Why This is a Good Time to Buy a Home
I. An Unprecedented Window of Opportunity
• Given the uncertainty in the financial markets, for those 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 generous 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.
• An outstanding selection is another reason that it’s a great time to buy.
• Available inventory is probably the best it will ever be, providing buyers with a great choice
• Available inventory is probably the best it will ever be, providing buyers with a great choice
of homes.
• Many builders have inventory that is “move-in ready,” and they may offer upgrades or
• Many builders have inventory that is “move-in ready,” and they may offer upgrades or
other incentives to seal the deal.
• Likewise, owners of existing homes who are looking to trade-up or relocate are ready to
• Likewise, owners of existing homes who are looking to trade-up or relocate are ready to
bargain.
• Add it all up and there may never be another buyer’s market as good as today’s.
• As a long-term investment, homeownership remains a solid investment for individual
• Add it all up and there may never be another buyer’s market as good as today’s.
• As a long-term investment, homeownership remains a solid investment for individual
households, with a track record that can compete with any other purchase in terms of its
real benefits.
• The home building industry will need to construct more than 17 million new homes in the
• The home building industry will need to construct more than 17 million new homes in the
next decade to keep up with expected new household formations.
• All of this bodes well for future house price appreciation.
• Let’s take a closer look at housing market conditions.
II. Plenty of Mortgage Money for Qualified Home Buyers
• The recent government takeover of Fannie Mae and Freddie Mac should prove to turn out
• All of this bodes well for future house price appreciation.
• Let’s take a closer look at housing market conditions.
II. Plenty of Mortgage Money for Qualified Home Buyers
• The recent government takeover of Fannie Mae and Freddie Mac should prove to turn out
to be the right move at precisely the right time.
• It’s still business as usual for the two giant mortgage lenders. Now that the government is
• It’s still business as usual for the two giant mortgage lenders. Now that the government is
backing Fannie and Freddie, this should increase liquidity in the nation’s mortgage markets.
• There is no credit crunch for qualified buyers taking out conventional loans. Remember, the
• There is no credit crunch for qualified buyers taking out conventional loans. Remember, the
housing law enacted this summer has permanently boosted the limit for these loans from
$417,000 to $625,500. And this is where the bulk of all home loans are made.
• The reason why this market continues to operate normally is because loans up to this
$417,000 to $625,500. And this is where the bulk of all home loans are made.
• The reason why this market continues to operate normally is because loans up to this
amount can be purchased by Fannie Mae and Freddie Mac and insured by the FHA.
• Credit-worthy home buyers should have no problems finding conventional, conforming
• Credit-worthy home buyers should have no problems finding conventional, conforming
mortgages at very attractive rates.
III. All Housing Markets are Local
• And homes have become more affordable. Housing prices on a national basis have been
III. All Housing Markets are Local
• And homes have become more affordable. Housing prices on a national basis have been
losing some ground -- a development that sounds far worse than it actually is.
• At the height of the housing boom, home prices were rising at their fastest pace in history.
• At the height of the housing boom, home prices were rising at their fastest pace in history.
In the hottest markets, prices doubled in a matter of years.
• Clearly this pace was unsustainable. And it didn’t take too long before prices rose to
• Clearly this pace was unsustainable. And it didn’t take too long before prices rose to
unaffordable levels in parts of the country.
• But when it comes to housing, it’s important to remember that all markets are local.
• Home prices vary considerably from one market to the next.
• In a sign that prices could be bottoming out in many markets, the latest Case-Shiller home
• But when it comes to housing, it’s important to remember that all markets are local.
• Home prices vary considerably from one market to the next.
• In a sign that prices could be bottoming out in many markets, the latest Case-Shiller home
data shows that nine of the top 20 metro areas posted monthly price gains between June
and July of 2008.
• And a recent study by three prominent economists says that outside of four states --
• And a recent study by three prominent economists says that outside of four states --
Arizona, California, Florida and Nevada – the decline in house prices is likely to remain
small.
• “Most Americans have not experienced any significant decline in the value of their homes –
• “Most Americans have not experienced any significant decline in the value of their homes –
nor are they likely to,” the study concludes. An op-ed on the study was published in the
Aug. 4 edition of The Washington Post.
IV. Housing Stimulus Legislation Provides Incentive to Buy Now
• Even Congress thinks it’s a good time to buy a home as it demonstrated last summer with
IV. Housing Stimulus Legislation Provides Incentive to Buy Now
• Even Congress thinks it’s a good time to buy a home as it demonstrated last summer with
enactment of a $7,500 federal tax credit for first-time home buyers.
• The tax credit provides a major financial incentive for prospective home buyers to get off
• The tax credit provides a major financial incentive for prospective home buyers to get off
the fence and explore the advantages of purchasing a home in today’s buyer’s market.
• 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
• 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 on how the tax credit works is available at
• Detailed information on how the tax credit works is available at
www.federalhousingtaxcredit.com. A Spanish-language version is also available on the
Web site.
V. Timing the Market is for Losers
• Housing has always been a cyclical business, with its ups and downs. As surely as the
V. Timing the Market is for Losers
• Housing has always been a cyclical business, with its ups and downs. As surely as the
market has slowed today, it will start picking up speed again.
• Potential home buyers who try to “time the market” in hopes of buying at the trough are
• Potential home buyers who try to “time the market” in hopes of buying at the trough are
likely to lose out. Here’s why.
• Just as no one can accurately predict the peaks and valleys of the stock market, the same
• Just as no one can accurately predict the peaks and valleys of the stock market, the same
holds true for housing.
• Fence-sitters waiting for the absolute best deal could end up literally waiting for years, and
• Fence-sitters waiting for the absolute best deal could end up literally waiting for years, and
most likely their guess on market timing would be wrong. Meanwhile, those who buy now
will have a home they can call their own and reap the long-term gains of home price
appreciation.
• For example, those who purchased homes in the early 1990s during the last big economic
• For example, those who purchased homes in the early 1990s during the last big economic
and housing downturn came out as big winners. The median price of a new home in 1991
was $120,000. In 2007, it was $247,300 – more than double in price.
VI. Advantages of Homeownership
Solid Investment
• Consumers who take advantage of this excellent buying climate to purchase a home will
VI. Advantages of Homeownership
Solid Investment
• Consumers who take advantage of this excellent buying climate to purchase a home will
find that it is a great long-term investment.
• Buying a home is the largest investment most families will ever make and homeownership
• Buying a home is the largest investment most families will ever make and homeownership
is the single largest creator of wealth for Americans.
• It allows families to build financial security as the equity in their home increases.
• As home owners repay their mortgages, their debt declines, while overall wealth and equity
• It allows families to build financial security as the equity in their home increases.
• As home owners repay their mortgages, their debt declines, while overall wealth and equity
in the home grow.
• Although local housing markets periodically adjust according to overall economic conditions,
• Although local housing markets periodically adjust according to overall economic conditions,
over the long term real estate has consistently appreciated.
• And we already appear to be approaching the bottom of the current downswing.
• The rate at which home values have been declining is already slowing down. Once we turn
• And we already appear to be approaching the bottom of the current downswing.
• The rate at which home values have been declining is already slowing down. Once we turn
the corner, home values will start edging up and the long-term outlook is very promising.
• Remember, on a national level, home appreciation has historically risen 5-6 percent
• Remember, on a national level, home appreciation has historically risen 5-6 percent
annually.
• Five percent may not seem to be much at first, but take a look at the numbers. If you
• Five percent may not seem to be much at first, but take a look at the numbers. If you
bought a $200,000 house and put 10 percent down, that would be an investment of
$20,000.
• At an appreciation rate of 5 percent annually, a $200,000 home would increase in value
• At an appreciation rate of 5 percent annually, a $200,000 home would increase in value
$10,000 during the first year. That means you earned $10,000 with an investment of
$20,000. Your annual “return on investment” would be a whopping 50 percent.
• In contrast, putting the same $10,000 in the stock market and registering a similar
• In contrast, putting the same $10,000 in the stock market and registering a similar
5 percent gain (even in today’s volatile market) would only yield a $500 return on
investment.
• The big difference in returns is a result of “leveraging” – putting down a small amount of
• The big difference in returns is a result of “leveraging” – putting down a small amount of
money to earn the biggest return.
• This is especially important for first-time home buyers. Entering the market now starts you
• This is especially important for first-time home buyers. Entering the market now starts you
on the road to home price appreciation. And the profit from selling a “starter” house will
enable buyers with growing families to afford a bigger home in the future.
• Compared to other investments, such as stocks, a home is a relatively stable investment.
• Homes tend to increase in value at a steady, reasonable pace while alternatives such as
• Compared to other investments, such as stocks, a home is a relatively stable investment.
• Homes tend to increase in value at a steady, reasonable pace while alternatives such as
the stock market can be extremely volatile.
• For example, the median priced home in 1996 was worth $140,000. Today, that same home
• For example, the median priced home in 1996 was worth $140,000. Today, that same home
would have gained more than $70,000 in value. And the real value of the investment is
worth even more, because the home owner has paid down a significant portion of the
mortgage in the interim.
Tax Savings
• And don’t forget the fantastic tax incentives. It’s by far the biggest and best tax break for
Tax Savings
• And don’t forget the fantastic tax incentives. It’s by far the biggest and best tax break for
middle America.
• Collectively, home owners save nearly $100 billion annually on mortgage interest and
• Collectively, home owners save nearly $100 billion annually on mortgage interest and
property deductions alone.
• These tax incentives are designed to make owning a home more affordable.
• In most instances, all of the interest and property taxes you pay in a given year can be fully
• These tax incentives are designed to make owning a home more affordable.
• In most instances, all of the interest and property taxes you pay in a given year can be fully
deducted from your gross income to reduce your taxable income.
• These deductions can result in thousands of dollars of tax savings, especially in the early
• These deductions can result in thousands of dollars of tax savings, especially in the early
years of the mortgage when interest makes up most of the payment.
• To look at this another way, if you are in the 28 percent tax bracket, you only pay 72 cents
• To look at this another way, if you are in the 28 percent tax bracket, you only pay 72 cents
on the dollar in mortgage interest payments.
• Plus, the best tax break available to homeowners is when they sell their primary residence.
• A couple who owns and lives in their home for two years and then decide to sell can keep
• Plus, the best tax break available to homeowners is when they sell their primary residence.
• A couple who owns and lives in their home for two years and then decide to sell can keep
up to $500,000 of the profit tax-free. (A single owner can keep $250,000.)
• If the couple uses these gains to buy a bigger home, and live in that home for at least two
• If the couple uses these gains to buy a bigger home, and live in that home for at least two
years, the same rules hold true when they go to sell again.
• This is one of the biggest tax advantages of homeownership and a great way to build
• This is one of the biggest tax advantages of homeownership and a great way to build
household wealth.
• Add to this mix the $7,500 first-time home buyer tax credit and now is truly a great time to
• Add to this mix the $7,500 first-time home buyer tax credit and now is truly a great time to
buy a home. But remember, this special opportunity won’t last forever. The tax credit will
expire on July 1, 2009.
Building Equity for the Future
• Owning a home is like investing in an automatic savings account. You accumulate savings in
Building Equity for the Future
• Owning a home is like investing in an automatic savings account. You accumulate savings in
two ways. Every month, a portion of your monthly mortgage payment goes to the
principal, reducing the overall loan amount. Each year, a greater percentage of your
mortgage payment goes to paying down the principal.
• Second, your home appreciates over time, making it one of the very best financial
• Second, your home appreciates over time, making it one of the very best financial
investments.
• As your property appreciates, you build up equity in the home, increasing your household
• As your property appreciates, you build up equity in the home, increasing your household
wealth.
• Many families elect to take out home equity loans to help put children through college, to
• Many families elect to take out home equity loans to help put children through college, to
make home improvements, to start a new business, or to pay for medical costs.
• And interest payments on home equity loans are fully deductible up to loans of $100,000.
• By comparison, consumers who carry credit card balances cannot deduct the interest and
• And interest payments on home equity loans are fully deductible up to loans of $100,000.
• By comparison, consumers who carry credit card balances cannot deduct the interest and
can pay rates as high as 20 percent, more than double a typical home equity line of credit.
Price Stability
• Owning a home provides price stability. While a rent payment can change substantially from
Price Stability
• Owning a home provides price stability. While a rent payment can change substantially from
year-to-year, you will have the same monthly payment for 30 years under a fixed-rate
mortgage.
• Even if you get an adjustable rate mortgage, your payment will stay within a certain range
• Even if you get an adjustable rate mortgage, your payment will stay within a certain range
for the entire life of the mortgage.
• And interest rates today are running near historical lows and not nearly as volatile as they
• And interest rates today are running near historical lows and not nearly as volatile as they
were in the late 1970s and early 1980s.
• Knowing their mortgage payments will stay the same month after month provides
• Knowing their mortgage payments will stay the same month after month provides
households with a sense of financial security and also acts as a hedge against inflation.
Fulfilling the American Dream
• In summary, owning a home provides:
1. The best investment
2. A great tax benefit
3. Financial freedom to send a child to college or provide a nest egg for retirement
• Not only is homeownership a stepping stone to a future of financial security, it provides a
Fulfilling the American Dream
• In summary, owning a home provides:
1. The best investment
2. A great tax benefit
3. Financial freedom to send a child to college or provide a nest egg for retirement
• Not only is homeownership a stepping stone to a future of financial security, it provides a
permanent place to call home and enormous personal satisfaction.
• It strengthens the nation’s people and its communities. Homeownership creates community
• It strengthens the nation’s people and its communities. Homeownership creates community
stakeholders who tend to be active in charities, churches and neighborhood activities.
Homeownership inspires civic responsibility, and homeowners are more likely to vote and
get involved with local issues.
• Americans associate homeownership with economic success and the accumulation of
• Americans associate homeownership with economic success and the accumulation of
wealth.
• It is truly the cornerstone of the American way of life, and the fulfillment of the American
• It is truly the cornerstone of the American way of life, and the fulfillment of the American
dream.
