BY CHRISTOPHER JORDAN
Since the real estate bubble burst, many Westchester and Fairfield County homeowners continue to wonder if the value of their homes will increase to “what it once was” and beyond.
The state of the global economy and fiscal policy and deficit decisions facing U.S. lawmakers will continue to impact both real estate investors and those in search of a new home. The question is, how does one approach the big decision of whether to buy or sell in the current environment?
Typically, a home represents the largest asset that people own. Unlike the stock market, a daily valuation cannot be obtained. The decision to buy or sell is often reached after considerable thought and research. School districts, the daily commute, amenities and resale value all need to be evaluated when considering the purchase of a home.
Since the boom and bust, have we really reached the bottom? Is this the time to buy? With borrowing rates near historic lows and values far below their peak, those certainly are good questions.
As a financial advisor, not a week of meetings goes by for me without a client asking whether he or she should consider moving. A number of headlines have suggested a rare buying opportunity. While data might be helpful, many individuals make financial decisions emotionally, with fear of losing a job or going bankrupt often preceding a sale. Conversely, there are buyers out there that will lowball sellers until they find a proverbial steal.
For most people, the question of timing is uniquely personal. Yet being aware of the economic issues still remains critical.
The bulging deficit will clearly contribute to slow overall growth here domestically. The recent change in income tax rates will also have an impact as all individuals must stick to a budget and less net income means lower amounts payable to debt service.
Two areas worth paying close attention to when thinking long term about real estate are interest rates and inflation.
Historical data show that home prices tend to rise with interest rates.
So, for homeowners who are locked into low, long-term rates on their current mortgages, moving could turn out to be expensive if interest rates rise.
Lenders have moved from a “free money” pre-recession climate to very stringent guidelines. Pre-bubble, obtaining a mortgage was a given and most thought the value of their homes would continue to rise. In the past few years, many had a tough time qualifying for a loan or were unable obtain one altogether. Worse yet, many stretched their budgets to afford homes and pay larger mortgages than their homes are worth.
One big byproduct of our struggling economy and large deficit is the limited number of new jobs. In order to make a home purchase, a borrower needs to feel confident about the prospect of repaying the loan. Recent estimates reveal 12 million Americans are out of work and nearly 9 million aren”™t able to work the hours they desire. To increase profits, corporations have merged and have laid off employees, and job opportunities remain stubbornly lean.
The result is a lack of confidence that a good-paying job is around the corner. Many are concerned about the future of their current position and have seen countless friends lose a job.
Real estate values suffer when buyers become scarce. The large number of available homes to purchase coupled with fewer buyers and tighter lending has been a “perfect storm” for home values.
Inflation”™s impact on home values is tricky. In higher inflationary periods, the prices of assets rise, whether it”™s bread, milk, rent or home values. If you were certain of inflation approaching, then buying a home would make great financial sense. However, as inflation climbs, theoretically more people would be forced to sell.
Naturally, the decision to rent or buy has been on the forefront. According to the Census Bureau, the home ownership rate dropped from 69 percent in late 2006 to 65.5 percent in late 2012.
While there is still too much uncertainty to predict the real estate market in suburban New York, if your personal plans call for buying or selling, then a home can be a great long-term investment. Locking in at today”™s low rates can protect you from inevitable higher rates and trying to time the market is best left to those with a crystal ball.
Christopher P. Jordan is president and CEO of LEXCO Wealth Management Inc., with offices in Greenwich and Farmington, Conn. and headquarters in Tarrytown. He can be reached at cjordan@lexcowealth.com.
