How to buy when home prices are high

Home buyers often worry about purchasing a home at the supposed "top" of the market. Such concerns are understandable since real estate, like any asset, can gain or lose value over time. Yet "top of the market" is an elusive concept that shouldn’t prevent you from buying a home, if that’s an appropriate choice for you.

Here are some do’s and don’ts that might help you differentiate reasonable concerns from irrational worries:

Educate yourself. Home prices are a function of population growth, employment trends, construction starts, local schools, interest rates and other supply-and-demand factors in the local market. Do your homework. Shop around. Knowledge can empower you and help you figure out whether you really want to buy a house or not.

Think long term. Studies have suggested that short-term home buyers can come out behind due to transaction costs and price trends; however, long-term homeowners are more likely to come out ahead and build wealth over the years.

Take advantage of seasonality.  Housing markets tend to slow down in November and December when homeowners are preoccupied with winter and the holidays. Homes on the market at that time can be good opportunities. A large supply of for-sale homes at other times can signal good opportunities as well.

Seek motivated sellers. Price-sensitive buyers can focus on sellers who need to move due to financial pressures, job relocation or life events. These sellers may be eager to accept a fair and reasonable offer for their home now, rather than wait for a higher offer that might not materialize in the future.

Focus on the benefits. Price appreciation isn’t the only benefit of homeownership. There are also tax advantages and the opportunity to build equity. A house should be a place for you and your family to live as well as a financial investment.

Don’t ignore the risks. The future is unknowable, unforeseeable and unpredictable, and even reputable economists have misfired when they’ve tried to predict housing market trends. Buying a house entails some risk, and there are no guarantees that you will gain.

Don’t try to time the market. It’s easy to pinpoint the "top" of the market after the trend line turns downward, but it’s much more difficult to predict those downward and upward turns in advance. Most homeowners buy and sell to suit their own needs, not to "time" the housing market.

Don’t obsess about prices. The $3,500 difference between a $350,000 house and a $353,500 house might seem like a lot of money, but it’s only 1 percent of the price. On a smaller scale, that’s like saving a penny on a one-dollar trinket. Choose the house that fits your needs even if it’s fractionally more costly than a somewhat similar house that doesn’t fit your needs quite as well.

Don’t obsess over interest rates. Don’t delay your home purchase because interest rates may be higher today than they were some time ago. Higher rates in the future might mean higher mortgage payments even if home prices decline. Lower rates in the future might prompt more buyers to jump into the market and send prices higher.

Don’t overextend your resources. A financial cushion can protect you from being forced to sell your home at an inopportune time for you. If you opt for any type of loan other than a basic fixed-rate mortgage, be sure you understand how your payments will be adjusted and be prepared for the worst-case scenario. Don’t borrow more than you can afford to pay back.


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