By Thomas Carroll, REALTOR®
There is a ton of noise out there right now surrounding the real estate market. All of the headlines about how much housing prices have gone up and that interest rates are going to rise create some serious FOMO (fear of missing out) among people looking to buy a home. I often get asked is now a good time to buy? My answer is always the same: let your personal situation determine if now is a good time to buy a home for you and your family.
There will always be noise surrounding the real estate market. Head line grabbing calls for crashes, fear stoking discussions about rising interest rates, excitement around the fast rise in home values and geopolitical crises have create a feeling of urgency and uncertainty amount buyers. Please hear me loud and clear when I say this: IGNORE ALL OF IT!
Why do I say that? Because the most important factor in determining if now is a good time for you to buy a home is you! Your personal situation should determine if you buy, not the noise surrounding the market.
So how do you know if you are ready? Well, first and foremost, buying a home to live in is a long-term investment. If you want to buy a home you should be in a position where you plan to hold onto the home for at least 5 to 7 years. Why own it for at least 5 years? Because there are fees and taxes associated with buying and selling your home and sometimes home values decrease. Yes, sometime home values decrease. The last time we saw this was in 2018 (Chart of Median Sales Price of Houses). The median value of a home in the U.S. peeked in 2017 at $337,900, decreased throughout 2018 and then bottomed at $313,000 in 2019. The price of homes has recovered throughout 2020 to the present and now the median home value sits at $408,100. To compensate for the taxes, fees and risk of price depreciation you want to give your home time to appreciate in value (historically this is 3-4% annually) and you want to give yourself time to pay down some of the mortgage. If you do not allow some time for debt pay down and appreciation, it could become more costly to buy then rent.
The second factor determining if now is a good time for you to buy is simply affordability. Owning your own home should be a joyous experience and the quickest way to make it a nightmare is to over extend yourself and your budget. So, what should you look at to determine affordability? First thing is your down payment which may not be as bad as you think. Many conventional loan products for primary residences on require 3-5% down while VA loans for service members will require no money down. So just because you may not have a huge chunk of cash to put towards a down payment does not mean the dream of buying your own home is out of reach. The second factor in affordability is your monthly mortgage payment which will traditionally consist of principal, interest, taxes and insurance (PITI). I highly suggest you make a detailed monthly budget so you can understand all of your expenses. Everyone’s budget and expenses are different but a quick rule of thumb is that your mortgage should not be more than 25-35% of your take home pay.
To sum all of this up, the two biggest factors in determining if now is a good to for you to buy are your time horizon and affordability. Ignore all of the noise and stop worrying about what you cannot control. So, I’ll flip the question around and ask you: is now a good time for you to buy? If it is, reach out to me today. I’ll run through a complimentary needs analysis with you and provide a free buyers guide as we take the first steps towards you owning a new home.