It has long been thought that if you buy in the right location, the value of your home will increase more during good markets and fall less during down markets than it would if you bought in a less coveted area. But choosing a desirable location in which to buy doesn't guarantee the value of your home will never fall. In a severe downturn, all markets are affected.
In today's market, we're seeing the location factor exaggerated to extremes in some areas. Areas with good employment and not enough housing to supply the demand are experiencing rapid appreciation. Buying in one of these areas may mean paying significantly over the list price. This is where you need to consider other factors that should influence a purchase decision.
Most buyers should buy a home in such competitive markets only if they plan to stay in the home indefinitely. This means you have job security, you're sure you won't be asked to take a job transfer elsewhere and the home will suit your long-term needs.
In a volatile market, like what we're experiencing now, you could pay a high price that is supported by the sale prices of similar homes in the area at that point in time. But when the market cools off, which it's likely to do, the market value of your home could slip. As long as you don't have to sell, you shouldn't be hurt financially, unless you're planning to refinance your mortgage.
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