Making Wise Housing Decisions in a Hot Market

The current U.S. housing market is the hottest in years. Fortune recently reported that U.S. home prices are up 18.8% over the past 12 months, and the year-over-year rate of home price growth is expected to hit 22% this spring.[1] In comparison, the average annual rate of home price growth from 1986-2020 was 4.6%.

In addition to paying higher prices, homebuyers are faced with low inventory to choose from and bidding wars that drive the price of a property even higher. Some buyers are even snapping up a property sight unseen or closing without a home inspection.

In the meantime, those of us watching on the sidelines in disbelief at the rise of home prices may wonder if we should jump in and see how much we can get for our homes. Is now the time to “cash out” and take the money and run?

During these unprecedented times it is easy to allow emotions like fear, pride or greed to unintentionally dictate our decision making. Your housing decision will affect more than just your finances, so it is important to consider all of the factors involved. At Blue Trust, we believe that the following foundational principles will serve you well in your housing decisions, regardless of the current economic circumstances.

Choose a home based on your family’s needs

Your family’s needs and desired lifestyle should drive your housing choices, rather than external factors, such as the current market or what others are doing. Ask yourself: How much space does my family need? Is our family still growing? Do we have out-of-town guests often? Do we need space for an office or playroom?

Additionally, be wary of buying a home to present a certain image or because it seems like the obvious next step. In order to afford a home in a certain neighborhood, you may have to work longer hours or commute a longer distance to a job that will support your choice. That job could also require travel and other demands on your time. Those factors, in turn, will have an impact on your personal and family life. A more expensive home may unintentionally demand a lifestyle that you never planned to create.

We have found that by choosing to live in a more modest home you are often able to balance work and home life more effectively. You also have more discretionary funds to invest in home improvements that foster togetherness (a fire pit, game room, outdoor kitchen, etc.) or in family activities like vacations, recreational activities, and special events. By remaining in the more modest home, you can ensure that your home does not supplant other important life priorities.

Identify your objectives

Many people look at decisions as black or white—should I or shouldn’t I? It is important to realize there is usually another option. Make sure to spend time prayerfully determining your primary goals for a home (e.g., proximity to schools, church, family, work; space for your family, community, ministry impact, etc.). You can make wiser decision by evaluating opportunities through the lens of your priorities, rather than in isolation.

Fear of Missing Out (FOMO) and pride are powerful influences, especially when it comes to desiring a bigger and “better” house. It’s easy to convince ourselves that we need more space. However, we would challenge you to identify your true motives and have someone you trust, and that will hold you accountable, ask you practical questions. Questions like: Why are you making this purchase? Are you hoping to earn money from it? Are you trying to impress others? Does your family need this? Or is it more of a want?

Also, be wary of the mirage principle. You may envy others’ large, impressive houses but there’s a good chance that they have a significant amount of debt behind those homes. Those homeowners may even have less equity in their houses than someone with a much more modest house.

It’s also important to recognize the nonmonetary value of having a simpler living situation. A smaller home is easier to clean and maintain. It also allows you to hear your children laughing and playing in the other room and to cross paths with your family members more often since there are fewer isolated locations.

Avoid viewing your home as an investment

A home is personal property, not an investment. An investment is something you’re ready to sell when it has achieved your desired return or met your intended objectives. A home, in contrast, is a long-term purchase meant to meet your family’s needs.

If you view your home as a personal asset and not an investment, you don’t need to worry about whether home prices are going up or down. If you’ve carefully determined your family’s needs and bought a house to meet those needs, then you can plan to live in that home for a long time.

Use debt with great prudence

While it is often difficult to resist consumer temptations, we should work to reduce our consumptive lifestyle and make purchasing decisions based on what we can actually afford to spend, not on our ability to borrow. Borrowing always presumes on the future, which is uncertain. When we borrow, we are assuming our jobs will remain stable, our health will remain good, and our income will not change. Mounting debt often creates anxiety and worry, which can affect our marriages and family relationships.

Keep in mind not all debt is bad. Most of us do borrow some amount of money when buying a home. However, when considering how much to borrow understand how the debt will increase the total income you need to cover payments and affect your margin for the future—including how to financially cover unforeseen events.

It’s also important to understand how a bigger home will increase your overall living expenses and cash needs. Not only does the price of the house dictate your largest debt obligation, your mortgage, but the more square footage you have, the greater the other household expenses—utilities, property taxes, insurance, furnishings, repairs, and maintenance. Many people are “house poor” meaning they must overwork themselves to make their monthly payments and maintain their home, and there is no money or time left to do anything else.

Don’t buy the lie that renting is always bad

Our society teaches that home ownership is preferable to renting and that you are “missing out” if you rent. While home ownership is an important factor in building personal wealth, we believe that renting is a better option if:

  • You can rent long enough to save up for a larger down payment, thereby reducing your monthly mortgage payment
  • You’ll live there less than three years
  • You’re in transition and not sure where your job, church, schools, etc. will be located
  • Buying a home would overextend your finances, between the mortgage and the expenses of home ownership (property taxes, maintenance, etc.)

Understand the benefits and downfalls of buying versus renting for your personal situation. Younger people should not feel rushed to find their forever home, especially if they’re not sure about location or their financial capacity. Older people—even those who have always owned a home—should recognize that it can be a blessing to have a simpler living situation.

A hot real estate market is tempting for both buyers and sellers. However, it’s important to seek contentment and follow your long-term financial plan regardless of the current market trends. You may also want to consult your financial advisor before making housing decisions.




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