As far as I can see, the prices of homes in most areas, though dropping are still much too high. If you find you are saving money right now by evidence of a rising bank account, I would wait it out as long as you can stand it until prices drop to an acceptable ratio. When my wife and I were first married in 1989 we bought a house and paid the market value, but what turned out to be paying too much when we needed to move because the prices had dropped significantly in 1995. The ratio was between 16 and 17 using the method from the link. Of course it’s all relative when you are buying and selling because the house we are in now is worth twice what we paid for it at this point, while at the same time, the interest rates are low enough to have allowed us to go from a 30 year to a 15 year mortgage. The first house was also a two family which more or less paid the mortgage each month. (Another fine option, if you have the heart to be a landlord yourself!) We wound up keeping it and renting both apartments for a few years until prices came up enough to finally sell it. Don’t forget, the less you pay for a house the more potential equity you will have in the future which can come in handy if you need it.
I think the rent/ home price ratio method is a good indicator, because monthly rents in my area don’t seem to be much higher than they were 10-15 years ago, maybe a $100 more or so for a two bedroom apartment. House prices on the other hand have almost tripled in some neighborhoods making for a significantly larger mortgage payment with much less in return value. I’m roughly guessing that the ‘ratio’ for buying our second home in 1995 as opposed to renting an equal space was somewhere near 7 or 8.
To sum it up, renting at this time may be a better temporary financial decision than buying. It also frees you from the stress of having to sell a home at the same time as buying one when you find the one you want.
This is also a question on short term vs long term investments. It’s true that hose prices were/are generally too high and as a result the market is readjusting. This is not a new phenomenon unique to our generation. Homeowners will just have to wade through this while the market self corrects.
You have to realize that a down payment and closing cost is the cost of investment in this case (the old adage that it costs money to make money). Over the coarse of time there will be bubbles and bursts in the home market just as there is are bullish are bear times in the stock market. Case in point, here in the Seattle area 10 years ago the market had plateaued. Years following up till now the market was making 10-13% gains in value. Though this shows a the time when the housing market was ballooning, historically home investment as always made money in the long run.
My point is that home ownership can be a valuable part of your diverse investment portfolio. Short term investments are always a higher risk, longterm investments ignore the peak and valleys representing trends.
Welcome! OmniNerd's content is generated by nerds like you. Learn more.