While you’ve been searching for that special place to call home as prices have increased are you still qualified to handle the monthly costs?
Maybe those in the 1-5 percent club aren’t that concerned because they have excess income and are more than qualified. But maybe for those impacted by the COVID-19 pandemic and are just coming back into the market and are ready to purchase, be sure that what you are buying is still within your means.
Whatever your budget might have been, then you should re-evaluate your specific financial needs going forward.
As prices have really zoomed up the last year locally and domestically throughout the 50 states, one needs to be cognizant of the monthly mortgage and interest (as it has increased over the last few months), as well as upkeep, whether it be all the utilities, e.g. gas, electric and water, insurance, etc.) or outside maintenance.
Having crucial “rainy day” money available in case of an emergency or issue with your home is an additional consideration to keep in mind. If you are contemplating a co-op or condo then figuring out what your monthly maintenance or HOA fees covers will assist in knowing the current affordability of what you are considering purchasing.
Has your salary or business revenue increased over the last year to accommodate the increase in prices? If you are going to stay for at least the next 3-5 years or even longer then as long as you can handle the expense then it will still produce a more beneficial situation than renting.
At some point if and when the demand cools off, then rental values will increase, so being in an ownership position will be much more stable as long as you have the income coming in. Also consider if you had to sell in 1-3 years, will you be better off owning or staying where you are? Unless you are staying where the rent is free or lower than the market is charging (in-laws or parents) and you need to continue to save to buy, then that will be your optimum solution.
However, if you are still renting, then you must see what your options are today with the still historically low interest rates. I have said in the past, gaining a fixed lease for 30 years (a mortgage) or whatever the time that you would be residing in your home as long as it would be at least 3-5 years you just might be better off.
The only way to figure it out is to talk with a mortgage broker, your accountant, or financial planner to analyze the numbers, potential appreciation and to gain the best tax advantage and savings as you possibly can.
Some might be “rolling stones” and don’t want to be in a fixed situation as some baby boomers just prefer to rent and travel and don’t want to be tied down owning. It’s a matter of choice, but one should always look at the financial benefit.
Core Logic had said back in March 2019 that “the overall HPI (home price index) had increased on a year-over-year basis every month for seven years (since February 2012) and had gained 57.3 percent since hitting bottom in March 2011.
As of January 2019, the overall HPI was 5.6 percent higher than its pre-crisis peak in April 2006.”
Today Nassau County’s median sale price increased by 13.2 percent annually, to $600,000, the multiple listing service of Long Island reported. From 1955-1975 normal appreciation had been 3.5-3.8 percent but today with the severe lack of inventory and low interest rates, it seems the sky is the limit in what many are willing to bid on homes.
But my professional opinion for those who are still searching and seriously considering purchasing, periodically update your costs and personal and family situation and make sure you are somewhat in a safe zone financially.
So if the “what if” occurs and you have to sell, will you at least break even or possibly gain some appreciation once you close. Even when the market declines and you are moving from an apartment up to a more expensive home, then percentage-wise the home will lose more dollar amount than your current place, so you will still be in a more beneficial situation.
No one can exactly pinpoint or predict the future, but one can at least sit down and plan for different scenarios. However, if you are on strong footings financially go for the gold and be in the game for the long run, especially if you are either starting a family or have young children and will be staying put in your home and building roots in your community for the next 20+ years.
Phil Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. He has 39 years of experience in the Real Estate industry and has earned designations as a Graduate of the Realtor Institute (G.R.I.) and also as a Certified International Property Specialist (C.I.P.S).