The Five Biggest Home Buying Myths

“Now Is a Good Time to Buy”

This perennial Realtor rallying cry persists regardless of economic or housing market conditions.  No doubt most Redfin readers take it with a shovelful of salt already.  But like a garden weed, it has to be constantly, vigorously challenged and uprooted – especially now, in a rapidly falling market.  Over the long term, there have been plenty of good years to buy a home and benefit from the very modest, gradual appreciation (historically, on average, barely above the rate of inflation).  But the mindless “Now is a good time to buy” chorus is like a broken clock – it’s right twice a day, by accident.   Now is probably not one of those times.

“Foreclosures Are Always a Good Deal”unicorn.jpg

Foreclosures are a good starting point to look for discounted real estate, and may be a good deal.  But they have to be evaluated independently on their own merits like any other property.  Like conventional listings, they often aren’t priced aggressively when they first come to market and are subject to further price cuts the longer they linger.  The risks in buying a property “as-is,” a common condition of foreclosure sales, may be greater than any price advantage.  For most buyers, the best thing about foreclosures is the downward pressure on prices they put on the rest of the market.

“It’s  Better to Own Than to Rent”

It probably feels better to own than to rent, to most people.  But as legions of skeptical bubble bloggers like to remind us, few homeowners are really more than “loan-owners,” and are only as secure as their next mortgage payment – no different from renters.  Do I need to even point out that there are millions of upside-down buyers since 2005 who now wish they had remained renters?  For the rest of this myth-buster, see “A House is a Good Investment” below.

“You Can’t Time the Market”

This is one assertion that I sharply disagree with most observers on, so I feel obligated to issue a warning to readers:  do your own research and thinking on this one.   For what it’s worth, here is my view:  with regard to major housing cycles, I agree it’s impossible to pinpoint the exact top or bottom of a cycle at the time it is reached.  We can only recognize those points some time after the fact.  But broad real estate cycles take place over a very long timeline, and a buyer or seller can easily come within, say, 10% of the top or bottom of the market.  You don’t have to buy or sell precisely at the top or bottom to profit, you just have to be reasonably close.  Because stubborn sellers make prices so “sticky,” price declines occur relatively slowly, on a scale of years, not months.   So do price increases.  If you bought a house in Los Angeles in 1990, when the housing market began a long downturn, you would have had to wait a decade for your home’s value to return to what you paid.  That’s a glacially slow-moving target.

“A House is a Good Investment”

Even in ”normal” times, few economists would argue this proposition, which is really just the flip side of the “It’s  Better to Own than to Rent” argument.   The economist Robert Shiller (of the famous Case-Shiller home price index) has concluded that between 1890 and 2004 real returns on houses would have been zero except for two brief periods, one right after World War II and the other being the first years of this decade – the bubble years!  Even including those periods (the most recent of which is now sharply correcting), real returns on housing average just .4% a year.

The Wall Street Journal states flatly that “economic studies have demonstrated over and over that houses (1) cost more than most people make when they sell and (2) rarely match the long-term returns of stocks or other investments.”

Unless you dare trying to time the market (and I’m in the minority in asserting that you can), consider your house a home, not an investment.