Very interesting times in the world of finance, with the very real possibility that we may be looking at a federal funds rate of 0.5%, with a futher cut to 0% in the not-too-distant future. And that’s really just window dressing, as the effective rate is currently pretty close to 0% as it is.
That’d normally be a source of joy for real estate investors and home owners in general, but if there is any joy it’s very muted. Aside from the fact that most long term mortgage rates haven’t correspondingly dropped as the Fed has ratcheted down the Fed fund rate, there’s the more obvious killjoy of the simple fact the housing market still hasn’t bottomed, foreclosures are still rising, and it’s harder than ever for many people to get a loan of any sort to buy a house or car. Potentially shaving $50-$100 off your monthly mortgage is nice, don’t get me wrong, but that’s a drop in the bucket given the larger issues the US is facing right now.
The interesting part, though, and what ultimately makes me think now is a good time to buy real estate (selectively, at least) is that for most people there’s still a pretty strong inherent tug towards owning a home. Owning. Not renting, not paying someone else to have a roof over your head. Owning a home that’s an obvious sign of success, of making it, and not throwing away money each and every month on rent.
I know, I know, you can trot out various arguments about the whole renting/owning debate and which is really more costly, but I’m getting more at the basic tug of wanting to be a homeowner. And while I’ve seen a few stories making the claim that tug no longer exists, as more and more people are scared from buying a home because property values may continue to plunge, I just don’t buy it, to be honest. A few years of doom and gloom doesn’t unwind decades of the praises of home ownership being sung, nor does it somehow erase all of the benefits of owning a home, both financial and psychological.
Renting House #1 after the last tenant moved out was pretty eye-opening, as I ended up showing it to six people before we found a tenant. Every single one of them asked about the possibility of doing a lease-to-own/lease purchase option, and every single one of them brought it up themselves, without me even mentioning it. And while it has it’s charm, House #1 is by no means a stunner of a property, as it’s an older 3-1 with a slightly funky layout, asbestos shingle siding, and a pier and beam foundation that needs leveling.
I just can’t help but think that a lot of potential buyers are falling through the cracks right now, given the current freezing of the credit markets, and that even a few years of a serious recession/depression won’t necessarily eradicate their desire to be homeowners.
The current tenant in House #1 is a good example of that, as he’s in his late 20s, married, and has three young kids. He works a construction job Monday-Friday in town, then drives to Houston on the weekends to pick up more work. He pays the rent in cash and has never had a checking/savings account or a credit card.
He’s very interested in buying the house, but this is a guy who’ll never get a loan from a bank these days, as a good bit of his income is from cash jobs that I’m sure never gets reported. Whether or not he wants to own a home and whether or not he can afford the monthly payment gets completely lost in the shuffle.
But I just can’t see that continuing to be the case for forever, as something has to give at some point. Either traditional lenders will stop over-correcting and loosen up their lending standards again or non-traditional lenders will step up to the plate. It may take a few years for that to happen, but it’s bound to happen, as anytime there’s an opportunity to make money, someone will step in and make money.
Until then, it’s hard to see the local rental market softening (unless we really do head into a full-blown depression) which seems an argument to continue to pick up rental properties, despite people looking at me like I’m crazy and the liklihood that prices overall will continue to dip over the next year. Especially if the majority of the tenants you put in those homes are would-be homeowners, who could easily afford the monthly mortgage payments if/when that option was made available to them.
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