What do you think? Do you think buying a home during a long drawn crisis like the pandemic makes sense for long term security, or it’s renting that suits you best? How do you calculate your housing mortgages and EMIs?
The sudden onset of the Covid-19 crisis made us all to start paying attention to the issue of housing and home ownership. Of making that the primary investment as against any other asset class. Not so much for capital gains and appreciation, but more so to feel a sense of psychological security. Almost akin to a ship finding safe harbor to dock in during a raging storm.
There is sudden lock-downs, work from home scenarios and in some cases loss of jobs and incomes. It has psychologically made people realize the importance of a place to call home during the times of a crisis. A place to seek refuge and solace from while we collectively wait for the world to get back to a semblance of normalcy again.
What some recent studies say:
As the Wall Street Journal cited, the pandemic has propelled a housing boom. Sales are hitting peaks last seen in 2006, just before the housing bubble burst. The current housing boom is far more stable. It poses fewer systemic risk. Since it is driven by buyers having better credit scores and based on genuine demand rather than for speculative investment purposes.
“Covid has catalyzed a rethinking of where we live, and why we live there, and where we work, and how we work,” as cited by the WSJ source.
The good news for buyers in scenarios like this driven by genuine demand and not speculation is that should the buyer have to sell the house due to unforseen circumstances they do not face a loss on the money they’ve invested towards the property. The resell value remains on par to the buying price. No crash in prices are expected.
A study paper from Science Direct delved into historic data to study how pandemics affect urban housing markets. This paper studied the historical outbreaks of the plague in 17th-century Amsterdam and cholera in 19th-century Paris to answer this burning question. Based on micro-level transaction data, they showed outbreaks resulted in large declines in house prices, and smaller declines in rent prices. Large reductions in house prices during the first six months of an epidemic, and in heavily-affected areas. However, these price shocks were only transitory. The cities quickly reverted to their initial price paths. Their findings suggest the cities were very resilient to major shocks originating from epidemics.
Learning from data and research:
From this example by this study in particular and all the other data points gleaned from other pandemic situations from history we learn that the steepest price fall for a housing market tends to happen in the initial months of the pandemic spreading. Prices of homes fall much lower than levels or percentage of it’s rent. So it is very favorable for a buyer to take advantage of this temporary price slump if they are interested in being a home owner. Post pandemic booms are a very well documented phenomenon over a period of historical time. Pandemics very naturally do induce fear and a negative sentiment in people’s minds. But if you are able to look beyond the present day crisis and see trees for the woods, you will be able to take that leap of faith and make that financial decision to invest in a home.
For the first time potential home buyers like me – who’d have to take a home loan and save up for a down-payment in the future – paying attention to the financial aspects of real estate is something I had to begin to seriously doing my research.
The Gap
There is an implementation gap that sets in between knowing the financial ideologies shared by well known personal financial gurus you see everywhere on Instagram, YouTube and even the classic personal finance books such as The Psychology of Money, and Rich Dad Poor Dad, to the ground-level, day-to-day chaos of making financial choices which sometimes do get impacted by external circumstances that are way beyond an individual’s control. The ongoing pandemic situation has been a clear example of that. We eventually face the consequences of those choices if they were poorly made or reap the benefits of them if well done.
In no other area of life is a person’s financial literacy and capability so important than in the sphere of buying a home or property. This one single area of investment and expense that can either turn your money into a future asset and safeguard your net-worth, or be the single most money draining black hole of devastation you’ll experience. It’s all well and good to hear financial professionals talk their talk but the real power can only come in when you know how to take that financial guidance and learn how to implement it in bite sized consistent pieces over a long period of time. I’ve depended on financial apps and mortgage calculators to help me translate that long term goal into a viable reality.
What I learnt:
I’ve studied the sections and templates on how to pay your mortgage faster and secure a lower interest rate on the Mortgage Calculators.info website.
Pouring through the mentioned sections to make calculations and plan my future budget and estimated payment schedules helps me structure, plan and instruct my money on where I wish it to go rather than “spend” it
Looking at property rates, inaccessibility to funds and a possible loss of income due to the pandemic it may seem that only capitalistic forces win in terms of securing safety and a home. But there are alternate and altruistic access to forms of housing facilitated and provided by organisations like Habitat for Humanity too
Families around the world partner with Habitat for Humanity to build safe and secure homes. They work in more than 70 countries and have helped more than 35 million people with improved living conditions since 1976 by giving them access to homes of their own. That helps build strength, stability and independence amongst the beneficiaries.
There are many such organisations that do join hands with the locals to help provide them with economical options towards housing. Countries like India where most peoples credit profile is almost nonexistent, securing access to home loans and capital tends to be the largest stumbling block.
What do you think? Do you think buying a home during a long drawn crisis like the pandemic makes sense for long term security, or it’s renting that suits you best? How do you calculate your mortgages and EMIs?
