Thursday, November 21, 2013

Don't Rush to Buy a Home. There's Plenty of Time.

A few days ago, I read some mortgage broker's blog post on why people interested in a house needed to move sooner rather than later. The whole post was on the cost of waiting and assumed the buyer would take down a $200,000 mortgage. Rates were low, now, and so were prices, and he was pretty sure both would be going up. Wait too long, the post said, and buyers would be paying a higher price and a higher interest rate.

I heard the same thing when I started at Remax in 2006. And again in 2007, just after the crash. And again in 2008, 2009, 2010, 2011, and 2012. See a pattern, here?

In fact, I think I've pretty much heard the same cant my entire adult life. And it always comes from people who get paid only if a transaction closes. There's nothing inherently wrong with that, this being America, the last I heard. But if compensation only comes when a transaction closes, the buyer and broker have competing interests.

From a financial point of view, one of the attractions of buying a house is the enormous leverage available to a buyer. With $10,500 plus closing costs, a person can tie up a $300,000 property. Ownership has some tax preferences (overstated, in my view) and offers a way to lock in housing costs. As an investment, though, it's a crappy one, according to Nobel Prize-winning economist Robert Shiller.

Sales of pre-existing homes have been down the last two months, which means little except that monthly data means little. It didn't mean anything when sales were up earlier in the year, either. In my view, the country is in for a stagnant and possibly deflationary period of several years, which means rates and pricing aren't going to move a whole lot. Available inventory and competition from cash buyers will pose the greatest roadblock to normal buyers.

People buy a house because they want to own a home, and that's a good thing, I think, especially if they can stay put for a good number of years. Whenever I meet someone interesting, I always wonder what their house looks like. People put their personal stamps on their homes, make them reflect who they are and what they're all about. I like that.

Which is what you should keep in mind when you set out to buy a house. It will insulate you from others trying to push you.