The P.A.

A weekly address from Patrick Adams,
President of St. Louis Community Credit Union

When It Comes To Buying Your Own Home, This Father Knows Best

On July 18th, 2011, posted in: Uncategorized by 1 Comment

About a month ago, I extended a conversation that I have had in business circles to my recently graduated youngest daughter.  I introduced her to the idea that buying a home may not be a great idea.  As are most of the conversations we have, I was rooted in pragmatism and she was extremely emotional.  The result of which ended in me apologizing for trying to help, and her contacting a girlfriend to discuss her dastardly dad.

Yes, housing is ridiculously affordable.  The cost of housing has depreciated to the low point.  If not, it is extremely close to the bottom.  Likewise, rates are low.  Add undervalued housing to low rates and you’ve got a recipe that is very attractive and inviting to buy.  Pepper in the tax benefit and, voila, you’ve got yourself “prime time,” baby!  And lo and behold, let’s pretend you’re one of the lucky ones to land a job – time to buy.

Reality check: you’re going to want to switch jobs.  You may want to factor in the poor job market.  Consider the fickle nature of young folks finding their niche in life, and a job market that is UGLY, add to it the overwhelming housing inventory that doesn’t allow for a home to sell quickly, and you’ve got yourself stuck in the mud with both a house and a job.  I hope you like St. Louis, ‘cause you’re not going anywhere.

Think for a second, young college grads.  Buying a house marries you to the local job market.  If all of the really cool jobs (the jobs you daydreamed about during that Biology lecture) are in Boston, New York, Dallas, Houston or Seattle, then kiss ‘em bye-bye.  You’re a homeowner in St. Louis.  If there are no local jobs in your field and you can’t sell your house – OUCH!  And you thought school was a drag.

So you choose not to listen to “dear ol’ dad.”  So here you are…got yourself a “starter” home that swallows money like a frat house swallows beer.  There will be no appreciation of your property’s value anytime soon.  Think about it: a money pit plus no housing appreciation equals zero return on investment (actually negative).  All this at the same time you’re feeling your way through a career and a job market that aren’t exactly working in sync.  Just so you know that I’m not just overreacting with “Dad Speak,” the U.S. Labor Dept. states that as of the end of May, for every job opening, there were 4.7 people who where looking for work.

To compound the problem, you go online and see some really sexy job that appears right smack-dab in your wheel house.  Problem is, it’s in Nashville.  Supply and demand for jobs requires quick, creative responses, thus you have about three minutes to submit your resume and hope for the best.  No can do.  You have a house, and it’s not gonna sell any time soon.  Do not pass go; do not collect $200.

Being the wise old man in my house, I grew up with home ownership being the cornerstone of personal finance (or so I thought).  Housing had an assumed appreciation that created equity that spelled “nest egg” for the future.  Not any more – really not even then.  (I would have done a heck of a lot better with the same money in the stock market).

Maybe (right now), you should be thinking about what you really love to do.  Find where in the country your career path is “on fire,” and insure you have the flexibility to move there if you so desire.  Oh by the way, flourishing job markets usually mean flourishing housing markets.

I hope St. Louis is ultimately my daughter’s choice.  Likewise, I hope that young people stay and invest their intellectual capital into the success of our region, but I must be a realist.

Take some time.  Owning a home can come later, if at all.  Don’t forget, you’re going to have to fund your own retirement – just another thought from dad that wasn’t discussed in your curriculum over the past four years.

One Response to “When It Comes To Buying Your Own Home, This Father Knows Best”

  • Jeff Schroth says:

    Patrick my friend, you speak the truth as usual.

    You reminded me of a recent Wall Street Journal article entitled, “A Home Is A Lousy Investment” in which a business economics professor from the University of Southern California's Marshall School of Business opines that generations of viewing home ownership as a cornerstone of personal finance in the U.S. has proven to be… well, a mistake, to put it charitably.( http://on.wsj.com/oLowlL )

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