The changing real estate market has many previously eager buyers questioning whether now is the right time to buy a house. The short answer is that if you have the income, credit, and total down payment in cash, then there’s no reason to wait, regardless of the market. Below we walk you through why these factors should be your priority when deciding whether to buy a home.
Reason 1: You can never time the market perfectly.
Think of the Real Estate and Financial Markets as living, breathing entities that fluctuate daily, weekly, and monthly. These fluctuations result from various factors of the always-changing economics of the US and your local area. Historically, both the stock and real estate markets have increased over time. When prices have dipped, history has proven both markets rebound and appreciate.
Reason 2: You have to live somewhere and pay for it.
If you are paying rent, you are helping pay someone else’s mortgage, and over time, those payments reduce your cash flow. The perk of homeownership is that you are now paying into something you benefit from. Every month you make a mortgage payment, you are one month closer to financial freedom.
Reason 3: Real Estate is an opportunity for the Benefit of Leverage.
Leverage is the concept of acquiring an appreciating asset with very little capital, allowing you to take control of the asset’s entire value. For example, a homebuyer can buy a house with as little as 3% down plus closing costs. For fast numbers: if the property costs $400,000, 3% is $12,000 plus another $12,000 estimated for closing costs. That makes the total investment to acquire the $400,000 asset only $24,000. Leverage then kicks in. Your asset will gain appreciation while you do nothing more than make your required monthly payments. Let’s say that the $400,000 home is appreciating at 5% per year. In just five years, you’ll acquire an equity position of roughly $86,000 through appreciation. Appreciation rates vary per market and are not guaranteed, but what other investment allows you to gain money on the gross value amount with so little upfront? Homeownership is a wealth builder!
Reason 4: Homeownership allows a stable and predictable housing payment.
Homeownership’s barrier to entry is the total upfront cost of the down payment, closing costs, and prepaid expenses. However, the principal and interest payments are stable after this initial investment if you have a 30-year fixed-rate mortgage. A total monthly housing payment also includes property taxes and homeowners’ insurance. Both can increase yearly, but typically only by 3% or less annually. Additional mortgage fees sometimes include mortgage insurance and homeowners association fees. Even with these fees, a mortgage payment allows more stable long-term housing costs and will enable homeowners, on average, to save more than renters.
Reason 5: There are tax advantages of homeownership.
As of July 2022, US citizens still have a tax advantage associated with owning a home when they file their yearly IRS Federal 1040 tax returns. It varies by tax bracket, but as of now, you’re able to write off a portion of mortgage interest and property taxes paid. In addition to the mortgage interest and property tax deduction, homeowners with mortgage insurance may also have an additional tax deduction. IRS rules change yearly, so please consult with an IRS or a CPA to confirm your deduction.
Today’s mortgage guidelines allow some homeowners to use their equity. Equity is the difference between your home’s value and your mortgage loan balance. Since the past recession in 2008 to 2013, lenders have changed rules and guidelines that allow consumers to access home equity using Home Equity Lines of Credit (HELOC), also called a 2nd Mortgage, Cash-out Refinances, and Reverse Mortgages. However, in today’s current lending environment, homeowners must qualify for the loan program, typically have at least 20% equity in the property, and again qualify for the new payment. In many situations, there will also be additional appraisal requirements.
The bottom line is if you’re financially able to, buying a home is a reasonably safe investment that will create security and stability around your housing and housing payments and allow you to build steady equity. Waiting to time the market right could cost you years of equity growth. If you’re concerned about rising interest rates, remember refinancing is available to lower your interest rate once rates go down again. Check out these links for the latest mortgage interest rates and market reports to get started on your home journey!