House hunting season: 3 reasons to stay on the sidelines

Ginger Dean

March 18, 2013

By: Ginger Dean, Home Finance Specialist

In: Finance and Legal

If you're thinking about buying a home, then you may want to put those plans on hold until you finish this article.

The spring house hunting season is upon us, and you may be one of the many who like to toy with the idea of buying a new home. Those of us who are serious should take the following into consideration before jumping in head first. With market uncertainty still swaying many potential homeowners, other issues such as the initial outlay of cash and a delayed financial payoff may cause you to sit on the sidelines just a bit longer.

Market uncertainty

The New York Times article, A New Housing Boom? Don't Count on It, speaks to the continued uncertainty around the U.S. housing market:

So it seems that since 2006, our society -- including both buyers and lenders -- hasn't become more speculative in its attitudes toward housing. Instead, it has become more wary, and more regulated.

And, of course, economic clouds are still hovering. Slow overall growth continues in the United States, and European financial markets remain vulnerable. Much of our economy, notably housing, is still supported by taxpayer bailouts, which are clearly not a long-term solution. There are also lingering uncertainties about emerging-market economies, as well as the risk that a disturbance in the Middle East could cause an energy crisis.

As you see, if you're thinking about jumping into the market because you think we're on a clear rebound, then you may want to think again before making such a huge financial investment. Markets are slow and unsettled which plays a role in clearing the path for a definitive rebound where we find prices have risen back to 2006 levels.

Cash depletion

Banks are requiring 20-percent down payments that may deplete your savings for an investment that may not pan out quickly based on the above-mentioned projections and market speculation. While you may have the money for the down payment, will you be left with a meager savings account afterwards once you become a homeowner? In a worst case scenario if you lose your job after closing, your cash reserves may be low, which may cause you to default on the mortgage payment. This trashes your credit, causing your score to drop a 100-200 points. Consider this aspect of buying a home and whether you'll have enough in reserve once you close on the home.

Delayed financial payoff

Buying a home and expecting a major profit is so 2006. Right now we're looking at major uncertainty in a majority of the markets. We don't know if there will be much of a profit made down the line and we don't know how long prices will stay at the current historic lows. While the economic downturn has seen spurts of growth, none of it has given us a consistent trend to plot the future housing market over the next 2-5 years as so many factors are involved in how well we recover.

With so much uncertainty, there's no way to be sure how such a large investment will work out. Staying on the sidelines may be the best bet for all involved until the market gives clear signs and indicators of the direction it is headed.

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