June 1, 2011 — The U.S. real estate market took a severe pummeling after the long holiday weekend with the release of the latest housing figures. The widely watched S & P/Case-Shiller Index reported that national housing prices index fell 4.2% in 2011′s first quarter, on top of a 3.6% decline in the 4th quarter of 2010. Prices across the country have hit new lows since the housing crash, and represent, according to economist Mark Zandi of Moody’s Analytics on the PBS Newshour, the most “unprecedented”… price decline since the Great Depression”. Only one market, Washington, D.C., was immune to the price problems. Texas is doing relatively well compared to most markets.
After recovering a bit in 2010, prices are sinking again. More and more people have come to believe that it is a far, far better thing to rent than to pursue the dream of owning their own home. Indeed a recent survey by Realtytrac.com found that 40% of renters never intend to own a home.
A few facts
The surge in rental interest occurs in spite of data from the latest NAHB/Wells Fargo Housing Affordability Index, which suggests that homes are indeed very affordable right now; about 75% of the homes on the U.S. market today could be afforded by a family with the national median income of $64,400. Trulia.com (www.trulia.com), a site for homebuyers, sellers and renters, published a Rent vs. Buy Index in January (before the most recent home price declines), which found that it is more affordable to buy than to rent a two-bedroom home in 72 percent of America’s 50 largest cities.
Many economists such as Mark Zandi and Rich Sharga believe that we have not quite reached the bottom of the real estate market. Until problems with the overall economy are resolved, there will be no return to health in housing. Unemployment, foreclosures, and confidence are all holding us back. Unemployment is part of the chicken and egg problem – housing construction and sales are a big part of the economy that is stuck on hold. Foreclosures and distressed homes sell for less than normal sales, exerting downward pressure on prices. And the confidence factor is huge – people don’t gamble on buying a home when they are afraid they might lose their job, that the stock market will go down, and when they hear that it is very difficult and exhausting to try to qualify for a mortgage. Zandi and Sharga think that the bottom might be hit some time in 2012.
Pros and Cons
This is not a definitive list – we’d really like to see yours.
Pros of Buying a Home:
- Pride of ownership- the American Dream
- Possible appreciation
- Tax breaks
- Independence and permanency – fix it up the way you want it
- Cheaper (maybe)
Cons of Buying a Home
- Prices might go down
- Hard, if not impossible, to get a mortgage
- Risky: fire, tornado, hurricane, flood, neighborhood goes bad
- Interest rates go up
- Tax benefits could be taken away
- If you don’t like the state, town, or neighborhood – or your grandchildren move – it’s easy to pull up stakes.
How are prices in your home town?
Buy, Rent, or Stay
What to do if you are under water on your mortgage
WSJ MarketWatch article
You Make the Call
So dear members, what is your call? Are you planning on buying, renting, (or staying where you are) in retirement? What are the best reasons for each? And finally, do you think we’ve hit the bottom of the real estate market? Use the Comments section below – we all want to hear your opinion.