I was recently interviewed by Vox’s Tim Lee for his story on home buying. It is well worth reading.
I often work with clients on helping them think clearly about real estate, rent v. buy, and how to approach home buying. If you are thinking about those questions, contact me! If you know someone who would benefit from having a professional to help them think through these issues, have them contact me.
From a discussion about a related topic, 7 thoughts on an article saying Millenials should buy homes:
1) It is pretty usual for real estate companies to determine that people should buy houses.
2) They don’t seem to account for the fact that as mortgage rates rise, prices tend to fall since buying power of people taking out financing is a major factor in the housing market.
3) This doesn’t address opportunity cost–if one invested the money it would average (historically speaking) about an 8% return, more than real estate.
4) Generally, financially, it is wise to buy is situations where there may be big increases in prices in the neighborhood. The politics are fascinating. Not buying does little to stop gentrification but perhaps makes one feel that they aren’t part of the problem. But perhaps they would be–so complex!
5) Selling a house is really expensive. We lose money if we sell a house without making about 10% appreciation. That doesn’t account for opportunity cost which means we typically lose even more! Young people move more so it could be wise to wait until one is more committed to a neighborhood.
6) Houses act as a forced savings plan so home ownership might displace discretionary spending rather than investing in one’s future. If that’s true, than it is a much easier financial decision.
7) Remember to include maintenance costs when calculating cost of ownership,
Three more thoughts:
1) I bought a place when I was 25, or so. It turned out well. Keeping the down payment in the stock market also would have turned out well.
2) Buying a house can be a good way to response to institutional incentives and use assets in a way that results in being eligible for more aid in graduate school. This is also morally complicated!
3) Sometimes family are very excited about helping with downpayments but would not contribute similarly to other endeavors. This means that for this reason, real estate can have a lower opportunity cost than other investments, from the standpoint of the person who otherwise wouldn’t have had the capital at all.