digest
Short Summary
Main recommendation: Do not buy a home in 2022 unless you can handle six specific situations, because buyers who rush in or underbudget often regret the purchase. Graham Stephan argues that buyers should first analyze opportunity cost, total monthly ownership costs, transaction costs, holding period, and a home emergency fund before committing.
Key Points
- Rushing to buy, driven by rising mortgage rates, led many buyers to face maintenance overload, too-small homes or missing features, longer commutes, bad neighborhoods, high mortgage payments, and poor investments.
- Compare the opportunity cost of your down payment: weigh what it would earn invested elsewhere against the return from home equity.
- Budget for total ownership costs, not just the mortgage: property taxes, insurance, maintenance, and repairs can push a $1,500 mortgage toward roughly $2,500 a month.
- Factor in buying and selling transaction costs, which he estimates at roughly 1 to 2.5% of purchase price to buy and 4 to 6% of value to sell, totaling around 4 to 7% overall.
- Plan to keep the home at least 5 to 7 years, since shorter holds rarely offset non-recoupable costs unless you are flipping or renting it out.
- Keep a home emergency fund covering 3 to 6 months of mortgage, taxes, maintenance, and other expenses.
Details Worth Noting
- Concrete instructions: Get multiple mortgage quotes or work with a mortgage broker to try to lower your rate. Before buying, run the numbers: calculate your mortgage with a mortgage calculator (cost of home, down payment, interest rate), estimate property taxes at 0.4% to 2% of assessed value per year, budget $100 to $250 a month for basic insurance (more in high-risk fire, flood, or earthquake areas), and set aside a few hundred dollars a month for maintenance. Compare the total monthly cost of owning with the cost of renting a comparable home. Get a home inspection to identify equipment nearing the end of its lifespan. Build the expected repair and maintenance costs into your budget, and make sure you can comfortably cover the payments before going ahead.
- Typical lifespans cited: roofs 15 to 25 years, water heaters and AC units 10 to 15 years, garbage disposals a few years.
- Example: on a $400,000 home over three years, Graham estimates about $47,400 in overhead, including roughly $4,000 closing costs, $7,800 a year in taxes, insurance, and repairs, and about $20,000 in selling costs, before mortgage interest — his own illustrative calculation, not a guarantee.
- Expect repair bills to be higher than before due to increased material, labor, and wait-time costs since the last two years.
- Graham suggests that if you're patient, now could be a time when buyers start to gain some negotiating leverage after the low-inventory period since 2020, in his opinion.
Bottom Line
Buying can be rewarding, but only after you have run the full cost math, secured a competitive rate, and confirmed you can hold the home long enough and afford surprise expenses; otherwise, waiting is the safer choice.
