Thursday, May 30, 2013

How to Know if You Should Buy a House: Is Now a Good Time?

"It was the best of times, it was the worst of times." So begins Dickens' A Tale of Two Cities. The point I'm making is that one can always argue that any particular moment is a good time to buy, or a bad time to buy, and have plenty of data to support the argument.

If you can time a market perfectly, quit fooling around with the house hunter's gig and go get a job on Wall Street. But it's not really all about timing the elusive housing market, is it? That's because it's not really a market. With a true market, you can cover upside and downside.

Take stocks. Pick a half dozen or so that you like. When they go up, sell a little bit. When they go down, buy a little bit. You may not make a killing, but you've covered upside and downside and your investment will increase over time. You can't do the same with a house.

Calling the purchase of a home "the American Dream" is a stretch, but the reasons for home ownership are probably more non-rational than rational. The rational: The day you close on a home, you're likely to be underwater. If you had to sell right away, you'd probably lose money. If that's all anyone thought about, no one would ever buy a home.

The non-rational: The home is yours. No one can evict you if you paint a wall purple. A back yard for the kids and the dog. A raised vegetable garden. Decor that reflects your personality. A place to share memories with friends and family. A refuge.

So, how do you know if now is a good time to buy?

You just do.