A recent op-ed said buying a home during a pandemic was a terrible idea.
The author, Teresa Ghilarducci, noted that both home prices and uncertainty are high.
Her basic message – we’re maybe acting irrationally due to the COVID-19 pandemic, and that it could be smart to hunker down until the dust settles.
While I totally get the author’s point of view, I never agree with blanket rules, especially when it comes to real estate and/or mortgages.
Ultimately, we are all different people in unique situations, and what benefits one individual may not work for another, and vice versa.
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Simply put, it could be a great time to buy a home right now, and also a very bad one. It just depends…
Do You Have a Solid Home Purchase Plan?
- Don’t buy a house just because everyone else is
- Don’t buy a house because you don’t want to miss out
- Don’t buy a house due solely to speculation
- Don’t buy a house sight unseen or on a whim
- Don’t buy a house without knowing your exit strategy
No matter what’s going on in the world, you should have a clearly thought out plan when venturing into the world of real estate.
Purchasing a home is a big commitment, and a costly one at that. Even if you get cold feet and decide to sell shortly after, there are lots of closing costs on both ends of the transaction.
You might be able to break even if home prices continue to rise after purchase, but if the timing just isn’t favorable, you could be caught holding the bag.
The good news is you can generally always sell the property if you have second thoughts, especially during a seller’s market, which the author and I agree we’re in at the moment.
Why is it a seller’s market right now? Well, because housing inventory continues to be very limited and mortgage rates are at record lows.
Combined, that makes it pretty easy for a prospective home seller to list their property for top dollar, considering the lack of competition from other sellers, and the increased purchasing power enjoyed by buyers at the moment.
The big question here is how long will sellers control the market, and also what’s more important, a low mortgage rate or a low purchase price?
I explored that very question a while back, with the main takeaway being you only pay for a house once, while the mortgage rate can be refinanced pretty much at any time if you qualify.
In other words, someone who pays $500,000 for a house can’t change that fact, whereas someone who purchased a home with an interest rate of 4% last year might be able to refinance it down to 3% or lower this year.
So purchase price does matter a lot, and can’t be taken back, but it doesn’t necessarily make or break the deal, nor does the mortgage rate.
Don’t Buy a House Because Financing Is Cheap
- Purchases shouldn’t be dictated by the cost of financing
- You should either want to buy a house or not want to buy a house
- The same goes for any other product on the market
- While cheap mortgage rates are a plus, they shouldn’t totally drive the decision
Let’s just think about the financing piece for a minute. Would you go out and buy something just because a store is offering 0% APR for X number of months?
Car dealers are constantly offering no interest for X months, but that doesn’t mean I rush out to buy a car.
The same goes for a refrigerator or a washing machine – just because it’s a good deal to finance it doesn’t mean I need it or want it.
Yes, it’s a popular and successful sales tactic, but it’s also just that.
While a low mortgage rate incentivizes a home purchase, it shouldn’t dictate the home purchase itself.
Similarly, a pandemic shouldn’t be the deciding factor in whether you should buy a home or not.
You shouldn’t rush out and buy a home in the sticks just because you fear the collapse of city living, nor should you necessarily put the purchase on hold because of the unknown.
Ultimately, COVID-19 should just make us all think a little more thoughtfully about major life decisions, not speed them up or postpone them.
So again, a blanket rule doesn’t work for me here, even in the face of uncertainty.
If you feel strongly about a home purchase and you’ve done your homework, it shouldn’t matter what tomorrow holds.
Conversely, if you’re rushing into a home purchase simply because mortgage rates are low and you’re abandoning the city, you might want to pump the brakes and give everything a little more thought.
While timing can make a real estate purchase very lucrative (or a horrible decision in hindsight), there are many reasons to purchase a home that aren’t at all financially driven.
In summary, there’s always going to be uncertainty in the world, and there’s never going to be a perfect time to buy a home. That’s just life.
Read more: Buying a Home in 2020? 11 Tips to Get It Done!
About the Author: Colin Robertson
Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.
Published at Tue, 15 Sep 2020 16:45:43 +0000