In days gone by (2002, 2003, 2004, 2005) you could buy a home in Harrisonburg or Rockingham County and sell it two years later for a tidy profit.  Home values were escalating so rapidly that you no longer had to consider how long you would be in the home before needing to sell it.  Today's recent home buyers, however, find themselves in a significantly different scenario.

The graph below shows the progress made over time in paying down the principal balance of a 30-year mortgage of $225,000 at 5.5%.



As you can see, the majority of the principal is paid off in the tail end of the mortgage life cycle --- 53% of it is paid off in the last 10 years.  But if we take an even closer look at the first five years, we can see what some recent home buyers would be facing if they needed to sell just two years later.


Consider these three factors:

1. As you can see in the chart above, after two years of making regular payments on the mortgage, only 2.8% of the mortgage has been paid off. 
   
2. The cost of selling a house, however, is often between 5% and 7% of the sales price. 
3. There was a less than 1% increase in average sales prices in our market over the past two years.
   

Given the above factors, a buyer who obtained a 100% LTV mortgage two years ago, who needed to sell now, would be in a bit of a tight spot.  Their house would have likely only increased in value by 1%, they would have paid off only 3% of their mortgage, and they would have (perhaps, roughly) a 6% total cost of selling the property.

What do you need to take away from this illustration?

1. It will likely continue to be difficult for the next 12-18 months to sell a home within the first two years of owning it while not losing money.  That is, of course, only taking into account principal reduction and appreciation, and does not include other financial benefits of buying such as the tax savings each year.
2. Be thankful that the Harrisonburg and Rockingham County real estate market has not seen drastic downward shifts in home values.  Other parts of the state and country have seen 20-40% declines in home values!
3. Do bear in mind that there is one extra equalizing variable for those considering a first time home purchase right now.  The $8,000 tax credit can change the game considerably for first time home buyers.