10 reasons to buy a home now!
Saturday, October 16, 2010
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Here are 10 reasons
why it's good to buy a home.
1. You can get a good deal. Especially if you play hardball. This is
a buyer's market. Most of the other buyers have now vanished, as
the tax credits on purchases have just expired. We're four to five
years into the biggest housing bust in modern history. And prices
have come down a long way– about 30% from their peak, according
to Standard & Poor's Case-Shiller Index, which tracks home
prices in 20 big cities. Yes, it's mixed. New York is only down
20%. Arizona has halved. Will prices fall further? Sure, they
could. You'll never catch the bottom. It doesn't really matter so
much in the long haul. Where is fair value? Fund manager Jeremy
Grantham at GMO, who predicted the bust with remarkable accuracy,
said two years ago that home prices needed to fall another
17% to reach fair value in relation to household incomes. Case-
Shiller since then: Down 18%.
2. Mortgages are cheap. You can get a 30-year loan for around
4.3%. What's not to like? These are the lowest rates on record. As
recently as two years ago they were about 6.3%. That drop slashes
your monthly repayment by a fifth. If inflation picks up, you won't
see these mortgage rates again in your lifetime. And if we get deflation,
and rates fall further, you can refi.
3. You'll save on taxes. You can deduct the mortgage interest from
your income taxes. You can deduct your real estate taxes. And
you'll get a tax break on capital gains–if any–when you sell. Sure,
you'll need to do your math. You'll only get the income tax break
if you itemize your deductions, and many people may be better off
taking the standard deduction instead. The breaks are more valuable
the more you earn, and the bigger your mortgage. But many
people will find that these tax breaks mean owning costs them
less, often a lot less, than renting.
4. It'll be yours. You can have the kitchen and bathrooms you
want. You can move the walls, build an extension–zoning permitted–
or paint everything bright orange. Few landlords are so indulgent;
for renters, these types of changes are often impossible.
You'll feel better about your own place if you own it than if you
rent. Many years ago, when I was working for a political campaign
in England, I toured a working-class northern town. Mrs. Thatcher
had just begun selling off public housing to the tenants. "You can
tell the ones that have been bought," said my local guide. "They've
painted the front door. It's the first thing people do when they
buy." It was a small sign that said something big.
5. You'll get a better home. In many parts of the country it can be
really hard to find a good rental. All the best places are sold as condos.
Money talks. Once again, this is a case by case issue: In Miami
right now there are so many vacant luxury condos that owners will
rent them out for a fraction of the cost of owning. But few places
are so favored. Generally speaking, if you want the best home in the
best neighborhood, you're better off buying.
6. It offers some inflation protection. No, it's not perfect. But studies
by Professor Karl "Chip" Case (of Case-Shiller), and others,
suggest that over the long-term housing has tended to beat inflation
by a couple of percentage points a year. That's valuable inflation
insurance, especially if you're young and raising a family and thinking
about the next 30 or 40 years. In the recent past, inflationprotected
government bonds, or TIPS, offered an easier form of
inflation insurance. But yields there have plummeted of late. That
also makes homeownership look a little better by contrast.
7. It's risk capital. No, your home isn't the stock market and you
shouldn't view it as the way to get rich. But if the economy does
surprise us all and start booming, sooner or later real estate prices
will head up again, too. One lesson from the last few years is that
stocks are incredibly hard for most normal people to own in large
quantities–for practical as well as psychological reasons. Equity in
a home is another way of linking part of your portfolio to the longterm
growth of the economy–if it happens–and still managing to
sleep at night.
8. It's forced savings. If you can rent an apartment for $2,000 month
instead of buying one for $2,400 a month, renting may make sense.
But will you save that $400 for your future? A lot of people won't.
Most, I dare say. Once again, you have to do your math, but the part
of your mortgage payment that goes to principal repayment isn't a
cost. You're just paying yourself by building equity. As a forced
monthly saving, it's a good discipline.
9. There is a lot to choose from. There is a glut of homes in most of
the country. The National Association of Realtors puts the current
inventory at around 4 million homes. That's below last year's peak,
but well above typical levels, and enough for about a year's worth
of sales. More keeping coming onto the market, too, as the banks
slowly unload their inventory of unsold properties. That means
great choice, as well as great prices.
10. Sooner or later, the market will clear. Demand and supply will
meet. The population is forecast to grow by more than 100 million
people over the next 40 years. That means maybe 40 million new
households looking for homes. Meanwhile, this housing glut will
work itself out. Many of the homes will be bought. But many more
will simply be destroyed–either deliberately, or by inaction. This is
already happening. Even two years ago, when I toured the housing
slump in western Florida, I saw bankrupt condo developments that
were fast becoming derelict. And, finally, a lot of the "glut" simply
won't matter: It's concentrated in a few areas, like Florida and Nevada.
Unless you live there, the glut won't have any long-term impact
on housing supply in your town Posted by Brian on 09:08 PM • (0) Comments • (0) Trackbacks • Permalink • Email This Post
