Holding The Crystal Ball
A: Do you hold the crystal ball? Does Jonathan Miller? Does Brownstoner? Does Grunt? Does Sellsius or Rain City Guide? Perhaps True Gotham does? Housing on a national level is falling, not so in NYC real estate, so maybe BubbleMeter is holding the crystal ball. What about the Digs? Nope. Not me. No one is holding the crystal ball and with everything that all these great bloggers write about you must keep your focus on one very important thing: EVERYONE NEEDS A HOME! IS OWNING THE RIGHT CHOICE FOR YOU?
Don't get caught up in the whole debate right now that is going on about the nationwide housing market. If you plan on owning for medium to long term, let's say at least 4-5 years, then you should seriously consider buying over renting as the tax benefits, equity building, and ultimate price appreciation over the longer term will more than make up for any short term pain you might endure knowing that your house is worth a bit less than what you paid for it.
WHO CARES! Your NOT planning on selling! You need a home to live in! And you can afford to live there comfortably! Who cares what the short term price fluctuations are for your home. And to boot, rental prices are at a peak after rising for the past 3 years straight! Rental inventory is so low right now that it is almost gauranteed that you will wind up settling for an apartment you don't really like, in a neighborhood that wasn't your first choice, and at a price far higher than you first thought!
Maintain your investment focus so that you can make clear, transparent decisions that suit your own needs best! Some of these include:
Fact is, inventory levels for the sales market right now are high enough to find good deals! And, mortgage rates have ticked down over the past 3 months or so falling from July highs of about 6.79% to current levels about 6.375%. The main reason for this drop is falling yields on treasury's due to the fed's PAUSE from a long interest rate hike campaign. Basically the bond market is betting on lower rates in the near future; possibly due to a recession predicted to hit the country over the next year or 2.
While these temporary lower rates will not SAVE the housing market from a short term correction, it does give potential buyers a good case when deciding whether to rent or own. Since rates are still historically low, the numbers might make more sense to buy.
Forget predictions or reading every article that comes out on the housing market and instead focus on the right or wrong reasons to buy a new home. Some of these include:
RIGHT REASONS TO BUY
1. Because you've worked hard over the past few years and are now earning a great salary that is only expected to continue to rise.
2. Because your credit is perfect and you can lock in a great rate.
3. Because you have been saving up cash for a while now and can easily afford a down payment on a home and still have enough liquid assets leftover to cushion your lifestyle.
4. Because you know you will NOT be selling within 3 years.
5. Because you love where the new home is and are comfortable with the asking price.
WRONG REASONS TO BUY
1. Because you just got a new job and are making more money than you ever did before.
2. Because you saved up enough money to afford a down payment but will be broke after that.
3. Because you refuse to rent and through away money.
4. Because you are unsure of where you might be 2 years from now.
5. Because you are unsure of your job security.
6. Because your family or friends own and are telling you to buy also.
7. Because you found an apartment with a terrace that you MUST have.
8. Because your credit is poor.
Be smart. Buy for the right reasons. If you are questioning any aspect of buying a new home, talk to your accountant or financial planner to get a devil's advocate side of the equation. Who knows, maybe they will save you from an inevitable financial disaster!
For me, that means renting as I am an independent contractor whose salary is unknown and job security non-existent. Furthermore, I honestly don't know where I might be in 2 or 3 years being that I just got married and the kids are now a more consistent discussion. So, I have 2 pretty big reasons against buying right now that could cost me tens of thousands of dollars if I end up buying today and selling in 2 years and the housing market remained flat during that entire time; the transaction fees alone would cost me tens of thousands and with no price appreciation at resale, I lose money in the end.
So, I'll rent and get 5.5% in a money market account for the time being and look to buy again in the near future when I know my future plans are more concrete and my job/sales business, or at least salary, is higher and more transparent.
Originally published October 12, 2006.
Comments (8)
It is encouraging to read this article, Manhattan is a crazy market and it is hard not to get caught up in the nationwide housing bubble talk, but we have to remember that every persons situation is different. For me personally, I have been renting for the past 4 years and don't have any intentions of leaving my beloved village neighborhood. So when I finally had it with living in a tiny overpriced studio I went out and recently purchased a one bedroom. The mortgage+maint payment is less than the rent for the exact same apt in the building , which is reassuring and since I am not planning on going anywhere, I justify it in these "uncertain" times...the fact that i locked in a 6.25% rate because of my credit and recently got promoted helped me make this first time commitment. Your article has all the right points- Go Noah!
Posted by Rano | October 13, 2006 12:45 AM
Rano - Thanks for helping in pointing out the purpose of the post, which is that everyone's situation is unique and that getting caught up in all the housing bubble talk may cloud their investment decisions even if the right move is in fact to buy, like you did!
Posted by Noah | October 13, 2006 7:36 AM
Very true. Everyone needs to live somewhere. If people don't buy now, they'll rent or buy later. You may have to work a little longer to match a buyer to a home in this market but the market will adjust (prices dropping) to spur renewed demand. The question is not will it, the question is always when.
Posted by jf.sellsius | February 19, 2007 1:20 PM
My crystal ball has always had a huge crack in it. What I find the most challenging about reading the market is how much static noise there is pointing in either direction (up or down because goodness knows flat or neutral conditions are too dull to talk about). Everyone is so passionate in their beliefs about trends and to go against the grain of conventional wisdom can be painful. At the end of the day, it makes no difference what you predict (even though everyone seems to love to hear a prediction).
Posted by Jonathan J. Miller | February 19, 2007 5:32 PM
In the face of evidence, data and experience people will often argue for a position that they are already aligned to, similar to stock market perma bulls and perma bears do.
Those engaging in the boring debates about the housing market crashing are incapable of breaking down specific markets and providing advice.
Those wasting energy on the Rent v Own debate simply create noise. The answer is soley dependent on one's circumstances.
I have said before: it's easy to make a great buy in a "bad" market and a terrible buy in a great market.
Luck for us that mistakes in real estate get cured by time. Which is the enemy of individual stocks investors.....
I have said many times that there is NO SUCH THING as a NATIONAL MARKET and therefore individual markets do not behave in lock step with other regional, municipal or neighborhood markets.
Posted by Larry Nusbaum | February 19, 2007 6:29 PM
"I have said many times that there is NO SUCH THING as a NATIONAL MARKET and therefore individual markets do not behave in lock step with other regional, municipal or neighborhood markets"
I agree completely. And I also agree that buying vs renting is "solely dependent on one's circumstances."
Posted by Noah | February 19, 2007 6:56 PM
Everybody's situation is different, absolutely. Here in Silicon Valley, where the rent prices vs. home values are probably as out of whack as they are in NYC, you're better off over a 5-year period buying than renting as long as property appreciation is at least 3.4-ish% per year. (See these articles I've written on the buy vs. rent issue: http://3oceansrealestate.com/blog/category/real-estate/buyer-and-seller-tips/for-buyers/buy-vs-rent/ )
For most people, no matter how analytical they are, the decision to buy a home is driven by an emotional event -- marriage, first kid, second kid, etc.
Posted by Kevin Boer | February 19, 2007 11:28 PM
I think another reason fees are not being paid and free months not offered is that prices have come down. Apartments are moving but part of the reason is that prices came down to a point at which they will move.
Posted by Mbt | June 3, 2010 1:50 AM