“You may believe that you are responsible for what you do,but not for what you think. The truth is that you are responsible for what you think, because it is only at this level that you can exercise choice. What you do comes from what you think.” — Quote from A Course in Miracles
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It seems that the housing market is finally showing signs of a recovery. We are not suggesting that it will come roaring back and we will see 2006 numbers again. However, the National Association of Realtors released their December Existing Home Sales Report yesterday. The report showed a 12.3% increase in closed transactions over the month before. Earlier in the week the Census Bureau reported that:
Privately-owned housing units authorized by building permits in December were at a seasonally adjusted annual rate of 635,000. This is 16.7 percent above the revised November rate of 544,000.
Should we believe that real estate is starting to make a comeback? To some degree, we think yes. Both of the above reports are promising.
However, not all the news in the reports was positive. Existing home sales were slightly down from the same month last year. Housing completions were down 22.2% from last year’s numbers. Yet, we must also factor in that the numbers from the end of last year were artificially inflated by the Homebuyer Tax Credit. Any correlation between these numbers is not an apple-to-apple comparison.
These reports, coupled with anecdotal information we are receiving from the agents we coach all across the country, seem to suggest that we may have bottomed out in regard to the number of transactions being completed. That can only be a positive for the industry.
Even though there is a huge amount of visible and shadow inventory which will continue to put downward pressure on prices, it seems that buyers are beginning to realize that there are tremendous opportunities in the market.
BUY OR RENT? PLAY CHESS, NOT CHECKERS
A number of pundits are saying that now is NOT the time to buy a home. They look at how prices have fallen over the last four years and claim that investing in real estate is too risky. However, we must also look at the gamble one takes in not buying to determine which is the riskier of the propositions. The cost of renting today verses the cost of purchasing a home today must be compared. We must also consider probable future costs in order to fully calculate the risk. We must think a few moves ahead.
We must play chess, not checkers.
There is much to consider in the rent/buy decision. If you own a home, your mobility is curtailed to some degree. If you rent, there is less stability in the household as the landlord, not the tenant, determines if or when the house must be vacated. For the sake of today’s debate, we will only look at the financial aspects of this decision.
In a growing number of regions, homeownership is already less expensive than renting. And, it looks like rents are headed even higher. The WSJ, in an article on their online resource Market Watch,titled Double Digit Rent Hikes Are on the Way reported:
Apartment dwellers could be facing double-digit rent increases in the coming years as a shortage of new multifamily units coupled with a rise in prime renter-age households gives landlords clout they haven’t see since the mid-1990s.
“Demand pressures are building. It’s not bad today because rents have been down the last two years,” said William McLaughlin, an executive vice president with Avalon Bay Communities.
“But it feels a lot like 1992, when we were coming out of a deep recession…and we ended up seeing double-digit rent increases after that,” he said.
…Already there are signs the apartment market is tightening and in some cities rents are already going up 7% or 8% per year
Although prices are falling, interest rates are on the rise and that can have a huge impact on your cost . The monthly mortgage payment (COST) you can negotiate today may be the lowest it will ever be in your lifetime.
John Paulson , one of the smartest housing analysts in the country, recently made it a point to say that if you don’t own a home – BUY ONE! Stan Humphries, chief economist of Zillow, explains that Paulson is talking about COST NOT PRICE.
Paulson is not just betting on house prices, but also on the ability to lock in low financing now with the expectation that it will be easier to pay it back in the future because of inflation.
Don’t play checkers! If you want to make the best financial decision regarding your housing, think ahead a few moves. Play chess by considering future costs