I recently had a conversation with a friend on Facebook discussing whether or not purchasing a home in this market is a good idea. Would waiting for a downturn be a better option? On the surface and with prices being as they are, the answer seems an obvious “yes,” but let’s take a realistic look. As a residential real estate agent, there is always an argument for buying now. It’s sales after all, but let’s put the sales jargon aside and just talk reality. The “right time” depends on the Buyer’s goals and circumstances.
The information in this article may seem obvious to some, but when you’re a potential Buyer in the thick of the Los Angeles real estate market and overwhelmed by the barrage of online (mis)information and market craziness, a little reminder and focus from an insider can bring much welcomed clarity. When it comes down to it, here is my No B.S. Formula to gauge if now is the right time to purchase a home:
- IF one has the desire and/or need to purchase AND
- IF s/he can comfortably afford a home now AND
- IF s/he qualifies for a good loan with a low interest rate AND
- IF s/he finds a home s/he loves AND
- IF s/he is planning on living in it for several years <notice the bold print>
- THEN now is the right time to buy.
If a Buyer is constantly showing interest in properties above his/her price range and absolutely can’t find anything within it, this is an obvious indicator that s/he should either wait for a different market or that it’s time for a reality check and refocus. Spending all of one’s savings and being “house poor” is not a safe choice.
We know what the market is like right now but frankly, the future is up in the air. Something has to give but what, when and at what cost? We can certainly speculate. Regardless of affiliation, the fact is that we don’t know exactly how the new political climate will influence the future market, since we’re not sure what the current administration will do or how it will affect housing. Will there be more red tape? Homeowner breaks? Maybe. Maybe not. Buyers can wait and hedge their bets for the market downturn, but we don’t know when that will be or what will come with it. Interest rates generally increase in a downturn yielding a higher cost of money, however, we just saw a .25% rate increase and yet housing prices in the Los Angeles market are enduring. We also know that demand has consistently outpaced supply for several years now. The consensus is that current construction still falls drastically short of current and projected future supply. Is this due to building restrictions, high costs, a lack of developer interest? Speculations abound. Regardless, this doesn’t paint a positive picture on a downward price shift anytime soon.
Right now, the number of all-cash investment purchases are down since it’s difficult to flip and make a significant profit. I have several investor clients who are waiting for a downturn so they can buy up as many homes as they can, then hold or lease them for as long as necessary until they can sell in an up-market. These are the ones who benefit most from lower housing costs.
I’ve seen Buyers wait for the perfect climate and never end up buying. I’ve also seen Buyers buy in a peak market and have their value decrease shortly after. My point is, that buying now or later is a risk no matter how you slice it. Inventory is low right now and we’re in the height of the market, price-wise. Consider this: During a downturn, the majority of homeowners who will most likely be selling are those who HAVE to sell, so inventory should be even lower, since homeowners with a choice will most likely wait to sell when prices are high.
When is comes to homebuyers, we can hope for a friendlier climate. The saying, although cliche, is true: There’s no crystal ball so really, nobody knows for sure. Although the listing element of my profession benefits from inflated home prices, I’m a human being first and take my fiduciary duties towards my clients very seriously. I truly hope something can be done to allow more people to afford the “American Dream” and be able to purchase a home for themselves. Time will tell and the next cycle should be very interesting.