The famous investor Warren Buffet describes his company’s recipe for success this way, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” This is good advice for aspiring homebuyers as well!
Buying a home is an incredibly exciting and stressful process that often comes in the midst of other stress producing life events (job transfer, job promotion, job loss, retirement, marriage, new baby, divorce, etc.). In the midst of all the stress and excitement, it is easy for an unhealthy amount of either “fear” or “greed” to adversely affect aspiring homebuyers.
One common fear that homebuyers have is, “Am I overpaying for this house?” This is an important question to have answered. The good news is that it is easy to answer. If the answer is yes to the following two questions, market history indicates that it is very unlikely that a home purchase will turn out poorly from a financial perspective.
- Will the home meet my needs for 5 years or more?
- Is the monthly payment for the home comparable to what it would cost to rent a similar home?
When a homebuyer answers no to either of these two questions, then there is a chance that they might be experiencing the effects of some market “greed” In that case, a homebuyer should move forward with their desired purchase only if they are comfortable knowing that they may be paying somewhat of a premium price for that particular home they are buying. As stated before, if the answer to both questions is yes, then they can continue to move forward without fear that they are being reckless with their finances.
During the mid-2000s we saw people throw caution to the wind and take on housing payments for homes that were well in excess of what that property would cost on a monthly basis if rented. That was a sign that things were about to go badly. The housing market leading up to 2008 had been heavily influenced by the greedy allure of quick profits, which led to over building. Everyone paid for that greed in the years that followed when home prices crashed due to the massive glut of housing inventory that had been built up 15 years ago.
Today we have the exact opposite issue, a housing shortage due to too few homes being built for the population. The present housing market has been greatly affected by “fear” with respect to today’s interest rates and this is creating opportunity for some courageous homebuyers. At the time of this writing, as a result of this fear, we are seeing that our customers who are able to find a home to buy are being able to get good deals on these homes. This means that these buyers are able to answer yes to both of the questions above. However, if and when rates come down, I do expect that market “fear” will dissipate and be replaced again by elements of market “greed” which may make it more difficult to answer yes to our two key questions above as long as the housing shortage persists.
If you or someone you know has questions about whether or not now is a good time for you to consider buying, we would be happy to help. Schedule a time through the following link and we can discuss it.
