The housing market right now seems like a place fettered with possibility. While this is mostly true, many people do not realize the dangers in buying a home right now.
In a buyer’s market, like this one, most people jump right into investigating big purchases like a home or a vehicle. Even though the time may seem right for home shopping, though, the truth is that this might not be the case. As a matter of fact, here are five reasons you shouldn’t buy a house right now.
One of the most important reasons you should reconsider buying a house right now is that home prices could still go down. Even though home prices have stabilized recently, it is still a very real possibility that this could just be the beginning of a new boom. After all, there are still 2 million homes currently on the market in the United States. This means that buyers all over the country could be on the verge of an even more favorable market. When you consider that home prices have fallen nearly 40 percent since peaking in 2006, any decrease would only add to the surge.
Financial Analyst A. Gary Shilling says
At current rates of housing starts and household formation, it will take four years to work off the excess inventory, plenty of time for those surplus houses to drag down prices.
Secondly, you shouldn’t rush into buying a new home simply because you think interest rates are low if you have had any credit issues in the past. Even though your interest rate might still be quite competitive, if you have bad credit the rate you pay will be significantly higher than the 3.5% record low you might expect. According to the U.S. Census Bureau a person with perfect credit could expect to pay approximately 50% of the principle amount over the course of a 30-year mortgage. With current housing statistics, that’s approximately $145,000 in interest at the lowest possible rate for a 30-year fixed mortgage of approximately $225,000. The same principle amount would yield nearly four times the interest for a person with a low credit score (that’s $428,000 in interest!!).
Plummeting home prices are probably very attractive to the eager first-time buyer but that does not necessarily mean that they will find success. In fact, as Lawrence Yun, chief economists for the National Association of Realtors, says
There are notable shortages in the lower price ranges which are limiting opportunities for first time buyers.
Indeed, the kinds of homes that first-time buyers are looking for are often quite rare during times like this because those who own these kinds of homes are also among the most reluctant to sell.
Fourth, and this is very important for first-time buyers, don’t forget that buying a home also means taking on additional financial responsibilities, not just a higher rent payment. For example, in addition to a mortgage payment, home owners have to pay for things like insurance and taxes; that’s not to mention the upkeep of the entire property. If you shell out everything for the down payment you will quickly realize that you do not actually have enough money to compensate for all of the new responsibilities.
Finally, you need to remember that making a major purchase like this will directly affect your credit and probably not in a good way. It’s kind of an industry secret but getting a new loan or line of credit right now could actually be the worst thing you could do for your credit score, at least in the short term. Obviously, lowering your score will make it difficult for you to acquire other things you may need or want, whether that involves new furniture for your home or purchasing an additional vehicle for your family.
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