For some reason, I will never get out of my mind someone once told me shortly he purchased a house he couldn’t afford (and knew he couldn’t afford) with a risky mortgage. He said, “I’m not worrying. Real estate prices never go down.” I wasn’t about to get into an argument; he was a former football player and I was a former clarinet player.
The National Association of Realtors (NAR) said on Thursday that the median price of homes sold in December fell nearly 6 percent from a year earlier to $208,400. The three biggest declines in prices ever recorded have now come in the last four months.
That sounds to me like we’re in a downward trend. Anyone else agree? Merrill Lynch does. The company forecasts a 25% to 30% decline over the next three years in home prices. With predictions like these, I’m glad that I’ve had no reason to purchase a house in the last few years, particularly a house I may need to sell within a few years of buying.
Timing the housing market, like timing the stock market, can lead to financial ruin more often than not. When it comes to finally getting around to buying a house, I’ll do it when I’m ready, finding the best deal for what I want. Even though I’ll have to be aware of market conditions, when the time comes, I may not have the option of waiting for the market to begin improving.
On the one hand, your own home should not be viewed as an investment or worse, counted on to fund your retirement. It’s easy to forget that one spends an incredible amount of money to maintenance and upkeep expenses when you own a house. When people talk about the money make when they sell their house, they simply subtract the purchase price from the sale price, conveniently forgetting about all the expenses they paid, which should be added to the purchase price to determine the real profit.
On the other hand, a home is a major purchase. When spending so much money, it is prudent to consider market conditions, if not to help time your purchase, to at least be aware and prepare for risks that lie ahead.
Sometimes it can be better financially to continue renting than to buy. Would you (or did you) delay or rush the purchase of your home due to perceived market conditions?
Image credit: ♥ellie♥
Homes see first annual price drop on record [CNN Money]
Merrill Lynch says U.S. nationwide home prices may fall 30% [MarketWatch]
Updated December 20, 2011 and originally published January 25, 2008.