By Aarthi Swaminathan
‘We don’t want to lose the equity we built up on our current home, which we think could come in useful’
Dear MarketWatch,
We bought a home in the Bay Area before our first child was born, in 2015. It was a four-bedroom home in a quiet neighborhood. At the time, it was more than enough for us, since it was an easy commute to work.
Since then, we’ve welcomed two additions to the family, and things have changed. We need more space with two kids, and with the first one almost ready to start kindergarten, we also want to move to a nicer neighborhood with a better school district.
But the problem is we’re stuck. We’ve been touring open houses and been browsing real-estate brokerage sites, but bigger homes are very far away from our offices, and homes with better schools are significantly more expensive.
We don’t want to lose the equity we built up on our current home, which we think could come in useful, so we’re opposed to selling. Our current home is valued at $1.5 million. We are considering renting the home, but our real-estate agent said that we’d have a hard time finding tenants.
What are our options? What do you recommend?
Lost
‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at TheBigMove@marketwatch.com
Dear Lost,
It’s quite remarkable how closely housing is tied to education. Where you live largely affects where you go to school. And that has profound implications for one’s future — from future earnings to community ties, and so on. Many parents like you end up making sacrifices on this exact issue as they want their kids to go to good schools, have good opportunities, and a good foundation for their future.
Your desire to move is common, but what is not common is the housing market you’ll face when you buy. With unusually low supply of homes due to people rushing to buy homes during the pandemic, you’re left with the few homes that people are selling.
So finding tenants and renting the home is indeed your best bet. That helps you with your monthly mortgage payments and will let you keep the home as it appreciates over time. But the reason why your broker isn’t confident of this plan is because you’re not the only one trying to pull this off. Many homeowners are choosing to rent versus sell, trying to hold on to homes that they bought during the pandemic, and that’s pushed down the number of home listings available, according to John Burns Research & Consulting.
You have a few other options, however, given your need for space and a better school district.
One, you could pull some equity on your current home to boost your budget. While that comes with risks — including the fact that home values could change over the next few years, and also due to the fact that you’re putting your home on the line — it could help you put down more money on your second home, which could lower your second mortgage rate (if you are financing the purchase with a mortgage). But this may not be an attractive option, since rates are pretty high.
Two, you could wait. Patience may pay off, if rates come down. In that time, you can also continue to hunt for homes, and work with your real-estate agent to identify through their networks if certain homeowners are close to listing. Maybe your agent who is very familiar with the local market has some methods that could help you find a hard-to-come-by home that isn’t as expensive, or even one that hasn’t hit the market yet.
And three, if you are pressed to move fast, you could just bite the bullet and sell. I know it’s hard to give up the equity you’ve built on a million-dollar home, but that home has done its work for you by appreciating considerably over the years, and it’s allowing you to move up to a bigger and more expensive one. Selling will help you free up your equity and you are free to move to whichever school district is the best for your kid (provided you are able to buy there).
Your concern over buying a more expensive home when the housing market is out of whack is understandable. It may be worth talking to your agent about the dynamics of your local market, and to see what your strategy should be.
But based on my conversations with homeowners living in the Bay Area in recent weeks, most of them said they had more or less felt overwhelmed and concerned when they first moved up and bought a more expensive home. In the longer run, they ended up securing better, higher-paying jobs, so the payments became far more manageable over time. And a home that’s potentially doubled in value over that period.
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-Aarthi Swaminathan
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09-19-23 1256ET
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