Should You Buy A Home Now Or Wait For Prices To (Maybe) Drop?
October 10, 2018There was a recent news release about certain locations in the US that have started to see foreclosures creeping up again and that has some people worried about the market dropping again and watching home prices fall as well. As a result, more people are asking if they should go ahead with their plans to buy a new home now or wait until prices drop. Here’s how I see it.
Timing the market is almost always a bad idea
The reality is that when you start asking questions like this, you’re basically trying to time the market. Your needs really should trump whatever the market is doing. Being prepared financially (i.e having a healthy credit score, funds saved towards the down payment, etc.) is the answer.
That holds true whether you’re a real estate investor looking to make a short-term investment or you’re in it for the long haul and plan to keep it as a rental property. Make sure it’s a good investment and the numbers make sense.
If you’re looking to purchase a home as your primary residence, and you find one that fits your budget that also meets your other needs, then worrying about its value decreasing in the short-term really shouldn’t be a huge concern. The longer you plan to stay in the home, the less of the impact a drop in value might have. You might feel a bit of buyer’s remorse or have less equity to start, but if the home is affordable and meets your anticipated long-term needs, it’s probably still a great deal for you.
Home prices fluctuate. When the market falls, some homes will decrease in value more than others. It’s true that when that happens, short sales and foreclosures will become available, but will the type of house you are interested in be on that list? And when will it happen? Here are some other factors to consider.
Deciding whether to buy now or wait for a good deal
1) Do you care enough to wait it out? If you’ve been dealing with a home that’s too small for your current family, you’re tired of renting, or you’re already finding investment properties that fit exactly what you’re looking for and the numbers make sense, you may prefer not to wait.
On the other hand, if are content with your current living arrangement or you aren’t in a rush to purchase an investment property, you likely don’t really feel pressure to buy now. Waiting for a deal that motivates you to move forward could make sense.
2) Are you looking for a very specific type of home? For example, do you only want to live in a particular neighborhood, or are you picky about exactly what features your future home needs to have? The more specific your list, the more of a challenge it will be to wait for exactly that type of home to become available when home prices drop.
3) Is the home you want available now and you can afford it? If it’s a good deal now (meaning it fits within your budget, is in a good location, etc.) and you can get exactly what you’re looking for, then now might be the time to go for it regardless.
4) Do you have enough cash on hand? When prices drop, many others may be going after the same homes you’re interested in. You’ll likely need funds stashed away, ready to make an offer, but be prepared to potentially be outbid.
5) Is the type of home you want more than what you can afford? This could easily be the case for those in extremely expensive real estate markets. You might choose to wait to see if you can get one that meets your needs and falls within your price range if/when prices drop. The solution is not to overspend, but it doesn’t hurt to see what’s available – assuming you can wait until such a drop happens, if ever.
6) Do you need to sell your current home? Waiting for prices to drop in order to score a better deal when buying might feel right, but if you also need to sell your current home in order to make a down payment, any savings could be washed out by a drop in value of your current home or could even cause you to miss out on a deal if you’re unable to sell your home. Unless you’re prepared to make a temporary move so you can sell your home first, it’s probably best to just buy the home you want/need when you’re ready and work to sell your current home quickly.
7) Should you go for a short sale or foreclosure? You might find what you’re looking for in a short sale, a foreclosure or a home that needs some work but has potential. The seller, whether the owner or the bank, is usually motivated to sell the property. Also, you’d likely get instant equity, but the process to purchase these types of properties can be involved and lengthy. You could save yourself a lot time and headache by going for bank approved short sales vs those that have not gone through the approval process. You can also look for foreclosure properties on Bank REO lists.
Beware that some of these properties may not be in the best condition and that you may be responsible for any repairs needed. Just know that regardless of what happens to the real estate market in the future, these types of properties are available now, so you don’t have to wait for the market to fall before you look into this option.
The bottom line
All in all, it makes sense to make a purchase when you are financially prepared and you find a property that fits your needs. If you find that now, great. Waiting to see if prices will drop could work out, or you could find yourself waiting and waiting, so it’s up to you to decide. No matter what, it’s most important to make sure you have your ducks in a row before you buy in any market.