Recently on Trulia, a potential buyer described her situation and asked for general advice. She and her husband make about $65,000 a year; they have good credit scores and five thousand dollars for a down payment. Their questions were, “Should we wait to accrue a larger down payment and reduce our debt? Or should we act now and purchase our first home?” The question on Trulia adds a lot more details, but I’m just going to focus on the central questions – timing and buying into the market.
The Value of Waiting
There is probably a good case to be made for each scenario. If the buyer waits a year, she can clear off all other debt, thus increasing the overall price range of her first home. Her income may also grow and the rebound that appears to be occurring in today’s real estate market place may prove itself to be very real. Buyers tend to appreciate solid economics when making a large decision like this.
Act Now
My advice though, with 18 years experience: “now is the time to act”. There are a lot of good indicators suggesting the real estate market is more than poised to enter an up cycle after several stagnant or down years.
Chris Isidore reports for CNN Money that the real estate market is seeing significant gains, as tracked by The Case-Schiller Index. Read his full article at:http://money.cnn.com/2012/12/26/real_estate/home-prices/
Additionally, the Wall Street Journal has a great article that discusses five reasons why now is a good time to buy. Keep in mind, these are the same publications that just a few years ago were all doom and gloom about real estate. What’s changed? It costs so much to rent these days, if you qualify for a mortgage it is less expensive to own a home than to be a renter. Consumer confidence is up when it comes to real estate – locally we are seeing this in the form of multiple offers and quick contracts on entry level priced homes. Check out the WSJ article at: http://blogs.wsj.com/developments/2012/11/27/five-reasons-home-prices-have-been-rising/ Be sure to check out the interactive graphics – visually shows you the decline in inventories. The article also discusses the decline in availability of bank owned/foreclosure/short sale property.
Risk of Waiting
And buyers should keep in mind, waiting has a risk. Interest rates have been – to use the non-technical term – Insanely good the last 12 months. This is not going to last forever. At some point, rates will go up and when they do, it will cost more per month for the same homes. Saving a larger down payment (to go back to the buyers original question) could be moot if rates increase – the net effect being you put more money down and have a larger monthly obligation.
View Boulder homes backing to Open Space, under $1,000,000
Read about Home Buying 101 – everything you need to know about purchasing your first home.