Everyone spends all their time focusing on whether there is a housing bubble on the loom. Instead of just buying a home and not worrying about it, they spend years being trigger shy. It seems to make sense as having something like the US housing bubble crash happen to you would be disastrous.
However, the biggest mistake of your life could turn out to be not buying when you have the chance.
Don’t believe that’s true?
Go to Gumtree and OLX for a moment. Browse the house listings that are available within the amount that you can reasonably afford. Are you able to honestly say that you do not like any of those homes enough to live in them? Most likely, the truthful answer is that there are quite a few that you would love to own.
Now take a look around you. Do you think there would be an increase in your quality of life if you lived in that home instead?
Okay, now it’s time to wipe all your concerns away.
Here are five reasons why buying a house now makes sense…even if there is a bubble on the horizon.
1. There’s no bubble on the horizon.
The house sales UK posted stats for should provide good enough indication that it’s still very much a healthy market. You can even check previous sale prices to get an idea on how much people have recently paid for homes. This should give you an idea on the closeness of asking price and sale price. This is a big factor in housing bubbles as seller’s expectations outweigh the buyer’s valuations to create larger margins. Right now those larger margins don’t exist.
2. You can’t always secure financing.
There are many disasters that could take place in your life that would prevent you from being able to finance a home. While there is a possibility that some of these disasters can prevent you from being able to make your monthly payments as well, the truth is that many are merely blockers of financing.
Pretend you lose your job. You may even get fired for some complete misunderstanding or disagreement with a co-worker or your boss. You no longer have a solid employment history or proof of income. Your chances of getting approved have pretty much been shot. In many cases, you will have to take a while to rebuild your profile before you can qualify again.
3. You aren’t building equity in a rental.
If you are paying rent to a landlord, how are you getting ahead? The only way this makes sense is if you’re paying pennies on the dollar. If that’s happening, you’re probably living in your mom’s basement and that’s not sensible in the long term either.
Aside from being happier in your own home, getting out of a rental will allow you to build up equity. Consider the amount of equity you build by renting and compare it to a home that loses 50% of its value. If you continued renting until the mortgage would have been paid off, you effectively gave away a lot of equity. Yes, that’s right…even if a housing bubble occurs, crashes, and levels off over a long time frame to value your home at 50% of what you paid. It’s still a solid investment.
4. Your concept of losses are skewed.
The amount that you could lose due to a housing bubble crash may not be nearly as much as you would expect. Right now it looks like there is no signs of tides turning, so it wouldn’t be a surprise if the market continues to grow healthily. The extent of this growth is yet to be seen.
A home purchased this year could increase constantly over the next five years. By then, it could be valued for much more than you paid – then the bubble grows, the value increase gets bigger, and it pops within a few years. Once the ‘bubble’ ends up crashing, the home may go back down to where you purchased or maybe it goes even lower. Pretend it does go lower, every crash has a bottom and a rebound back up. You’re living in your home all this time, so it will have climbed back to around purchase price anyway by the time you even think of selling.
5. People don’t buy homes to sell them.
The truth is that people don’t want to buy a home in the first place just so they can sell them. Of course there are investors that do this for a living, but it is not the purpose for a scared first-time home buyer. The idea is to purchase a home that you can either live in forever or live in and then rent out or pass down to your children.
With that reason alone, there is no way that you can argue not buying a home if the price is affordable enough in retrospect to fair rental value for the same property. While it is definitely a big investment from a financial standpoint, the biggest part is actually convincing yourself to do it in the first place.
With all this said, please keep in mind that these pro-home buying points are only made to those that can qualify for a mortgage with reasonable financing terms. Buying through programs like Help To Buy could end up making you a big loser even without the factor of a housing bubble crash.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.