With mortgage rates at record lows, many Americans are wondering if now is the time to buy a home. My short answer is, yes — but, there’s some criteria you need to meet:
1. You intend to remain in a specific location for the next 7-10 years.
2. You have at least 6-12 months in living expenses saved and liquid (meaning, easily accessible.)
3. You recognize that a home is an investment that should be viewed as another aspect of a diversified portfolio.
In other words, you need to have cash savings ready to cover you in the event of unforeseen circumstances (the pandemic certainly drove that issue home.) Meanwhile, home ownership is an investment like any other. Too often Americans have mistakenly relied entirely on their home for savings. Instead, be prepared to make your home just one of your investments — you should invest in equities, fixed income, and commodities in addition to real estate.
Real estate should be viewed as an instrument in a diversified portfolio that, yes, comes with some advantages since, unlike a stock portfolio, you get to enjoy it.
One caveat: a home comes with many upkeep expenses. The noted Yale economist Robert Schiller (one of the first to spot the housing bust before it happened in 2008) has said many times that a home shouldn’t be even seen as an investment. After all, with expenses (paint, upkeep, lawn mowing, etc) a home is lucky to keep pace with inflation over a twenty year period.
It is important to not commit to anything more than you are comfortable maintaining. Some real estate advisors recommend that people “stretch yourself so you can stay in your home for 20 years and grow into it.” I don’t buy that. We live a different kind of lifestyle today, and we all need to stay flexible. So, make sure you’re well within your budget and that your upkeep expenses are not too high.
Remember, you have to live somewhere. And, if we do get the inflation in two decades time some long term bearish investors have warned of…then, you’re really going to want that hard asset of your home intact in your portfolio. If not, then at least you’ve kept a roof over your head at a manageable price and hopefully had a little fun along the way!