Are you in the market to purchase? Do the current market prices scare you? Have you thought about holding off to purchase a home in hopes that the market will correct itself? You’re not alone. In speaking with hundreds of homebuyers over the past few years, this is a common theme amongst would-be homebuyers. For some, the remnants of the 2007 financial crisis linger in their minds, and the fear of buying at the top of the market still haunts them today.
Those thoughts may have kept some from taking part in the recent 11% of appreciation nationwide that took place year-over-year from 2020-2021. Those who bought homes, were able to see their equity increase, providing financial stability, and the comfort in knowing that they are not going be priced out of the market if inflation takes hold of the economy, which it seems to be doing. Rates are at historical lows, so the cost of money is cheap, with rates still at historical lows, and this offsets some of the burden that comes with higher prices. The fear that comes from not knowing where the market is headed, and the fear of buying at the top of the market before it may correct itself can ultimately develop into a paralysis for some. This keeps them on the sidelines even though they have all the reason to buy a home and get back into the game of homeownership.
For those worried about a correction. Let’s take some time to think through a few questions. What if the market does correct itself and we see a tremendous fall in prices? What would that look like? What could cause the next Great Recession? Will it be a student loan debt crisis, a war with China, extreme inflation and the ensuing market crash that comes from a hyper-inflation economy? Well, if I (or anyone for that matter) had a crystal ball, I would tell you exactly what it would be. But, unfortunately, I do not. What I can say is if you buy a home and are confident that you have budgeted properly for it, are confident in your current job, and the stability of that job during a recession, then you can allow yourself to feel more confident in the pursuit of homeownership. If you answer no, to those questions, you may want to rethink it.
You must ask yourself; Can I truly afford the home I would like to buy? What I’m asking here is do you have enough money to afford the payments each month, or are you stretching past your comfort zone? Think long and hard about that question, and furthermore follow it up with, what other monthly obligations do I have to pay each month to support my lifestyle, family or both? Some buy too much home, and they are strapped for cash afterwards. This works for some, and not for others, so give that some serious thought because if you do buy a home, and you experience cash flow problems that you cannot overcome, you run the risk for foreclosing or short-selling your home, which has a huge negative affect on your credit. Sometimes it may be worth it to wait until you are making more income or have a larger down payment to put down on the purchase of a home to alleviate potential cash flow problems.
The market has been on an upward trajectory and some economists think this run that we’ve experienced for the last few years is going to continue for a few more. Don’t take this as the end-all be-all statement in deciding whether you buy a home. You need to be ready for homeownership first, and then try and navigate the market. It’s not the other way around. Real estate will be there when you are ready. If you are not ready now, then you should wait. Don’t get caught up in the pressure to buy for fear of missing out. This is what a lot of people did during the run up to the financial crisis, and as a result, when the market turned, they were stuck in a lose-lose position and forced to let go of their underwater homes because they couldn’t afford the payments. Every potential homeowner should ask the difficult questions up front, so they don’t run the risk during this real estate cycle.