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Home Improvement

2008-12-01 14:57:00

Is it a good time to buy a home?

Question: Is it a good time to buy a home that is on the market?

Answer: For those whose homeownership aspirations have been dampened or temporarily derailed by the housing and economic downturn—the people wondering if this is a good time to buy—the answer is simple: Yes. It’s a good time to buy. Today’s market, coupled with a temporary tax credit for first-time home buyers and near-record low mortgage interest rates, provides an unprecedented window of opportunity for prospective home buyers. In fact, there may never be another buyer’s market as good as today’s. Opportunity of a Lifetime for First-Time Buyers Even Congress thinks it’s a good time to buy a home as it demonstrated with enactment of a $7,500 federal tax credit for first-time home buyers. Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit. Partial credits of less than $7,500 are available for individual taxpayers with incomes up to $95,000 and for married taxpayers with incomes up to $170,000. But like so many of the good things in life, time is of the essence. Only homes purchased on or after April 9, 2008 and before July 1, 2009 are eligible for the tax credit, which works like an interest-free loan and must be repaid over a 15-year period. Detailed information about how the tax credit works is available at FederalHousingTaxCredit.com. Ample Inventory An outstanding selection is another reason that it’s a good time to buy. Available inventory provides buyers with a great choice of homes and a number of builders have inventory that is “move-in ready.” Attractive Pricing 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 the high-flying major markets where they increased the most during the boom that recently occurred in many parts of the country. In the greater Wichita area, prices have not declined, which means the benefit of investing in a new home today makes even more sense than ever. Low Interest Rates Like inventory and pricing, mortgage interest rates are at very favorable levels and mortgage money is available through area lenders, and qualified buyers should not have trouble getting financing. For several years, mortgage rates have been near record lows. But rates can, and do, change. No one is predicting that rates will suddenly surge upward, but they don’t have to increase much for monthly mortgage payments to rise from affordable to prohibitive. Greener and Better With high energy costs near the top of consumer concerns, it’s good to know 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 twice as energy efficient as new homes a generation ago, making them more affordable to own and operate. Benefits for Buyers Home ownership also provides important benefits to owners and to the nation. Tax Benefits: For Home Owners Only Unique tax benefits that apply only to housing also help lower the cost of home ownership. Both mortgage interest and property taxes are deductible. Moreover, profits of up to $500,000 on the sale of a principal residence (or $250,000 for a single owner) are excluded from tax on capital gains. The Power of Leveraging Leveraging is another advantage of home ownership. A buyer can purchase a home and receive the benefits of home ownership with a cash downpayment that is only a fraction—as little as 10 percent or less—of the total purchase price. However, the buyer’s return is based on the property’s total value. This is called leveraging, and it makes the rate of return on a home purchase much greater than on another investment with the same value where the buyer must put up the entire purchase price. If a buyer makes a downpayment of $15,000 on a $200,000 home and the home’s value increases to $205,000, then the home owner’s equity (the value of the home minus mortgage debt) has increased from $15,000 to $20,000. That’s about a 33 percent increase. Building Personal Wealth For most Americans, home ownership 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, and for most Americans, home equity represents the largest share of their net worth. There really is No Place like Home Despite the positive financial aspects of home ownership, a home cannot be valued in monetary terms alone because it is so much more than just an investment. Not only can home ownership be a stepping stone to greater financial security, it provides a permanent place to call home and great personal satisfaction. Academic research shows that home ownership results in a wide range of social benefits. Moreover, benefits aren’t limited to individual households. Home ownership strengthens both the nation’s people and its communities. It is truly a cornerstone of the American way of life. What About the ‘What Ifs’? Given the ongoing turmoil in the housing and financial markets, many people who want to buy homes are sitting on the fence, either waiting for the market to bottom out or fearing that it never will. So what is the chance that the market will continue to decline, prices will continue to drop and a home purchased today will be worth less a year from now? Of course, no one can know for sure what will happen a month, six months or a year from now. Housing is predictably cyclical, but the current housing slump has already lasted longer than previous downturns. Moreover, timing the market is a strategy that rarely works; by the time it’s clear that a market has turned around, it’s too late to take best advantage of the conditions at the bottom. It’s also important to remember that home prices have not declined equally in all areas. The Wichita Area market has preformed very well with property values holding and trending upward.