Right Time to Buy a House
Even for casual followers of real estate prices and the stock markets, one thing is very clear – Property prices are down. A dyed in the wool value investor waits for exactly such an opportunity, when a temporary aberration or market panic drives prices down. Buying a home is somewhat similar to stocks, in the sense that prices go up and down while the market corrects itself, but over the long term, the arrow always points upward. Under these circumstances, a sharp spike downwards presents a golden opportunity to save a big chunk. But, like all investments, it’s never that simple, or easy.
From another angle, buying a home, whatever the state of the real estate market, is never a bad idea, so long as you need one and you the ability to make the mortgage payments. You do need a roof over your head, there are tax benefits and a house is a significant asset which is virtually guaranteed to appreciate in value over the long term, whatever price you buy it for.
From an investment point of view, the situation gets a little more complex. For example, when you tally up the mortgage interest, maintenance costs and other expenses over the short term, subtract it from the asset appreciation, if any, is what you are left with more than what you would get from another secure investment? Not likely. So, should you wait until the real estate market dips into a deep trough, so that the later gains will factor in the market correction? Probably.
My view here is that buying the first home is not a question of an investment. You need a home, you buy it. But if you are planning on buying a second home, or additional property, as an investment, or a summer home, or for any other reason, this purchase should most certainly be subject to an investment strategy. Wait for a significant market downturn, and buy when you think it has gone down way below what it should be.
The fact remains that this is only one side of a real estate investment strategy. You also need to consider income from the property in the form of rental which is also likely to go down with dropping prices, interest rates going up and a lot of other issues which generally tend to neutralize the advantage offered by a sluggish real estate market. If you are a first time home buyer, go right ahead and ignore the market. For an investor looking seriously at real estate, an REIT (Real Estate Investment Trust) or a real estate mutual fund may provide a better answer than trying to make sense of what a real estate broker is trying to lay on your hands.