I can’t tell you how many times I have heard, “I don’t want to buy now, what if the market crashes?” With everything going on in the news, it makes sense to have that concern. People going into forbearance, losing their jobs, and more makes it appear that there is a looming price correction happening. Of course, time will tell what happens next. With inventory and interest rates so low, it would take a lot for the market to take a turn in buyer’s favor.
But let’s say you buy today, and the market takes a turn next year.
What is the worst that could happen? Well, here it is:
- You locked in a phenomenal interest rate. With rates as low as below 3%, it is almost free money. This allows an expensive city like Los Angeles to be that much more affordable. Next year, if interest rates go up, the monthly payments might be close to the same or worse, you could be priced out.
- You just lost a year of paying off the principal mortgage. Even if rates stay the same, at least a portion of the payments goes towards a principal balance.
- Assuming you didn’t buy, you just paid a year’s worth of rent, which counter acts the “savings” on the purchase side Let’s say the place you would have bought today was going for $500,000 and a prices drop 5% occurs. That is a $25,000 price reduction. Now let’s say you were paying $2,000/month during this year. That’s $24,000 spent in rent. So that’s a difference of $1,000. Think you are ahead? Try again, you didn’t factor in the tax benefits of homeownership. It could be a wash (in which case you still lose because of the previous point) or you still came out at a loss.
Many people live their lives based on the unknown. However, historically those that come out ahead are the ones that focus on what they know and act accordingly. Keep in mind if the market takes a dip, all that means is a paper loss. You don’t have the sell, and with the interest rates so low, it would be unlikely that you would even want to refinance. Plus, over the long run, values typically go up. As Warren Buffet says, “Someone is sitting in the shade today because someone planted a tree a long time ago”.
The best thing to do is speak with professionally qualified individuals to see what makes the most sense for you.
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