Calculating costs is key when buying a home

IIlyce Glink and Samuel Tamkin

n the 25 years or so that we've been writing this column, we've started each new year with a look back at some of the issues affecting homebuying.

Ten years ago, as the world's economy was falling off a cliff, buyers with cash, who could qualify for loans, had their pick of properties. Millions of homeowners went into foreclosure, and savvy investors began swooping up homes by the thousands.

It took awhile for the rubble of the Great Recession to get cleaned up. And then, finally, in 2014 and 2015 (depending on where you lived), what was perhaps the greatest buyers' market in history (or at least since World War II), turned into a sellers' market. Suddenly, we went from having way too many homes for sale without enough qualified buyers to too many buyers competing for relatively small amounts of inventory.

Since 2015, we've predicted fewer homes than usual on the market and that home prices would continue to rise. And, that's what happened right up until today: The number of existing homes for sale has remained low, as prices have been rising; even in the face of higher interest rates.

Of course, there are some areas in which home prices have not risen or have remained well below peak pricing. But overall, homebuyers are pressured. Millennials want to buy but have high student debt (not to mention creditcard debt) and (possibly) unrealistic expectations about what the homes they buy for these higher prices should look like.

Prices have started to stagnate or even fall in formerly hot markets, such as parts of New York City, Southern California and Dallas, while prices in Chicago, Las Vegas and other markets hard-hit by the Great Recession of 20082009 are lower than they were in 2006.

Although many expected the big economic story of 2018 to be the Tax Cuts and Jobs Act, which went into effect last Jan. 1, or perhaps that unemployment is at near-historic low levels, the focus for most of the year has been on tariffs, rising interest rates and inflation. And, as we celebrate nearly the longest expansion in history, layoff notices and predictions of a coming recession are beginning to dominate the media again.

Developers are building less than 60 percent of the new homes we need and what new construction is happening is focused on higher-end custom homes or high-rise rentals. Affordability is down, and rising interest rates mean homes are even more expensive. Limited inventory means homebuyers are chasing fewer homes.

Buying a home remains, according to survey data, the American dream. If that's true for you, follow these New Year's resolutions if you're preparing to buy a home (particularly a first home) in 2019:

1. Understand how much you can spend. When interest rates rise, it means you'll qualify for less money. Get preapproved for your mortgage so you can move fast when you are ready to buy.

2. Learn how much your home will cost. Yes, there are the costs of the mortgage, real-estate property taxes and insurance. And then there's the cost of heating and cooling your future home. Maintenance can be expensive and ongoing, so be sure to set aside enough in your budget for small things (such as blacktopping your driveway every year or two) and big ones (such as reroofing or tuck-pointing).

3. Think about how easy (or hard) it will be to sell before you buy. Whatever attracts you to a home will be the thing you lean on when it comes time to sell. But just because you can overlook a major flaw (a highway in your front or backyard, or a municipal waste facility across the street, or some other reason the location is undesirable) doesn't mean future buyers will — unless the price reflects that. Developing a keen eye toward what other buyers might want or not like in a home is vital.

4. Don't stretch to buy your next home. If we're going into a recession (whether it's 2019 or 2020), you'll want to know that you can afford your mortgage in case you or your partner lose your job or make less money.

Send questions to Real-estate Matters, 361 Park Ave., Suite 200, Glencoe, IL 60022, or contact author Ilyce Glink and lawyer Samuel Tamkin at www.thinkglink.com.