Skip to main content

Is Now the time to Buy a House?

You aren't smarter than the market. It really is that simple.

The real estate industry is putting on a full court press for the notion that real estate is now a bargain. But the reality is that housing prices still have a long way to fall before they reach historic norms. And there are plenty of reasons to wonder even once they hit those norms, whether that will be the bottom of the market. The bad economy, huge amounts of other consumer debt, the tightening of credit and the hangover from the binge of new houses built at the height of the bubble would all argue that the immediate future is likely to see prices stay well below those historic norms for several years even once the current price bubble has fully deflated.

So if you are renting and thinking about buying, you are probably better off waiting until at least 2010 and probably 2011. Buy now and it may be 5 years or longer before your house gets back to the current price you paid for it.

On the other hand, if you already own a home and are unwilling to move into a rental, you are going to be on the hook as values fall regardless of what house you own. And one thing that real estate has going for it right now is very low interest rates. If you already own a home, those interest rates make moving up in the market both possible and attractive. The new home will fall in value, but probably not much more than your existing house.

If you are buying a house to live in, not as an investment, then there is a real opportunity right now. You will need good credit, a stable job and equity in your existing home to take advantage of that opportunity, but you can probably take on a bigger mortgage on a nicer house with the same payments as your existing mortgage. So if you want another bedroom, a larger yard or a lakeside location now may be the time to get a house that gives you those improvements.

Of course the worm in that apple is that you have to find a buyer for your existing home. With the smart new money sitting on the sidelines, that means finding someone in the same situation as you who sees your home as a step up. And has good credit, a stable job and equity in their existing home. With housing prices and the economy in freefall, those buyers are going to be increasingly hard to find. Which is another reason why housing prices are not likely to stop falling any time soon.

Comments

Popular posts from this blog

Self-Directed Real Estate IRA's the New Scam?

You aren't smarter than the market. It really is that simple. You know the marketing folks have been out talking when the New York Times does a fluff story on some new way to make more money with your investments. So watch out for the new scam promoted by the same media advisers who told you a few years ago to buy the most expensive house a lender would finance. Paul Sullivan story is about people'e successful investment of their retirement money in real estate using a self-directed IRA. He provides us with several "success stories".  Of course they are all recent converters to this idea and, not surprising, all but one of the people whose story Sullivan tells are also in real estate sales. The problem isn't really Paul Sullivan. Its that there is no one who makes money by digging out the horror stories from people who invested their retirement funds in real estate at the height of the housing bubble. There aren't any public relations firms devoted to de

The Stock Market hasn't gone up, the Value of the Dollar has Just Gone Down.

You aren't smarter than the market. It really is that simple. The New York Times had an article about the stock market's recent gains. The story noted that while the market had gone up 11% since the election, the dollar had dropped 10% against a basket of foreign currencies during that same period. They described this as "almost a mirror image." Unfortunately it is exactly a mirror image for people who hold those foreign currencies. Lets say they paid a $100 for a share of stock the day of the election and they exchanged 100 units of their own currency for that $100. Now if they sell that stock they will get $111 dollars, but when they exchange that $111 dollars, they will get back 100 units of their own currency. They have earned nothing, in their own local currency's terms the price hasn't changed. In a world investment market, the price of stock is set by what people around the world are willing to pay for it. Most people are still paying the same pr

How Safe is Gold?

As often happens when the markets are bouncing up and down, some people are turning to the "safe haven" of gold. But how safe is gold? Gold has several attributes that make it attractive: 1) Gold is durable. In fact, some of the gold you buy today was probably mined by the Inca's thousands of years ago. 2) Gold is universal. With very few exceptions, gold always has value. This is true historically. And no matter where you go today you can likely trade gold for other goods either directly or by converting it into the local currency. 3) Gold is portable. While heavy, gold packs a lot of value in a small package. 4) Gold is beautiful. You can store it as jewelry or other decorative art. So if you are looking for an investment that will last a 1000's of years and still hold value, gold is a great commodity. Or if you are looking for something that will be likely to survive a complete societal breakdown like a war. However, when you start to look at likely fin