Is It Time to Buy a House?
Unless you’ve been living under a rock for the past few months, you’ve heard about the “slowdown” in the residential real estate market. Home prices, which had gone up quite a bit over the last several years, stopped going up. And just as with any other bull market, a lot of people who had bet — one way or another — that prices would rise forever got a nasty surprise.
In some ways, buying real estate is like making any other investment: The market goes up and down in the near term, but generally trends up over the long term. And to some extent, “buying the dips” — while prices are falling — can lead to gains over time.
But even though my value-investing heart looks at the chart and screams “Buy!”, investing in residential real estate isn’t like buying stocks. The racks at Barnes & Noble may be overflowing with books insisting that real zillionaires make their fortunes in real estate, but the truth is, compared with stocks, real estate is a complex, multidimensional investment, whether you’re buying an “investment” property or a new home.
Should you buy now?
I look at it this way: If you need a new home, and you can afford one, it’s time to buy — whether the market is up or down. I’ve called home ownership “The Best Investment Ever,” and when you look at the complete picture, it’s true — there are many tax and financial advantages to owning a home, and homes do tend to appreciate over the long term. And you’ve gotta live somewhere, right?
But in the sense of, say, your retirement portfolio, home ownership isn’t really an investment — it’s a purchase. You may make money in the very long term, but meanwhile there are taxes and interest costs and upkeep and the roof on the addition is leaking again — you get the idea.
If you’re both smart and lucky, you may see a sizable windfall if and when you sell your house and buy something smaller. But the idea of investment returns is — or should be — a minor consideration next to the major homebuying drivers — cost, location, condition, and the big one: Do you really like it?