Once Again Safe as Houses?

By Philip Brewer on 24 July 2012 (Updated 24 June 2013) 6 comments
Photo: Philip Brewer

A good reason to buy a house: It's affordable, and you want to live in it. A bad reason to buy a house: You're worried about "missing the bottom" in the housing market. (See also: Your Equity Was Always Imaginary)

As soon as housing prices made their initial leg down, I started seeing people thinking that it was time to buy. But very few of those people were saying, "I just saw this perfect house!" Most of them were saying, "Maybe I'd better buy now, before prices go back up."

I saw so many people talking that way, I wrote a post — Don't Worry About Missing the Bottom in Houses. My point was that — unlike the stock market, where prices turn on a dime and zoom back up so fast that it's hazardous to your wealth to try to time the market — the housing market turns very slowly. After the bottom is long past, there will still be houses whose owners didn't sell as prices were falling. Some of them will move to sell at the first sign of rising prices. And, of course, there will always be the occasional motivated seller who simply has to sell.

You never need to rush to buy after a housing crash — house prices will stay down for years. But now, it's been years.

One never knows the future, of course, but sometimes the trends are so strong and so obvious it seems safe to make a prediction. That's how I saw the housing market back in March of 2009, when I wrote that post.

Having done so, I figured I was obliged to mention when it's no longer the case.

I'm certainly not calling a bottom in the housing market. I'm not predicting that prices will go up soon.

All I'm saying is that the abnormal situation where you really can predict a market is coming to an end. Three years ago, I was willing to bet that there was no reason to rush into the housing market. There was no danger of "missing the bottom."

Now things are returning to normal. I don't know that prices will head back up any time soon. But after years in which they really couldn't, I've begun to figure that now they could.

I still think that the only good reason to buy a house is that you've found one you really want to live in, and you're able to get it at a price you can comfortably afford. And when that's the case, you don't really need to worry about whether the market is at the bottom or not.

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Guest's picture

Your last paragraph is spot on, Philip. It is both an ideal step for balancing living and investing.

The danger is when people buy a second, third or fourth property for investment. While a few do it right, far too many people get into trouble here. In their hurry to build wealth, they often overlook the basics and wind up buying way too many properties. In other words, buying properties they cannot really afford. And if this error is compounded by a change in the climate – for example a rise in interest rates or losing their jobs – these folks will be seriously hammered.

So yes, work hard to build wealth. But don’t forget to enjoy the living and what life has to offer. Above all, stay happy.

Philip Brewer's picture

It can make sense to buy residential property to rent out, as long as you realize that being a landlord is more like having a second job than like being an investor in something like a stock or a bond.

Guest's picture
Deborah

Absolutely agree. For me, it was a fortuitous confluence of opportunity, desire, and cost. I bought last year when a progressive health issue made it prudent to move out of an upstairs apartment, and - given the local market - it seemed logical to consider buying rather than looking for another rental. After a somewhat frustrating 8 month search, I found exactly what I wanted in a small one-story townhome with just enough outdoor space to allow for a bit of garden puttering. The best part? I'm paying less in PITI and HOA fees than I was in rent. And yes, I know that owning is different from renting and that (most) repairs are now my responsibility rather than a landlord's. For that I have an earmarked savings account. In the meantime, I enjoy every morning watching a pair of nesting hawks in the trees outside my kitchen window and the (quiet!) evenings on the patio. Was I lucky that the housing implosion dropped prices to a point where I could buy? Absolutely. But sitting out the bubble and living frugally for years in a rental apartment built up enough savings to cover a decent downpayment, closing, and cost of the move. As you said, buy only when you find the right place at a price you can afford.

Guest's picture
J.

There's a saying: Luck is when preparation meets opportunity. Deborah's post is a clear example.

Guest's picture

"I still think that the only good reason to buy a house is that you've found one you really want to live in, and you're able to get it at a price you can comfortably afford."

Truer words have never been spoken. Way to many people buying because they think they need to, not because they want to.

Guest's picture

I'm glad to see an article like this. So many other websites and internet blogs talk about this housing market being the best time to take advantage of buying property at a low cost, but is there really a point if you dont actually want to buy a house, or werent thinking about it before? Taking on an investment like new property just because it may turn into something more is not the best financial step to take in this economy, even if the housing market does seem likea good place to invest at the moment.