If there is one marketing campaign that you will never see from anyone in the residential real estate industry it is: “Now is NOT the time to buy.”
The old saw that “now is the time to buy” is the jumping off point for the monthly conversation between Lane Hornung, President, CEO and Co-founder of 8z Real Estate and COhomefinder.com and John Rebchook of InsideRealEstateNews.com.
John: Lane, Do you think consumers are skeptical of brokers saying “now is a good time to buy?”
Lane: I think people are skeptical. They have grown tired of brokers saying it is always a good time to buy. It may be a good time to buy, but from a marketing standpoint, it is kind of silly to make that universal statement.
John: Given that buying a home is often the single, biggest financial decision and investment many people will make, where they are in terms of income, work-history and where they are in their lives might be more important than easily measures metrics, such as interest rates, prices and the existing supply of homes.
Lane: I think the personal situation trumps the market in almost all cases. If you don’t have a reason to buy, maybe it is not a great time to buy.
John: Not that those metrics aren’t important.
Lane: Absolutely. They are very important. On the other hand, a person might buy in what are considered less-than-optimal market conditions. You can’t make the assumption that the only motivation for purchasing a home is for financial reasons. That is an aspect of the purchase, but it is just one piece of the puzzle.
John: Assuming a person is financially qualified to sign on the dotted line, what is the single most important thing they should consider before buying?
Lane: A key component is the holding period. If someone’s holding period is seven or 10 or 15 years, they might go through a couple of different real estate cycles. Certainly, if you own a home for 15 year or more, you need not to be excessively concerned of where you are in the cycle today. Who knows? We may look back and find that historically, what we have just lived through was not that different from a typical five-to-seven year cycle, with a more pronounced down period.
John: Should there be a minimum planned holding period?
Lane: I think if you plan to live there for less than five years, you might really want to think about whether you should be buying. Or, come up with an alternative plan. You might want to bake into your equation the possibility of keeping the house as a rental property, if you expect you are going to only be in the house three or four years. You then become what I call a “collector.” That can be a really good plan. We are seeing that quite a bit.
John: Other alternatives for a planned short-term holding period?
Lane: You might consider improving the home to add-value to it. In that respect, it might be kind of an extended flip. The idea might be to fix it up in a way to make it more attractive to live there, and after the capital-gains clock clicks (after two years), sell it without having to pay any taxes. Again, that is a personal decision. Some people really like living in a home while they are fixing it up, while others would have zero-interest in doing it.
John: Of course, even though I steered you into this conversation of why it the time may not be right to always buy a home, the argument that now is truly a great time to buy is pretty compelling. After all, interest rates remain at or near historic low, the employment picture is getting better and despite the shortage of houses on the market and more frequent multiple-bids for homes, prices have yet to go through the roof. In many cases, home price are still lower than they were six years ago. What do you think, Lane? Lane: Let me flip that around. I would tell you that I feel fairly confident in saying that now is a good time to sell. People may not realize that. Because of our acute shortage and strong demand, in some neighborhoods 60 percent to 80 percent of the homes for sale are under contract. Increasingly, our brokers are calling people who were unable to sell their home before and whose listings were withdrawn or whose listings have expired.
Maybe that should be the topic of next moth’s Q&A.
John: Thanks Lane.
A monthly conversation between Lane Hornung and John Rebchook is a feature of InsideRealEstateNews.com. Hornung is President, CEO and C0-founder of 8z Real Estate, a sponsor of InsideRealEstateNews.com. For more about Lane Hornung and 8z Real Estate, please visit this link.