Homebuying and Homebuilders

Tomorrow we are closing on a new home we put a contract on back around December 1, 2020. Back then there was a big run up in prices and some home builders were having lotteries to pick who gets to buy their new homes. Our builder was reasonable and didn’t do that. Plus we bought in a new neighborhood that was barely opening so there was little demand.

So did we do the right thing? At this point I would say yes. Looking back, everything worked out more than perfectly. The main goal was to buy a home at or below the payment we were making to our rental company for the home we were in. Although the home was expensive, the payment was about the same because of interest rates that had declined significantly. They also went up quite a bit after the first of 2021… so comparing apples to bananas, we are right about the same costs as we had been around the 1st of December. I do have to include more than just the rent/mortgage payments to get there. For instances:

Mortgage payment is greater than December rent
Homeowner’s insurance is included in the mortgage, renter’s insurance will go away
Because of an insurance change and bundling, our auto insurance is quite a bit less than it was
Expected utility costs are less expensive

I think there is more than this… but you get the idea. Buying our own home makes and saves us money in the following ways also:

Our mortgage payment will not go up as our rent did
We will see appreciation. I am expecting 4 – 8% in the long term.

There is no guarantee of course that the home will appreciate. And we no longer get a tax deduction for our interest or real estate taxes as we had in the past because of the standard deduction. You can only take the standard deduction ($25,100 for Married Filing Jointly, 2021) or schedule A deductions, not both. Most home deductions are found on schedule A.

I expect the current craziness in the housing market to last for more than a year. It could calm down some but I don’t expect a crash or anything like that. You never know but that’s what I think.

So question 1: Is now a good time for you to buy a home? Your situation is unique. If you can wait a couple years and save money in the mean time, maybe that’s a good idea. Then again, home prices may be up another 10% by that time. So honestly I don’t know.

Question 2: Is there a stock trade to be made from the housing market situation? I was thinking that inflation trades may be a good idea. Home builders don’t typically have the kind of balance sheets and income statements I like. There might be one out there but home builders tend to be cyclical and I prefer consistent performance.

If you are looking for a cyclical, perhaps oil companies are a good idea? Again, not my cup of tea typically, but if you want to ride inflation and economic recovery, it could be a good place to be. If you only have 10 arrows in your pack though, 10 solid long-term companies may be a better idea.

The elephant in the room… what about gold? I always like gold to a very small extent. Very small. The problem is, gold will not grow quickly enough to make it worth it. Gold miners are like a leveraged play on gold and many pay a good dividend. Perhaps that is the way to go rather than holding physical gold or similar. Still, don’t expect stellar performance, it just isn’t there.

For my kids’ stock fund, I’ve earned more than 150% on a particular stock that I still hold. Show me gold going up 150% in two years and maybe I’ll be interested then.

Most of all, as I have said before, learn to read financial reports from companies you are interested in. Learn more about each company you invest in each monthly. Decide if you want to stick with your picks or maybe replace one. Just consider each change, i.e. trade, to be a potential money loser. We don’t typically pay a lot of fees today but the longer you can hold a good stock, the better off you will be.

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