I was thing about what to do with my money if what every one dreads is going to happen happens. That is rising prices caused by inflation.
Would not the best thing to do is borrow money to buy a house. Housing prices are down so I should be able to get a nice house for a resonable amount. Interest rates are crazy low and no one is building new houses now.
So in a few years when the effects of inflation cause the house price to rise I sell thus turning that credit money into real greenbacks
Mind you I don’t think that is a way for America as a whole to get out of the recession but might be a good personal choice.
If you can get a mortgage now is a good time to buy a house. Prices are down and are likely to rise in the future. Of course, you wouldn’t want to do an adjustable rate mortgate now.
Although housing prices will probably fall further before price inflation hits them, it might be wise to take a 30 year fixed mortgage with min. down with the intention of living in it. When the dollar really starts losing serious value, your mortgage payment will become relatively cheap.
If looking to flip it in the short to mid term, you’ll likely just break even or worse in terms of purchasing power.
Consider buying a house (owning a house) to be consumption, not investment.
Timing is obviously better now than it was a couple of years ago. But 8 years ago would’ve been the best timing. I’m not at all sure that you’ll see house prices take off soon, even if the likely dollar inflation/devaluation ahead might make your debt, fixed at today’s low interest rates, a profitable “investment” (or rather gamble).
But what about the average house payment vs. the average rent payment? If we get the price inflation I think we are going to get in the next few years that house payment is going to be cheap.
Peter Schiff says he’s still renting, so that’s an indication that house prices haven’t fallen enough… [:D]
The debt might be profitable at today’s interest rates, which are pre-inflationary. That doesn’t mean that house prices will rise, only that the purchasing power of future debt payments will fall, which of course isn’t bad, but difficult to realize into cash in the hand. There are also several political risks. Government might decide to “stimulate” the construction industry (which always has been the pet industry of the politicians) by ordering millions of houses built for tax money, over-supplying the market for many years. Government might introduce price controls on rents, as in so many other places around the world. And houses are easy to tax severly, because they are difficult to hide.
I suggest that you ask a real estate agent what the current gross rent multiplier (GRM) is for the local market in which you are considering buying. The gross rent multipler is calculated by dividing the home price by the rent. If the market rent for a particular home times the gross rent multiplier is greater than the price for buying the home, it probably makes sense to consider buying the home if the alternative is to rent. Otherwise, you should probably rent.
If you are considering buying a home as an investment, you should take a look at the cap rate. The overall cap rate is calculated by subtracting expenses from the rent in and dividing the result by the price. The result is a percentage that can be compared to the percentage return on other investment options. If you expect future appreciation or depreciation in the price of the home, or changes in future income or expenses, the analysis gets a little more complicated.