Home > Uncategorized > 10 Reasons to Buy a Home. Enough with the doom and gloom about homeownership.

10 Reasons to Buy a Home. Enough with the doom and gloom about homeownership.

Brett Arends explains why
owning a home is a good thing.
The Wall Street Journal, By Brett Arends
September 16, 2010
Enough with the doom and gloom about homeownership.
Sure, maybe there’s more pain to come in the housing market. But when Time magazine
starts running covers that declare “Owning a home may no longer make economic sense,” it’s
time to say: Enough is enough. This is what “capitulation” looks like. Everyone has given up.
After all, at the peak of the bubble five years ago, Time had a different take. “Home Sweet
Home,” declared its cover then, as it celebrated the boom and asked: “Will your house make
your rich?”
But it’s not enough just to be contrarian. So here are 10 reasons why it’s good to buy a home.
1. You can get a good deal. Especially if you play hardball. This is a buyer’s market. Most of
the other buyers have now vanished, as the tax credits on purchases have just expired. We’re
four to five years into the biggest housing bust in modern history. And prices have come down
a long way– about 30% from their peak, according to Standard & Poor’s Case-Shiller Index,
which tracks home prices in 20 big cities. Yes, it’s mixed. New York is only down 20%. Arizona
has halved. Will prices fall further? Sure, they could. You’ll never catch the bottom. It doesn’t
really matter so much in the long haul.
Where is fair value? Fund manager Jeremy Grantham at GMO, who predicted the bust with
remarkable accuracy, said two years ago that home prices needed to fall another 17% to
reach fair value in relation to household incomes. Case-Shiller since then: Down 18%.
2. Mortgages are cheap. You can get a 30-year loan for around 4.3%. What’s not to like?
These are the lowest rates on record. As recently as two years ago they were about 6.3%.
That drop slashes your monthly repayment by a fifth. If inflation picks up, you won’t see these
mortgage rates again in your lifetime. And if we get deflation, and rates fall further, you can
refi.
3. You’ll save on taxes. You can deduct the mortgage interest from your income taxes. You
can deduct your real estate taxes. And you’ll get a tax break on capital gains–if any–when you
sell. Sure, you’ll need to do your math. You’ll only get the income tax break if you itemize your
deductions, and many people may be better off taking the standard deduction instead. The
breaks are more valuable the more you earn, and the bigger your mortgage. But many people
will find that these tax breaks mean owning costs them less, often a lot less, than renting.
4. It’ll be yours. You can have the kitchen and bathrooms you want. You can move the walls,
build an extension–zoning permitted–or paint everything bright orange. Few landlords are so
indulgent; for renters, these types of changes are often impossible. You’ll feel better about
your own place if you own it than if you rent. Many years ago, when I was working for a
political campaign in England, I toured a working-class northern town. Mrs. Thatcher had just
begun selling off public housing to the tenants. “You can tell the ones that have been bought,”
said my local guide. “They’ve painted the front door. It’s the first thing people do when they
buy.” It was a small sign that said something big.
5. You’ll get a better home. In many parts of the country it can be really hard to find a good
rental. All the best places are sold as condos. Money talks. Once again, this is a case by case
issue: In Miami right now there are so many vacant luxury condos that owners will rent them
out for a fraction of the cost of owning. But few places are so favored. Generally speaking, if
you want the best home in the best neighborhood, you’re better off buying.
6. It offers some inflation protection. No, it’s not perfect. But studies by Professor Karl “Chip”
Case (of Case-Shiller), and others, suggest that over the long-term housing has tended to
beat inflation by a couple of percentage points a year. That’s valuable inflation insurance,
especially if you’re young and raising a family and thinking about the next 30 or 40 years. In
the recent past, inflation-protected government bonds, or TIPS, offered an easier form of
inflation insurance. But yields there have plummeted of late. That also makes homeownership
look a little better by contrast.
7. It’s risk capital. No, your home isn’t the stock market and you shouldn’t view it as the way
to get rich. But if the economy does surprise us all and start booming, sooner or later real
estate prices will head up again, too. One lesson from the last few years is that stocks are
incredibly hard for most normal people to own in large quantities–for practical as well as
psychological reasons. Equity in a home is another way of linking part of your portfolio to the
long-term growth of the economy–if it happens–and still managing to sleep at night.
8. It’s forced savings. If you can rent an apartment for $2,000 month instead of buying one
for $2,400 a month, renting may make sense. But will you save that $400 for your future? A
lot of people won’t. Most, I dare say. Once again, you have to do your math, but the part of
your mortgage payment that goes to principal repayment isn’t a cost. You’re just paying
yourself by building equity. As a forced monthly saving, it’s a good discipline.
9. There is a lot to choose from. There is a glut of homes in most of the country. The National
Association of Realtors puts the current inventory at around 4 million homes. That’s below last
year’s peak, but well above typical levels, and enough for about a year’s worth of sales. More
keeping coming onto the market, too, as the banks slowly unload their inventory of unsold
properties. That means great choice, as well as great prices.
10. Sooner or later, the market will clear. Demand and supply will meet. The population is
forecast to grow by more than 100 million people over the next 40 years. That means maybe
40 million new households looking for homes. Meanwhile, this housing glut will work itself out.
Many of the homes will be bought. But many more will simply be destroyed–either
deliberately, or by inaction. This is already happening. Even two years ago, when I toured the
housing slumpin western Florida, I saw bankrupt condo developments that were fast becoming
derelict. And, finally, a lot of the “glut” simply won’t matter: It’s concentrated in a few areas,
like Florida and Nevada. Unless you live there, the glut won’t have any long-term impact on
housing supply in your town

10 Reasons to Buy a HomeEnough with the doom and gloom about homeownership. Brett Arends explains whyowning a home is a good thing.The Wall Street Journal, By Brett ArendsSeptember 16, 2010Enough with the doom and gloom about homeownership.Sure, maybe there’s more pain to come in the housing market. But when Time magazinestarts running covers that declare “Owning a home may no longer make economic sense,” it’stime to say: Enough is enough. This is what “capitulation” looks like. Everyone has given up.After all, at the peak of the bubble five years ago, Time had a different take. “Home SweetHome,” declared its cover then, as it celebrated the boom and asked: “Will your house makeyour rich?”But it’s not enough just to be contrarian. So here are 10 reasons why it’s good to buy a home.1. You can get a good deal. Especially if you play hardball. This is a buyer’s market. Most ofthe other buyers have now vanished, as the tax credits on purchases have just expired. We’refour to five years into the biggest housing bust in modern history. And prices have come downa long way– about 30% from their peak, according to Standard & Poor’s Case-Shiller Index,which tracks home prices in 20 big cities. Yes, it’s mixed. New York is only down 20%. Arizonahas halved. Will prices fall further? Sure, they could. You’ll never catch the bottom. It doesn’treally matter so much in the long haul.Where is fair value? Fund manager Jeremy Grantham at GMO, who predicted the bust withremarkable accuracy, said two years ago that home prices needed to fall another 17% toreach fair value in relation to household incomes. Case-Shiller since then: Down 18%.2. Mortgages are cheap. You can get a 30-year loan for around 4.3%. What’s not to like?These are the lowest rates on record. As recently as two years ago they were about 6.3%.That drop slashes your monthly repayment by a fifth. If inflation picks up, you won’t see thesemortgage rates again in your lifetime. And if we get deflation, and rates fall further, you canrefi.3. You’ll save on taxes. You can deduct the mortgage interest from your income taxes. Youcan deduct your real estate taxes. And you’ll get a tax break on capital gains–if any–when yousell. Sure, you’ll need to do your math. You’ll only get the income tax break if you itemize yourdeductions, and many people may be better off taking the standard deduction instead. Thebreaks are more valuable the more you earn, and the bigger your mortgage. But many peoplewill find that these tax breaks mean owning costs them less, often a lot less, than renting.4. It’ll be yours. You can have the kitchen and bathrooms you want. You can move the walls,build an extension–zoning permitted–or paint everything bright orange. Few landlords are soindulgent; for renters, these types of changes are often impossible. You’ll feel better aboutyour own place if you own it than if you rent. Many years ago, when I was working for apolitical campaign in England, I toured a working-class northern town. Mrs. Thatcher had justbegun selling off public housing to the tenants. “You can tell the ones that have been bought,”said my local guide. “They’ve painted the front door. It’s the first thing people do when theybuy.” It was a small sign that said something big.5. You’ll get a better home. In many parts of the country it can be really hard to find a goodrental. All the best places are sold as condos. Money talks. Once again, this is a case by caseissue: In Miami right now there are so many vacant luxury condos that owners will rent themout for a fraction of the cost of owning. But few places are so favored. Generally speaking, ifyou want the best home in the best neighborhood, you’re better off buying.6. It offers some inflation protection. No, it’s not perfect. But studies by Professor Karl “Chip”Case (of Case-Shiller), and others, suggest that over the long-term housing has tended tobeat inflation by a couple of percentage points a year. That’s valuable inflation insurance,especially if you’re young and raising a family and thinking about the next 30 or 40 years. Inthe recent past, inflation-protected government bonds, or TIPS, offered an easier form ofinflation insurance. But yields there have plummeted of late. That also makes homeownershiplook a little better by contrast.7. It’s risk capital. No, your home isn’t the stock market and you shouldn’t view it as the wayto get rich. But if the economy does surprise us all and start booming, sooner or later realestate prices will head up again, too. One lesson from the last few years is that stocks areincredibly hard for most normal people to own in large quantities–for practical as well aspsychological reasons. Equity in a home is another way of linking part of your portfolio to thelong-term growth of the economy–if it happens–and still managing to sleep at night.8. It’s forced savings. If you can rent an apartment for $2,000 month instead of buying onefor $2,400 a month, renting may make sense. But will you save that $400 for your future? Alot of people won’t. Most, I dare say. Once again, you have to do your math, but the part ofyour mortgage payment that goes to principal repayment isn’t a cost. You’re just payingyourself by building equity. As a forced monthly saving, it’s a good discipline.9. There is a lot to choose from. There is a glut of homes in most of the country. The NationalAssociation of Realtors puts the current inventory at around 4 million homes. That’s below lastyear’s peak, but well above typical levels, and enough for about a year’s worth of sales. Morekeeping coming onto the market, too, as the banks slowly unload their inventory of unsoldproperties. That means great choice, as well as great prices.10. Sooner or later, the market will clear. Demand and supply will meet. The population isforecast to grow by more than 100 million people over the next 40 years. That means maybe40 million new households looking for homes. Meanwhile, this housing glut will work itself out.Many of the homes will be bought. But many more will simply be destroyed–eitherdeliberately, or by inaction. This is already happening. Even two years ago, when I toured thehousing slumpin western Florida, I saw bankrupt condo developments that were fast becomingderelict. And, finally, a lot of the “glut” simply won’t matter: It’s concentrated in a few areas,like Florida and Nevada. Unless you live there, the glut won’t have any long-term impact onhousing supply in your town

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