Almost every time someone learns that I’m a Realtor, they ask, “How’s the market? Is it a good time to buy?”. It’s a good question, but if you’re actually considering purchasing a home there’re a few things to consider before looking at market conditions.
From my experience, the most important part of choosing to buy a home now or later on, is your current situation and what outcome you want. Once you have a comprehensive understanding of these two things, you can use them as a guide to look at the market and then be sure whether or not it's a good time to buy for you.
Let's start with a really simple example; let's say your income is steady and you really need more space. Also, you’re expecting to live in your next home for 5-10 years, likely even more. If you were looking in the Denver Metro area, it would always be a good time to buy.
Here’s why. While every market has it dips, overall home prices in Denver metro have gone up 1.9% per year since 1971 when adjusted for inflation. Without adjusting for inflation they’ve gone up 6.3%.
Of course, it’s highly unlikely that your situation is that simple, so here are a few things to consider when deciding to purchase a new home (especially if it’s your first home).
Is this your first home?
This can add to the financing available to you. There are even programs that allow you to pay as little as $1000 down for your first home purchase (Don’t forget, that doesn’t include closings costs).
How much can you spend on your home per month?
Your mortgage broker will be able to help you figure out how much you can afford in terms of your mortgage payment. This monthly payment will generally include the Principle portion of your loan, Interest, Taxes, and Insurance (PITI) and sometimes HOA fees. When considering your personal budget, it's also a good idea to have something budgeted for maintenance.
Even with just the above two questions answered, you can compare market prices to your budget and help define your area and home types. If you’re not quite where you want to be, you could meet with a financial advisor to see how you can get there (or even start with a lower priced house to trade up later… that’ll be a separate post at a later date).
How long will you likely be living in the home?
This can be a huge one in terms of comparing your situation to the market. If unlike our example, you know that you’ll only be living in the area for a very short time and you’ll absolutely need to leave at a very specific time, it may not be a good time to buy. Closing on your home will usually take around 30 days on both the buying and selling side, but it isn’t 100% predictable, the making timing of both purchase and sale difficult.
On the other hand, if it’s a short period but you don’t have a definite move out date, it could be a good time to buy. In general, it’s easiest to predict market trends over very short periods or very long periods. With that said, it’s never a good idea to purchase your home based solely on market predictions.
Where do you want live? How many bedrooms, bathrooms etc. do you want? And most importantly with both location and features, why do you want them?
Finally, we can focus on what you want! The why part of this question is probably the most important part. That’s because you might find that different features and/or locations can create the same benefit.
For example, someone that will want extra rooms for living space in the future, but not necessarily right now, could consider an unfinished basement. That space can later be made into an extra room and would in many ways be more customizable. This could also save you some money on the upfront cost and if you’re able to save up and/or use cash for the extra work, you won’t be paying interest on the additional cost. It could also help with a refi - potentially lowering your PITI, but that too is for another post/discussion.
As you can see, most of the above are closely related to your finances and that is where market analysis will be of most use in helping with your decision. However, this last point is probably the most important, especially the “where” as that will define all of your market information. Location, location, location as they say, although I’d say it’s more: You, location, your finances.
Got questions? Thoughts? Please leave a question or comment, I’d love to turn your thoughts into a discussion or even another post.