FARRELL: Now is the time to buy a house

Chris Farrell May 14, 2011
HTML EMBED:
COPY

FARRELL: Now is the time to buy a house

Chris Farrell May 14, 2011
HTML EMBED:
COPY

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.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.