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With Strong Home Prices and Low Interest Rates, Pressure to Buy Builds

Jan. 26, 2015
Home Search, Mortgages
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With interest rates still low and house prices rising, real estate professionals are urging prospective homeowners to buy now before price increases or mortgage costs make ownership unaffordable. How should the average buyer decide if it’s time to take the plunge?

“If you’re on the fence about buying a home, right now is the best time to do it,” confirms Don Frommeyer, the chief executive officer of NAMB, the association of mortgage professionals. He thinks prices, while higher than they were a year ago, are not unrealistic. With mortgage interest rates hovering below 4%, Frommeyer thinks it’s an ideal moment to buy.

But news stories, real estate pros and relatives urging would-be homeowners to buy, buy, buy can make for a lot of pressure. Even if the economic conditions are right, it’s not a good idea to buy unless the decision makes sense for your financial, professional and personal situation.

» MORE: How much house can I afford?

The time seems right, but…

“It feels like we should be buying,” says Liz LaBrocca, a college communications coordinator in Northampton, Massachusetts, who currently rents a townhouse with her boyfriend, a graphic designer. “It feels like it’s a good time to buy a house, but I’m not 100% sure about that.”

That’s understandable — experts aren’t even sure whether house prices are headed up or down. Interest rates are easier to predict, with the Federal Reserve making noises about a mid-year rate hike, which would have an immediate effect on the interest rates available to mortgage applicants.

It can be hard for buyers to weigh economic factors like interest rates and market trends with personal circumstances — such as a stable, good-paying job — as well as location. Whitney McIntyre Miller, a college professor, recently relocated from Cincinnati to Long Beach, California, with her husband and toddler. “The house we owned in Cincinnati versus the same house here — it’s two to three times the price. Probably closer to three times,” she said.

News articles and friends who work in real estate are making Miller think this would be a good time to buy, but she’s still learning which neighborhoods are best, and the added challenge of choosing a good school district is making it hard to move forward.

“We’d rather get the right house for us this time around than rush into something,” she said.

» MORE: Calculate your monthly mortgage payment

It’s not an emergency

Frommeyer thinks a wait-and-see approach is a good strategy — but only for a little while. “I don’t foresee rates jumping very quickly, maybe later in the third quarter,” he said. House prices are strong, but Frommeyer thinks they’re also realistic, and buyers who try to underbid usually lose the house.

Many buyers wish they had a crystal ball to predict whether house prices will go up or down in the near future. “Are prices going to start skyrocketing over the next few years, and are we going to miss our window if we wait too long?” LaBrocca wonders. “It’s a huge investment.”

Miller is more sanguine about house prices. She remembers similar pressure during the last housing bubble, when many buyers rushed into real estate because they were afraid prices would continue to climb and low interest rates were about to expire. “We know lots of people who bought houses in the 2000s, and then 2007 (the recession) happened and the prices dropped and they had to let go of their houses,” she said. “But you can’t predict if they’re going to get too high.”

How to decide whether you’re ready

It’s important to evaluate the financial, professional and emotional implications of buying a house. If you have poor credit or haven’t managed to save for a down payment, it might be too much of a stretch to buy right now. Job stability is also important, not only because mortgage lenders prefer to see two years of steady employment with the same company, but also because you don’t want to buy a house if you’re likely to be forced to relocate for a new job within the next few years.

There’s also the question of whether you should buy a starter home or keep on saving until you can afford your dream home. Miller and her husband are debating whether to buy a smaller house now and trade up later, or wait until they can afford a house their family can grow in.

Even if economic conditions are perfect right now, buying a house before you’re ready is a recipe for disaster. “Any time you make a decision based on pressure, it’s not a good decision,” Frommeyer agrees. “Nobody should ever jump into a house.”

Image via iStock.