The 3 Questions You Need To Answer For Yourself Before Buying A Home...
If you are contemplating purchasing a home at this time, you are most likley getting a lot of input and opinions from family, friends and colleagues. And most of the feedback is probably negative such as: Why buy now while prices may still decline further? Don't you know that real estate is no longer a good investment? Didn't you hear that people who bought five years ago have lost their shirt?
While I can understand these concerns, there are really just three questions you should ask yourself before purchasing in today's market:
Number 1: Why should I buy now if house values are still falling?
I truly believe that in most parts of the country prices will soften some more in 2011, but not so much in sought after metropolitan areas such as Westchester County, NY.
PRICE is the major concern for anyone selling a home here. However, when you are buying, COST should be your primary concern. Your monthly mortgage payment is of course impacted by the price of the home you are planning to purchase... but the more important major component in this equation is the interest rate. Waiting for prices to bottom out while rates are increasing can cost you more over the life of the mortgage than any savings from a lower purchase price, which may, or may not happen.
Reality is that over the last few weeks rates for a 30 year conventional mortgage loan have increased over 1/2 a point going from about 4.20% to 4.80%. Looking at the chart above illustrates this increase. While waiting for prices to bottom out seems to make perfect sense it might NOT make sense when rates are creeping up. Consult with your mortgage professional and let him/her explain this math to you before making any decisions.
Number 2: When can I expect to see appreciation if I buy now?
This is an excellent question. Experts which compile data on studies of housing prices asked hundreds of housing industry experts to project housing prices through 2015. The most current surveys show that the experts are predicting prices to soften until 2012... and then project prices to rise again reaching a cumulative appreciation of over 10% by 2015!
So, I would argue that purchasing a home in today's discounted market makes great sense from a longer term financial standpoint. Think of the old saying: You want to buy low and sell high. And we may be very well at the low point regarding the COST of a home...
Number 3: Why am I buying a home in the first place?
And this truly is the most important question of all to answer for yourself. Forget for a moment the finances and possible gains down the road. Why did you ever consider purchasing a home? For almost all people the reason has nothing to do with finances. The Fannie Mae National Housing Survey shows that the four top reasons to buy a home have nothing to do with money at all:
- A good place to live, raise children, and for them to get a good education
- A place where you and your family feel safe
- More space for you and your family
- Control of the space
What non-financial benefits will you and your family reap from owning your home? The answer to that question should be the main factor whether you purchase one or not.
In The End
The COST of a home will probably remain relatively unchanged even if prices continue to decline a bit more because interest rates will most likely keep creeping up. Don't allow money to get in the way of you making the right decision for you and your family. In the long run, the finances will work in your favor anyway since the real estate market and the economy have always gone in cycles... and they always will.