Ever since the credit crisis began, so called experts have made minute-by-minute predictions about when things will either finally get better or spiral downward in to new depths of despair. There has been talk of bubbles and booms, crashes and collapse and just when they predict a step forward, we’ve taken two step backwards. Even investment guru Warren Buffet predicted that the US real estate market would be much improved at this juncture and has now had to publicly apologize for being a bit hasty with his forecast.
Something that seems to confound the experts can certainly be very disconcerting for the average person. Headlines such as “Is Now Really the Right Time to Buy a House?”, and “Are We Heading Into A Real Estate Bubble?”, can leave potential homebuyers worried that perhaps they are making the wrong move at the wrong time.
As an experienced mortgage broker, I’d have to say (with respect of course), “Frankly, Warren, I don’t give a darn!”.
That’s because the average homebuyer is not purchasing a property for the sole purpose of investment – they’re buying the house because they need a home…and they need a home when they need it, regardless of market conditions.
For instance, a friend of mine bought a house within four months of when I bought mine. However, I bought mine for a low price right before the last boom and saw equity created nearly instantly and he bought his for an inflated price and at one point found himself owing more than the house was worth. The commonality between us was that we were both starting families and need a suitable home to live in. With or without the boom, both of us needed to purchase a home when we did.
As it turned out, I lost the inflated value of my home during the credit crisis and his value is starting to come back now that things are picking up. Such is the nature of owning property over the long term and most folks will find them selves in something that resembles both situations at one time or another when owning a home.
The key to staying “safe” when buying a property or indeed, when making any major investment is not so much the stability of the market but rather the stability of the buyer.
That’s because calamity can happen any time and in many different ways, not just in the market place. It’s more important to examine your current state of resilience rather than the bouyancy of the market.
Test your resilience by asking yourself if becoming a homeowner will still allow you to prepare for that which is always inevitable; change. How well could you roll with it if you lost your job, became ill or hurt ( even temporarily), added to your family or needed to move. Will the price point of the home you are considering allow you to have a savings plan both short and long term? Will you have the ability to pay down any debt that you have and have you budgeted for mortgage or life insurance in order to further protect you in a time of crisis?
This is not to say that in regards to the real estate market, there isn’t a good, better, best time to buy the family home, certainly buying property at an inflated price in a boom market will limit your choices when the market corrects itself. However, having a lot of equity gifted to you by the market because you bought during the “sweet spot” won’t help you pay your mortgage if you lose your job for personal reasons or if you break your leg and can’t work for three months.
The secret to good investment is simple – whatever you buy, when ever you buy it, make sure you can continue to pay for it even when life throws you curve balls, financial or otherwise. No matter what market your buying in, choose a home at a price point that allows you to pay down your debt and save for a rainy day. If you can’t find a property that allows you to do that, it’s not the right time to buy – if you can, you’re golden.
In my opinion, that’s the best advice any expert can give you.