It seems like now is the time to buy real estate, both for personal housing and investment. Here's the case for buying:
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- Real estate prices are lower. There appear to be many good deals for buyers compared to a year or two ago, as pointed in the Wall Street Journal Article, Home Prices Keep Sliding;While Hesitant Buyers Sit Tight.
- Foreclosures are high. Thus, there are opportunities to get low prices on some properties.
- Interest rates are still fairly low in the 6-7% range.
Although I have owned investment real estate (but not currently), I do not plan to get into the real estate market at this time. Here are my reasons:
- The risk of prices declining further continues to be high, as shown in this report by PMI Group. This report shares that the 10-60% chance of house prices in over half of the market in the study.
- Most real estate investments involve debt and depreciaton in order to make them attractive. However, the debt can become a major negative when there are no rental income to offset the mortgage payment. At this time, I cannot afford to have a real estate investment create negative cash flow.
- The last time I did the analysis, it seemed that most real estate rents would return about 5% on the total property value, about the return of a CD. However, being a landlord requires much more work than a CD :-) Also, a major portion of real estate returns depends on price appreciation. As noted above, the risk of price declines is still high in the short term.
In conclusion, if I were considering buying a home, I would be looking now for great deals. To date, I have never regretted buying a home, even during high appreciation times. The reason is that I have planned to live in the house for many years. At this time, we currently own aa home. As an investment, I think I will continue to pass on real estate.
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Photo Credit: morgueFile.com, Mary R. Vogt
This is not financial advice. Please consult a professional advisor.
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2 comments:
it really depends where you want to buy. unless you buying parts of the midwest, south east or utah, i'd say wait for a few years.
interest rates aren't going anywhere for a while.
Empty Spaces,
Agree, patience is a good virtue in times like these. I don't think real estate has bottomed yet. As you point out, interest rates are also likely to remain low.
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