Sugar Blossom

Buy or Rent House by Considering Market Condition

When It Turns Into a “Buyer’s Market?”

A buyer’s market occurs when there are more sellers than buyers. It’s characterized by buyer’s being able to dictate terms and price to sellers.

If homes are taking longer and longer to sell (often six months or more), it’s indicative of a buyer’s market. If the inventory (the num­ber of listed but unsold homes) is six months or more and increas­ing, it’s also indicative of a buyer’s market. Again, check with your local real estate board for statistics in your area.

If you buy when prices are going down, a buyer’s market, you may initially think you’re getting a great deal. However, later on you may ?nd you can’t sell for what you paid. (Millions of Americans found themselves in this unfortunate position during the real estate reces­sion of the mid 1990s.) You may discover that after commission and closing costs, it will cost money out of pocket to sell!

Trap-don’t get “upside down”

This is real estate jargon that means that it will cost you more to sell your house (after paying off your mortgage, closing costs, and commission) than your house is worth.

The trouble with a declining real estate market is that you don’t know, and no one can tell you, how far it will fall before it reaches bottom and rebounds. If you buy on the way down, you will lose.

Therefore, if the market is declining; instead of buying, you may want to rent, at least temporarily. While renting doesn’t offer all the bene?ts of ownership, it does allow you to move out gracefully with­out having to sell at a loss.

Should I Rent Instead of Buy in a Falling Market?

In a falling market there is negative price appreciation. Then the costs of home ownership often more than exceed the bene?ts. In a down market, you can often rent a home for far less than it costs monthly to buy that same home. (In some areas, a house that costs an owner $2000 a month for mortgage payment, taxes, insurance, and maintenance can be rented for just about half to three-fourths of that amount-$1000 to $1500.)

In short, unless your property appreciates (increases annually in value), from a strictly dollars-and-sense perspective, you may be bet­ter off renting temporarily until the market turns around and prices turn up.

What Should I Do Right Now?

Today, instead of deciding to buy or not to buy, take a few moments to analyze the market. Check with your local real estate board, as noted above, about inventories and how quickly homes are selling. Check out home affordability. Look at interest rates. Learn about housing shortages. Investigate the market before you make your move.

Don’t let personal factors in?uence your investment decision. For many of us, our purchase decision is made strictly with regard to our personal situation, without considering the market. For example:

Reasons to Buy Without Considering the Market

? You’ve ?nally saved up enough money for a down payment.

? You need a bigger house to accommodate a growing family.

? You’ve moved into an area because of a job change and want a place to live.

? You’ve received an increase in salary and can now afford bigger home payments.

All of these are excellent reasons to buy a house, but it could be a mistake to act only on them. None of these reasons takes into con­sideration the housing market.

Buying a home is not like buying a refrigerator or even a car. You expect those items to decline in value as you use and enjoy them. But a home is also an investment, probably your biggest. You should look forward to your home going up in value over time.

Therefore, beyond your personal motivation for buying, you must also consider the market.

Trap-Ask Yourself If You Should Rent

Before you commit to a home purchase, ask yourself again if renting, at least temporarily, doesn’t make more sense given market conditions? Only buy when buying makes more sense than renting.

Can I Really Do This?

Keep in mind that all real estate markets are regional. That means that while the market may be up in California, it could be down in Michigan. Down in Massachusetts, up in Arkansas. If you’ve only got one house to buy, national statistics don’t make too much differ­ence. It’s only the market in your area that counts.

And it’s only you who can decide if now is the right time to buy. If you’ve got to make a housing choice, then give yourself every chance of it being an educated decision. Don’t simply say, “Prices are too high to buy.” They may be even higher next year and the year after.

Don’t simply say, “This house is cheap because it’s selling for less than it did a year ago.” It may be worth far less a year from now- and the year after, worth even less.

[tags]Rent House, Buy House, Market Condition[/tags]