It's A Good Time to Buy
Perspective on a Buyer’s Market – Don’t Believe the Headlines
Anyone will tell you that the real estate market is local. It depends on the local economy more so than what other cities across the country are facing, so when you see today’s sensational headlines (“Subprime Mortgage Meltdown,” “Housing in the Tank”) describing a gloomy picture of the housing market, take a step back and look at what is happening in your own backyard.
San Antonio has held some key rankings when compared to other housing markets throughout the U.S. Due to affordable housing, low cost of living and low unemployment, San Antonio has repeatedly been ranked in the top ten for market stability, best place to buy a home, best home investment opportunity. San Antonio remains one of the most active and healthiest new home markets in the nation. And future expectations remain high with positive outlook for economic development and job growth.
Surprising Advantages for Home Buyers
As a long-term investment, homeownership remains one of the best investments for individual households, with a track record that is virtually unmatched by any other purchase in terms of its real benefits. With a wider variety of choice for home shoppers in all price ranges, families looking to buy can shop at their leisure and decide what home comes closest to filling their needs and desires. Mortgage financing for borrowers with solid credit remains readily available for a conventional loan, and mortgage interest rates are still very affordable and remain near historic lows in the 6 percent range. Financing opportunities are still available for jumbo loans, though buyers may need to pay a premium of about 1 percent above conforming loan rates.
Housing has always been a cyclical business, with its ups and downs. As surely as the market has slowed today, it will start picking up speed again. Potential home buyers who try to “time the market” in hopes of buying at the trough are likely to lose out. Just as no one can accurately predict the peaks and valleys of the stock market, the same holds true for housing. Fence-sitters waiting for the absolute best deal could end up literally waiting for years, and most likely their guess on market timing would be wrong. Meanwhile, those who buy now will have a home they can call their own and reap the long-term gains of home price appreciation.
Best Investment
Consumers who take advantage of this excellent buying climate to purchase a home will find that it is the best investment they ever made. Buying a home is the largest investment most families will ever make and homeownership is the single largest creator of wealth for Americans. It allows families to build financial security as the equity in their home increases.
As home owners repay their mortgages, their debt declines, while overall wealth and equity in the home grow. Although local housing markets periodically adjust according to overall economic conditions, over the long term real estate has consistently appreciated. On a national level, home appreciation has historically risen 5-6 percent annually. Five percent may not seem at much at first, but take a look at the numbers. If you bought a $200,000 house and put 10 percent down, that would be an investment of $20,000. At an appreciation rate of 5 percent annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $20,000. Your annual “return on investment” would be a whopping 50 percent.
In contrast, putting the same $10,000 in the stock market and registering a similar 5 percent gain would only yield a $500 return on investment. The big difference in returns is a result of “leveraging” – putting down a small amount of money to earn the biggest return. This is especially important for first-time home buyers. Entering the market now starts you on the road to home price appreciation. And the profit from selling a “starter” house will enable buyers with growing families to afford a bigger home in the future.
Tax Savings
A home also comes with fantastic tax incentives. It’s by far the biggest and best tax break for middle America. Collectively, home owners save nearly $100 billion annually on mortgage interest and property deductions alone. These tax incentives are designed to make owning a home more affordable. In most instances, all of the interest and property taxes you pay in a given year can be fully deducted from your gross income to reduce your taxable income. These deductions can result in thousands of dollars of tax savings, especially in the early years of the mortgage when interest makes up most of the payment.
To look at this another way, if you are in the 30 percent tax bracket, you only pay 70 cents on the dollar in mortgage interest payments. Plus, the best tax break available to homeowners is when they sell their primary residence. A couple who own and live in their home for two years and then decide to sell can keep up to $500,000 of the profit tax-free. (A single owner can keep $250,000.) If the couple use these gains to buy a bigger home, and live in that home for at least two years, the same rules hold true when they go to sell again. This is one of the biggest tax advantages of homeownership and a great way to build household wealth.
Building Equity for the Future
Owning a home is like investing in an automatic savings account. You accumulate savings in two ways. Every month, a portion of your monthly mortgage payment goes to the principal, reducing the overall loan amount. Each year, a greater percentage of your mortgage payment goes to paying down the principal.
Second, your home appreciates over time, making it one of the very best financial investments. As your property appreciates, you build up equity in the home, increasing your household wealth. Many families elect to take out home equity loans to help put children through college, to purchase a second home, to make home improvements, to start a new business, to pay for medical costs or even to take vacations.
While interest payments on home equity loans are fully deductible up to $100,000, consumers who carry credit card balances cannot deduct the interest and can pay rates as high as 20 percent, more than double a typical home equity line of credit.
Fulfilling the American Dream
In summary, owning a home provides (1) The best investment, (2) A great tax benefit, and (3) Financial freedom to send a child to college or provide a nest egg for retirement.
Not only is homeownership a stepping stone to a future of financial security, it provides a permanent place to call home and enormous personal satisfaction. It strengthens the nation’s people and its communities. Homeownership creates community stakeholders who tend to be active in charities, churches and neighborhood activities. Homeownership inspires civic responsibility, and homeowners are more likely to vote and get involved with local issues. Americans associate homeownership with economic success and the accumulation of wealth. It is truly the cornerstone of the American way of life, and the fulfillment of the American dream.
Source: NAHB.com