It's the perennial question. Every potential home seller agonizes over whether or not now is the time to sell because invariably they are looking at realizing a loss on their home. As I've addressed before there is a lot of irrational economic thinking that goes into this decision that causes people to delay getting on with their lives.
However, in addition to getting your logic straightened out you also have to consider the outlook for home prices over the next few years. Most of the sellers who have postponed their home sales are hoping that prices are going to come bouncing back any day now. Unfortunately, the likelihood of a strong recovery in home prices is rapidly fading with the deteriorating global economic situation.
One indicator of the outlook for home prices is MacroMarkets' quarterly survey of 111 economists. They just released their latest survey a couple of days ago and their forecast has deteriorated from the last one that I saw. Over the next 5 years the consensus forecast is for only 1.1% average annual home price appreciation. As they also point out that is in sharp contrast to:
- The 3.6% average annual home price increases before the bubble
- The 10.4% average increases during the bubble
- The 7.1% average decreases since the bubble burst
Of course, I wonder how many of these economists saw the housing crash coming. But if they are correct then even waiting 5 more years to sell an underwater home is not going to make much difference.