With the unprecedented pounding the housing market has taken this year, it’s easy to lose sight of the important fundamentals about housing and homeownership that we should be sharing with the public and potential home buyers.
Most important: It’s a darn good time to buy a home. In fact, this is probably the best buyer’s market the nation will ever see, and it provides an extraordinary window of opportunity for home buyers.
One reason it’s a good time to buy is that mortgage interest rates are still at near-record lows. Where interest rates are concerned, I think we need to remind people that interest rates change and that even a 1 percent increase can add significantly to a monthly payment.
Another reason it’s a good time to buy is that inventory of new and existing homes is excellent, and buyers will find they have many choices. Also, owners of existing homes who are looking to trade up or relocate are ready to bargain.
If there’s a silver lining to the housing downturn, it’s that homes are more affordable. Prices have moderated significantly in many areas, especially in the super-hot major markets where they increased the most during the boom that recently occurred in many parts of the country.
With high energy costs and the need to conserve resources, it’s also important to remind prospective buyers that new homes today are more energy- and resource-efficient than ever before. Through the use of new materials and construction techniques, today’s homes are built to be twice as energy-efficient as new homes a generation ago.
Benefits of Homeownership
It’s also important to remind people about the unique tax benefits that apply only to housing and help lower the cost of homeownership. We all know that both mortgage interest and property taxes are deductible, but the amounts that buyers save can be a real eye-opener. According to NAHB calculations, a homeowner with an income of $100,000 ($74,195 taxable income) who is in the 25 percent tax bracket will see tax savings of $26,532 during the first five years of homeownership given a 30-year, fixed-rate mortgage for $300,000 at 6.52 percent interest. The same buyer would save $17,121 with a $200,000 mortgage on the same terms.
Equally important, profits of up to $500,000 on the sale of a principal residence (or $250,000 for a single owner) are excluded from capital gains taxes.
Leveraging is another advantage of homeownership. Buyers can purchase a home and receive the benefits of homeownership with a cash down payment that is only a fraction of the total price. The buyer’s return, however, is based on the property’s total value. This makes the rate of return on a home purchase much greater than what it would be on another investment with the same value where the buyer would have to put up the entire purchase price.
Building Personal Wealth
For most households, homeownership is a primary source of net worth and an important step in accumulating personal wealth and assuring financial security. Today, even though property values have declined in some markets, Americans have a total of $9 trillion in equity in their homes. For most Americans, home equity represents the largest share of their net worth.
No Place Like Home
Despite the positive financial aspects of homeownership, a home purchase cannot be valued in monetary terms only. Not only can homeownership be a stepping-stone to greater financial security, it also provides a permanent place to call home and great personal satisfaction. Academic research shows that homeownership results in a wide range of social benefits, and these benefits aren’t limited to individual households: Homeownership strengthens communities and is truly a cornerstone of the American way of life. B