Too Young to Buy?
By Wendy Gooditis
Buy or rent? Rent or buy! When does a person or a couple take the step of purchasing a home? This question is especially pertinent to the twenty-somethings and even thirty-somethings who watched the implosion of the housing bubble in 2007–10 with equal parts horror and relief that they were not themselves home-owners. But the haphazard mortgage practices and the exorbitant prices are a half-decade in the past. It may be time to look at this thing again.
When I was 21, I worked overtime for a while and saved every penny of those extra checks for a specific purpose: I wanted to buy a house. I wanted a tiny farm so I could stop paying more for my horses’ board than for my own rent! A wonderful real estate agent showed me that there was no way I could afford that right away, and talked me into buying a shiny new one-bedroom condo with the tiniest possible down-payment instead.
After a short two years of condo living (which was better than I had expected), I sold it for more than I had paid and was able to buy a dump of a house with a barn on three acres. I fixed up the dump and sold it for twice what I had paid for it, and was able to buy a lovely small horse farm. I was 27.
Yes, that was quite a while ago! Yes, the world has changed quite a lot! But when I hear fussing about how much harder it is today, I tell people that when I bought my condo, I got a first-time buyer discount on the interest which brought the rate down to 15 percent from 17 percent. You read that right. 15 percent! You can understand why I laugh when people start griping about rates going up to 4 percent!
The current historical low in interest rates has been unbelievably long, and market forecasts predict they will rise. It’s inevitable. When it comes to mortgage rates, what goes way down must go up. Trading Economics (tradingeconomics.com) is just one of the many economic forecasters which predict that mortgage rates will be rising in 2015 and in subsequent years.
Brian du Plessis of the Kirney Team at MVB Mortgage warns that even a small uptick in rates can affect a buyer’s mortgage payment, thereby lowering how much that buyer can pay for a house. You were hoping for 4 bedrooms on a big lot? Buy now! Next year you might be buying 3 bedrooms on a 1/4 acre. Du Plessis says, “If you want a $1,600 monthly payment, a one-point rise (4.5% to 5.5%, for example) in the rate means you have to cut your purchasing budget by $36,000. Your reluctance to try to buy today is going to have a negative effect on the property you can afford in a year or so.”
Recently I was speaking with twenty-something, ten-year experienced real estate agent William Steinmetz about why his generation seems more likely to rent than to purchase a home. His response, “There is a reluctance among my peers to consider buying because of the market crash, but at this time interest rates are only going to rise. I’m telling everybody I know and love that they’re a fool if they don’t jump on this now! And that they’re going to look back and say ‘Shucks, I could have had a mortgage for 7 percent or less!’”
Steinmetz understands that not everyone is in a position to buy, but these days there are many and varied mortgage programs available of which people aren’t aware. He adds: “I tell them ‘At least speak to a lender so you can make an informed decision.’”
And let us not forget that there are costs to renting as well! Global educator Sal Khan of Khan Academy (khanacademy.org) has made several useful videos outlining the financial comparison of renting vs. buying—definitely worth a look.
Okay, so I’ve beaten it into you that interest rates are going to go up, but there are other reasons to buy besides financial ones. The emotional side of home-ownership is a big consideration too. The feeling of relaxing on your OWN deck after work, the one YOU CHOSE from many, goes a long way toward comforting you when you notice that your yard is going to need mowing… The knowledge that (as long as you keep up with your monthly payment!), you will never receive that dreaded letter stating that the room you’re standing in has been sold and the new owners want you to clear it out in 30 days.
Yes, the market has vicissitudes: it takes a combination of awareness, patience, and luck to parlay the small place into the bigger and then the biggest. But I speak from experience when I say that it is worth it. Truly.
Wendy Gooditis is a real estate agent on the Chip Schutte Real Estate Team with ReMax Roots at 101 East Main St., Berryville, VA 22611, phone (540)955-0911. Wendy would be happy to answer any questions you may have about real estate, and can be reached at Gooditis@visuallink.com or at (540)533-0840.
