On the Wall Street Journal's website, my friend and former colleague, June Fletcher, has a column on whether now is a good time to buy a house.
Those who could consider purchasing a home in today's market are those who have big cash reserves, have access to credit (can get a mortgage), have a steady job and are sure their job isn't going anywhere, she says. The unemployment rate rose to a five-year high of 6.1 percent in August and is likely to rise, she notes. I would add that if you're not 100 percent sure you'll be employed in the coming months, now is definitely not the time to buy.
Fletcher also suggests that people who plan to hold onto their new home for at least two years could consider buying. I would suggest only buying if you're planning to keep the home for at least five years -- it's going to take some time for the housing market to stabilize, and until then, home prices will keep falling. If you sell too soon after buying, you won't be able to recoup what you've spent on the home, on a real-estate agent's commission, moving costs, etc.
Those who intend to stay in the home for the long-term have more of a chance of selling their home for more, or at least, what they paid for the home. Anya Kamenetz notes in her column on Yahoo Finance that in many major cities over the next few years, renting a home is more likely to be a better deal than buying one.
Kamenetz also adds these very prudent tips for those who want to buy a home now:
-- put down at least a 20 percent down payment
-- get a 30-year fixed-rate mortgage
-- don't spend more than 30 percent of your gross income on housing
-- for those who have credit card or student-loan debt, your debt-to-income ratio should be about 36 percent.
These are the traditional rules for buying a home -- and I think they're the best ones to follow. In recent years, many of us have borrowed more than we could afford for our homes at terms we couldn't handle, and you can see what kind of mess that got us into.
But of course, for those who truly want a place to call their own, there are also non-financial considerations. Says Kamenetz, "With all these facts in hand, my husband and I are still checking out listings, still attracted to the idea of owning a home. For us, as for so many people, this is more than a financial investment. As homeowners, we'd be more committed to a community, which would be good for us now and even more important when we want to start a family. It's an automatic savings plan. It's a symbol of adulthood. And of course, it's a place to live, one where you can remodel the kitchen and replant the yard (if you have a yard)."
But despite the allure of homeownership, Kamenetz says she and her husband hope to be practical -- they don't want to become "house poor" by buying more home than they can afford, and plan to continue making investments -- in stocks, etc. -- elsewhere.
"If there's anything you and I can learn from the housing downturn, it's that financial security doesn't come automatically with four walls and a roof," she correctly points out.—Lauren Baier Kim