Buy a House?

My Linkedin membership has sent me another link to an article that suggests it is time to buy a house. I bet a lot of my readers are considering it, so I decided to blog about it again. The link was to CNN Money:

Our Real Estate Future? There are several reasons. Home prices are falling. Mortgage interest rates are at historically low levels. And rents are on the rise.

...

The nation's cheapest buyer's market is Detroit, where purchasing is only 3.7 times more expensive than renting.

 Brilliant, move to Detroit. Could there be a reason prices are so cheap there? The article continues:

Housing markets, even within a single metro area, typically have local submarkets. Take New York City, for example. Renting in Manhattan is more affordable than buying. But in suburban Westchester County just miles to the north, buying is the more affordable option.

The article ignores anything but the cash flow of the rent vs. own situation where you live. But it ignores a lot of very important factors. 

If the following is true, it might be a good idea to buy a house. 

You are secure in your income stream.

You do not plan to move in the next 5 years. 

Housing prices will not continue to fall. 

I have been predicting another crisis. How certain are your answer to the above questions when, not if, the crisis hits? Charles Smith reminds us what is going on:

In constant (2005) dollars:

GDP in 2007 (pre-recession): $13.23 trillion
GDP in 2008 (recession starts): $13.31 trillion
GDP in 2009 (recession officially ends in mid-2009): $12.88 trillion
GDP in 2010: 13.04 trillion

GDP in 2011: $13.3 trillion

In constant (2005) dollars, the economy actually shrank in the three year span of 2008-2010 and is back to 2007 levels. That's what we bought with $6.1 trillion in additional debt and Federal spending. 

The economy has basically been stagnant for 5 years. Will we look back at these last 5 years with nostalgia? 

We are due to add $5 trillion to our Federal debt level over the next few years. This is not sustainable. GDP, gross domestic product, is a rather simple formula. Here is how Wikipedia describes it:

GDP = private consumption + gross investment + government spending + (exports − imports), or

Government spending is going to take a dive. I hope these cuts will be from careful planning and not a necessary response to the inability to sell bonds. But when the cuts come, GDP will go down, by definition, as government spending goes down. The cuts will come, and when they do it will not be pretty.

Do you really want a 30 year loan, even at 4%, when the fecal matter hits the circular air circulation device?

While you expect me to be trolling for the answer of no, my answer is I do not know. If you live in a state where you can walk away from your house debt, and you think that inflation is coming that will make the 4% look ridiculously cheap, then maybe buying makes sense. If you are wrong about inflation, then you can walk away from your house and rent. The decision to buy a house or not depends on your location, age, job security, and a lot of other factors. Most of the psychological factors favor home ownership. The numbers and the objective facts of your situation may say something different.