Why Waiting to Buy a Home May Not Be the Best Strategy?
Many first-time home shoppers have been discouraged by the high
prices in the housing market, and many people wonder if putting
the purchase off a few years would be a smart strategy. Many
people are waiting for a drop in housing prices, but the chances
of a significant drop in home prices is actually quite remote.
While there are certainly pockets of the country where real
estate can be said to be overvalued, in most areas of the
country the average house is actually priced quite fairly. That
means that putting off the purchase of a home may simply mean
throwing away more money in rent, and losing out on the
significant tax benefits homeownership can bring.
Many people plan to save their money waiting for home prices to
come down to a lower level, but this is generally not a winning
strategy. While it is true that the housing market is cyclical
in nature, housing prices seldom go down for very long, and
there have been extended periods in which home prices did not
retreat at all. Saving even significant amounts of money may not
be enough to cover the appreciation of home prices, even if that
appreciation slows down from its current high rate.
The best strategy may be to simply bite the bullet now and buy a
home whose payments you can afford. This will allow you to
participate in, and benefit from, any future appreciation in
home prices.
Let's look at an example - using a home valued at $300,000 in
today's market. In many areas of the country this would be the
average home. If that home appreciated at a 5% rate over the
next year, its value would rise by $15,000. Few potential home
buyers would be able to sock away enough in a savings account to
offset that much of a gain. And that $15,000 figure does not
include any potential tax savings the buyer could have gained
through deducting mortgage interest.
Many potential home buyers have thought that rising interest
rates would serve to cool off the hot housing market, but so far
that has not happened. Even as short term interest rates have
continued to rise, mortgage interest rates remain near their all
time lows. In addition, waiting for high interest rates to kill
the housing market and lower prices will also mean that you will
have to take out a mortgage at a higher interest rate, and that
alone could negate any savings you achieve through a lower
purchase price.
While it is true that there have been several instances of boom
and bust real estate markets, this situation is not in place in
most areas of the country. While there certainly are overheated
housing markets out there, it is important to remember that real
estate is not the same as the stock market. There is a real
intrinsic value to real estate, and a limited supply. That means
that even if home values fall, they are unlikely to fall as
significantly as stocks did in the last bear market. In order to
trigger a significant decline in housing prices, there would
need to be a significant negative event, and at the time no such
event seems to be on the horizon.
There are plenty of anecdotal evidences that the housing market
remains strong, and that it is likely to remain quite strong for
some time to come. Even though many people think that the market
for real estate may have peaked, there remain plenty of stories
of homes that sold for more than their asking price, and bidding
wars continue to break out at many open houses around the
country.
In addition, there is little evidence to indicate that the
prices of homes are likely to suffer a decline in the near
future, and the number of homes that sell for less than their
asking price is still very small. With all these indications of
a still strong housing market, and still low interest rates on
mortgage loans, it is easy to see why waiting to buy a home may
not be the best strategy.