TEXT OF INTERVIEW
Bob Moon: One of Wall Street's worry beads today carried the inscription "mortgage rates." Interest on U.S. home loans climbed to a seven-month high this week. Of course, if you're an optimist, you can note that rates are still near record lows:
average interest on a 30-year fixed mortgage is around 4.86 percent.
This comes after a survey showing prices keep falling. But Megan McArdle, a business writer at The Atlantic, says who cares -- she bought a house anyway. Megan, good to talk to you.
Megan McArdle: Thanks for having me.
Moon: So the lousy numbers didn't get you down, huh? When did you buy your house?
McArdle: We bought our house in October, and I did a sort of web video with Noam Scheiber of the New Republic, who had bought a foreclosure. He sort of said, "Run! Don't do it!" But we went ahead and did it anyway.
Moon: Let's look at why some economists aren't exactly sanguine about the housing market going forward -- what's their rationale?
McArdle: Well you've got a bunch of factors. For one thing, you still have a lot of excess inventory on the market. The normal market, inventory is about 2.5 million units; we now have about 4 million units. Beyond that, we have what's called the "shadow inventory." These are the houses that haven't been actually officially been put on the market, but which we know sort of have to be sold sometime soon. And then you have the foreclosures. We've read all of these magazine articles where people are staying in their house for a year or more, 18 months, after they've stopped making the payments, until the bank finally gets around to foreclosing. But eventually that inventory has to be cleared, which means that there's going to be for a long time this downward pressure from supply. Meanwhile, demand isn't looking so good either.
Moon: So all that having been said, why in the world would you buy now? Why was this the right time for you?
McArdle: I was not someone who would had ever thought I would have the urge to own a home. But I got evicted from my house in New York three years ago when they turned it into condos. And so I actually wanted that security of knowing that I own the house as long as I make the payments, no one can take it away from me. I had put quite a bit of work into my apartment in New York, in terms of putting shelves up and all that, that all went away. And I was reluctant to do it again until I owned. Well, I wanted things like the appliances I want, the window treatments I want; I wanted something that I could customize to be the way that I wanted it, and my husband agreed. So we were ready in that sense, and we were ready financially; we have saved up a down payment. Maybe it would have been nice to buy one when the market was further down. But the fact is, we're planning on staying in this house for a decade or more. And as long as we viewed this as what it is -- it's a consumption decision -- we were willing to pay and maybe even lose a little bit of money in order to consume housing the way we wanted.
Moon: Let's look at this idea of investment versus buying a home for the long haul, as you say. We kind of got that backward during the boom. Do you think we as a nation have reversed that kind of thinking again?
McArdle: I'm not sure. You know, when you look at how people expect house prices to eventually appreciate again, when you look at the rationales that are still offered by the people like the National Association of Realtors, it's not clear to me that people have gotten the notion that you consume housing. It's not a durable investment good, it's not supposed to be the biggest part of your investment portfolio. Most people are still stretching to buy as much house they can possibly afford because they think that that way, they'll get the biggest return on their investment when the market finally recovers.
Moon: Given your experience, are you telling people that now is the time to buy?
McArdle: I think the thing that people should really take away is that you have to think really carefully about this decision. It's not something that you should just do because everyone's doing it, any more than you would jump off a bridge.
Moon: Megan McArdle is a business writer at The Atlantic.
McArdle: Thank you very much.