The housing speculators return

By Felix Salmon
November 30, 2009
Daniel Indiviglio is joining their ranks, now that mortgage rates are back at record lows. "If you're in the market for a home as a long-term investment, say at least 10-15 years, it's pretty hard to make an argument against buying now," he says.

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It seems the housing speculators are back, and Daniel Indiviglio is joining their ranks, now that mortgage rates are back at record lows. “If you’re in the market for a home as a long-term investment, say at least 10-15 years, it’s pretty hard to make an argument against buying now,” he says.

It’s hard to know what to make of this. Some people are looking to buy a home — that’s understandable, given that everybody needs shelter. And some people are looking to invest money with a long-term time horizon. And some people even fall into both categories at once. But that’s no reason to desperately try to conflate the two, and to describe yourself as being “in the market for a home as a long-term investment”.

It bears repeating: homes aren’t investments, they’re places to live. If you can buy a nice house for less than you’d otherwise pay in rent, then go ahead and buy — no matter what the market looks like, or where mortgage rates are. On the other hand, if you’re looking for an “investment”, stick to securities. You can sell those much more easily when you need some money, and they won’t drive you into possible bankruptcy and homelessness if they go down rather than up.

In any event, low mortgage rates are if anything a reason not to buy: after all, the best way to make a lot of money in the housing market is generally to buy when rates are high and sell when rates are low. If rates rise from here that will keep a lid on prices, and if they fall then there’s no particular reason to buy now.

Some people have a strong emotional need to buy a house, and those people will always be able to find themselves some kind of good reason why they should Buy Now. But if you’re genuinely on the fence about whether to buy or not, then looking at mortgage rates isn’t going to be nearly as useful as looking at local rental rates, and their possible future course. Right now is one of those rare times when prevailing rents might actually fall rather than rise — in which case the rent vs buy calculator is likely to tip even further into “rent” territory. If it signals a “buy”, and you have the money to purchase a house, that’s great. Just make sure you’re happy with the house qua house, and you’re not kidding yourself that you’re making an “investment”.

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