When Should I Buy a House?
By Peter Sarmas on 11 Sep 2013
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Source: David Amsler via Flickr
When to buy a house is a question that many first home buyers fret over.
Given that your home is likely to be the most expensive purchase you will ever make, it is completely understandable that people tend to err on the side of caution when it comes to entering the property market.
However, as well intentioned as your cautious conduct may be, it could ultimately cost you money.
As it is often said, time in the market is more important than timing the market. If you find yourself wondering “when should I buy a house”, the time could be right now.
Get Into the Market
While it is obviously important that you ensure you have the financial capacity to make the necessary repayments before you enter into a legal agreement, many level-headed house hunters hold the belief that the longer they can put off buying a house and diligently save, the more financially secure they will be.
While in some cases this may be true, it should by no means be a one size fits all piece of advice.
Don’t just continue to save for the sake of saving. Once you’ve saved enough for a suitable deposit, get into the market. It is true that the more you save the less you will need to borrow, but in most situations your money is better spent paying off a mortgage than sitting in a bank account.
Although you may receive interest on your savings if you refrain from making withdrawals, most struggle to prevent themselves from spending available money sitting in the back, and are really better off repaying their mortgage.
The Benefits of a Mortgage Over Saving
As strange as this might sound, the reason behind it is with a mortgage you don’t have a choice in the matter – this is your financial obligation and if you do not meet it there are consequences such as additional fees and a bad credit rating.
On the other hand, should you fail to make a “payment” into your savings account, there are no immediate consequences. Unlike with a savings account, you cannot withdraw cash for extra expenses from a mortgage, especially if interest rates are falling.
This can be the biggest downfall for some savers – it is very easy to fall into temptation with additional spending when you have a large sum of money sitting in a bank account.
For this reason, a mortgage acts as forced savings, and in most cases results in more savings.
Buying Over Renting
This is especially true if you are currently renting.
Renting is often described as “dead money”, because the money you spend on rent brings you no long-term benefit.
You are effectively paying someone else’s mortgage, when you could instead be paying off your own mortgage and setting yourself up for a more financially stable future, as you begin to build equity in your property. If you can afford to get into the property market now, then do it.
Timing Your Entry in the Market
As discussed earlier, when you get into the market should take priority over attempting to time the market.
While you can try to look for patterns, it is not worth solely basing your decision on what is thought to be a strong upward trend. The market fluctuates regularly, and often with little warning, and you could be met with an unpleasant surprise.
Look into Trends
Rather than trying to figure out whether it is a buyers’ market, your time and effort would be better spent looking for trends in particular suburbs.
Do not put off buying a house any longer than you need to, but make the time to investigate what suburbs are doing well, and which houses in these areas are likely to make for solid investment properties.
A suburb that has been experienced long-term success in the property market is likely to continue to do so. While there are exceptions, these suburbs generally make for good places to start your research.
Buying as a Long-Term Investment
Property is very different to shares and commodities. Generally speaking, growth in property values is slower and more moderate, but in a downturn property prices also fall more gradually rather than drastically.
Buying a property should be viewed as a long-term decision rather than a quick financial gain. Holding a property for a period of at least five years should be a minimum consideration.
If you are thinking of buying selling or investing and would like a FREE 5 minute chat
with Street News Director Peter Sarmas, please contact him on 0418 740 606
or via email at [email protected]
