With the housing market as hot as it is, a common question is “Is now a good time to buy a house?”
It’s a valid concern. Experiencing a large drop in house price shortly after buying doesn’t feel nice.
But my return question would be “does it matter?” What does it matter if your house price goes immediately down in value? Are you planning to sell your house in the next few years? If so, then you probably shouldn’t be buying a house for such a short period. If not, then you won’t be cashing in any losses.
Look, I get it, sometimes life happens, and we end up selling a house much sooner than we ever thought. If that is the case and you are unlucky enough to cash in a significant loss, chances are you will be buying or renting another house at a much lower rate too.
Basically if you are planning to buy a house for only a few years or less then it is never a great time. Sure, you may get lucky with timing, but this is extremely risky and you are prone to cashing in large losses by selling at a bad time.
But if you are planning to buy a house for 10 years plus then now is always a great time. Houses are most expensive at the beginning:
The early years of mortgages are mostly made up of interest, not equity payments.
Buying costs, such as building reports, LIM reports, transportation, furniture, legal, etc, are much cheaper when spread over a longer timeframe.
Selling costs such as legal, mortgage break fees, advertising, estate agents, moving, etc, are much cheaper when spread over a longer timeframe.
If your house goes down in value, by holding on to the home, you aren’t cashing in any drop in value.
Just like most assets, the best strategy is to hold for as long as practically possible.
In any given year, asset values can swing up and down, sometimes wildly. Over the long term, the growth tends to be more reliable and consistent.
So I would say now is always a good time, as long as you are planning to buy for the long term. If not, then you may want to delay. My only caveat would be not to take on so much borrowing that you are stretched to your limits. Think ahead. For example, if you are a couple with no kids buying a house, buy for the future. A house that is big enough for kids if that is your plan, and a mortgage that isn’t so large that it couldn’t handle a drop in one parents income.
House prices are very expensive at the moment, but mortgage repayments are not. Only if interest rates go up significantly will house prices most likely stabilise or decrease. That may never happen. Interest rates may stay low for two decades. Interest rates may go up, but so too house prices. No one can say for sure when and by how much house prices can increase or decrease. How will you feel if you wait for house prices to come down but they never do? Not very good I imagine. It would feel much better to buy a house, have house prices go down and not have to sell. At least then you have your house and haven’t cashed in a loss. Eventually, the prices should get back to positive over time.
The best thing you can do is buy according to your situation and what suits you. Not based on what ifs, or thinking you are a house price predicting oracle. A house is a place to live. Leave your investing to other assets.
If you need help with analysing the decision to buy a house or not, then get in touch and we may be able to help.
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here