The New York Times, in their Your Money section, recently ran an article titled In Defense of Home Ownership. In the article the author, Ron Lieber, takes to task the notion that now is a horrible time to buy a house. He mentions that despite the bad housing news we hear, stocks going nowhere, and unemployment not getting better, now can still be a good time to buy.
Here are his cases where home-buying can still make sense:
Rates Lower Than Ever
Fixed mortgage rates are at historic lows. People are locking in mortgages at 4.5% (consider the ’80’s when mortgage rates were in the high teens). For many, lower rates mean a more affordable mortgage and it could mean affording a home that was unaffordable a few years ago.
The author makes the claim that the payments you make towards your principal can be seen as a kind of forced savings. Yes, some will argue that a person can do better by renting and investing the difference. But you have to have the discipline to a) save the money; b) have an after-tax return renting that’s better than if you owned a home; and c) not raid the savings/investments along the way. When you buy a home, the money towards principal is your equity.
If renting were always a rosy experience then yes, there could be less incentive to buy a home. But renting isn’t always fun is it? Landlords have ways of making it difficult on renters if they want. How many of us have heard stories of landlords that were stingy with the heat in the Winter? Or how about noise and smells? Renting means being somewhat at the whim of the landlord and perhaps the tenants around you.
Wanting to Live in a Great Neighborhood
Some neighborhoods just don’t have much rental property. Some neighborhoods are gated or have strict rules against rental properties. If you want to live there, perhaps because of a super school district, you’re most likely going to have to buy.
As someone who just bought a home I can definitely agree with these points. With the housing crash and low interest rates, we were able to buy a home that would have been out of our budget with out the crash. We could have waited and perhaps saved more (though we put down more than 20%) but rates don’t have much lower they can go. They will go up! Our rate will be locked in for 30 years.
We’ve also had our experiences with a bad landlord/tenants/neighborhood. For a family of five there aren’t a lot of choices for apartments that can fit us all. And when you do find something you’re at the mercy of the neighborhood. Yes, you can get lucky renting, but it’s not always easy being in a rental.
As for being in a good neighborhood, one of the reasons we liked the neighborhood we picked is because of the good school district. There are rental apartments in the town but there really aren’t many; it’s mostly homes.
So does this mean it IS a good time to buy a house? You have to have your finances in order. Gone are the days when you buy a house looking to sell it at a profit a couple of years later. If you have the money and can afford a home, now could be a great time to buy if you are looking to live there long-term.
Mike - Saving Money Today says
I agree that now is a great time to buy a house. With interest rates low and a lot of homes on the market, you can find a great deal. The problem is if you already own a home you may have difficulty selling it.
If you have to sell then you really need a plan to make your house attractive to a buyer. It can be done but does make buying a home in this economy trickier.
John Smith says
Rates are low, but prices are still high. What is the value of that home going to be when the rates go back up to 6% and higher?
Money Obedience says
I totally agree with you. (I actually wrote a post on this topic a while ago: http://www.consumerismcommentary.com/the-best-way-to-invest-in-real-estate/ ) We have come full circle from thinking that you got to buy as much house as possible to avoiding home ownership entirely. In my mind, neither view is sensible. The only sensible thing is a realistic perspective. As you say, if you can afford a home go for it – now and at any other time!
Maybe we’re finally getting to the point of buying a home because you want to live in one and you can afford it? We’ll see what happens when the economy stabilizes; if people go crazy for real estate again.
FFB you said it, as long as you are buying with the intention to live in it for the next 5-10 years, you get exposed to all the advantages of buying a property. People need to flush out the quick flipping from their minds, it’s over, for now at least.
Yes. Prices are the lowest in years. Interest is good. Not only is it an excellent time to purchase a home but also to invest in real estate for those who are able and interested. When prices were going up and crazy financing options were the norm the banks and media urged Americans to buy. Now that they are low and affordable those same sources are trying to influence people to rent. Uh…should we really trust those “experts”? Are they really looking out for the best interests of the people or maybe do they have a different agenda going on?
This would be interesting research – How would a portfolio do if you listened to all the prevailing financial advice and did the exact opposite?
I’m looking into buying my first home because of the awesome rates and the fact that there are so many homes in the neighborhood I want to buy that are in short sale or foreclosed. Good time to be a buyer in this market.
If you have the cash and qualifications then now might be a great time. I think people will look back at this period and say “Dang, I should have bought!”
Make sure the homes you look at are solid and have good inspections.
Totally agree. I’m planning on getting a fixer upper with good bones (just cosmetic fixes I can do myself over time).
The Wife and I are dealing with this very question right now. It seems like a great time for all the reasons you listed above…but we don’t NEED to yet. It is like trying to catch the falling knife.
One thing to consider is what happens if you wait? How much do you think home prices will change as well as rates? If I recall you have a place already that you would have to sell? That changes the equations too.
And the economy has been real tricky. What if things get better and home prices stabilize? Should rates go up? If rates go up will home prices go down again?
We have friends that recently upgraded and didn’t have to but did it to take advantage of recent prices.
Greg McFarlane says
This is a historic time. Never have home prices (in constant dollars) and interest rates been so low simultaneously. If you’ve got the cash, and can convince a lender of your creditworthiness, you’d be crazy to rent right now.
They call it a “bad” housing market, which is ridiculous. It’s only “bad” for half the participants, i.e. the sellers. Last I checked, people still needed shelter.
Hey, if it weren’t for the current economy we don’t know if we would be able to afford the house we have! (Then again, if things didn’t get so bloated with low rates for so long then maybe prices wouldn’t be as high as they were…).
Financial Samurai says
I think it is a NO BRAINER to buy right now. Rental yields are 6% and you can borrow for under 4% = buy.
I’m looking for another rental property in Nevada, so i can set up residency there and not pay state income tax.
Sounds like an interesting Idea Sam.
Nevada is an excellent area for investment homes. Some nice housing developments are half empty and prices are 1/2 what they were three years ago. The downside is the unemployment rate is also extremly high. I recently heard of a man who bought 6 houses in AZ with an average price of $50K each! A good place to do some comparison shopping is Realtor.com.
We would love to move to an area like that but like you say, it’s getting a job that can be difficult.
Kay Lynn says
If you have a secure job and are financially ready then I think it’s a great time to buy a house. You wouldn’t believe the interest rate I paid for a home loan 25 years ago — 12%.
Wow, and that was probably a good rate too?
Great thoughts here. As much as I hear that now is the best time to buy a house, it’s still such a crazy thought to me and crazy risky. I think the best piece of advice here is to make sure your finances are in order before making such a big leap. The worst idea is to take on a ton of debt by banking on the fact that your house will rise in price. You could find yourself upside down on your mortgage before long.
The idea of buying a home because it will go up in price to sell it is done for now (I hope). If you have your finances in order and you are looking to move then now can be a great time for a home.
@Mis sold – In general what contract terms are you looking at? Seems like it’s getting harder to find the lease with option to buy in the U.S. because of the non-asumption clauses on most loans. A buyer would have to at some point pay cash for the outstanding mortgage balance or refinance through a bank. Is this the same in U.K.? How is your colleague doing this?
Hi Caril – the comment you are replying to was deleted as it was spam.
I would agree that this is a great time for those with the resources to get in. Everyone has already given great reasons that nobody wants me to repeat so I’ll just say it one more time…. it’s a great time.
i consider that the best investments are investments into the houses, mortages, cottages but abroad. For ex, you buy house in Dominicano, which is very cheap and tourist crowded all over the year. And then you can always give to a permanent use or sell it when the price will be higher. Actually, the deals with real estate are always loseless. and it will be so forever!