Grandpa Knows Best

Knowledge is Power.  There is a flurry of activity in the news about renting vs. buying.  It really boils down to whether you are thinking short versus long-term.  We are watching this closely.  The fact remains; it has never been a better time to purchase a home – or a second home as an investment.  So who do you listen to?  Our friends at Keeping Current Matters may have hit upon the right source…Grandpa.

 There are those currently debating the financial advantages of owning a home. Some are looking at studies and reporting that homeownership has never really been a great investment.

One of these people is Jack C. Francis, a former Federal Reserve economist and professor at Baruch College. He said in a recent CNBC article:

“For generations, parents and grandparents have been telling us that the way to get ahead was to buy a house and keep making payments with a fixed interest rate and after 20 or 30 years it would be way up in value and that was your nest egg in old age. You could either live in it rent free or sell it and use the proceeds to rent an apartment.”

The article goes on to explain the rest of Mr. Francis’ comment:  

That was good advice until 2006 when home prices collapsed, he says, and it “may become good advice 10 years from now, but right now it’s not.”

Mr. Francis bases his conclusions on a study he completed which covered the years 1978 through 2008. In his study it showed that home prices increased annually by 5.7% and that the S&P 500 increased by 10.8%. Based on this information, Mr. Francis gives the following advice:

To students who come to him for guidance on whether to buy or rent in the near term, however, Francis has one word of advice: wait. “I keep telling them this is not the time to buy,” he says.

Let’s take a closer look at this conclusion.  http://ftemerson.wordpress.com/2011/03/22/we-think-we%e2%80%99re-going-to-believe-grandpa/

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