2 Reasons I Want to Buy a Second Home -- and 1 Big Reason I Won't Do It Yet

Despite saving for a second home, I'm not ready to take the plunge.

Early on in our marriage, my husband and I mapped out some financial goals we wanted to work toward together. Those included saving a nice amount of money for retirement, putting together a college fund for our kids, and buying a second home.

Though we still have some saving to do for both retirement and our kids' education, at this point, we actually do have enough money set aside for a down payment on a second home. The area we're looking at happens to be a favorite vacation spot of ours. Here's why we really want that second home -- but why we don't plan to buy it anytime soon.

1. We want to diversify our investments

My husband and I own a number of stocks, bonds, and real estate investment trusts (REITs). REITs are similar to stocks, only instead of buying a share of a regular company, you invest in a real estate company that owns and operates different properties.

Buying an actual home would add a degree of diversity to our personal mix, and to us, that's a good thing. When you spread out your investments, you have more opportunities to make money and can protect yourself from losses. For example, if you own stocks and their value declines, but you also own a house whose value increases at the same time, you might break even in terms of your net worth.

Also, we figure that owning a second home means having the option to rent it out and generate additional income. And we like the idea of being able to meet that potential need.

2. We want the guarantee of having a place to go

Last summer, when the pandemic was in full swing, we didn't want to book a getaway ahead of time, because we didn't know what restrictions would be in place. Also, we didn't want to run the risk of having to quarantine to leave our state. As such, when we went to book a rental at our go-to vacation spot at the last minute, we were disappointed to find that there weren't any homes available to suit our needs. We wound up staying with friends who have a home in that area instead. Though it worked out, we want the option to pack up the car on a whim and know we have a place to stay at our favorite destination.

But here's why we won't be buying just yet

Right now, mortgage rates are very competitive, so it's a good time to lock in a home loan. But the reason we won't be buying a second home just yet has to do with the fact that home prices are extremely inflated on a national level, including the area we're looking at.

Normally, the type of home we'd want in that area would go for $275,000 to $350,000, and there'd be a decent number of homes to choose from in that price range. For the past several months, every time we've looked at listings, we've seen just one or two homes in that price range. Plus, all of them are extremely small and won't comfortably fit our family. Meanwhile, the homes that can accommodate us are now selling for upward of $450,000. Not only is that out of our financial comfort zone, but frankly, it's not a good investment.

Once the housing market cools off, home values are apt to start coming down. Paying $450,000 for a home that would normally sell for $350,000 just doesn't make sense.

Though we're not giving up on the idea of buying a second home, now just isn't the right time. I realize that by waiting a year or two, we may lose out on the competitive mortgage rates that are available today. But I also know that paying 1% more on a mortgage makes more sense than paying $100,000 above what a home should be worth. Besides, by waiting, we have an opportunity to sock away more money for a down payment so that once inventory opens up where we want to buy, we may have even more flexibility.