Is it really the right time to buy your next home?
On the face of it, home prices haven’t been this low in a long time. In some markets, home prices are expected to fall further in 2011.
The Department of Housing and Urban Development (HUD) released its latest housing scorecard and found that home affordability is quite high. Prices have fallen and mortgage interest rates remain near historic lows. If you’re going to buy another property, you’ll pay less than you might have eight or even ten years ago.
But deciding whether it’s really the right time to buy your next home means taking a deeper look at where you are in your life and where you want to be over the next seven to 10 years.
A big mistake home buyers made over the last decade was to think about homeownership as a fluid, liquid financial move. But, buying a home isn’t the same thing as day trading stocks, even though it felt like that for awhile.
Real estate is, by its very nature, illiquid. It’s been historically difficult to unload a home quickly without taking a huge financial loss.
Two years after my husband and I bought our first home (a vintage co-op on Lake Shore Drive, in Chicago), I wanted to sell. I decided I wanted to plant a garden, something not necessarily conducive to living seven stories in the air.
But by the time we had made that decision, our sort of home had fallen out of favor. No one wanted to live in a vintage (they call them “pre-war”) co-op. Everyone wanted to live in a single family house with a garden. So, we watched our home grow stale on the market for about six or nine months, before pulling it off.
Two years later, we put the home back on the market and sold it six months later, feeling lucky to get an offer. Back then, in 1994, six months was a long time to be on the market and while we hadn’t found a place to buy, we decided to just sell and rent so we’d be in better shape when we finally found the right property.
The early 1990s seems like a long time ago, but it was at the beginning of the upswing that culminated in the frenzied “irrational exuberance” of the housing bubble. And as every school kid knows, the bigger the bubble, the more bubble gum you get all over your face.
Our housing market is still gummed up, but that doesn’t mean there aren’t amazing, once-in-a generational opportunities to buy property. I was in Atlanta last week and someone asked me if I was planning on buying a condo or two in Midtown. There are condos selling for $30,000 to $50,000 that originally (three to five years ago) sold for $150,000 to $200,000. Granite countertops, great views, indoor parking, the works.
I supposed I could buy something. I have the cash and available credit. Heck, at these prices, some of my colleagues are charging their real estate purchases on credit cards.
The question I have to answer is what are my long-term intentions with this property? What’s the business strategy? If the purchase is an investment property, what is the expected rental income and what’s my exit strategy? And, how much time and energy do I have to put into this investment?
Because you really have to think through any real estate purchase you make these days, and not let yourself fall in love with a property. Good judgment can’t be overruled by emotion.
And, don’t forget to pull out your crystal ball because you should plan on a seven to 10-year timeline, just in case.
And in some markets, even that might not be long enough to see the housing market get all the gum off its face.