Skip to comments.Smart Money: Forget the Market. Buy a House
Posted on 08/19/2011 8:01:29 AM PDT by SeekAndFind
With the Dow Jones Industrial Average down more than 400 points today, and many market experts predicting more volatility ahead, some advisers are recommending their clients put some of their cash to another use: To buy that house or summer home at the shore.
Getty ImagesPotential homebuyers certainly have plenty of incentives: Home prices are still way down in many parts of the country, and mortgage rates are nearing their all-time lows. Consider: The benchmark 30-year fixed-rate mortgage fell 1 basis point this week, to 4.45 percent just a few basis points above the record low hit in October 2010, according to the Bankrate.com national survey of large lenders. Freddie Mac, meanwhile, reported today that the 30-year fixed-rate mortgage averaged 4.15% for the week ended Aug. 18, its lowest reported rate in 50 years.
Another reason to act now, say experts: While the recent passage of the debt deal is likely to keep mortgage rates low for now, homebuyers could soon find themselves with fewer incentives once the details of the debt deal are ironed out. Lawmakers have been debating a simpler tax system with lower tax rates and fewer tax breaks that could include reducing the generous mortgage tax deduction as part of the long-term spending cuts that must be agreed on this fall.
Of course, buyers still need significant down payments, stellar credit and job security, but if youre financially prepared to do so, its a great time to buy a house, says Greg McBride, senior financial analyst at Bankrate.com. Affordability is tremendous, and if youre in a position where you have the financial security that others are lacking, youre in a great position to grab a good deal. Rebecca Hall, a financial planner in Reston, Va., said several of her clients have decided to buy second homes instead of putting more money in the market. People dont view real estate as volatile as the market, says Hall. Housing prices go down, but people arent on-line looking at it every day, she says. You view housing as a much longer term investment so its a little easier to handle [the volatility].
oil at 80 has got be close to being a steal.
Forget the house! Buy farm land like Soros is doing.
Ridiculous. Might add "all you need to sell your house is a bank appraisal and certification that it's in superb condition in every way."
In fact, all you need to sell is a buyer and a meeting of minds with him.
Suggestion: pay off the mortgage, do a fsbo. Keep banks, appraisers, realtors out of your hair. Then think about moving to someplace where taxes are low.
Betcha dis guyz from Noo Joizey.
I am holding out for the passage of the ‘Sub-prime mortgage act of 2012’ before I pull the trigger, this way, I can load up on about 4 or 5 houses...
Housing is affordable but prices could continue to drop. Buying a house anyplace but Texas or a few other places could be risky. Housing prices are still 14 percent above the historical trend with a lot of excess inventory.
A) Add up all the cash out-of-pocket over the whole time you own the house (real estate taxes, repairs and maintenance, mortgage payments, downpayment, transaction costs, etc.) (If you had a 30-year mortgage with an interest rate of more than about 5.3%, you paid double the amount you borrowed back to the bank).
B) Add up all the cash in-pocket when you sell and the amount, if any, your income taxes (Federal and State) that were reduced over those 40 years because you had tax deductions based on the house. Not the amount of the deduction - the amount your Income Tax was lower than if you redid your Tax return without the deduction.
C) Subtract A) from B).
Depending on the individual house, if you look at the what kind of percentage annual return this represents, this may look great or terrible or anything in between.
Basically, Real Estate taxes typically represent something between 1% to 2% of the value of the house every year. That gives me a gut feel that I need the market price of the house to increase by that much every year just to break even. House taxes, for example, in NJ are in the $6,000 to $15,000 per year range for the typical range of house sizes. Is the market price of those houses going up that much every year ? Only during the boom. For a NJ house purchased 40 years ago for perhaps $30,000, the Real Estate taxes paid on that house would be well over $200,000, quite possibly over $300,000. Those taxes were paid, cash out of pocket. Subtract that from the gain on the sale of the house and then take the remaining gain and see what it annualizes at.
The NJEA (New Jersey Extortion Association) has made sure that municipal taxes ratchet up to relieve the rube, I mean, taxpayer of all their “extra” money. For the kids, you know.
Buy at a low rate even if you had the cash?
If I want to sell a stock or an ounce of gold or a mutual fund I can do it within minutes of making the decision. And I know exactly what the market price is. And I don't have to pay 5-6% of its sale price to some numbnutz to "show it" for me.
And a stock or a fund or an ounce of gold doesn't cost me thousands every year in property taxes, fees, utilities, maintenance and insurance.
Houses are never a long term money making investment unless (1) you can rent them out with reliable, positive cash flow, or (2) a bubble comes along after you've already bought.
Exactly, Pieter. The boom, she be gone and she ain't coming back.
It's time to explain to house sellers and buyers that we are turning into Japan, and that Japans housing prices are still in the basement two decades after their real estate and stock market bubbles popped.
Buy farmland. People gotta eat!
Yes buy farmland in 5 years after the price declines by 70%. It's a bubble now and will decline.
Everyone has forgotten the 80’s. They say “it's different now”.
That was said loudly in the late 70’s also.
RE: Buy farmland. People gotta eat!
Don’t you need to learn how to farm first?
just stay away from home owner associations like the plague.
HOAs are the only things that will keep Section 8 tenants out.
Strange, I got one that week for 4.125%. Of course, you have to be prepared to put 20% down and prove you don't need to borrow the money. ;o)
not any more.
a swipe of the pen and the taxpayers pay the association fees or worse the section 8’s are expempted in the “spirit of fairness” forcing the other home owners to cover the costs.
HOAs are toxic.
My understanding is that it is up to the HOA to set standards in such a way that they would not allow Section 8 people to rent. I don’t know of HOAs being forced to accept Section 8 tenants.