Step One

I've been thinking about writing a blog for some time and thought I should finally get on with it...

In this, my first post, I thought I'd pass on some info I pulled together for a couple friends who are thinking about buying a home in Northern California. They were looking for some some constructive info about housing to help them think through what will be a very big decision in their life.

So, here are my recommendations for anyone about to buy a home or wanting to understand the dynamics behind the most recent housing boom and resulting bust:

1. Go to www.trulia.com/rent_vs_buy/ to do an analysis of the rent versus buy equation. You can customize based on specific data points. It’s probably the best one I’ve seen and should help you as you sort out the equation for your own decision. Trulia is also a great site for exploring available homes when and if you decide to go down that path.
   
   
2. Check out these interesting housing blogs to get some real market insight (as opposed to popular press articles and realtor spin, both of which I’ve often found to be misleading):
   
   www.doctorhousingbubble.com/
   www.fieldcheckgroup.com/blog/
   
   
3. Read this excellent presentation that is both factual and intellectually honest for a primer on what has happened with housing and what may still be ahead of us:
   
   www.scribd.com/doc/9306954/T2-Housing-Analysis-Nice-presentation-about-the-current-economic-crisis
   
   
4. Wade through this meaty research article from 2006 written by Robert Shiller, a Yale economist well-known for the creation of the Case-Shiller housing index and a recognized authority on the housing market (note free registration required at Berkeley Press):
   
   www.bepress.com/ev/vol3/iss4/art4/
   
   
5. Look at the below chart of Shiller’s research showing a historical view of 116 years on housing prices (chart covers 1890-2006) adjusting for the effects of inflation from an article in the NY Times. Note that every boom cycle has been followed by a downturn but there had never been a boom like the one we just experienced:
   
   (www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.html)
   
   
6. Skim this amusing press release (propaganda piece) from the National Association of Realtors (NAR) from summer 2008, demonstrating the type of communications that they send out to make people think it’s always a good time to buy. Anybody taking advice to buy last year would likely be in serious trouble now – they conveniently never point out the pernicious adverse effects of leverage:
   
   Over the Long Term, Owning is Better than Renting
   July 2008
   (471 words)
   
   In today’s market, an increasing number of savvy consumers are asking themselves whether they should rent or own a home.
   
   [Full name of your local association of Realtors®] advises that while there are many factors to consider in deciding whether to buy or rent, the most important questions to ask are:
   
   “Can I afford to buy?”
   “Is homeownership a good investment?” and
   “How long do I plan to stay in my home?”
   
   The answer to the first question may well be that you can’t afford NOT to buy, [full name and title of your local spokesperson] said. “None of the money you spend on rent is returned to you, either through savings or as an investment.”
   
   Homeownership, on the other hand, has tax advantages over renting. And homeownership allows you to leverage your money, [last name] said.
   
   When considering the investment value of a home, think about this: Dollar for dollar, the rate of return on an individual’s cash downpayment on a house is substantial. Buyers typically use their own money to cover only a small portion of the purchase price, but the home appreciation they realize is based on the total value of the property.
   
   Homeowners benefit from the power of leverage. Over 10 years, a $10,000 investment in the stock market at a normal 10 percent market rate of return would yield $23,600. The same investment as a down payment on a $200,000 home at a normal appreciation rate of 5 percent would return nearly five times the average stock market return, at $110,300.
   
   [Last name] points out that homeownership is how many American families begin to accumulate wealth. According to data from the Federal Reserve Board, a homeowner’s net worth is 46 times that of a renter’s.
   
   However, if you are planning to move fairly soon, you may want to consider renting, [he/she] said.
   
   “Housing is not a quick-in, quick-out investment. When purchased for the long term, housing is one of the safest investments consumers can make. In addition to the savings accumulated through a buildup of equity and tax advantages, a home provides shelter. No paper investment provides this benefit,” [last name] said.
   
   Of course, homeownership is not just about money. Homeownership provides shelter and security to families, and fosters involvement in community life as well as participation in democratic institutions. Homeownership also provides important social and economic benefits. It is the cornerstone of a healthy community and the basis for positive community involvement, [he/she] added.
   
   Consumers who are considering buying a home should contact a Realtor® in their local market, who can help them begin to build their future through homeownership. To find a Realtor® here in [name of your community], contact the [full name of your local association].
   
   
7. View a couple commercials that will shed some more light on realtor sales tactics (first from 2007, second from 2006):
   
   www.youtube.com/watch?v=AYiX2BuRVhg&NR=1
   www.youtube.com/watch?v=Ubsd-tWYmZw

In general, I've found that people believe what they want to believe about housing. But armed with this info, one should be able to come up with a more informed view than what seems to permeate the press these days...