In this uncertain real estate market, where so many people are feeling trapped by their ‘underwater’ homes, I’ve had a lot of folks telling me that they’ve made the switch from buyers to renters, and they’re never going back. The reasoning behind this is that they are then free to move as the job market dictates, without being trapped by a collapsing market. They can also look around and choose where they want to live if circumstances change – without the burden of having to sell the home and potentially losing equity and time, along with the stress of having strangers traipse through the house while it is listed!
Sounds reasonable, but let’s take a look at the other side. Sure, we’re going through a severe market correction, but market corrections don’t last forever. When the market is heading up, it’s nice to see the equity building in your largest asset: your home. It’s only if you have to sell that you really feel the pain in a down or collapsing market. The home that you live in doesn’t change its location or amenities just because its value has decreased, and you can put money and sweat equity into your home to make it a nicer and a more comfortable place to live. You’re hardly likely to feel motivated to do that to your landlord’s property – plus, you can choose the colors you like and the changes you want without their approval! Shelter is one of the three basic human needs (besides food and water), and I don’t see it going out of style anytime soon – one proof being that even our children are willing to move back and live with us under our rules because they have to have a place in which to live.
There are also tax advantages to owning your home. While you cannot deduct the rent you pay for your living space, you can deduct interest charged against your mortgage and real estate property taxes that you pay. Additionally, you have the security of knowing that the landlord cannot kick you out or raise the rent to outrageous levels if the rental market takes off. There is some talk in congress about removing or modifying the interest deduction; with a down market and high unemployment, the last thing we need is an additional tax burden. It might be a good idea to let your local representatives know how you feel.
Contrarians I talk to say that now is the time to buy, when everyone else is selling, but I would say you should only do it if you won’t get in over your head. If you have the time, money, and inclination to purchase real estate, then now is the moment; otherwise, you might have to hunker down and ride this one out.
I don’t think inflation and population increases -- which will eventually raise all our real estate values -- are going away. The sci-fi image of desolated cities with squatters who are not paying rent, living wherever they can get in, is just that: a fiction and not a reality. The reality is -- and I heard this on the evening news -- that they are offering homes in some cities to firefighters and police officers for $1,000 to encourage them to move into certain down sections of town. The deals are out there and I can see inflation hitting us in the not too distant future. This will be when the depressed and short sale housing you bought today will be worth a lot more money than you paid for it!
Someone I know bought a nice co-op for $50,000 in Manhattan during the garbage strikes in 1974, when everyone thought that that was the end of the city. That same co-op today, combined with the unit next door, was recently published as one of the top closed sales of 2010 for selling at $25 million. Of course, my friend had sold in the 80’s when the apartment went for $1.5 million and thought he had cleaned up then. Timing is everything!
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