Monday, February 26, 2007

Is It Time To Buy Real Estate?

It seems like now is the time to buy real estate, both for personal housing and investment. Here's the case for buying:

  • 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.

For more on Strategies and Plans , check back every Monday for a new segment.

Photo Credit:, Mary R. Vogt

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC


Adventures In Money Making said...

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.

Anonymous said...

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.