The Costs and Risks of Staying “Out” of the Housing Market

20. October 2007 by Ana Connell.

Has the Housing Market Hit “Bottom”?

I am asked this question frequently and the honest answer is: I don’t know. But here is what I do know:
Market tops and bottoms are only recognized some time after the fact when we can look at the numbers in relationship to current statistics and activity. Hindsight is always 20/20.

I think the more relevant questions are why are you buying , where are you buying and what are the risks if you do nothing?

If your real estate purchase is for investment purposes, the market bottom has more relevance because you may not want to hold on to the property for a long period of time and you need to factor in the cost of carrying the property relative to the amount of time it will take for it to appreciate. A good article to reference on this topic is Determining a Support Level for Southern California Real Estate by Brian Brady.

If this home purchase will be your primary residence you should be considering the costs and risks of staying out of the market! Here are some points to consider:

• Will interest rates start to go up? Might not be right away, but they will at some point and it will impact your monthly costs.
  

• If you miss the bottom, then you will end up paying more for your home, whether the market is on the way down or on the way back up. Is it worth the risk of waiting too long?

• Will your rent go up while you are waiting for the “market bottom”?

• Are you prepared to bid on your dream house if every other buyer who has been waiting for the market bottom is out there shopping for the same home?

• Keep in mind that you are not the only buyer on the sidelines.
  

• Is your credit profile in good shape? Do you have financing ready to go?

Laurie Manny wrote an excellent post, To Buy or Not to Buy?, outlining other risks, such as your ability to compete not just with local, but foreign buyers.

The other factor to evaluate is the particular marketplace. Housing in Burbank may be more resilient than housing in other areas, for a variety of factors. The entertainment industry along with the fact that Burbank is central to so many southland locations, make it an ideal community to live in.

Other items to consider are:

How many foreclosures have yet to hit the marketplace? We know many adjustable rate morgages will reset in 2008, this will impact each marketplace differently.

Will lending institutions work with home owners in order to prevent further losses so that less homes will end up going through foreclosure?

No one has a crystal ball, but it’s safe to say that consulting with a real estate professional should be at the top of your list.

After evaluating all of these factors it may not make sense to wait too much longer.

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