Is It Time To Buy A New House — Or Wait A Little Longer?

It’s almost impossible to find the “perfect” time to buy a home.

The important question you should be asking is whether now is the “right time” for you to invest in your financial future and security. Let’s attempt to answer that question using financial logic.

Buy Now To Build Equity

If you put off buying now, you'll have missed out on the opportunity to build home equity between now and when you finally decide to buy.

If you take out a $125,000 mortgage today at 4% interest, you’ll build $4,867 of equity within two years. Continuing to pay rent equals zero equity.

By taking out a traditional 30-year loan, your monthly payment will be about $587 before homeowners insurance, private mortgage insurance and taxes. With those costs, your payment will be about $823.

Unless you live with your parents, your rent will likely be higher without earning any home equity at all.

If you buy now, 10 years builds more than $26,000 of paid-in equity.

The appreciation in value is like in the bank: after six or seven years, you’ll be able to afford a better home instead of still waiting to buy your first one. 

Signs To Watch

If you are watching the market, you know that prices continue to rise.

This is a source of fear for some people. 

Instead of fear, the savvy buyer sees this as an opportunity to buy today, knowing their new home will be worth more tomorrow. Every day of procrastination means missing out on equity. Interest rates remain near historical lows today, but could go up tomorrow. Higher interest rates mean you pay the bank more and build equity less, and your monthly payment also goes up.

Other financial signs that you should be watching include the stock market. It behaves differently than real estate, but there is a link.

While stock prices often rise in anticipation of a company's future value, home prices tell you what a home is worth today. 

A declining stock market probably means home prices won’t appreciate as much, but homes are unlikely to go down in value. You’ll still build equity by paying down the mortgage.

Also consider the employment market. We’ve seen historical lows in unemployment for a long time along with increasing wages. You want to buy your home when your job is secure and your wages are likely to rise. 

A Chance To Build Home Equity

The housing market follows a cycle and, like many other markets, a pattern of buying low and selling high. 

The cycle has high, middle, and low points. Since 2012, prices have been screaming toward the high point.

Beginning in late 2018, the market has been coasting mid-cycle. Prices are going up, but not as fast as they did between 2012 and 2018.

You could wait for the next low point, but in the real estate market, that seldom makes sense because prices rarely fall — they just go stagnant.

Rather than asking whether now is the time to buy a home, you may want to ask whether you want to build home equity or not.