Thursday, May 31, 2012

Q. I live in the District and have been renting for the past 10 years. I have never owned a home, even though I easily could afford a mortgage and down payment with my salary and savings.

Sitting on the sidelines, I have watched interest rates fall steadily and property values rise, which makes me think I should have bought years ago instead of throwing money away on rent.

I read one of your columns a few months ago that said the timing was right to purchase a home. Do you still recommend purchasing a home, or should I continue to wait?

A. If I recall the column you mean, I think I pointed out that property values actually have sunk in almost all areas in the country. Meanwhile, interest rates are at 50-year lows. The combination of lower home prices and dirt-cheap financing would suggest that home affordability is good. Indeed, I suggested that the timing to purchase a home might be right.

However, I suggested that purchasing a home should be, first and foremost, a means of buying shelter, not a short-term speculative investment. One of the main reasons that we, as a country, are in the mess we’re in is that people lost sight of that basic concept. As long as someone could prove he had a pulse, he could get the loan of his choice. Any property owner could list his home for sale and receive multiple contracts within 24 hours.

Things have changed. While the District largely has been insulated from declining property values, other areas have been killed. Homes in many areas of the country have lost 30 percent to 60 percent of their previous value.

I have no idea where the bottom is and when we’ll reach it. There are signs, though, that indicate the bottom already has come and gone and properties are starting to become an appreciating asset.

My suggestion has been constant: Purchasing a home with the intent of a long-term hold is likely to result in financial benefit. But purchasing a home that is intrinsically unaffordable in hopes of a quick profit is very risky.

Certain parts of the District have retained their property values, unlike many areas in the city’s vast suburbs. If you have a long-term horizon for living in the District, I certainly wouldn’t discourage you from getting out of your rental and purchasing a home with a fixed-rate mortgage below 4 percent.

Henry Savage is president of PMC Mortgage in Alexandria. Send email to henrysavage@pmcmortgage.com.

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