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Why you shouldn't buy a house in Vegas

foreclosuredoor.JPG

Responding to David Leonhardt's argument that now is a pretty good time to buy a home, Ryan Avent offers an interesting counter. He notes that falling home prices are, in many cases, correlated with high unemployment. After all, if the job prospects were good and incomes were growing, home prices would probably be rising. That makes a decline in home prices doubly damaging: People can't find a job where they are, but they can't leave because it's an awful time to sell a home.Take Las Vegas:

As of February, Las Vegas' unemployment rate was 13.9%. Should we be encouraging people to chain themselves to labour markets like this for at least five to seven years? One of the great virtues of the American labour market is its flexibility, and especially its geographic flexibility. In good times, homeownership doesn't reduce this flexibility by all that much, but good times aren't when you need a labour market that can rapidly adjust to uneven economic conditions.

The wisdom of home ownership has a lot to do with forces beyond your mortgage and paycheck. The local economy. Interest rates. The unemployment trend in your area over the next decade. Owning a home shouldn't be sold as the American dream. It should be sold as a business calculation, and one that requires some serious thinking about probabilities.

Photo credit: Jacob Kepler/Bloomberg.

By Ezra Klein  |  April 21, 2010; 2:34 PM ET
Categories:  Housing Crisis  
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Comments

TPM is reporting that Shelby says there's a FinReg deal that will bring 10-20 Republicans on board.

Honestly, I think a lot of progressives are skeptical that a compromise bill is an effective bill, so I'd love to hear some analysis from Ezra as soon as he ferrets out the details.

What are we losing in exchange for the Republican votes?

Posted by: CarlosXL | April 21, 2010 3:03 PM | Report abuse

I agree with your analysis so far as it goes. But what is it about the American character that makes us believe that the richest 60% ought to be able to have housing provided virtually for free?

After all -- we believe (believed until recently, that is) that the value of our house ought to at least keep pace with inflation, meaning that every dollar paid toward equity is a dollar in savings. Moreover, public policy subsidizes interest payments.

As a (lucky) individual who bought his house a decade ago, I must admit that I personally like this process. But it's odd to have public policy designed to subsidize housing for the rich.

Posted by: MOmark | April 21, 2010 3:12 PM | Report abuse

What are we losing in exchange for the Republican votes? The regulation part! That one was easy.

Posted by: obrier2 | April 21, 2010 3:17 PM | Report abuse

Of course, people should look at a home as an investment and apply the same principles to any other investment. A home is not an entitlement....it is earned by hard work! It is a shame that so many have been drowned by the financial crisis; but, many of those people should not have been given the mortgage to purchase a home in the first place. Credit should be viewed responsibily. We will recover..but it will take time. As for Vegas, roll the dice if you must!

visit: http://eclecticramblings.wordpress.com

Posted by: my4653 | April 21, 2010 3:18 PM | Report abuse

Wasn't Vegas the hardest hit area, or one of, in the country? It kind of makes sense that Vegas would be hyper sensitive to the national economy; their main industry is tourism. If people can't afford to travel, Vegas loses.

"Owning a home shouldn't be sold as the American dream. It should be sold as a business calculation, and one that requires some serious thinking about probabilities."

Amen Ezra! I couldn't agree more. Always run the numbers! Always.

Posted by: nisleib | April 21, 2010 3:19 PM | Report abuse

Ask the right questions. If you ask yourself, what if the economy tanks and I can't sell this house to save my life, what then? If you don't care, then it's always a good time to buy (depending on what you can afford).

My wife wants to move (but she always starts making up reasons we have to move, no matter where we've lived). But the fact is, I could be in this house in ten years and be perfectly happy with that.

On the other hand, people who move into a house and plan to flip-and-sell in 2.5 years so they can move into the next bigger house . . . I really don't think those people should be buying house. Because if the market tanks and they are under water, then they are stuck somewhere they really don't want to be and are financially incapable of moving. A problem they wouldn't have had if they had rented.

Yes, if the market had kept rising, they would have gotten more of the cash spent on the mortgage back . . . but now they are unlikely to get any equity back, may in fact lose some, and still lack flexibility in regard to moving.

Owning a home should be sold as . . . owning a home. That is, owning something big and expensive you plan on living in for a long time. Not as a stepping stone on to the next more expensive home, not as a residence+investment property, but as a home. Something you would want to have, even if it turns out you cannot turn around and sell it.

Posted by: Kevin_Willis | April 21, 2010 3:32 PM | Report abuse

Ezra,

I agree as well. Not only should home ownership not be seen as an end-goal but renting should not have the stigma that it does.

If someone tries to consider it as an investment property and they lose out on that bet they should darn well make sure that they can afford to lose that bet.

If you don't understand the mortgage paperwork then check out rental papers. They're much more easily understood.

Posted by: visionbrkr | April 21, 2010 4:52 PM | Report abuse

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