Foreigners Buying Real Estate

The news on real estate continues to be bad, at least for those owning real estate.  Since the government tax credits (subsidies) expired earlier this year, housing sales have struggled.  Now interest rates have gone up in the last few weeks, which makes housing seem even more bearish.

Today, there is an article saying that foreigners are flocking to Florida for real estate bargains.  This should not be surprising.  Prices are way down from where they were 4 years ago, interest rates are still relatively low, and it is even more attractive to foreigners because the dollar is weak.  Some foreigners may be paying one quarter of what they would have paid 4 years ago due to the huge drop in prices and the weaker dollar.

It really astounds me how many articles are out there saying, essentially, that you'd have to be an idiot to buy a house right now.  Unless these people were saying the same thing 3 or more years ago, then they are not worth listening to.  If someone thinks that only an idiot would buy a house right now, then what does that make someone who actually bought a house 4 years ago that is now only worth half of what was paid for it?

If you are considering buying a house, then you should do it for the right reasons.  If you are going to live in it, then it is a consumer good you are purchasing.  You should be able to afford it.  If you are buying a house as an investment, then you should be able to afford it and you should be able to get positive cash flow from it.  If you meet these criteria and you plan to own it for a while, then there is absolutely nothing wrong with buying right now.  You can find some really good deals in some areas and you can still get a relatively low interest rate on your mortgage.

While housing will continue to struggle with the down economy, high unemployment, and a lot of foreclosures, I think it will be ok longer term.  This is not a prediction, but if I had to guess what housing prices will look like in 5 years, I think they will be down in real terms (adjusted for inflation), but I think they will be up in nominal terms.  In other words, housing prices may not keep up with inflation in the next few years, but prices will still be up from where they are now.  Food and gasoline are likely to go up in price by a greater percentage.

As the dollar weakens and price inflation starts showing up more, people will get back into housing for the simple reason that a house is a hard asset.  The Fed can't print houses like it can money.  If you buy a house now with a 30 year fixed rate mortgage, there is a good chance that your last payment in 30 years will be about the equivalent of a nice dinner.