Here's Why Suze Orman Thinks Buying a Home Right Now Is 'Potentially Dangerous'

Consider your decision to buy a home wisely. 

Buying a home can be a great investment. As you pay down your mortgage, you will build equity and eventually acquire full ownership of a valuable property. Your property value could also increase, so your net worth would go up because the asset you own would be worth more.

But purchasing a property is not always a smart financial move -- especially if you overpay for it or you can't afford it. And because of current economic conditions, Suze Orman warns that there are big potential risks to purchasing right now. 

Orman has cause for concern when it comes to current home prices

In mid-summer, Orman offered some advice for people who were considering buying a house. "Buying a home has always been a big financial step, but the stakes right now border on dangerous if you're not smart and careful," she said.

Orman said the risk was high as a result of how fast home prices had been growing over the recent past. She indicated that the data showed costs had gone up 16% over the course of the year and was as high as $364,000 by the end of the year. And, unfortunately, she said that most people's income had not seen such a big increase. 

"Chances are your salary hasn't kept up with the increase in home prices," she warned. "And that's what makes home buying today potentially dangerous. Stretching to buy a house that isn't truly in your financial comfort zone can be a mistake that will weigh on you for decades."

Home buyers should heed Orman's warning

Orman is absolutely right that prices have skyrocketed. And while rising mortgage rates since the start of 2022 have cooled demand slightly, supply is still below demand and prices remain elevated in many markets across the United States. 

Unfortunately, when homes cost more, buyers have to take out larger mortgages -- and ideally make larger down payments -- in order to afford them. This could mean you need to save more aggressively to buy a house and it could lead to a mortgage payment that's much higher than it would have been just a few short years ago -- especially if you can't come up with a 20% down payment and you are required by your lender to purchase private mortgage insurance to protect them against loss in case of foreclosure. 

You don't want to buy a home at the very top of your budget because then any unexpected expense or decrease in your income could lead to a financial disaster. And as Orman makes clear, elevated prices make it more likely many buyers will do just that and find themselves struggling for years to come. "Stretching to afford a bigger home, or a place in a high-demand area is dangerous if it keeps you from other important financial goals," Orman said. "It also can lock you into a lifestyle you may come to regret."

To avoid this, you should research total homeownership costs carefully to make sure your mortgage and other obligations don't eat up too high a percentage of your income. And, as Orman suggests, you should buy the house you need even if it doesn't necessarily have all of your wants. 

By heeding her advice, you can escape the dangerous trap that homeowners are facing now at a time of elevated prices, and hopefully be happy in your house for years to come.