What follows is pure opinion. Like all unsolicited ruminations, it is based on some knowledge, more than a little prejudice, and complete confidence that everyone needs to hear it. The opinion has two parts. The first is that every new couple or single person of employment age should purchase the place where he (or she) lives. That place should be the centerpiece of his lifetime investments. This advice is based upon the prejudice that begins every time I see a captain of some important Wall Street industry making more than a hundred million dollars a year in salary or bonuses. I know implicitly that that entire amount is coming right out of yours and my 401 (k) or IRA Simple. Maybe I’m wrong – but I doubt it. There is nothing I can do, no protest to make, no bell to ring. But I know that a little bit of that salary will be paid by my savings as long as I have investment in that market.
I don’t have that feeling when I buy a piece of real estate that I can see and touch. I may make a mistake, but at least it will be my mistake.
I have urged my children to buy a house. Mortgage it with the smallest available, fixed rate of interest. Only as a last resort, when there is no other choice, put a second mortgage on that investment, and never for a big screen TV, trip to Africa, or SUV. To them I say, buy your home and do everything you can to build its equity. That’s part one of my opinion.
Part two, and this is not so much prejudice as informed sorcery, is that there is no better time than right now to start that investment. There are several reasons. One is that a first time homebuyer can receive a $7500 investment tax credit for purchasing a home. That means for each of those buyers, IRS will pay $7500 toward the purchase of their house. The only person who will ever be more generous than that is Mom and Dad, but even they may be ready to take the African safari, rather than help buy another house. Besides, this may be the last time IRS does something you think is civilized. As always, there are restrictions and future payback. Its still a great offer.
Another reason is that prices are never going to be lower. How do I know that? Because I know that Builders are selling their product at a price which is hovering around cost, and there will be no sustained market in buying houses at less then cost. Because of the market, even the cost to build is less now then it was two and three years ago; even suppliers are squeezing their profits to make sales. But neither supplier, builder, nor investor will sell on a sustained basis at less then cost. (I admit there are owners who bought investment property during the Silly Years, who have not yet admitted that the market was not there either then or now; don’t purchase that property.) Generally though, many owners need to sell, and are offering at prices so “fair” that their prices are not likely to get a great deal better.
To make matters even better, FHA and VA financing are still available as traditional and reliable ways to finance with very little money down.
Almost nothing good can be said about the Silly Years. It may be that as a result of them investors swoop into the market and take residential properties at cost or less and hold them as rental or investment properties. Investment residential property is not a bad thing, but investors don’t always treat their homes and neighborhoods the same way as owners who live in them. Something good can come from the Silly Years, and our society will be better served, if as a result young people can begin to invest in their future through careful purchase of a home they can afford. There may never be a better time to begin.
