Wednesday, October 31, 2007

Should you buy a home now?

Should you buy a home now if you need one?

Remember the Beanie Babies?

Back about 10 years ago when my son was in elementary school, all the kids (and their moms) were crazy about Beanie Babies, the bean-bag toys from Ty. We were all so crazy about collecting them that we stopped seeing them as toys and started seeing them as investments. I remember one mom telling me that her daughter had an original Beanie Baby – I think it was a dark blue elephant, but maybe it was an octopus – that was worth $1,400.

Eventually, the Beanie Baby market crashed, just as the Dutch tulip market crashed hundreds of years ago and the housing market crashed recently. Every market that escalates dramatically because demand outstrips production will crash when the demand falls off or when a new and cheeper way is found to produce the product.

So what’s my point?

Stop seeing your home as primarily an investment. It’s your home. It’s the place that sets the tone and style for your life. It’s a statement about you. And oh yes, maybe when you sell it, you will make some money. But stop making that the sole factor in deciding when you’ll buy a home. If you need a home this year, buy one. It’s much better for your tax returns than renting. There are so many desperate sellers out there that you will probably find an excellent price on a home you really like. And if you have good credit, you will probably not have trouble getting a mortgage.

In fact, most banks are very eager to lend you money if you have good credit. They want a larger downpayment now than they did before the subprime meltdown, and you won’t be able to find a mortgage with no money down. But if you can make a downpayment, go out and get that house now. And enjoy it.

Will the market dip a bit more before it recovers? That may depend on the town where you decide to live. But most economists are projecting a recovery sometime next year. So think about it. Are you planning to sell six months from now? Then maybe you should get a short-term rental instead of buying. But if you’re looking to put down some roots and start a family, or if you’re thinking about trading up or downsizing — and the bank says you can afford it — go ahead.

The more people who make this decision, the more stable the real-estate market will get. And eventually, we’ll see modest, sustainable appreciation again. In some towns, we’re already seeing it. This is a great time to buy.

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