Despite the Fears, It’s Still a Good Time to Buy a Home
The Condition of the Market
Government has a way of destroying all hopes of a successful economic cycle by creating artificial markets through incentives. The most recent example is the tax credit offered to new home owners. By giving away tax-payer dollars to buyers who wouldn’t be buyers otherwise, it creates a buying frenzy for the short-term mindset of the ever-so-common paycheck to paycheck wage-earner.
The problem you’ll find in this is that when you create imaginary markets, they become, well, imaginary. In the Phoenix market, what we’re seeing today is a slow-down in buying. We’re experiencing an increase in inventory (more homes going on the market than being sold), and that’s part of a widely known law called the Law of Supply and Demand. When supply increases and demand does not, or even worse, when demand recedes, the prices fall.
Today, we have thousands of homes that are awaiting foreclosure that aren’t even part of that inventory count. Those homes equate to increased supply. Buyers are not buying because they’re afraid that once they buy they’ll be upside down in their home. This may be true, but you must look at one important factor.
Owning Real Estate is a Long Term Prospect
Don’t buy if you aren’t prepared to own for the long haul. People who get into owning homes before they think about the fact that they may need to be there for a long time aren’t doing themselves any favors. Part of their monthly mortgage payment goes up in smoke, and the cost to sell in the future means the home needs to appreciate in value enough to cover the fees associated with selling.
This is not an argument against buying. It is an argument for “buying at the right time.”
Buying at the Right Time
Buying at the right time doesn’t mean that you’re timing the market. It doesn’t mean you’re looking at the appreciation of real estate as a means to financial independence. You’re not gambling in this world if you’re truly ready to buy. Buying at the right time means that you’re ready to buy, whether the market is up, or down. If you understand the fundamental purpose for home ownership…to build life-long wealth…then you’re ready to buy. If you have a down payment of at least 20% of the purchase price and you’re going for a loan no longer than 15 years at a fixed rate, then you’re ready to buy.
If you have to use FHA financing, you’re probably not ready to buy. Sure you may be able to weather the long haul, but without a goal of knocking out your mortgage payment faster than the amortization schedule, then you shouldn’t be buying.
When should I buy?
- When you resolve to keep the home for life, creating a possibility of future passive income.
- When you see that your mortgage payment will be less than rent for a comparable property. (This is a big one.)
- When you have at least a 20% down payment.
- When you’ve resolved to take no more than a 15-Year fixed mortgage.
- When you’ve eliminated all consumer debt.
- When you have no car payment.
- When you have no student loan debt.
So what do I mean when I say, “it’s still a good time to buy a home?” The answer is simple. If you’re ready to buy, then it’s a good time to buy, because you’ll be holding the property for life. Not prepared to do that? Don’t buy.