Friday, November 30, 2007

On Buying a Lifestyle...with a Fixed-Rate Mortgage

Despite all of the back and forth about sub-prime mortgages and the housing bubble, I am feeling just fine. The reason is that when purchasing, I followed some old advice:

Don't expect to flip. In general, I've been told by many people that you shouldn't buy a home unless you plan to hold on to it for 7 years or longer. If the market does well and you decide to sell, fine. But if you want to be sure not to lose money, don't buy something that you only want for a year or two. I've been in my current location for more than 3 years. I like it. And I have no intention of leaving in the short or medium term.

It seems to me, that real estate, like any asset class, has its ups and downs. But as a practical point, I don't look at my home as an asset per se. Rather, I consider it to be a fixed expense that I need to survive, much like food and water. Therefore, as long as the payment is reasonable and it functions to keep me warm and sheltered and comfortable, that is all I need. The real problem has entered when people started looking at homes as truly an asset. I mean, you wouldn't try to "flip" your car right?  To me, its the same thing.

Purchasing a place to live with a fixed mortgage was what allowed me to really make sure that I could buy my lifestyle. Once I got the loan, it had nothing to do with housing markets, appreciation, interest rate cuts etc. Nothing matters anymore. The only way you get the squeeze once you're in a fixed rate mortgage is property taxes and/or insurance rates which can change. But for most people, these don't change much. Rather, their budgets are nice and predictable and I'm grateful to be in that category.

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