The New Year is here and spring is on the way. This is the time of year people start to think about whether or not they will be buying a new house. This year there has been much speculation on the health of the Chicago real estate market. A LOT of people have asked me if this is a good year to buy.
If you turn on the news, all you see is doom and gloom. The stock market is all over the place, gas prices are down, and interest rates are trying to creep up. There are even some articles questioning if the housing crash of 2007 can repeat itself?
Is 2016 a good year to buy a house?
I wish I had a crystal ball and could tell you what was going to happen this year, but I don’t. The next best thing is my opinion!
Here are 4 things that you should know if you are considering if buying a new house this year.
1. Interest Rates are at historic lows. I mean really really low. This is the best situation you can ask for when borrowing money. This will not last forever as it’s inevitable rates will increase some day. A healthy economy would bring rates up, hence the speculation. It isn’t a question of if, but a question of when. A 1% increase in interest rates takes away almost 11% of buying power. For example, if rates went up one percent, a borrower who was previously approved at $300,000 would now only be approved for roughly $270,000.
Have you seen how expensive rent has gotten in Chicago? In many cases, the cost of owning is much less than the cost of renting. I encourage you to do the numbers on it. It’s insane what rentals are going for right now! Taking advantage of todays rates could be a once in a lifetime opportunity. The lower carrying cost of home ownership today can also give you many future options with your property. You might decide to rent it out and make it a long term investment once you are done enjoying it! The lower carrying costs now make that a possibility!
2. The market isn’t as competitive as it was last year. Right now in Chicago, especially in the downtown neighborhoods, days on market are increasing. Last Spring the market was so hot that it was common to be in multiple offer situations. This turned off many buyers as they found themselves bidding over list price against other parties. Things are no dead by any means, but it’s not as crazy as it was last year. You still need to be ready to write an offer when you find the right place, but the pace of the market shouldn’t intimidate you.
I look at this as an opportunity because I believe that last year we peaked. The longer the market time of a property, the more negotiable the seller typically is. While it’s still too early to tell, early signs show prices staling out or coming down. One of the reasons you need a kick ass Realtor in your corner is because, we look out for your investment interests. The best deals are always had when you find the right seller. This year concentrate more on the investment aspect of your purchase. It may take time to find that right investment, but it will be worth it. You don’t make money when you sell your home, you make it when you buy it!
3. Make sure your buy isn’t short term. You should plan on holding the property for at least 5+ years. That is the minimum amount of time I recommend buying right now. If you do no not feel that you will be there for at least that long, you should rent instead. We have seen a great rebound in prices over the last few years. In 2010-2012 you could’ve tripped over a good deal. They were everywhere, but it’s easier to say that in hindsight. In today’s market you will see more bad deals than good ones, so you want to make sure you invest in the right one.
Never buy a house just to buy a house. It’s not the cool thing to do. However, it’s a very smart thing to do when you treat it as an investment. Remember that you are going to write off your interest, property taxes, and build some equity over that time frame. The upside in real estate is not ALWAYS 100% about appreciation. Home ownership has plenty of benefits. We expect annual appreciation to return to historic levels this year of the 4-5% annually.
4. Buy within your means. A lot of the worry associated with buying a home is around the financial obligation. This can be minimized when you purchase a home within your means. Do not over extend yourself and put yourself in a situation where you are barely making ends meet to live in a home. It’s no fun being house rich and cash poor. That will cause unnecessary stress. That is not what owning a home is about. If you choose a home within your budget, you can have confidence with the payments and your finances going forward.
It’s best to determine how much you want to spend on your total monthly housing payment and then backing into a purchase price from there. Your Realtor and lender should be able to help you with this. Figuring out a good monthly budget is the first step before you see anything. You should also get pre-approved too.
Should You Buy A House in 2016?
Yes, as long as you follow these four steps. Start your process early and make sure you are fully educated. It’s more important than ever to have the right representation in your corner because that will be the X factor in determining if you get a good deal or not.
With these things in mind I’m confident that you will be able to find a home that is right for you this year. I hope you found some value in this article. If you have any more questions about the home buying process, call me at the number below. I’m here to answer any and all of your real estate questions!
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