Monday, April 18, 2011

Now Is the Time to Buy that New Home

The news today has reports of people whose lives were ruined by owning more house than they could afford, and dire warnings that “housing is not a good investment.” No doubt both of these have been real and true and still yet they miss the point. Consumers who want an appropriate home and have the right reasons to buy are paralyzed with uncertainty by these reports so they wait to see what the housing market will do. They are more afraid of making a mistake than getting something they want, have prepared for and can afford well, those who aren’t afraid may find themselves grinning like the Cheshire cat a few years down the line because this is a great time to buy a new home. In a moment I will share a few excellent reasons why this is so.
Here are a few reasons why it is now a good time buy:

The underlying economy is coming around. We are beginning to see job growth and the early signs of a recovery in the economy across most of the country. There are a few localized markets where this isn’t true, such as Detroit, but for most of us the fundamentals look positive. Historically, recoveries are slow to disclose themselves t their beginnings and it isn’t until they have been documented I n retrospect that we see the optimum time to have bought in the cycle. I have studied the data from the past 50 years and this looks a lot like the beginning of the past five cycles.

Housing materials costs are still rising and will continue to do so. Waiting when costs are certain to increase is not a valid strategy. Cement, drywall, copper and many other materials are simply going to be more expensive in the future. In addition, all the materials that have petroleum content such as asphalt or plastics, or anything that must be shipped (virtually everything in a house) are going to be affected by oil price increases. To hold pricing, builders will have to shrink or simplify homes. What smart buyer wants that?

Land costs and entitlement processing costs are rising even faster than materials. This is a striking phenomenon across the country. Even with the lack of activity cities and counties raise their requirements, lots get smaller, densities increase, privacy dimishes and costs still rise. As Mark Twain observed over one hundred years ago, “Buy land, They ain’t makin’ any more of it!”

Housing prices won’t fall substantially even in the doldrums. If a buyer is waiting for a bargain, (except in localized markets where substantial overbuilding has occurred), they are usually disappointed, why? Because sellers will wait. They will hold out for a buyer at or near their asking price rather than cut price for a quicker sale. This is especially true with sellers who have waited through the worst of the correction and don’t need to move now, a fairly small portion of the homes for sale.

Transferring equity to a home of greater value means the potential gain on the bigger home is greater than the loss on the current home. Many buyers are moving to a home of greater value. Taking the hit on the lesser value home makes sense if they are armed with cash in a buyers market, as the immediate pain translates to long term gain.

Housing is cyclical. What is bottoming now will be strengthening at some future date. While none of us can predict the exact bottom of this cycle, many knowledgeable people feel we have passed it. What if we have another soft year? If you are in a home you love and comfortable with what you have chosen, just wait for it to start appreciating while you enjoy it. Isn’t that better than missing the bottom and more importantly, a perfect home for you? Warren Buffet, the Oracle of Omaha has made a fortune for his investors by believing in long term value proposition of our economy and buying business that are out of flavor, but solid, when they are undervalued. Doesn’t that same logic apply here?

Most of all; Buying now means a home for the right reasons! As my friend Bill Webb says, “The home is just the box that the gift comes in, not the gift.” Your home is a refuge, a gathering place, a place to create memories and celebrate the events that make up a lifetime. It is not an investment like a stock certificate. It is much more. It will increase in value over the long haul, so why not be where you really want to be? If you plan to be in your home for at least five years, timing is perfect: Selection is good, prices are moderate, interest rates are historically low and sellers are motivated to accommodate buyers.

Get going now… Its time to buy a home!


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