There's a reason homeownership appeals to so many people. When you buy a home, you get an opportunity to build equity in it -- equity you can tap, as needed. And if you're a real estate investor, you may be inclined to buy a home so you can rent it out and generate your share of passive income.
But if you're going to purchase a home, it's important to do so when the timing is right. And these days, it's easy to make the argument that a home purchase is worth postponing a year. Here's why.
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1. Inventory is low
The National Association of Realtors reports that, as of the end of September, there was a mere 3.2-month supply of available homes on the market. For context, it generally takes a minimum of a four-month supply of homes to meet buyer demand. And it takes a five- to six-month supply for an even more balanced real estate market.
If you buy a home now, a lack of inventory might hurt you in a few ways. First, you may end up having to settle for a property that isn't ideal. Second, you might get stuck paying more for a home because sellers can get away with commanding sky-high prices. And third, if there are a lot of buyers in your market, you could end up in a bidding war, which can not only be stressful, but also drive the cost of your home purchase upward.
On the other hand, if you wait a year to buy a home, by then, there may be a lot more housing inventory to choose from. And that's reason enough to wait.
2. Borrowing costs are high
Recently, the average 30-year mortgage has been hovering around the 7% mark. To be fair, we don't know how mortgage rates will trend in the course of the next 12 months. We may find that borrowing rates are higher in a year or they may be much lower.
But we know that right now, buyers are facing a double whammy of sky-high home prices and expensive mortgage rates. That's just not a good combination. If you wait a year to buy, there's at least a chance that things will improve in either regard, if not both.
Buy at the right time
Buying a home is a major undertaking. This holds true whether you're doing so as an investment or whether you're simply looking to put a roof over your head. But right now, the housing market is just not buyer-friendly. So if you're able to wait on a home purchase, it pays to sit tight.
That doesn't mean you should give up on the idea of investing in real estate, though. If you're looking to purchase a home to branch out into that arena, there are other ways to do so, like adding REITs (real estate investment trusts) to your portfolio. REITs are a great way to generate passive income because they tend to pay higher-than-average dividends. And they might give you some of the diversification you were looking for in an income property.
