Now, imagine this common scenario. The largest financial decision of Chananya and Esty Orenstein’s lives was keeping them up at night. For years, they had been saving up to buy their own home. Now that they had reached that point, the Orensteins hesitated to jump in. Prices had risen sharply over the past few years, and the $750,000 house they were looking at could have been bought for $500,000 two years ago. Although they could still easily cover the down payment and mortgage, the thought that they were overpaying by a quarter million dollars was really bothering them. Such a quick jump in home values seemed unsustainable, and if it reversed itself, they would have a loss of equity. What goes up should come down, Chananya reasoned.
Should they wait a few months in the hope that prices will go down again, or take the plunge and accept the recent rise in prices?
Short-Term Prices Are Hard to Predict
While the Orensteins’ discomfort is understandable, many who have tried to wait for the perfect time to buy a home never ended up buying one! Predicting short-term pricing is difficult because it is driven by numerous supply and demand factors. Consider the dramatic effect the following can have on home prices: mortgage rates, construction costs, the health of the general economy, the possibility of building in neighboring towns, the rental market, new building approvals and rezoning, neighborhood popularity, and so on. While over the lifetime of a mortgage, prices in most frum areas will almost certainly rise substantially, even real estate professionals struggle to pinpoint precisely where prices will be in the next few months or years. If the Orensteins wait around for lower prices, costs and mortgage rates can instead rise to a point where they can’t afford to buy at all!
First, Make Sure Your Dream Home Is Functional and Affordable
Most families plan to live in their purchased home for decades, so the question of whether they are getting a good deal deserves a lot less attention than the Orensteins are giving it. The answers to the following questions are much more important:
1. Does the house meet the family’s space and logistical needs?
2. Can they afford to carry this home?
If a family can get a house very cheaply, but it’s too small for their needs or in a terrible neighborhood, is it sensible to purchase that home and suffer?
On the other hand, if they find a home they love, but the required mortgage payment is beyond their financial capability, should they buy it anyway because it’s a good deal? If they do, they should expect much heartache and stress as they struggle to avoid the foreclosure of their beloved home. Only after ensuring that a house is functional and affordable does getting a good price become meaningful.
One’s perspective on reasonable property value also changes when viewed through a timeline of the 30 or even 50 years of expected ownership of a home. Consider two neighbors who bought identical houses in Boro Park in the 1960s. One paid $30,000 in 1960, and the other $45,000 a few years later. At the time, paying 50% more for the same property must have been painful, but both families did very well financially on their purchases. Indeed, the $15,000 difference is barely noticeable when viewed in the context of the current $1.5 million value.
While it is uncertain if other areas’ appreciation will be as strong as NYC’s has been, in all likelihood, 30–40 years from now, the extra $250,000 will seem as inconsequential as $15,000 does today in Brooklyn. Obsessing over price swings can keep the Orensteins on the sidelines forever, missing out on the excellent growth and satisfaction of owning real estate.
Then, Be a Good Shopper
Of course, $250,000 is a lot of money, and assuming they don’t forgo the functionality of their home, it would be lovely if they could enjoy 30 years of lower mortgage payments. Beyond trying to time the market, they should definitely shop around to get a firm feel for pricing in each area under consideration to ensure they get the best deal possible. Perhaps they can find a less popular neighborhood that works for them or shop around in the short sale and foreclosure markets, potentially getting functionality, affordability, and a good bargain. Another option for getting a good deal is buying an older home that can use some TLC, as long as they hire an inspector to ensure they’re not underestimating the cost of repairs. With siyata d’Shmaya and some hard work, the Orensteins will hopefully enjoy many years of personal security and financial success in their house.