8 Powerful Reasons Why NOW is a GREAT Time to BUY

Obviously I’ve written a great deal about how our housing markets today aren’t performing all that well… and that the way we as a nation have been handling things since the meltdown of 2008, they won’t be for a very long time.

I’m right about that today, just as I was back in 2008 when I wrote the exact same things. I’m not bragging about that… it wasn't a difficult thing to predict. In fact, it’s straight out of any economics textbook, just look up “deflation,” and you’ll find it described perfectly. The one I have even shows it happening as a result of a credit crisis, which is exactly how our current mess got started too.

I write these things for two reasons: 1. Because I think if people know what’s happening and what’s ahead, they won’t become satisfied with what our government has done to-date to address the still worsening situation. 2. So I can say, “I told you so,” later. No, I’m kidding about that… sort of… I do it because no one else does it, which I find annoying, ridiculous… and dangerous, actually.

I certainly don’t do it because I like doing it… because I don’t. It’s about as gratifying as standing in a closet with the door closed and screaming your head off.
Many times what I write about the housing market upsets Realtors and mortgage loan originators, and recently some have even accused me of telling people that now is not a good time to buy a home.

“Wait a minute,” I replied. “That’s not true. I have never said anything about whether now is… or is not… a good time to buy a home. In fact, I can think of lots of reasons why now is a great time to buy a home. Maybe you have me confused with someone else?” But, I was assured that they didn't.
In addition, I often notice my friends over at The

National Real Estate Post, you know them as, “I’m Frank Garay… and I’m Brian Stevens…” delivering some sort of silver lining to the massive cloud cover that remains in place over both the housing and mortgage markets, and I think about how I’d like to be writing something more obviously constructive and helpful.
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Now, once in a while, the “silver lining” Frank and Brian talk about is actually lead, and in the past when they've said something that makes me spit out my coffee, I've made fun of them somewhat mercilessly in an article on Mandelman Matters, which always seems to make my phone ring before noon… and I answer, “Hello?”
“Dude, seriously? So, you ripped us apart on your blog again, I hear. Well, I’m just calling to say it’s cool… we don’t mind… we think it’s funny.” It’s Brian and he’s laughing along as I’m laughing my butt off, and reply: “What would you have me do? Did you really think I was going to leave it alone? You had to know that I was going to have to say something?”

Today’s video post was a particular favorite of mine… it seems that the fellas stumbled over a report that showed them that purchase mortgage volume was WAY down, and that relatively high credit scores are being declined, and that refinancing is also fallen off the proverbial cliff. So, they have proclaimed that the lending landscape has officially changed! Ta da!
Personally, I was positively aghast at the news… the mortgage market has changed? Really? Do tell. You don’t mean to say that Demand for Mortgages Has Plummeted, But It’s Not a Storm, It’s a Permanent Change, do you? Or that, Your Kids Will Be Living With You For a Long Time?

They wanted the industry to know of this breaking news, so people in the industry could adapt and adjust. So, since they have now warned the mortgage industry of the change in the landscape, I thought I’d go ahead and issue my own warning to anyone that night be planning a trip to Beijing two weeks ago…
DO NOT TAKE MALAYSIA AIRLINES FLIGHT 370!
So, Brian should be calling soon… we’ll laugh… talk about various things… and then we’ll return to our respective lives, which means the two of them will head off to conduct a seminar in Toledo on how to generate leads, sell homes and fund mortgages using your iPhone, while I sit alone in my study wondering if noon is too early to switch from Bloody Marys to straight vodka on the rocks.
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Well, a couple months ago, The National Real Estate Post’s daily video featured a story covering Harvard professor, Eric Belsky’s “Five Reasons to Buy a Home Today,” which I found to be entirely devoid of thought. I honestly couldn’t decide whether Professor Belsky’s reasons were more stupid or sad. And, imagine my surprise when, after watching Frank and Brian’s coverage of the professor’s reasons to buy today, I looked him up and found that he’s the Managing Director of the Joint Center for Housing Studies at Harvard University.

Lest you think I’m being to hard on the erudite Bostonian educator, the first reason on his list of five reasons to buy now is stated as follows…
A Hedge Against Inflation – Rents are going to go up with inflation. Your fixed rate mortgage will not. “Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.”
After reading that for the first time, it occurred to me that the professor had managed to identify the only factor I could think of that had never driven anyone to buy a home… to have a hedge against inflation. If you’re looking for a hedge against inflation, there are many investments you might consider… but a primary residence is not one of them.

To see why I say that, one need only consider the last five years, during which inflation has been running around eight percent annually (were it still measured as it used to be before the Fed changed their policy to, “No Bad News Ever”), but no one’s home in this country has gone up eight percent annually over the last five years.
If you want an investment that provides a hedge against inflation, the perennial favorites would have to be gold and oil, but perhaps the most obvious way to go would be TIPS… Treasury Inflation Protected Securities.
The principal portion of an investment in TIPS goes up with inflation and down with deflation, based on movement in the Consumer Price Index (“CPI”). When your investment matures in five years (based on Treasury’s last offering), you receive either the adjusted principal or original principal… whichever is higher.
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And, if that seems a bit too technical, and you’d prefer something that you understand as well as you understand a house, just remember this line: Inflation goes better with Coke.
That’s right, I’m talking about buying shares in Coca-Cola. (KO) Why? It’s simple. Inflation means the value of the dollar has fallen, but that in turn makes our exports more attractive to other countries. As a result, to hedge against the risk of inflation, you want to own shares in companies that earn most of their revenues overseas… and Coca-Cola earns about 75 percent of their revenues that way.

The home you live in, on the other hand, is very unlikely to earn any revenues overseas, nor will it go up in value because of anything that happened outside your neighborhood or home state.
The professor’s next ridiculous reason for now being the time to buy is…
“The Tax Benefit of Homeownership.”
That’s a reason for buying “now?” Hasn't the mortgage interest deduction been there for many, many years? Isn't that almost like saying that “now” is a good time to buy because the sun is coming up tomorrow morning?
But, more importantly, while the mortgage interest deduction is a benefit of owning a home, it is not a reason to do so.

For one thing, the mortgage interest deduction declines in value each year, because monthly mortgage payments at the beginning of a loan are almost entirely interest, but as the years go by, more and more of your monthly payment goes towards the principal.
It’s also important to understand that the tax benefits associated with home ownership are “deductions.” Deductions reduce the amount of your taxable income, but a deduction’s actual dollar value is equal to the amount of the deduction… minus the standard deduction… multiplied by your marginal tax rate.

So, let’s say you are married filing jointly, and you fall into the 25% marginal tax bracket… and you have a tax deduction of $15,000. To figure out how much the deduction saves you, take $15,000 and subtract $12,400 (amount of standard deduction in 2013) and then multiply by 25% (your marginal tax rate). The answer is $640.
And no one should ever buy a home to get a $640 tax benefit, or a $1280 tax benefit, or even twice that amount again, because the costs of homeownership can quickly make those sorts of “benefits” look like tip money.

The professor also points out that…
On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.”
Oh, so what and who cares? That’s not a reason to buy a house either… and it’s sure as heck not a reason to buy now… it’s just quoting a provision of the tax code.
Number three on Professor Belsky’s list of reasons to buy now he titles: “Forced Savings in a Society that has a hard time saving.” And he explains…
“Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”

Okay, so again… while this could be a benefit of owning a home, it is not a reason to buy one. You can save money without signing a 30-year mortgage for hundreds of thousands of dollars or more in debt that you will carry most of your lifetime.
Number four on the professor’s list reads as follows…
Hey, you’re paying for the place where you’re going to rest your head at night, why not own it? “Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.”

I just don’t think I’m going to respond to that sentence. I would… but I’d have to lower my IQ about 80 points, or maybe more… and I’m afraid I might get stuck down there. Just remember this… buying a home is not purely a numeric equation, and because it’s a long-term sort of thing for most people, you don’t know what will happen to its value over ten or twenty years.
Yes, homes are investments. But they are long-term investments from which we get the added utility of living in them until we sell them. They’re not like stocks that we buy and sell in any amount of time. When we buy a home and that home’s value rises by $100,000, we don’t rush to put it on the market, and when its value falls, we don’t panic and sell at a loss.

And number five on Belsky’s list contains the idea that you should buy a house because it’s a leveraged investment. It’s stated as follows…
“Buying is a leveraged investment. For example, you put five percent down on a home… you paid $100,000 for it. Home goes up by 5%. That’s not a 5% return on your money, it’s a 100% return on your money because you only invested $5,000 in your down payment.”
Yeah, well… sort of, but not really. On a cash basis I may have only invested $5,000, but I owe the amount of the mortgage plus interest, and depending on my state, I could end up with a deficiency judgment in the event that I lose the home to foreclosure, and it doesn't sell for enough to cover my total indebtedness.

Leverage is dangerous… period. It’s one of the primary factors that made our economic downturn and financial crisis as deep and serious as it was and still is. So, all I can say about this subject is… if you’re going to gamble with your home, be prepared to lose it if your gamble doesn't pay off.
And if you don’t want to put your home at risk, you don’t take it with you into the casino, got it?
The last comment Professor Belsky makes states…
“Now, this might seem obvious to you. But your potential clients aren't thinking this way, so consider this a friendly reminder of what you need to be messaging because it just might help you combat the 32% drop in mortgage volume in 2014.”
No, professor… first of all, it’s not obvious to anyone, because most of what you have said is no one’s reason to buy a home… not now… not ever. mstein