Lately, everyone’s writing about the housing market.
You: Why?
It’s nearly spring.
You: Nearly? It’s March. Are you a little down?
I live in New Hampshire. It snowed today. For me, nearly spring is actually being optimistic!
You: Oh. Today, our high was –
CAN’T HEAR YOU!
Anyway, I recently compared the housing market opinions of Time Magazine and Bankrate.com. I also saw a great piece on the WSJ online a couple of days ago that presented the challenges and opportunities for potential first-time home buyers.
Wednesday, one of the most preeminent financial journalists in the country, Jonathan Clements of The Wall Street Journal, weighed in on the topic. As usual, Mr. Clements’ advice is both very traditional and very solid. Well caveatted, Clements feels it might be a very good time to increase your real estate exposure. Still, he emphasizes the importance of being realistic going forward with comments like: “. . . if you view the (second home) purchase as a bet on rising home prices, I would hold off for now. “
But personally, I found the following paragraph, in the middle of the article, the most eye-catching of all:
“That said, I wouldn’t think of this move (to a more expensive home) as an investment. Your new home will probably mean not only a bigger mortgage, but also higher ongoing costs, including homeowner’s insurance, property taxes and maintenance expenses. These ongoing costs will offset a large chunk of any future home-price appreciation.”
Did he just say that? In The Wall Street Journal? That, even in an environment where home prices are falling almost daily, you shouldn’t expect the long-term price appreciation of your new home to exceed the housing expenses you’ll incur living there? I’m not saying I disagree, but I can’t believe I just read what I’ve been wondering to myself.
If he’s right, this really is a new world. In the nearly expired environment of quickly rising housing prices, no one cared about the ever increasing expenses related to the incessantly growing home sizes and mortgage payments. Now, the media is saying “Hey, it may be a good idea to buy a house, but it’s not like you’re going to make any money on it. At least not after you factor in all the costs associated with home ownership.”
Think about that. If it’s true now, even after prices have fallen, it was certainly true when home prices peaked a couple of years ago. But no one was warning anybody of anything back then, were they? No, what I remember hearing was “Buy the biggest house you can afford,” and “They’re not making any more land. Prices may slow down but they’re not going to go down.” When it came to carrying costs, property taxes or mortgage rates, people ignored them or told you how you would have a bigger tax write-off!
No one can predict the future with certainty, so I’m not going to go there. But, with reasonable confidence, you can be sure that we have entered a new long-term reality with regard to house appreciation expectations. Has the world of today’s prices adjusted to this new reality? We’ll only know in a few years looking back. The best thing to do, therefore, is follow the old new rules of housing.
“personal finance” 
“financial education”
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