5 Reasons NOT to Buy a Home

5 Reasons NOT to Buy

There is no shortage of BLOGs by Realtors and Lenders alike that scream at you the top reasons you should buy a home now, RIGHT NOW and yes I would be remiss if I didn’t point out that I too have a post just like that on this very site.

Five Great Reasons to Buy a Home today

But you didn’t come here to read what you already know, you came here to find out what you don’t know and that is:

WHY YOU SHOULDN’T BUY A HOME TODAY.

There is an old Chinese proverb that goes something like this “May You Live in Interesting Times”…or perhaps its a curse. I’ve heard it expressed  both ways and frankly they both seem plausible. Either way, proverb or curse I like the saying and I feel the past three years have been very interesting indeed.

So here are my 5 Reasons Why you Should NOT Buy a Home Today

1) Home Prices May Continue to Decline in Value

This is probably the biggest reason I have found that is keeping people sidelined from buying a home today and  is a very legitimate reason to be hesitant.

There once was  a time when we never considered our homes to be investment vehicles to be bought and sold every two years at a profit.  We bought homes to raise families in , eventually paying them off or down significantly with the goal to own them outright.  Somewhere along the way we lost sight of that value.

Who really knows what real estate values will do? If you are listening to the so called experts,  real estate agents and mortgage lenders they will probably tell you that now is the best time to buy a home. But this is likely the same crowd who told you the same thing in 2006 & 2007 when the bubble was reaching its bursting point. So where do you go for advice?

Lets look  at some commons sense factors.

How much less than what someone paid for such a large asset are they willing or able to discount it to get rid of  it? 3%, 5%, 10%.  I don’t know for sure because each persons pain threshold is unique just like their threshold for financial pain. There comes a point where the pain is too great and people forego the sale because there is no legitimate reason to take such a loss.  Typically real estate prices like any other commodity can only bust as far as they boomed.

Because of the massive amounts of new construction during the past decade home prices in Raleigh never really boomed . In fact while other markets were experiencing double digit appreciation rates, Raleigh only saw modest 2 – 3 % improvements of value.

If dull is the new sexy in real estate markets, Raleigh is as sexy as you can get. – Greg Rand RISMEDIA- April 2010

By adding new housing units to the market real estate values in Raleigh were suppressed during the boom years. Given that most of the boom price run ups across the country has been corrected with the recession, Raleigh Real Estate is looking pretty sexy today with moderate growth around 1 – 1.5  percent  where other major markets are still declining in values.

Will values in Raleigh Real Estate continue to decline, perhaps but it isn’t likely and when you look at the Interactive Migration map published by Forbes . This map shows us where people in the United States are moving from and more important to where they are moving to.

Using this map data it is easy to make a strong argument why it’s  a good thing those added housing units have been added to Raleigh otherwise we may have seen a huge run up in prices.

There have been a flurry of apartment deals in the Triangle over the past 18 months as investors flock to what has become the best-performing sector in commercial real estate. ..Average rents in March were $827 per month, up $22 from the same period a year ago. – Raleigh News Observer July 2011

Regardless of your opinion of real estate values in Raleigh, unless you are shopping for million dollar homes, it isn’t likely that the most active portion of the market $75,000 – $250,000 is likely to experience any reductions in value because most of those reductions already occurred in 2009/2010.

For the quarter, the biggest gains in home values were reported in Nashville, Detroit, Dallas and Raleigh, N.C. Markets that have struggled with a glut of foreclosed properties posted the biggest quarterly declines, with values down by more than 2% in Phoenix, Las Vegas and Sacramento.WSJ.com 08/02/2011 

However if you only plan to own a home for 2 – 3 years or the prospect that you home may decline in value once you have purchased it, then you should not buy a home today.

2) You May Lose Your Job

You might in fact lose your job and given that you should make an honest assessment of the stability if your industry, company and job title.

If you need to sharpen your skills to prevent layoffs or are considering a career change , now might not be a good time to buy a house.

Mortgage Payment Assistance
If you’ve lost your job or your income has been reduced, the N.C. Foreclosure Prevention Fund can pay your mortgage while you seek or retrain for new employment.

You also may be eligible if you are facing a temporary financial setback, such as a divorce, serious illness or death of a co-signor, and need help to pay your mortgage while you look for work.  – North Carolina Housing Finance Agency

Some lenders have begun to offer loans with payment protection devices built into them using state housing agency funds. For example, if you are laid off or let got through no fault of yours, you may be eligible for mortgage payments assistance for up to two years while looking for work or sharpening your skills via continuing education.

Again, if you feel your job, industry or career for that matter is on shaky ground, now is not a good time to be committing to the purchase and repayment of a home.

3) Mortgage Rates May Continue to decline (or improve)

OK – that’s just crazy talk!  You just have to look at the Freddie Mac 30 year mortgage weekly average survey we are at or very near the lowest rates since the survey began.

If you think given the global  sovereign debt issues with Ireland, Greece, Spain, Portugal and yes even the United States that rates are going to improve, you really have no business owning a home because that is far too much responsibility for a person with such limited cognitive skills.

If you still think that rates can go lower, then you should not buy a house today.

4) You Don’t Plan to Stay in the Area for much longer

Depending on your definition of “not much longer” this might be a solid reason not to buy a home today.  However if your definition of not much longer is 3 – 5 years then consider this recent quote form a client who just but a house last week who plans to stay in Raleigh North Carolina only another 3 years;

In only two and a half years the bastards have raised my rent from $750 per month to $1,000 and I just can’t bear the thought of throwing away another $36,000!”  Raleigh Renter

The new Phillips Swift Creek apartment community near downtown Cary officially opened its first building and clubhouse to new residents on July 29 after receiving a certificate of occupancy from the town – Triangle Biz Journal

My point is that it isn’t likely that rents are going to decline and rents and wages are the #1 and #2 factors that drive the value of real estate in any given economy. But if you only plan to stay in the area a year or two, it may not be a good time for you to buy a home in Raleigh.

5) You don’t want to pay for Repairs and Maintenance

On the surface this is a great reason not to buy a house. But think about  it like this.  Professional real estate investors  price rents to the market and factor in things like insurance, taxes, debt servicing and yes even maintenance. therefore you are actually paying for taxes, insurance, repairs and maintenance, you’re just not getting any of  the tax benefit or other benefits of ownership.

A good way to minimize your risks to unexpected repairs and maintenance is three-fold;

1) Get A Home Inspection! Every realtor and lender worth their commission will strongly urge you to obtain a home inspection, and some lenders may REQUIRE it. A Home inspection should be able to predict what condition and what likely major repairs are going to be needed in the immediate future. Common repairs that are found to be needed after a home inspection include doors and windows. If you are in need a door and/or window repair service, you may want to check out something like Doorwerx for more information.

2) Ask the Seller to pay for a warranty. Most sellers in this environment are looking for ways to differentiate their home from others and a warranty coupled with a home inspection is one of the best way!

3) Plan for repairs. I know it sounds obvious but really if you followed the two prior steps then you will only need to budget for minor repairs that all homes need. Because the average price of a home sold in Raleigh today is under $200,000 you should  set aside $100 – $150 or more per month as you r budget permits  for those unplanned repairs. You will be happy you did and if you never need it and sell, well you have that much more for down payment for your next home! There are loads of things that could go wrong with the house that you’re thinking of buying (sorry but its true!). For example, you might move in and everything is all going okay, and then out of nowhere you find out that you have a termite infestation. Now this is easily fixed through companies like Termite Control Kansas City, but you still have to pay for it and if this is something that you don’t want to do then maybe you shouldn’t buy a house just yet.

But, like I said, if you don’t want the responsibility of maintenance and repairs, then you should not buy a home today.

 

Ricardo Cobos is a licensed mortgage loan officer  in Raleigh-Cary-Durham North Carolina who has been helping families achieve financial security through responsible home-ownership since 1998. (919) 526-0183

Comments

  1. Basically owning a home comes with many additional responsibilities. Maintaining your new home is pain as well. There are many cons for buying a home but it could turn into a good investment especially if you decide to buy one in current economy.

  2. Not very convincing, honestly (didn’t expect anything different from a mortgage ‘guy’).

    What about the real reasons NOT to buy a home, like..

    1. You don’t want to spend every minute of your life maintaining the home (i.e. doing yard work, caulking, mulching beds, trimming hedges, plumbing/electrical, cleaning heaps of unused space).

    2. You want mobility in your life, the ability to move to a different city because of the fact that we are a much mobile workforce than ever before.

    3. Real estate will go through many years of market correction, so even though there will be some improvement, it won’t become a real place to invest your money in for another 10 years.

    4. The stock market is doing pretty dang well, meaning you are much better saving the interest deduction and investing in the market rather than tying all your savings up in a mortgage.

    5. You should NOT buy a home 5 times the size that you need, contrary to what mortgage people tell you that you should buy as big as you can afford based on some made up income/expense ratio.

    Now that would’ve been an interesting article.