In the last year, over a dozen people I know have either bought a house or started the housing hunt. Yes, everyone’s financial, locational and emotional stage in life is different, but one thing is consistent across the country and that is the state of the economy. We are due for another recession in the next one to two years–and that is the time when house prices drop and it becomes a buyer’s market. Right now we are in a seller’s market most places. That is certainly the case in Nashville–where you have to make a bid on a place the day you view it. L.A. may not be that extreme, but it is definitely in a real estate bubble. In other words, if you buy a house today, it will probably be worth less than what you paid in about three or four years. That means you will have to wait until the next time the market peaks to regain the value you paid for it–as many as ten years, all the while throwing money at a mortgage on a house that is underwater. It is impossible to know whether you are at the very top of the market, just as it is impossible to know whether you are at the bottom until after the fact. With that in mind, post recession is also a good time to buy depending on the circumstances. But if you take a step back and think it through, take your emotions out of it–I think we can all agree that the worst time to buy would be just before a recession. Yes? No? Maybe so?
I suppose this doesn’t matter much if you’ve found the place you plan to live until you die; but for the rest of us, it is not a good position to put yourself in. Yes, there are exceptions–maybe you bought an extreme fixer up, so no matter what, it will be worth a little more when you’re done with it. Maybe you bought in a neighborhood that is on the rise or booming already and so the prices are “recession proof” in a lot of ways (think Silverlake, for you Angelenos). But for the most part, the prudent thing to do would be to wait this out and buy after the next recession hits. For those of you needing encouragement to hang on and do so, here are some things to remember. In modern times, a recession hits the U.S. economy every 7-10 years and the last time our government declared one was in December of 2008. That tells us we are almost eight years out since the last one. Can you wait two more years to buy a house that could be, in some cases, 50% cheaper? It is also very common to have one during or just after an election year. The two events often coincide and that is not only because of the economic cycle’s numerical pattern, but a lot of times newly elected officials like to get them out of the way at the start of his or her Presidency so that they can add it to their list of accomplishments in office and prevent it from becoming the focal point of his/her time in office.
I found this four part series by William Cowie (1, 2, 3, 4) on the seasons of the economic cycle to be extremely enlightening. I also urge you to google something like, “When will the next recession hit?” and read the countless articles posted on the subject. Let the experts convince you, if I am not doing a good job! As I’ve stated before, just because you’ve saved enough to buy a house, doesn’t mean you should. Timing matters too. And what a great opportunity to save a little more and maybe have some extra money to renovate a corner of the house, afford an additional bedroom or put a larger chunk toward the down payment.
Speaking for myself, it is very hard to wait. I want to buy at the end of this year when we return to Los Angeles to prevent another short term living situation like the one we’re in now. The thought of unpacking everything, knowing it will be packed up again in a few short years makes me frustrated. But both my husband and I agree that it is a small price to pay to save thousands of dollars on the house we will eventually buy. I urge you to consider your own circumstances and if they will allow you to wait, even if it means prolonging something you really want–like convenience and comfort.