Is Now a Good Time to Buy?
In many places, real estate is still not a good investment, says Barry Ritholtz, CEO and director of equity research at FusionIQ, which ranks the profitability of investments.
Home prices in the nation’s 20 largest cities need to drop another 15 percent to return to historic norms, he says, or alternatively, prices have to stay flat while gross domestic product and incomes rise. Neither scenario is terribly attractive to investors.
Ritholtz also points out that the Federal Reserve already has said that the cost of borrowing is going to rise. Right now, the cost of borrowing $300,000 at 5 percent is $1,610 a month before taxes and insurance. If rates rise to 6 percent, that’s $188 a month more or $67,680 over 30 years.
Will this increase push down real estate costs still more? Even Ritholtz won’t go there. Instead he advises buyers to consider three factors when making a decision about real estate investment:
- The ratio of median income to median home prices.
- The cost of ownership vs. renting.
- The value of the national housing stock as a percentage of GDP.
Source: The New York Times, Damon Darlin (03/12/2010)
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