As a first-time buyer, should I wait until the prices go lower to buy a home?
No. If you continue to wait, you may never be able to afford to get into the housing market. Even as home prices are currently moderating – or even dropping in some areas – rents are climbing, which may make it harder to save more money for your home. The best way to build household wealth is to own a home. Once you become a homeowner, you are able to take advantage of the tax benefits that homeownership offers, and you begin to build equity in your property that you can eventually use to sell your starter home and move into a bigger house which is an integral part of personal financial planning and developing wealth for your family.
With so many houses on the market to choose from, your best strategy may be to set reasonable expectations for your dream starter home. Instead of trying to buy a 2,000 square foot home, consider shopping for a 1,500 square foot home. Remember, the sooner you make the jump from renter to home owner, the sooner you begin to create and build up wealth for your family. After a few years, you will be able to leverage this investment and buy a larger house.
If I wait to buy a new home, won't prices go down even lower?
Not necessarily. All the market indicators show that now is a good time to buy. Prices are down, interest rates are affordable, there are lots of homes to choose from and you can bargain with sellers.
If you try to wait and time the market until it hits rock bottom, you may lose out. Just as no one can accurately predict the peaks and valleys of the stock market, the same holds true for housing. If you sit on the fence and wait for the absolute best deal, you could end up literally waiting for years.
But if you buy now, you will not only be in the driver's seat during the buying process, you will see the value of your home appreciate once you become a homeowner. Homeowners who purchased homes during the last big economic and housing downturn came out as big winners. Successful, prudent investors purchase stocks, bonds, and property in soft markets and let them appreciate. To be a prudent investor yourself, you should take advantage of the current housing market and invest in your future now.
Is it better to wait until the economic picture is clearer so my house will appreciate?
The fact is, the economy is still solid. After expanding rapidly over the past few years, economic growth is moderating – and this is actually good for housing. Most economists predict that overall GDP growth will average about 2.6 percent for the rest of the year. That means that job growth will continue to move forward at a pace that should not trigger higher inflation rates or higher interest rates.
This period of moderate economic growth, job creation and low inflation, coupled with a true buyer's market where there are plenty of homes to choose from, makes this an ideal time to purchase a new home.
Isn't it better to “play it safe” and keep renting until things are more certain?
Your safest bet is to actually buy a home. Here's why: studies show that owning a home is the best way to build household wealth. The sooner a person owns a home, the faster they begin to build up equity and wealth. When you buy a home, you are also purchasing price stability, knowing that you will pay the same monthly payment for the life of your 30-year mortgage.
Consider the rental market: during the past few years, many rental units have been converted to condos. As a result, there are fewer apartment rentals on the market. While home prices have been moderating, rents have been going up. Each year, your rent can easily increase from a minimum of 5 percent to 10 percent. Where is the economic security in knowing that your rent could surge 30 percent in three years? You don't receive any tax benefits from paying rent, nor do you accumulate any price appreciation, as you would if you owned a home of your own.
All of the economic fundamentals show that this is a good time to buy a home and that there is upward pressure on rental apartments. The real risk isn't in buying a home, it's continuing to rent.
Should I invest my money in the stock market or use it to buy a home?
Buy a home. Purchasing a home is by far the best long-term investment.
When you buy a home, you are leveraging your investment, or putting down a small amount of money to earn a big return. For example, say you use $10,000 to purchase a $150,000 home, and the house appreciates five percent during the first year. After one year, the house would be worth $157,500 – a gain of $7,500. Your annual return on your $10,000 investment would be 75 percent.
By contrast, putting the same $10,000 in the stock market and posting a similar 5 percent gain would only net a $500 return on investment.
As a homeowner, your savings grow in two ways. Every year a greater portion of your monthly mortgage payment goes to the principal, reducing the overall loan amount. Secondly, your home appreciates over time, making it one of the very best financial investments. Not only is homeownership a stepping stone to a future of financial security, but it also helps to build neighborhoods and strengthen communities. It is truly the cornerstone of the American way of life, and the fulfillment of the American dream.
Should I wait to buy a home until interest rates go down further?
Interest rates currently stand at about 6.2 percent and are extremely favorable for buyers. In fact, they are hovering near 30-year lows. But waiting to time the market is a dangerous – and losing – game. Even those who follow the market for a living can't figure out when interest rates will bottom out.
Because interest rates are near historic lows, it is much more likely that they will head higher in the future, as opposed to moving even lower.
Home prices don't necessarily move in unison with interest rates. If you decide to roll the dice and wait to purchase a home, and the price dropped $10,000 from where it is today, you could still end up losing money. How? If interest rates were to move up a half point during this period, the reduced home price would still have a higher monthly payment over the life of the loan.
In short, the smartest and safest time to buy is now. We know that interest rates are low today. We know that home prices are down. We know that there are plenty of homes to choose from. We know that sellers are eager. Any or all of these favorable variables could change for the worse six months from today.
Should I wait to sell my house until I can get the same price my neighbor sold their house for?
No. It's always better to trade up in a buyer's market like the one we are in now; in today's buyer's market higher priced homes are also dropping in price. So even though your home's value may have fallen, the price of higher-end homes has also dropped.
For argument's sake, let's say that your $300,000 home is now worth $270,000, and a $500,000 move-up home has also dropped 10 percent in value and is offered for $450,000. If you sold your home today and purchased the larger house, the difference in price would be $180,000.
If you waited until the value on your home increased and sold it at $300,000, chances are that the same move-up home would also move up in price to at least $500,000. So the price difference between the two homes is now $200,000, meaning you would pay $20,000 more for the same home. It's also more likely that, by jumping into the market today, your savings would be even greater because consumers have much more bargaining power when shopping for higher-end homes in a buyer's market.