Yesterday, the New York Times reported that “Twenty Years Later, Buying a House Is Less of a Bite.” Two points on this:
1. It’s a macro-level article and points out that housing on the coasts is not necessarily a deal:
In high-profile places like New York and Los Angeles, home to many of the people who study and write about real estate, families buying their first home often must spend more than half of their income on mortgage payments, far more than they once did. But the places that have become less affordable over the last generation account for only a quarter of the country’s population.
2. They entirely ignore the fact that 20 years later, most things are cheaper. For instance: food, beer, wine, appliances, computers, telephone service, and so on. Some things, particularly services, have become more expensive, but the most important thing when you’re talking about the relative cost of houses, rent, is still cheap. An older article from the New York Times points this out:
In the Bay Area of California, a typical family that buys a $1 million house – which is average in some towns – will spend about $5,000 a month to live there, according to the Times analysis. The family could rent a similar house for about $2,500, real estate records show, and could pay part of that bill with the interest earned by the money that was not used for a down payment.
Seattle is not the Bay Area, but owning here is still much more expensive than owning in Dallas. I think this fits with anecdotes about buying rental properties. Twenty years ago, it was fairly easy to buy a rental property in the Seattle area and have the rent pay for repairs and the payments; you could earn equity for the cost of finding tenants. Today, the search to find a property like that is a challenge.
So will house prices plummet or flat-line this year? I don’t think anyone can say. A lot of people seem to be betting on increasing prices (they are still buying rental properties), however I believe that the stock market is beginning to bet against builders because they fear an over-supply of housing. My advice: If you have above 50/50 odds of staying in the same house for 10-20 years (unlike most Americans), you should definitely buy. If you can’t save money to save your life, maybe you should buy because your home could serve as a sort of inefficient savings scheme (again assuming you won’t sell right away). If you really value owning a home, buy one. Just don’t expect prices to continue increasing at the same rate as they have over the last 5 years. And don’t get an interest only loan!