A home’s equity is sometimes subjective

Castles in the Sand

Are you familiar with the expression, “The happiest days of a boat owner’s life are the day he buys the boat and the day he sells it”? It’s not unlike homeownership. The happiest day is the day you walk into your new home deed in hand and the worst day is the one when your real estate broker tells you it’s not worth what you thought.

Last week we talked about the national real estate market cooling off in terms of the number of sales and selling price. We also are beginning to see some signs of this on Anna Maria Island with an overall leveling off of our recent outstanding market. It’s not necessarily a bad thing in a go-go market to take a pause and attract new buyers into the circle, but first homeowners need to readjust their expectations.

Freddie Mac’s chief economist coined the phrase mental recession, not a real recession only the perception of a recession. The danger of the mental recession is that it challenges your mental equity.

We all know that the definition of equity is the difference between the value of the asset (your home) and the value of the liability (your mortgage). Even though you won’t find mental equity in Webster’s Dictionary, all real estate professionals know exactly what it means. Essentially, it’s the value of a property in the homeowner’s mind and only in his mind. Whereas, the actual value of the property is based on comparable sales, location and the climate of the real estate market at the time. Frequently, these two values can be light years apart. Get the picture?

The point I’m trying to make is that real estate markets are dynamic. They’re always in flux, and buyers and especially sellers need to understand that last year’s values may not be this year’s values. Don’t get too comfortable with the mental equity because it can change in a heartbeat for both good and bad.

If you’re a buyer, Valentine’s Day was last week. Don’t fall in love based on previous sales until you’re sure the market will hold. If you’re a seller, turn the reality check button on in your brain and don’t turn down any offers no matter what your brain is telling you. Mental equity is not your friend; don’t get too cozy with it.

All of that said, we are just starting the busy selling season, which continues until about April or May when visitors and potential new residents feel comfortable enough to make an offer on available properties. And based on recent census numbers, there should be plenty of them. As previously stated, Florida’s population increased by 322,000 residents last year alone and is the second fastest growing state in the country.

However, some of those wanting to relocate to Florida could be faced with a slowing market where they’re coming from, particularly big city areas in the Northeast and Midwest who will be most affected by 2018’s change in federal tax deduction.

Everyone needs to keep their options open and flexible. Don’t allow your mental equity to make you mental and make sure that your first day of homeownership is indeed one of the happiest days of your life.

More Castles in the Sand:

Why is the housing market declining?

Selling your home – it should show like a model

Sunshine State population growth