Yes.
Well, no.
Well, maybe.
Well certainly not like what you’re talking about. That’s right. If you asked that question you are thinking about 2006 and we are not in that kind of bubble right now. Great! Now let’s all head out to yoga class and find our namaste.
Not so quick there Bucko!
You can go back to the beginning of my musings and you will find me saying “Business is cyclical”. Over and over again.
What does that mean? It means, and if you paid attention in your economics class you can skip over this part, businesses expand and contract in the natural course of their life. How they react in times of contraction determines the length of that life. Businesses that did not save for a rainy day and/or over-leveraged may find their life shortened by those decisions. Real Estate is a sector in the economy. It is cyclical. It expands (goes up) and contracts (goes down).
At the end of the day, unless you’re going off the grid, you’re going to need to live indoors. When we are talking about where to live, that matters right now. Right now regardless of what the market is doing. If the market is super high and you’re not planning on going anywhere and you can afford the payment, ride it out. Why?
Real estate is the only asset that you can purchase that will never depreciate to zero. In the US at least. I would caution about other countries and their practices regarding foreign nationals, for instance, American cannot own real estate in Mexico under many circumstances. But that’s another article for another day.
Let’s take a look at the cost of waiting.
At 4.5% a borrower can purchase a $600,000 home with a payment for around $3000. At 5.5% that same borrower can only afford a $540,000 home. Thats a loss of 10% of their purchasing power.
Can you afford to wait?
Now let’s add the mortgage interest deduction into your tax picture, can you afford to wait?
Alright, fair enough. Now consider the capital gains exemption of $250,000 or $500,000 for a couple. Now can you afford to wait?
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