REAL ESTATE

Buyers Remorse

As discussed in Chapter 7 of our publication When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology, and several previous Real Estate blogs, the purchase of a home may be one of the biggest decisions, and investments, one makes in their lifetime. Over the last few years, it has never been more difficult for young buyers, with rising inflation, property prices, and property taxes/insurance. Commercial real estate has seen its own crisis as well, highly affecting small businesses with office vacancy and plunging values. The situation appears to be only getting worse, with an increasing number of defaults and loans coming due.

      Although the “American Dream” is currently on life support, delaying the purchase of a home, or business property, unless an exceptional “deal” is obtained, may not be the worst decision one can make. Rushing into a “bad” deal may result in loss of capital, credit rating, future borrowing ability, and/or the property itself.

      There is a common belief and mantra in the asset world, which includes real estate, stocks, commodities, fine art, etc., that prices and values “only go up,” with the perception that it is always a “good time to buy.” Though the first part of that statement may be true (the prices going up part), the value is the key to any purchase/sale. Excessive repairs, rising property taxes, new regulations, and systems upgrades can severely diminish the actual equity/value in a property. Though no one can foretell the actual value of a currency far into the future, the inflation issues continue to devalue the dollar, significantly reducing the perceived equity accumulation in most assets. Regardless of the “expected” increased value of any financed asset, one still needs to afford the costs to maintain the value (house, vehicle, business, etc.). The moment loan payments are missed, the threat and risk of losing the entire asset becomes a real issue.

      Hence, buyer’s remorse can be much more damaging than waiting on the purchase in the first place. Those who are truly prepared for the purchase will generally survive temporary setbacks and/or tougher times. However, this requires a sizeable down payment, at least 6 months emergency fund in savings and/or liquid assets equal to the monthly obligation for housing, utilities, and food costs, as well as car and credit card payments, sudden repairs, and other miscellaneous recurring expenses. The perceived surety of solid employment may not be enough to confidently make such a large investment, as “surprise” repairs and increases may not be planned for.

      Here are some interesting facts and figures relating to a recent poll of homebuyers:

·       17% have a mortgage interest rate of over 6%

·       13% regret buying a “fixer-upper”

·       11% state that homeownership is simply too costly

·       10-11% believe their interest rate/mortgage is too high

·       14% no longer think the location is desirable

(Information Source - Real Estate Mindset)

      Other factors such as starting a family, needing a new vehicle, education costs, and potential health issues all add to the amount of “safety funds” one may need. An emotional or forced purchase can derail the best of plans and intentions. However, one can always continue to save/invest to reach their goals, rather than losing their hard-earned money to high risk or unforeseen circumstances. Preserving capital and paying close attention to the math to make a sensible purchase is highly suggested over an emotional or pressure buy.

      The current housing crisis is affecting many homebuyers in different ways. There are expensive locations that have suffered an outflow of residents (or bust), due to individuals being “priced out” of their homes by rising rates and taxes, loss of employment, and even natural disasters. This has created new less expensive areas experiencing a sudden inflow of new residents (or boom), derived from the bust area owners selling their properties, purchasing with cash, and driving up the cost in the lower-priced areas. Getting ahead of such a “rush” may be beneficial given that opportunity.

      Over the last 4 years, the increase in “remote” work conditions has also contributed heavily to the ability of individuals to uproot from their longtime locations, take their equity, and move into lower cost cities and towns. Those fortunate ones are usually a bit older though, and most are not first-time buyers.

      Carefully plan out the potential purchase of a home, and avoid letting the American Dream turn into the American Nightmare!                  

      Please visit the website www.augustassociatesllc.com for home values, listings, and professional assistance.