Now You Can Sell the Home You Left at Your Last Duty Station!
by Karina Gafford
According to the recent Home Price Index Report
by research group CoreLogic
, home prices rose 11-percent between December 2012 and December 2013, reflecting a continually upward trend in the price of both regular home sales and distressed home sales. Excluding distressed home sales, meaning homes sold through the short sale process, foreclosure, or homes sold at auctions, traditional home sales saw a rise in price of 9.9-percent in this past calendar year. This bodes well for families who held onto their properties, toughing out the recession and its resulting drop in price in the national housing market since late 2008.
Looking Back to Homes Bought During the Fateful PCS Season at the Height of the Market
Despite these gains, however, the national house price average still remains 18-percent below that of houses bought at the peak of the market in mid-2006, as of early 2014. To step back to that pre-recession moment of the summer of 2006, the average price for a home bought during that PCS moving season was $311,000 with an average 30-year fixed mortgage rate of 3.59-percent. With a market continually inching up, most prospective home buyers thought it was a good time to get their foot literally in the real estate door before it completely priced them out, shutting the door in their face. It’s almost humorous now to look back at news articles from Forbes, The Wall Street Journal, and Bloomberg to read their dire predictions of expectations of only a mere 1.5-percent gain in home values over the subsequent six months of 2006. Well, it would be humorous if so many families had not been so detrimentally impacted by the double-digit drop in the housing market so soon after.
For the many military families who did choose to buy a home during that fateful moving season, when it came time to PCS just two or three years later, they faced the cruel reality that the popular financial magazines had it all wrong. By just July of the year in which they purchased their homes, the housing market stalled, preparing for its eventual crash. Those who moved just two years later in 2008, an average rotation for a military relocation, saw the average house price across the US drop to $250,000. Families with three years on station had it worse, as house prices that subsequent summer—2009—sold for an average of $209,000, reflecting a crippling loss of an average of $101,000. For those military families who saw such huge losses in the price of their homes over such a short period of time, the number of options available for handling such an unaffordable loss remained significantly more limited
than for their civilian counterparts who could choose to either remain in the home or face a foreclosure or short sale without any implications their security clearance. As a result, many military families chose to become landlords, albeit often reluctant landlords
Better News for Military Families with Homes to Sell
As of 2012, the Making Home Affordable Act presented these military families saddled with unaffordable homes at a previous duty station an out: If they were current on payments, had moved as a result of a PCS, and could not afford to maintain the property, they could proceed with a short sale option without any negative tax implications. By this time, the military had determined that many families faced unavoidable short sales as a result of a PCS, and thus so long as servicemembers kept their chain of command informed of their short sale, they did not foresee any negative ramifications on subsequent security clearance checks. Despite these options, many families continued to retain the property and rent it out, waiting for the economy to rebound.
Now, Selling Homes Bought at the Peak of the Market is a Possibility
Now, the opportunity to sell is ripe. Despite the national house price average remaining 18-percent below that of summer 2006, the good news is that this number includes distressed sales. The average house price for non-distressed house prices, meanwhile, remains only 13.8-percent below prices in 2006. While this figure is still obviously lower than that of the purchase price, the family could sell the home without experiencing an actual loss. To see how this would happen in effect, let’s look at the example of Servicemember Samantha.
- Servicemember Samantha bought a home at an average house price of $311,000 with an average 30-year mortgage rate of 3.59-percent in 2006.
- Samantha’s monthly payment was $1,412, which she covered for the first three years in her home with her BAH. She had used her BAH to help determine what monthly payment she could afford in the first place.
- When Samantha received PCS orders in 2009, she learned that her house price had dropped substantially, so she chose to rent out her house. She did not make any profit, but she received a rental income amount that covered all of her costs for the house.
- After learning of the upswing in the housing market, Samantha did some research and learned that her house is now worth $43,000 below its original value, bringing the house price to $268,000.
- After looking at her amortization schedule, Samantha saw that the remaining balance on the property will be $258,792, as of March 2014.
- If Samantha sold her house for $268,000, she would have a balance of $9,208 to help cover selling costs. This amount will not cover the full cost of real estate agent, but it will afford her a sufficient amount to do a For Sale by Owner. This amount will easily cover inexpensive advertising costs for online marketing and street signs as well as broker’s fees to manage the paperwork.
- Now, keep in mind that though Samantha will technically sell at a loss, she will not experience a real loss, as her initial three years of payment came from her BAH, money which she would otherwise have spent on rent. The subsequent years of mortgage payments came from rental income. Samantha will also not incur tax implications as she did not profit from the sale.
Yes, it would be nice for Samantha to make a profit from her house after spending years managing it as a rental, but given the state of the housing economy, Samantha is fortunate enough to be in a situation where she will not face a real loss in the sale.
If you have been renting out your home at a previous duty station since the market dropped, but no longer wish to continue operating as a landlord, then perhaps it’s time to consider selling. To find out if your situation would be similar to Samantha’s, contact a lender
with experience working with military families. When you decide to sell, make sure to check out MilitaryByOwner’s Business Directory
to help find a good real estate agent near your property.