In the mortgage/real estate world there is a saying: “Call until you qualify.”
It’s a great way that if you can’t afford a home in a certain (desirable) area, jump on the freeway and keep driving until home prices become more affordable!
This can mean an hour’s drive from where you work, which is obviously not good for someone who has to commute five days a week, especially if the traffic is a bear (hint: it often is).
This was common during past housing booms, when homebuilders often bought up cheap land on the outskirts of cities, known as “exurbs,” to build their new big tracts.
Because inventory may not exist, or appear out of price range, prospective home buyers will choose to purchase in these remote areas.
Homes Are Often Cheaper The Further You Drive
- There is a good chance that home prices will be out of your budget in desirable areas
- So you may want to consider other areas outside of your target area
- Although sometimes considered, the suburbs offer many advantages and are back in fashion
- Benefits include more living space, outdoor features, and better (family-friendly) schools.
We are starting to see this trend again due to shrinking housing stock and higher and higher home prices.
It may explain why prospective buyers start looking where they may not have wanted a property in the first place.
The difference today is that the workplace environment has changed, in part because of COVID-19. In short, you may be able to work from home now.
This certainly changes the calculation method, although it’s no guarantee that you won’t be sent back to the office five days a week at some point.
However, the housing market is very competitive at the moment. Anyone who has ever thought about buying a house knows that.
Today’s market still contains bidding wars, sky-high home prices, and many desperate home buyers. And despite some declines and increased inventory, relief is nowhere to be seen in most markets.
If you’ve been looking and it’s not happening in your target area, you may want to broaden your search.
Not only are homes cheaper outside of city centers, they are also often newer, larger, and sometimes nicer than downtown properties.
Yes, location, location, location is still king in real estate, and always will be.
But while it may be fun to be closer to the action, the tradeoff may be a cheaper home with more features. What’s not to like, besides the drive?
Edges Can Be Hit More During Downhill
One problem with the suburbs, otherwise known as the suburbs, outside of the commute, is the potential for significant property value declines.
It just so happens that new communities on the fringes received funding during the housing crisis because they tend to attract the same type of buyers.
Someone who couldn’t afford a house in the city at high prices and therefore had to buy in the countryside or beyond, while stretching their finances to qualify for a loan through a builder’s lender.
Before long, many homeowners in these tracts were underwater because they were all buying at or near the top of the market, often with no down payments and no mortgages.
In other words, the yields of borrowers in these areas tend to be more vulnerable compared to wealthy lenders living in the city.
So while that home in the suburbs may seem like a bargain, there’s a reason beyond the location alone; increased risk during pregnancy.
Big cities are confined and always needed, even if the economy takes over because most of the jobs are located in the cities.
It is also very difficult to build new units in central areas. The same cannot be said about the unplanned area that was built in the last few years to increase the number of affordable housing.
If you’re considering buying a newly built home on a new tract, look to see what else is growing there.
Are there other new communities nearby? Most of them? If so, it may serve as a warning if there is a downturn. The more available supply, the more likely home prices will go into the water.
One must also consider the cost of transportation to determine if it is worth buying outside of the city. We all know that gas is not cheap, even if it fluctuates in price.
Potential travel costs (and perhaps opportunity costs while you’re on the road) should be in line with the price you’re paying for the home.
The good news is that electric cars are becoming more and more popular as it is a long-distance job.
If You Should Call to Buy a Home, Should You Just Wait?
- You may want to reconsider your home purchase if you can’t afford today’s housing prices
- Sometimes it’s better to wait and find what you really want than to settle and pay a higher price tag
- There will always be ebbs and flows and opportunities in the future (prices won’t go up every year)
- And you don’t want to be stuck with a home in a remote area that you don’t like
Let’s forget all the crunching numbers and just think about the weather for now.
If you have to drive to an area you have no intention of living in, do you think it’s the right time to buy a house?
I’m not just referring to the suburbs versus the city because there are many reasons to live in cities, as mentioned.
I’m referring to places that are further away than you intended, which may have only been brought to you by your real estate agent. Maybe they weren’t even on your radar until you couldn’t afford them.
If you’ve never heard of the city in question before your mortgage budget takes you there, it might give you a moment’s notice.
Are home prices perhaps too high? Is it more profitable to pump the brakes and continue to rent where you enjoy living and wait for a better opportunity to move in?
If you need a purchase price loan to pencil in the math, maybe look at the numbers a little more.
As mentioned, home buyers got burned during the previous boom when they bought homes on the outskirts.
I don’t see why it would be much different this time, assuming there is another big drop. Maybe it’s not that hard, but it’s enough to get you stuck in the house if you want to turn around and sell it without going out of pocket.
This is especially true if you shop there for the same reason as everyone else, affordability.
It tells me that home prices are going up quite a bit, and many of your new neighbors will be in the same boat.
The silver lining is that everyone will likely have a boring old fixed rate mortgage, as opposed to a risky option arm, which can limit the damage.
But if you and the rest of your neighbors have 3% low mortgages, it won’t take much for the first domino to fall.
Long story short, if you buy in 2025 in a remote area, be prepared to live there for a long time, which would be a minimum of five years or more.
Otherwise you may have to sell for a loss considering all the costs of buying and selling.
Also consider that the quality of new construction may not be what it used to be, or the size of the home and/or lot is as large as it was. Tread carefully.
Read on: Should I buy a new home or a used home?
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