With the recent news about home appreciation outpacing income growth, renters are now being haunted by this question: "To buy or not to buy a house?"
Home prices are ballooning at a rate 13 times more than the increase in wage growth, according to CNN which cited RealtyTrac's report using the Bureau of Labor Statistics data during the second quarter of 2012 to 2014 period (wage data) and December 2012 and December 2014 figures (median home prices). Home appreciation has outpaced wage hike in 76% of America in the same period, RISMedia noted.
Any renter would have been bothered by these news, but is it really a good time to buy now?
Here's your guide:
1. State Your Reasons
First, state your reasons why you are buying a house. Is it because the mortgage rates are low and you just don't want to pass the chance? Will buying do more good for your family?
If you are renting because it suits your situation best---perhaps your work place is near your current residence---then buying a cheaper house, which you can afford in a farther state, will just defeat your purpose. You would be sacrificing time away from your family, and transportation costs would only swell.
2. Assess Your Financial Status
You definitely can assess your financial capability even without any bank telling you.
Do you have the required downpayment to get the house that you like? If you will still borrow money to pay for the downpayment of your target house, you are risking much right from the start.
Is your work stable? Can you finance your home in 15 to 30 years? You must be committed to start and finish this homeownership journey all the way.
In buying a home, it is not just the downpayment and the amortizations that you must compute for. You must allocate funds for your food, utilities, child's tuition and emergency needs, says Karen Carr, a certified financial planner at the Society of Grownups, via US News.
Be prepared to also own the repairs and the needed renovations for home maintenance.
3. Know Your Timeline
Ask your self how long you intend to stay in your current house, CNBC recommended. "Everyone understands if you're going to be in a house 20 years, you should buy a house," Stan Humphries, Chief economist for Zillow was quoted as saying. "And if you're going to be in a house for six months, you should rent it."
4. Check Your 'Horizons' and Breakeven Point
There's something else to consider. "What they don't understand is when those two lines cross," Humphries said, calling that point the "Breakeven Horizon." This is when the renters must decide to rent or purchase, when the accumulated costs of renting exceed those of buying, CNBC explained.
Now that we have low mortgage rates, "nationally you don't have to be in a house very long to make that decision," Humphries added. The average breakeven point is 2.3 years, but it still depends on where you live, stated Zillow's economist. For instance in Detroit, it is close to one year, but for New York City, the breakeven horizon is 5 to 7 years, Zillow Real Estate Research Study noted, as reported on CNBC.
