Moneybeat: When to buy a house

MARY REICHARD, HOST: Next up on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: It’s time to talk business, markets, and the economy with financial analyst and adviser David Bahnsen.

He’s head of the wealth management firm The Bahnsen Group and he’s here now.

David, good morning!

DAVID BAHNSEN, GUEST: Well, good morning, Nick. Good to be with you.

EICHER: We received the new consumer price index, producer price index, and retail sales for January. What was noteworthy about those reports last week?

BAHNSEN: I think the retail sales number was much stronger than expected. And I have sort of adopted a theory that one of the macroeconomists I follow shared with me that it was the first month in January that the Social Security payment increase kicked in: Everyone who receives Social Security got an 8.7% increase in their benefit versus last year’s monthly benefit, which amounts to an average of $140 a month across 70 million people.

And so I wonder if there’s some connection with a little increase in spending around that benefit increase. It’s not really provable or falsifiable, which is never great when doing economics, but that’s an interesting concept to me; that makes sense prima facie. The Consumer Price Index didn’t have any surprises, this disinflation continues, it came down.

But the Producer Price Index was a bit higher, mostly from energy inputs. Energy had been dropping so much that it had a little push back higher, which wasn’t a big surprise, but it caused the numbers to be up. And then food inputs on a wholesale level were down 1% on the month. So there was a mixed bag in there. But you didn’t see big disinflation in the producer price numbers like you had been seeing in the consumer numbers, and most of that’s still going to be playing out months ahead in housing.

EICHER: First listener question today has housing in mind, David:

NASELLI: Hi, this is Andy Naselli. I teach systematic theology, New Testament, and ethics at Bethlehem College and Seminary in Minneapolis, and I’m one of the pastors of The North Church. Here’s my question for you. What advice would you give to a married couple with children who are thinking about selling their home right now so that they can buy another home that would better serve their family? Some people are saying that this is the worst possible time to buy a home in the last fifty years since housing prices are so inflated and since interest rates for mortgage loans are so high.

Let me add, Pastor Naselli included a word of thanks that I’ll pass along to you, David. He read your book with Doug Wilson from last year, titled, “Mis-Inflation” and found it an insightful book.

BAHNSEN: First of all, I’m thankful for the kind words. But in terms of the last 50 years, we are not looking at the worst time to buy a house. There was that little period called the financial crisis of 2008, and I can assure you that what was going on in housing then was significantly more dysfunctional and problematic than what we face now.

But his question is interesting, because he refers to both a buy and a sell. And in theory, there’s a neutralization at play. If you’re buying too high, then you’re also selling high, and if you’re selling low, then you’re also buying low. So unless one is talking about wanting to sell a $300,000 house to buy a $800,000 house, then we’re basically talking about an economic hedge, because you’re buying and selling at the same time. The issue then presents not as financial, but as practical and personal: Situational.

Is there a real benefit around a family’s work situation? Their goals, their needs, their size and space requirements, the neighborhood, the community, proximity to church? All of these qualitative things are what people should be basing a purchasing decision on. And this is one of the most important things I can say—going beyond the merely economic and financial—that I talk about all the time: These are what I want people thinking about buying a house.

In other words, don’t worry about the cost if you can afford it, and you are buying the property for the purpose of living in it. It’s when people are looking at their house as a baseball card to be traded that all the bad things happen. But when you’re basing the decision in sensible practical family considerations, I’ve never seen anything go wrong.

EICHER: Last question today is really a followup to our discussion last week on the subject of the national debt. David Jamison of Charlottesville, Virginia, wants to know: What happens down the road as we just keep adding to the debt year after year? David, what do you say?

BAHNSEN: First of all, my exhortation to Christians and conservatives and those who believe in a balanced budget and fiscal responsibility is, “Let’s not fall prey to Chicken Little predictions, because we’re wrong about those over and over again.” And one of the reasons they’ve been able to add the last 20 trillion to the debt is that many of us who were believing the end of the world was coming on were wrong over and over and over again. And the reason is that we all underestimate the creativity of their ability to kick the can down the road. We are making dire predictions around stuff that is inherently unpredictable.

How long will the bond market facilitate an overly indebted country? Well, apparently the answer to that is more than 31 trillion. Because we continue to fund debt to fund our nation’s operations with no problem in capital markets all the time. People thought when the Fed stopped buying, there wouldn’t be buyers of the debt. The Fed hasn’t been buying any bonds at all now for over six months, and they’ve had no trouble at all getting a bid. So I don’t know exactly where it goes.

What I do know is it’s unsustainable. And I don’t attach a specific timeline. I’m always sensitive TS Eliot’s language here about how the end of the world come with a whimper, not a bang. And I don’t know that we’ll necessarily have this moment where all of a sudden there’s an apocalypse around our debt crisis. I think it could be like Japan’s suffocation: A very slow drip that just puts downward pressure on economic growth and downward pressure on standards of living. And that that becomes this equally immoral and unacceptable consequence, and yet, not one that has that kind of weeping and gnashing of teeth component that many people are expecting.

There are a number of ways in which it could look going into the future. A value added tax, perhaps the election of a whole lot of fiscal hawks; we could elect people who would actually do start doing draconian spending cuts (there’s certainly gonna have to be entitlement reform at some point.) I don’t think we’re going to do entitlement reform until we have a crisis. But I hope I’m wrong about that. But that’s what my political experience has been with the American voter.

EICHER: I don’t think I ever expected to say I hope you’re wrong. Well, you may have a question for David Bahnsen.

If so, send it on over. The email address is feedback@worldandeverything.com. Keep them coming.

Thank you to Andy Naselli and David Jamison this week.

David Bahnsen is founder, managing partner, and chief investment officer of The Bahnsen Group. His personal website is Bahnsen.com.

See you next time.

BAHNSEN: Yes, Nick. See you next week.

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