Should I Buy A Home In a Rising Market?

Its a question MANY people ask, and it’s a good question to ask yourself if you are thinking of making a purchase as large and as important as buying Real Estate. It’s a complicated question to answer, however. The answer is – it depends. When I was an investment manager people used to ask me a similar question: should I buy investments when their values are high or rising. I used to give the same answer though – it depends. What I mean by “it depends” is that the answer must be determined by a thorough analysis of your individual situation, goals, time horizon, and purpose.

Each of us has unique circumstances. Our age, location, finances, goals, life stage, etc are all unique to our individual situation. Thus, when one asks that question, it comes with a litany of other important questions to ask before someone can answer that question specifically. So what should you consider when trying to answer this question? First, what is your objective? If you are looking for fast turnover, like day traders do in the stock market, then the risks of buying real estate at a higher value are much higher. However, if you are buying a home to live in for a long time, then the rising values arent as risky.

Why? When investing in the stock market, for example, one of the biggest questions one needs to determine is what the investors’ “time horizon” is. If you arent going to need the money you invest for 35 years then you can afford to take a little more risk and take into account the historical data showing the investments average growth over time. For example, if I buy GE stock today at $7, and TODAY it’s expensive, but the projected value of that stock in 35 years is (hypothetically) going to be $20 – then buying today at an expensive price really doesn’t matter as much in the long run, because over time it will most likely grow in value.

Now let’s extrapolate that example to Real Estate. If you are buying Real Estate for short term gains, don’t. Real Estate is not a liquid asset. Meaning, it is stuck in place and takes time to sell (compared to a stock that you can instantly sell with the click of a mouse). The shorter your time horizon, the riskier a real estate investment can be – due to short and long-term fluctuations in the value of homes and the overall economy. Traditionally, Real Estate has been a great long-term investment, however. One can buy a home, with 3.5% down (plus closing costs), pay 3% interest on a 30-year loan, and essentially pay yourself as you pay down the loan.

And to top it all off, after 30 years you have a tangible asset that is worth money. Now, none of us has a crystal ball, that I know of. So nobody, including myself can tell you that your house will be worth X in 35 years, but we can make an educated guess based on past averages. The Real Estate market historically rises on average over time, but fluctuates like the stock market. So there can be periods where it is down, but overall it rises steadily. Based on historical data, it is reasonable to assume that if you hold this asset for a long period of time, it will likely be worth more than you bought it for when you sell it. So, in my professional opinion, if you are buying real estate for a home, and the house serves its purpose of sheltering you and your family for a long time – its worth it. Even if the market is hot, and values are rising.

Feel free to contact us anytime by going to FindHome.Live or EricCoury.com with questions, insights, or if you’d like help buying or selling your home.

**Disclosure: The views and opinions expressed in this blog are those of the author alone and do not represent the views or opinions of Keller Williams. The contents of this blog are not meant to be interpreted as individualized advice. Please consult your tax advisor, attorney, broker, and/or financial advisor for specifics on your situation. Copyright © Eric Coury, Colonial Classic Realty LLC