Wall Street Journal: Ten reasons to buy a home

The Wall Street Journal watched Time Magazine go from a June 2005 cover (“Home $weet Home”) asking “Will your house make you rich?” to the recent cover story, “Rethinking Homeownership.”
But the Journal came up with ten reasons why it’s good to buy a home now or in the near future. Let’s look at a few of the arguments:

Now is a good time to make a deal.   “This is a buyer’s market.”  No one can predict the future (at least not well enough to predict the turning points of markets) but the argument here is that in the long run, it is not necessary to buy at the very bottom of the market.  Note, however, that with so many houses available and a weak economy, prices are not likely to rise for some time. Thus, the deal should focus on housing as a consumption decision for years to come.

Mortgage money is cheap.  Yes it is, since inflation is nowhere in sight (not yet at least). Be reassured that the option to repay at fixed rates for the life of your loan is probably cheaper now than ever (this option is built into your fixed rate mortgage rate). Inevitably mortgage rates will rise in the future, although it is unclear when — but whenever it is, you will be covered.

An owner is likely to treat a house differently than a tenant (or even a landlord).  Not only does homeownership give owners a bigger bundle of rights compared with tenancies, owners are also likely to treat the asset as their own.
Amortizing a fixed-rate mortgage enables wealth to be accumulated by the household sector, even if it is a slow process.  This “forced savings” enabled generations of homeowners to build equity with loan repayments.  If one is able to service the debt with household income, over time these repayments will mean accumulated household wealth. Note, however, this is different than saying that equity build-up in the reason to buy. Since the amortization portion of the payment is the owner’s own money, this is merely a savings plan.

The Wall Street Journal believes that sooner or later, demographics, inventory adjustments  and economic growth will get the American housing market back to equilibrium in the years ahead.  This is especially likely if one lives outside the hardest hit markets. As long as one does not expect high rates of appreciation in the future, things might work out just fine for new home buyers.

There is a strong case for acquiring real property to live in now, even as the post-bubble market continues.  Note that the financial myths about homeownership are largely absent in these arguments.  We need not appeal to these tales of fame and fortune in order to restore interest in housing.  Buying a home will remain an important decision for many households in future years for several rational reasons.  No doubt the concept of the transaction will be different but markets will remain viable and active, enabling individuals, couples and families to consume elaborate packages of housing services superior to those anywhere else in the world..

Posted By Austin Jaffe, Ph.D. On November 24, 2010 in the Economics Blog at parjustlisted.com