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Should I Sell My House?

Contributor:
Mary Holm
Mary Holm

Question:

My house is my biggest investment and it is my lifelong saving. [Reserve Bank governor] Alan Bollard has said that house prices may fall 13 per cent. Would I be better off renting a house than owning one? Should I cash out and keep the cash in banks and invest in Aussie dollars?

Answer:

Mary Holm: This is a question many are, no doubt, asking. But the answer isn't simple.

Clearly, renters are in a strong position these days. If you were already renting and could afford to buy, I would suggest you either wait a while or make low offers on houses. But is it a good idea to turn yourself into a renter?

For some people, clearly yes. If you have a large mortgage and are struggling to meet payments - or would struggle if you lost your job - consider selling now.

One of the basic rules of investment is: never get into a position in which you are forced to sell. You will often end up accepting a horribly low price.

If you foresee possible trouble ahead - particularly if your mortgage is close to the total value of your house - it's better to get it on the market before you are desperate, so you can hold out for a reasonable price.

But that doesn't sound like you. If you can cope with your housing costs but would like to optimise your situation, you need to weigh up some pros and cons.

I'm guessing that you, like most people, would like the security of owning your home in retirement.

Whether you would be better off financially selling your house and investing elsewhere in the meantime depends on:

  • The costs of selling your house and later buying another one - real estate commission, legal costs and moving expenses. You can probably estimate that.
  • How far house prices fall. Forecasts are all over the place. Some still say prices might dip only a little or even just plateau for years.
  • What return you make when you invest the proceeds from selling your house. If you invest in Aussie dollars, or any other foreign currency, the results are anyone's guess.
  • How much more cheaply you can live as a renter. You could estimate that now, but what about a few years down the track? Current rents are really low relative to house prices, but market forces are already changing that, with rents rising and house prices falling.

You might face stiff rent increases later on.

There are a lot of question marks. I'm not saying your plan wouldn't pay off well. With our current knowledge, it looks as if it might. But if there's one thing we've learnt - all over again - from recent economic developments, it's how wrong forecasts can be.

Like so many of these situations, then, it comes down to non-financial issues. Do you fancy a change of scene and a period with no worries about maintenance? Or do you love your home and garden? Would having your house on the market, perhaps for months, bother you? Would moving be a hassle or an adventure? I suggest you decide based on those factors.

If you do sell up and rent, where you should invest the sale proceeds depends on how long you expect to tie up the money. If you think you might buy another house in less than 10 years, I would invest fairly conservatively - perhaps in high-quality corporate bonds or a bond fund. When you get within, say, three years of buying again, bank term deposits are good.

I wouldn't recommend taking on foreign exchange risk. A big fall in the kiwi dollar has been predicted for years, and it hasn't happened.

Foreign exchange movements are notoriously hard to forecast. And it can be costly to get it wrong.

This is your "house" you are investing. Play safe with it.


One further point about being forced to sell, which doesn't apply to our correspondent but may to others in the current environment. People who buy a house unconditionally before they sell their old house - particularly in a slow housing market - can end up desperately accepting a pathetically low offer for the old house. If you buy before selling, make your purchase conditional on getting a certain price for your old house.

 

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.    

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