Buying Up, in a Down Market

Are you under the impression that this is a bad time to sell your home because home prices have gone down? That may be true IF you are going to sell your home WITHOUT buying another home. The fact is that most homeowners sell their current home to buy another home. And most sellers "buy up," meaning that their new home is nicer and more expensive than their previous home. Statistically, the new home is usually about 1.5 times the value of the home they sell. So "buying up in a down market" refers to the opportunity for homeowners to take advantage of current market conditions to buy a more expensive home than they might otherwise be able to afford.

Consider this example:
The Smiths own a home that appraised in 2006 for $300,000. To keep the math simple, let's say that homes in their area lost 10% of their value in the past two years. This means that their home is now worth $270,000.
($300,000 - $30,000 = $270,000)

The home they want to buy appraised for $450,000 two years ago. It too, declined in value by 10%, so that home is now selling for $405,000.
($450,000 - $45,000 = $405,000)

Accordingly, although they received $30,000 less for their home than they might have at the peak of the market, they are paying $45,000 less for their new home, for a difference of $15,000 in their favor.

Think it's a bad time to sell? Think again.