Market Timing: Sell or Rent?

Perils of Waiting for the Market to Come Back

People assume when [the sale market] slows down, rental will pick up, but that depends . . . When you’re losing jobs, the rental market is also going to suffer.

–“A Month Free? Rents are Falling Fast“; The New York Times (1/30/2009)

Although the story focuses on rapidly falling rents in still-expensive Manhattan, it could easily be a cautionary tale for home sellers anywhere in the country. Just as it is difficult to tell when housing prices are close to a peak, it’s also difficult to tell when they’ve bottomed.

More than one would-be Seller locally noted weakening prices the last two years and decided to pass until conditions improved. They either stayed put, if their circumstances allowed, or found a renter, if their circumstances didn’t.

Fast forward one year (or two). On average, Twin Cities home prices are now about 15% lower than a year ago. A recession is gaining momentum, and with, it job losses are accelerating. Neither development is a particularly good omen for home — or rental — prices.

Hindsight is 20-20, but in retrospect someone who decided to rent a year ago rather than sell is decidedly worse off now. Assuming that they owned a $300,000 house and were able to rent it for $1,500 a month, they would have collected $18,000 in rent — and lost almost $50,000 in market value.

Of course, in the interim they would also have had to pay property taxes and home insurance, arranged for property management, and accepted the typical wear-and-tear associated with renting.

So where does the market go from here?

I don’t know — and neither does anyone else. But anyone convinced that they’re better off waiting to sell should double-check their assumptions.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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