Will interest rates get any lower? Can home prices fall any further? Isn't right now a great time to buy? Well, even if this market turns out to be as good as it gets, there are still lots of reasons why you might be better off waiting to become a homeowner.
IN PICTURES: 7 Tips On Buying A Home In A Down Market
- You can't buy a home in the right location.
Whether you want to buy a home as you primary residence, an investment, or both, just because home prices and interest rates have come down doesn't mean that you should buy a home - any home - just to get into the market.
As real estate investor Don Tepper of Solutions 3D LLC says, "Some neighborhoods improve. Some deteriorate. Maybe there's a nice, affordable home in what is now an acceptable neighborhood, but there are signs it may be going downhill."
Pay attention to the surrounding area of any home you're considering, because the one thing you can't change about it is its location. If you don't have enough money to buy into a decent neighborhood where your home's value can appreciate over time, or if you do have enough money but can't find a house you like in a good, convenient neighborhood, hang on - it's probably not your time to buy. (These five major metropolitan areas have property values that have declined the most. Don't miss 5 Cities Where Homes Aren't Selling.)
- You're new to the area.
If you're about to move to a new location, buying a home there right away might not be the best idea. When you don't know anything about a place except what other people have told you and what you've taken in as a first impression, it's hard to purchase a home in the right location for you. You could end up purchasing a home in a bad neighborhood, in an area that ends up being far away from the activities and people you become involved with, or in a neighborhood that just doesn't end up feeling like home.
If you rent first, you'll have time to explore your new city and find your ideal location. Tepper advises that people "get to know the area and all its quirks before buying."
- You might need or want to move soon.
Katie Wethman, CPA, MBA, and Realtor with the Wethman Group at Keller Williams Realty, says, "I always tell my clients not to consider buying if they are not going to have a stable life situation for at least three years. There are costs associated with buying a home and even bigger costs associated with selling, so even if a home's value remains stable, the transaction costs will make it difficult for someone unless they're planning to stay in the home at least three years (and preferably more)."
If you're thinking about changing jobs, moving in with someone, getting married, having kids or making any other change in your life that might affect where you want to live or the size of the place you need, it might be best to postpone purchasing a home. And even if you have all these things figured out, buying a place might also be a bad idea if you're restless and like to move frequently or you're more interested in taking a long trip around the world than installing shelves in your garage.
Also, IRS rules provide an incentive to stay in a house for a while: if you earn a profit from the sale of your house, you won't have to pay taxes on gains of up to $250,000 ($500,000 for certain joint returns) if you've owned and lived in your home as a primary residence for at least two years.
- You don't want the responsibilities that come with property ownership.
When you own a home, you either have to have the time and ability to maintain it yourself, or you have to have enough extra money to pay other people to take care of it for you. Even in the latter case, you will at least have to put the effort into finding and retaining workers who are reliable, trustworthy and consistently do a good job.
So if you don't want to be responsible for every little thing that needs to be maintained, you're better off renting. (We check out the advantages of each of these options, and look at the issues involved with a fixer-upper in Buying A Home: Brand New Vs. Fixer-Upper)
- You don't have a lot of extra cash.
When you own a home, you can never have too much cash. You must be financially prepared at all times for any home emergencies, like a dead air conditioner in August or a termite infestation. You need to have enough money in the bank to tide you over for months, even years, in case you lose your job - otherwise you'll be losing your home, too. It's not enough just to have a down payment.
If you don't have plenty of cash saved up, or if you'd simply rather continue building up your savings or hang on to the cash you've already accumulated, buying is not necessarily a good idea. Even if your monthly mortgage payment would be the same as your rent payment, the extra responsibilities that come with home ownership tend to make owning more expensive than leasing. (To learn more, see To Rent Or Buy? The Financial Issues.)
It's Up To You
As Wethman says, "It may seem strange having a realtor tell you reasons NOT to buy a house, but there are plenty of people for whom it is a bad idea." Don't let anyone tell you that buying a home is the only way to go - make the decision that suits your finances and your lifestyle. (For more, see Are You Ready To Buy A House?)
Catch up on your financial news; read Water Cooler Finance: The Unrelenting Claw Of Bernie Madoff.