Time to Buy?
You’re rich. You’re eyeing that million-dollar dream house. Is now a good time to buy it?
"Prices are high in certain areas," notes David Diesslin, a certified financial planner who specializes in real estate at his own firm, Diesslin & Associates, in Fort Worth, Texas. Advising caution, he likens the housing market to the dot-com market. "And there may be some shakeout."
"But it’s a good time to be looking for when lower prices and lower rates will converge," he says.
The next meeting of the Federal Open Market Committee, which sets interest rates, is March 20. Talk now is the Fed will lower rates by at least a quarter-point, maybe even before the scheduled meeting.
Meantime, home sales are still brisk and prices are still firm. And you don’t have to be an expert to understand that lower interest rates are driving home sales. The current release of U.S. indicators, comprised of government and private-sector economic data, reports 975,000 new homes were sold in January, up from 909,000 in December. Existing home sales were off, marginally. But that typically has to do with the time of year. And it was holiday season.
To be sure, agents aren’t seeing discounts.
"We’re seeing it starting to pick up," says Emil Alexander, a real estate broker in Pacific Palisades with Prudential John Aaroe & Associates. "People are watchful, but the market is still strong."
Alexander sells throughout the Westside, where some of the most expensive homes in the country are located. Tom Cruise, Tom Hanks, Steven Spielberg, and megastars from the entertainment industry live in the area, along with wealthy financiers and corporate magnates.
The market in Los Angeles isn’t an aberration. Luxury home sales throughout the country are on the rise.
National luxury homebuilders Toll Brothers and Pulte Corp. are seeing strong demand from buyers.
Pulte said its preliminary new domestic orders in January rose 7 percent from a year ago. And Toll expects 15 percent profit and revenue growth in 2001 based on strong demand and record backlog from last year.
With interest rates declining and the country teetering on a recession, investing in your home may be a safe bet.
"Refinancing is definitely in," says Diesslin.
Typically, real estate and tangible assets are considered recession-proof items. People move toward things like real estate and gold when the capital markets begin to lose ground — and look like they’ll stay that way.
How much you invest in your house is another question altogether. Some financial advisers tell you to pay off the entire mortgage on your house. Others say keeping a mortgage is a good idea. "If you have a long-term asset, long-term debt is okay," says Diesslin. "But it’s a problem if you have no long-term debt and short-term liabilities."
He says a couple recently approached him for financial advice. "They were trying to pay off their mortgage, but they had two leased cars. There’s a difference between intelligent debt and dumb debt."
The basic formula: Keep debt when you can make more money elsewhere on those funds than the cost to borrow.
As well, a home purchase isn’t akin to a real estate investment. There are quality-of-life issues that come into play. Children’s school and job relocation timing all skew investment variables. And then there is pride, especially at the higher end of the marketplace where homes equate to egos.
Carlton Cabot, a real estate agent in Boston, Mass., once showed me a small ivory stone imbedded in the eye of the swirl at the bottom of the banister in his parents’ house in old-moneyed Louisburg Square on Beacon Hill.
"It’s a subtle sign," said Cabot. "It means, to those who know, that your house is paid for."
How you pay off also depends where you live and what type of house you own. In Park City, Utah, you can get a four-bedroom, 4,200-square-foot house on more than an acre of land for $975,000. For almost the same amount in Santa Monica, you can get a two-bedroom, one-bath knockdown on less than one-quarter of an acre.
Location, location, location may be the three things you should know about real estate. But timing should be an asterisk.
And a lot of people think the time is now to buy and own a home. Analysts and observers say wait and see.
Reprinted with permission from Featurewell.com.