You've probably heard that there's never been a better time to be a first-time homebuyer.
In many ways, that's true. That's because:
- An $8,000 tax credit is available for anyone who buys a home this year, before Dec. 1, and hasn't owned a house in the past three years. Unlike the 2008 tax credit, this one doesn't have to be repaid -- and you can get the money even if you don't owe taxes.
- Interest rates are astoundingly low. Cheap loans mean you can buy more house, if you want. The payment on a $200,000 mortgage at 6% was around $1,200, for example. For the same payment, you now can swing a $228,000 mortgage at 4.8%.
- Houses are on sale. Home prices in the 30 largest markets are down 30% on average from their 2006 peaks, according to the S&P/Case-Shiller Home Price Indices.
Does that mean you should rush out and buy this year? Not necessarily. If any of these reasons are your primary motivator for buying a home, you should think twice.
'It's a good investment'
The first time I wrote a version of this column, in 2002, I heard from a lot of people who honestly didn't believe real-estate prices could ever fall.The next time I revised the column, a few years later, I heard from people who were not only convinced that real estate could only go up but that real estate guaranteed a far better return than any other investment.
Of course, everybody has learned otherwise.
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But aren't we near a bottom? Might this not be the ideal time to get in and see some serious appreciation?
Maybe, maybe not. Just because prices have dropped a lot doesn't mean they can't go lower.
The pace of decline does seem to have slowed. But the foreclosure crisis isn't over, and prices won't recover as long as banks keep dumping houses with fire-sale prices on vulnerable markets.
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Furthermore, double-digit-percentage returns on home prices were an anomaly. Before the real-estate bubble, average home price appreciation barely outpaced inflation. (By contrast, in every 30-year period since 1928, the stock market's average annual return has beaten inflation by at least 4 percentage points and typically by 7.)
Homeownership can help you build wealth over time. Paying down your mortgage is a kind of forced savings, and price appreciation (when it returns) will help you build equity. But you can't count on home values snapping back anytime soon, so anyone who buys these days should be prepared to stay put for a good long while.
'I'm tired of throwing away money on rent'
Renting usually is cheaper than owning. In really expensive cities, such as New York and San Francisco, renting is so much cheaper that it's tough to make the case for becoming a homeowner. Buying in these markets often means settling for a much worse property or an awful commute, compared with what you can afford if you continue to rent.You're not really throwing money away when you send a check to your landlord, anyway. You're exchanging it for a place to live. You're also getting flexibility and freedom -- things you sacrifice when you buy a home.
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Buy your first home within a yearIf you're thinking of buying your first home, it helps to have a game plan. Liz Pulliam Weston offers a practical 1-year plan for making your dream come true.
When you're a renter, it's the landlord, not you, who is generally responsible for maintenance, repairs and fixing the toilet that blows up in the middle of the night. If the neighborhood should start to slide or you get or lose a job, you can up and move, often with just a few weeks' notice.
It's true that you may have to deal with rising rents and recalcitrant landlords. Homeowners, however, are often stuck with rising taxes and maintenance costs, as well as recalcitrant neighbors.
Continued: I need the tax deduction
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