July 8th, 2005

Rodent with Antlers

Why I'm not buying a house soon

I can afford to purchase a larger condo or a house. I live in a relatively small unit, and I could use the extra space. However, I won't be buying anytime soon. Why? Because of the housing bubble. Haven't heard of it? Basically, the price of housing has risen 45% higher than the rate of inflation (I could be misquoting exactly how that statistic works) since 1995. And also much higher than rents have and the income of the people who have purchased these homes. Also, the U.S. is building housing at a rate far above demand, and prices are still rising. All this means that at some point the prices of houses will decline.

All would be fine if people bought their houses without mortgages. But they haven't. So when prices decline, they'll owe more than their house is worth. And if a person loses a job, they won't be able to maintain payments on their mortgage. Even if a personn doesn't lose a job, much of the mortgages issued lately have been interest-only mortages. Usually after 5 years, the person has to start paying on the principle too. Meaning their payments are going to go up. If their income hasn't gone up, they are screwed.

All that will drive prices further down. Kind of like the stock market bubble bursting in 2001.

Wrong time to buy is now. Right time is to wait and take advantage of people who overextended later on.

My mom, my brother, and a lot of other people I talk to, think that prices are just going to level off. I don't think so. I think housing prices are going to drop like the stock market did.