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Even the Naysayers Are Saying To Buy Now!

Business School professors Eli Beracha of East Carolina University and Ken H. Johnson of Florida International University have done extensive research on which makes more sense financially: to rent or own a home. They published, Lessons from Over 30 Years of Buy versus Rent Decisions: Is the American Dream Always Wise? In their paper, the professors do not dispute the social benefits of homeownership:

“Home ownership is touted as the “American Dream”. It is credited with enhancing wealth, increasing civic pride, improving self-esteem, crime prevention, child development, and better educational outcomes, among other benefits. This paper does not dispute any of these claims.”

What the professors were proposing is that homeownership is not a better investment strategy than renting. The first of the two major findings was:

 “After setting the holding period to the average American’s tenure in a residence, renting (not buying) proves to be the superior investment strategy over most of the study period… Individuals, on average, were better off in economic terms to have rented for most of the years in the study period. This first result is strongly dependent upon fiscally disciplined individuals that, without fail, reinvest any residual savings from renting.”

Historically, people do not actually reinvest savings “without fail”.  Check here for the findings of a recent study from The Joint Center for Housing Studies at Harvard. 

The second major finding says it all. According to both professors Beracha and Johnson, NOW IS THE TIME TO BUY!

“(F)undamental drivers now appear to be in place that favor homeownership over renting in the near term future…

The second finding might seem unwise to many given the recent crash in the real estate markets around the country. However, rent-to-price ratios now seem to be in place along with other fundamental drivers that favor ownership over renting.”

They conclude their research paper with this sentence:

“Conditions (historically low mortgage rates and relatively low rent-to-price ratios) now seem in place to favor future purchases.”

Bottom Line

Two researchers set out to prove that homeownership is not a good financial decision. After completing that research, they have determined that now is the time to buy. What more needs to be said?


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31 replies
  1. David Mott
    David Mott says:

    No one will build if current prices are lower than the actual cost to build.

    If appraisers used the cost to build approach to establish value, and not comp to some artificially insane market values based on short sales and foreclosure sales, this crazy real estate market would stabilize.

    Talk to any home insurer and they may tell you that the folks coming in for insurance on their super good deal that they bought are surprised that they have to buy so much insurance. These upset folks must carry enough insurance to pay for the rebuild cost. Just wait until they are assessed for taxes!

    Is the bottom in yet?

    Reply
  2. chris keller
    chris keller says:

    it IS a good time to buy, no doubt, you can definitely get a steal i mean steal of a deal. but it comes down to whether or not you want to wait and try to get a better deal and push you luck, or just take the deal NOW.

    Reply
  3. Jane Foster
    Jane Foster says:

    Yes, it is definitely the time to buy. This makes the 4th recession I have been through in real estate in San Diego as a realtor, and you can always tell when the bottom is near. Even if properties drop a little more and predictions are 3-5% for the rest of 2011, the rates are so low now (they were at 19% when I started real estate) that if you wait until the rates start going up next year, you will loose any gain you made by waiting. Plus you can get anywhere from 4% to 10% and more depending on the price of the property by buying now. Plus we will go back to having an extreme shortage of inventory here with San Diego almost 90% built out with land only in the Oceanside area and the Otay Mesa area by the border. It’s the gorgeous weather! Jane Foster, San Diego Ocean Vu Homes for Sale

    Reply
  4. Ruthmarie Hicks
    Ruthmarie Hicks says:

    There are a lot of spoiled buyers out there thinking that if they continue to wait they can buy anything they want for a song. They are missing the train and will end up kicking themselves if they don’t pull the trigger soon.

    Reply
  5. Tom Rafferty
    Tom Rafferty says:

    In many cases consumers can purchase a home with less cash in hand than it takes to move into a rental. FHA, VA, Rural are all products that require little or no money down vs. first ,last, and security deposit. That coupled with lower rates and less expensive housing make it a no brainer. I agree with the professors!

    Reply
  6. Alex Cortez
    Alex Cortez says:

    Unfortunately, even with compelling evidence/research that proves what many in the real estate industry have been saying (‘buy now, it really is the opportunity of of a lifetime’), there are buyers out there who remain unconvinced and will continue to wait in the sidelines. Whether it’s brilliant in their part (waiting on the bottom) or wishful thinking, we’ll see soon enough.

    Reply
  7. Chad from St. Louis
    Chad from St. Louis says:

    I have a hard time trusting real estate agents because if you look back a year they was saying the same. Majority of agents are truly struggling in every state, that is why they are sounding the horns to buy. The majority simply do not have the ability to purchase.

    Reply
  8. Jill Watts
    Jill Watts says:

    5/17/2011…Here in Clark County, Washington, the biggest, best deals are being snapped up immediately and there are bidding wars. The best priced homes go within 30 days. In February we had 12.1 months of home inventory to choose from, in March we had only 8.3 months of homes for sale to choose from to buy. Now in April we have 7.8. Renters! Wake Up! It’s time to buy!

    Reply
  9. s forbes
    s forbes says:

    … ever the contraian, the numbers just don’t support purchasing right now. Soon, maybe, but right now I would ask each contributor herein, “Have we seen the bottom?” If you say “Yes!”, support this statement, please. The general market I live in decreased nearly

    The Builders Index, for the sixth month in a row was “flat”, indicating nominal growth. In fact, April was indeed “up” month over month, from 540k to 570k, but down from $1.4m new home starts. The stated “shadow” market by the Feds was 3.8m houses, while the unoffical is 8% of the 131.9m houses in total US inventory.

    The challenge , of course, is having quantity of qualified home buyers at the entry point “first time home buyers”; this “bottom” feeds the process. With little demand at the lower level, the entire model simply stagnates, or, in a declining market, implodes. Accordingly, with regard to real unemployment as reported in G6 figures, nearly 18% (G3 figures only are those individuals who are eligible to receive unemployment, NOT those unemployed). 18%! AND, keep into mind, the government also uses an offset to these numbers by inserting the Birth/Death rate within each reporting period. These numbers are roughly 175k to 225k per period as well … so the real numbers are even greater than reported. Last month, McDonald’s hired 62k individuals. Super! One million individuals sought these positions … I will ask those who opined herein, please provide real numbers suggesting we’re in an inflationary modeling to support “this is a good time to buy!”

    http://campaign.r20.constantcontact.com/render?llr=skwwfvn6&v=001MLAw4fjEPpUsqfcOU5WuS0_QOLuduXU4N0BQc1Du0GOYN853-H98TfE9xHLQm9zQ6Dh6Fnnvhs3xm1zGobZldKW7yv5Wc_e4S7DGv5IPdzlXg1In5TXsBrvOqAWLY9sLxad2CCOp0FvdxDnNZV7bgXpU0azVb1TT

    Reply

Trackbacks & Pingbacks

  1. […] Rent Decisions: Is the American Dream Always Wise? We are very familiar with this study as we posted on it back in May of last year. The paper does explain that over the last thirty years the […]

  2. […] Rent Decisions: Is the American Dream Always Wise? We are very familiar with this study as we posted on it back in May of last year. The paper does explain that over the last thirty years the […]

  3. […] Rent Decisions: Is the American Dream Always Wise? We are very familiar with this study as we posted on it back in May of last year. The paper does explain that over the last thirty years the […]

  4. […] Rent Decisions: Is the American Dream Always Wise? We are very familiar with this study as we posted on it back in May of last year. The paper does explain that over the last thirty years the […]

  5. […] Rent Decisions: Is the American Dream Always Wise? We are very familiar with this study as we posted on it back in May of last year. The paper does explain that over the last thirty years the […]

  6. […] Rent Decisions: Is the American Dream Always Wise? We are very familiar with this study as we posted on it back in May of last year. The paper does explain that over the last thirty years the […]

  7. […] Rent Decisions: Is the American Dream Always Wise? We are very familiar with this study as we posted on it back in May of last year. The paper does explain that over the last thirty years the […]

  8. […] Rent Decisions: Is the American Dream Always Wise? We are very familiar with this study as we posted on it back in May of last year. The paper does explain that over the last thirty years the […]

  9. […] Rent Decisions: Is the American Dream Always Wise? We are very familiar with this study as we posted on it back in May of last year. The paper does explain that over the last thirty years the […]

  10. […] Even the naysayers are saying to buy now […]

  11. […] is an article that may get you off of that home buying fence.   http://kcmblog.com/2011/05/17/even-the-naysayers-are-saying-to-buy-now/ var addthis_pub = 'innovationsimple'; var addthis_language = 'en';var addthis_options = 'email, […]

  12. […] Always Wise? In their paper, the professors do not dispute the social benefits of homeownership: Read more Categories: […]

  13. […] Naysayers say BUY NOW May 19th, 2011 the following appeared on “Keeping Current Matters” Even the Naysayers Are Saying To Buy Now!by The KCM Crew on May 17, 2011 · 16 comments […]

  14. […] BIG THANK YOU TO KCM CREW for this article Tags: Homeownership « Previous […]

  15. […] a great article from The KCM Crew and their blog post, entitled “Even the Naysayers are Saying to Buy Now!”  Read what they blogged […]

  16. […] by The KCM Crew on May 17, 2011 · 4 comments […]

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