In the past, people purchased a starter home to live in prior to settling down to raise a family. With fluctuating interest rates that plan is no longer feasible. Purchasing a home is much like any other purchase you make – you buy the best you can afford at the time. In housing, that may mean buying a larger house even though you do not expect to need a larger home until some future date. Buying a starter home with the expectation of upgrading at some future date is not a good strategy in the current market. To understand this bold statement, consider first interest rates.
Roper Public Affairs conducted a telephone survey of 1004 people and found “27 percent of homeowners think higher interest rates will make it difficult to make mortgage payments. It also reveals 24 percent currently carry an adjustable rate mortgage (ARM) or a specialized home loan—a figure that jumps to 37 percent for those aged 25-49”
It also found:
- 23% of homeowners to consider refinancing
- 61% of renters to have difficulty paying their rent
- 78% of renters to have difficulty purchasing a residence in the near future”
Next if you think home equity will help you finance the upgrade home consider moving costs, closing costs, and real estate fees. These costs will take a big bite out of the starter home equity fund.
If you were counting on the salary increases to help finance that upgrade home Home Additions Plus reporter Mark J. Donovan say “home prices have far outpaced salary increases. Quite frankly that chasm seems to continue to grow.”
It seems people stay in the home they purchase when interest rates are higher. Now armed with the above information, you can adjust the long-term home buying plan to one more in keeping with today’s reality. Planning to purchase the starter home then upgrade at some future date will probably cost more today than in the past. Instead of planning an upgrade to that family home after the starter home, if interest rates are low, purchase the best family home you can afford. Consider all the things that you would when looking for a family home: schools, community, transportation, entertainments, playgrounds, parks, etc. in that first purchase even though the need has not yet materialized. Make your first home purchase with your future plans in mind then plan to remain in your “starter home” for twenty years. Plan to build twenty years of equity into this “starter home” before making another move that way the equity has a better chance of being an asset.
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Technorati: NJ Real Estate News, Real Estate, NJ Real Estate Blogs, NJ Housing, New Jersey
2 comments:
Sobering to think about. Of course, in New Jersey, if you are a young person who is thinking about where you want to be for the next 20 years, school districts have to be a consideration. Unfortunately, the best school districts have very high property taxes. Any thoughts about that?
I created an audio response back on July 19th.
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Forgot to come here and link the two.
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