How's The Market? BUY, BUY, BUY! -– Part One

This part one of a two part series on why I think it is a great time to buy in Smithtown.

As a real estate agent, I find it not to be good practice to over-hype a situation in order to make it seem like I'm (gasp) trying to sell something. I take pride in providing the information that will help clients make good real estate decisions. So then, allow me to break down the reasons I believe that today's plunge in the stock markets provides evidence to me that now is a superb time to buy a home and look like a genius perhaps in as soon as a decade.

Many professionals are afraid to say out loud what we know internally. If you buy a house now and make it your home for at least the next 8-10 years, you will most probably look like a financial wizard to everyone else who could not or would not buy a home today. And given the market we just came out of where nearly every agent, mortgage broker, and purchaser thought the sky was the limit, it is understandable that many of the same agents are weary of giving this advice, lest they be wrong again.  

The thing is, if you look at basic fundamental principles of economics, there are many signs that point to real estate as a solid long-term investment for the individual home owner.  

A BAD ECONOMY IS GOOD FOR RATES

This point may seem incredible but there is a simple principle at work here.  As stocks dive south (as they are doing as I write this), cash floods out of the paper representing the corporations and into the bonds representing the strength and good credit of our government. And thankfully, since we avoided default for now, our country remains the most viable alternative to store that investment cash until a time when it feels safe to buy stocks again. But, with all that new money flooding into bonds there is less incentive to keep up interest rates to entice new investors. Interest rates have already been at a historically low level but as of late this afternoon, a 30 year fixed rate mortgage was available for about 4.33%. Imagine some other situation where you can borrow money for as long as 30 years and pay so little for the privilege of doing so. We all want the economy to get better, and it surely will, but a natural byproduct of recovery will be higher interest rates. 

BUY LOW, SELL HIGH

Why is this concept so easy to comprehend and yet so difficult to profit from? The answer lies in the fact that there are too many variables to account for which creates fear. Fear is a good thing. Our instinct includes fear because it keeps us safe from natural threats but it is not very reliable when it comes to making economic decisions. The economic uncertainty creates such fear which has the ability to paralyze markets. If no one else seems to be buying then maybe it makes sense to stay with the pack to be safe. That it is the precise moment it becomes difficult to buy low. In real estate, our local market may continue to see declines in value for as much as another year.  That is to say nothing of an actual recovery. If it is your intention to buy a non-investment house, then in my personal opinion, it may not be wise to expect that the average person will be able to sell it two years from now and earn a profit on the equity. There may be an opportunity to break even but economic forecasts are not leaning positively towards a housing recovery before then.

But for those who can purchase and hold for the long term, the combination of price and interest rates makes it a very safe bet. That is of course assuming you are one of the lucky ones who can get a mortgage. That speaks to the next point of supply and demand.

In Part 2, I will explore the merits of buying now by looking at the basic principle of supply and demand as it relates to the Smithtown market as it exists today.  I will also give a brief opinion on the relationship between gold and real estate.