Buying a Home in a Declining Market

Posted by: Michael S. | Jan 09,2008


No doubt we’re not headed into very good economic times.  This is particularly difficult for Newlyweds and Recent College Grads, who very well may fit into the same category.  Many newlyweds have usually  graduated college within the last ten years.  Younger newlyweds may still be carrying college debt in the form of both credit cards and student loans.  Since they’ve been out in the “real world” for a few years, they’ve probably built up other types of debt as well: increased credit card debt and other finance plans.  Maybe you’re one of those people who buys everything on a layaway.  I wouldn’t recommend it, but it’s been known to happen.

This is a difficult position to be in even in the best economies, let alone one that isn’t headed in a very positive direction.  What if you’re interested in saving money to buy a home – the next major step after you say, “I do.”  Well, you have one thing in your favor.  While people who currently own homes are in a difficult position because the value of their home investment is plummeting, this is good news for home buyers.  

I can hear you asking, “If home values are going down, isn’t this a bad time to invest in a home?”  I understand that but most every young home buyer is going to get a fairly lopsided mortgage contract, for the sheer reason that they’ve got a limited credit history.  Even if you’ve been great about paying off your bills, the longevity of your credit history is also enormously important.  Fico 08 changes some of this, but longevity is still important.  

For this reason, you are likely to be offered a mortgage that is front-weighted with interest.  Even in a great housing market, with high home values, you wouldn’t be building up equity in the early years anyway.  So if you buy while prices are low, you may end up paying for equity when home prices start climbing upward again.  This, of course, depends on the market, but it can be used as a genral guideline.

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