The home that you are now selling for 500k today needs the same qualified buyers with the same DTI, credit score, and income level that would have bought an 800k home one year ago.
A $2,661 a month mortgage payment today at 7% is the equivalent of a mortgage payment a year ago for a home worth 800k at 2.86%. You are not selling to the same pool of buyer that was looking for a 500k home last year. This new pool is much smaller and many have already bought (Homes over 700k sold in 2021 at over 2x the historical average). They also expect a home that looks like a 750k to 850k home.
The homebuyer pool that bought 500k homes that looked like 500k homes last year now can only make the payments for a 300k to 350k home at 7% and they expect the mid-300k home to look like a 500k home.
There is a disconnect, expectations and segments don’t match up. Home sellers are marketing to a much higher homebuyer segment but offering homes with a lower perceived value and homebuyers that could have bought at that price last year, with matching expectations, are now in a lower segment between 300k to 350k.
You are effectively selling a home 100k more for the right segment that has the right expectation for that price range but marketing it to a homebuyer segment that has expectations of a home that looks 200k+ bigger and nicer. It’s a tug of war between buyers and sellers so little lower price movement so far.
So if you don’t want to sell at a much lower price then just wait until the Fed pivots and lowers rates, so those homebuyers with 300k to 400k purchasing power today come back up to 500k or sell now close to 500k and try to entice a buyer that could have bought a 700k-800k last year but has to settle for a 500k one today.
But if the Fed doesn’t pivot anytime soon, sooner or later the expectation gap is going to widen and the banks/appraiser are going to be the ones that will have the last say! The banks will simply say the home is worth 400k or 350k and that’s it. Buyers won’t decide but neither will sellers.
That is because there will always be others that will be forced to sell (death, divorce, foreclosure, 2nd divorce, illness, bankruptcy, and the list of reasons to sell goes on) and bring their price down closer to 400k. They are forced to sell at whatever current market price as prices fall. When they sell lower, they will bring your home value with it. Your home’s value is whatever the last 3 similar houses sold for in your area in the last 90 days and you will watch that value fall almost live on Zillow and Redfin with their estimates.
You never were in control of prices. The Fed was. The only question to ask is “can I outlast the Fed and how long will that be?”. If you can wait 1-3 years if the recession is not bad (if is then tack on a few more for prices to recover), then you are fine. If not, then maybe try and take that equity out now and run!