Is now a good time to buy a house? That’s a great question. I’d like to answer it with a quote that my real estate mentor once told me. The best time to buy a house is when you need a place to live. I know that may sound a little silly, but the fact is, you buy a home to serve a purpose. When you need a car, you buy a car- when you need a place to live, you buy (or rent) a house.
In reality, though, there are two different answers to that question. It depends on why you are buying and what your intentions are. I wrote this article for those of you who are looking to buy a house as a primary residence. For those considering buying a real estate investment property, you can read my article titled good time to buy a house-real estate investment. The Fact is, if you are a real estate investor, or considering becoming one, the best time to buy may completely different from that of a retired couple looking to downsize after their 4th child finally leaves for college. You’ve heard what the media is telling you about buying property and you’ve read the newspaper’s roller coaster advice about the housing markets. No doubt your mom, dad, sisters, brothers, uncles, aunts, and your pet bird Petey all have their opinions too. So how do you determine when you should get serious about jumping into home ownership? First, lets look at the “buy at the bottom” idea.
Buy at the bottom? Great idea right? Sure, I’m all for getting a good buy on property. The problem? Knowing when we’re at the bottom. How do we do that? Again, if you ask around, you’re sure to get many different, and some interestingly amusing advice. So I’ll answer that question for you from my experience…NOBODY CAN!
You might be thinking “wow, thanks a lot, that wasn’t real helpful.” My point is this, though; no economist, no guru, no loan specialist, or anyone else can pinpoint the bottom of the market until it’s long gone. Oh, yes, with hindsight we can determine when the bottom (or top) was, but not one of us knows it until then. For instance: The top of the real estate market in Roseburg Oregon, where I live, was approximately July of 2005. We didn’t have any idea that we were cresting in July, but we sure do now.
1. Rookie Buyer Mistake #1. Waiting around to take advantage of “buying at the bottom.” More often than not, the bottom flies by and that buyer ends up paying more for a house than they should have, or they get hit with a higher interest rate that ends up robbing them of the savings they did experience.
2. Rookie Buyer Mistake #2. Considering your house as the “largest investment you will ever make.” You home may very well cost you more than anything else you ever buy but it is not an investment! When you buy a house to live in, you are buying a place to call home, a place to watch the kids play in the back yard, a place to grow, laugh, and cry together in. Once you start considering your home as an investment, you’ve lost the touchy-feelies of family home ownership.
Think about it this way. When your last child was born and your family no longer fit into the cool two-seater, what did you do? Did you wait for the bottom of the mini-van market or did you go buy a mini-van? Don’t get me wrong, I’m all for getting a good deal on a home. I’m just separating the differences between buying a house as a home and buying as a real estate investment. My experience has been that a home buyer who looks at their purchase as an investment usually does not get the kind of outcome they were hoping for. In fact, many end up paying thousands of dollars more by waiting.
Why is now a good time to buy a house? Consider this scenario:
A house that can be purchased today for $150,000 (Roseburg average) with a 5% down payment, and is financed over 30 years would have a monthly payment of about $765 P/I. The buyer will (in this example and like most home owners) live in this house for the next 7 years.
Now lets consider together that the hypothetical buyer procrastinates and “waits for the bottom.” What if, while this buyer waits, the interest rate for a normal 30 year mortgage go up by a just 1%? This is not an uncommon expectation of many professionals, by the way. Let’s say, though, that prices did go down by $5,000 so the buyer was able to save $5,000 right?
Wrong! Even with a purchase price of $145,000, with a 5% down payment, and a loan amount of $137,750, the 1% increase in the interest rate actually makes his monthly payment higher than it would have been in the above example. The payment is now $826.00 per month, a difference of $5,124 over the next 7 years! So much for saving $5,000!
You see the problem with the “waiting for the bottom” thinking? My advice to you who are trying to determine when you should buy is this. Consider your family needs, job security, and look at the information we have right now to base your decision on. So what do we know now?
- We know that we have super low mortgage interest rates right now!
- We know that home prices are fantastic right now, equal to what they were in 2002!
- We know that if we aren’t on the bottom of the market that we must be very close.
- We know that if we wait, we could potentially end up costing us more money than we might possibly save.
IS NOW A GOOD TIME TO BUY A HOUSE? My opinion is Absolutely YES!