Recently I posted a blog concerning town house owners who bought 5 – 6 years ago with plans of moving up in a few years. That was, for decades, the home ownership progression of choice for millions of Americans. Problem is that it’s just about impossible for most of them to move up in today’s market of prices dropping faster than debt attrition. Many are outgrowing their homes as they start families and are physically and socially ready to move, but they are economically constrained. They can afford their payments and more, but they can’t afford the cost of selling with negative equity and make the downpayment on a new home.
Now there is another crop of first time buyers. Most of them are buying with the same hopes and dreams of those who came before them. They will buy a starter home, and then they will move up in a few years when they are in a better financial position and want more space, quality, better location, etc. They have the advantage of having seen the acute price drop of the last few years. It’s easier for them to imagine another crisis in the future. Many of them are still buying homes that they will almost certainly outgrow in a few years, and they don’t really have an exit strategy, which is an absolute necessity. To the buyers of today, I offer the same advice that I have given to potential buyers for years:
No matter how long you plan to stay in the home, buy only if you could live there forever. Count the total number of children in your household as of ten years from now and divide by the number of bedrooms. If the number is much higher than one, there could be a problem down the road. The time to make decisions is now, not in four to six years. You may want to consider a place you can live in long term if necessary.
No matter how long you plan to stay in the home, buy as if you will sell it in a few years. What’s your strategy for selling? Do you have some backup funds that you could use to pay for selling the home? Is the home likely to hold more value than other homes you have considered? If the only way you can see for disposing of the home in the next few years is a short sale or a foreclosure, you are not ready to buy. Do yourself a huge favor and find a nice rental.
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