Jack Kirk Sr's Real Estate Blog

by Brett Arends
Thursday, September 16, 201

Brett Arends explains why owning a home is a good thing.

Enough with the doom and gloom about homeownership.

Sure, maybe there’s more pain to come in the housing market. But when Time magazine starts running covers that declare “Owning a home may no longer make economic sense,” it’s time to say: Enough is enough. This is what “capitulation” looks like. Everyone has given up.

After all, at the peak of the bubble five years ago, Time had a different take. “Home Sweet Home,” declared its cover then, as it celebrated the boom and asked: “Will your house make your rich?”

But it’s not enough just to be contrarian. So here are 10 reasons why it’s good to buy a home.

1. You can get a good deal. Especially if you play hardball. This is a buyer’s market. Most of the other buyers have now vanished, as the tax credits on purchases have just expired. We’re four to five years into the biggest housing bust in modern history. And prices have come down a long way— about 30% from their peak, according to Standard & Poor’s Case-Shiller Index, which tracks home prices in 20 big cities. Yes, it’s mixed. New York is only down 20%. Arizona has halved. Will prices fall further? Sure, they could. You’ll never catch the bottom. It doesn’t really matter so much in the long haul.

Where is fair value? Fund manager Jeremy Grantham at GMO, who predicted the bust with remarkable accuracy, said two years ago that home prices needed to fall another 17% to reach fair value in relation to household incomes. Case-Shiller since then: Down 18%.

2. Mortgages are cheap. You can get a 30-year loan for around 4.3%. What’s not to like? These are the lowest rates on record. As recently as two years ago they were about 6.3%. That drop slashes your monthly repayment by a fifth. If inflation picks up, you won’t see these mortgage rates again in your lifetime. And if we get deflation, and rates fall further, you can refi.

3. You’ll save on taxes. You can deduct the mortgage interest from your income taxes. You can deduct your real estate taxes. And you’ll get a tax break on capital gains—if any—when you sell. Sure, you’ll need to do your math. You’ll only get the income tax break if you itemize your deductions, and many people may be better off taking the standard deduction instead. The breaks are more valuable the more you earn, and the bigger your mortgage. But many people will find that these tax breaks mean owning costs them less, often a lot less, than renting.

4. It’ll be yours. You can have the kitchen and bathrooms you want. You can move the walls, build an extension—zoning permitted—or paint everything bright orange. Few landlords are so indulgent; for renters, these types of changes are often impossible. You’ll feel better about your own place if you own it than if you rent. Many years ago, when I was working for a political campaign in England, I toured a working-class northern town. Mrs. Thatcher had just begun selling off public housing to the tenants. “You can tell the ones that have been bought,” said my local guide. “They’ve painted the front door. It’s the first thing people do when they buy.” It was a small sign that said something big.

5. You’ll get a better home. In many parts of the country it can be really hard to find a good rental. All the best places are sold as condos. Money talks. Once again, this is a case by case issue: In Miami right now there are so many vacant luxury condos that owners will rent them out for a fraction of the cost of owning. But few places are so favored. Generally speaking, if you want the best home in the best neighborhood, you’re better off buying.

6. It offers some inflation protection. No, it’s not perfect. But studies by Professor Karl “Chip” Case (of Case-Shiller), and others, suggest that over the long-term housing has tended to beat inflation by a couple of percentage points a year. That’s valuable inflation insurance, especially if you’re young and raising a family and thinking about the next 30 or 40 years. In the recent past, inflation-protected government bonds, or TIPS, offered an easier form of inflation insurance. But yields there have plummeted of late. That also makes homeownership look a little better by contrast.

7. It’s risk capital. No, your home isn’t the stock market and you shouldn’t view it as the way to get rich. But if the economy does surprise us all and start booming, sooner or later real estate prices will head up again, too. One lesson from the last few years is that stocks are incredibly hard for most normal people to own in large quantities—for practical as well as psychological reasons. Equity in a home is another way of linking part of your portfolio to the long-term growth of the economy—if it happens—and still managing to sleep at night.

8. It’s forced savings. If you can rent an apartment for $2,000 month instead of buying one for $2,400 a month, renting may make sense. But will you save that $400 for your future? A lot of people won’t. Most, I dare say. Once again, you have to do your math, but the part of your mortgage payment that goes to principal repayment isn’t a cost. You’re just paying yourself by building equity. As a forced monthly saving, it’s a good discipline.

9. There is a lot to choose from. There is a glut of homes in most of the country. The National Association of Realtors puts the current inventory at around 4 million homes. That’s below last year’s peak, but well above typical levels, and enough for about a year’s worth of sales. More keeping coming onto the market, too, as the banks slowly unload their inventory of unsold properties. That means great choice, as well as great prices.

10. Sooner or later, the market will clear. Demand and supply will meet. The population is forecast to grow by more than 100 million people over the next 40 years. That means maybe 40 million new households looking for homes. Meanwhile, this housing glut will work itself out. Many of the homes will be bought. But many more will simply be destroyed—either deliberately, or by inaction. This is already happening. Even two years ago, when I toured the housing slump in western Florida, I saw bankrupt condo developments that were fast becoming derelict. And, finally, a lot of the “glut” simply won’t matter: It’s concentrated in a few areas, like Florida and Nevada. Unless you live there, the glut won’t have any long-term impact on housing supply in your town.

Write to Brett Arends at brett.arends@wsj.com

How to buy a foreclosure
Many buyers, especially first-timers, hope to purchase a foreclosed property at a bargain price.  While purchasing a foreclosed home can be a wise choice for some buyers, it is important that buyers understand the differences in buying at different stages of foreclosure and be prepared to take on the challenges typically associated with each.

MAKING SENSE OF THE STORY FOR CONSUMERS

• There are three basic stages of foreclosure in California: Pre-foreclosure, trustee’s sale, and repossession, often called an REO or real estate owned by the bank.
• Pre-foreclosure homes are in the foreclosure process, but have not yet been auctioned.  Owners of pre-foreclosed homes often try to sell the properties because they are “underwater,” meaning they owe more on the mortgage than the home currently is worth.  Many homeowners attempt to sell via short sale, where the lender must agree to accept less than the amount owed on the mortgage.  Buying at this stage of foreclosure often is a complicated and slow process. However, buyers of pre-foreclosed properties often are given the opportunity to inspect the home prior to purchasing, whereas this is not always the case when buying at other stages of foreclosures.
• The second basic stage of foreclosure is the public auction at a trustee’s or foreclosure sale.  Homes in this stage often are well priced, but also come with challenges to buy.  These homes may not be available for inspection and buyers may later discover the property needs numerous repairs.  As a result, many of the homes at auction are purchased by investors and contractors who have experience working with homes needing numerous repairs, or taken back as REO by the foreclosing lenders.
• If a home does not sell to a third party at the trustee’s auction, the bank takes the property (REO Property)–the final stage of the foreclosure process. Although homes in this stage typically do not offer buyers the best prices, buyers generally can perform a thorough inspection of the property prior to closing.

To read the full story, please click here.

I found this through a CAR posting. This very easy to follow chart clearly defines how a Home Buyer may qualify for the California State and Federal Tax Credits. Please review this link:

Homebuyer Tax Credit Chart 2010.

This chart was provided by CAR

Distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure, or loan modification.  Enacted into law yesterday, Senate Bill 401 generally aligns California’s tax treatment of mortgage debt relief income with federal law.  For debt forgiven on a loan secured by a “qualified principal residence,” borrowers will now be exempt from both federal and state income tax consequences.  The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000.

“Qualified principal residence” indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence.  It includes both first and second trust deeds.  It also includes a refinance loan to the extent the funds were used to payoff a previous loan that would have qualified.

The tax breaks apply to debts discharged from 2009 through 2012.  Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment.
 
Taxpayers who do not qualify for the above exemptions (e.g., second home or rental property) may nevertheless be exempt under other provisions.  Most notably, taxpayers who are bankrupt are exempt from debt relief income tax.  Also, taxpayers who are insolvent are exempt from debt relief income tax to the extent their current liabilities exceed current assets.

For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board’s Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service’s Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage.  The full text of Senate Bill 401 is available at www.leginfo.ca.gov.

This article was provided by CAR.

A new national survey gauging attitudes toward housing finds that two-thirds of Americans (65 percent) still prefer owning a home, despite the challenging economic environment and the housing downturn. The Fannie Mae National Housing Survey, conducted between December 2009 and January 2010, polled homeowners and renters to assess their confidence in homeownership as an investment, the current state of their household finances, views on the U.S. housing finance system, and overall confidence in the economy.

The survey revealed that homeowners and renters alike are taking a more cautious approach to homeownership. Nearly a quarter of renters polled (23 percent) said they will buy a home later than once planned. In addition, Americans with traditional, fixed-rate mortgages with predictable payments are significantly more satisfied than those with other types of mortgages. Respondents cited non-financial reasons such as safety (43 percent) and quality of local schools (33 percent) as driving factors in wanting to own a home, ahead of financial considerations.

A majority of consumers (60 percent) believe that buying a home today is harder than it was for their parents, and nearly seven in 10 (68 percent) think it will be even more difficult for their children. Most respondents (88 percent) also believe that walking away from an underwater mortgage is not acceptable, but those who know someone who has defaulted are more than twice as likely to have seriously considered stopping payments on their mortgage.

More info

This article was provide by CAR.

You don’t have to be a first time home buyer to take advantage of the “Extended Home Buyer Tax Credit”.

You could receive an $6,500 TAX CREDIT if you are CURRENTLY A HOMEOWNER and purchase another owner occupied home between November 7, 2009 and April 30, 2010 that closes escrow by July 1, 2010. You must have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.

You could be eligible for an $8,000 TAX CREDIT if you are a FIRST-TIME HOME BUYER and purchase a home between November 7, 2009 and April 30, 2010 that closes escrow by July 1, 2010. You or your spouse must not have owned a home during the three years prior to the purchase.

The purchase price cannot exceed $800,000. Also, single Buyers with incomes that do not exceed $125,000 and married couples with combined incomes up to $225,000 may receive the maximum tax credit. The tax credit will not need to be repaid as long as the home is “owner occupied” for three years or more. If the property is sold during this three-year period, the full amount of the tax credit will be recouped on the sale.

“Short Sales” What is a Short Sale? Who can explain what a Short Sale is? Is a Short Sale best for me?

A short sale in real estate occurs when the outstanding obligations (mortgages, including HELOCS) are greater than the properties value or potential sales price. The owner of the property lists the property for sale with a Realtor of their choice at the market price and the Realtor prepares a request (Short Sale Package) that is sent to the Lender(s) requesting a  reduction in the mortgage(s) balance that will match the sales net. The Realtors commission is paid out of the sales proceeds as well as the unpaid property taxes, Title fees and most of the sales closing costs. In most cases the Seller(s) will not have to contribute any funds towards the closing.

Some things to consider when determining if a short sale is right for you:

1. Contact a Realtor that is experienced in the short sale process.

2. Review this option with your CPA and family Attorney. I always have my clients meet with a CPA and Attorney (with real estate experience) to review whether the short sale process is right for you.

3. The short sale approval process can take 2-5 months depending on the Lender.