You've heard it many times: Renting is a sucker bet--you're making your landlord rich instead of yourself. Paying rent is like throwing money away. If there's any way to become a homeowner, you should do it.
Not so fast. Owning real estate isn't the sure-fire investment that it used to be, and it certainly isn't the great deal most people think it is. Unless you're absolutely certain you will live in your new home and not want to (or have to) sell it for quite a few years, you should think long and hard before you buy.
Why shouldn't you buy?
1. The real estate market could crash in the next few years (or sooner).
There are many signs that another real-estate market crash is on the horizon. Zero or low down payment mortgages are again becoming a thing. Real estate prices have risen dramatically while incomes have basically stagnated, which suggests a lot of people may be getting in over their heads. Not only that, financial institutions have once again begun selling mortgages bundled into securities or funds. If you remember your history, that's the practice that turned the last real-estate bubble into a disaster for the entire economy instead of just the real-estate sector.
2. Historically low interest rates are a mixed blessing.
With interest rates below 4 percent, you can certainly get more house for your monthly mortgage payment than ever before. That's great--if you stay in your house for the long term. But consider that at some point interest rates will likely go up. And when they do, home prices are certain to go down, perhaps dramatically. You may find that big house you bought with that great interest rate is worth a lot less than you paid for it, and maybe less than you owe.
You may think that if home prices go down, you can just sit tight for a couple of years until they come up again. If that's your plan, be prepared for a long wait. I have a friend who bought a house in 2007 and might normally want to sell and downsize now that her kids are grown. But she's still waiting for that house to come back up to the price she paid for it.
3. You never really own your home.
Most things you buy belong to you. But if you miss a few mortgage payments or tax payments you can easily have "your" house taken away, as author and hedge fund manager James Altucher points out in a Business Insider interview.
4. You'll have unpredictable expenses.
You may think that if you need to move away from a home you own that's underwater or won't sell, you can simply rent it out and be a landlord for a while. That's what my husband and I are doing with our house back in New York State, after moving to the Pacific Northwest two years ago. Our tenant is a friend of ours who loves the house and is taking great care of it. The rent she pays covers the mortgage, taxes, and insurance, but falls very short of covering the seemingly endless maintenance and repairs the house requires.
Even though we've rented it out, that house is costing us many thousands of dollars every year. A good investment shouldn't be something you have to keep paying and paying for, just to keep the status quo. But that's exactly what a house does.
5. There are better places to invest your money.
The stock market doesn't seem like the greatest bet at the moment, with everything already so high and with a possible crash coming if I'm right about the real estate market. Still, over time stocks outperform most other types of investments, real estate included.
Or, you could do as Warren Buffett advises and invest in yourself. If you spend money on education or training, you'll acquire skills that no one can ever take back. That's a much better use of your money than buying a house that could easily wind up underwater.
What do you think? Is buying a home a good investment or a bad one?