By Vincent Barbera, CFP®, MSFS
The prospect of real estate is exciting because a new home means a new life, new opportunities, and new possibilities. As dreamy as it sounds, it is important to snap back into reality to face the facts: buying real estate is a big investment and the best outcomes can only happen when you weigh all of your options carefully. Figuring out when to buy is one of the most important pieces to put on the table.
Gear Up For Autumn
After the summer heat wears off, start ramping up your home search. According to Realtor.com, the best time to buy a home is the first week of fall (1) as 41 of the 53 housing markets they analyzed yielded this result. To create this report, Realtor.com gathered data from 2016 to 2018 based on the number of online page views, median list price, percent of list prices reduced, median days on the market, number of new listings, and number of active listings. There is less competition, more price reductions, and a bigger home inventory available. In other words, this is the time where there are more homes to choose from, fewer buyers jockeying, and more opportunities to score better deals. It is a win all around, as long as you can plan and prepare ahead of time.
If you do want to take advantage of this time period, before you go home searching, make sure to complete a few steps first: 1) Get pre-qualified by a bank you trust. 2) Know your budget. 3) Find a realtor that aligns with you. 4) Make a list of must-haves for your future home. 5) Research areas you desire to live in.
Keep Your Ear To The Ground
As we have witnessed from the 2008 housing market bubble, (2) the real estate market can have drastic highs and drastic lows. After the bubble burst, homes lost an average of 30% in value. Recessions are hard to predict, even for the experts. This is why it is important to stay alert and aware of the current market trends and patterns. You can look to Zillow and Redfin for more information but since real estate can vary greatly between neighborhoods, it is best to contact a local real estate agent. If it looks like real estate values are rising at an unsustainable rate, then hold off on buying a home. If it looks like interest rates and the market are keeping steady, then it may be time to start searching. Be vigilant and go with your gut.
What Will Work For YOU?
Regardless of what is happening in the market, go with what makes the most sense for your household budget. Always make sure you know exactly how much home you can afford. As tempting as it is to jump the gun for the American dream of homeownership, it is important to know your numbers and be smart with your money. The general consensus among financial advisors is to buy a home where the projected monthly payments will be no more than 28% of your gross monthly income and no more than 36% of your total debt. (3)
How big of a down payment you can put down is another determining factor as it will determine how big your mortgage payments will be and will determine whether or not you will need to pay for PMI (private mortgage insurance) as well. In addition to your principal and interest payments, it is essential that you are comfortable with the annual real estate taxes for the areas that are of interest to you. Remember, you will pay a higher real estate tax bill for new construction, sometimes significantly more.
Get all of this in order before making any rash decisions based on emotions to prevent buyer’s remorse and long-term financial hardship.
Enlist Expert Help
Buying real estate is a rewarding journey that has a lot of twists and turns and can get murky. This is why it’s important to gain as much knowledge as you possibly can. The fastest and most effective way to figure out what is right for you is to enlist the help of financial professionals who can assist you along your way.
We at Newbridge Wealth Management would be more than happy to help. Schedule a free 15-minute introductory phone call, email us at vincent@newbridgewealth.com, or call 610-727-3960 to schedule a meeting today!
About Vincent
Vincent R. Barbera, CFP®, MSFS is a managing partner and co-founder of Newbridge Wealth Management, a private financial counseling firm located in Berwyn, Pennsylvania. Believing in a patient, disciplined approach to investment management that delivers value and peace of mind, he utilizes a process-driven approach to financial planning that provides comfort and clarity to his clients’ long-term goals. Along with a bachelor’s degree in psychology and business, he has a master’s degree in business and financial planning and Certified Financial Planner™ designation. Learn more by connecting with Vincent on LinkedIn, or send him questions at vincent@newbridgewealth.com.
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(1) https://www.cnbc.com/2019/09/21/when-is-the-best-time-to-buy-a-home.html
(2) https://www.investopedia.com/articles/economics/09/subprime-market-2008.asp
(3) https://www.bankrate.com/calculators/mortgages/new-house-calculator.aspx
