June is Home Ownership Month, and many Americans may be contemplating if now is the best time to buy a home. Homeownership can provide benefits to families, neighborhoods, and communities across America. But this year, with our current housing market landscape, Home Ownership Month is a little different. Here’s why:
Most Americans still want TO own A home.
Why are many Americans still allured by the idea of having their own home? Homeownership is still very much thought of as a part of the American dream. Nearly two-thirds of millennials and 45% of Gen Z say a desire to be a homeowner is the main reason they buy a home.
The benefit of building equity via owning a home as opposed to helping someone else financially is very much still real as well. In the United States, many people lean toward homeownership as it is a part of our cultural mindset and economy.
Are we in a housing bubble?
It is increasingly evident that COVID-19 and working from home is driving demand for homes and increasing prices across the U.S. There is increasing concern from consumers that there is a housing bubble and anxiety about when the bubble will burst. Google recently reported that the search “When is the housing market going to crash?” had spiked 2,450% in the past month. Also, more than half of this year’s first-time homebuyers expect some competition, while one in five believe they’re in for a lot of competition.
Experts say we shouldn’t panic as not all bubbles look like the one from 2008. So, while the housing market has low inventory, high demand, and a risk-averse lending environment, extreme spikes in home prices could result in some prices returning to normal soon.
Should you save for a down payment or use your retirement assets?
You can use your 401(k), but it comes at a cost. Here’s the low down on using retirement assets for a down payment:
- You can use 401(k) funds to buy a home by taking a loan from the account or withdrawing money.
- A 401(k) loan is limited in amount and must be repaid with interest. However, it does not incur income taxes or tax penalties.
- Your 401(k) withdrawal is generally limited to the amount of the contributions you made to the account and can avoid penalties if it is classified as a hardship withdrawal. However, the hardship classification will incur income taxes.
- Withdrawals from Roth IRAs, and some other IRAs, are generally preferable to taking money from a 401(k).
If you have questions about saving for a down payment or if you should use retirement assets for a down payment on a new home mortgage, we have the financial professionals that can provide you with these answers.