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Time to buy a bigger home?

Chris Farrell Oct 22, 2010

Question: My husband and I have been living in our current home since 1999. It’s 2 bedrooms and roughly 840 sq. feet. We have a 5 year old daughter and realize that we will have to move sometime soon.

Financially we’re doing okay. Our 54,000 mortgage is our only debt and we have approximately 60,000 in savings.

Our problem is that neither of us has completely stable jobs. I work part-time and he is on contract as an administrative asst. for 2 years. He was also recently laid off for 7 months. We attribute our lack of stress during these situations to our little house with low payments. I am pursuing a graduate degree that I will complete in the next year. We keep hearing about the amazingly low interest rates now and house prices coming down. Do we buy now to take advantage of low interest rates or wait until we feel more secure? Trisha, Saint Paul, MN

Answer: I understand your desire for a biiger home, but I think you’ve already answered your own question: You have an affordable home at a time when you’ve gone through a great deal of economic distress. I imagine that you’re now shoring up your savings.

Yes, mortgage interest rates are extremely low. Home prices nationwide are down about 30% from the mid-2006 peak. But I worry about stretching your finances at a time when the latest government figures from September show that 17.1 percent of the civilian labor force–more than 26 million workers–unemployed or underemployed (i.e., involuntarily working part-time or otherwise marginally attached to the job market).

In your case, small is beautiful. A lack of financial stress during a 7 month layoff is a genuine return on a small home.

By the way, in general I think owning a smaller home is financially savvy. It’s easier to come up with a large down payment with a smaller home. The mortgage is less. So are insurance, taxes, heating and cooling bills. These cost savings compound over time. Of course, that doesn’t mean you won’t something slightly larger, but I would wait until your job situation is more stable. What you can do is use this time to figure out what kind of home you would like, the neighborhood, and the finances. In other words, you’ll have done all the research when its a better more secure time for you to think about moving.

This might mean that you miss the bottom of the housing market. Then again, you might not. Like most people who closely follow the economy my own sense is that the housing market will stay weak until we start reading newspaper headlines about looming labor shortages rather than stubbornly high unemployment. Foreclosure-gate is only the latest trauma to hit the market.

The longer term picture is that the economic conditions of a region will reassert their power over real estate prices. The ebb and flow of home values will once again largely be dependent on local job and income growth. Either way, it’s hard to come up with a scenario where home prices run up sharply anytime soon.

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