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Wednesday, July 10, 2002 Now more than ever, homeownership is an achievable dream By Eddie
Lusher, President
As the economy climbs out of recession and we find ourselves an incredible nine months after the attack of Sept. 11, many potential homebuyers may be wondering if now is a good time to buy a new home. In May, the National Association of Home Builders' (NAHB) Housing Market Index (HMI) reported a healthy level of 61, unchanged from the previous month. The HMI is derived from a monthly survey of builders that NAHB has been conducting for nearly 20 years. The HMI has held within three points of this strong reading since the beginning of the year, which indicates that the nation's builders view the market for new single family homes as sound and stable. Certainly, this is encouraging for potential new homebuyers. The U.S. Department of Commerce recently reported that following exceptionally strong production in this year's first quarter, which was driven, in part, by very good weather conditions, nationwide housing starts were down 5.4 percent in April to a seasonally adjusted annual rate of 1.56 million units. So, what does this really mean? Basically, the housing market has remained strong in the last year and some adjustment in the levels of housing starts is predicted. "After the first few months of this year, when unseasonable warm and dry weather and historically low interest rates combined to help housing buoy the national economy, some downward adjustment was to be expected in the housing production. But our latest surveys of single family builders indicate no shortfall in buyer demand or builder confidence. And we are still on track to build slightly more than the 1.6 million units we did last year," said Gary Garczynski, president of the National Association of Home Builders (NAHB) and a builder/developer from Woodbridge, Va. NAHB's Chief Economist David Seiders is not alarmed by the slight fall in numbers either. "With interest rates on long-term mortgages still below 7 percent, and with the economy on a recovery path, the market for new homes is in very good shape," Seiders said. Additionally, the federal funds rate -- the rate charged for short-term lending between banks -- is a low 1.75 percent. Lower interest rates mean that buyers can afford more home without increasing their monthly mortgage payments and people who are currently renting have an excellent opportunity to enter the market and become first time homeowners. Overall, housing's stellar performance in the face of such unprecedented conditions over the last 12 months can be attributed to a number of factors -- making it an excellent time to purchase a new home. In addition to the historically low mortgage interest rates, new construction and home sales have reflected strong underlying demand for new housing. Low inventories of unsold units on the market, and the resounding faith of the American people in the value of real estate as a long-term investment are other indicators of housing's continued strength. Not only is the national housing outlook strong in the coming year and indications that interest rates will remain low, another advantage of owning your own home will emerge at tax time. Home ownership is one of the most tax advantageous investments you can make, but you'll want to make sure you consult the tax codes about the deductions you may be eligible to claim. For starters, homebuyers can usually deduct loan points and origination fees for their mortgage. Since origination fees typically run one percent of the mortgage amount or higher, this can add up to huge savings at tax time. The interest you pay to your lender, as part of your mortgage payment, is deductible from federal and most state income taxes if you itemize dedications, and it is still one of the greatest ways to reduce your tax burden. For example, if you pay taxes in the 28 percent tax bracket, this provision may lower your borrowing costs by nearly one third, depending on your state taxes. This deduction applies to first and second mortgages, as well as any other debt instruments used to finance a primary residence. Your lender is obligated to notify you of the amount of interest you paid during the tax year, and you may itemize that amount as a "qualified residence interest" deduction on your tax return. Another major advantage of homeownership is that property taxes -- paid based on the assessed value of the property -- are deductible when determining federal tax liability. Unlike income tax deductions, this deduction is not capped. Not all states allow a deduction for property taxes from adjusted gross income when determining state income tax liability, so do some research. As in the case with mortgage interest, itemizing is necessary if you wish to deduct property tax payments. Perhaps the biggest tax advantage to owning a home is the ability to avoid paying capital gains upon its sale. Under current law, a homeowner may exclude up to $500,000 of capital gain (married filing jointly) or $250,000 (single) from taxation. This exclusion applies only if you have lived in your primary residence for two years or more. But the exemption may be used repeatedly, as long as the residency rules are met. Another great reason to buy a new home now is that new home construction is better than ever, offering the latest in energy saving technology, efficient heating and cooling systems, innovative design and a host of new features, from pre-wired high speed data lines to high-tech lighting and security systems. Plus, the decisions you make on layout, colors, materials and appliances will make your new home a true reflection of your individual tastes and preferences. After reviewing your personal finances, evaluating what kind of mortgage you may be able to get, considering your needs and seeing what's available in your desired market, you may find that it is exactly the right time for you to become a new homeowner. Further, housing is by far the most important single asset on the household balance sheet. It accounted for nearly 30 percent of total household assets at the end of 2001, a figure much higher for the 73 million households who owned their own homes. For most people, a home is a solid investment, providing not only a place to live, but also a solid rate of return with a low risk of loss. Since 1980, home prices have increased at an average rate of about five percent annually and have never shown an annual loss. Moreover, a home is an investment in the future that will provide shelter for many years to come. (Eddie Lusher, who is with Jerry Ballard Homes, is president of the Home Builders Association of Midwest Georgia, which serves a membership of over 500 builders and associate members in Fayette, Coweta, Spalding, Heard and Meriwether counties.)
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