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As a general rule, you will do much better taking advice
from a used car salesman or, for that matter, a fortune teller than an
economist. Economists, on the whole, are
much better when it comes to arguing abstract theory about the past or the
future than providing even the most mundane concrete advice about the present. My wife, with her training in psychology and
survey research, has a much better track record than I when it comes to buying almost
anything or investing in the stock market.
Yet at the risk of actually giving out some advice, for
whatever it is worth, let me suggest that if you are going to be in the market
to buy a home sometime in the near future and can afford to buy one now, there
may be no better time to do so than this summer. There are a lot of reasons for listening this one
time to a card-carrying economist.
The first is that after nearly six years, home prices in
Greater Boston have finally stabilized. While
there is still some risk that home prices could fall further, data for the past
six months suggest that home prices have hit bottom in most communities and are
on the verge of beginning to rise.
Buying at the bottom of the market makes sense and this finally looks
like a bottom.
The second is that mortgage rates are ridiculously low. If you are creditworthy, you can find a
mortgage that carries an interest rate of less than 4 percent. That is lower than anytime this century and
may be lower than any time in the past fifty years or more. It is hard to believe that interest rates
could get any lower and they are likely to rise later this year or next. When it comes to paying for a home, the
mortgage rate can be as important as the price.
The third reason is that, unlike home prices, rents in
Greater Boston are at an all-time high and could go higher. This is the consequence of three
factors. The first is that many young
homeowners are sitting on the sidelines either anxious about home prices or so
in debt because of college loans that they cannot afford a mortgage. The second is that an unfortunately large
number of families have faced foreclosure and they have moved from
homeownership into the rental market.
And the third is that over the past decade the graduate student
population of our universities has exploded, putting greater pressure on the
rental market as students come to Boston to attend school. The upshot is that for some households, the
monthly cost of renting might not be much higher than homeownership and perhaps
less.
There is one problem, however, that you may encounter if you
take my advice. If you want to buy in a
community with excellent schools, you may find there is little inventory available. This is just another indication of how strong
a “buyers’ market” we have. At any
given time, a market can be more favorable to the buyer or more favorable to
the seller. A glut of housing (or cars
or Red Sox tickets, for that matter) usually favors the buyer. A shortage of housing but in the context of
strong demand favors the seller. Right
now, sellers who can wait to sell are sitting on the sidelines waiting for
property values to increase. Why sell
now if you can wait six months and get $60,000 more for your home?
As such, we have a buyer’s market but not a glut of attractive properties. What that means is that you should get into
the market now and be prepared to spend some time before that ideal home comes
along at a price you can still afford. I’m
not sure my wife agrees with me on this, but I am afraid to ask.
Good luck!