I’ve spoken to a few clients these days and a lot of them have asked about the subprime mortgage bust in 2007 and 2008 and a lot are wondering are we at the top of our real estate market now? Are we going to start heading downward and are things looking bleak for the real estate world? While we can’t be 100% correct on our predictions all of the time, there are some things to consider, look back on, and project for the future of mortgages and real estate. It’s important to look at the three major functionalities of buying a home:
How much can you afford in a monthly payment?
How much do you have to put down?
How long do you see yourself in the home?
Of course, that last one is all subjective and the first two can give us more concrete answers. However, if you cannot see yourself in a home or area for more than five years, buying a home may be riskier. Is it more beneficial to rent for a while until you plan on settling down for at least five years? I would say one of the first things you have to decide is if homeownership is right for you now. Don’t buy just because you think that the market is at one end of the spectrum or another; if you can afford it, plan to live there for a while, and have the necessary funds to put down or get a loan that has a low to no down payment option, homeownership might be ideal regardless of the time.
I don’t want to discourage you with fears about another recession. I don’t feel that we’ll be looking at another pre-2008 style crash. The circumstances surrounding those events just don’t exist today. Highly unqualified buyers were able to afford homes far beyond their imagined affordability and very quickly learned that they could not maintain the payments and therefore were rapidly underwater. Over the last decade, buyers have been given stricter rules and requirements when it comes to getting a mortgage. Buyers are more serious and technically have more skin in the game than many buyers did in 2007 and 2008.
I have seen a lot of real estate agents and mortgage professionals try to predict the bottom rather than the top and have missed on both occasions. So, it’s important to control what you can and focus on your future and your finances rather than everything else around you. Of course, nobody wants to buy at the top of the market only to have the home devalued in a couple of years. But, as I said in the beginning if you plan on living there for at least five years, chances are you’ll see that number turn around and go the favorable direction.
So, let’s start with those top two set in stone questions; how much can you afford, and how much can you afford in a down payment? If you’re planning on settling down for at least five years, it’s a great time to buy a house.