Should I Sell My House Now While Prices Are Down?

Dear Carrie,

I need to move for a new job in a new city, but I hate having to sell my house in a depressed market. How can I decide if I should sell now or rent it out for a while, hoping that prices will recover?

--A Reader

Dear Reader,

This is such an interesting and timely question. I can only imagine that millions of potential homeowners are facing the same quandary.

Unfortunately, though, while it's true that real estate values across the country have dropped from their recent highs, no one knows for sure if prices will continue to decline—or when they will start to recover. Values do tend to go up over the long term, but it's next to impossible to accurately predict the timing. Recent declines are largely due to rising mortgage rates. But bottom line, real estate is both unpredictable and cyclical—and as your situation clearly demonstrates, those cycles don't follow the same patterns as your life.

Complicating things more, owning a home is not only a financial matter, but also impacts your emotional well-being. Of course, the dollars and cents are crucial, but so are your quality-of-life issues.

For all of these reasons, I never recommend thinking of your primary residence purely as an investment, and most certainly not as a short-term investment. Situations like yours never come down to a prescriptive 'do this' or 'do that' answer. All you can do is make an informed and thoughtful personal decision, paying attention to both your wallet and the issues that impact your quality of life. Let's take a look at some of these factors—as well as a process for helping you decide.

Look at the big picture

There are several things to keep in mind as you start to sort out your options. First, if you sell your current home and also buy a house in your new city, you're potentially on both sides of a depressed market. The reduced price for a new home can offset a lower sales price for your old home. Also take into consideration the comparison of prices in your current city to prices in your new city. Clearly, it's more challenging to move to a more expensive area.

Also ask yourself how confident you are that you will live in the new city long-term. If you're moving on more of a trial basis, hanging on to your old home for a while could make a lot of sense. On the other hand, if you're absolutely committed to your new location and plan to be there for at least several years, that could tip the scales towards a sale. (And then you have to decide if you want to rent or buy in your new location.)

If you're tempted to hold off on a sale and rent your current home, carefully consider the responsibilities and potential liabilities of being a landlord. What if your tenant doesn't pay the rent on time? Or damages the property? Plus, dealing with plumbing and other maintenance issues can be challenging (especially long distance) unless you hire (and pay for) a property manager.

Think about capital gains

Another consideration is your capital gains tax liability if and when you sell your home. If your home has appreciated in value, perhaps the only benefit of a lower sales price is the potential for a lower capital gains tax bill. Also, if you've owned your current home for at least two years and have lived in it for at least two of the last five years, you can deduct $250,000 (or $500,000 if you're married and filing jointly) from the profit you make above your cost basis, which is the price you paid for the home plus the cost of improvements, minus casualty losses or other authorized reductions. That capital gains deduction may disappear if you don't live in the home for two of the five years prior to selling (though the IRS may allow you to take a partial exclusion for a job relocation if you qualify).

Do your research

If you're still undecided, it's time to get more specific, looking at both sales and rental prices in your particular markets. You can start the process by checking online listings, but I also recommend that you consult with real estate professionals who are familiar with local trends and neighborhoods in both cities. Pay close attention to neighborhoods—thinking about convenience, safety, schools, and any other factors that are important to you. In some locations, prices vary widely depending on these specifics.

Run what-if scenarios

Now that you have some realistic numbers, you can refine your analysis even more. Using different price points for both sale/purchase and rentals, run some scenarios. Clearly, there are several possibilities at play: you could hold on to your current home and rent in your new location. Or you could sell your current home and either rent or buy in your new location. What combination of sale, purchase, and rent prices do you need for the numbers to work for you?

Think about your lifestyle

Some people thrive as homeowners. They're happiest and most secure when they live in their own home and have more control over their environment. If this sounds like you, and you have the resources to sell your old home and buy a new one, that may well be the best decision. On the other hand, it's never good to be 'house poor,' so make sure your new mortgage and other ongoing expenses are sustainable.

Proceed with confidence and optimism

There's a saying 'our eyes are on the front of our head for a reason.' You're facing a big decision for sure, but once you've made up your mind, don't look back or second-guess yourself. It's never realistic to expect to sell a home (or anything, for that matter) at the absolute top or buy at an absolute low. The best you can do is make a decision based on your life circumstances and the facts at hand. Best of luck!

Have a personal finance question? Leave it in the comments. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.

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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. 

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.