"Hard, Hometown Assets"

Bear Market Winners: First-Time Buyers

Two of the half dozen or so first-time buyers profiled in today's New York Times just bought . . . in Minneapolis (the journalist must have a local connection). The *article, titled "Maybe it's Time to Buy that First House," explores the mindsets of various first-time buyers who have just taken the plunge.

Here's the link:

http://www.nytimes.com/2008/12/06/business/yourmoney/06money.html?pagewanted=1&ref=business

The Times makes the undeniable point that housing bear markets have winners, too: first-time buyers.

A sharp drop in prices, accompanied by abundant housing choices, is practically a gift to first-time buyers, who by definition have no existing real estate to sell. Add to that the prospect of truly cheap financing on the horizon -- the government is floating a plan to drive rates to 4.5% -- and suddenly the risk-reward calculus doesn't seem so daunting.

Encouragingly, the buyers profiled by the Times all seemed like sober, disciplined consumers. None of them had illusions of making a quick killing, or even a big profit; several were resigned to the possibility that, at least in the short run, their local housing markets might actually experience more declines.

However, they still bought.

One of the two Minneapolis buyers cited a desire not to mark time in a sterile rental, and observed -- quite correctly, I think -- that the rental and purchase markets don't really overlap. Others noted the impossibility of exactly timing the bottom and their long time horizon. A few others, while anxious about housing, were even more anxious about other, less tangible investments (like bank stocks??).

Just as blind enthusiasm is the sign of a top, such consumer sobriety and caution is more characteristic of a market bottom.

*Don't know what "flaming" is? Look at the comments readers posted at the end of the article. About 95% unload on the author for a variety of real or imagined sins: hyping real estate's upside, minimizing the downside, blithely assuming that people are sitting on cash waiting for the right time to buy, etc. In that vein, one of the most poignant posts was from a would-be buyer who lamented that her real estate nest egg was necessarily now a financial "parachute."

There's no gainsaying any of the above -- and probably better not trying. However, it's worth noting the self-selection operating here: people who have been burned by real estate are understandably a lot more negative and outspoken than those who haven't.