Mortgage interest rates continue to fall to new lows, well below 4% for 30-year fixed loans. So is now the time to buy a house? Many would suggest now’s the time, but I’m not one of the many. Here are three reasons why buying a house right now isn’t a very good idea.
Inexpensive debt is still debt! – Incredibly low mortgage interest rates are not a reason to buy a home. What if I told you that I could get you an interest rate on your credit card of 3.95%? Would that be an incentive to go out and get into credit card debt? Of course it wouldn’t. But, many people are suggesting that cheap mortgage money is a reason to get into hundreds of thousands of dollars of debt.
Even the smartest loan options, the 15-year and 30-year fixed loans, will cost you at least half to over 100% of your purchase price in interest over the term of the loan. So, let’s not get too excited about those microscopic rates. Buying that home is still going to cost you an arm and a leg, albeit not both legs. Buy a house because you’re tired of being a renter or you love the school district. That’s a much better reason than “cheap money.”
Are we at the bottom – What if you bought a house today and 24 months from now it’s worth 30% less than you paid for it? 5 years ago we didn’t know home values could ever drop like they did from 2007 until now. Well, now we know they can drop like a rock and it’s completely out of our control.
Don’t get me wrong, I’m not suggesting that you try to time the real estate market and buy at the absolute floor of property value. That’s simply impossible and nobody should do that. What I’m suggesting is that there hasn’t been good news in the mortgage market in over 3 years and nobody is predicting anything good for years to come, unless you consider more foreclosures a good thing. According to the website Zillow some 28% of homeowners are under water on their home loans. You don’t want to become one of them. Having negative equity in your home is a bad position because you have limited refinancing and “sales” options.
Unemployment Rate – Can you guarantee that you’ll have a job in 1, 5, or 10 years? Nobody has a read on the employment market like that. But, I guarantee you that in 1, 5 or 10 years you’re still going to have a mortgage payment if you buy a house today. I realize this is conservative but we’re still very shell shocked right now and being conservative isn’t necessarily a bad idea.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.