Home owners need to understand the rapidly increasing house prices in our city are also affecting the property they already own. Most home owners seem to stop short of admitting their home is now worth $100,000+ more than it was a year ago … despite the selling prices of recent comparable sales in their own neighbourhoods!! The bottom line is, whether the market increases by 5%, 10%, 20% or even 50%, the increases are relative to all properties!
The final numbers are all relative. Consider it like this … a home owner was considering to upgrade into a larger home just prior to a market price surge. The home owner anticipated a small increase in their mortgage to do this upgrade. Their current home was worth $250,000 and the home they were considering was worth $300,000. The increased mortgage amount was $50,000.
Suddenly the market sees a value increase like we did in the first half of 2006 and now the $300,000 home is worth $450,000! The homeowner considering the upgrade panics at the thought of increasing their mortgage by $200,000! But wait … what about the home owner’s original property? How was it affected by the market surge? On average a home worth $250,000 last year, is currently worth about $375,000 today. That translates into $125,000 worth of instant equity to the home owner!
Crunch the numbers and you will find the original plan to sell the home they already own and purchase the one they originally were considering, actually only increases the necessary mortgage by $25,000 from the original plan. When the numbers are compared, relative to each other, a home owner who originally could not foresee themselves purchasing a $450,000 home can realize that due to the increased value of their own property, the home is still within their purchasing power!
So if you have been considering a move up, do not be discouraged by the high home prices! Be sure to consider your equity and savings closely and know that you can use them both towards the new purchase.