real estate

The best way to recoup home fees? Stay put

Highlights
  • With a long-term horizon, you can ride out cycles.
  • "I don't know if we are at the bottom."
  • There's a newfound, more deliberate approach to home buying.

Buy and hold. The traditional advice for stock investing now applies to home buying. With a long-term horizon, you can ride out cycles where prices are depressed.

Just as stock investors console themselves in knowing that today's troubled market doesn't really matter if they don't sell now, homebuyers who put down roots won't worry about selling at a loss should real estate prices slide further.

“There's tremendous uncertainty about the future.”

But since you actually live in a home, life can get in the way of even the best-laid hold strategy. A job offer in another city, a marriage, a divorce, a new baby -- all are life turns that can force a housing change.

Nevertheless, life goes on, and you may be contemplating a move. Indeed, the government is dangling an $8,000 tax credit to entice first-time buyers. Here, experts weigh in on how buyers should consider getting time on their side.

'Rules' vary about length of stay

Although he now works as a fee-only financial planner, Richard Kahler spent 30 years as a real estate agent. During most of that time, "the standard rule of thumb was that you'd have to stay in a home at least two years to recoup the costs (of buying and selling)," he says.

Kahler's hometown of Rapid City, S.D., had not seen dramatic upswings in prices, but modest, steady appreciation. Prices are now flat, says Kahler, who adds, "Today, I would be telling someone (to stay in their home for) three to five years, depending on the market."

Although the National Association of Realtors reports that historically, home prices rise 1.3 percent above the rate of inflation, there have been more dramatic down and up cycles.

A study published in 2001 from Harvard's Joint Center for Housing Studies found that homeowners who are most likely to profit from a sale are those who buy at the trough of a cycle and hold at least one year through the next price upswing.

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Right now, given the inventory of homes for sale and the spate of foreclosures around Sacramento, Calif., Kevin Young of Young Wealth Management in Davis, Calif., advises his clients to plan to stay for five to eight years. "I don't know if we are at the bottom, and there's tremendous uncertainty about the future," he says.

Foreclosures and price drops are a much greater problem in places like California, Florida and other select areas rather than in the nation as a whole, according to University of Virginia urban planning professor William Lucy.

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