10 Reasons Why Now is the Absolute Worst Time to Buy a House
1. We are at the peak of a housing bubble, caused by panic-buying in a media-fueled mania. The prices have risen so quickly that long-time real estate cheerleaders are now reluctantly admitting that it looks like a bubble. If you buy now, the chances are very high that you are buying at the top of the market.
2. It's a seller's market. Multiple bids are commonplace, along with cash offers tens of thousands of dollars above asking price, and waived inspections. Competing under these conditions creates a false sense of desperation and FOMO, increasing the likelihood of an imprudent decision. There's a saying in real estate that the profit is made at purchase, not at selling time. In other words, if you don't get a great price on your home it's very unlikely you'll realize profit on it. Waiting for a buyer's market to return is the most wise thing you can do. And it WILL return.
3. Imagine that you already have a perfectly running car, let's say it's a Cadillac. Suddenly every magazine and newspaper says you should run out and buy a new Cadillac, and everyone is bidding for them sight unseen, hoping to get whatever Cadillac is available, even if they overpay by 50%. These same magazines and newspapers just happen to make a huge portion of their income from Cadillac advertisements. Would the prudent man join the stampede or sit back and wait until the mania died down? Housing is fungible - there is nothing rare or unique about it. It has undergone a temporary disruption to the supply chain creating an artificial shortage that will self-correct in time. Lumber is stacking up to the ceiling at mills and builders are anxious to get the ball rolling again. Construction costs WILL come down rapidly. Just like the toilet paper shortage was a temporary blip driven by herd mentality, so is the housing "shortage".
4. The argument that housing is a hedge for inflation is faulty. Stop for a minute and think about it logically. If inflation starts to spiral out of control, the interest rates rise to combat it. When that happens housing prices will immediately tumble. You can't have a situation where housing costs inflate so high that average earners can't afford them. The inventory simply wouldn't move. If inflation rises, wages and interest rates will be forced to rise in tandem until equilibrium is reached.
5. The argument that you should buy a depreciating asset based on the monthly payment rather than the total purchase price is faulty. Again, use the car analogy. What does a slick and sleazy car salesman try to do? He makes you focus on the low monthly payments rather than the total price, and that's how you get reamed. Every economist will tell you to ignore the monthly payment and instead negotiate a lower purchase price.
6. The argument that you should buy now to take advantage of low interest rates is faulty. First of all you aren't likely to stay in your home for the full term of the loan - you will stay for an average of 4 years or so before you sell. So you are not locking in low interest rates for the life of the loan. You are also likely to be making interest-only payments, along with PMI, for that first four years. So the low interest rates don't even help you chip away at the principle. The low interest rates simply make the overall purchase price much higher which works against you. Instead, it is wise to wait until interest rates rise and purchase a house for a much lower price, because you can always refinance later when interest rates go back down or your credit improves. This is especially true if you plan to stay in the home for 10 years or longer. You will also have lower property taxes and insurance when you buy a home with lower appraised value.
7. Real estate prices are cyclical and there is no doubt that we are due for another crash. It's as reliable as the sunrise. No, it's not "different this time". No, you won't be "priced out forever". In fact when you see all these armchair investors and amateur economists trying to generate FUD with their haughty, condescending remarks, you know that it's time to get OUT of the housing market because the crash is looming.
8. Now is the perfect time to keep your powder dry. Stay where you are, cut expenses, and save save save. If you're worried about inflation buy gold and silver bullion. You have time to save a substantial down payment so that when prices crash you will be in perfect position to buy during a time when few others can qualify for the stricter lending standards. This puts you in the Captain's Chair - - imagine how much better the deal would be if you're putting in an offer on a place that's been on the market for 3 months without a single serious buyer.
9. The stories about wild appreciation gains are fool's gold. People love to brag about how much their house has increased in "value" over the past six months while they sat back and did nothing. But how are they going to unlock that equity? If they sell now, they will have to roll all that equity and then some into their new home, unless they downgrade their living situation. If they wait until prices go down to sell then they will lose the equity. So they are trapped in their home with a lot of equity on paper that doesn't mean a thing in the real world. And again, think logically - did the house really gain any true value, or did it merely increase in price due to hype and speculation?
10. Renting has the key advantage of mobility. There are a lot of reasons why it's advantageous to stay mobile right now. The world is in a state of flux. The work from home situation might continue or it might go away later this year. The mass migrations out of democrat controlled states might continue or it might reverse. Everyone is moving around right now and a lot of people are putting their houses on the market. This means neighborhoods are rapidly changing. Do you want to be stuck next to a bad neighbor for the next 4 or 5 years? Do you want to be stranded away from employment when your boss announces it's time for everyone to come back to the office? Do you want to be stuck holding the bag when real estate prices suddenly start coming down and you have to find a greater fool to unload yours on? Buyer's remorse is at an all-time high according to polling on recent homebuyers. Imagine overbidding for an average suburban shack only to find that you hate it 6 months later. People slag renters but in a rapidly changing world the renter can go where the opportunity is, or go away from the undesirables. It's hard to put a price tag on that.
As soon as word reaches the masses that we're near the top of the market, everyone will stampede to put their homes up for sale, which will cause prices to come down dramatically. The "pent up demand" is going to be on the seller side, not the buyer's. Sellers are going to be desperate to move once the covid restrictions die down because they have been waiting for over a year now. We haven't even touched on demographic issues like the boomers' downsizing, or the continued birth rate collapse. We haven't touched on the coming end of the eviction and foreclosure moratoriums. We haven't touched on Wall Street roaring back to life post-pandemic, creating movement from housing investment into the equity market.
When something seems out of balance, just ask yourself "is this sustainable"? With current housing trends the obvious answer is NO.
So take a deep breath, relax, stop listening to real estate cheerleaders in the media, and rest easy knowing that if you follow the wise and prudent path you will get the home you want. You just have to wait a little longer for it. Don't believe the hype! Hype is always trying to manipulate you into a trap. Sheep get sheared, the wolf gets dinner.
Full Disclosure: I am divested from real estate and am a housing bear who believes prices will come down over the next 18 months. I'm saving to buy when that happens and renting a nice home for about the same price as the mortgage. This is not financial advice, it's informed opinion.
