10 Reasons to Buy a Home

Ken Asher — Wed, 22 Sep 2010 19:45:44 +0000

Enough with the doom and gloom about homeownership.

Brett Arends explains why owning a home is a good thing.
The Wall Street Journal, By Brett Arends
September 16, 2010

Enough with the doom and gloom about homeownership.
Sure, maybe there’s more pain to come in the housing market. But when Time magazine starts
running covers that declare “Owning a home may no longer make economic sense,” it’s time to
say: Enough is enough. This is what “capitulation” looks like. Everyone has given up.
After all, at the peak of the bubble five years ago, Time had a different take. “Home Sweet
Home,” declared its cover then, as it celebrated the boom and asked: “Will your house make your
rich?”
But it’s not enough just to be contrarian. So here are 10 reasons why it’s good to buy a home.
1. You can get a good deal. Especially if you play hardball. This is a buyer’s market. Most of
the other buyers have now vanished, as the tax credits on purchases have just expired. We’re four
to five years into the biggest housing bust in modern history. And prices have come down a long
way– about 30% from their peak, according to Standard & Poor’s Case-Shiller Index, which
tracks home prices in 20 big cities. Yes, it’s mixed. New York is only down 20%. Arizona has
halved. Will prices fall further? Sure, they could. You’ll never catch the bottom. It doesn’t really
matter so much in the long haul.
Where is fair value? Fund manager Jeremy Grantham at GMO, who predicted the bust with
remarkable accuracy, said two years ago that home prices needed to fall another 17% to reach
fair value in relation to household incomes. Case-Shiller since then: Down 18%.
2. Mortgages are cheap. You can get a 30-year loan for around 4.3%. What’s not to like? These
are the lowest rates on record. As recently as two years ago they were about 6.3%. That drop
slashes your monthly repayment by a fifth. If inflation picks up, you won’t see these mortgage
rates again in your lifetime. And if we get deflation, and rates fall further, you can refi.
3. You’ll save on taxes. You can deduct the mortgage interest from your income taxes. You can
deduct your real estate taxes. And you’ll get a tax break on capital gains–if any–when you sell.
Sure, you’ll need to do your math. You’ll only get the income tax break if you itemize your
deductions, and many people may be better off taking the standard deduction instead. The breaks
are more valuable the more you earn, and the bigger your mortgage. But many people will find
that these tax breaks mean owning costs them less, often a lot less, than renting.
4. It’ll be yours. You can have the kitchen and bathrooms you want. You can move the walls,
build an extension–zoning permitted–or paint everything bright orange. Few landlords are so
indulgent; for renters, these types of changes are often impossible. You’ll feel better about your
own place if you own it than if you rent. Many years ago, when I was working for a political
campaign in England, I toured a working-class northern town. Mrs. Thatcher had just begun
selling off public housing to the tenants. “You can tell the ones that have been bought,” said my
local guide. “They’ve painted the front door. It’s the first thing people do when they buy.” It was
a small sign that said something big.
5. You’ll get a better home. In many parts of the country it can be really hard to find a good
rental. All the best places are sold as condos. Money talks. Once again, this is a case by case
issue: In Miami right now there are so many vacant luxury condos that owners will rent them out
for a fraction of the cost of owning. But few places are so favored. Generally speaking, if you
want the best home in the best neighborhood, you’re better off buying.
6. It offers some inflation protection. No, it’s not perfect. But studies by Professor Karl “Chip”
Case (of Case-Shiller), and others, suggest that over the long-term housing has tended to beat
inflation by a couple of percentage points a year. That’s valuable inflation insurance, especially if
you’re young and raising a family and thinking about the next 30 or 40 years. In the recent past,
inflation-protected government bonds, or TIPS, offered an easier form of inflation insurance. But
yields there have plummeted of late. That also makes homeownership look a little better by
contrast.
7. It’s risk capital. No, your home isn’t the stock market and you shouldn’t view it as the way to
get rich. But if the economy does surprise us all and start booming, sooner or later real estate
prices will head up again, too. One lesson from the last few years is that stocks are incredibly
hard for most normal people to own in large quantities–for practical as well as psychological
reasons. Equity in a home is another way of linking part of your portfolio to the long-term
growth of the economy–if it happens–and still managing to sleep at night.
8. It’s forced savings. If you can rent an apartment for $2,000 month instead of buying one for
$2,400 a month, renting may make sense. But will you save that $400 for your future? A lot of
people won’t. Most, I dare say. Once again, you have to do your math, but the part of your
mortgage payment that goes to principal repayment isn’t a cost. You’re just paying yourself by
building equity. As a forced monthly saving, it’s a good discipline.
9. There is a lot to choose from. There is a glut of homes in most of the country. The National
Association of Realtors puts the current inventory at around 4 million homes. That’s below last
year’s peak, but well above typical levels, and enough for about a year’s worth of sales. More
keeping coming onto the market, too, as the banks slowly unload their inventory of unsold
properties. That means great choice, as well as great prices.
10. Sooner or later, the market will clear. Demand and supply will meet. The population is
forecast to grow by more than 100 million people over the next 40 years. That means maybe 40
million new households looking for homes. Meanwhile, this housing glut will work itself out.
Many of the homes will be bought. But many more will simply be destroyed–either deliberately,
or by inaction. This is already happening. Even two years ago, when I toured the housing
slumpin western Florida, I saw bankrupt condo developments that were fast becoming derelict.
And, finally, a lot of the “glut” simply won’t matter: It’s concentrated in a few areas, like Florida
and Nevada. Unless you live there, the glut won’t have any long-term impact on housing supply
in your town.

Take advantage of low interest rates

Contact Ken Asher (719) 930-7817 to help you find a home you can afford

Keller Williams Partners Realty
1307 Aeroplaza Dr.
Colorado Springs, CO. 80916

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