Our house sale closed yesterday. We've moved from homeowners to renters, and moved approximately 70 miles from a less dense area of Massachusetts to metroWest Boston.
Our house sold for 3.5% below appraisal, and a 16% gain over the home purchase price that we paid in April 2004. We had a 3-year ARM, which reset in June and increased 2%.
All in this soft market, with record foreclosures nationwide, an 11.4 month inventory of homes in Massachusetts, and the latest news from the New York Times that new home sales have reached a 12-year low.
When we decided to sell our smaller-than-average, 852 square foot, 2 bedroom/1 bath house (with an uncounted loft and finished basement family room) in September, we thought it would appraise at 25-30% higher than the purchase price. It appraised at 22% higher, in October 2007, and I attribute the difference to an already-softening market.
We moved from western Massachusetts to metroWest Boston, and expected higher rents and higher home prices. We chose to move from being homeowners to renters for a number of reasons:
- We had moved to western MA in pursuit of a certain school for our kids, and it hadn't worked out. We chose this metroWest town for a specific school, and if the school doesn't work out, we don't want to be tied to the town.
- We have read repeated warnings on dailykos and other blogs that house values would plummet soon (now) and that selling and getting out, riding the decline as a renter, and buying when homes drop 20+% in the next few years is a smart financial move if it fits your life plans.
Such a strategy happens to fit our life plans, so we went for it.
- The rent in our house here is at least $700 less than it would cost to buy this home (principal, interest, taxes, insurance) with 20% down (the house next door sold in August 2007 for $350,000--we're renting for $1500/month), and our house rental includes all appliances (even a new washer, dryer, and microwave), has a great yard for the kids, and is 1.5 miles to their school, 2.2 miles to Trader Joe's and Whole Foods, and 2 miles to a CSA (which sadly is full for 2008, but they have a farmstand we'll buy from).
Houses would have to drop 20-25% in value here before we could pay in mortgage/interest/taxes/insurance what we're paying now in rent, so we'll sit things out and see what happens.
But let me tell you some reasons why I think we were able to buck the trend of homeowners waiting 6, 9, 12 months for offers, while dropping prices and praying for a buyer.
First, we lived in cohousing, which holds its value. We had chosen to live in a VERY small house for 4 people (about 970 sf of usable space, 852 sf of legal GLA). Such houses normally hold their value, but aren't popular in this culture of big houses, great rooms, bonus rooms, and so forth. Our buyer was a neighbor and a newly single mother of two small children who wanted an affordable house in our top-10 school district.
Second, our house was in the bottom 10% of house values for our town. The appraiser said that small houses are doing VERY well against large houses right now, because wary buyers are price-conscious AND energy-conscious. A house that is under 1,000 sf costs considerably less to heat than a 2,500 sf house, of course.
Third, our geothermal/electric heat system was a huge plus. $110/month, year round, for all heat/hot water/air conditioning bills.
When we bought our house in 2004, so many people told us we were making a huge mistake for buying a "tiny" house. Now, the real estate appraiser and some real estate agents in the area told us that small houses are surging in popularity, holding value, and even the target of bidding wars!
For now, as we adjust to a (rented) house crammed with boxes and face the chore of unpacking, we're thankful we escaped the declining equity and housing crisis. We actually rode the ARM strategy well; our 3.85% 3-year ARM reset this past June, we paid 5.85% from June-December, and now we sold at a decent profit.
We had plenty of nailbiting these past 12 weeks as we waited for various hurdles to be vaulted in the process of selling and closing. At the same time, the low cost of our house, the reasonable energy bills, and the location meant that if we couldn't sell, we could rent the house and manage very well, and rent would readily cover our second-house expenses. I have a friend who owns a house in San Francisco who is in a very different position; transferred out of the state, she's carrying a $500-700 loss per month renting out her house, which she cannot sell. We consider ourselves fortunate.
I don't have a grand message in this diary--it's more a story of 1) small houses 2) an ARM risk that came through OK in part by NOT taing a mortgage on more than we could afford 3) the role of our geothermal system in perceived/real house value and 4) a rental strategy that we hope works for us, with a future home purchase on the horizon as we watch markets, and view properties in our narrow geographic area we desire.