U.S Home Buyers Beware - This Is Not Your Father’s Housing Market

Not so today -- at least early in the globalization era. For example, housing does not appear to be that slam-dunk, no-doubt-about-it, appreciating asset that it was for decades -- basically since the end of World War II in 1945 to the start of the Great Recession in 2007.

Much of the expansion in home ownership -- and by extension, much of the gain in home prices prior to 2001 -- stemmed from public policies that not only supported investment in public goods (including education and infrastructure), they also lessened corporate capitalism's harsher elements. What's more, maldistribution in income and wealth and gross economic distortions were reduced by both progressive tax policies and a modest social welfare state.

Well, needless to add, those progressive policies have been under siege since 2001 -- laying bare corporate capitalism's harsher elements -- and, not surprisingly, home ownership rates have fallen, and with it home prices.

Propspective Home Buyers: Do Your Homework

So what's the appropriate stance for prospective home buyers in this sluggish and uncertain U.S. housing market? Do your homework.

As a preface, very few rules will stop a couple or someone who has found their "'dream house."

So if you've found it, and you feel you're going to be in the house for more than a decade, market conditions and cautions listed here aren't likely to stop you from purchasing it. 

However, for those who haven't identified their dream house, keep in mind the following:

1 Buy the minimum house you need. The mantra now is not how much house you can afford, but the minimum amount of house you need. True, if the market suddenly recovers, that $500,000 luxury home could appreciate into a $700,000 bonanza. However, if your local market stagnates, that luxury home could be worth $450,000 -- or even less -- in real terms, which means you'll struggle to recoop your initial investment. Lesson: Take on only as much house as you need, to minimize your downside risk.