Kudos to the editors at Forbes for this
month’s thoughtful offering—a checklist that can clarify the advisability of
buying Southeast Michigan homes “in this hot real estate market.” The six questions
combine to create a personal inventory that prospective Southeast Michigan
homebuyers can use to gauge the timeliness of a commitment to buy in this
spring’s busy season.
While much of the rest of the real estate and
financial press spent last week speculating over whether a U.S. residential
“bubble” was either forming or about to burst (none of them thinks so), Forbes
contributor David Rae’s questions
were more valuable for homebuyers with legitimate concerns about the advantages
of buying right now. Here are the questions—
1. Will I be willing to live in this home for at least
five years? If not, buying now would probably be closer to a
break-even proposition than the effort and expense justify.
2. Will the all-in cost of this Southeast Michigan home
be less than 28% of my gross income? If not, a purchase might leave
you “house poor.”
3. Can I afford a 20% down payment? Although a ‘no’ isn’t certain to be a
disqualifier, ‘yes’ makes it very likely that you are well-positioned to afford
a new Southeast Michigan home.
4. Can I handle a drop in the value of the property? Author Rae points to a personal experience
since his own house was “underwater” for the first five years that he owned it.
That didn’t make him happy, but in reality, it didn’t matter. It’s now worth
twice what he paid for it.
5. Do I need to
buy a house right now? This depends on your own personal
situation, and gauging the market won’t help. Yes, prices are high, but
mortgage rates may go higher—or even much higher—so it might be prudent to act.
If your dream home comes on the market and you can afford it, standing by “while
waiting for a dream price” might mean losing the best chance to own.
6. How much
work will the property need? With remodeling costs on the rise, prudence
dictates being clear that buying won’t entail taking on more than you can
afford—the prices you see on HGTV are far less than what you’ll pay today.
Rae is a Certified Financial Planner who champions a wide variety of ways to
build wealth. Although not owning a home “doesn’t mean you can’t be
building wealth over time,” he subscribes to the majority opinion: owning a
home “is a smart long-term financial move.” Of course, I agree—and when the
time seems right for you to buy (or sell)—do call me!