Expensive Shacks
I have been thinking about buying a house for the past year and half. The cost of housing in northern New Jersey has soared to ridiculous levels. I have finally decided not to spend unreasonable amount of money to own a home that I would not be happy with. I have done quiet extensive research that led me to hold on to buying a house.
1. Most current buyers (as much as 25%) are investors who are looking to make profit rather than use the houses as primary residences. This has created a higher demand for housing driving prices up.
2. The current mortgage to rent ratio is higher than its historical value (2.7 vs 3.4 ???). This implies that one actually can rent a property for a lot lower amount than he/she would have to pay by purchasing it. Buying based on the speculation that the house would appreciate in value may be risky (look at #3). Even if the value appreciates, the amount one would save by renting a similar property is so high that one can put the difference into an equity market and be able to come out with greater amount of savings (taking tax saving into account as well).
3. Most buyers assume that real-estate values could never go down. This is a fallacy. As witnessed in Japan real estate values could go into decline for many continuous years. Thus, no one knows if there is a real estate bubble around the corner. In Japan's case, real estate values have been in decline since the early 90's.
4. Even if all my assumptions are wrong, I could always move to a less expensive city and buy a descent house for an amount I could easily afford. Atlanta, where the headquarters for the company I work for is situated, would be an example.
You should look at the so-called half a million dollar houses in Bergen county. The house that my parents paid under 200,000 for in a small vibrant city in Illinois is a lot bigger and nicer than most. If I pay half a million, I better be living in heaven ...
