The Real Story…
News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CSP, GRI, ePRO ®, REALTOR ®, RE/MAX MarketPlace
The opinions expressed here are my own and don’t necessarily represent those of RE/MAX International.
Should I wait? (for the Buyer)
If you’re a regular reader, you have heard (read) my opinion that we are unlikely to see a substantial recovery in the housing market prior to 2020. Seems lately that more and more “experts” are agreeing with this time line. Even so, people are still making decisions everyday to buy or sell their homes.
What seems most important is that buyers and sellers make those decisions wisely. Doing so requires a deeper understanding of the factors that most buyers and sellers should be considering as they struggle with their respective decisions.
Last time I focused on the Seller’s Decision Making Process. This column focuses on the Buyer’s Decision Process and primarily on the decision for first-time buyers (those not now owning a home). My last column addressed the Buy Decision for Current Homeowners.
FACT: For most markets, prices continue to fall and are likely to continue falling for the next several years.
Reasons to Buy:
- Children/Family Needs: You desire a good place to raise your children and provide them with a good education. Related to this is the basic need for safety. It is increasingly difficult to find affordable rentals in the areas with the best schools and neighborhoods.
- Control: Control over your environment… What colors you paint your walls… Having pets… etc…
- Home Affordability vs. Rents: With declining prices and historically low interest rates, home affordability has been increasing substantially. At the same time with so many potential home buyers being removed from the buying market due to credit and employment issues, rents are on the rise and are expected to continue to rise until the market gets better. We have returned to the era where for the same amenities, it is cheaper to buy than to rent.
- Historic Low Interest Rates: One day you’ll be telling folks “Yea, I remember when interest rates were 4% and lower…” These rates have been around for long enough that we’ve grown accustomed to them… But we all know that this is a temporary situation… While no one knows when this is going to happen, rates will go back up and with them the associated monthly payments for the same home, a 1% rise in interest rates over today’s rates is equivalent to a 20% increase in a home’s selling price (if you are financing 95% of the home’s price).
- Interest Tax Deduction: The interest tax deduction provides even more costs reduction in the real cost to purchase a home over renting. Despite all the political discussion about tax reform… the possibility of this deduction going away is highly remote.
Reasons to Stay Put:
- You’re unsure that you will remain in the area for at least five to seven years. With declining prices over the course of the next several years followed by several years of minimal appreciation you would likely have negative equity at the time of sale. Get out your spreadsheet and see if the benefits gained will outweigh your likely equity position. Note: I am developing a spreadsheet that helps prospective buyers do just that. When complete, I’ll publish a link that gives you access to the tool.
- Your job security is uncertain. If your company or business is in distress, it’s probably better to stay where you are until you are in a more secure situation.
- You don’t have good credit or a decent down payment. Do you have a job and income you can document? Lenders have become much more careful about whom they’re giving their money to. Work on rebuilding your credit now. It’s possible it can be repaired much more quickly than you think.
May the market be with you.
