“Ron, we need help! Our family is growing faster than our house.” We get calls like this all the time.
Eight years ago we helped Stephen and Anne purchase their first home. At the time it was the perfect starter home and in line with their budget. Fast forward a few years, add in kids and a work from home revolution, and a home that was more than big enough eight years ago is no longer. The first whammy of moving up is that a bigger house costs more.
In addition to wanting more space, Stephen and Anne also wanted a location that happened to be in a more expensive school district. This is the second whammy of moving up. Better school districts cost more.
Typically, if you stay in the same school district and just want more space, you can expect to spend about 50% more than the house you are selling.
If you just want a more expensive school district and are content with a house of the same size, that change also costs about 50% more.
But if you are increasing your space and moving into a more expensive school district, expect the house you are buying to be about double the price of the home you are selling. Satisfying both factors is a double whammy.
Anne and Stephen, as predicted, paid about double what their home sold for. However, they were lucky, as they made the move while interest rates were below 3.5%.
Fast forward two weeks when Brooke, another client, called us with similar wants – more space, and a better school district.
Brooke, like many homeowners over the past two years, had refinanced to a sub 3.5% interest rate. When Brooke called, the rates had just jumped to 4.5%.
So for Brooke to move up she bears an additional expense. She will need to finance her new loan at a higher rate than her existing mortgage.
This is Brooke’s triple whammy of moving up:
• 50% more for space
• 50% more for school district
• 13% more for the cost of money
What would you do? It comes down to affordability. If your income, cash reserves, or home equity increased then perhaps you can still comfortably make the move.
For Brooke and her cohorts of buyers, this is a new phenomenon. The double whammy has been around for decades. The triple whammy – buyers having to factor in the increased cost of money – is new. Interest rates are expected to get even higher. How this will impact the market is yet to be determined. Perhaps Brooke will keep us posted.
