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FARRELL: Now is the time to buy a house
Economics editor Chris Farrell
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Chris Farrell: I'm a renter. Over the past couple of years renting has been a money-saving move for me.
Tess Vigeland: Commentator Chris Farrell.
Farrell: The numbers were in my favor during the boom and the bust. So why am I saying now's the time to make your move if you want to own?
We all know there are millions of foreclosed properties weighing on the market. All the experts say things are only headed further south still. So why buy when we're still not at the bottom?
It's all about cashing in on extremes. During booms enthusiastic investors encourage each other to drive prices into fantasy land. And during busts the gloomy conversations get increasingly intense, pushing prices down.... down... and down.
The real estate fundamentals say the crowd is too downbeat. Rents are rising. Interest rates are low. Home prices are down. Homes haven't been this affordable in 30 years.
This doesn't mean you'll get rich fast owning. At best, you'll earn a modest rate of return on your investment. It has averaged nearly 6 percent a year from 1978 to 2008. Housing typically about as well as short-term T-bills and worse than stocks over the long haul. But you get to live in this investment.
Here's the thing: You'll have improved the odds of doing OK financially on a home, because you're buying after the market has cratered. That was the experience of bold buyers after the busts in the '80s and the '90s.
There's another trend working in favor of owning: A home is a hedge against inflation. And that protection against inflation is one reason why home owners have been traditionally willing to accept a relatively modest rate of return. Yeah, inflation is really low right now. But considering the recent rise in fuel and food prices, it isn't hard to imagine that inflation will stir as the recovery ages.
What am I going to do? Am I ready to leave renting and a landlord for owning and weekend maintenance? I am tempted -- really tempted. Still, three more years of college tuition lay ahead. So I'm hanging on for now.
You, on the other hand...
Vigeland: Chris is the economics editor for Marketplace.
About the author
Christopher Farrell is economics editor of Marketplace Money, a nationally syndicated one-hour weekly personal finance show produced by American Public Media.
Well one things for sure ;
There will be no economic recovery until the underwater home owners are less than 10% of mortgage owners
If you are an underwater home owner you can’t move because you can’t sell (well at least without serious consequences),
If you can’t sell you cannot up-grade/down-grade/relocate/or-different. And that just takes too much out of the economy for it to recover completely.
That young guy looking for his first Job in construction, not going to happen until the underwater issue is handled one way or the other,
So what do you thing the powers that be will do ?
There someone said it.
When making an offer on a house. The buyer should be aware of the construction (replacement) cost of the structure. Borrowing more money than that is dangerous.
The replacement cost is not subject to boom and bust cycles as are appraisals based on comparisons with nearby houses.
"
millions of foreclosed properties weighing on the market. All the experts say things are only headed further south
"
~~Chris Farrell~
There is lot of good news for buyer, lot of bad news for seller. Sin embargo, would you think that by now all of this good/bad news is already priced into the market? One thing not yet priced into the market from my perspective is the downgrading of the neighbourhoods. But it will not take much longer for another mark-down-to-adjust to the danger-of-neighbourhood-factor. My guess would be November for best buyer's time. If you are a seller, now is good time.
Unimproved real estate is buyer's opportunity at the moment. You got good bargains on vacant lots at this moment. This is good time to buy place to build a house. Depends where you want to live, but good bargains anywhere in USA. Foreign countries will be a big unknown for most of us.
Interest rates on 30-year loans are half what they were before melt-down. What a great time to pick out an empty lot! Pick out empty lot then go buy that wedding ring!
Gopher it
!
Good for gander, but not this goose? I'm confused. Why is Mr. Farrell advocating "buy" for listeners, but "hold" for himself? Do we not all have other obligations, such as for education, as mentioned, that compete with rent/mortgage expenses for our limited resources?
This is bunk. Housing still has a long way to go. Even the WSJ is writing articles stating "Expect another 10 years before U.S. housing prices return to their 2006 highs." I would contend 10 years is overly-generous.
Wages are falling, foreclosures will continue for several years, there is already a huge shadow inventory and once rates increase, prices will take another hit because people are evaluated on ability to make the monthly payment.
"A home is a hedge against inflation." Not always true. If you purchased a home in the early 20's, 50's or 80's you didn't beat inflation. By the way, inflation isn't low - the numbers are doctored.
