Time to bite into the housing market?
TEXT OF INTERVIEW
Vigeland: Who wants to buy a house? Not on eBay but, you know, the old-fashioned way. This year, first-time, potential home owners have an extra incentive: The $8,000 tax credit. That financial carrot is set to expire at the end of November. So does that mean it’s time to jump in?
Personal finance author Beth Kobliner says, maybe, but only if you have all of your financial ducks in a row. Beth, thanks so much for joining us.
Beth Kobliner: Great to be here.
Vigeland: It does seem that the housing market is starting to pick up a little bit and at least in our e-mail inbox — I’m guessing yours as well — a younger generation is now thinking “Hm… Maybe it’s time to take advantage of this.” Are you seeing that as well?
Kobliner: Absolutely. You know, I think this is the generation that missed out on a lot. You know, they’re like, “Where’s our gravy train? We missed out on the stock market boom, we missed out on the tech market boom, our 401(k)s are pathetic.”
Vigeland: Yeah, but wait a minute, since when are twenty-somethings supposed to be on the gravy train?
Kobliner: They’re never supposed to be on the gravy train, but they feel like there was always a feeling you were kind of — if you did the right thing, you can ride it and reach that gravy train, if there’s — I don’t know what the analogy is — a big bowl of gravy at the end of the gravy train.
But I think that, you know, there was a sense of “if you eventually save up enough for a home, you can get a home mortgage and that’s a great investment.” Or “if I can only put enough money in my 401(k), that’s a great investment.” There are all these sort of senses that if you did the right thing, you’ll be OK. And now I think that’s been pulled out from under them.
Vigeland: What about getting into the housing market at this point. There’s this first-time home buyer tax credit, $8,000. But how much of that factor into whether you buy or not?
Kobliner: You know, it’s just one factor. It sounds like a lot, 8,000 bucks, and that’s great and it’s definitely a good deal and what the rules say is that basically you get 10 percent of the purchase price put back to you, up to an $80,000 home, so the most it could be is $8,000.
Sounds really good, but when you think about it, it’s really only enough to cover maybe the closing costs, maybe a chunk of your down payment, a small chunk of that down payment.
Vigeland: So it’s almost like a bonus.
Kobliner: That’s right. Now remember, though, there is an income cutoff. It phases out single people who earn over $95,000 and for married couples who earn over a $170,000.
Vigeland: The fact that the housing market is on sale in most parts of the country, that seems like it’s also prompting a lot of people to think “If I don’t get in now, then it’s going to get expensive again. So let’s just go ahead and do it.” What do you need to keep in mind?
Kobliner: Number one thing is: You want to buy a home if you’re going to live in it. It sounds obvious, but we still have that mentality of thinking of a home as an investment. Interest rates are very low, but when you look at closing costs of a home and broker’s fees, already you’re talking about close to 8 to 10 percent. So your home has to increase in value more than 8 to 10 percent just to break even. Previous generations always thought “Oh, home values always go up.” But we know that’s not the case, and you can’t assume that you’ll be able to sell that home for a profit in the next few years. So looking at it as an investment is a mistake.
Vigeland: Does this all mean that the notion of a starter home is kind of old fashioned now?
Kobliner: I think the starter home was a great invention by the realtor associations that sort of came up with this idea of “let’s really try to push people into homeownership.” And you know, one of my favorites is that they say, “It’s a great tax break.”
Well, if you’re buying a home that costs under $100,000 as a single person or under $200,000 as a married couple, you may not even qualify. Your standard deduction may exceed the interest tax break you get. So unless you have a lot of other deductible expenses, that might not even be a major factor.
Vigeland: A lot of younger people get advice to buy from the older people in their families. Should they be listening to that kind of advice?
Kobliner: I think times have changed. I think it absolutely makes sense to buy a home, if you a) can come up with the down payment for the home, b) you have a steady income to pay for that home. Because that’s really the problem that we’ve seen. People got into homes with no money down — you can’t do that anymore — and they were overwhelmed. Suddenly somebody loses a job, and you don’t have an income anymore. And it’s a very tough situation.
Vigeland: What if people do go ahead, they do the math, it just kind of barely works out, they can just squeak into buying that house. If they’re really determined to take this plunge, what do they need to know?
Kobliner: I would say just make darn sure that you’re going to stay in that home for at least four years, because if you’re not, you may find yourself in a trick situation that you will not want to have to face.
Vigeland: Beth Kobliner, thanks so much for coming in again.
Kobliner: It’s been my pleasure.
Vigeland: Beth Kobliner is a personal finance columnist and author of the book, “Get a Financial Life.”
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