If You Don't Sell Your House Now, Here's Why You'll Regret it

Even though the housing recovery is stalling, that doesn't mean it's a bad time to sell your house. In fact, nothing could be further from the truth.

Since the beginning of last year, the supply of previously owned homes available for sale has hovered at or above the lowest point in almost a decade. In February, the supply of existing homes was equal to only 5.2 months' worth of supply. That's less than half the nearly 12-month supply from three years ago.

A simple rule of thumb is that home prices will rise when there's less than a six-month supply and fall when the relationship is reversed. And that's exactly what we've seen, as prices have increased by double digits on a year-over-year basis every month since March of 2013.

The problem for procrastinating home sellers is that this could soon come to an end. While supply is still low, it's nevertheless increased for two consecutive months. And with prices at multiyear highs, it wouldn't be a surprise to see more homes flood the market with the onset of the spring selling season.

Added to this, even though mortgage rates are still half their long-run average, they too are on the uptick and could be headed in that direction for the foreseeable future. This is because the Federal Reserve is in the process of reducing its support for the economy, which, in this case, translates into higher long-term interest rates.

The culmination of these trends is likely to be twofold. In the first case, it seems reasonable to assume that the increase in home prices will moderate, if not recede, at some point over the next year or so. And in the second case, the demand for homes will slacken as mortgages get more expensive via higher interest rates.

With respect to the latter, the indications we've gotten from the banking sector have been abysmal, to put it mildly. Wells Fargo (NYSE: WFC  ) , the nation's largest mortgage originator, serves as a fitting example. Mortgage origination volume at the California-based bank fell by 60% in the final three months of last year compared to 2012.

Needless to say, this isn't a positive development for people thinking about listing homes. And it's for this reason that prospective home sellers would be wise to pull the trigger sooner rather than later, as the likelihood things will get worse seems higher than the alternative.

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John Maxfield

John is The Motley Fool's senior banking specialist. If you're interested in banking and/or finance, you should follow him on Twitter.

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