There is a famous aphorism that says that there is no certainty in life, except for death and taxes. Taxes turn out to be a big factor in the purchase of property, although we don't really see the certainty involved. Yes, taxes go up over time, but do they go up at the same rate in every city and town? Are they phased in the same way everywhere? Are the same services included? Are the school systems comparable?
People buying property care a lot about what the taxes are, since what they are really basing affordability on is the amount of the monthly payment of mortgage, interest, insurance, and taxes. While they may know the first two calculations, if they get a fixed-rate mortgage, they tend to overvalue the current information available, and overrate the problem of uncertainty going forward, about all kinds of things. For instance, if you take money out of your savings to purchase a home, and those savings were in the stock market, what are you giving up as an alternative return? You don't know what the stock market will do over the long haul, although you do know that, like real estate, it's generally cyclical. If you buy rather than rent, will the price of your home increase over the period that you own it? Again, you don't know, although that is usually true, especially if you hold it for a long enough time, and if you buy when prices are not at a peak. Will your housing needs remain stable for the foreseeable future? "Foreseeable" would seem to imply that you know what they will be, but life has a way of throwing curve balls, be it a new job, an illness or injury, another child or children, an aging relative, or any number of other variables. You can't know up front what the market will be like when you sell. If you wait to buy, will prices and mortgage rates hold steady? Although we can't know, it's not likely, especially if you wait for a long time. How quickly will rents rise, especially in New Haven, the country's tightest rental market?
I could go on and on, but I've made my point. So, what's a person to do? One of the best things I learned in business school was how to make a decision tree. Since this column does not include a tutorial in econometrics, I'll simplify. Make a list of the uncertainties, then put them each in either the "Buy Now" column, or the "Buy Later" column, depending upon which way they are each likely to lead you. Try to quantify the general risk of each one in monetary terms (e.g., interest rates go up 1% vs. taxes go up 8%), and you will get an idea of what the math tells you. You should, of course, factor in your own particular risk aversion factor (that is, how much uncertainty will bother you), but the numbers will tell you something. If you find yourself arguing with the numbers, you will be telling yourself something that way, because you will be revealing your gut instinct. Whatever you decide, it's time to go with that, and act.
