The US housing market is officially in full recovery. How do I know this? Well, just take a look at a few headlines:
“2014 Housing Outlook: Home Prices Head Higher” – Kiplinger
“Housing Recovery Seems Still on Track” – New York Times
Here are a couple more headlines:
“Higher Interest Rates Will Slow Housing Market Growth in 2014” – Washington Post
Hold on there… What was that?
“The Housing Market is Still a Drag on the Economy—But Why?” Los Angeles Times
Hey, wait a minute. I thought I was buying a house. What happened to the housing recovery?
Not to worry. Here are 15 things you absolutely, positively have to know if you’re buying a house—whether it’s in 2014 or years from now, housing recovery or not.
- Don’t pay attention to the national news media.This doesn’t just go for buying a house; this is a generally good idea.
- Don’t pay attention to Realtor® ads. “Now is the time to buy” is their pitch. This isn’t financial advice, this is marketing. Understand their motivation. They have to sell houses to make a living. Don’t get me wrong—I would never buy or sell a house without a Realtor®. They are very good at this. Use them to sell your house (or to help you buy… after you read this post in its entirety). But do not use them for financial advice.
- Don’t pay attention to people who say “a home is an investment.” If you’re buying a house to live in, then it’s not an investment. It’s a home. Buy it because you love it and want to live there and, above all, can afford it. If it goes up in value and you end up with a ton of equity… Yahtzee!
- Consider the costs of owning versus renting. In some cities (like here in San Diego), you can rent a house for half or less what it would cost you to own it. Or, conversely, you can probably rent something larger or in a ritzier neighborhood than you can afford to buy.
- Consider ALL of the costs of owning versus renting. The landlord isn’t going to fix that leaky roof or broken vanity or mow the grass or trim the trees for you any longer. Make sure you factor in costs of maintenance, repairs and replacement (and some of the things you’ll have to replace are expensive – like roofs and furnaces and windows, oh my!).
- Consider the benefits of owning versus renting. There are some really good things about owning. No landlord to deal with. No more rental rate increases. Want to paint the walls or do a kitchen remodel and replace the dishwasher that sounds like a 747 taking off? Want to yell at the kids to get off your lawn? Go ahead… it’s your lawn.
- Does the price seem too good to be true? That bargain-basement price may look enticing, but tread carefully. Chances are it’s priced low for a reason… or for many reasons. Do your homework before buying. Only TV house flippers buy cheap broken-down houses sight unseen, compound problems with a boatload of bad decisions, and then make a whopping profit at the end of the show. See No. 11 below.
- You’ve heard the expression, “location, location, location?” Best real estate expression ever. Pay attention to it, because it’s true. Good neighborhoods tend to stay good or get better. Bad neighborhoods get worse. Don’t buy in a declining neighborhood, no matter how good the price looks.
- Never, ever, ever, buy the biggest or most expensive house in the neighborhood. Unless you’re a gazillionaire like Bill Gates. Then do whatever the hell you want.
- Don’t buy just for the “tax advantages.” There are also a lot of costs of owning that aren’t tax-deductible and that you won’t face if you rent.
- Let’s talk about house flipping! Those house-flipping shows can be entertaining, but they aren’t telling you all the facts. Trust me—there is absolutely no way people who are that stupid are making money on every deal. It’s really, really hard to make money flipping houses but it’s really, really easy to get burned.
- What to do if you don’t have a six-month cash reserve. Here’s what to do if you can’t afford to keep at least six months worth of house payments in a cash reserve: Ready? Here goes: Don’t buy a house!
- Famous last words: “If anything goes wrong, at least I have insurance.” Don’t assume all problems will be covered by your homeowner’s insurance policy. Insurance companies put a lot of exclusions in policies. Check these out and understand your coverage… and your risks.
- Let’s talk about that nice lady driving you around to look at houses. Did you know that “your” real estate agent may not be working for you? It’s wise to use a real estate agent, but make sure to sign a buyer’s agency agreement (giving you the option to cancel at any time). If you don’t, the Realtor® is most likely working as a subagent of the listing agent, meaning she is working for the seller. It’s not her fault. It’s how agency law works.
- Don’t get in over your head. Life is too short to work multiple jobs and get all stressed out over a house you can’t afford to own. If you aren’t sure whether you can afford it, put it off and rent. But don’t overspend on rent, either. In the immortal words of Bobby McFerrin… “Don’t worry, be happy.”