What happens when the house down the street suddenly sells for over $1 million dollars?! (And all the other very nice homes on the street were purchased for $550,000 or less within the past 10 years or so, maybe $700k for a couple of more recent sales?)
A couple of possible answers with explanation:
Real estate in desirable areas is still white hot. And while areas in the US northeast, California, and Florida (among other high-priced areas for homes) commonly see homes priced in the $3 million to $5 million+ range, homes nationally sell for an average of much less. Depending on which source or what inputs (new or existing, list price, sales price, or market price, etc.) the average home sale price in the US is between $391,000 and $507,000*. Therefore, in most neighborhoods when a home suddenly sells for $1.1 million (or $2.1 million) dollars it is consequential for the local market, especially the neighbors!
Here’s where thoughts on the psychology of money and emotions surrounding personal finance come in.
- First, houses are likely among the largest dollar value purchases most people will ever make, including second homes. Note: remodeling, decorating, furnishing, and landscaping a house and yard are costs not taken into consideration nearly enough in the total home cost calculation.
- Homes are points of pride and comfort – among lots of positive emotional factors – with financial values attached as well.
- Emotions run wild in the search, offering, and closing of a home. Heartbreak and elation can be a rollercoaster and are common.
- Emotions (and costs) also run wild in the ownership of a home.
- Social media has made searching for, designing and decorating homes larger than life, as much or more than planning a wedding. (Think: Pinterest.) Making a list of priorities helps in not getting out of control when looking for and owning a home.
So, what happens in the minds of intelligent, resourceful people upon realizing the biggest asset they own can be turned into a whole lot of money? This could mean selling the home – possibly your home – and fetching something in the neighborhood of $900,000 to $2 million+ dollars and walking away with hundreds of thousands or more dollars? COOL, yes?!
Yes, definitely worth thinking about…. until a handful of factors, both emotional and financial, are also considered, including:
- A home is the roof over your head. There is a HUGE, unseen, and unfelt value to the roof over one’s head. Simple but serious concept.
- Moving is expensive – and may be inevitable in the future. So why move more often than necessary?
- Home equity builds over time and can be useful (and also dangerously tempting to spend in risky ways). Use home equity carefully and wisely. Selling a home too soon starts the next “debt vs. home equity clock” all over again.
There may come plenty of opportunity to cash out in a hot real estate market as a result of the move of millennials to the suburbs (whereas they used to prefer city living and shorter work commutes) and downsizing by empty nesters. The well thought-out and patient (perhaps years in the future) move, versus the rash “flip” move could be one of the best financial decisions for a person’s or family’s life.
*According to latest data from fool.com, rockethomes.com, mappr.co, worldpopulationreview.com, Federal Reserve Market Data.