Home Ownership: Still The American Dream
By James P. Graf
Summer 2007
Is this the right time to buy a home? If you read the news, watch TV or listen to the radio, you are probably shouting a resounding “no!” Each day seems to bring word of another real estate crisis, a sub-prime lender disaster, a jump in foreclosures, or homeowners trapped in mortgages where their payments are set to skyrocket.
It’s undeniable that, in most sections of the country, this is a buyer’s market. We see more houses for sale than buyers. Housing values are flat or declining. Builders are saddled with a huge inventory of unsold homes.
But look a bit deeper. Two years ago, houses were selling like hotcakes. It was a seller’s market; eager buyers outnumbered homes available for sale. In many locations, homes were listed and sold immediately or in a matter of days. Competition was so intense that buyers were known to offer more than the seller’s asking price. It was a real estate feeding frenzy.
If someone had told you not to buy, you might have scoffed at the notion. The market was hot, and everyone said buy, buy, buy! But looking back, it was hardly the best time to buy, was it?
Today, prices have stabilized or are declining in most locations. Everyone predicts doom and gloom. But think about this: If the seller is desperate, isn’t the potential buyer in the catbird seat? And if you are that buyer, don’t you think you may be able to find a really good deal?
In a buyer’s market, the buyer often can set the terms of the offer and secure a bargain purchase price not previously available. The buyer might even persuade the seller to pay all or a portion of the closing costs, reducing the out-of-pocket cash required to buy the home. Two years ago, it was a seller’s market where good buys were hard to find. Today, we see a buyer’s market with deals galore.
Do you have the cash to invest in a home in this buyer’s market? If not, mortgage plans are available that do not require a large cash investment and provide down payment assistance. These plans even offer traditional 30-year fixed rates, not adjustable rates like so many of the problem loans we see today.
Have you already purchased a home and are stuck with one of those problem mortgages – one that has adjusted or is about to adjust to a much higher payment? Programs are available to help you, too. A problem mortgage often can be refinanced into a fixed-rate mortgage at an attractive interest rate.
We know of one homeowner with an adjustable rate mortgage starting at 6.75 percent, constant for two years and then adjusting to 9.75 percent, plus a second mortgage at 12.5 percent. He had even been late on a mortgage payment and a credit card payment! But this homeowner was able to refinance both loans into one fixed-rate mortgage at 6.75 percent, saving the family’s home from potential foreclosure.
What will happen to housing prices? In the long term, the real estate market will be fine. Population growth continues at a steady pace in most parts of the country, and life expectancy continues to increase. This combination means that long-term demand for housing will grow.
If you want to buy a home with the idea of selling it for a quick profit in a year or two, that’s a risk that probably does not make sense. But if you want to buy a home, live in it, enjoy it and hold on to it for a few years, this might prove one of the best buying opportunities we have seen in a long time.
Is this the bottom of the housing market? We don’t know. But we do know that real estate will increase in value over the long term as demand increases. While no one can say with assurance when housing prices will rise again, it is safe to say that it will happen.
Before you do anything, it is critical to become a knowledgeable buyer. Do your homework. Know your local market, monthly payment limits and long-term goals. Home ownership remains the American dream, and it can be yours, too.
# # #
James P. Graf is Vice President and Managing Director of Affinity Relationships at First Guaranty Mortgage Corp., a provider of conventional, FHA, VA and other home loans. He may be reached at jpgraf@fgmc.com.
# # #
Financial Advantages Of Homeownership
- Mortgage interest and real estate taxes are deductible from your income taxes each year you own your home.
- You build equity: Every payment reduces the principal amount of your mortgage loan, and you own more of your home.
- A home is usually a sound investment, since houses typically increase in value over time. Also, you can exclude up to $250,000 ($500,000 if married) of gain from taxes when the home is sold.
- Home improvements may be tax deductible when you sell. If you rent your home when you move out, you can depreciate the home and deduct repairs and expenses each year.
# # #
