The idea of not selling ones current home for the purpose of moving to another of equal or greater value because of today's market conditions is a bankrupt one.
Realtors continue to hear their friends and clients say, "I can't move now. If I were to sell my home in this market, I'd lose a fortune." And I suppose most Realtors believe the same thing, or are unable to prove to their friends and clients that the statement is not empirically true.
You see, for it to be true, the seller would have to be selling a home in a depressed market area in order to buy one in an area that is not depressed. We'll call that a reverse arbitrage.
There is an investment procedure that is called arbitrage. The idea is that the investor takes advantage of a specific but temporary oddity in the market. For an example, let's say an owner of 100 shares of Widget stock would sell you his shares for $1.00 each. And let's say that you knew someone who wanted to buy 100 shares of Widget in Canada and would pay $2.00 each. Buying the 100 shares for $1.00 and immediately selling them for $2.00 would be an arbitrage transaction.
There are actually professional investors who specialize in arbitrage, and they are called arbitrageurs.
So in my home sale example, reverse arbitrage would be selling your home in a specifically depressed market area to buy one in a non-depressed market area. You would sustain a loss.
But that's not typically what will happen in today's economy. If home prices have decreased by 15% in Dallas, selling yours at a price that's 15% lower than it would have brought two years ago, and then buying another of equal or greater value in that same marketplace would probably mean that it had experienced a similar decrease in value. Consequently, there is no arbitrage. This is trading apples for apples.
By using a watchful eye and adding to it the solving of a simple math problem to your desire to change homes, there is no reason for someone who wants to sell their existing home and buy one of equal or greater value to postpone the transaction.
If you're in the Dallas market and need help with this analysis, call me. If you are elsewhere, your Realtor will help you determine whether or not your buy-sell would result in a reverse arbitrage.
Copyright 2010 - William S. Cherry
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BILL CHERRY, REALTORS
DALLAS - PARK CITIES
Our 45th Year
214 503-8563
Exactly right Bill! I've written about this situation a few times myself but I had no idea it had an official name - "arbitrage". Thanks for helping put the word out there!
Brian.
Brian, thanks for your note. Read up on arbitrage. It is a fascinating investment strategy that has made many specialists very wealthy. Hope things are going well for you and Marie in Frisco!
Hi Bill... very well stated and presented. In fact, for buyers who are moving up this is an excellent opportunity since home prices generally rise or fall by percentages, not hard amounts, so the savings on the purchase of a more expensive home whose value dropped by the same percentage as the less expensive one that someone is selling will be greater!
My friend, Steve Shatsky is precisely correct. And it's probably a mystery to him as it is to me why so many are not using this to their advantage.