SAN FRANCISCO—Wouldn't it be convenient if someone had clear, intelligent answers to most of your CRE-related questions? Problem solved. Nina J. Gruen, a.k.a. Ms. Real Estate, a.k.a. the principal sociologist overseeing market research and analysis at Gruen Gruen + Associates, is here to answer readers' questions.

Dear Ms. Real Estate,

I am a proud mom of two young adult daughters. My eldest, who resides in Virginia, is a civil engineer making a good salary working in a real estate development firm. She currently shares a rental with her significant other, who is an extremely well-paid engineer employed in the tech industry.

My younger daughter is a social worker who counsels disadvantaged youth in the Greater Phoenix region. Her salary is modest, but she feels she's giving up the possibility of savings by renting and not owning her unit.

Both daughters have come to me and their dad for advice as to whether they should buy a unit or continue to rent. What advice should we give them?

—Two Daughters' Proud, Cautious Advisor

Dear Proud Adsvisor,

Predicting future housing prices has become a “mug's game.” Future housing prices are as likely to go up as go down. Not only are the national path of growth and the value of money difficult to predict, but local economies often have as much or more impact on housing prices than the national economy. Ms. Real Estate recommends that you and your daughters have a frank discussion on the questions posed below, the answers to which will enable you all to decide whether they should remain renters or become homeowners.

What would happen if they should be let go or they elect to quit their present job? You indicated your eldest daughter's significant other was extremely well paid. Would his salary be sufficient to pay the mortgage should she leave her position? What if he loses his? Is he likely to obtain an equivalent position, and if so, is it likely to be in Virginia? You indicated your younger daughter's social worker position paid a modest salary. Are you and your husband willing to pay a portion of her home owning costs if she cannot keep up with the mortgage payment? Any “no” answer to these questions suggests that, at least for now, home ownership is likely to be a risky investment.
What is the monetary differential between renting and buying a home in their respective locations, Virginia and Arizona? If renting involves less out of pocket expenditure than home ownership (including mortgage and property taxes, net of the tax deductions provided by the mortgage interest), then younger daughter might want to put this monetary differential into index funds as the primary savings made at this point in her life.
Question number three may be the most important, and that is, what is the possibility they will remain in their present locations for a minimum of five years? The answer to this question is not only an important determinant of the risk associated with buying a home, but it will also provide an indication of whether the best purchase decision would be a single family home or a condominium. Today's workplace is not the same as the work environment was at the time you and your husband were your daughters' ages. Both employer and employee seek flexibility and mobility in their work lives, particularly in their early employment years. Home ownership always involves time and money-consuming maintenance. At this time in their lives, when they need to be investing in their professional futures as well as maintaining flexibility, Ms. Real Estate suggests that if the answers to the above questions suggest a home purchase, your daughters begin with buying either a condo or a townhome.

Let me know what decisions your daughters make.

Instant Insights /

Homebuying: Avoiding the 'Mug's Game'

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