MarketWatch - Why many Americans are worried about buying a home

As originally seen on MarketWatch by Nancy Mann Jackson

Our economy has come a long way since the 2007-09 recession: Wages are going up, unemployment sits at 4.4% (the lowest level since May 2007)—and we’re in the midst of the second-longest bull market ever.

What isn’t growing at an impressive pace? Americans’ confidence in the housing market.

Despite other positive economic indicators, rising home prices and uncertainty about the election left the ValueInsured Housing Confidence Index flat last summer. And while optimism briefly shot up postelection—particularly among millennials, according to the index—it’s dropped again: In March, the Fannie Mae Home Purchase Sentiment Index decreased 3.8% overall, with the percentage of Americans who think now’s a good time to buy falling 10%.

What are we so worried about?

1. Another housing bubble

In January, nearly 60% of Americans said they thought there could be another housing crisis in their lifetime. While that can be difficult to predict, there are some familiar factors at play: As home prices continue to heat up across the country, borrowers are increasingly pursuing riskier mortgages with too-small down payments. What’s more, an survey found that 55% of Americans are willing to bust their home budgets by an average of $40,000.

“As housing prices move up relative to income, the harder it can be for people to buy homes [without overextending themselves],” says Bob Phillips, managing principal of Spectrum Management Group. But it’s not impossible.

How to protect yourself: Buy in a desirable neighborhood with limited housing inventory, where you’d be happy to live for a while. And wait until you find something in your price range and you’ve banked a 20-percent down payment. Even if mortgage rates go up, as expected, we’re still near historic lows, so it’s worth waiting till you’re ready. Speaking of which…

2. Not having enough for a down payment

Saving up a down payment is a lofty goal—one people in their 20s and 30s in particular aren’t confident they can accomplish. In January, just 44% of millennials believed they could afford a down payment, compared with 45% of Gen Xers and 52% of baby boomers.

But just like any goal, you can eventually achieve this one by taking a lot of incremental steps in the right direction.

How to protect yourself: Estimate how much you’ll need—ideally, 20% of the total home price to avoid private mortgage insurance (PMI)—and set up an automatic transfer to a dedicated high-yield savings account. Every few months, increase your contributions and contribute other windfalls, like tax refunds or bonuses, to the account.

3. Losing a job or having to move

Last summer, according to the ValueInsured research, more than half of Americans said the possibility of a job change or loss makes purchasing a home a lot riskier — and they’re right. “When people buy a home, they are usually investing some money in remodeling, and it takes some time for the home price to appreciate enough to recoup the costs,” Phillips says. “Plus, when selling, you [have to factor in] real estate commission of 5% to 6% of the purchase price.”

How to protect yourself: If you’re ready to put down roots, establishing firm financial footing and buying a home in a desirable area for resale can assuage these fears. “If you have an emergency fund of at least six months of living expenses, including your mortgage, the odds of losing your home because of a job loss are minimal,” Phillips says. (And you can always rent it out to offset the mortgage and rent someplace else, if you have to.) Having a cash cushion also protects you if you’re hit with an unexpected bill or major repair.

Read the original article on Grow.