Consider financial factors before moving

Hopes of a housing recovery in the second half of 2011 were dashed when low consumer confidence, high unemployment and the debt crisis debacle were exacerbated by Standard & Poor's downgrade of the United States' credit rating. In August, S&P demoted the U.S., Freddie Mac and Fannie Mae (two government-sponsored mortgage entities) from AAA ratings to AA+.

The first-ever downgrade of the U.S. was expected to cause interest rates to rise. Instead, it had the opposite effect. Low interest rates have set off a new surge in refinance applications, but it has done little to help most homebuyers who can't qualify under current strict lender requirements.

Nationally, home prices declined about 5 percent between March 2010 and March 2011, according to Fiserv, a company that provides data analysis for the financial services industry. Fiserv expects home prices to decline another 3.1 percent by March 2012 and possibly increase 2.7 percent nationally in the first quarter of 2013.

It's not a great time for home sellers. That is, unless you're a homeowner who lives in Tacoma, Wash., where Fiserv expects prices to increase nearly 25 percent by March 2013, or near Silicon Valley in the San Francisco Bay area, which is generating jobs at a rapid pace. Otherwise, what should you do if you want or need to move now?

One option is to sell your home, even though the market is soft. But before going to the expense of preparing your home for sale, find out what your chances are of selling in your local market. Some sellers in hot niche markets are breaking even, depending on when they bought. Others are bringing cash to closing because they can't sell for enough to cover the loan payoff and closing costs. Others can't sell at all without discounting the price significantly.

Find out how many homes like yours in the neighborhood have sold recently, along with the sale prices and how long it took to sell. If the market is still declining in your area, plan on selling your home for less than the most recent sale. How many homes like yours are currently for sale? If there are few and buyer demand is high, the odds are in your favor. Keep in mind that listings that sell in this market are usually in move-in condition. If your home isn't in great shape or doesn't show well, are you willing and able to do the improvements that will be necessary to sell?

House Hunting Tip: While you're researching, consider whether it makes sense to rent the property. The rental market is hot in some spots. Make allowances for tenant turnover, vacancies and the possibility of lower rents in the future.

A major consideration should be whether the prospective rent will cover the costs of carrying the property.

If you'll take a beating on price by selling but you'll receive a good income from renting, then renting it out might be the best option.

To make sure your property is properly maintained, consider hiring a property manager. Find out if there are any rent control ordinances and how they might affect you. Consider the tax consequences of converting a primary residence into an investment property. Consult with your financial adviser and accountant to understand how this will impact you tax-wise, particularly if the rent does not cover your carrying costs. Ask you financial consultants for advice.

The Closing: Finally, if you're interested in renting only for the short term, you might be better off selling today. The market may stabilize in 2012 or 2013, but it could take a lot longer.

Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide."