Is This A Good Time To Purchase Real Estate?
Responses continue to mimic pre-crash mantras. "It's a buyers market." "The prices can only go up from here." "I need the tax write offs." "My parents keep telling me to buy a house." "Interest rates are low."
There are people who have never purchased a home, choosing instead to rent. They maintain a tremendous (and sometimes enviable) mobility. Some renters do invest in real estate, non-owner occupied or commercial real estate. They keep clear the distinction between homeowner and investor.
I remember the exact moment when I no longer wanted to be in the mortgage business. A young couple, well informed first time home-buyers, came to my office to discuss their financing options. When asked, "Are you excited about buying your first home?" The wife responded, "We want the lowest possible rate and we only plan to keep this house for two years then we will sell it and buy something better." From that moment I was acutely aware that a shift had occurred. Evidence continued to mount; the American middle class dream of homeownership had spun out of control. I left the mortgage industry, happy to avoid the tidal wave of homeowner/investors that flooded the market over the next 15 years.
I have never been able to reconcile confusion between home and investment. It still seems peculiar to hear people say, "That's a good investment decision" when they are deciding whether or not to do a badly needed home repair/improvement. When did middle class American homeowners get waylaid into thinking that equity in a home qualified as an astute investment? At what moment did residential real estate begin to appreciate at rates supporting homeowners, after one or two years, recovery of the high costs of purchase and sale; still making a profit? Unbelievable!
In retrospect we see it was unbelievable, a pyramid scheme.
Investors don't paint bedrooms in nursery pink or blue. They don't build tree houses or mow the front yard and wave to the neighbors. Investors don't stretch their budget and go into debt for the convenience of a front loading washer/dryer or an ice maker on the door of a refrigerator. Investors don't vote for local school bonds and libraries unless it "pencils out." Homeowner/investors make many poor real estate investment decisions because their hearts and their calculators spread too thin their capacity.
It's impossible to assess the value of real estate in the foreseeable future. As millions of foreclosures continue to stock pile there will likely develop more Real Estate Investment Trusts (REIT) that will absorb, manage, and sell off properties, maximizing prospective profits. Legislators have provided no indication they will step in and reconfirm the single most important emblem of American middle class; by regulating the foreclosure process or disposition of foreclosed properties.
Is this a good time to buy real estate?
If you want to buy a home, a place to live, and it meets the test of the five critical concepts for personal financial resilience, WHY NOT? The two undisputable benefits in homeownership are, buy down of the mortgage (increasing equity) and a vested interest in the place you call home and the community in which you live a valuable life.
Can you qualify for a fixed rate loan based on the assumption that you will eventually pay it off?
Will the principal, interest, taxes, insurance, utilities, and maintenance fit comfortably in your budget?
How will the costs associated with homeownership be affected by inflation?
Does the purchase of a home make sense even if there are no income tax benefits?
What will happen if you are forced to move or the house goes down in value 20 or 30 percent?
For me the purchase of a home is similar to having a child. I know it will cost a lot of money but it's something which provides me a valuable life, grounded in stewardship. Hopefully, it will also provide long-term comfort and financial security.