Forget the Double Dip: 3 Good Reasons to Buy a House Anyway

The stream of depressing housing numbers continues to roll in. The closely watched Case Schiller index of housing prices dropped below its April 2009 low, indicating that housing is now officially in a double dip nationwide, and 31% below its peak in the spring of 2006. That's discouraging news for the economy, since homeowners aren't likely to feel like splurging if their biggest asset is crashing and they're under water on their mortgage. And the farther under water you get, the greater the the temptation to walk away from your mortgage, dumping more inventory on an already glutted market. It's hard to find a lot of good news in all this.

Still, it's an ill wind that blows no one any good, and there is one group that stands to benefit from the housing market's travails: Buyers. Only problem: They don't seem to care. A New York Times story this morning suggests that not only are many potential buyers frozen out of the market-stuck in underwater mortgages, unemployed, or unable to qualify for mortgages-but even those who could buy don't want to go into hock to acquire a depreciating asset. The Times quotes one such "renter by choice:"

Susan Lindsey, a San Diego software programmer, was once eagerly waiting for the housing market to crash. She said she would have no guilt about swooping in on some foreclosed owner who had bought a place he could not afford.

With prices now down by a third, however, she is content to stay in her $2,500-a-month rented house. She prefers to invest in gold, which she has been buying since 2003.

You can judge for yourself the wisdom of an investor turning up her nose at an asset that is now 31% cheaper than it was in 2006 so that she can buy one that is 150% more expensive. But it's not hard to imagine her feeling very comfortable making the opposite trade five years ago. Human nature is predictable, if not always optimized for investment success.

If, unlike Susan Lindsey, you are considering buying a house to live in, this may be the time to pull the trigger. For a moment, forget Case Shiller. Forget The New York Times.

Housing hasn't been this affordable in years. The combination of falling home prices and falling interest rates mean that owning a home now takes a far smaller chunk of the median income than in, say, 2008 (13% vs. 18%), according to the National Association of Realtors. As my colleague Carla Fried pointed out last month, owning is cheaper than renting in 80% of major markets these days.

You're buying pretty good inflation protection. While we now know that a home prices don't always go up (ahem) the value of a home, over time, should reflect the cost of the materials needed to build it. (In the long run, counting both boom and bust, home prices have roughly matched inflation.) Of course, if you've put down only 20% of the cost of your home, as most homebuyers do these days, any appreciation in price quintuples the value of your equity. If you're scared of inflation, then, a home may be a pretty good shelter. Even better than gold.

You're prepaying the cost of housing. No one would recommend that you call your home a retirement investment-that didn't work out too well for baby boomers-but York University economist Moshe Milevsky suggests you think about home ownership another way, as pre-paid consumption. Once you've paid off your mortgage over the years, you've essentially lowered your living expenses at a time (late in your career) when your ability to earn a lot of income is flagging. After all, you're going to have to pay something for shelter down the road, and a home with a paid off mortgage is going to be much less expensive than a comparable rental. That's something that you might come to value a lot one day.

Now there is one reason not to buy a home now: because you believe real estate prices are about to explode upward. No one can make that call, and a small decline in prices, depending on how big your mortgage is, can wipe out your equity. Home buying is a risk. Still, if you're ready to make the move, you have to believe prices are closer to the bottom than the top, don't you?

More on MoneyWatch:

Home Price Index at Lowest Point Since 2009 Bust
Buying a Home Beats Renting in Most Markets
Most Americans Still Think Housing is a Better Investment than Stocks

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