One cannot readily use measures of the economy or statistics to accurately ‘know’ when the best time to buy or sell is. For the past few decades the housing market has been swinging unpredictably. When I was young people said ‘real estate doesn’t lose value’ and homeownership was thought of as a somewhat permanent goal within my circle. You saved up and purchased a practical home priced right for your income and needs and then stayed there. The goal was having the mortgage (if any) paid off so you could enjoy retirement in place comfortably with limited housing costs or perhaps ‘cash out’ and retire to a warmer climate. The market became very speculative in the 1980s. The increasing commoditization of the home has been a major part of the problem. I watched as developers built increasingly larger tract mansions though family size was shrinking and the old idea that real estate held value was dramatically disproven.
While some wealthy people have long engaged in ostentation with vastly oversized showplaces, they have had the funds to spare without having to worry about providing for their essentials. Working and middle class people historically purchased homes sensibly within their means. But by the 1980s with dubiously arranged larger loans becoming readily available ‘status’ homes; that is generally flimsily built, oversized mock palaces of dubious architectural distinction became ever more fashionable. The cumulative effect of these homes that were too big, too costly to finance, too expensive to heat, cool, maintain and insure coupled with higher property taxes and often in areas necessitating ever longer commutes and the need to own two autos with all the additional expenses of that was that the entire arrangement siphoned off too much of the income of those who chose these abodes. Money that might otherwise have gone into savings or reducing family debt was usurped by the cost of living in an oversized place. If their income went down due to job loss or increased expenses the problems escalated. Many of these homes had been sold at initially inflated values and went ‘underwater’; that is the debt load was for more than the house was worth for resale purposes. It is a cautionary tale; don’t buy more space than you realistically need, choose a home that is well built, a locale that is convenient with minimal commuting needed and good transit and don’t make a decision based on superficial glamour or emotionality. Look carefully for the house that suits your projected needs and consider all the various carrying costs to avoid getting stuck with an oversized burden. A trendy new house may lose cache and value just like a new car does when driven off the lot and an auto that is essentially a military tank requiring a quart of gas just to get a quart of milk is a waste of money and resources unless you have a real need that justifies that kind of vehicle.
The banking industry has gone through dramatic changes and many gainfully employed people with adequate income are not able to easily get mortgages due to complex underwriting rules. If the buyer is self employed or gaining income from rental property the bank may be especially cautious and discount a portion of the income or they may charge a higher interest rate.
If your goal includes buying a home it pays to plan ahead. In my grandparents day you had good credit if you paid cash and had no debt. That is a healthy way to live, if one can. But most of us will need a loan for a home. Today creditworthiness is controlled by corporate agencies and is a numerical score based largely on how many credit cards and loans you have, how long you have had them and how promptly you pay them. The best assurance of mortgagability is for some the most difficult; put the most money possible in savings, maintain a good credit score and pay off other loans.
To be continued …