Financing-home loans, Real Estate

Real Estate and the Economy…

Real Estate = Big Money
Image by thinkpanama via Flickr

Did you know that for every home that is sold $60,000 is pumped into the economy… and, that the real estate industry represents 20 percent of the national economy — and has for the past 50 years?

Real Estate is not only a good investment for long-term wealth, but buying and selling homes affects our economy as a whole for the better.  Not only is money changed hands during the settlement process, but most people when they buy a home, do things like: go to home depot and buy paint, new appliances, general necessities…they go to furniture stores and purchase new furniture …they potentially do some renovation and hire contractors and purchase building materials.  This is all good for local businesses and the economy as a whole.

At the same time owning a home, while also providing a significant tax deduction, allows people to feel a sense of pride of ownership.  They can make changes to their home and personalize it.  They can plant roots in neighborhood and are more compelled to get involved in their local community.  Home ownership has many other non-financial implications that positively affect society.

The national media tries to paint the doom and gloom picture of the housing market and tries to scare people from buying and selling.  The fact of the matter is that even in areas where the inventory is high and there are a still a lot of foreclosures, investing in a home is still a good bet.

During the housing boom between 2004-2006/early 2007, people began to look at homes as a way to make a quick buck and now people expect to make $100,000 or more after owning their home for just a few years.  That was the problem and one of the reasons that the market had to adjust.  Owning a home is a long-term investment that gives you benefits along the way.  It shouldn’t be about “how much can I make on this home”, but how much you can enjoy living there and also take advantage of the tax benefits and the fact that you have a stable monthly payment (unlike renting where you can potentially see a 3% increase every year).  The goal is also that if you stay in the home long enough, you should also walk away with more than you put into it.  What other investment allows you to enjoy it while the money is invested and still get a return?  Don’t be fooled, when you rent, you are paying for someone else to have the advantage of selling for a profit some day…you have paid their mortgage and when you leave, you get nothing.

That being said, borrowing money isn’t going to get any easier.  Lending institutions want to make up for the past few years which means higher interest rates and more difficult qualifying criteria.  I never want to “scare” people into buying a home, but if you are on the fence, now is the time…there is a cost to waiting and for some that cost may be that they have to continue renting or that they can purchase much less house than before because their buying power has been significantly reduced.

Financing-home loans, Real Estate

Housing: Once Again a Good Investment?

Cover of "Smart Money"
Cover of Smart Money

Thought I would share…

Written by: Tim McLaughlin

There was a web based discussion a couple of weeks back; the talking points which were shared with me by trading partners on the street, which was entitled “Is Real Estate Finally a Good Investment”? Essentially, the moderators of the discussion pointed to three underlying reasons why Real Estate Investment, in certain scenarios, makes feasible sense right now (taking a traders mindset into account):

Hatred of the “Asset”: Hatred of an asset is often the precursor to contrarian interest, and being contrarian is at the heart of many investment strategies. To paraphrase Warren Buffett, “be fearful when others are greedy and greedy when others are fearful”. Mr. Buffett backed that idea when he invested in the stock market in the teeth of the financial crisis in late 2008 and early 2009. Remember, Gold was hated for years (termed as “dead money”) before it recently became an attractive asset class once again and skyrocketed in value.

Smart Money is Buying: John Paulson, the hedge fund manager who made $20 billion betting against the housing bubble in 2007-2010, stated in a speech late last year: “If you don’t own a home buy one. If you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home.” Why is Mr. Paulson so adamant? Because he believes long term interest rates are not going to get much lower. They have, in fact, risen since he gave that speech, but they remain remarkably low by historic standards. Low rates and the expectation that home prices will rise is his basis of this sound argument

Demand is Coming Back: Supply isn’t as out of whack as it was at the height of the crisis. At the end of Nov, home builders reported 197K new homes on the market, the lowest level since 1968, according to Yardeni Research. The National Association of Realtors reports that the inventory of existing homes for sale fell 4% to 3.71M homes, which represents a 9.5 month supply at the current sales pace, down from a 10.5 month supply in October. And that timeline appears to be falling.

Albeit, no one will really know when the “best” point in time is/was to buy or invest until it has already come and gone. But with “value” inventory and low interest rates, more and more observers think the time is now.