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What If We Lived in a Home?

What if you just lived in a home?

According to Fannie Mae (the quasi-public corporation whose purpose is to expand the secondary mortgage market) the number of Americans who believe home ownership is a safe investment dropped to 66% in the first quarter of 2011, down from 83% in 2006.  Ah, there is that dirty little word that got us into this mess – investment.  Your homestead is your home.  Your homestead is not an investment (nor an ATM machine), it is a place to live.

I own investment real estate which is property I rent to someone.  I invested money to buy the investment real estate and my tenants pay off my mortgage.  My condominium is my homestead.  It is where I live.  They are different.

What if you just lived in a home?

Rising home prices in the period 2000-2005 made renting cheaper than owning a home.  That has changed as home prices have fallen; mortgage rates hit historic lows and rents have begun to rise.

Buying a home is cheaper than renting in some cities (Chicago and Cleveland to name two).  Milwaukee is on the borderline tilting towards ownership as a better option with a rent to own ratio under 20.  It’s why I’ve written that buyers should review the cost to rent vs. own when considering buying a home.

One source for that information is the Case-Shiller (CS) index.   The best source is you and your knowledge of the local rental market.  If you are not sure what the cost to own is in Milwaukee’s four-county area contact me via e-mail and I’ll provide that information.

According to Zelman Associates, 67% of renters they surveyed said they planned to buy a home in the next 5 years.  Home prices are down and rates are low – are renters timing the market?

Today median income earners can afford nearly 75% of all homes sold.  At the height of the real estate bubble that figure was 40% (June 2, 2011 Wall Street Journal).  If 67% of the people plan to buy and can afford 75% of all homes sold, what is the issue?

What if you just lived in a home?

For many potential homebuyers deciding when to buy reminds me of market investors who try to determine when to sell and when to buy stocks/bonds, that is, time the market.  I know people who watched the market drop from the high 12,000+ to 6,700 and tried try to figure out when to get back into the market.  By the time they had the confidence and courage to get back in, they missed the run up.

It is hard to “time” the real estate market which is why the cost to rent vs. own is as good a test as any to determine if now is a good time to buy.

I think the two issues that limit first time home buyers are information and confidence.  I try to provide the information.   The Consumer Confidence Index stood at 58.5 in June, down from 61.7 in May.  I won’t try to make you feel confident.  That is a personal matter.  If you are paying $1,200 plus in rent, buy a home when you have the information you need and the confidence to move forward.

In my next E-Note I want to address the question, “If you just lived in a house and it’s now worth less that you paid for it did, you lose money?”

If you found this information of interest please share it with a friend.  If you are a past client, thanks.  If I can be of assistance to you, your family or friends I would welcome the referral.  As always, if you have a real estate related question (including rehab) feel free to contact me.  Thanks for reading.

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Homebuyer Associates
1835 N. Riverwalk Way
Milwaukee, WI 53212
Phone: 414-254-4129