With the costs of houses still high for the fifth year in a row, it can be tempting to think buying a house is the best decision to make for housing stability. But there are many reasons that buying a house, especially right now, is not the best move and could put a strain on your finances. Here are ways to eliminate money stress.
Some of these are specific to the current housing market, while others are general principles, but all of them are compelling reasons not to buy.
A house is a liability in a changing labor market
Buying a house is great because you can start to put down roots in one community. But that’s not a benefit in an unstable economic and job market.
With the world still in flux — from continuing effects of the pandemic, supply chain issues, and the Great Resignation — flexibility to move for a job is more important than ever.
If you’re saddled with a house, you may miss out on a new, better-paying job or the possibility of moving to a lower-cost city. These opportunities could easily outstrip the increase in the value of the property you buy while you’re in your current situation.
Buying now puts you in a weak position
It’s been a seller’s market for several years, and that means that buyers might be doing all kinds of things to be able to buy a house.
Everything from overextending the amount they can spend, overbidding by tens of thousands of dollars, waiving inspections, taking out high-interest loans, or borrowing from retirement funds to be able to “buy in cash” instead of taking out a mortgage.
Deciding to hold off on buying gives you back the control and the ability to think prudently about what to do with your money.
Interest rates are going up
It’s disingenuous to say that you should have bought a year ago, when interest rates were extremely low, but it’s realistic to point out the effects of buying as interest rates rise. Remember, the interest rate you lock in is going to affect your mortgage payments for the entire time you own the house unless you refinance later.
If you can hold off buying until housing prices come down, at least you’ll be paying higher interest on a lower balance, instead of the current worst-case scenario, which is high interest on a high balance. If you're still interested in exploring home buying, get a quote on mortgage rates here.
It’s a black swan
Finance professor Nassim Nicholas Taleb describes a “black swan event” as an event that is extremely rare, has devastating effects, and is described in hindsight as having been obviously dangerous. The market crash of 2008 is usually described as a black swan.
This current housing market may be building up to a black swan event simply because of the risky and precarious actions consumers are taking to be able to buy overpriced houses. And besides consumer demand, much of the artificially inflated market is being driven by commercial investors in residential real estate.
Maintenance is a second full-time job
When the smoke detector in an apartment you rent won’t stop chirping, you call the super or maintenance worker to fix it and slide them a 12-pack or 40 bucks and call it a success. When you own, everything that malfunctions, breaks, cracks, beeps, loses pressure, flakes off, rips, or wears out is your responsibility.
You have to figure out how to maintain or repair everything, or how to find trustworthy and affordable people to maintain or repair everything. If you’re a single adult, it all falls to you. Home repair DIY shows are fun to watch, but spending your weekends working on your house may not be worth it to you.
Pro tip: If you're looking to do work in or around your house but your funds are tight, consider picking up one of these legit ways to earn extra money.
Maintenance costs money
Whether you perform your own maintenance tasks or hire someone else, all houses require regular maintenance. Depending on the style of housing and area of the country that you live in, you may pay as much to maintain your house every month as you do on homeowners’ insurance.
Figuring out the actual costs of maintaining a home can shift the equation of buying versus renting significantly. If you're looking for ways to reduce money stress, it might make more sense to rent than buy.
A downturn can trap you in payments you can’t afford
If you buy at the top of the market, you may be stuck with mortgage payments that are too much for you if the market drops.
When the housing market crashed in 2008, the rest of the economy went into freefall too. People lost jobs or didn’t receive raises and couldn’t make their mortgage payments. And they couldn’t sell their houses, even at a loss, to get out from under the mortgage payments.
Houses aren’t liquid
Even if the market doesn’t fail, you still may not be able to sell your house as easily as you want to if you need the money quickly. Unless you’ve maintained your house impeccably, it will take time and money to prep your house to go on the market. And if you’ve over-improved or not kept up with trends in your area, you can end up selling for less than you anticipated.
Since housing prices are varied and neighborhood-specific, counting on a certain amount of money from selling your house in a specific time frame is not wise. If you need access to cash, mutual funds or the best high-yield savings accounts are investments that give you access to your money and let you choose your own degree of risk and return.
Someone else’s rules in housing communities
Here’s something that isn’t always mentioned in the calculation to rent or buy a house: A big reason for owning your own home is being able to make it look the way you want it to. But in some housing communities, the rules for the appearance of houses and yards are so strict that you only have a limited set of options.
If you’re OK with that, this isn’t a reason not to buy. But if you’re going into a house purchase for independence, your purchasing options are limited to communities without restrictive clauses or homeowners’ associations. Renting could make more sense financially, for the location, or just on principle.
The surge won’t continue
Housing prices have increased steadily since 2011, with a sharp upturn since March 2020. This upturn is out of line with the growth of the rest of the economy, which indicates that housing prices will need to level off or dip to align with the rest of the economy.
When this will happen is anyone’s guess, but you may not be comfortable investing your assets in a market that could drop or slow down at any second.
The bubble is about to burst
Housing price increases are uneven across the country, which means that some markets are at the biggest surge of a housing bubble, while others still have room to inflate.
Research firm CoreLogic crunches the numbers and creates maps and charts showing which areas are most inflated and about to burst. It’s important to note that just because an area isn’t in the top 10 most inflated markets in the country does not mean that housing prices won’t decrease there at any moment. As previously noted, this is all variable.
You can take the tax exclusion and invest it
If you sell a house now in this booming market, traditional wisdom tells you to roll the profit over into another house immediately so you won’t be taxed on the profit from the sale.
But with interest rates rising, it may make more sense to take the profit and invest it in financial instruments. The gains you may make in the market may cover the taxes you’ll pay, and you won’t have to worry about a downturn in the market on the new house you bought.
You may be eligible for the IRS’ tax exclusion, which exempts a certain amount of money from the sale of the house from being taxed in the first place. In that case, investing when interest rates are climbing is a sound decision.
Now is not the time to buy, unless you have very strong reasons to invest money in real estate in a specific area and know that you can afford the mortgage payments even if the economy decreases sharply and the housing market corrects. There are other ways to grow wealth, even in this volatile market.
For most potential buyers, however, holding off on buying gives them flexibility and insulation from risk of a housing market that could decline at any second.
As always, consult your own financial planner to determine the best course of action for you. And be prepared with the reasons to consider waiting to invest in this booming housing market.
- Simple investing in single-family rental properties
- More than $5 billion in completed SFR transactions since 2016
- Make investment decisions using insights, proprietary data and technology