3 Reasons to Buy a House Right Now
Don’t let high prices scare you.
You can’t read a personal finance website (or Medium publication) without running across the eternal struggle of whether people should rent or buy. As you might have suspected, I have written about the topic already, directly supporting the rental argument until you are on solid financial ground before buying a house.
But that article was pre-pandemic in a regular housing market. Like so many other aspects of our lives, both my personal views and the housing market have changed a bit over the past year.
So let’s update the question for the here and now. To answer that question, we first need to answer the following:
- What is the current state of the housing market?
- Why should you buy a house in 2021?
- What should you do if you can’t buy a house?
The Current Housing Market
Home prices have been increasing significantly in the past year, which might seem odd at the tail end of a recession. Let’s take a look at how we get to the topsy-turvy situation.
I wrote about many of the items below in a previous article, but here is the short list.
People saved a lot of money during the pandemic.
During the pandemic, white collar employees who were able to work from home saw their expenses cut drastically while keeping their same income, thus substantially boosting their savings rate.
People are salivating to get out of their rentals.
Being cooped up in small apartments for a year, oftentimes with young children, have made the desire to purchase a house almost unbearable for some. Owning a home provides space away from other families, space away from your own family, and a solution to a year-long bout of cabin fever.
Inventory is at rock bottom levels.
After the housing bust in 2008, many home builders decided not to repeat history with mass production of low- and middle-income houses, and instead focused on a much lower quantity of high-end, high-margin custom homes. This created an inventory vacuum more than a decade in the making.
Interest rates are (still) historically low.
As part of the long-term economic cycle, interest rates have, on average, been dropping since 1980-ish, and home prices have been, on average, increasing ever since (even when adjusted for inflation) due to their inverse correlation to interest rates.
The cost of lumber has obliterated demand for new homes.
Even for the most rabid home buyers, there comes a breaking point. Dimensional lumber is up almost 200% in the past year, adding an average of $24,000 to the cost of a new home. Demand for new homes has shifted to existing homes, putting additional upward pressure on prices.
Why Should You Buy a House in 2021?
The overall answer is yes, if you can afford it, and here are the 3 biggest reasons why.
You can’t time the market.
This is true for traditional stocks and bonds.
This is true for the new wave of technology, such as Bitcoin and NFTs.
And this is true for real estate.
Despite what the talking heads and financial prognosticators you find on daytime TV say, no one can tell the future. Prices might go up. Prices might go down.
What we can do is read the current situation and see that it is not going to rectify itself anytime soon. Inventory, interest rates, and rent will probably go up starting the second half of this year, all of which normally depress prices.
However, given the current demand for housing from both individual homeowners and institutional investors, even the combination of those three is like shooting a BB to slow down a runaway train: it’s not going to happen.
So you have to ask yourself, “Is it worth delaying home ownership and all the non-tangible benefits for the small chance prices will drop next year?”
If you’ve been cooped up with your spouse, small kids, and dog all year while working from home, price might be (relatively) inconsequential.
You will (probably) make more money.
The demographics of those trying to move from renting to owning show a population that is still in the first half of their careers.
If this describes you, just remember that you will almost definitely make more money as your career progresses. And while home prices will undoubtedly go up and down due to the market forces, your mortgage is locked in for 30 years.
If you can handle the higher percentage of your income going to housing for the first five-ish years, then the rest of your mortgage should be much easier.
I will add this huge caveat: You need to account for other major upcoming costs, as well. Kids are the first thing to come to mind. Kids are freaking expensive. If you think a mortgage is high, try finding a decent daycare!
On the flip side, you might be done having more kids and are just running out the clock until public school (free, almost) replaces daycare (expensive, almost prohibitively). In this case, you just need to survive the next few years, and daycare can pretty much cover your mortgage.
Your brain is tricking you to wait.
Humans are hardwired to avoid pain. Loss aversion is twice as powerful as acquiring equivalent gains.
Translation: your brain is scaring you into not paying “too much” for a house.
The fear of the pain of putting down a too-large down payment and having a too-high mortgage is greater than the anticipated pleasure and utility acquired from buying a house now.
Notice I said the FEAR of the pain, not the actual pain.
Your brain is nostalgic about the past with lower prices and abundant inventory while abhorring the possible, but still unknown future of higher prices and slim pickings.
What we need to realize is what Billy Joel sang about all the way back in 1983 in his song, Keeping the Faith:
The good old days weren’t always good, and tomorrow’s not as bad as it seems.
Rose colored glasses are real, as is comfort with the familiar, no matter how painful. But they can hurt you in the long run.
What should you do if you can’t buy a house?
After looking at the information above, some of you just flat out cannot afford to buy a house right now.
What then?
Well, it wouldn’t be a good Medium article without a splash of self-help, now would it? So without further delay, here are the top goals to have to set yourself to buy a house.
Find the right lender
I bank with Chase, and they’re great.
Well, they’re good.
Okay, good enough.
What I like is that my checking, emergency savings, long-term savings, and car loans are all in the same place.
But Chase is not the right bank for my mortgage.
Why is that? Because I want a conventional mortgage that only requires 3% down, and my wife and I don’t qualify for it through Chase. We don’t meet their income requirements.
And that’s fine. They’re a megabank and have to do things at scale to make money.
Instead, I turned to my local credit union who a) doesn’t have the same restrictions and b) will give me a lower interest rate even with the super-low down payment. It’s a win-win.
Shop around and see what banks are offering.
- FHA loans with 3% down?
- Physician mortgage with 0% down?
- 30-year mortgage with ultra-low interest?
- Low refinancing options to remove PMI?
- Discounts if you switch your checking account?
- No closing costs?
Remember, the low volume of home sales also means a low volume of mortgages, which is hurting the profitability of the lenders.
Save for the down payment
Of all the steps to get ready to purchase a house when you don’t have one to sell, this is the worst. It is an absolute bitch to save for a down payment (and the thousands in closing costs), but it is a non-negotiable when buying a house.
If you’re serious about buying, you need to get serious about saving.
- Automate your finances
- Cut expenses
- Increase your income
All standard advice, but they work.
Also remember that friends and relatives can give you the gift of money, small or large, that can apply. Just make sure it falls within the guidelines of your bank, as some only accept gift funds up to a certain amount.
Know where you want to live.
Last, but arguably most important, is to know exactly where you want to live.
This is a bad description of where you want to live.
I want to move to Boulder. It’s awesome!
Way too generic. Too many options will lead to analysis paralysis.
Here’s a much better description.
I want to live in the Lower Arapahoe neighborhood, but only west of 6th street since that’s where the super-busy University Avenue ends.
It is within walking/biking distance of the Flatirons Elementary School.
Plus, it’s right next to Boulder Canyon Drive, which leads straight into the Rocky Mountains.
If possible, drive the neighborhoods and talk to the current homeowners. The more you know, the better decision you’ll make.
Always Remember, Your House is Not an Investment
You might mistake my enthusiasm for owning a home for the belief that your house is the biggest and best investment you can make.
Yes, but no.
A house is not a financial investment. Full stop. I would actually remove any equity you might have out of your net worth equation due to its lack of liquidity.
A house is an investment in your life. It’s a place to spread your wings, raise your kids, enjoy your life. You are investing in yourself when buying a home, if that is what you truly want.
Love renting? More power to you. Keep on keeping on, and enjoy not having to mow the yard.
Love owning? Stop vacillating. Plop that money down and dig a garden that is all your own.
Most Recent Stories
- What’s Going On With Inflation?
- Are We In Housing Bubble 2.0?
- Biden’s Infrastructure Plan Is Good, But Not Great
- COVID Destroyed Women’s Finances
- Jobs, Jobs Everywhere, and Not a Soul to Work
Don’t miss my next article! Click here to get notified when I publish new material.
If you love the articles published in Money. Daily., then become a member of the Medium community and get full access to our full archives.
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
