Category: Housing

How Not to Invest in Real Estate

It has been nearly two weeks since I allowed myself the pleasure of writing about SmartMoney. That is certainly a streak to be proud of, but it cannot goTwo-story_single-family_home on forever. I am only human.

The problem is that there are just so many things at SmartMoney that I would enjoy discussing. How to pick only one?

There is Taming the Cost of Traffic Tickets, currently the most popular post on the site. It lists five things you can do to reduce your expenditures on traffic tickets, none of which is to avoid getting traffic tickets.

And yesterday brought Recession’s Surprise Impact on Credit Scores. Apparently, the average FICO score fell during the recession, bottomed out in 2009, and now, three years into the recovery, is back to where it was in 2007. Which is a surprise. Also, the article had the insightful warning “increasing a FICO score could be harder than lowering it.” Good to know.

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Renting vs. Buying

It is real estate day again. The S&P Case-Shiller for April came in at +1.3% from the previous month and –1.9% from a year previously. Since the great swoon in house prices ended three years ago, house prices have given Two-story_single-family_home up another -2.5%. I had predicted sideways motion from that bottom, and I consider –0.84% annual decline to be essentially sideways. So good for me.

I have also previously declared house prices to have become boring. And boring is good.

Keeping with the theme of the day, SmartMoney just ran an item on buying versus renting houses. It was based, loosely I am assuming, on a Deutsche Bank report from March that said that although as a nationwide average owning is a better deal, in some places including California and the Northeast, renting is cheaper.

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The Mortgage Interest Deduction Does Not Subsidize Lenders

There are days when I think I could rename this blog Stupid Things In SmartMoney and concentrate my efforts solely on that ironically Victorian House named publication. Today’s inspirationally bad offering is Mortgage Deduction Pads Lender Profits, in which we learn that “A tax perk aimed at homeowners ends up raising mortgage rates, research shows.”

Apparently, the mortgage interest deduction has the unintended consequence of driving up interest rates, harming those poor American homeowners it was meant to help. How does this happen? Well, here is where the story gets a little fuzzy.

Standard economics theory holds that consumer subsidies raise demand for goods, thereby shifting prices higher. With mortgages, the "price" is the interest rate.

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You Should Not Ignore Housing Data

The ironically named SmartMoney had a blog post yesterday raising the issue Should You Ignore Housing Data? That depends. Houses for Sale Signs

You should keep tabs on the health of the housing market if one of the following is true:

a) You are a person involved in the real estate business, including brokers, bankers, developers, and the construction trades.

b) You own, or hope to own, a house.

c) You rent real estate.

d) You have a financial interest in the health of the US economy, for example if you work in the US or any of its major trading partners.

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Houses Have Never Been Cheaper

VA_house Ever since the Great Debacle of 2007-08, we have all had house prices on our minds. Other topics may be grabbing headlines, but there has always been a recurring interest in how the old US residential market is doing. And there are good reasons for that. Not only is it a massive asset class, representing a sizeable portion of our national wealth, but for many families the house is the single biggest asset, often exceeding the value of the household’s net worth. And housing is, after all, where this whole nasty economic mess started.

Lately the house theme has been about whether now is the time to jump in and buy. Two days ago Time decided to share Why This May Be the Ideal Time to Buy Real Estate. That echoes the sentiments at such places as MSNMoney and The Simple Dollar. And even celebrity rich guys as diverse as Warren Buffet and Donald Trump are in on this one.

Skeptical cynic that I am, my first instincts are always that popular trends are probably wrong, and that goes double if The Donald is involved. But I long ago learned to discount my instincts when it comes to big money issues.

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