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Is the Housing Market Scraping the Bottom?

I read this article earlier today stating that in 98 of 100 of the top housing markets, buying is cheaper than renting.  I remember when buying was incredibly expensive in many cities compared to the median income of the area.  That signaled the top of the market.  It wasn’t long before the bottom fell out and there was no demand.  Now I have to wonder if the bottom of the real estate market is near.  Of course it could be another year or two before there is an increase in housing prices, but if it doesn’t make financial sense to rent, then that says something.

If nothing else, it means that investing in real estate makes sense for investors who have the money and can turn around and charge rent to those who are unable to get mortgages.  Mortgage rates are near record lows which is another good reason to purchase a home.

Historical Context

I remember growing up listening to my dad mention the mortgage rate of 12% that he was paying on the house where we lived.  From there I remember interest rates increasing into the late 70’s when you could get up to 8% on a passbook savings account.  As a result, I considered myself quite fortunate to get a mortgage for less than double digits when it came time to purchase my first house.

I also remember those days as being before the internet.  In order to see the impact of interest rate changes, you had to have a book and look at tables unless you were a financial professional with the nifty financial calculator.  But now, there are awesome mortgage calculators online that can be used to run all sorts of down payment and interest rate scenarios instantly.

With interest rates so low, this could be considered a once in a lifetime opportunity to purchase some real estate.  I wouldn’t worry about trying to time the market since the fact that renting is more expensive would suggest to me that renters will start looking at ways to get away from that option.  There is still a substantial portion of the population that desires to own a home.

In fact, I have a long term renter (about 3 years) that informed me earlier this month he had purchased a home and would be moving out.  Of course, I am not excited about losing a tenant and having to rent the place again.  But I am happy for him that he can finally afford to get his own place.  Besides, we always have someone looking to rent from us and have a few prospects already.  I bet that it can be rented without having to run an advertisement in the local paper.

One of the great things about the internet and Facebook is that my wife is able to keep tabs on lots of friends or acquaintances that might be looking for a place to stay.  We are often contacted about openings that we might have.  Unfortunately, we are not in a position to purchase ourselves and take advantage of the low interest rates.

Instead, we are working at paying off debt and are hoping that while the housing market is bottoming out, it takes several years to really pick up steam so we can buy low and eventually sell high.

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14 comments - What do you think?  Posted by Cash Flow Mantra - March 21, 2012 at 11:01 pm

Categories: Investing   Tags: , , , , , ,

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