Many first-time home shoppers have been discouraged by the high prices in the housing market, and many people wonder if putting the purchase off a few years would be a smart strategy. Many people are waiting for a drop in housing prices, but the chances of a significant drop in home prices is actually quite remote. While there are certainly pockets of the country where real estate can be said to be overvalued, in most areas of the country the average house is actually priced quite fairly. That means that putting off the purchase of a home may simply mean throwing away more money in rent, and losing out on the significant tax benefits homeownership can bring. Many people plan to save their money waiting for home prices to come down to a lower level, but this is generally not a winning strategy. While it is true that the housing market is cyclical in nature, housing prices seldom go down for very long, and there have been extended periods in which home prices did not retreat at all. Saving even significant amounts of money may not be enough to cover the appreciation of home prices, even if that appreciation slows down from its current high rate. The best strategy may be to simply bite the bullet now and buy a home whose payments you can afford. This will allow you to participate in, and benefit from, any future appreciation in home prices. Let's look at an example - using a home valued at $300,000 in today's market. In many areas of the country this would be the average home. If that home appreciated at a 5% rate over the next year, its value would rise by $15,000. Few potential home buyers would be able to sock away enough in a savings account to offset that much of a gain. And that $15,000 figure does not include any potential tax savings the buyer could have gained through deducting mortgage interest. Many potential home buyers have thought that rising interest rates would serve to cool off the hot housing market, but so far that has not happened. Even as short term interest rates have continued to rise, mortgage interest rates remain near their all time lows. In addition, waiting for high interest rates to kill the housing market and lower prices will also mean that you will have to take out a mortgage at a higher interest rate, and that alone could negate any savings you achieve through a lower purchase price. While it is true that there have been several instances of boom and bust real estate markets, this situation is not in place in most areas of the country. While there certainly are overheated housing markets out there, it is important to remember that real estate is not the same as the stock market. There is a real intrinsic value to real estate, and a limited supply. That means that even if home values fall, they are unlikely to fall as significantly as stocks did in the last bear market. In order to trigger a significant decline in housing prices, there would need to be a significant negative event, and at the time no such event seems to be on the horizon. There are plenty of anecdotal evidences that the housing market remains strong, and that it is likely to remain quite strong for some time to come. Even though many people think that the market for real estate may have peaked, there remain plenty of stories of homes that sold for more than their asking price, and bidding wars continue to break out at many open houses around the country. In addition, there is little evidence to indicate that the prices of homes are likely to suffer a decline in the near future, and the number of homes that sell for less than their asking price is still very small. With all these indications of a still strong housing market, and still low interest rates on mortgage loans, it is easy to see why waiting to buy a home may not be the best strategy. |
