Is Now a Good Time to Buy a Home, or Not?
By Neal Frankle
Is now a good time to buy a home? You might really be tempted to take the plunge and buy a home now. After all, prices and interest rates are in the tank. If you don’t buy now, will you kick yourself for missing out later?
No, you probably won’t. It’s not a good time to buy a home right now. First, there is very little demand, so prices will likely continue to drop.
The homebuyer tax credit expired, and demand for home purchases has fallen off a cliff. According to the Investor’s Business Daily, demand is off 33%. New-home sales are at a record low. In fact, fewer homes were sold this year than in 1963 – which is when the Commerce Department started keeping track.
Don’t let low interest rates fool you.
Just because interest rates are low doesn’t mean it’s time to jump into a mortgage. The Federal Reserve voted to keep rates low for an “extended period” for a reason – the economy is not recovering as quickly as they had hoped. And even though rates are low, it’s tough to get financing. In fact, getting a mortgage with good credit might be only slightly easier these days than getting a mortgage with bad credit.
In any event, you don’t have to worry about missing out on low interest rates – they’ll probably be around for a while. While foreclosures seem to be tapering off, that doesn’t mean prices are going to rebound – or even stop falling.
Housing is the key to our economic recovery. Before you start seeing jobs being created, you’ll see a rebound (not artificially created by tax incentives) in housing. Prices will rise and more new homes will be sold. That’s when the economy will recover.
Until that happens, the likelihood is that prices will continue to drop or stay low.
If you are in escrow right now, use this as leverage. Either get out of the deal or pressure the seller for better terms if possible. Offer a lower price and show the seller these statistics as leverage. If you buy real estate now you should not be paying market prices. If you have to buy, make sure you get your home at below-market price as compensation for the increased risk.
And think about your own risk. Is your job stable? Is your business in trouble? If you’re retired, do you have enough income? If you’re buying the property because you’re investing for income, what happens if your renter moves out? Now is not the time to get in over your head.
I know you can’t time the market to buy at the exact bottom. But I also know buying in a falling market is like trying to catch a falling knife. It might work out…but it might not. And when it doesn’t it can hurt…bad. I am not saying that real estate will always be a poor investment. I’m just saying you don’t have to feel pressured to buy right now. You have time. You are in the driver’s seat. Take advantage of that.
What say you? Am I wrong? Is now the time to jump into the real estate market with both feet? While you ponder that…
Let’s take a look at the weekend reading links:
Build a Bond ETF Portfolio – Intelligent Speculator
Are ETF’s Bad for Investors? – Mike
Business Debt in a Sole Proprietorship – Debt Free Adventure
Killing Student Loans When You’re Still a Student
You can be rich without being smart – Digerati Life
Find out when you’ll make your million – Monevator
Perkstreet Financial Review – Cash Money Life
Overcoming the Wall – my fave for the week…Financial Samurai
The Will to Evil – Joe Taxpayer. Certainly a great read, friends.
Five Reasons People Fail to Become Wealthy – my pal Pinyo
Privacy Benefits of Using a Prepaid Credit Card – my friend in the north, Canadian Finance
How Long until You Can Buy a Home?
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I agree with you. If you invest in real estate, you probably get better entry points later. But I also think that buying a home is different from investing in real estate. Sure, you are buying some real estate, but if you call it “home” it is a little more than just an investment for most of us.
I just bought a home 2 months ago, so yes, everyone should buy (especially all the houses that are for sale on my street to prop up the prices)!
Seriously though, I think everyone should buy when we can afford it and want that lifestyle. While a second home or investment property is more of a financial investment, the primary home is probably better thought of as a lifestyle investment.
Yes…….we SHOULD all buy homes on David’s street! You also bring up a good point.
Is real estate a life style or investment decision? Perhaps fodder for yet another post?
Since the real estate collapse, I’m not as gung ho about owning a home as I used to be (funny how that happened
). Still, if you can afford it, then go for it. I don’t know about timing the market though — sometimes you spot a great house and it makes your decision for you.
Found through MoneyFunk RT – great article.
The whole delay (like thunder/lightning) is key. Two problems – time span & psychology.
1.) Most people are thinking in months (thanks quarterly projections), when we could be looking at years!
2.) Since people are stuck in these short time spans, if they missed the “first” go-round – then they’re probably more likely to pull the trigger the “second” time.
As David brings up, for some its more a lifestyle choice than an investment choice and more important to live in a home when they can afford it vs. when they could get higher potential returns.
Many thanks for the link!
And yes I agree, it’s not as obvious as we might think and unfortunately a double dip is very possible.
Could be a good time to buy… if….
-You are debt free.
-You have 6 months living expenses saved for emergencies.
-You have 20% down payment saved for the purchase (in addition to the emergency fund).
-You don’t buy a home that is too expensive for your budget.
-You are buying the home as a place to live, NOT as something you hope will increase in value and make you money.
It’s a freaking unbelievable time to buy a home, and I’m not a realtor! Damn, that’s a good blog title, I think I’ll go write that now.
Seriously, I’m so pumped about real estate now, I’m building the rental portfolio as we speak.
Cheers mate!
Sam
I think that while it’s certainly a much better time to buy now than it was a few years ago – obviously – it’s not the best time. That time is yet to come, in my opinion.
There are differences between markets, but from what I can see here in the Chicago area, homes are on the market for quite a while, and are seeing regular price decreases. I have monitored several micro-markets in this area, and see this trend continuing. There is a lot of supply, and a lot of people dealing with their own properites dropping in value or with job instability. From talking to friends in different parts of the country who have shared specific stories with me, it appears to be happening in many places.
I would suspect that prices, on average, may drift lower in the short term. The best time to buy may yet be ahead.