So the new administration wants to give new homebuyers a huge tax bonus of $7500 to $15000 (depending on which version becomes the law). Also the house prices are very low. Also you can probably get a 4% mortgage after this law comes into force. This is targeted toward the well employed buyers with good credit scores and ability to make mortage payments i.e. me. Why should I buy? I don’t buy because: 1) I am not committed to one geographic location 2) I want to be able to move if a great career opportunity comes my way 3) I don’t know if I want to deal with the hassle of repairs, maintenance etc. But am I missing out on an opportunity here? My thinking is that I am not. In a different world I could buy hoping that the price of my house would appreciate and I would be able to sell it if and when I needed to move. But in the new world you can only look at a house as a place of residence. You can no longer look at the housing market as an investment. Thus I feel that if I am not attracted to buying a house as a place of residence I should keep renting. Comments?
Real estate diversifies assets and serves as an inflation hedge. Of course you could also just buy a REIT stock, but I think REITs have more correlation to the stock market than physical real estate.
You are not missing out opportunity because housing will only hit bottom if foreclosure are proceeding; if bankruptcy judges are not allowed to modify/reduce loan balance. Housing price is being artifically held up.
I will buy this year. This is a great year to buy a home. I am not as location-neutral as you, and want a place to live in. Even if you had to leave, you could still rent out your home and collect monthly income & enjoy the benefits of capital appreciation. And I disagree with your statement that housing is not an investment. It is an investment, and for most Americans, it’s by far the largest investment of people’s entire lives. Homes allow people to refinance for extra cash, take out loans on their equity, and in dire situations (e.g. medical procedures) would allow someone to sell for a lot of money. Over the past 15 years (up through about 2006-2007 before the bubble burst), in my area, a home would have increased by 300% in value. Even after the collapse of the housing market, over that same time frame, you are still looking at about 250% increase. That is a great investment if you ask me.
I’m in the same situation and have thusly shifted my strategy to buying something only if it passes the investment test- meaning it has to make sense even if I move out tmrw and had to keep it. This sort of analysis is dependent on so many factors, many of which are highly localized. Here is my thinking in Dallas… 1. Rent vs buy is tricky bc rent here is so cheap and property taxes are so high. A 200k house will cost about 500 a month in property taxes and I could rent a similar place for about 950. Once you think of liquidity/ maintenance/ insurance, etc- you are pretty much on par. 2. Tax benefits- from my calculation you have to purchase a home thats around 300k+ to have any real tax advantage as far surpassing the min deduction for a couple goes- and I am not ready to commit to such a high monthly expense. 3… but the credit- which will possibly not have to be payed back after all is a nice bonus- especially on a lower priced home. Also- if we move away we can begin claiming depreciation on the property. 4. Rates are incredibly low and I foresee a nice stint of inflation in the next 5-10 years. So locking in a <5% rate now sounds nice… maybe I can become the lady down the street who only pays 10%(current MV) per month bc she bough here place 20 years ago. 5. Deals are to be had out there. I’ve seen some crazy listings. All in all I have a line out but am by no means desperate. If I can get my hands on a needle in a haystack in a great neighborhood that I can lock in @ 5% I’ll jump. But it has to pass my positive cash flow from day one investment property calculation on top of the I want to live there criteria.
Is it a good idea in general to buy in NYC? I know of very few people who actually have their own places here.
I view my primary residence as shelter, not an investment. I can live in my home, but I can’t live off of my home. That said the potential rent from my house exceeds the mortgage, taxes, and a realistic assumption for upkeep/other. So, when it’s time to move on I just might rent it out instead of selling it. I’ll cross that bridge when I get to it!
needhelp Wrote: ------------------------------------------------------- > So the new administration wants to give new > homebuyers a huge tax bonus of $7500 to $15000 > (depending on which version becomes the law). Also > the house prices are very low. Also you can > probably get a 4% mortgage after this law comes > into force. This is targeted toward the well > employed buyers with good credit scores and > ability to make mortage payments i.e. me. > > Why should I buy? > > I don’t buy because: > > 1) I am not committed to one geographic location > 2) I want to be able to move if a great career > opportunity comes my way > 3) I don’t know if I want to deal with the hassle > of repairs, maintenance etc. > > But am I missing out on an opportunity here? > > My thinking is that I am not. In a different world > I could buy hoping that the price of my house > would appreciate and I would be able to sell it if > and when I needed to move. But in the new world > you can only look at a house as a place of > residence. You can no longer look at the housing > market as an investment. > > Thus I feel that if I am not attracted to buying a > house as a place of residence I should keep > renting. > > Comments? I am not buying a house for the exact same reasons.
OK, so A) there are some regulatory changes to the housing market that look favorable, and B) there is the possibility that valuations have come down enough to make housing look attractive again, and C) housing has a diversifying effect, so it may make sense to have some exposure for that reason. BUT B) you don’t want to tie yourself down to specific properties in specific geographies. — Sounds like a case for REITS to me. You might be able to remove general market exposure by shorting the market beta from REITs. There may be ETFs or ETNs (ETN more likely) based on the Case-Shiller index. ETNs have a discount based on the credit risk of its provider, and this is an environment where that might be important. There may be closed end real estate funds, although understanding what drives the discount/premium of those CEFs is important to understand.
I appreciate the REIT comments. The question in my mind, though, is not how to invest in RE, but rather whether buying is a better idea than renting. I am paying a very high rent for a very nice condo which I love. I could probably easy buy the same condo for that amount of rent plus a couple hundred bucks.
needhelp, the decision about whether it is better to buy or sell is a personal one that depends on circumstances. That is why some people prefer to own while others prefer to rent. Right now home prices have declined a lot so home ownership is more affordable than it was just a short time ago. At the same time, rental accommodation is in greater demand and in many cases is more expensive than it once was. So if your goal is to own a home for the long term, now is probably a good time to buy one. However, if you prefer the flexibility of renting or can’t stand the thought of your home decreasing in value after you buy it, then you should continue renting.
JohnThainsLimoDriver Wrote: ------------------------------------------------------- > Real estate diversifies assets and serves as an > inflation hedge. Of course you could also just buy > a REIT stock, but I think REITs have more > correlation to the stock market than physical real > estate. But for most young buyers, purchasing a house will kill diversification. How many mid-twenty-somethings can own a $200k house (or even a $20k house) and have enough other wealth to make that an acceptable portfolio allocation? It’s different for a HF to have some real estate when the asset class only makes of 10% of the portfolio value. Lots of people often say that purchasing a house diversifies wealth, but more often than not, it concentrates it.
I think that the world really has changed a lot these past few years. Willy
There’s the consumption value of a home, which can be modeled as an annuity liability, and there is the investment value of a home, which can be modeled as some kind of risky asset. Therefore you can model home ownership as the home value minus the cost of the annuity. Of course, you are taking on highly specific risk with an individual home (get insurance), and the annuity needs to he set for an equivalent rental payment stream. In past years, the value of owning real estate was that it should roughly appreciate in line with real estate values generally, so if you were saving up for a home and were worried about prices getting away from you, you could invest in closed end funds or reits and (kinda sorta) have that investment immunized against rising home prices. Now that prices are falling, it’s not quite so necessary, since holding cash will buy you more home over time.
bchadwick Wrote: holding cash will buy you more > home over time. Line of the month.
> Now that prices are falling, it’s not quite so > necessary, since holding cash will buy you more > home over time. I would say that is actually ambiguous, as it does not consider opportunity cost of not owning a home. I recently purchased a house - my monthly payment will actually drop as a result (thanks to ditching my massively expensive apartment), so provided the depreciation that happens is less than what I would have paid in excess rent over my mortgage, I’m better off with purchasing now. Of course in reality I expect to lose about 10% over the next year, but thats ok, I needed the space 
I purchased a home in Sept… 220k home and I only paid 103k… did my taxes and I am expecting about 14k back with the tax credit for home buyers. I needed a place and just so happen to find ton of deals out there. I plan to pay off the home in a few years and be done with it.
apcarlso Wrote: ------------------------------------------------------- > JohnThainsLimoDriver Wrote: > -------------------------------------------------- > ----- > > Real estate diversifies assets and serves as an > > inflation hedge. Of course you could also just > buy > > a REIT stock, but I think REITs have more > > correlation to the stock market than physical > real > > estate. > > > But for most young buyers, purchasing a house will > kill diversification. How many > mid-twenty-somethings can own a $200k house (or > even a $20k house) and have enough other wealth to > make that an acceptable portfolio allocation? It’s > different for a HF to have some real estate when > the asset class only makes of 10% of the portfolio > value. Lots of people often say that purchasing a > house diversifies wealth, but more often than not, > it concentrates it. I guess true dat, but the cash you’re investing towards a $200K house is more like $40G’s up front (or less when lenders start loosening lending standards again) instead of the whole $200. So I guess for the more well-off 20-somethings it’s a diversifier. I am generally not a proponent of buying real estate as an investment but the OP asked for reasons to buy.
topher Wrote: ------------------------------------------------------- > Over the past 15 years (up through about > 2006-2007 before the bubble burst), in my area, a > home would have increased by 300% in value. Even > after the collapse of the housing market, over > that same time frame, you are still looking at > about 250% increase. That is a great investment if > you ask me. I guess the others are trying to be nice. The return is actually (1+3)(1-0.5)-1 =100%. And that’s before factoring in inflation ( you would need to divide by 1.03^15 if you assume 3% inflation). This is the traditional Realtors argument. House prices double every 15 years. Sure they do … tell that to the guy who bought in 2006 and is now holding an asset worth 50% of the mortgage balance.
This is the traditional Realtors argument. House prices double every 15 years. Sure they do … tell that to the guy who bought in 2006 and is now holding an asset worth 50% of the mortgage balance. thats only 3 years man. 12 more years to double home price