Monday, January 3, 2011

A Buyer Explains the Decision to Purchase in 2010

Megan McArdle, a business and economics editor for The Atlantic, explains why she recently bought in DC.  Interestingly, some of the reasons are the same buyers have been giving since the bubble burst in 2005.  However, in this period, prices have continued declining,  demand has dwindled and inventory soared, and credit has tightened.   Read.

2 comments:

Melanie said...

I still don't understand why it would be a bad idea, in a down economy, to put 20% or more down on a modest home you can afford - especially given the cost of rent in the area. If you are interested in being in a place for at least 7-10 years, I don't think buying a house is so bad. If you are only interested in buying at "the bottom", or if you are interested in buying because of being in some emotional state, that probably isn't ideal. But similar to the author, I have no regrets over our purchase of an affordable home 1.5 years ago. The home has lost about 5k in assessed value, but that is half of what we would pay renting and our mortgage is the same or less than we would pay renting.

John Doe said...

Everybody has their own reasons. A house isn't an investment; it's a consumable that takes a lot of $$.

If you look at your home as rent v. mortgage payment--as many people do--and the numbers are about equal, then "ownership" can seem attractive.

But consider:

Right off the bat most people have the "sunk" (unretrievable) costs of 6% agent fees, and 3+% closing costs.

And if you look at the total cost of the house

*for the first part of the loan most of your money goes to interest, not principal

*the interest will grow to several hundred thousand dollars over the life of the loan (dependent on price of house)

*that you are now paying annual property taxes

*that you now need to budget 2-3% of the cost of the house for annual maintenance

That's a lot more than rent.

Just a 5% decline in the value of the house wipes out years worth of mortgage payments:

http://realcville.blogspot.com/2010/07/price-reduced-what-happens-to-mortgage.html

And what is "ownership"? People with mortgages are renting money from a bank, rather than renting a house from a landlord, aren't they?