The Four Fundamentals of Buying a Home

Sometimes, I see home owners who are considering selling, unconvinced that there are buyers for their homes due mostly to the turbulence of the market. Yet as we have seen in the news in the past year or so, towns like Lexington, Newton, Brookline, Cambridge and so on have buffeted the stormy national and regional housing economy very well.

Now Moody’s, somewhat late to the party, seems to want to throw a blanket on even this rational positivity with the recent announcement of their downgrading of some of these very towns. It all smells a bit gimmicky, doesn’t it?

A partial list of local towns downgraded by Moody’s includes Acton, Bedford, Belmont, Brookline, Concord, Dover, Hingham, Lexington, Newton, Wayland, Wellesley, and Weston. Those are pretty much the towns I would suggest to a relocating buyer. I can almost guarantee that those towns are among those that have shown the best resiliency of home values in Massachusetts and likely rank nationally using the same measure. Yes, I understand that the ratings are measuring the future ability for the municipalities’ ability to pay future debt, based on their dependency on funding from the Feds. But these towns will remain solid bets for those that can afford them.

As others and I have pointed out, real estate markets are hyperlocal. My advice has been, and shall remain: as with the equities markets, pay heed to the fundamentals:

  1. Buy as much as you can comfortably afford in a blue chip town. A blue chip town is one with an easy commute, great schools, good municipal services, a decent downtown and recreational options, and at least some sort of commercial tax base to mitigate property tax levels. If your home does not increase in value in the short term, at least you have a great place to live, save on private schools, and managed some measure of quality of life. Don’t care about the schools because you have no kids? You should. In my experience, it is the single most important factor in sustaining and increasing property values in this area.
  2. If you can’t afford it, don’t buy. Rent. If you can only afford a town, city, or neighborhood that is down at the heels, a town that will not or can not invest in schools, and/or is inconvenient to anywhere but itself other towns like it, then don’t buy. Rent. If you see yourself as an investor, a neighborhood pioneer, or gentrifier, and want to take chance, be prepared to lose money. Sure, you may end up like someone who bought in the South End in the 1980s and held on to watch their value soar, but that might take time or may not happen at all (see Chelsea).
  3. Stay well within your means. “As much as you can afford” means exactly that: what you can afford. The meaning of that word has always varied depending on individual circumstances. But the definition seemed especially open to interpretation during the boom years as far too many buyers took on too much debt, feeling like everything — their careers, real estate values, and their 401Ks — was forever on an upward trajectory. I am not anything close to an economist, but during those boom years, I was scratching my head trying to figure out their secrets as young couples took on jumbo variable-rate loans to purchase five-bedroom, eight-bath executive estates. And if you can’t afford to hold on to a big, expensive house, be prepared to wait to find another deep-pocketed athlete or all-cash-paying CEO willing to take it on.
  4. Buy in a great location in a great town. Don’t get caught paying a premium for a newer, larger house in a sub-par location like on a busy road. You can change things about a house, but you can’t change it’s location. I have seen lots of examples of people making this mistake and having to try to sell after a market downturn. Plus, buying a new home more often than not results in the same sort of value loss as driving a new car off the lot. New construction home values sometimes come back and even appreciate. But they take much longer once that new house smell and nice paint job has worn a little. Couple that with a poor location, and you’ve got trouble.

Oh, there are more tips, of course. But you know what to do. Rates will remain low, thanks to the feds. Buy in a great town while money is cheap.