The Coming Real Estate Switcheroo

There’s little doubt that home prices are rising nationwide, but the government says we are still 11.2 percent below the values seen in April 2007.

Rising home prices also mean that many if-not-most owners now have more equity and some who were underwater can now sell without a short sale. The Federal Reserve says home equity grew by $784 billion just in the first quarter.

These rising numbers open a new window of opportunity for large numbers of homeowners: The ability to sell and take cash from closing is here today for many owners, especially for those who live in high-cost areas. For instance, home values in San Francisco and the Washington, DC metro area soared during the past year.

Curiously, rising home values in high-cost areas may be good news for hard-hit foreclosure centers. The reason is that long-term owners — say those who bought ten or more years ago — are increasingly-flush with equity.

Imagine this scenario: A home was bought in 2000 for $300,000. The value rose until 2007 and then collapsed. Today the property is worth $500,000 — not as much as 2007 but enough to yield substantial cash at closing between the price increase and loan amortization.

What to do with that money, money which is likely to be tax-free? Move to a low-cost area, buy a home for cash and have no mortgage. Move to Florida, Nevada or Texas and have no state income tax.

Moving to a less-expensive property may not mean moving to a smaller home. Indeed, residents of high-cost areas may be shocked at the values available in other sections of the country.

Hmm. No mortgage, a nice house and no state income tax. That doesn’t sound bad.

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