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2009-10-02 18:13:09

Why Real Estate Is A Good Investment Now


Autumn typically puts a seasonal chill on the housing market. Families with children have already moved, or they are willing to wait another year to avoid interrupting the school term. 
Corporate relocations can take place anytime, but they tend to rev up around the first of the year, which means transferees will start looking for homes in the fall and early winter.
There are fewer home buyers out looking, and that’s an excellent time to shop for a home.
But you have more than weather in your favor – a lot of market conditions are changing, making buying a home a wiser investment than it’s been in a long time. 
In 2006, the height of the housing boom, the median-priced existing home price was $221,900, and interest rates were 6.58% on benchmark 30-year fixed rate loans.
With 20% down, the median family income of $58,407 could buy the median priced home at 23.2% of income.
By June 2009, the median priced home was down to $181,600 and interest rates averaged 5.16%, allowing the median family to purchase a home at a mere 15.7% of their $60,671 household income.
Prices at bottom
Sales prices are down 15.4% in June 2009 over the previous year, following nearly three years of steady price declines, putting home values back where they were before the 2002-2006 housing boom, and as far back as 2000 in many areas.  
Among the many reasons for price declines, are homes in distress. ccording to the NAR, 36% of housing transactions in the second quarter of 2009 were from distressed homes – homes sold short (below what sellers owed on their mortgages) or homes in some stage of foreclosure.
Supplies are diminishing
In 2006, there was 6.5 months of housing inventory on hand, which means that it would take only 6.5 months to sell current listings to zero on hand.
As home prices fell, foreclosures rose, and banks tightened lending standards, inventories swelled, reaching a high of 11 months of housing inventory on hand in June, July and November 2008.
Since then, housing inventories have decreased to 9.4 months on hand, a 14.5% decrease from June 2008 to June 2009.
Home sales volume is below averages
The number of homes sold in the nation have dropped significantly since 2006, when the annual sales volume reached 6,478,000 units.
In June 2009, the annually adjusted sales rate was at 4,890,000 units sold.
Lawrence Yun, chief economist for the National Association of REALTORS® says that under today’s market conditions, “normal” volume should be closer to 5.5 million units sold, on an annual basis.
Tax relief and other incentives
The government believes that homeownership means more stability for communities. To incentify home buyers, there are a number of tax benefits that you can take advantage of.
You can deduct property taxes from your federal income tax return.
Usually when you sell an asset, you have to pay capital gains on it. But the Tax Relief Act of 1997 allows you to occupy your home for two years, rent it out for three and keep the capital gains up to $500,000 for a married couple or $250,000 for singles. 
In addition, your mortgage interest is tax deductible, up to $1 million in mortgage debt. Thanks to the Mortgage Forgiveness Debt Relief Act of 2007, you can also deduct your mortgage insurance interest, otherwise known as private mortgage insurance. 
If your household makes an adjusted gross income of $100,000 or less, you can deduct PMI on your tax return. Families with incomes between $100,000 and $109,000 are eligible for a reduced deduction, so if you bought a home without 20 percent down or excellent credit, you can now deduct your PMI until 2010.
There’s much more - hardship benefits, property inheritance benefits, or what your state or local community offers in homebuying incentives.
First-time home buyers also have a tax benefit of up to $8,000 until November 30, 2009, which could keep the pressure on affordable homes in the conventional loan range of up to $417,000.
Strong headwinds
Despite significant government incentives, including the first-time home buyer tax credit, state incentives, tax incentives, and artificially low interest rates, along with affordable prices and high inventories of homes for sale, housing is still facing strong headwinds.
Unemployment rates have more than doubled from boom year lows of 4.5% to 9.5% in June, 2009. 
Distressed homes continue to enter the marketplace, with a 32% increase in foreclosure filings from July 2008 to July 2009, according to RealtyTrac’s most recent U.S. Foreclosure Market Report.
And there’s always the chance that mortgage interest rates could rise, unemployment could go above 10%, and that inflation could rear its head.
Consumer confidence was lower in August, says the University of Michigan most recent report on consumer sentiment, which could mean conservative spending in the months ahead.
Hopeful signs of recovery 
Not all economic indicators turn favorable at the same time, which is why buying a home remains a judgment call for each individual.
But one thing is certain, home prices and interest rates are not likely to go much lower. Home sales may already be impacting the economy positively, which in turn will raise prices and interest rates, and lower inventories.
In a prepared statement, Yun said, “Each home sale pumps an additional $63,000 into the economy – that’s how the housing engine traditionally pulls us out of recession.  In addition, sales are drawing down inventory and that will help stabilize home values, which in turn will lessen foreclosure pressure and boost credit availability for other sectors of the economy.”
As proof, pending sales (signed contracts for home purchases) have been up five months in a row in July 2009, for the first time since July 2003.
Blanche Evans is CEO of Evans Emedia, Inc. and publisher of The Evans Ezine. As an award-winning journalist, Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and twice recognized as one of the industry's most "Notables." 

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