10 Reasons To Buy a Home (amended by Grant)

THIS ARTICLE REPRINTED WITHOUT PERMISSION AND WITH NO GUILT FROM WALL STREET JOURNAL.  MY COMMENTS italicized in blue and in parentheses.

ROI SEPTEMBER 16, 2010, 4:33 P.M. ET

By BRETT ARENDS

10 Reasons To Buy a Home

Enough with the doom and gloom about homeownership. Brett Arends explains why owning a home is a good thing.

Enough with the doom and gloom about homeownership.  Sure, maybe there’s more pain to come in the housing market. But when Time magazine starts running covers that declare “Owning a home may no longer make economic sense,” it’s time to say:  Enough is enough. This is what “capitulation” looks like. Everyone has given up.  After all, at the peak of the bubble five years ago, Time had a different take. “Home Sweet Home,” declared its cover then, as it celebrated the boom and asked: “Will your house make you rich?”  But it’s not enough just to be contrarian. So here are 10 reasons why it’s good to buy a home.

1. You can get a good deal. (I prefer “Good buy.”  Homes are not cars.) Especially if you play hardball. This is a buyer’s market. Most of the other buyers have now vanished, as the tax credits on purchases have just expired. We’re four to five years into the biggest housing bust in modern history. And prices have come down a long way–about 30% from their peak, according to Standard & Poor’s Case-Shiller Index, which tracks home prices in 20 big cities. Yes, it’s mixed. New York is only down 20%. Arizona has halved. Will prices fall further? Sure, they could. You’ll never catch the bottom. It doesn’t really matter so much in the long haul. Where is fair value? Fund manager Jeremy Grantham at GMO, who predicted the bust with remarkable accuracy, said two years ago that home prices needed to fall another 17% to reach fair value in relation to household incomes. Case-Shiller since then: Down 18%.

2. Mortgages are cheap. (Better said, “Rates are low.”  Cheap is a relative term depending upon your income bracket and price point.) You can get a 30-year loan for around 4.3%. What’s not to like? These are the lowest rates on record. As recently as two years ago they were about 6.3%. That drop slashes your monthly repayment by a fifth. If inflation picks up, you won’t see these mortgage rates again in your lifetime. And if we get deflation, and rates fall further, you can refi.

3. You’ll save on taxes. (This is true, but a silly reason to buy.  I believe saving on taxes is the worst reason to buy a home and should be low on your list.  Why not just make more money?) You can deduct the mortgage interest from your income taxes. You can deduct your real estate taxes. And you’ll get a tax break on capital gains–if any–when you sell. Sure, you’ll need to do your math. You’ll only get the income tax break if you itemize your deductions, and many people may be better off taking the standard deduction instead. The breaks are more valuable the more you earn, and the bigger your mortgage. But many people will find that these tax breaks mean owning costs them less, often a lot less, than renting.

4. It’ll be yours. (NOW we’re on the same page.  Controlling your environment and financial future cannot be overrated.) You can have the kitchen and bathrooms you want. You can move the walls, build an extension–zoning permitted–or paint everything bright orange. Few landlords are so indulgent; for renters, these types of changes are often impossible. You’ll feel better about your own place if you own it than if you rent. Many years ago, when I was working for a political campaign in England, I toured a working-class northern town.  Mrs. Thatcher had just begun selling off public housing to the tenants. “You can tell the ones that have been bought,” said my local guide. “They’ve painted the front door. It’s the first thing people do when they buy.” It was a small sign that said something big.

5. You’ll get a better home. (Rentals in Newport Beach are expensive and often require many sacrifices on behalf of the tenant.  Owning means the opportunity for improvement.) In many parts of the country it can be really hard to find a good rental. All the best places are sold as condos.  Money talks. Once again, this is a case by case issue: In Miami right now there are so many vacant luxury condos that owners will rent them out for a fraction of the cost of owning. But few places are so favored. Generally speaking, if you want the best home in the best neighborhood, you’re better off buying.

6. It offers some inflation protection. (Careful with this one.  This most recent real estate mess was created because of a frenzy of buyers who felt they’d miss out on appreciation.  You should buy when the time, place, and finances are right for you.  Take it slow and make a smart decision.) No, it’s not perfect. But studies by Professor Karl “Chip” Case (of Case-Shiller), and others, suggest that over the long-term housing has tended to beat inflation by a couple of percentage points a year.  That’s valuable inflation insurance, especially if you’re young and raising a family and thinking about the next 30 or 40 years. In the recent past, inflation-protected government bonds, or TIPS, offered an easier form of inflation insurance. But yields there have plummeted of late. That also makes homeownership look a little better by contrast.

7. It’s risk capital. (I believe in the value of coastal Orange County real estate for the long term, plus it’s more tangible than owning a stock over which you have no control or insider information, so we’re in total agreement here.) No, your home isn’t the stock market and you shouldn’t view it as the way to get rich. But if the economy does surprise us all and start booming, sooner or later real estate prices will head up again, too. One lesson from the last few years is that stocks are incredibly hard for most normal people to own in large quantities–for practical as well as psychological reasons. Equity in a home is another way of linking part of your portfolio to the long-term growth of the economy–if it happens–and still managing to sleep at night.

8. It’s forced savings. (YES!  I have a partial whole/term life insurance policy and feel the same way about it.  At least I’m gaining equity along the way.  Discipline is a good thing.) If you can rent an apartment for $2,000 month instead of buying one for $2,400 a month, renting may make sense.  But will you save that $400 for your future? A lot of people won’t. Most, I dare say. Once again, you have to do your math, but the part of your mortgage payment that goes to principal repayment isn’t a cost. You’re just paying yourself by building equity. As a forced monthly saving, it’s a good discipline.

9. There is a lot to choose from. (Right now supply is your friend.  When we reach a stable equilibrium, you’ll have fewer choices, which means more competition and less negotiating power.) There is a glut of homes in most of the country. The National Association of Realtors puts the current inventory at around 4 million homes. That’s below last year’s peak, but well above typical levels, and enough for about a year’s worth of sales. More keeping coming onto the market, too, as the banks slowly unload their inventory of unsold properties. That means great choice, as well as great prices.

10. Sooner or later, the market will clear. (Like I just commented, things will even out.  Now is the time to be a buyer if you have the means and it fits with your life plans.) Demand and supply will meet. The population is forecast to grow by more than 100 million people over the next 40 years. That means maybe 40 million new households looking for homes. Meanwhile, this housing glut will work itself out. Many of the homes will be bought. But many more will simply be destroyed–either deliberately, or by inaction. This is already happening. Even two years ago, when I toured the housing slump in western Florida, I saw bankrupt condo developments that were fast becoming derelict. And, finally, a lot of the “glut” simply won’t matter: It’s concentrated in a few areas, like Florida and Nevada.  Unless you live there, the glut won’t have any long-term impact on housing supply in your town.

Rad Pad–Dover Shores Property Offers You A Galaxy of Ammenities


Four bedroom, four bath, 4,000+ square feet homes in Newport Beach are practically ubiquitous in the higher end.  So why is 1368 Galaxy any different?  I give this property the “Rad Pad” title for the following reasons:

The lot:  At approximately 11,500 feet, the lot allows for a large single level home on the front row of Dover Shores bluff, just down from Galaxy Park.  Many other lots in the neighborhood are as large or larger, but it’s rare that one in this location comes on the market.  It faces the Back Bay with views of Fashion Island, Newport Harbor, and Catalina Island.

The yard:  From the curb one has no idea what lies beyond the entry gate.  A large central courtyard houses a pool and Jacuzzi with plenty of sun and deck space.  Off to the side of the garage is a 1/2 court basketball hoop.  On the view side is a deeper than normal yard with terrific landscape & hardscape with lawn areas and outdoor lounge & dining area, fireplace, and BBQ.  All this and the view too.

The design:  Local designer Michael McCullough crafted an open floorplan with walls of glass that open to the yard.  Large rooms with great entertaining space, plus a more intimate and masculine bar/billiards room make for a fun hangout without feeling stuffy.

Beach & Bay access:  Living on Galaxy allows one access to the Dover Shores canal beaches.  The private beaches have picnic and BBQ facilities, tot lots, sand volleyball courts, and of course the beach from which to launch your kayak, SUP, or craft of choice.

*Note:  This listing courtesy of Tim Carr Group.

Neighborhood Spotlight—Seaview in Newport Beach

Catalina & Fashion Island views from 2009 Yacht Vigilant

Description: Seaview is arguably the most affordable Newport Beach address for single-family ocean view homes.  Neighboring view communities such as Harbor View Hills South and Spyglass typically command higher prices because of their larger average square footages, lot size, and proximity to the beach.  As you move up the hill to Newport Coast, views become more distant and homeowner’s associations combined with Mello Roos taxes add to the cost of living.  Seaview’s dues are a reasonable $300/month, which pay for a 24-hour guard gate, slope and common area gardening & maintenance, plus the pool/spa and tennis courts.  In 2010 the pool and spa was extensively renovated.  The neighborhood association offers great value.

Seaview homes were built in 1977.  There are approximately 150 homes within its gates.  Five floorplans are available ranging in size from approximately 1,800-2,700+ square feet.  Homes are either 2 bedrooms with a den, or 3 and 4 bedrooms, typically.  Many of the original homes have been expanded and remodeled extensively—a safe investment given the prime location and views.  The development consists of many single-loaded cul-de-sac streets terraced down a hillside.  The parcels are zero lot line, meaning on one side of the home the outer wall acts as the property line.  There are some exceptions.  Even with this feature, homes share no common walls that back to living or sleeping quarters and enjoy significant privacy.  Many homes feature interior courtyards, and all have backyard/patio areas on the view side.  It should be noted that on the lower streets the views are considerably less impressive, and sales prices reflect that. Continue reading “Neighborhood Spotlight—Seaview in Newport Beach”

Anatomy of a Sale: 1521 Mariners Beats the Averages

1521 Mariners Drive in Dover Shores Area

The recent sale of 1521 Mariners Drive exceeded all expectations by beating out some of the most important statistical averages Realtors follow.  Below are the numbers.  We’ll give “The Why” afterwards.

Newport Beach Area 7
Average 1521 Mariners
Days on Market 108 25
Sales Price Per Square Foot $469 $540
Sales Price to List Price Ratio 94.14 96.75

What made the sale?

A number of factors went into this successful sale.  Most important were the following:

The Seller took excellent care of the home, did a tasteful remodel, and always had the property ready to show.  When it hit the market, it made a great first impression.  Marketing materials were ready for distribution of Day 1, NOT a week or two down the road, as is often the case.

The property was priced right to begin with considering the available competition, but more importantly considering the recent sales.  If you get a good price, it had better appraise, so a Seller is smart to be realistic.

The marketing of the property featured excellent photography, promoted the many improvements made by the Seller, and trumpeted the value of the neighborhood and surrounding amenities, schools, etc.

A simple rider on the listing sign drew attention to the 5 bedrooms, which caught the eye of many passers-by.  Buyers love the option to have a guest room, home office, workout room—whatever—without having to buy a home with a lot of additional square footage that drives the price out of range.

The Buyer worked with a lender who could perform in a timely manner.  The Buyer’s qualifications were verified prior to opening escrow.  In today’s difficult lending environment, strong financials and a good loan broker are a requirement for a smooth sale.

Visit www.BixbyResidential.com to view more images of this listing.