Friday, October 24, 2008

Buying vs. Renting - With Current Market Data

Very glad we decided to not buy a home. Check out this from the Illinois Realtors:

SPRINGFIELD, Ill. – Illinois home sales in the second quarter improved from the first quarter of 2008 yet were lower compared to the same period a year ago. According to the Illinois Association of REALTORS® (IAR) second quarter report, total home sales (which include single-family homes and condominiums) were 32,414 in the second quarter, down 25.4 percent from a year ago when 43,438 home sales were reported in the second quarter. The second quarter median home sale price was $192,500, down 6.8 percent from $206,500 in 2007.
My strategy is very simple for buying a home. You can't time out the bottom, but you can definitely time out when it has passed. I'm willing to wait until the median home prices have increased by 3% or more over two quarters before I buy.
Below you can see that the you can't guess the future, but you can view the past. Maybe prices will go down a lot more, maybe they'll just creep a bit. The key is that you shouldn't target to time the bottom, you should target to acknowledge the recovery is legitimate.

The only way a home makes a good 'investment' is if its value is growing. Owning is not a better option merely because you can deduct interest from you income tax alone. It's only a good investment because of the leverage that you can get. For instance a 1% down payment and the house increases 10% implies a profit not of 9%, but of 900%!