Some potential home buyers want to buy a home, but have decided to wait until “things look better.” Of course, there is nothing wrong with reasonable caution. Such a decision should be made as prudently as possible. Although this may be hard to believe, your ability to buy the kind of home you want will diminish as the economy improves. Let’s look at two situations.
First-time Buyer
It is usually difficult for many people to buy their first home because of the time and effort needed to accumulate a down payment. For those who are interested in home ownership, now is the time to act. Homes are selling for less than the same home has sold for in recent memory. As the economy improves, more buyers will enter the market which will drive home prices upward once again. Interest rates are also very reasonable at this time. It is most unusual to have both home price and interest rates at low levels at the same time. If the first time buyer becomes a homeowner now, he or she will be able to enjoy a nice increase in equity when the economy recovers.
Existing Homeowner
For a person who already owns a home, waiting is even more costly. Let’s say that you own a home that is valued at $400,000 on today’s market and you want to purchase a home that can be bought for $750,000. If you wait until “things look better,” your home may increase by 5 percent to $420,000 while the $750,000 home will be selling $787,500. This widening the gap between the price of your current home and the home you want may preclude your being able to make the switch. Another factor that can affect your affordability in the future is interest rates. If the economy is recovering, it is quite possible that interest rates may be increased to prevent such a recover from overheating.
Advice: In a stronger economy, you may have to contend with a weakening of your buying power both from a widening gap in home prices and higher interest rates. Think about it. This may be the best time you will have to buy the home of your choice.
