The clarion call of the National Association of REALTORS is (and always has been) “NOW is the best time to buy a house.”
And at this moment in history, they are probably right. Only in retrospect can we see that a particular moment in time was the absolute wrong time to buy real estate, especially if you need a place to live and you can afford it.
But I would submit that there are compelling reasons to embrace the current call to action. No, we can’t see into the future, but yes, there are clues and trends that we can look for now.
Here are seven indicators that I believe support buying now:
* For most Americans, the best investment they ever make is when they buy their own home. I am aware that you could point out some poor soul who paid all cash for a home when prices peaked nationally in 2007. But even he has seen all his lost value come back, and is now ahead of his purchase price, at least according to the Census Bureau.
* For most of us, the only way we can afford to buy a house is to use long term financing. And it’s important to remember that the cost of this financing, in most cases, exceeds the actual price of the house itself. The two most popular loans available today are the 30 year fixed rate, and the 15 year fixed rate. Those rates are currently near historic lows, at about 4.25 and 3.25 percent, respectively. This makes for a tremendous bargain over the life of the loan.
* Another powerful reason to consider buying now is the likelihood that the rate bargain mentioned above may disappear at any time. In fact, please replace the word “may” with the word “will.” Who says so? None other than Federal Reserve Bank Chair Janet Yellen, who recently said that she expects rates to begin rising as early as the end of this year, although no one expects that rise to be abrupt or dramatic. But if we know that rates will very likely be headed up, why wait to lock in?
* Home prices are rising, and at healthy rates. Year over year average home sale price gains in metro Atlanta were recently tracked at 6.3 percent, which I believe to be healthy and sustainable. That’s a far cry from the depths of the Great Recession. Atlanta is creating jobs again, and that is the primary driver of housing prices.
* The tax benefits of homeownership are still simply outstanding. For example, you can buy an ugly duckling house in a nice neighborhood, move in, fix it up yourself at night and on weekends for a two year period, then sell at a nice profit and pay literally no income tax whatsoever on the profits. No other investment is so favored by our tax system, a reflection of our nation’s commitment to life, liberty and property.
* Some fence-sitters cite the possibility that rates might go lower if current rosy predictions of economic growth wither. That’s true, but if that happens, you can always refinance and lock in the lower rate, which is exactly what millions of homeowners have done over the past several years.
* Prices of real estate in the days ahead are likely to be higher for several reasons. First, labor costs are rising, as skilled workmen take new jobs in other industries. Second, inflation will likely rise along with higher interest rates. No one is yet talking about an overheating economy, but even a steady annual rise of 7 percent will cause a home’s value to double in just over a decade.
And finally, government regulations requiring all manner of things deemed in the public interest are adding substantially to the cost of new construction. As an example, energy-saving thermopane windows with low-e glass and argon gas were once an expensive option. Today, many municipalities require it in all new homes.
* The primary alternative to buying your home is renting one from somebody else. And rental prices are rising fast, driven by construction costs and steep demand. Unless you plan to live with your parents or buy a tent, you’ve got to live somewhere. And the truth is that it costs more to rent a house than it does to buy a similar one in most parts of the country. Furthermore, once you lock in a loan rate, your principal and interest payments will stay the same for the life of the loan. Try asking your landlord for a thirty year fixed rent lease.
Know this: I understand that homeownership is not right for everybody. Some prefer the freedom of being able to pull up stakes and move on short notice; some folks expect to relocate in a year or two; some people simply are not prepared to accept the responsibilities that ownership requires.
But for most Americans, buying a home is the best investment they ever make. History has proved this again and again, and I believe the future will reward those who take action now.
Native Atlantan John Adams is a real estate broker, investor, and author. He answers real estate questions every Sunday at 3 pm on WGKA-am(920). He welcomes your comments at Money99.com, where you will find an expanded version of this column.
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