Turbulence in the marketplace always brings out the perennial question, “Should I buy a home now? How do I know if the timing is right?” I’m asked this question daily, by people who are just trying to make sense of the real estate market, the financial market, and timing for their personal situation. Some clients are concerned that home prices may fall further than they have already. They are assuming that the best course of action is to wait for the bottom in the market and then buy. The problem with this approach is that you don’t know where the bottom is until you see it in the rear view mirror, meaning until you’ve missed it. (See my post on Timing the Bounce)
Home prices are one factor in determining your cost of ownership, but so are interest rates and financing availability. As it has been pointed out in the media and here in my own blog, interest rates are still near historic lows. Since your monthly mortgage payment is a combination of paying down your principal and paying the interest owed, if home prices come down a little further but interest rates go up, it could cost you even more to service a mortgage on an identical home!
While a home is a major investment, it is also the center of your personal life. It’s important to live in a home that reflects your taste and values, yet is within your financial “comfort zone.” To that end, it may be more important to lock in today’s relatively low interest rates and low home prices, rather than to hope for a further break in prices in the future.
But what, then, is the best criteria to use to determine if it is time to buy?
- Price – The lender will tell you how much you can afford. But you need to decide how much you want to pay. Can you afford the features and benefits you need now?
- Location – Deciding on where you would like to live allows the agent to focus on a given location. There are many reason for picking a particular location e.g. schools, wanting to be near friends or relatives, wanting a newer home etc.
- Amenities – More than anything, you need to know what amenities you must have in a home in order for you to make an offer.
- Your list should include the following:
- Must: What you know you want
- Should: What you think you want
- Could: What you don’t have strong feelings about
- Won’t: What you don’t want
- Why: The reason you want to own a new home, now
As you can see, your list will be unique to every other homebuyer in the market. Your reasons are just that: your reasons. If this is the right time for YOU to buy a home, then it is, quite simply, the right time. So don’t listen to your friends at the watercooler. You’ve made the right decision for you. After you have determined those factors, go out and look at some homes.
Please give me a call if I can be of any assistance in determining how much home you can afford in today’s market. Join the conversation by commenting below – I appreciate your thoughts and input!