The folly of buying in a bubble
Buy when there’s blood in the streets. I personally feel we have a ways to go, at least in my market, before the bottom is reached, but this strip sums up the intelligent investor’s approach admirably. People have been sold a myth by the Realtors association that caused them to take outsized risks with great leverage, a fool’s errand equivalent to gambling on your credit card. When everyone says it’s a sure thing, it’s not. Be a contrarian in your investments. Little is more emotional for people than home ownership and as such it is important to take a step back and analyze the cost/benefit equation rationally. Good for a laugh though.
i still laugh when i remember all the advice to buy a house/condo/townhome when i get out of college…i wasn’t willing to trade the freedom of a lease…and i’m all the better for it now.
A home doesn’t begin to pencil even without a bubble for 10-15 years. The idea of a condo or “starter home” is a myth perpetrated by the Realtors. You’d have to be stupid to pay a premium to get into one on a 3-5 year arm, only to refinance later. Fixed loans are all that makes sense unless you have sufficient cash in the bank to pay off the loan if you can’t get the terms you want when the ARM resets.
NOT the realtor’s association, I just read a multipaged sermon in “Fortune” magazine trying to reconvince us that “home ownership iis a BRILLIANT idea…guess who? The Bank of AMerica. It has always been the banks that have profitted from it. I will NEVER own one again…SCREW lawnmowing…lol. Dave.
I didn’t mean to imply that they were solely responsible, but I do see endless commercials sponsored by them touting real estate as a can’t fail investment, yet like any other prices can rise and fall and the math has to make sense. Many people were sucked into the idea that real estate values could only go up, and bought at inopportune times, prices and terms. Foolish. B of A as I’m sure you are aware recently acquired Countrywide, the largest mortgage lender. They are far from impartial as you imply. Home ownership works for some and for others its not ideal but one should always evaluate the economics of such a transaction and try to depart yourself from emotions, as with any investment.
There are three advantages to home ownership: 1. If you stay in the house you will eventually pay it off and have no more monthly payments. 2. Your monthly payments stay the same, unlike rent. (unless you were dumb enough to get into an ARM) and 3. Freedom to do what you want with the property (within the limits of local laws of course) remodel, add a room or whatever.
There shouldn’t be any such thing as a “starter home”. There’s nothing wrong with selling your home if changes in your life make it necessary but you should always buy a home with the intention of staying in it for the rest of your life. A home is not an investment; it is a home.
Of course, renting has its own advantages. It’s just a matter of choosing whichever set of advantages work best for you, personally.
Yes, agree on all points, within the confines of what makes economic sense. If one rents and sacrifices a deposit to paint the walls say, it can be cheaper and lower risk than many who bought only to be underwater. Starter homes are for fools though, no doubt.