(from Lifehacker by Kevin Purdy)
An $8,000 tax credit for first-time home buyers has been extended to cover contracts signed by April 30, 2010. A real estate professor writes that those seemingly free dollars might not save you any actual cash, however.
Joseph Gyourko, chairman of the real estate department at the University of Pennsylvania’s Wharton School, runs the numbers on five myths of home ownership, including the standard “buying is always better than renting” argument that we’ve previously posted about (and considered as a calculator). About the tax credit that’s regularly in the headlines, Gyourko suggests the savings may vanish quickly if you’re buying in an area with a moderately competitive market:
Just because you got an $8,000 tax credit toward the purchase of a home doesn’t mean that you actually saved $8,000. In areas where there is strong demand for housing and the supply of new housing is limited — including the Washington metro region — tax credits may result in the bidding up of home prices. In other words, the program has probably led to higher prices in these areas than we would be seeing without it. This means that some of the benefit of the tax credit is being passed on from homebuyers to home sellers.
Has the new buyer credit made you think twice about buying a home? Do you still consider home ownership a solid, if not exactly profitable, investment? Trade your takes in the comments.
5 myths about homeownership[WashingtonPost.com]
This has been an argument I’ve long maintained and has been backed up by friends in the financial industry. In particular with the market now, it makes absolutely no sense to buy a home. As you read above (following the links as well) you truly are better off renting or investing that money as opposed to buying a home. True enough, you don’t get the peace and quiet necessarily (a huge issue for me). But searching around may yield a rental that provides it.
It makes sense to downsize, lower your expectations of what a home “IS” and build a smaller home that you can actually afford.
Doing most of the construction (heavy lifting, stacking of blocks, driving nails and etc) you earn the so called “sweat equity” and lower your costs.
By downsizing your home (you DO NOT need a 3000 square foot home!), you’ve already lowered the initial cost.
By building with simpler materials and simpler methods you’ve lowered the cost of materials. You don’t really need that 10′ plastered wall with the arched ceiling…
Reading a book or two (or more) can show you the basic skills you need to build your home. Start using the books to learn the basics of household maintenance… Hiring out help is easy enough to do, and cheap enough when you don’t hire the first “Joe” you find.
With even the most basic skills, a good set of plans, and knowledgeable help you can build your own home.
Our current home plan calls for the following work to be hired out:
Slab – Concrete work.
Walls – mason to set initial course, mid-course set true and parge the walls when finished.
Roof – only needs to be hired out if we do standing seam metal roof.
Electrical – final connections only.
Plumbing – final connections only. Includes any propane lines that are run.
As you can see, it’s not a whole lot of work to be hired out. I chose a method of construction I know I can do. Concrete block – every kid in this country can stack blocks. I will only need a Mason 3 times for the entire home. Just that alone has reduced the cost of home construction by roughly 40%.
