Steve Harney has posted about the importance of homeownership often on this blog. He sees it as part of the American Dream and feels that there is a value in owning your own home that far transcends any economic advantages. He has done a great job of making his case. However, we want to look at just the financial advantages of homeownership in today’s post.

It may seem an odd time in real estate to be making the case for homeownership as an investment. We all know that real estate values in many parts of the country have dropped dramatically over the last four years. Yet, with that being the case, there is still tremendous evidence that buying a home today makes perfect sense … FINANCIALLY!

1. Buying May Be Cheaper Than Renting

Home values are back to 2003 prices in many parts of the country. Interest rates are at all time lows. It may just make economic sense to buy now because your housing expense will be less.

Professor Case, in the article mentioned above, states:

Four years ago, the monthly payment on a $300,000 house with 20 percent down and a mortgage rate of about 6.6 percent was $1,533. Today that $300,000 house would sell for $213,000 and a 30-year fixed-rate mortgage with 20 percent down would carry a rate of about 4.2 percent and a monthly payment of $833. In addition, the down payment would be $42,600 instead of $60,000… housing has perhaps never been a better bargain.

In many parts of the country it makes sense to take advantage of the current market and become a buyer at those numbers. A formula to determine whether to buy or rent used by Andres Carbacho-Burgos, a Moody’s economist, was explained in the Palm Beach Post last week:

Carbacho-Burgos looks to a price-rent ratio that considers the buy-vs.-rent question in a more mathematical way. The ratio is calculated by taking the median cost to buy a home and dividing it by the annual cost to rent.

A price-rent ratio less than 20 is considered a sign that it is better to buy.

For example, if the annual rent on a three-bedroom, one bathroom home is $15,000, and a similar home is selling for $200,000, the rent ratio is 13, favoring buying as the better option.

According to Moody’s, the average price-rent ratio using apartment rents in 2006 in Palm Beach County peaked at 31 but was down to 18 in the first quarter of this year.

Look at the numbers in your area and decide whether buying is the better option. And, there are tax advantages.

2. There Are Tax Advantages to Homeownership

There are several tax advantages to owning your own home. Karl E. Case, professor emeritus of economics at Wellesley and co-creator of Standard & Poor’s Case-Shiller housing index, discussed some of these advantages in a New York Times op-ed piece last week titled A Dream House After All:

(The) yield on investment in a house is the capital gain you receive if it appreciates and you sell the house. Gains are excluded from taxation if the property is a primary residence and the gain is less than $250,000 for a single filer or $500,000 for a married couple filing jointly… and, you can deduct the interest you pay on the mortgage.

You get a tax break on the interest now and you pay little or no taxes when you sell!!

3. Homeownership Builds Wealth

When you own a home, you are ‘forced’ to save by paying your mortgage every month. Part of that payment goes to paying down the principal on the mortgage money you borrowed. The equity you are creating is a form of savings.  In a recent article, Even in a Stagnant Market, There Are Benefits to Homeownership, Karen Dynan, vice president, co-director of the Economic Studies program, and the Robert S. Kerr Senior Fellow at the Brookings Institution claimed:

I am doubtful that we should be giving up on homeownership as a way for households to build wealth … (because) owning a home induced people to do some saving, first for the down payment and later through paying down principal as part of their monthly mortgage obligations.

You may argue that this only works if the home appreciates over time. Let’s look at this issue.

4. Real Estate is a Good Long Term Investment

The minute you mention a home as an investment today the first thing you hear is – “Go ask what someone who bought in 2006 thinks.” We don’t have to ask. We know what their answer will be. However, any investment vehicle deals with market fluctuations.

A person who placed money in the Dow in 2007 and sold it in January 2009 would have lost 49.3%. Even if they sold today they would still be at a 25% loss. Does that mean that we should never again invest in stocks?

If someone bought gold at the end of 1987 and sold it in 2000 they would have lost approximately 50% of their investment. I am sure there were those in 2000 who decried gold as an investment when it dropped to almost $250 an ounce.  I hope people didn’t listen as gold is now trading for over $1,200 an ounce.

Real estate was never touted as a great ‘short term’ investment. Let’s see how home values compare to other investments over a ten year time span – the last ten years. According to the Case Shiller Pricing Index real estate prices have appreciated 40.3% since their August 2000 report. During that same ten year time period, the Dow Jones Average lost 7.04%.

Obviously, as a longer term investment, it beats the stock market. But, what will happen to prices going forward?

5. Experts Expect Home Price Appreciation Starting Next Year

Macro Markets surveys over 100 housing industry experts each month to determine what they believe will happen to home values over the next five years. Though they believe that prices will continue to soften for the rest of this year (-2.08%), they feel that prices will stabilize next year (.78% appreciation) and then show three more years of increasing percentages of appreciation (2012 – 2.43%; 2013 – 3.2%; 2014 – 3.69%).

Bottom Line

We believe that purchasing a home now will prove to be a sound financial decision for years to come. People who didn’t believed all the hype in 2006 made good economic decisions. People who do not get caught up in the negativity of today’s market and purchase a home now will do the same. As Warren Buffet said, “When others are greedy, be fearful. When others are fearful, be greedy.”

Reuters report 9/1: “It is not high on anyone’s list that we have heard. We have not heard Congress talking about renewing it.”  – HUD Secretary Shaun Donovan regarding a possible renewal of the homebuyer tax credit.

ORIGINAL POST

Rumors are running wild that the administration is considering a new tax credit for homebuyers. We don’t want to comment on whether or not a new tax credit would be a good or bad thing for real estate right now. We’ll let others handle that hot potato. Our goal is to give you the best, up-to-date information on the chances it will happen.

Our strong belief is that it will NOT happen.

The rumor started when Housing and Urban Development Secretary Shaun Donovan appeared on CNN‘s “State of the Union with Candy Crowley” on Sunday. CNN reported:

When pressed on whether the White House will now push for an extension of the tax credit, Donovan suggested the credit will not come back in the short-term but he left the door open to bringing it back down the road if the industry does not improve.

“I think it’s too early to say, after one month of numbers, whether the tax credit will be revived or not,” Donovan told CNN. “All I can tell you is that we are watching very carefully. I talked earlier about new tools that we will launch in the coming week, and we are going to be focused on where the housing market is moving going forward. And we’re going to do everything we can to make sure that this market stabilizes and recovers.”

This started a firestorm of conversation as to whether the administration was going to announce a new tax credit anytime soon.

What has happened since?

Economist Tom Lawler came out saying he believes that Donovan was caught off guard and started to adlib a response:

As best as I can tell Secretary Donovan was in New Orleans giving interviews on the “Katrina” anniversary, but CNN’s reporter focused first on housing and the possibility of a “double dip.” and Donovan appeared to be “winging it.”

The Wall Street Journal reported:

On Monday, there was this reply from Robert Gibbs, the White House press secretary: “I think bringing that [tax credit] back is not on — is not as high on the list as many other things are.”

Diana Olick from CNBC stated:

I went the official route and followed up with a HUD spokesperson who responded:  “No news here…there are no discussions underway to revive the credit.”

Why do we think it won’t happen?

The purpose of the original tax credit was to lower the supply of homes on the market by increasing demand. The administration felt that was necessary to stabilize prices. It worked in November. Inventory did decrease and prices stabilized.

However, as we can see by the graph below, the extension of the tax credit actually did the exact opposite in April. Instead of lowering supply, it prompted sellers (both homeowners and banks with a pent-up supply of distressed properties) to put their houses on the market as they saw an opportunity to sell.

We do not believe that the administration or Congress will try to lower supply that way again. They are trying to limit supply by preventing foreclosures using an assortment of refinancing and modification programs instead.

Bottom Line

There is no way for anyone to be 100% sure of anything pertainig to the housing market right now. However, we strongly believe that buyers should not put off a decision to purchase in anticipation of a tax credit that probably will never come to fruition. Find the home of your dreams, move in and make sure that you and your family begin enjoying the lifestyle you always dreamt about and deserve. That is so much more important than a couple of dollars you may never see anyway.

MacroMarkets has assembled a very distinguished panel of over 100 economists, investment strategists, and housing market analysts who are surveyed every month regarding their 5-year expectations for future home prices in the U.S. The report is the Home Price Expectations Survey.

Their purpose for this undertaking?

We are hopeful that this survey, and our panelists, will help to stimulate constructive debate among consumers, institutions and policy makers regarding expected future changes in home prices – and their behavioral, policy, and risk management implications.

We believe each of their goals is important. We also want to relay the findings of the surveys to you in order for you to see what the experts are saying and also look at the trends that are developing in their beliefs.

What the experts are saying:

The August survey reported that only 21% of those surveyed predict “positive growth in prices nation-wide for 2010”. The report also revealed that the group, as a whole, predicts that home prices will have a cumulative 8.43% appreciation by the fourth quarter of 2014.

What trends are developing:

The report shows an increase in concern about the housing recovery. The survey reports that 79% of the economists and analysts surveyed are expecting home prices to decline this year. That number is up from 40% in May.

For the third consecutive month, the consensus from the experts indicates weakened overall confidence in the U.S. housing recovery … (with) average expected cumulative price appreciation through 2014 falling almost one-third since our inaugural survey just three months ago …

The evolution of the panel toward more conservative projections of appreciation for the next five years can be seen in their adjustment of that cumulative mean appreciation over the last four reports. Here is their percentage projection of appreciation for the 4th quarter of 2014 (compared to the 4th quarter of 2009).

• May’s report called for a five year cumulative appreciation of 12.43%.
• June’s report called for a five year cumulative appreciation of 10.46%.
• July’s report called for a five year cumulative appreciation of 9.46%.
• Augusts’ report called for a five year cumulative appreciation of 8.43%.

Bottom Line:

The leading housing industry experts are becoming less optimistic about a  recovery. Waiting for prices to come back before selling? That could be a rather long wait.

It’s been hard to fault home buyers who haven’t rushed to buy a home, now that there is no longer any Federal Tax Credit. I mean, if you read this blog with any consistency, we all know that home prices are going to continue to tumble, and there is no indication of interest rates climbing anytime soon; so, who can criticize a home buyer (or any buyer of anything for that matter) for not buying when they can get it cheaper by waiting. And when you add in the flood of inventory looming, there also means that there is a greater selection to be had by waiting.

I believe many real estate agents and loan professionals actually agree with these waiting buyers which is why they can’t help the buyer “off the fence” and into a home. They think buyers should wait. Today, I need to remind you of two compelling reasons why waiting could be hazardous for those who expect to utilize the FHA loan programs for their purchase.

1.  The change in the FHA insurance Premiums

The lessening of the Upfront Mortgage Insurance Premium to offset the increasing Monthly Insurance Premium has a direct impact on the loan amount a given applicant can qualify for.  In most cases, buyers/borrowers will have their buying power reduced 4%—-IF RATES STAY RIGHT WHERE THEY ARE. People looking at $400,000 homes, now will be looking at $385,000 homes which could change entire neighborhoods (or move them from the “good section” to the “not-so-good section” of a neighborhood).  This change is already scheduled to take effect for FHA Case Numbers issued after October 4^th….that will require buyers to be in contract before that….that means there aren’t many days left to find a home, negotiate terms for the sale, and get fully executed contracts signed.

2.  There is a likely-to-be-approved proposal which would limit the allowable Sales Concession on an FHA transaction to 3%.

Today, sellers can pay up to 6% of a buyer’s closing costs (including discount points) and pre-paid expenses (like real estate tax escrows and homeowner’s insurance). In some transactions, it requires a buyer to accumulate an additional 3% of the sales price of a home to have sufficient funds to close. On our $400,000 home that would be an additional $12,000 in savings before you could buy a home. How long will that take a first time buyer to accumulate?  Six months? A year?  Two years? What will interest rates look like then?  If they a higher (as expected), we will be pushing the date to buy off even further into the future. While this change in the program is not official YET, even the Mortgage Bankers Association of America is holding out little hope that they can get FHA to go to 4%.  Insiders point to a September/October announcement.

When you combine the impact of a higher monthly payment (resulting from a higher Monthly Mortgage Insurance Premium) and a higher need for cash accumulation (because of a reduced sales concession), why wait?  Buyers – get off your couch and get serious about acting sooner than later! Sellers – price your homes at a compelling number, as to not miss any opportunity to attract a qualified, motivated buyer. There are valid reasons for a “sense of urgency”…..don’t be lulled into thinking you have all the time in the world.

CNBC report 9/2: “Pending sales of previously owned U.S. homes rose unexpectedly in July … suggesting a tax credit-related housing market decline was close to bottoming.”

ORIGINAL POST

The new housing numbers have definitely been a major news story over the last 48 hours. The Dow dropped over 100 points on the announcement of July’s existing sales numbers. The cries of a double-dip sound like the screams of Chicken Little: ‘The sky is falling! The sky is falling!’ Pundits are claiming real estate will never be looked at the same again. We asked Steve Harney to comment on what the report actual means to the housing recovery. As always, he was more than willing to share his insights. – The KCM Crew

I want to start by saying that Armageddon is not upon us. Was NAR’s Existing Home Sales Report tough to read? Yes. Were there any surprises in the report? Just one: the fact that prices have remained stable. And that was good news.

All the panic and gut-wrenching revolves around two numbers:

1. The lack of sales in July
2. The months’ supply of inventory now available

Neither number was a surprise to anyone truly following the real estate market. Right here in this blog, the KCM Crew has been claiming for the last nine months that sales in 2010 will be approximately what they were in 2009. The tax credit moved many purchases forward as buyers wanted to be in contract before the April 30 deadline. That push forward of demand created a false sense of hope that a major market comeback was taking place in the spring. It also created this current vacuum of demand during the summer.

Just as we should have realized that the great market of the spring could not be sustained, we must now realize that plummeting sales numbers will not continue. It may take one or two months for the impact of the tax credit to fully dissipate. After that, we will see a more normal buyer demand throughout the fall and winter. We must not forget that people decide to move every day. Prices are great, interest rates are at historic lows and the assortment of properties for sale is fabulous. Buyers will buy!!

In regard to the months’ supply of homes for sale, we must remember one basic principle: prices will come down if demand is constant and inventory increases. Houses will sell over the next twelve months, approximately 5 million of them. There may be more than double that amount trying to sell however. Which ones will sell? Those that are priced correctly for the current market. Your price must be compelling in order to make your home attractive to today’s buyers who have a tremendous selection of homes from which to choose.

As the year moves forward, it is my belief that months’ inventory will remain in double digit numbers. That means that prices will continue to soften.

What does this mean to you?

You definitely will be able to sell your home and move on with your life. If that’s the goal, you will do better financially if you do it sooner rather than later.

We want to begin by saying there were absolutely no surprises in this month’s National Association of Realtors Existing Home Sales Report. Experts were calling for a dramatic fall off in volume and a substantial increase in month’s supply of inventory. Everyone now realizes that the tax credit actually pulled more demand forward than it created. The inventory of unsold homes is increasing as the shadow inventory of distressed properties is beginning to be released by the banks.

The report just confirmed what we already knew. Yet, it was still difficult to read.

What the report said:

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009. Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales – accounting for the bulk of transactions – are at the lowest level since May of 1995 … Existing single-family home sales fell in all 20 areas from a year ago.

The national median existing-home price for all housing types was $182,600 in July, up 0.7 percent from a year ago. Distressed home sales are unchanged from June, accounting for 32 percent of transactions in July; they were 31 percent in July 2009.

Total housing inventory at the end of July increased 2.5 percent to 3.98 million existing homes available for sale, which represents a 12.5-month supply at the current sales pace, up from an 8.9-month supply in June. Raw unsold inventory is still 12.9 percent below the record of 4.58 million in July 2008.

What the experts are saying:

Mark Zandi, chief economist at Moody’s Analytics:

“We probably, almost assuredly, will experience more house price declines. I think that would qualify as a double dip.”

Calculated Risk:

“Usually July is the peak month for inventory. This level of inventory is especially bad news because the reported inventory is already historically very high, and the 12.5 months of supply in July is far above normal. The months-of-supply will probably decline in August as sales rebound slightly and some sellers take their homes off the market, but I expect double digit months-of-supply for some time – and that will be a really bad sign for house prices.

Above 6 or 7 months of supply, house prices are usually falling. This isn’t perfect – it is just a guideline. Over the last year, there have been many programs aimed at supporting house prices, and house prices increased slightly even with higher than normal supply. However those programs have mostly ended.

This is a key reason why I expect house prices to fall further later this year as measured by the Case-Shiller and CoreLogic repeat sales house price indexes, although I don’t expect huge declines like in 2008. My expectation is further price declines of 5% to 10% on the repeat sales indexes.”

Real Trends:

“It is our belief that total sales volume in the second half of 2010 will be down versus the second half of 2009 (in many markets, we believe that decline will be sharp enough so that full-year 2010 will be less than full-year 2009) … Although these figures aren’t likely to fill anyone’s heart with joy, they should not be a huge surprise to anyone.  There’s no doubt that the next 6 to possibly 18 months will not be for the faint of heart but those that will fare best are those that enter this with eyes wide open and plan accordingly.”

The Bottom Line

All real estate is local. Contact a professional agent that is seen as an expert in your area. But remember, in most regions, demand is down and supply is up. There will continue to be downward pressure on home prices.

We have been discussing home prices in this blog for over a year. The principle of ‘supply and demand’ has been our rallying cry for the entire duration. Pricing of any item is determined by the number of items for sale in ratio to the number of purchasers looking to buy that item.

Here is an industry guideline we have used:

• 1-4 months inventory means it is a sellers’ market and we can expect appreciation.
• 5-6 months inventory means it is a balanced market with prices following inflation.
• 7+ months inventory means it is a buyers’ market and we can expect depreciation.

It now appears that the National Association of Realtors (NAR) is letting their membership know that ‘supply and demand’ will determine house prices for the foreseeable future. In two separate reports released on Wednesday, NAR addressed the issue of both an increasing supply of homes for sale and a decreasing demand.

In Economic Commentary: Varying Signs, Lawrence Yun, NAR’s chief economist, speaks of the anticipated demand for housing for the rest of the year:

“One thing is clear, however: slow business spending will mean slow economic expansion and a slow pace of job creation. The frustration of traveling at 40 mph on a wide open 70 mph freeway will be with us for the foreseeable future if businesses continue to hold back. The unemployment rate could also remain stuck at a stubbornly high level — 9.5 to 10 percent. It also means that home sales in the second half of this year will be markedly slower than in the first half of 2010.” (emphasis added)

Jed Smith, Managing Director, Quantitative Research for NAR in a report titled The Housing Markets: Supply, Demand, and Current Issues addresses increased supply:

“There has also been concern over a potential shadow inventory of distressed properties: as of the first quarter of 2010 over 6.5 million homes were in foreclosure or had overdue mortgage payments. Possibly as much as 75 percent of the shadow inventory will ultimately be sold as distressed. However, given the ongoing time delays for problem resolution it appears that distressed properties will enter the market at approximately the current or a slightly increased rate for the next few years. Foreclosures are a major negative market influence in terms of price, consumer confidence, and expectations; however, a tsunami of shadow inventory appears unlikely.”

There are 4.875 million distressed properties that will come to market (75% of 6.5 million). Last year, according to NAR, there were just over 5 million homes sold. If not a tsunami, there will at least be some very stormy weather as we hope for a recovery in housing. Smith goes on to say:

“A number of homeowners who have deferred listing their homes due to market conditions may also now reenter the market, resulting in increased home inventories as the economy recovers. Once the employment numbers improve, pent-up demand may help to increase sales. In the short run, however, we may actually see additional inventory on the market as a result of listings by deferred sellers.”

More and more homeowners that had held off putting their homes up for sale in hopes of a housing recovery, now realize that a recovery may not occur for some time. They are now placing their homes on the market.

What does that mean for prices?

The report by Smith puts it all into perspective:

“An increase in the inventory of unsold homes indicates that there is an excess supply relative to demand…Prices tend to rise as supply falls. During the first part of 2010 the months’ supply of inventory decreased from earlier highs—accompanied by stabilizing prices. In June, month’s supply increased to 8.9 months from the previous 8.3 months. If the increase proves to be a temporary adjustment due to pent-up listing of homes, then prices should continue to stabilize, particularly if employment increases. If inventory supply continues to increase without adequate job increases, the housing market will be subject to additional pricing pressures.”

NAR releases their Existing Homes Sales Report next Tuesday. We’ll report on the months’ supply of inventory shown in that report.

While we still see a tightening of mortgage underwriting guidelines for many loan programs, or even an increase in costs associated with the FHA loan program, there has emerged an increased appetite for Jumbo Mortgages in the marketplace. Today, I’d like to discuss the “What?”, “Why?” and “How It Affects You?” of the evolving landscape.

Let’s begin with the “What?”:

1. There are really two categories of Jumbos. One lies within the existing Fannie Mae/Freddie Mac/FHA loan limits. It’s in the zone between the old loan limit ($417,000 in high cost areas) to the current loan limit ($729,250 in high cost areas). Often these loans are referred to as Non-Conforming. The second type of Jumbo is the loans that exceed the current loan limits….those above the $729,250 number. For the purpose of this discussion, there is little difference as to the changing market, but there is a difference in loan eligibility requirements and pricing.
2. When I refer to an increased appetite for these loans, I do not mean to say there is a lowering of qualifying standards. When we underwrite Jumbos, there are still firm guidelines as far as FICO scores, income ratios, down payment and reserve requirements. What we are seeing is that there are more people looking to lend on these loan products. More buyers of these types of loans (increased demand, more competition) have brought the cost of the loans down considerably (lower rates for borrowers).

Now to the “Why?”:

Historically, Jumbo loans perform well (which means their delinquency rates are low). With the stricter underwriting criteria, there is no reason to believe that won’t continue to be true.

While it is true that the call for Jumbos in the Mortgage Backed Securities world is still a bit lagging, many banks and other portfolio lenders are closing these loans and holding them in their own portfolio for primarily two reasons:

1. The rate of return is better than they can get elsewhere. Performing mortgages are delivering over a two percentage point return more than comparable treasury bills, for example.
2. When these loans prove their performance history, they will become more marketable in the MBS world. So when rates do climb in the future, these loans will be sold for a profit and the cash received will be reinvested in higher yielding products.

Finally, “How does this affect you?”:

With rates so attractive, homes are more affordable. Because Jumbo loans typically attract move up buyers (as opposed to first time buyers), the analysis of numbers can often demonstrate that home sellers can get a bigger or more expensive home for a manageable payment. That may even allow a home seller to accept a lower price on their current home to get into the new home NOW while rates are so attractive.

We are building a home for real estate information here at the KCM Blog. Our job is to accurately reflect what is taking place in the residential housing market in this country. The entire team takes this job very seriously. With the market evolving so rapidly, it has become a daunting task.

We looked at what certain experts were predicting about a possible double dip in housing yesterday. Today, we have compiled the thoughts of five industry players to help show where the experts think home prices are headed for the rest of this year and going into 2011.

Three of the major housing price indexes:

Altos Research:

“The market, right now, is a veritable case study of the law of supply and demand. Right now, there’s a whole lot of supply, but very, very little demand. The buyers that drove a flurry of activity during the spring have left a deafening silence in their wake … Increases in inventory nationwide show that demand simply isn’t there. As the market continues to correct itself, and as we head into the seasonally weak fall and winter months, expect more increases in inventory, and likely deepening declines in asking prices.”

Radar Logic:

“It is our belief that housing prices will decrease in the autumn, perhaps precipitously, and that may cause a second dip in the U.S. economy … And home buyers are not demonstrating any perceivable confidence that we have found the bottom, yet. As we begin to see the data for the fall, we expect it will be soft, that volumes and prices will move lower … If we are right, the odds of a double dip in the economy may well be more than one in four.”

Mark Fleming, chief economist for CoreLogic:

“Home price volatility and collateral risk remain very high. The stabilization phase and policy intervention since the spring of 2009 has run its course. Prices are expected to further moderately decline as the economy remains weak through the fall.”

Two other housing experts:

Ethan Harris, coordinator of global economics at Bank of America Merrill Lynch:

“I don’t think the housing market will double-dip. What we’re seeing in housing is a bottoming out at very low levels of activity. So, we expect a very long U-shaped recovery in housing in the next year or two. We expect home prices to be down slightly across the country. We expect construction to be essentially flat, and we expect continued very high levels of home foreclosures. Right now the housing market is in a standoff with very cheap financing and very low prices, encouraging buyers, but a flood of foreclosures offsetting that demand. A true recovery in the housing market isn’t likely until 2012, when we see substantial improvement in the foreclosure picture.”

Michael Carliner, research affiliate at the Harvard University Joint Center for Housing Studies:

“Although existing home sales data, based on closings, haven’t yet shown the effect of the end of the tax credit, new home sales and contracts on existing homes have both fallen to record lows following the end of the tax credits.

The reality is that the real estate market won’t fully recover until builders and consumers start believing once again that housing is a relatively safe investment with reasonable returns, and that will take some time.”

We hope that information like this enables you to more easily understand your options in today’s volatile housing market.

I believe very strongly in the importance of homeownership in this country. A home is much more than just a financial investment. It is a parents’ investment in their children. It is a family’s investment in their community. It is the people’s investment in America.

I have written extensively on the fact that real estate is still one of the best long term investments available. There is plenty of evidence that people believe owning a home is more advantageous than renting. There is no doubt that homeowners are more committed to the community. Homeownership is an integral part of the fabric of this country.

Yet, there are still those that argue against these points. My fear is that people in power are listening to these naysayers; people in position to make decisions that will impact the ability of families to purchase a home. The percentage of homeownership has already fallen to the levels of 1999. And now it seems that some in government are questioning the actual concept of homeownership.

USA Today in an article last week entitled Feds rethink policies that encourage home ownership reported:

Just how much should Uncle Sam do to help Americans buy their own homes? For 70 years — and for the last 15 in particular — the answer has been: Whatever it takes. Now, policymakers are pausing to reconsider. In the next few months, they’ll weigh whether there can be too much of a good thing when it comes to helping families finance the American Dream … Washington is preparing to rebuild the national mortgage market atop the ruins of Fannie and Freddie. The proposal, due early next year from the Obama administration, could make it harder to buy a home by reducing available credit or requiring bigger down pay-ments. Low-income renters might get more government help.

The National Association of Realtors has just put out an excellent research paper, Social Benefits of Homeownership and Stable Housing. In the report, which has over 40 citations to academic studies and reports, they do an excellent job of spelling out the social benefits of homeownership. Let’s make sure we hear both sides of the argument before we start changing our beliefs in what makes us the great nation we are.

The KCM Crew and I had the privilege to hear Colin Powell speak at a leadership conference last year. He explained to everyone in the room that, before we lose faith in what we are as a nation, we must remember:

“Every morning in every other country, there is a long line of people outside of every one of our embassies looking to come to America.”

That is because this country has always encouraged its people to dream. Homeownership is one of the grandest dreams of many Americans. Let’s not make this dream any harder to attain.