, just like with a short sale.
Secondly, are we in another real estate bubble? Well, some people think we are. I tend to agree with that for two reasons.
Real estate is being helped by a serious shortage of supply, along with record lows in interest rates. It’s not as if our economy is growing at a healthy rate. Usually, that’s what you would want to see happening for there not to be concerns about a bubble.
The other concern is that the Office of the Comptroller of the Currency (OCC) recently released its Mortgage Metrics Reports and I see some potential issues with another possible wave of foreclosures. Of the nearly 2.9 million loan modifications since 2008, only about 46 percent of those mortgages are being paid current. A little more than 25 percent of those properties already have been foreclosed on, paid off or sold to another investor, which means another 29 percent of the homeowners are not paying their loans on time. This includes loan modifications done last year. These issues are undercurrents that may limit the recovery. We know what today looks like, but there is always a risk when you’re waiting on a market to behave better.