Feb. 3, 2009 - Movin' On Up
Movin' On Up In A Down Market
Starter-Home Owners Find They Have Something To Sell, Which Gives Them Something To Buy
February 2, 2009)
Katy and Bob Fressola work with their daughter, Lauren, 2, on the dining room table of their home in West Hartford, Connecticut. The Fressolas moved from a smaller house in West Hartford to this larger, 2700 sq. ft. house last July.
Bob and Katy Fressola were fairly confident they'd sell their starter house in West Hartford; they just weren't sure when — or for what price.
Their offer on a four-bedroom Colonial in West Hartford that met their budget and space needs had been accepted before they listed their own home. Their real estate agent had advised them to shop first, saying the market was strong in town for three-bedroom, 1 1/2 bath Colonials like theirs, despite the declining real estate market.
"I think we both realized that this is the time that we want to move. You can't really control what the market is going to do," Bob Fressola says. "Over time, we'll be fine."
After watching the real estate market closely for about nine months and passively looking, they decided last April that it was time to move. They found a house that met their criteria within three weeks.
They had an accurate assessment of their starter home's value based on the recent sales of their neighbors' houses, Katy Fressola says.
They listed their house for $279,000 and had a signed contract a month later for $265,000 — about $80,000 more than they had paid for it six years earlier. Sure, they would have liked to have gotten more, given the work they put into it, they say. But they are comfortable with that price.
"You don't want to have two mortgages," Katy Fressola says. Nor do you want to hold out for more money and worry about selling your house at all, her husband adds.
In Their Favor
Several factors are working in favor of homeowners who feel they've outgrown their starter house and are wondering whether they should buy a larger house in a declining market, experts say.
First, the biggest pool of buyers is for starter homes. So if you've got something to sell that a lot of people want and you're trying to buy something with less competition, you stand to at least be in a good position at both ends of the transaction.
"If you're trading up, there's more demand for what you're selling than there is for the houses you're buying, which is good," says real estate lawyer Michael Amrein of the Law Office of Maria L. Hampton in Canton. "You don't have as much difficulty selling a $180,000 or $200,000 home or condo; those are still selling pretty well."
Second, interest rates on 30-year fixed-rate mortgages are the lowest they've been in four years, says Dale H. Ruth, a mortgage broker with Norcom Mortgage in Avon. People with excellent credit — FICA scores of 720 or higher — can get 4.75 percent interest mortgages with no points. Those with scores as low as 580 who meet stringent guidelines can qualify for similar rates with an FHA mortgage.
"FHA is as aggressively priced as conventional financing, and it's kinder," Ruth says. In Hartford County, borrowers have to put down at least 3.5 percent toward the purchase price and the mortgage can't exceed $320,850. (Other limits are: Litchfield County, $357,650; New Haven, $305,900; New London, $280,000.)
And third, while some starter homes may have lost value, they generally have not lost as much value as the mid-priced and upper end homes. The largest pool of buyers is for starter homes and the pool shrinks as the price of homes gets higher. So even if you have to sell your home at a break-even price, you may still end up in a stronger financial position seven years hence because you're able to buy a move-up home for less than it would have cost several years ago, real estate agents say.
As long as you plan to stay in the home for at least five years and you feel fairly confident about your job, says agent Bing Lantz, you can expect any temporary drop in value to recover over time.
"Don't overspend. Be cautious. Be sure the house fits your needs and will fit your needs for at least five years," says Lantz, with ReMax Premier in West Hartford. "After that, unless the entire world's economy falls totally apart, within five years all of us will be in a better position."
Collecting Rent
While everything worked according to plan for Bob and Katy Fressola, not all homeowners are as lucky.
Erik and Jess Perotti planned to sell their two-bedroom, one-bath Farmington condo before buying their three-bedroom, three-bath antique Colonial in New Hartford. But they couldn't get at least $130,000, the price they wanted, so they decided to become landlords instead. The rent they'll collect will cover their mortgage and condo fees.
It's not what they would have chosen, Erik Perotti says, but when they found a house in their $300,000 price range that met their needs, they didn't want to give it up.
"It was almost completely renovated. I couldn't believe it," Perotti says. When they had looked at the 2,000-square-foot house for a couple of minutes, their eyes met and both knew this was the home they wanted.
"It had only been on the market for 10 days. It almost seemed like the house was undervalued," he says. They offered the asking price because they didn't want to lose the house to someone else.
What they found in their search, contrary to what they expected, was that asking prices had not dropped that much in the towns where they were looking — New Hartford, Burlington and Harwinton — and there wasn't much available that fit their criteria.
And while the two teachers love their house, which they moved into last month, the newlyweds still have concerns, given the economy and the market.
"I think, 'Did I jump the gun too quickly? Did I pay too much? Should I have waited?'" Perotti says. They had not really planned to officially start looking until the spring, when they thought prices would be lower.
But ultimately, he says, since he and his wife expect to stay put for a while, they're happy with their decision. "My thinking was, either way, with this house that we found, we got a pretty good deal."
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