Buy Now or Wait

There are many factors to consider when determining the ‘right’ time to buy a house. In this article, we will explore a variety of possible considerations. Before we discuss the pros and cons of buying today or waiting, we will dismiss some of the myths regarding buying a house.

I. Reasons Never to Buy a House

There are very few (if any) valid reasons for never owning a home. Below are several of the reasons cited by ‘quote’ experts.

1. Owning a home leaves you vulnerable to unpredictable expenses. Yes, over time houses require maintenance and repairs. But then again, most things require some maintenance and/or repairs. This logic will dictate that you don’t own a car or most other things.

2. Real estate is not an investment. The truth is, real estate is much more than an investment. Historically, houses have appreciated, however, there may be interim periods where prices are stagnant or decrease. Beyond the possibility of property appreciation, ownership provides for income tax savings plus the opportunity to create a desirable environment for you and your family.

3. The carrying costs of a house are too high. In this theory, owning a home is a bad idea because you are required to make a monthly mortgage payment over a long period of time. True, you will be required to make a mortgage payment. The alternative would be to pay rent or living in a cave.

4. Better to invest your money in the stock market. This hypothesis assumes you would invest your initial cash investment for buying a home plus your monthly mortgage payment into the stock or bond market. We can only assume this thesis provides that you are obtaining free housing for you and your family. Assuming free housing was available, your money would be at risk by investing in the stock/bond market.

In summary, buying a house provides the probability of long-term appreciation plus a reduction of income taxes and the freedom to create your personalized environment for you and your family.

II. Possible Barriers to Purchasing a Home

1. Available Cash. Do you know how much cash will be required to purchase a home now? Have you explored alternative means to create or decrease amount of cash required? You should fully understand concepts like:

(a) Seller Credits. In many circumstances, a seller may pay most, if not all, of your closing cost.

(b) Lender Credits. A Lender may pay a substantial portion of your closing cost.

(d) Family Gift. A family member, sometimes even a friend, may gift funds for down payment or closing cost.

(e) Personal Assets. It’s possible to liquidate or borrow against personal assets.

(f) Real Estate Agent Contribution. Your real estate agent may contribute to your closing cost.

For a better understanding of cash options, please see article ‘Best Use of Cash’

2. Unstable Income or Employment. Generally, you will need verification of two years of employment and income.

3. Job Transfer. If a possible job transfer is eminent, you should postpone buying a home.

3. Credit Score. If your credit score is below 580 then you need to devote some effort in repairing your credit. Paying bills on time and paying down balances on your credit cards are steps you can take to increase your credit score. Issuers report your payment behavior to the credit bureaus every 30 days, so positive steps can help your credit quickly. You may wish to employ the services of a credit repair company.

To see what price house you can purchase today, run the ‘Buyer PreQual’.

III. Market Considerations

1. “It’s a Sellers’ Market”. Generally, a ‘sellers’ market implies conditions, such as interest rates, are great for buying a home. Of course, if you currently own a home then you could benefit both as a buyer and seller.

2. Can’t afford the right house today. First, you should verify the price home you think you can afford. We strongly suggest you run the ‘PreQual’ module to explore the price home best suitable for you. After, you have confirmed an affordable price of home, you may need to reconsider your current housing requirements such as location, yard size, or other amenities. Discuss your concerns with your real estate agent and allow them to help with the housing resolution.

3. Expert Forecast of Prices. Does anyone really know future price of houses? The short answer is “No”. If you are postponing your decision to buy due to an expert’s advice then you may want to validate the expert’s opinion. Over the past 10-20 years, how often have they forecasted downturns in the housing market? The truth is, no one can forecast future values in the housing market, however, a bunch of folks have an opinion.

4. Expert Forecast of Mortgage Interest Rates. Experts are constantly predicting the future of mortgage interest rates based upon expectations of the Federal Reserve, expectations of the economy, or a host of other factors. TV, newspapers, and the Internet are inundated with ‘expert’ prediction of future interest rates. I’m not aware of anyone accurately predicting mortgage rates would be below 3% in 2020.

5. Expert Forecast of the Economy. Economic forecasters are most often political in nature and therefore, should not be taken seriously. Like housing prices or future interest rates, no one can accurately predict the economy one, two, or three years into the future.

In summary, we do not believe you should make decisions based upon ‘expert’ predictions. You should make your decision based on how future changes in prices or interest rate will impact your decision. This requires an analytical approach and calculating numbers. Fortunately, we provide a tool that will crunch all the numbers for you.

IV. The Analysis

There are many possible ‘what ifs’ to consider in deciding to ‘Buy Today or Wait’ such as:

How will a change in interest rates affect monthly payment?
How will future appreciation or depreciation affect monthly payment?
How will future appreciation affect cash requirements to purchase?
How much equity would be potentially available at a future date?
What are the potential tax advantages to home buying?

For a complete analysis of your concerns and answers to the above questions, run the Christee ‘Buy or Wait’ Module.

V. Interest Rates

Lower interest rates not only reduce monthly payments but also directly influence the percentage of mortgage payment allocated to interest and principal on a monthly and annual basis. A 2.875% rate with a 30-year term allocates 42.81% toward principal reduction in the first year. A 3.875% rate with same term allocates 31.89% toward principal during the first year. It is strongly suggested that AskChristee’s ‘Amortization’ Program is ran in conjunction with the ‘Buy Today or Wait’ Program.

For a better understanding of how interest rates effect more than monthly payments, we suggest you run the AskChristee ‘Amortization’ module.