An article in the Dec 6th NY Times (page B1 of the New York edition) does a good job of outlining why the present, not the future, may be the best time for new home owners to get off the sidelines and buy a house.
Here are a few quotes from the article:
Five or 10 years from now, when the financial crisis has ended and housing prices are up smartly once more, we will look in the rearview mirror and realize that we missed a golden age for first-time home buyers. Then, everyone who sat on their down payment savings accounts for a few years too long will kick themselves for not taking advantage of what may turn out to be the buying opportunity of a lifetime for those who can qualify for a mortgage.
Unfortunately, we do not know when this golden age will begin, because we will be able to identify a bottom to the housing market only with the benefit of hindsight. But as it does with the stock market, the moment will probably arrive when everyone is feeling the most pessimistic.
This is how Sylvia and I feel about the late 1980′s and early 1990s in Austin. Back then, when there was still carnage in the streets from the combination of the Texas Oil Bust, the 1986 Reagan tax law changes and the collapse of the Savings and Loan Industry, RTC and HUD homes could be picked up for $30K all over Austin. I looked at a home on a cherry lot next to Stacy Park in Travis Heights that sold for $50K in 1989. I still remember the seller’s ad in the paper, which started with “Blind or Stupid?”. I was the latter. Seller was offering owner financing at 7%. That lot alone is worth $500K today. We didn’t buy anything back then because we didn’t know any better. We were not forward looking.
We waited until 1994 to purchase our first investment property, a 2/1 in Hyde Park for $58K. How different our balance sheet would look today had we known in 1989/1990 what we know now – that the very best time to buy Austin real estate was when everything looked the gloomiest. The buyer of our Hyde Park House, which we sold for $92K 18 months later paid cash. He had purchased over 100 homes in Austin between 1988 and 1991 and had already sold all but about 20 in 1996. He was buying our home for his sister – just as a gift to her.
I still remember talking to him in the front yard on Avenue G and him saying that when he came to Austin in 1988, all the locals were panicked, everyone had lost money in real estate, but he saw a goldmine opportunity. “I just knew there was no way Austin was going to stay in the tank”, he told me. “It’s too nice of a city and people will always want to live here”. Still true today, isn’t it?
He borrowed money from his family in New York, and bought centrally located homes, most for between around $30K, and he sold most for double what he paid, and was financially finished for life. He was barely 30 years old.
But I’m drifting off topic. The article is about first time buyers.
More from the article:
That moment is certainly getting closer. Housing prices have fallen drastically from their peak levels in many areas of the country. Rates on 30-year fixed-rate mortgages are already close to 5.5 percent, and this week there were suggestions that the federal government might try to drive them down to 4.5 percent, a truly incredible figure to be able to lock in for three decades.
Meanwhile, first-time home buyers have the same advantage they have always had, which is that they do not have to sell their old place before buying a new one. That is an added advantage in areas where many available houses simply are not moving, because the people trying to sell them will not be bidding against you.
I agree with all of these points. Especially in Austin. The author goes on to make many more good arguments for first time buyers buying now, but also balances the piece with fair warnings, so it’s not all roses and candy. But for first timers planning to hold 7 to 10 years, and who are not worried about job loss, the arguments are solid in favor of buying now. I wish our local Austin newspaper writers knew how to write with this level of understanding and perspective.
Here is a link to the full article on the NY Times website.