Home Sweet Home Churning’s Nightmare

One of the myths is that a home is an investment that can easily be churned at a profit. If you upgrade to a bigger, badder digs with the usual bigger mortgage, higher taxes & skyrocketing cost of keeping up with the new Joneses?

Of course, downsizing scenarios, e.g., upon retirement, is a whole different ball game. Yet, The WSJ recently called out the more typical younger & bolder in its “You Made a Nice Profit Selling Your House? Beware What Happens Next.” According to a study, the editors note, “There’s a good chance you’ll overpay for your next one.” THAT can be putting it mildly. Not only will the next home in today’s super-heated real estate market’s bidding wars going to likely drive up the cost of the new home, but rising mortgage interest rates (after giving up that lower one) can give sticker shock a new meaning.

But, did we need another “study” to tell us this obvious slice of life lesson? Still, here we’re told: “A [UCLA] study on housing wealth & overpayment found that on a $400K home purchase, buyers with equity from the sale of their previous home tended to overpay on average by about $8K or 2%. For every dollar of equity gain that a seller receives, he or she overpays by 7.9 cents on the next home.” Not sure what $400K home the researchers are talking about; thought even a squatter’s tent costs $400K on the West Coast. But, whatever. Think of the overpayment dynamic when the next home is bought in the $800K to $1M range. You get the picture.

Davd Soul