House sold…now what?!

[Retireby45ish]

DW and I knew we wanted to move in about 1-2 years (max)…the family and situation we moved to this area for had changed so it was time to move on. But we also had bought in a pretty rural area where homes of our size and value (500k) can take a while to move. The previous owner took 3-4 years to sell it.

But along came the pandemic. And housing prices in our area have gone up as out of staters came along from cities looking for a more rural setting.

So we figured we would put it up for sale, 2 years after buying it, and see if we could get someone to pay our “stretch” figure, and make it worth our while to move our timetable ahead. We bought it for $550k (and I thought we may have overpaid a bit at the time, and so we asked $700k now). We tried this past summer (about 10-12 viewers) and had no takers so we took it down. But with inventories tight again now we figured we would try it again. And we got a full price offer on the first day. A nice problem to have, but yikes, now what?!

We will be able to stay in a temporary family place for a few months but then have some decisions to make (where to move to…what will the next chapter in life bring…)

But I guess my question (and fear) is that prices continue to go higher in the 9-12 months before we buy or build our next home. So where should I park all this cash in the meantime and hedge against an increase in home prices? Would buying some REITs be a good hedge against this? Perhaps homebuilder stocks? I know I should put it in cash but I already have a pretty big cash balance so I’m ok with a little variance if there is a better hedge. So thoughts would be appreciated!

Sidenote:
It all felt very easy to say “we will list it and see what happens…” but when someone pays the price you didn’t think you’d get it all becomes very real. Glad I didn’t listen to the realtor who advised us to list for $659k or so. Sheesh.

 

[W2R]

Of course what you do with the proceeds is up to you, but if it was me, I'd just keep it in cash.

Here's why: If I lost some in the next 9-12 months due to the appreciating market, well, that would be too bad. If necessary I'd get a mortgage (ugh! ) My thoughts are that a house is a long term purchase so chances are that in a decade or more it would appreciate enough to make any short term market fluctuations seem trivial. And who knows, you might stay in the new house for longer than that.

Again, it's your choice! There is no right or wrong answer to your question, IMO. Just thought I'd bounce my thoughts off of you, so you could see what your gut reaction is to that approach or if you feel more comfortable with some other approach to the problem.

 

[Bigdawg]

A nice problem to have, but yikes, now what?! -Now what? Only you two can answer that question.

So where should I park all this cash in the meantime and hedge against an increase in home prices? $ is fungible. Deploy THIS $ according to your AA. You might want to go a bit more conservative. Example: if you are currently 50/50 you might want to go 40/60 or even 30/70. THIS cash is no different from any other money you have in your NW.

Would buying some REITs be a good hedge against this? NO, see above

Perhaps homebuilder stocks? NO, see above

Seems you need to decide what you are doing. At least regarding where to live. We have literally plans A-F on where we will be living over the next 30 years. RE prices are not going up everywhere. I'm sure you have some idea of where you might want to go. Look for the trends in those areas. Building materials prices are going up all over if you are planning to build. There is no A+ answer on where to put your money for home price/build specific inflation protection. Good luck.

 

[Retireby45ish]

Of course what you do with the proceeds is up to you, but if it was me, I'd just keep it in cash.

Here's why: If I lost some in the next 9-12 months due to the appreciating market, well, that would be too bad. If necessary I'd get a mortgage (ugh! ) My thoughts are that a house is a long term purchase so chances are that in a decade or more it would appreciate enough to make any short term market fluctuations seem trivial. And who knows, you might stay in the new house for longer than that.

Again, it's your choice! There is no right or wrong answer to your question, IMO. Just thought I'd bounce my thoughts off of you, so you could see what your gut reaction is to that approach or if you feel more comfortable with some other approach to the problem.

Thanks for both your thoughts.

I guess it’s tough to paint a full picture of our financial background without writing a book. I already had about 20% of NW in cash before this. I’m working on deploying it now as we just came into some tied up cash. So I’m 40/40/20 now on the way to 50/50. I would hate be something like 30/30/40, since this is a ton of cash. I wouldn’t mind getting a mortgage since I only paid this one off last year because I knew I’d be getting better than if I invested in CDs and such. But over 30 years with rates so low a mortgage is probably the way forward. But I’d like to have the cash if they market is still so hot I need to make an all cash offer to compete.

But your point that in a decade any appreciation in the next year is pretty negligible in the long run is true. I hadn’t thought of that. But I’d hate to sell and see everything appreciate 10-12% in the next year all the same. But then again no one knows and maybe things come crashing back.

As far as a plan for where to live…we have a few geographic options we will explore in the coming months. We are hoping that lumber prices come back o reality.. at least if that happens that should alleviate this bubble since people will just build more new houses for all this demand.

 

[pb4uski]

Since all real estate is local, I'm not sure that it is possible to hedge against increases in real estate price in your area other than buying asap.

If REITs or homebuilders growth matched with home appreciation in your area it wouldjust be conicidental. But if you decide that you want to do that you might consider using at-the-money call options rather than buying the stock.... but I don't recommend that.

I'm struggling with that right now... I know of an area where home prices are going bonkers but can't think of any way to take advantage of it other than directly investing in properties in that area.

 

[jazz4cash]

Don’t buy stocks in the hope they will hedge against housing cost increases until you are ready to buy. Only buy stocks to rebalance your portfolio to whatever AA you are comfortable with (excluding home sale proceeds)

 

[Markola]

Don’t buy stocks in the hope they will hedge against housing cost increases until you are ready to buy. Only buy stocks to rebalance your portfolio to whatever AA you are comfortable with (excluding home sale proceeds)

+1. Stocks and REITS can fall unpredictably, of course, handing back the tidy profit you just made. If they rise, you need to factor in short and long term capital gains taxes. Investment books say to keep funds in cash that you’ll need to spend in 3 years. Congrats!

 

[JoeWras]

Blow that Dough!

Seriously, don't go REITs. I'd just go with a slightly more conservative split of your normal AA, just as has been mentioned above.

BTW, I think you did really good. I don't know the future, but my spidey sense feels that we are approaching some sort of housing high right now. Some markets are already cooling. Throw in higher mortgage rates (quite possible) and things will definitely cool. Of course, I know nothing.

 

[Aerides]

Personally I'd tighten up that 9-12 month timeframe, and start house hunting now. You mentioned in your earlier thread that the place you'll be staying is in the area you want to live?

I don't think there's anything else you can do to hedge, because RE can go much crazier up or down.

Since you pulled in the timeline to sell on a "what if" play, you should now do the same on your buy, if you are concerned that prices will continue to climb (and I would think that's the more likely scenario for the next 12-18 month at least).

 

[Retireby45ish]

Personally I'd tighten up that 9-12 month timeframe, and start house hunting now. You mentioned in your earlier thread that the place you'll be staying is in the area you want to live?

I don't think there's anything else you can do to hedge, because RE can go much crazier up or down.

Since you pulled in the timeline to sell on a "what if" play, you should now do the same on your buy, if you are concerned that prices will continue to climb (and I would think that's the more likely scenario for the next 12-18 month at least).

Thanks for the thoughts. Ok, so definitely No to REITs. Got it.

Yeah, ideally I’d buy in the area I wanted now, but we haven’t actually lived there (just vacationed) so we want to make sure it’s right for us.

Luckily, I can be patient when we arrive and check out the scene so that when someone good opens up I can jump on it right away and not miss out. Being local can help in the off season (though it seems that in certain markets the off season is just as insane).

Thanks everyone.

 

[Midpack]

Some experts say there’s going to be a recession worse than 2009, so you may have an opportunity to buy even lower. Of course experts can be wrong...

 

[JoeWras]

Yeah, ideally I’d buy in the area I wanted now, but we haven’t actually lived there (just vacationed) so we want to make sure it’s right for us.

Well done!

When I lived in FL, I had way too many neighbors who bought in vacation mode, not realizing the reality of living there. 3 neighbors on my cul-de-sac of 8 moved out within the year citing unexpected challenges of living in that area such as weather, traffic, demographics, etc. I only lasted 2 years, but not because I didn't like it, I got a job transfer.

You are wise to check it out ahead of time before rushing in to buy.

 

[meleana]

If it were me I would rent in the area you are thinking of living in and start looking for homes there at the same time. Keep the money safely in cash so you are ready to jump if necessary no matter where you eventually choose to live.

 

[thumbs]

If it were me I would rent in the area you are thinking of living in and start looking for homes there at the same time. Keep the money safely in cash so you are ready to jump if necessary no matter where you eventually choose to live.

I think this is sound advice. One you are settled, you may find a neighbourhood nearby that suits you better.

 

[Old Schwinn]

DW and I knew we wanted to move in about 1-2 years (max)…the family and situation we moved to this area for had changed so it was time to move on. But we also had bought in a pretty rural area where homes of our size and value (500k) can take a while to move. The previous owner took 3-4 years to sell it.

But along came the pandemic. And housing prices in our area have gone up as out of staters came along from cities looking for a more rural setting.

So we figured we would put it up for sale, 2 years after buying it, and see if we could get someone to pay our “stretch” figure, and make it worth our while to move our timetable ahead. We bought it for $550k (and I thought we may have overpaid a bit at the time, and so we asked $700k now). We tried this past summer (about 10-12 viewers) and had no takers so we took it down. But with inventories tight again now we figured we would try it again. And we got a full price offer on the first day. A nice problem to have, but yikes, now what?!

We will be able to stay in a temporary family place for a few months but then have some decisions to make (where to move to…what will the next chapter in life bring…)

But I guess my question (and fear) is that prices continue to go higher in the 9-12 months before we buy or build our next home. So where should I park all this cash in the meantime and hedge against an increase in home prices? Would buying some REITs be a good hedge against this? Perhaps homebuilder stocks? I know I should put it in cash but I already have a pretty big cash balance so I’m ok with a little variance if there is a better hedge. So thoughts would be appreciated!

Sidenote:
It all felt very easy to say “we will list it and see what happens…” but when someone pays the price you didn’t think you’d get it all becomes very real. Glad I didn’t listen to the realtor who advised us to list for $659k or so. Sheesh.

It sure seems like we are heading into a real estate bubble. Prices are up everywhere. Mortgage rates have nowhere to go but up, which will put downward pressure on home prices. We are in the same boat as we just sold our home. We found a nice rental home that costs the same as our recently sold home’s taxes, insurance, HOA, and upkeep. We are parking the proceeds of the home sale in cash for now. Agree that’s it’s frustrating not to get much return, but I’m taking the approach of one of my mentors who was fond of saying “don’t just do something, stand there!” We’ll figure it out once the dust settles from the home sale.

 

[candrew]

Interesting thread.

DW & I just sold our home in the Phoenix metro area. Escrow closes late next month. Housing demand, especially for homes priced <$500K, is high and inventory is low. It's a real sellers market here.

We are moving to Oaxaca City, MX where we have an apartment and expect that to be our home base for a while. Where to park the proceeds from our home's sale is the big question that we need to answer. We'd at least like those funds to keep pace with inflation.

 

[Green Papaya]

We sold our house earlier this year, kind of unexpectedly due to low rate of viewings in our area. We then moved into a smallish temporary family housing in the same area and put most belongings into storage. The plan is to buy a new house in HCOL area out of state for family reason, in maybe the next 6 months. Therefore we kept all house sale proceeds in cash for down payment. Selling old house before buying new one has been in our retirement plan, except for timing due to pandemic.

 

[W2R]

Some experts say there’s going to be a recession worse than 2009, so you may have an opportunity to buy even lower. Of course experts can be wrong...

Yes they can!

One problem with predictions like that, is that humans (including many experts, as well as others like me) tend to base their assessments of the housing market on poor assumptions. For example, with a new administration in office for only a few weeks here in the US, sometimes political biases may affect one's predictions for the future, making them overly optimistic or overly pessimistic. And then there are also uncertainties related to the pandemic.

While I enjoy reading such prophecies because they are interesting to me, I don't actually believe any of them.

 

[BarbWire]

Interesting thread.

DW & I just sold our home in the Phoenix metro area. Escrow closes late next month. Housing demand, especially for homes priced <$500K, is high and inventory is low. It's a real sellers market here.


Where to park the proceeds from our home's sale is the big question that we need to answer. We'd at least like those funds to keep pace with inflation.

Yep. I sold four years ago and put the money in cash, as I was testing various places and not sure of my purchase timeline. Until 2020 the dividends just about perfectly covered my rent, which I was happy with -- capital remained intact.


Of course, in 2020 that capital went from earning $1500/month to $4.82/month by the end of the year ...

 

[RetireeRobert]

Keeping your home sale proceeds in cash, or readily convertible to cash, means you can make a strong purchase offer on a new home. From what I read, and from knowledge of my own area, this is the most extreme seller's market nationwide, perhaps ever. Pandemic has shut down supply, but historic low interest rates have kept demand high. Inventory of homes for sale is one month or "less". Any home coming on market goes within a few days, often with multiple offers and bidding war. Meaning, if you can be an all cash buyer, not needing to go the mortgage route, you can successfully compete for homes against most other buyers. But you have to be on your toes and be there as soon as a home is listed.

 

[cyber888]

Buy a Lambo and a Ferarri ! Ha .. ok, a joke. But seriously ...

It's true, houses all over are appreciating pretty fast, you may want to start looking around in an area where you want to live.

You need to create a list of criteria where you want to stay for the next 10 years and create this criteria with the spouse. What were you looking for that made you want to sell your current house. And then start looking. If there's a bargain, go for it.

Just be wary for certain States. I read that in California, a cash buyer was not able to move into their home for 1 year, because the seller wanted to stay after the buyer paid - and he could not be evicted due the eviction moratorium from the pandemic.

 

[MRG]

The housing market here is insane. I received a flyer from another local realtor yesterday offering incentives to list with them. Using a real estate application the inventory in the area is five homes that are way overpriced and a dozen that start over a million.

We bought 5 years ago for 370k, supposedly we can get 550k but where would we go? A neighbors house that didn't sell for for 600k a couple years ago was just listed at 840k.
My memory says there's been 6 homes in our neighborhood that have sold in the past year, none were on the market over a month.

 

[cyber888]

What State is this ? California ?

The housing market here is insane. I received a flyer from another local realtor yesterday offering incentives to list with them. Using a real estate application the inventory in the area is five homes that are way overpriced and a dozen that start over a million.

We bought 5 years ago for 370k, supposedly we can get 550k but where would we go? A neighbors house that didn't sell for for 600k a couple years ago was just listed at 840k.
My memory says there's been 6 homes in our neighborhood that have sold in the past year, none were on the market over a month.

 

[MRG]

What State is this ? California ?

Colorado 4 corners area. According to a local realtor folks are moving here from California, some from AZ after being pushed out of their markets.

 

[cyber888]

Colorado 4 corners area. According to a local realtor folks are moving here from California, some from AZ after being pushed out of their markets.

Oh man, yeah, Colorado real estate is crazy. Million dollar homes. Still wondering who can afford those 50 million - 150 million homes in Aspen