Dear Monty column: Seven points to consider when buying during COVID

Richard Montgomery
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Our reader this week has a timely question. With so many concerns, is this a good time to buy a home? It appears to me these folks are well grounded and have a legitimate concern. I suspect they can do well because frugal people rarely overspend.

Columns share an author’s personal perspective.

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Reader Question: We are thinking of buying a home. We have saved a substantial down payment by living frugally for 15 years. We both have good jobs. The thought of taking on a mortgage is a bit frightening to us. It feels like there is much uncertainty with the economy, COVID and more. Do you think this is an excellent time to buy a home?

Monty's Answer: Buying a home is likely an appropriate step as you work toward financial independence. Continuing to utilize your strategies during the home buying process will likely reduce the chances for anything but a positive outcome, even during COVID.

Points to consider when buying during COVID:

  1. The Federal Reserve Board artificially influences interest rates. Real estate consumers are scrambling to get these low-interest rates. Many consumers focus on the monthly payment rather than the price because they can borrow more money and buy a larger home. These rising prices may create a housing bubble. When rates get back to normal and the bubble bursts, many of these loans could be underwater. Here is an article in Forbes Magazine that expands on what is happening.    
  2. Shortage of inventory. Many of today's potential home sellers are reluctant to enter their homes into the marketplace. They fear the transmission of COVID could ultimately infect them. The shortage of that inventory combined with artificially low-interest rates translates to higher home prices.
  3. Caution with real estate hype and media articles. Many real estate industry executives and sales agents parlay the shortage to create urgency for homebuyers to act quickly. They minimize this shortage by pointing to rising home values as positive. They want to keep the market going. You can see this in the media reports as well as in the field when looking at homes. More often than not, the potential of a "bubble" does not find its way into the conversation.
  4. Take your time. Do not be influenced by everything you read or by statements such as "We are expecting several offers on this home, so you must act now if you want it."
  5. Learn to evaluate. Get the actual market activity in the neighborhoods you seek. Here is a Dear Monty link to help both buyer and seller learn about neighborhood market data. Also, work to understand how to evaluate a home, so you do not depend on a real estate agent's opinion alone.
  6. Fear of loss. Be calm and act with the confidence you have gained following these tips. Suppose you lose a home on which you have established an accurate range of value to another buyer who is unaware of the current situation. In that case, you are likely to find a similar home that fits your needs at a reasonable price.
  7. The most susceptible. First time home buyers and high-income over-achievers are the most likely to buy on the "bubble." Overpaying happens when they have not been educated or educated by sources with a conflict of interest.

Here is a link to a page on the Dear Monty website that takes you through the process from beginning to end to help organize your journey.

Richard Montgomery is the author of "House Money - An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home." He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty, or at DearMonty.com

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