The real estate market is a fickle ally and is subject to peaks and falls. Unfortunately, deciding when the best time to buy a house might be is more difficult that it may seem. As real estate attorneys serving clients in the very competitive New York City real estate market, we are often asked by clients when the best time to buy a house is. The reality is that there is no one best time to buy a house, although many instances are better than others. The best time to buy a house is affected by two factors: the buyer’s personal situation and the impact of the real estate market on the seller’s property.
As a result, the answer to the question of “when is the best time to buy a house,” will depend on the circumstances. The homebuyer should have a semblance of financial security and should be searching for a home at the right time in his or her personal life. From a timing perspective, the real estate market is important. The best time of year to buy a house may surprise you. This article is designed to help potential homebuyers judge when the best time to buy a house is and when the worst time to buy a house is.
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When You Should Consider Entering the Real Estate Market
Before a potential homebuyer even considers buying a home, he or she must be certain that the purchase will not break the bank. A family’s financial stability is so critical to its overall levels of happiness. While a home purchase may appear attractive for many reasons, it is not worthwhile if the buyer cannot afford to pay. In the short run, going into extreme debt to finance a home purchase can cause substantial stress, reducing quality of life. Long term, however, entering into a mortgage relationship without being certain that the family can always afford to make monthly payments will likely lead to eventual foreclosure.
When you are considering whether you should enter the real estate market, you must consider your family’s financial position. You should keep three different personal financial factors in mind: your credit score, your ability to make a down payment, and your long term ability to pay a mortgage month-to-month.
The Homebuyer’s Credit Score:
A credit score
is a numerical ranking between 300 and 850 that is a measure of how good a particular individual has been about paying off debts in the past. Banks use credit scores to decide how much financial leeway to extend to a potential homebuyer. As a result, a good credit score will often result in favorable mortgage terms, while a bad credit score will spell disaster. Buyers with either no credit score or bad credit scores should consider taking on financial debt they can easily pay back to try and raise their credit scores before entering the real estate market.
The Lowdown on Down Payments:
The vast majority of home purchases require a down payment
of some type. While rates of down payments can vary, a potential homebuyer who has no ability to make a short term capital expenditure should not enter the real estate market. For those who have access to immediate cash, there are many options for making down payments. The standard home down payment that banks like to see before making favorable mortgage terms is 20% of the value of the property.
For example, a family seeking to purchase a $300,000 home should be prepared to place a down payment of $60,000, which is not an insignificant amount of money (it’s a little less than double the pre-tax annual earnings of a $15.00/hour employee who has worked for two whole years!). For home buyers who cannot afford a 20% mortgage down payment, many banks will offer a mortgage package with lower down payment options but slightly less favorable mortgage terms. These low down payment mortgage deals often involve down payments equal to as little as 5% of the purchase price of the home.
Making Monthly Mortgage Payments and Avoiding Foreclosure:
As mentioned above, the ability to make a monthly mortgage payment is a critical factor, if not the most important measure, to determine whether purchasing a home is a sound financial decision. A homeowner who cannot reliably pay his or her monthly mortgage rates will likely see the home fall into foreclosure
The ability of a homeowner to pay his or her mortgage depends on the home owner’s income and debts. In other words, the home owner’s income must be high enough to make a large mortgage payment each month after taking into account expenses and other debt payments. Homeowners who foresee having trouble meeting their monthly mortgage obligations should not enter the real estate market. Many online mortgage calculators
are available to help families determine if they can make their mortgage payments on time.
All of this said, while finances are an important part of the picture, finances are only one part of the picture. It is easy to get too wrapped up in the financial question of stability. The stark reality is that no person is ever truly financially stable. Disaster could always strike, wiping out a home buyer’s best intentions. It is important to plan for the worst, but many wait too long to buy a home while waiting for true financial stability and never actually enter the market. From a financial standpoint, the right time to buy a home is not when you are truly financially stable, but rather when you are ready and able to undertake the financial burdens of home ownership.
When to Buy, When to Upsize, and When to Downsize
The other factor that potential home buyers should consider before entering the market is whether it is the right time for the family to make a real estate purchase. For first time home buyers looking to transition from renting to owning, home ownership is a big step. Owning a home is a core component of the American dream, but there are good and bad times for first time home buyers to consider undertaking ownership responsibilities.
For many families, children are the largest consideration. Many apartments, particularly in the New York City area are quite small and expensive to rent without providing any equity or long term investment value for the renter. When little ones enter the picture, an apartment can begin to feel cramped. First time home buyers should also consider the type of lifestyle they want to lead. Home buyers should consider whether a city or suburban environment is best for them or whether they prefer a more rural setting. Families should also consider the proximity of schools and supermarkets.
Many families who already own a home may be wondering when the right time to move may be. Many moves are motivated by unavoidable circumstances such as shifting employment opportunities, health issues, or concerns about extended family members. Other moves can be motivated by other factors, however. For example, family planning might dictate the need for a larger home. Families who planned to have one or two children might end up with three, or even with a planned number of children, a home can begin to feel cramped.
Moves can also be motivated by a desire to own certain pets that need more outdoor space or a change in the current neighborhood environment. As a general rule, families who are considering moving should closely consider whether the timing is right and whether the benefits of the move outweigh the negative effects of displacing the family such as forcing children to move schools or creating longer commuting times.
As families begin to grow smaller when children grow up and move away, many homeowners with large homes are left with large empty nests. In many cases, long-time homeowners may want to keep their homes and simply find other uses for empty rooms (guest bedrooms, libraries, customized specialty rooms, etc). Many others will want to downsize. Depending on the long term financial stability and retirement savings of the homeowner, those seeking to downsize and move should consider whether downsizing to a less expensive home or transitioning to a smaller but more desirable, i.e. expensive home, is the right move.
Gauging the Real Estate Market and Determining Where the Lows and Highs Are
Real estate market conditions
are the other major factor that should influence decisions to buy. Several different metrics exist for gauging the strength of the real estate market at any given point, but the two most reliable metrics are the economy as a whole and housing inventory.
A Strong U.S. Economy Does Not Necessarily Mean a Good Time to Buy:
In general, people intuitively understand that the best time to buy in the real estate market is during a real estate slump. During real estate market slumps, home prices tend to be lower due to many different factors. However, when the U.S. economy is strong, the real estate market also tends to surge. This is because consumers will often have more money in their pockets and are eager to make new purchases. When the economy is doing poorly, on the other hand, fewer potential home buyers enter the market which can reduce home prices. As a result, the best time to buy is often when the economy is either bad or just recovering.
The Trump Tax Plan’s Effect on Real Estate:
The Trump tax plan
will also create an immediate effect in national real estate markets. In high-tax states
, real estate markets will see a short-term depression because fewer people will be able to deduct the full weight of their property taxes due to the new $10,000 state and local tax (SALT) cap. That said, however, states with low property taxes will likely see real estate market upswings as a result of many consumers having more money in their pockets due to increased tax savings and one-time bonuses from employers (companies such as Home Depot and WalMart have announced that they will be giving employees bonuses as a result of the tax plan).
Surprisingly, the best times of year to purchase new homes are on Christmas Day and Easter Sunday
. December is the best time of year to purchase a new home because the market prices will be at a yearly low and fewer other buyers will be looking to make purchases resulting in a wider selection of homes.
Additionally, the Christmas season tends to imbue home sellers with holiday cheer making them more amenable to home price negotiations. Easter is also a very good time of year to purchase a new home. While the prices may not be as low as in December, Easter falls just before the big May purchasing rush that occurs every year, which means that the total selection of inventory is higher than any other time of year. With so much inventory on the market in preparation for May, choosing between multiple dream homes may be your biggest obstacle.
The real estate market is like a winding river. There are high points and low points, and if home buyers are not careful, they can get swept under the rapids of high home prices. On the other hand, home buyers who can navigate the river with skill and grace will see large home sale savings when shopping for real estate. Smart home buyers must consider both the market conditions and their personal readiness to enter the market. Those who think before buying will make the most of their home purchasing experience and find the ideal home for their families at a fair price.
The Law Offices of Yuriy Moshes is a full service real estate law firm that assists home buyers in finalizing home sale transactions in New York and New Jersey. If you have any questions about the inner-workings of the real estate market or if you would like assistance in finalizing home sale contracts and closings, contact our law firm for assistance.