5 Lessons for Home Buyers Warming Market

NEW YORK (MainStreet) – Growing signs of improvement in the housing market could draw more buyers in the coming months, and although the rules of the game haven't changed much, the big question for anyone returning to the housing market – or getting into it for the first time – is what are the long-term lessons to be learned from the recent housing downturn?

In fact, all the key lessons are things buyers and borrowers should have known before the housing crash – the crash just underscored how important they were. Even if the market does improve this year, as many experts predict, it’s not likely to strengthen fast enough to offset the damage homeowners do when they make basic mistakes.

Lesson 1: Buy the cheapest home that will serve your needs for the next seven to 10 years. As we’ve seen, home prices can and do fall from time to time. That may be rare on a nationwide basis, but it happens quite often in individual markets. The more expensive your home is, the more you will lose if the market turns south.

Also, the recent downturn highlights a fact well known among experts but resisted by many homeowners: Homes are not always a very good investment. Even when there is not a downturn, in the average year home appreciation barely beats inflation, and mortgage interest, insurance, taxes, maintenance and other costs can turn a home into a money loser. It can be much more profitable to own a modest home and invest the savings in something more promising.

Lesson 2: Plan to stay put for a good, long while. Traditionally, experts assumed that the average homeowner could break even in four or five years. During that time a home could be expected to gain enough value to offset the various costs of buying and selling, making owning better than renting. But price gains could be small and intermittent during the next few years, pushing the breakeven period to seven, eight, even 10 years.