Enough with the doom and gloom about homeownership. Brett Arends explains why owning a home is a good thing.
· By BRETT ARENDS
Enough with the doom and gloom about homeownership.
Sure, maybe there’s more pain to come in the housing market. But when Time magazine starts running covers that declare “Owning a home may no longer make economic sense,” it’s time to say: Enough is enough. This is what “capitulation” looks like. Everyone has given up.
After all, at the peak of the bubble five years ago, Time had a different take. “Home Sweet Home,” declared its cover then, as it celebrated the boom and asked: “Will your house make you rich?”
But it’s not enough just to be contrarian. So here are 10 reasons why it’s good to buy a home.
1. You can get a good deal. Especially if you play hardball. This is a buyer’s market. Most of the other buyers have now vanished, as the tax credits on purchases have just expired. We’re four to five years into the biggest housing bust in modern history. And prices have come down a long way– about 30% from their peak, according to Standard & Poor’s Case-Shiller Index, which tracks home prices in 20 big cities. Yes, it’s mixed. New York is only down 20%. Arizona has halved. Will prices fall further? Sure, they could. You’ll never catch the bottom. It doesn’t really matter so much in the long haul.
Where is fair value? Fund manager Jeremy Grantham at GMO, who predicted the bust with remarkable accuracy, said two years ago that home prices needed to fall another 17% to reach fair value in relation to household incomes. Case-Shiller since then: Down 18%.
2. Mortgages are cheap. You can get a 30-year loan for around 4.3%. What’s not to like? These are the lowest rates on record. As recently as two years ago they were about 6.3%. That drop slashes your monthly repayment by a fifth. If inflation picks up, you won’t see these mortgage rates again in your lifetime. And if we get deflation, and rates fall further, you can refi.
3. You’ll save on taxes. You can deduct the mortgage interest from your income taxes. You can deduct your real estate taxes. And you’ll get a tax break on capital gains–if any–when you sell. Sure, you’ll need to do your math. You’ll only get the income tax break if you itemize your deductions, and many people may be better off taking the standard deduction instead. The breaks are more valuable the more you earn, and the bigger your mortgage. But many people will find that these tax breaks mean owning costs them less, often a lot less, than renting.
4. It’ll be yours. You can have the kitchen and bathrooms you want. You can move the walls, build an extension–zoning permitted–or paint everything bright orange. Few landlords are so indulgent; for renters, these types of changes are often impossible. You’ll feel better about your own place if you own it than if you rent. Many years ago, when I was working for a political campaign in England, I toured a working-class northern town. Mrs. Thatcher had just begun selling off public housing to the tenants. “You can tell the ones that have been bought,” said my local guide. “They’ve painted the front door. It’s the first thing people do when they buy.” It was a small sign that said something big.
5. You’ll get a better home. In many parts of the country it can be really hard to find a good rental. All the best places are sold as condos. Money talks. Once again, this is a case by case issue: In Miami right now there are so many vacant luxury condos that owners will rent them out for a fraction of the cost of owning. But few places are so favored. Generally speaking, if you want the best home in the best neighborhood, you’re better off buying.
6. It offers some inflation protection. No, it’s not perfect. But studies by Professor Karl “Chip” Case (of Case-Shiller), and others, suggest that over the long-term housing has tended to beat inflation by a couple of percentage points a year. That’s valuable inflation insurance, especially if you’re young and raising a family and thinking about the next 30 or 40 years. In the recent past, inflation-protected government bonds, or TIPS, offered an easier form of inflation insurance. But yields there have plummeted of late. That also makes homeownership look a little better by contrast.
7. It’s risk capital. No, your home isn’t the stock market and you shouldn’t view it as the way to get rich. But if the economy does surprise us all and start booming, sooner or later real estate prices will head up again, too. One lesson from the last few years is that stocks are incredibly hard for most normal people to own in large quantities–for practical as well as psychological reasons. Equity in a home is another way of linking part of your portfolio to the long-term growth of the economy–if it happens–and still managing to sleep at night.
8. It’s forced savings. If you can rent an apartment for $2,000 month instead of buying one for $2,400 a month, renting may make sense. But will you save that $400 for your future? A lot of people won’t. Most, I dare say. Once again, you have to do your math, but the part of your mortgage payment that goes to principal repayment isn’t a cost. You’re just paying yourself by building equity. As a forced monthly saving, it’s a good discipline.
9. There is a lot to choose from. There is a glut of homes in most of the country. The National Association of Realtors puts the current inventory at around 4 million homes. That’s below last year’s peak, but well above typical levels, and enough for about a year’s worth of sales. More keeping coming onto the market, too, as the banks slowly unload their inventory of unsold properties. That means great choice, as well as great prices.
10. Sooner or later, the market will clear. Demand and supply will meet. The population is forecast to grow by more than 100 million people over the next 40 years. That means maybe 40 million new households looking for homes. Meanwhile, this housing glut will work itself out. Many of the homes will be bought. But many more will simply be destroyed–either deliberately, or by inaction. This is already happening. Even two years ago, when I toured the housing slump in western Florida, I saw bankrupt condo developments that were fast becoming derelict. And, finally, a lot of the “glut” simply won’t matter: It’s concentrated in a few areas, like Florida and Nevada. Unless you live there, the glut won’t have any long-term impact on housing supply in your town.
I have seen far more activity as the credit come to an end as I did when the last credit came to an end in November 2009. At that point last November we had 5 pending closing and as of today we have 10 pending closings.
Has the credit made a difference? Yes. Would those individuals have purchased anyway, most likely. What the credit has done was created a since of urgency and lowered the inventory levels quickly.
I have had a few buyers that have not gotten under contract to qualify for the credit and the clock is ticking. Most of them early on made the choice to find a home that they love no matter how long it takes to find it rather than rush just to get the $8,000 credit. These are the wise buyers.
The buyers trying to get under contract have been involved in multiple offer deals where there has been intense competition. Banks and individuals have been holding firm on their offer price. The ones that have won the bids have offered full list price or more.
Think about it, just months ago you could get a bank or individual to negotiate, and now they are holding strong. I think this will continue until April 30, when demand will drop off. At that point, then they will be more agreeable to negotiate.
Is the $8,000 credit held prices artificially high? I believe that sellers felt that could get $8,000 more for their home with the credit. Those who didn’t sell will see the reduced demand equate into price reductions.
I am glad that the credit was not considered for another extension so the market can get around to self correcting. Selfishly I want a normal market, not artificially stimulated. Myself and many of my colleagues agree that letting the free market find its balance will be the quickest way to get back to normal.
New buyers after April 30 will be in short supply, but we will be busy getting all the homes to closing by June 30. During this time we will have to work hard since any issues found during inspections that could kill the deal may cost the buyer $8,000. Expect sellers to be tough about making repairs or concessions since they know every issue after April 30 is a $8,000 issue.
Keep focused on keeping the relationship of protecting your clients during the next two challenging months. Remember, our partners are getting ready to get real busy. Our inspectors, lender, appraisers and closing attorneys all need our support and patience.
Spring Arbor in Lawrenceville, Georgia is conveniently located in Gwinnett County near Webb Ginn Road & Hwy 20. The neighborhood is only minutes from The Avenues at Webb Ginn, Fine Dining and Gwinnett Parks and Recreation.
Spring Arbor is home to outstanding amenities like Swimming Pool, Tennis Courts and Clubhouse Facility.
The outstanding local schools that serve Spring Arbor are Sterling Elementary, Couch Middle, & Grayson High school. Gwinnett County schools are among some of the finest in the state.
Home in Spring Arbor are typically priced from the mid $ 200’s to the high $ 300’s, so there are homes in a choice of price ranges for any Lawrenceville or Gwinnett home buyer.
Markim Forest, Sugar Hill, Georgia is conveniently located in Gwinnett County off Level Creek Road north of West Price Road and close to E. E. Robinson Park. The neighborhood is only minutes from downtown Suwanee.
Markim Forest is very close to outstanding amenities like shopping, fine restaurants, and Old Town Suwanee.
The outstanding local schools that server Markim Forest Are Level Creek Elementary, Lanier Middle, & North Gwinnett High School.
Home in Markim Forest are typically priced from$155K to $180K, so there are homes in a choice of price ranges for any Sugar Hill or Gwinnett county home buyer.
We just got the banks acceptance of a short sale offer, which had been at the bank awaiting approval for four months. My buyer is ecstatic. Think about it, four months to get approval and then we spend another 30 days with financing, appraisals and getting to the closing table. Five months total.
Its almost the first of March and if you write an offer on a short sale home tomorrow, March 1 and it takes the four to five months to get closed as we just experienced, if you are lucky, you are closing on the last allowable day, June 30, to get the $8,000 first time homebuyer credit from the federal government. Miss that by one day and you miss the $8,000.
Now I’m not a gambling man and don’t know if you are, but, I wouldn’t risk the chance of losing $8,000 waiting on the bank. There are thousands of homes out there for sale that only need the owner, Mr. and Mrs. Homeowner to sign and then you can close in less than 45 days from offer to move-in.
I am advising my first time home buyer clients to beware of short sales if they want to get to the finish line and collect $8,000. While I know this news disturbs all the agents with short sale listings, the main reason is many agents don’t understand the short sale process and have not done the work to get the front end work done to speed up the process.
Likewise I have a couple of buyers looking to secure the $6,500 second home buyers credit and I am advising them likewise to beware of writing a contract for a new home that has not been started, up out of the ground. With all the rain we have been experiencing there is a good chance of delays when digging a foundation, pouring concrete slabs and framing up a home.
Bottom line, there are risks with short sales where you can’t control the banks and new construction where you can’t control the weather. To be sure to qualify for the first time homebuyer $8,000 and second home $6,500 write a contract that has a great chance of closing in time and don’t ride a deal down to the end only to run past June 30.
Mark Lackey, Associate Broker with Solid Source Realty shares why home buyers need representation when purchasing a home. In today’s market more than ever, a buyer needs help navigating the market to make sure that he or she is getting sound advice.
FHA has announced sweeping changes that range from increased down payment requirement from 3.5% to 10% in certain cases, increased Mortgage Insurance Premiums (MIP) by half a percent and cutting allowed sellers contributions by half.
“We just won’t sell my home for that amount; it would be giving it away.”
That is what the sellers says when the appraisal come in lower than the agreed upon contract selling price. We have a willing buyer and willing seller but the appraiser holds down home values and won’t let the transaction go forward at the contract price. How are we ever going to get out of this economic mess if this continues to occur? How can home building start back with this narrow minded thinking?
As an example, a half completed development was selling in the low $200s. The builder can’t pay his loan payment and looses all the remaining 12 homes to foreclosure. The bank takes over and does a fire sale to dump them quickly. The same home, same builder is selling 2 miles away in the $180s in the depressed market.
So what does the bank do, they unload them in the $140s to sell quickly, and quickly they sell- all under contract in a matter of days. It makes sense, a lot of supply lowers price. Then comes my seller and he is the only one for sale in the same complex as the bank sales were in.
Now the supply is down to one home and a buyer writes an offer in the $150s. So what does the appraiser do, well he continues to hold down prices by appraising our listing at the average price of the fire sale that took place. He forgets the supply is now limited and demand is up.
If it were cars in demand and short supply the dealer marks them up over the manufacturers recommended price. Collectables go up in value when the supply is small and down when the supply is large. It’s basic Economics 101.
So we have a chance to start to have home values increase when the willing buyer and willing seller agreed on a price, but the appraiser holds values down. If this trend continues we will never have a rising market and home values will never change unless someone wants another fire sale and they go down.
How can we get the government to stop the regulation that is stifling the home market recovery? Here is the coming dilemma we are going to have to deal with. At some point there will be a shortage of homes for sale, in the next few years.
When we suddenly find that we haven’t built enough homes to meet demand and a builder goes into that community to build new homes he will have second thoughts. The cost to acquire the land and build the same home as there now is in the $180s to $190s, but an appraiser will tell him he can’t sell for more than the $140s. Who will build with a planned $40,000 to $50,000 loss?
The builder will just walk away and not build. So then when demand is screaming for more homes inventory to buy, will the values go up to the $190s over night.
Congress has extending & expanded the home buyer tax credit. There are several changes, so we wanted to share with you what will be in effect as soon as the President signs the bill.
New bill will be in effect until April 30th 2010. Must have written binding contracts for the purchase on or before April 30th. Must complete sale by July 1.
First time Home Buyer Credit Amount
No Change – Up to $8,000 ($4,000 married filing separately)
First time Home Buyer Eligibility
No Change – May not have had an interest in a principal residence for 3 years prior to purchase.
Current Home Owner Amount of Credit
NEW *** Up to $6,500.00 ($3,250 married filing separately)
Effective Date for Current Home Owner Credit
Date of Enactment
Current Home Buyer Eligibility
Previous/ Current House must have been a primary residence 5 of the previous 8 years.
Income Limits
Increased from $75,000 – $125,000 for Singles
Increased from $150,000 to $225.00 for Married Couples
Additional $20,000 phase out still applies
Limitation on Cost of Purchased Home
The new bill enacts a limit of $800,000 effective the date of enactment
Anti-Fraud Rule
Do to the numerous people falsely claiming the credit, the new bill will require documentation of purchase along with the filing of tax return.
If you are interested in finding out more, please contact us.
We received the latest list of advertised foreclosures in the Barrow, Forsyth, Fulton, Gwinnett, Hall & Walton counties only. There were over 6,100 advertised foreclosures and that did not include the other 5 metro counties like Cobb, Paulding, Cherokee, Douglas, & Dekalb. We reported back in August what we thought was a record which was close to 5,000, so this month’s numbers are very shocking.
What we found when we look at the list this month was a lot more commercial properties which is also unusual. Even properties that are highly desirable and have tenants are being foreclosed. We read about the new shopping center in Norcross – The Forum, narrowly escaping foreclosure last month. In that article, it forecasted that there would be additional commercial up for foreclosure, but I had no idea that the amount of foreclosures would be this high.
So what is going to happen with this additional inventory coming onto the market? You probably remember your economics 101 class – more supply, less demand equals lower prices. Just when you think it can’t get even lower, we find that there is a near 20% increase into an already bulging market.
While this is a great opportunity for some, it is creating additional challenges for those who need to sell. Someone recently shared with me the concept that sellers are under “house arrest” because there is nothing that they can do to liquidate their home without taking a large loss in equity. Most homeowners are counting on their homes’ equity for retirement and with prices falling at an alarming rate, it is going to take a long time to recover from this loss.
So what is the upside in this? The only thing we can share is that if you are in the market to purchase, there is no better time to buy. If you can put up with the challenges of working with banks, there is great money to be made. Banks are realizing that there are not enough qualified buyers for their homes, so relatively reasonable offers are being considered and whether you are purchasing to occupy or put into rental service, the discounts are amazing.
If you want to take advantage of this great market, make sure that you are working with an expert real estate agent that understands how to work with the banks to get your deal accepted. Also, because the market is shifting, you want to make sure that you are getting the best information possible about a home and area to make sure that you are able to make the best buying decision.
