Q: I have always wanted to own my own home. I have been saving money for five years toward a down payment and I have worked hard to maintain excellent credit, with the idea that I would buy a home when I got married. I got married last year, and my husband and I together can well afford to buy a nice home in our area. Part of the time, we’re excited about buying because it seems like prices are really good right now. The other part of the time, though, we watch the news and it seems like the whole world is falling apart. Now we’re sort of stuck — we’re not sure what to do.
A: Real estate decision-making has always been one of the most critical exercises that a household must undertake. Home ownership impacts not only your emotional well-being and lifestyle on a very large scale, but also your family’s personal financial wellness, both monthly and lifelong. A generation ago, people treated decisions such as the one you are currently facing with a deliberateness and gravity appropriate to the importance of the subject matter, but over the past decade or so — not so much.
The recent foreclosure crisis, in addition to creating opportunities for buyers, has also had the silver lining of creating a national-level consciousness of what can happen when real estate decisions are not made with sufficient information, long-term lifestyle and financing planning, or attention to detail. You, like many smart home buyers, are doing the right thing by trying to educate yourself about the home-buying process and the real estate market before you jump in. The problem is that because real estate is such a hot topic in the media right now, the volume of information to sort through is totally overwhelming, and it is difficult to impossible to know how to sort the wheat from the chaff, much less to know how to make real use of the real estate information out there to improve your own personal decision-making.
Mindset Management
You don’t have to be a conspiracy theorist to know that the mainstream media is in the business of getting you to keep watching the news, reading the paper, etc., and not to provide you with real estate advice. In fact, most of the TV news commentators I see doling out real estate dos and don’ts are not actually real estate professionals, with noteworthy exceptions like Barbara Corcoran. Unfortunately, studies have shown that we humans are more apt to stay interested in information that provokes fear, rather than the warm and fuzzy. The alarming headlines you’ve seen for the last two years have served their purpose of keeping you hooked in, but may also have infected you with a dream-zapping syndrome I call "buyer’s block" (kinda like writer’s block — you get the picture).
Let me just say this: Real estate is an asset class. We’re talking about money and buildings here, not your ability to obtain food or basic shelter from the rain. So, ditch the fear — it is a totally unproductive emotion, and even causes people to make worse decisions than they would have if they weren’t so afraid. In fact, what we fear we often create: The more petrified you are that you’ll end up in foreclosure, the more your fear will interfere with your decision-making, making foreclosure more likely than it otherwise would have been.
To get rid of the fear, just get clear on the fact that bad real estate decisions can be a huge downer, but they won’t kill you. So rather than approaching this home-buying experience from a place of fear and paralysis, approach it as a project. Your task is simply to gather the specific information you need to equip yourself to make the right decisions throughout your home-buying process, not to take in and sort out every real estate headline under the sun. No one has the mental bandwidth to perform such a feat, and it is simply not necessary to do so to make smart real estate decisions.
Keep in mind that there is a flip side to every story you see reported in the real estate news. While headlines have been screaming about how bad the market is, I, as a buyer’s broker, have been seeing clients who never would have been able to afford a home two years ago break into the market, and start accessing the tax and other advantages of home ownership. Our country’s most brilliant investor, Warren Buffett, advised an audience to "look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it." Decide right now not to participate in the folly of buyer’s block, and to take on the project of figuring out how you can benefit from the current market "crisis," assuming that your family is currently in a good place — financially and lifestylewise — to be purchasing a home.
Need-to-Knows
Real estate markets, values, negotiating practices and transactional procedures are very local — many real estate news reports that confuse people are not. Unless you live in New York City, it is not a good idea to base your personal real estate decision-making 100 percent on the information provided from an NYC-based expert on the national news. For example, last quarter, both home values and the number of purchase transactions were down severely, nationwide. However, in San Francisco, there was a dramatic 22 percent increase in purchase transactions from March to April, and a 3 percent increase in values. If you looked closer and broke it down by ZIP code, some ZIP codes showed major appreciation, while others were negative.
You see, you simply cannot know what the market is like in your state, county, city or even neighborhood unless and until you obtain specific information from a local real estate professional.
Similarly, the very brief amount of time allotted to TV and radio experts to dole out advice makes it difficult for them to give an appropriate amount of nuance in the information they present. So much of whether and when is the right time to buy is based on your personal finances, lifestyle and life plans, and no one in the news can analyze that for you. There is no blanket advice about whether to buy a home at any given time that will be right for every single individual or family. For example, lots of folks have been heeding national commentators’ blanket admonitions not to buy. In addition to the fact that in some areas, this will unfortunately result in currently qualified buyers waiting until a seller’s market to buy, there are high-income prospective buyers who are forgoing tens of thousands of dollars in much-needed tax deductions based on this impersonal and inapplicable advice.
Bottom line: A decision of this magnitude truly warrants a custom analysis of your personal finances and family’s needs, by a local professional. It may even make sense to speak with several different types of professionals: a Realtor, a mortgage professional, a CPA, a financial planner, etc., depending on your situation, to determine whether now is the right time for you to buy, and how to harness current market conditions to make the best buy possible.
Action Plan
- Decide to make your decision whether to buy or sell based on your lifestyle and life plans. If you want to buy and are qualified to do so, don’t cheat yourself out of moving forward and obtaining the professional advice you deserve because of what you see on the news. However, you should get educated about your local market and make decisions about how to best execute your plan of buying in a way that takes advantage of current conditions.
- Get your own team of professional advisors, by referral. At the very least, talk with a CPA about the tax implications of home ownership; a mortgage broker regarding the mortgage rates, terms and price you can qualify for; and a Realtor about current, local market conditions and what sort of home you can expect to find at your price range.
- Go on a selective information diet. The recent book, "The Four Hour Work-Week," sets out a very extreme version, but try to at least limit your intake of real estate information — which can be habit-forming! — to questions you need answered about your home-buying project.
- Ask your professionals where they get their real estate news/information.
- Build a repertoire of reliable sources of unbiased real estate information, rather than opinion. Then, stay very answer-oriented when you consult these sources. Don’t look for news articles to tell you whether to buy or when — look for answers to concrete questions, like how long the average home in your area is staying on the market, common concessions currently being offered by sellers, etc.
As you go through this process of preparing to buy a home, use the real estate news to find strategies and solutions to questions and obstacles that come up, rather than allowing fear to shatter your life goal of home ownership.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook," and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online.
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