A few weeks ago I drove to Chicago with high hopes of being useful to my “little sister” (almost) and her husband as they settled into their new house. They’d just returned to the Chicago area after ten years working in Atlanta and Washington D.C. Carpet cleaners came and went; the floors were draped and the interior painted. We hauled extra items to Community Threads and took extra boxes to a couple who needed them (prearranged through Next Door).
We drank a lot of tea together. We grieved all Lizzie and Chuck had left behind in D.C. and celebrated all they’d gained by moving back to their lifetimes of family and friends. Chuck amazed us (and even himself) by ordering something on Amazon and having it arrive in four hours. That’s right: Four hours from online to their front door! Remember the Disney sci-fi jokes about “Someday, packages will be delivered on beams of light!”? It’s almost here. We took Lizzie’s sister-in-law out for a birthday breakfast, and we tried a new place for dinner one night when we were all exhausted.
Moving is thrilling, but it’s also daunting. One day while we were cleaning upstairs, I heard the carpet cleaner hollering, “There’s water coming through the ceiling vent!” They have a beautiful home that’s just fifteen years old, but apparently there was a leak in the lines for the jets on the master bath that the house inspector failed to notice. That was a gloomy thought. How many other things did the inspector fail to catch?
I have kids who are thinking about buying a new house. A first for them, and an almost brand new home. My guess is there are zillions of people out there also thinking about buying a new home, since millions of homes are being bought and sold in America every year. (I can’t even find a guess on how many globally; doubtless mega millions.) What is the current wisdom on buying a home? I asked Chuck and Liz for their advice, not only because they’d just sold and bought their homes, but also because Chuck works in a field related to the financial services industry and has taken a lifelong interest in reading and learning about personal finance. I’ve also corroborated their thoughts with research. Here are a few suggestions for any would-be home owners:
*2023 is not a good time to buy a new home unless you have to: “U.S. Home Sales in 2023 Set to Slow to Lowest Level in a Decade”: “There will most likely be about 16% fewer existing home sales than in 2022, approximately 4.3 million, Redfin predicted in the report. That’s a 30% decline from the peak of the homebuying frenzy caused by the pandemic. It’s also likely to cause the lowest housing-turnover rate since the early 1980s. Only about 32 out of every 1,000 households are expected to sell their home in 2023 . . . Would-be buyers [are] pressing pause due mostly to affordability challenges including high mortgage rates, still-high home prices, persistent inflation and a potential recession,” Mr. Marr continued. “People will only move if they need to . . . “Overall, the median price of a U.S. home is set to fall to $368,000 in 2023, a 4% decline and the first year-over-year drop since 2012, the data showed” (https://www.mansionglobal.com/articles/u-s-home-sales-in-2023-set-to-slow-to-lowest-level-in-a-decade-01670350066).
*From Chuck specifically: Before you purchase your home, reckon with the fact that “the gold standard for downpayment used to be 20% until standards were relaxed. Dave Ramsey would caution against putting less than 10% down and says that a down payment of 20% is preferable because you avoid paying PMI [private mortgage insurance], which can be a costly addition to your monthly mortgage payment . . . his [Dave Ramsey’s] ‘baby step #6’ on the road to financial peace is to pay off your mortgage as early as possible.” Such sound advice!
As I’ve researched on line, it appears that since 2018 things have loosened up a lot, but that doesn’t mean the new possibilities are wise; they are much more risky. Now you can find lenders who will loan money with a downpayment of anywhere from 3-20%, but I still believe if you can’t come up with at least 10% and don’t have a known huge boost in income guaranteed, you’re very likely looking at a long mortgage that will tie you down so tightly you won’t have money for extras or unexpected emergencies. Financial pressures are an ominously depressing stressor in relationships, and worst case scenario—you may even lose your house.
I remember the dark years during medical school where even coming up with money to pay our rent was questionable, and we were living in subsidized university townhouses. Ice cream, salad dressing, and hot dog buns were unaffordable luxuries. And then there was the day when Alan said, “There’s NO MONEY to shop, not even for milk!” That was after medical school. After residency. After ten years of marriage and four kids. And, even after he’d started practice as a physician. The real problem? We bought our first house and had no money for nuttin’ because it took longer for medical insurance companies to pay Alan than we’d anticipated. Don’t buy a house if to do so means you don’t have a single egg left in your nest!
*If you are going to buy a home, the benchmark for affordability is not more than 25-30% of your disposable income (household budget after taxes). Included in that should be an estimate of 1-2% of the home’s purchase price for maintenance and repairs (which does happen, even in newer homes, as I just pointed out).
*Finally, even if you can afford to buy a home, it usually takes at least 5 years to recoup your expenses and make a profit, so don’t buy unless you’re planning to stay in the area. We have one set of kids who moved for work. They made a huge profit on the sale of their home but are wisely renting and waiting to figure out if their new job will be long term in the new location. There are many advantages to living in an area before buying: Proximity to work, church, educational opportunities, recreational access, friendships, safety—these are all major factors that may not be known before you move. A couple of examples: We have a young, single friend who bought and sold a home in Washington D.C. but did not make a profit in three years, although he had hoped to. We have a friend who works in a big city where they’ve just started a new major highway construction project. It used to take him 15 minutes to commute to and from work; it now takes him 15 minutes to get to work but an hour to get home.
If you want to buy a house but don’t think this is quite the right time nationally or personally, here are a few good ways to prepare for a future purchase:
- Make sure your finances are in order. Pay off/down any debts and make sure your credit rating is good or work on improving it.
- Start saving for a down payment. Some banks are starting to give pretty good rates. (Just looking online this minute, it looks like Huntington is offering CD’s with 5.18% APY guaranteed for 14 months if you have $1,000 to start a nest egg, but I have NO CLUE if this would be right or best for you. PRAY before you even start your research! The Lord can lead you!)
- To calculate how much you can afford to pay for a home, there’s a “28/36” standard: Don’t spend more than 28% of your gross (pre-tax) income on house-related costs, and don’t spend more than 36% on total debts (which might include school, auto, or credit card as well as mortgage payments). There are calculators online that will help you work through your specific assets and liabilities to help you figure out the reasonable price range for buying a home.
I remember when Alan and I started looking for our first home. We felt like the pair of robins looking at a tiny nest in the cartoon with the caption, “Too expensive.” Another question to consider: Do you need to own your own home? I’m pretty sure if anything happened to Alan, I would rent a small apartment close to my kids and call it good. By the time you pay for maintenance, taxes, and all expenses related to running a home, I don’t think you’re really saving money. You’re buying privacy and space for sure, but you’re trading that for time and convenience.
I’ve loved being a home owner, and I love our present home, so I’m not suggesting we all live like monks and forsake home ownership, particularly if we have a family. But, owning a home is a huge investment in both money and time, so it shouldn’t necessarily be the illusory pot of gold at the end of everybody’s rainbow. Just sayin’!
“Labor not to be rich: cease from thine own wisdom. Will you set your eyes upon that which is not? for riches certainly make themselves wings; they fly away as an eagle toward heaven” (Proverbs 23:4 -5).