Sunday, May 28, 2006

Upsides of the Bubble?

I found this post at Matrix quite interesting-- a quick read would indicate that at the height of the real estate market, a lot of people bought entry-level apartments in New York. Entry level apartments were a higher than usual percentage of the total apartments sold. And at that time, I believe a very large number of apartments were sold. So on the one hand, you could say that things got so expensive that home buyers were forced to buy studios and one-bedrooms because they couldn't afford anything bigger. But on the other hand, maybe more people decided to become first-time homeowners who otherwise might have rented?
At some point in my musings about my own home-buying endeavors, a commenter asked why, since I had a very cheap apartment that I was happy with, was I looking to buy at the height of a bubble instead of sitting tight, since I obviously did believe that prices would not continue to appreciate at an insane pace and might well go down? The commenter suggested that I was being influenced by the hype of a hot market. Maybe that is somewhat true-- in a hot real estate market, you can't escape thinking about home ownership, and you constantly hear people crowing about the money they've made in real estate, whether it's real or just on paper. So maybe all this hype made a lot more people at that entry level homebuyer income range seriously consider buying instead of renting. I think that in NYC, there has always been a tendency to think that renting is okay, that it's just a way of life. I don't know the statistics on this, and hope someone will chime in with a comment, but I think a lot of the buildings here were rentals until the 1970s, when there was a wave of conversions into co-ops. I would guess that the ratio of owners to renters has dramatically increased over the last 30 years, and that many people who used to take renting for granted have more recently started considered owning instead.
I think everyone would agree that home ownership is overall a better financial choice than renting-- yes, you can get in trouble if you overextend yourself, and yes, it can be a bad short-term investment in certain market conditions, but long-term, ownership always wins. So if the hype of a bubble market is what it takes to get people to take the plunge, I guess that is a silver lining to the cloud... assuming they don't all end up in foreclosure!

6 comments:

Anonymous said...

being such a stingy and curmudgonly bella, i doubt foreclosure is ever a remote possibility for you...Unless of course, the economy takes a dive and that it can is not impossible.

Anonymous said...

i don't know...

i do think that for a lot of people, the "forced" savings of having to make a mortgage payment every month is the only way they will ever build any sort of net worth. so in this way, today's media-intoxed buyer may be okay in the long run if they can actually afford their payment. but if by some superhuman madame-x like miracle they could have the self-discipline to save money while making their rent payments, i think they'd be better off renting for the next 3-8 years and then having a real down payment to make on a condo that will then be selling for less.

mOOm said...

This is true - owner occupied housing in the long-term is not the best investment (See Shiller) (but could be part of the mix), but for most people it makes saving easier or even possible. So I think buy a house if you want to modify it to your tastes etc. (not sure it is more secure than renting in the US - at least renting from a large investor).

Anonymous said...

Can't say that I think something that traditional earns just one percent above inflation is all that great of an investment.

Anonymous said...

Maybe I'm naive, but we have to live SOMEWHERE, and if we live long enough, we pay off those mortgages, as I have. So what's the downside?

However, anonymous #2, who suggested saving a few extra years, makes a good point.

--Bitty

Anonymous said...

Oh, and as the years pass and the economy inflates, if we have fixed-interest loans, the payments seem to get smaller compared to the big picture. My p&i was $190.00/month. By contrast, many (most?) of us aren't looking at a fixed rent payment.

Smile as you sign those closing papers, Madame X.

--Bitty, again