10 MIN READ
Home-Buying Fever? Better Check Your Temperature First, by Ben Henry-Moreland
While you were reading that first sentence, it got more expensive again.
Those houses on Zillow that you flagged on Monday intending to drive past them this weekend are all off the market now, replaced by more expensive ones.
People looking for homes in cities around America have become familiar with the phrase “inventory shortage”, which is a fancy way of saying everybody is buying and nobody is selling. Basic economics says that that will cause prices to rise, which is exactly what’s happened. By some estimates it’s never been more expensive to buy a house. It’s not just the real estate that’s getting pricier, either: mortgage rates have jumped more than a full percentage point over the last two years, further increasing the total cost of home ownership.
Somehow, a lot of millennials are still motivated to buy. After nine years of slow and steady economic growth, people have had time to save up money and achieve a quantum of financial stability. The dream seems so close to their grasp. And yet…
Let’s talk about that dream for a second. The myth about millennials being different than other generations, that we’re content to keep renting our urban stacks and boxes in perpetuity rather than assuming our parents’ manicured cul-de-sacs and curlicues, has long been debunked. The real story is that entering the workforce during the Great Recession (often loaded down with student debt) has permanently damaged this generation’s ability to build wealth relative to other eras. It’s only in the last few years that we’ve been able to scratch together the down payments and meet the lending requirements necessary to even consider making the dream a reality. Even now it’s only the lucky few who have earned, borrowed, or inherited enough to buy a home – only to find out that now there aren’t any homes to buy.
This is where I should note that I’m not an expert on the real estate market and that there are other factors driving up home prices. Fewer people are moving for employment or other reasons, perhaps another side effect of the post-2009 expansion. Costs of building materials and labor have been increasing well beyond the rate of normal price inflation. I also can’t predict where the market will go from here – whether a downturn in the overall economy will finally cool things down or if prices will keep ratcheting higher regardless.
What I do know is that buying any house right now requires all but bare-knuckled aggression to thwart the myriad buyers who are all pursuing the same handful of listings. This process would sound insane to someone who’s never experienced it before: Based on about 30 minutes of walking through a house, jiggling knobs and pulling on drawers and flipping light switches, you have a few hours (maybe a day if you push it) to make probably the biggest financial decision in your life. Real estate agents are talented at prodding a prospective buyer into making a quick decision: make an offer or move on to the next place. Under so much pressure to get to the end result, it’s easy to forget the factors – location, size, and above all affordability – that made you want to buy a house to begin with.
When I say affordability, I don’t mean just in the financial sense (though it’s very easy to gloss over the impact of taxes, insurance, utilities, and trash and water bills on your monthly budget). I also mean affordability in terms of your wellbeing. If buying a home means moving an hour away from work, can you afford to take the extra time out of your day? If the house you buy is on a busy street, can you afford the loss of sleep from the extra light and traffic noise? If your house is on a corner lot, can you afford to shovel 200 feet of sidewalk all winter long? These factors are easy to ignore when the chase is on, our primordial brains take over, and winning the day is all that matters; but they become very real once the papers are signed and the moving trucks have come and gone.
I can say all this because I’ve been there before. When my wife and I bought our first home two years ago, all three of the factors in the paragraph above would come to have an impact on our lives that we underestimated until it was too late to change our minds. Speaking only for myself, I’ll admit that I was thinking more about my friends’ houses, and how ours would stack up to them, than the real implications of committing to this piece of property and whether we could afford it in the overall sense. That’s where the American Dream can really get its hooks into you: freedom and property are abstract concepts, but status is something that you can really feel in your gut.
I’m not trying to discourage anybody from buying a house. But the lesson I learned from my own experience is that in this market, you need to be very careful to stay grounded in your own goals and values and not get carried away by the pressure and emotion of the process. You should be assured enough of your values to be willing to rent for another year rather than settle for a place that doesn’t suit them.
In the end, my wife and I lived in our house for just one year. As for our first effort at homeownership, we don’t regret it because every chance to learn something about yourself is an opportunity to use that knowledge for good in the future. We’re renting again but dipping our toes back into the housing market, being very careful to keep the lessons of our first experience at the top of our minds. I would advise anyone feeling the fever of house-hunting to cool down, check your goals, and don’t accept anything that sells them short.
About the Authors
Ben Henry-Moreland is a CERTIFIED FINANCIAL PLANNER™ professional in Omaha, Nebraska and the founder of Freelance Financial Planning. A former professional opera singer, he now works to help freelancers, contractors, and entrepreneurs take the next step toward building financial security. He writes about financial planning matters for self-employed professionals and the future of the independent workforce.
Levi is the Co-Founder of Millennial Wealth, a fee-only registered investment advisor in Seattle, WA that provides financial planning and investment management services to young professionals and technology employees.
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