Yale professor Robert Shiller, who helped create the S&P Case-Shiller Home Price Index, cobbled together a look at inflation-adjusted prices for homes since 1890 and says that real prices did not rise more than 1% per year between then and 2005. And Shiller has been quoted as saying prices these days could fall further with all the extra inventory overhang.
And these facts don't take into account the fact that homeownership is fraught with so many hidden costs, such as homeowner's insurance, property taxes, closing costs and maintenance (tabs the landlord would otherwise be picking up for renters).
"Our firm has done extensive research on the hidden costs of home ownership (new and older homes), which often tips the scale in favor of renting," says Dennis Stearns of Stearns Financial in Greensboro, N.C. "The hidden costs plus home selling costs definitely favor renting for those who will be in the home five years or less. For us, the question is whether buying at today's low interest rates is worth it even if the home our client buys drops another 5% to 10%."
Campbell says that even those people who pay $200,000 and see their home price rise to half a million need to look closer. "Add up the repairs, mortgage interest, maintenance, property taxes, insurance and the ultimate costs to sell, and you've likely spent more than you'll ever get when you sell."
Furthermore, she says, the mortgage interest deduction-one of the big selling points for buying-is only worth its value over the standard deduction a buyer would get anyway, she says, and only reduces the taxes by a percentage.
And again, economic freedom comes into play. Campbell says that in many cases the mortgage payment and rent payment will be similar, but the rent payment is easier to change if necessary. If somebody is committed to a $1,500-a-month rent payment, she says, "if you lose your job or all of a sudden your wife who is pregnant finds out you're going to have quadruplets not just one child, that $1,500 a month becomes something that's not doable for you anymore." You have almost complete latitude to make changes if you rent, she says-to move in with family, to move to a place with cheaper rent, to move to a bigger place or even to leave for another city with more job opportunities. "You're not stuck with a home that you have potentially no equity in, or worse negative equity," she says.
Just Post Bubble Griping?
Stearns says that in areas where you can get in front of the growth, both in population and jobs, it might be a mistake to wait for conditions to improve.
And furthermore, real estate is not one of those areas well suited to blanket statements or extreme feelings in either direction. Location and personal circumstances are paramount items in the decision. Just like the decision to get a Roth IRA or set up a trust, it has to be a decision made free of emotion and judgment. According to John LeBlanc, a principal at Modera Wealth Management in Boston, "The unemployment rate, consumer confidence, wages, housing stock, affordability and other factors all have an effect on the stability of house prices. Just because a housing market is in decline in one city or region does not mean that the same applies somewhere else."
Kevin Brosious, the president of Wealth Management Inc. in Allentown, Pa., says that when he looks around his city, he thinks it's a good time to buy. "You have to live somewhere," says Brosious. "You have to compare the housing cost to what it's going to cost you to rent. And I think just to do it in a vacuum, to make a statement like, 'I'm never going to buy a house again,' well, rents can double from this point."