Karl E. Case, the lesser-known of the “Case-Shiller” pair has an op-ed in the New York Times that basically argues that it’s a great time to buy a house.
Yes, the old American Dream — having a house that appreciates 30% year-on-year — is dead, as Case acknowledges. But that doesn’t mean the maths isn’t compelling.
Basically, Case is still going back to the old lines of reasoning — money’s cheap, and it’s a good investment, and the government benefits homeowners.
On the investment side, he makes the following case:
But for people with a more realistic version of the American dream, buying a house now can make a lot of sense. Think of it as an investment. The return or yield on that investment comes in two forms. First, it provides what is called “net imputed rent from owner-occupied housing.” You live in the house and so it provides you with a real flow of valuable services. This part of the yield is counted as part of national income by the Commerce Department. It is the equivalent of about a 6 per cent return on your investment after maintenance and repair, and it is constant over time in real terms. Consider it this way: when Enron went belly up, shareholders ended up with nothing, but when the housing market drops, homeowners still have a house. And this benefit is tax-free.
The second part of the yield on investment in a house is the capital gain you receive if it appreciates and you sell the house. Gains are excluded from taxation if the property is a primary residence and the gain is less than $250,000 for a single filer or $500,000 for a married couple filing jointly.
And then beyond that, the government is on your side:
Consider a few other bonuses of buying a home today. You can deduct the interest you pay on the mortgage. Interest rates are about as low as they can get. And, don’t forget, home prices are down by 30 per cent on average from the peak. The mortgage-interest deduction and the tax-free income from housing cost the government at least $200 billion a year.
During this recession the government has been doing even more on behalf of the American dream. It offered a tax credit of $8,000 to first-time buyers, and eventually $6,500 to other qualified buyers. Not only did the Federal Reserve continue to keep the short-term interest rates it sets at essentially zero, it purchased $1.4 trillion in mortgage-backed securities so that lenders could keep mortgage rates low.
So basically, for all the old reasons that people said it was a good time to buy a house — capital gains and government support — it’s a good time to buy one now.
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