Is this a good time to buy a home?

2011-05-15T17:18:00.000-07:00

By George Raymondo

When my Wife and I received the infamous note on the door, you know the one with the bold headline that reads: “Notice of Trustee Sale”. The question of should we rent or is it a good time to buy came up and smacked us in the face. Having been renting a home for some time now, we were suddenly faced with the evidence that our landlord clearly had not been making the mortgage payments.

As we began to weigh our options, it became increasing apparent that we didn’t have much time to decide. So the first thing we did was start searching for another rental. As I began to look through the classified ads on the internet, I was amazed to see how much the rents had increased in the local area. I couldn’t believe it. How was it possible that they had gone up so fast in such a short amount of time?

Being a mortgage lender, this question had been posed to me countless times. Over the years I noticed that my answer had never wavered. Then I began to realize, suddenly I found myself in the same situation as many of my former and even current clients. Having seen the writing on the wall back in 2004, I remember telling anyone who would listen, to prepare themselves for a massive explosion or bursting of the housing bubble. So I took my own advice. I sold my home, put my money in the bank, and found a house to rent.

I cannot tell you how lucky I was. From the very moment my home sold, the properties in the area literally plummeted in value that has continued for the past several years. Faced with the decision of renting vs. buying, I unknowingly developed my own set of perimeters that had somehow kept me from complete ruin. If I hadn’t sold my home at the very moment, I too would have been one of those homeowners who lost their home in foreclosure.

Being associated with the real estate industry, I found my own personal income on the same trajectory as the housing market. Simply stated…crash and burn! So what were the perimeters that seemingly kept me from complete destruction? The answer is simple, mostly just common sense. Over the years of taking countless mortgage applications and answering thousands of questions, I came up with three basic questions.

1.) Was I now ready to take on the added financial responsibility of home ownership?

2.) What are the benefits of either renting or buying a home?

3.) Was this the right time to buy?

Let’s take the first question and simplify it. The real question I asked myself was, “Did I have the confidence in my ability to make a mortgage payment given the current economic climate?” For me that answer was pretty simple. Either way, no matter which way I looked at it, I had to live somewhere. To rent a home for a family of my size, was running somewhere in the neighborhood of $1,800.00-$2,000.00 per month. So if I couldn’t afford that amount for rent, clearly I needed to move to a less expensive area.

Then I calculated a mortgage payment based on the same size home and surprisingly, it came out that the rent was actually slightly higher than a mortgage payment. So this gave me my first check under the "Buy" column. The next question I had to answer was, “What were the benefits of renting vs. buying? As I pondered renting, I began to struggle. I couldn’t really find a benefit that seemed to pop out at me.

The only benefits I could think of was if I was a renter and the home needed some repairs, I wouldn’t be responsible. The other benefit was, I had the ability to pick and move after my specific lease was up. For example, if I didn’t like my neighbor or whatever, I could pull up stakes and move on. On the other hand, I could be faced with the same situation as my previous residence, where the home owner decided to pocket the money and I would be forced to move anyway. To me that seemed to be more likely scenario.

So what were the benefits of buying a home? Well, I started to think. Was I looking to establish roots in the community? For me, being a father and the main provider for my family that answer was blaring. Faced with changing schools for my children was not even a consideration. Wanting to maintain stability for my family was of paramount concern. What was another benefit? I got that answer right around April of that year from my tax preparer.

Now that my income had somewhat recovered, I was now faced with a higher tax liability and without my old buddy named “Mortgage Interest Deduction” or being able to write off my property taxes and depreciate my home, I was forced to write to pretty hefty check to the IRS, and that was certainly not pretty. Under the current tax code, homeowners are afforded tax write-offs that renters are not. Even the renter’s credit that is available hardly made a dent in my tax liability.

The only missing benefit of owning a home that had been ingrained in my head over the past several years was the investment side of home ownership. In the past, that seemed to be etched in stone. Everyone took for granted that if you bought a home here in the good ole USA you would without fail, make you a healthy profit and in some cases, make fortune in the real estate business. Then it struck me, I suddenly realized how different our country is compared to others.

For example, in my wife’s country, people buy homes merely to have a place to live, not because they want to make a buck. They stay put, and we move every couple of years. Their families stay in close proximity to each other and we move faraway from each other in some cases on opposite ends of the country. For too long regular folks have wanted to act as investors, buying homes they really couldn’t afford and well…you know the story.

I think the idea of the American Dream somehow got distorted. Somewhere the right to own a home of our own got twisted and people began thinking that investing in our housing market was the way to get rich without being innovative or creating a actual product. In my humble opinion making good choices is hugely important and certainly wanting to buy something on sale is a natural desire.

Expecting to make a profit on a home is understandable if someone is wanting to purchase a fixer-upper, renovate it and then re-introduce that rehabbed home back in the market. But to buy a home and hang on to it for two or three years and expect to double your money, well I think those days are gone. So as we pull ourselves out of this housing catastrophe, I can’t help but wonder if we’re destined to repeat the same mistakes of the past. Or have we learned something valuable the hard way? The truth is, only time will tell.

George Raymondo
Nationwide Mortgage Banker
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Is this a good time to buy a home?