2021 Housing Market Update: Should I Buy a House Now or Wait?

At the time that I am writing this, the real estate market is red-hot. Let’s talk about how to navigate a market like this. What are the positives in this booming market? Interest rates are very low. You can borrow money right now for under 3% interest which historically, is next to nothing. In this market, you are paying a higher price, so it does even out in that sense. Another benefit is that you can potentially sell your house at a premium within these market conditions.

What should you do if you looking to buy a home in this current market in 2021? Let’s ask ourselves a few questions. Not every person is in a situation where they should buy a house. It’s expensive on the front end, it’s expensive to maintain, and even when you have the home paid off you are still obligated to pay taxes each year.

1. Are you willing to stay in this house for 10 years? Typically, recessions happen in 10-year cycles. Just like with investing, time is on your side when you buy a house. If you are willing to stay in your house for a long period, odds are you will make it out okay on your investment. Over time the trajectory of the housing market tends to go up. The longer you own a house the less money you’ll have to pay each month for your mortgage because you will be increasing your principal. If you put less than 20% down and you are currently paying PMI insurance then you will have the opportunity to loose that additional cost by carrying the loan for a specific amount of time. Speak to your loan originator to get specifics on what that time frame looks like for you. When deciding on making a purchase make sure to factor in your personal life. Are you married? Do you have children? Are you able to settle down? Is your job going to allow you to stay in the same location? Another important question is whether you going to be happy in this house for 10 years at this price point? Most people sell between 5-7 years of being in a house, which is how people lose out on their investment.
2. Will your housing costs be lower than 30% of your income? This is how you can build generational wealth. There are recommendations out there that suggest that you should cut back on the small things like dining out or getting coffee three times a week. On the contrary, I believe if you cut back on the big items that you can control like your housing expense, then you can build wealth quicker. This is because you are controlling more impactful expenses. The three typical large expenses for people are housing, transportation, and food. Housing is the biggest of all three. Being aware of how much you spend on this expense helps to prevent you from buying more house than you can afford.
3. Have you saved enough for the down payment? You can buy a house for as little as 3.5% of the purchase price. When you add in closing costs you will need to account for around 6-6.5% of the purchase price. What is the drawback of having a low-down-payment? As I mentioned before, if you put less then 20% down, you will have to carry Private Mortgage Insurance for a portion of the life of the loan.
4. Are you okay with the value of your house going down? It is possible for this to happen within a recession. If you are not okay with that you need to truly think through this decision. If you know you are staying for 10 years, and you’ve checked the housing cycles, and you are comfortable with waiting out the value, then you should be fine. If you are not willing to stay for the long term, you run the risk of your home value possibly decreasing at the time you want to re-sell.
5. Last question, am I excited about buying this house? If you are not excited about buying a house, then you should reconsider the purchase of a home. The process behind every real estate transaction is taxing and takes a lot of effort from the buyer. If this is not something that brings you joy, maybe continue renting and wait until it is something that you want to put effort into. Maintaining a house itself is a massive undertaking. Don't just purchase a home because you feel like society is telling you it's the next natural step of adult hood. On the flip side, if you watch HGTV on the daily and this is something you’ve wanted for a long time, then yes, go for it! I say this because you would be investing in something that adds true value to your life and that is always something I will advocate for. v

Should you buy a house in a red-hot market? Sure, if you've asked yourself these questions and the home makes sense for you financially. The best thing you can do for yourself is to stay within budget and not buy more house then you can afford. Be patient. Don’t purchase leading with emotion, purchase using your better judgment.