1. You can get a good deal.
Especially if you play hardball. This is a buyer's market. Most of the
other buyers have now vanished, as the tax credits on purchases have
just expired. We're four to five years into the biggest housing bust in
modern history. And prices have come down a long way– about 30% from
their peak, according to Standard & Poor's Case-Shiller Index, which
tracks home prices in 20 big cities. Yes, it's mixed. New York is only
down 20%. Arizona has halved. Will prices fall further? Sure, they
could. You'll never catch the bottom. It doesn't really matter so much
in the long haul.
Where is fair value? Fund manager Jeremy
Grantham at GMO, who predicted the bust with remarkable accuracy, said
two years ago that home prices needed to fall another 17% to reach fair
value in relation to household incomes. Case-Shiller since then: Down
18%.
2. Mortgages are cheap. You can get a
30-year loan for around 4.3%. What's not to like? These are the lowest
rates on record. As recently as two years ago they were about 6.3%. That
drop slashes your monthly repayment by a fifth. If inflation picks up,
you won't see these mortgage rates again in your lifetime. And if we
get deflation, and rates fall further, you can refi.
3. You'll save on taxes.
You can deduct the mortgage interest from your income taxes. You can
deduct your real estate taxes. And you'll get a tax break on capital
gains–if any–when you sell. Sure, you'll need to do your math. You'll
only get the income tax break if you itemize your deductions, and many
people may be better off taking the standard deduction instead. The
breaks are more valuable the more you earn, and the bigger your
mortgage. But many people will find that these tax breaks mean owning
costs them less, often a lot less, than renting.
4. It'll be yours. You
can have the kitchen and bathrooms you want. You can move the walls,
build an extension–zoning permitted–or paint everything bright orange.
Few landlords are so indulgent; for renters, these types of changes are
often impossible. You'll feel better about your own place if you own
it than if you rent. Many years ago, when I was working for a political
campaign in England, I toured a working-class northern town. Mrs.
Thatcher had just begun selling off public housing to the tenants. "You
can tell the ones that have been bought," said my local guide. "They've
painted the front door. It's the first thing people do when they buy."
It was a small sign that said something big.
5. You'll get a better home.
In many parts of the country it can be really hard to find a good
rental. All the best places are sold as condos. Money talks. Once
again, this is a case by case issue: In Miami right now there are so
many vacant luxury condos that owners will rent them out for a fraction
of the cost of owning. But few places are so favored. Generally
speaking, if you want the best home in the best neighborhood, you're
better off buying.