Home ownership has always been a representation of the “American Dream”, but in the wake of the economic meltdown, the dark underbelly of home ownership has been exposed. Peter Miller, blogging over at RealtyTrac says,
What are we to think of this? Is real estate ownership dead and done as a financial opportunity, or is there more value to be extracted from housing? Indeed, is now a good time to buy real estate — or not good at all?
If we are to think of real estate as an investment then all the usual caveats apply. There’s no assurance whatsoever that prices will always rise or that they will rise at all. There’s no guarantee that vacancies can be avoided or that the need for repairs will not create losses. As the lawyers say, the list of risks associated with investment real estate “include but are not limited to” a lengthy roster of potential downers.
But he makes a good point. Every investment DOES come with some risk. Risk factors can be calculated in many cases, but market conditions cannot be guaranteed. But the real question remains: how low will we go? Have we seen the bottom fall out as far as it’s going to? This question becomes important if you’re looking to do more than just buy and hold.
Peter notes:
While much is dark and gloomy, a number of fundamentals remain in place which greatly favors real estate:
• Mortgage rates are now at or near historic lows. Loans around 4.5 percent are currently available. With inflation and tax write-offs and the real cost of capital is around 1.5 percent for many investors.
• Property prices have taken a beating. The typical U.S. home was valued at $196,000 at the end of May — that’s 12.3 percent lower than the value of the same property in April 2007. In most communities, foreclosures and short sales produce even larger discounts.
• Real estate investment continues to enjoy substantial tax write-offs for mortgage interest, property taxes, insurance, depreciation, repairs and other ownership costs. While there is rumbling against such write-offs, the political reality is that home owners represent one of the largest “special interests” in the country, a reality which politicians cannot ignore.
• The population is growing while at the same time home ownership is down. Figures from the Census Bureau show that we had a 66.9 percent ownership rate in the second quarter, a rate that fell from 69.2 percent in 2004. We’ve lost more than 1.5 million owner-occupied properties.
• Reis.Inc., a leading provider of commercial real estate information, says in the second quarter that occupancy improved in 67 out of 82 markets. Fewer vacancies translate into higher rentals: Reis says rents rose .4 percent in the first quarter and .7 percent in the second quarter.
• There’s some evidence that public views have become more positive. Fannie Mae just released a study which shows that 47 percent of us believe home prices will hold steady while 31 percent think prices will actually rise. That means 78 percent of the public at least believes home values will not fall further. Whether such optimism is justified, realistic or will continue is something we won’t know for some time.
Obviously, interest rates are at all all-time low. Just listen to your local AM radio station for longer than five minutes and you’ll hear about it. He makes a good case for investing now. The tax benefits of home ownership are not going away. The rental market is booming, for obvious reasons. The trends are in favor of investing.
Will home values rise in the future? Will rental rates increase in selected markets? No one knows for sure, but it seems logical to believe that values are most likely to go up if you don’t buy at the top of the market — and we haven’t been at the top of the market for better than three years.
So, what do you think? Are you “all in”, or still on the sidelines?
Source: http://www.realtytrac.com/content/news-and-opinion/is-now-the-time-to-buy-a-foreclosure-6105
