Buyers — Be Aware! (by Jonathan Donihue)
The thing that strikes me most about today”s real estate market is the irony of it all.
Just a few years ago the price of real estate was so high that the average family couldn”t legitimately afford to buy a home. Now, I said legitimately afford, not actually. When home prices were so high that the payments were beyond most people, people were buying anyway. We all know about the smoke and mirrors of no doc. loans and other forms of creative financing that got us into this mess. But we walked into it willingly and, as we invested in our homes, at the height of the market, we neglected the first and most important rule of investing. Buy low, sell high!
As I said, it”s the irony of it all that strikes me. When we, on the whole, couldn”t legitimately afford to buy a home, we were all scrambling to get one. We were doing whatever we could, taking great financial risks, to get that loan. And now, when the prices and interest rates are so low that mortgage payments often turn out lower than rent would be, we”re all too scared to buy.
When I was a kid my mom used to clip coupons and track sales at all the local grocery stores. She would organize her shopping efforts to buy things at their lowest possible price. That”s what you”ve got to do when you”re raising a family of six on a car salesman”s income. But imagine how silly it would have been if she went out of her way to find the highest prices in town and when a sale came around she ran, screaming in panic, from the store.
Well, guess what. Homes are now on sale. In Hidden Valley Lake, some home prices have dropped below $100,000. In Lakeport and Kelseyville asking prices go down lower than $150,000. And in Clearlake, good starter homes are being offered for less that $75,000. This is good news for people who thought they could never afford their own home.
According to The California Association of Realtors weekly news letter, Market Matters, “In California , 59 percent of the state”s households could afford to purchase an entry level home in the fourth quarter (of 2008), compared with only 33 percent during the same time period the year before.” Well that”s good news!
In my opinion, no matter what they”re saying about the economy, now is a great time to buy.
Tax Advantages Make Buying a Home a Good Move (by Jon Meyer)
We are in the beginning of learning about all the new laws that will be promulgated from both the federal and state governments. Some will be great for us and some not so good. The one constant will be that homeownership will still be rewarded.
The major benefit of home ownership is that the interest and property tax portion of your payment is tax deductible. When one first purchases a home, most of the payment will most likely be made up of interest and taxes. To determine the savings, take the interest and tax payments and multiply it by the marginal tax rate. This savings could make the mortgage payment less than the rent paid.
For example, let”s compare a rent payment of $1,100 to a mortgage payment of $1,400. If the deductible portion of your mortgage is $1400 and you”re in the 23-percent tax bracket you can multiply the $1400 by 20 percent, which equals $322. This means that your taxes would decrease by $322 a month. The net mortgage payment would then be $1400-$322 or $1078.
In this case purchasing a home would be less expensive than paying rent. Since these payments are deductible, it is also likely that you can use the itemized deductions for other deductions such as out of pocket medical payments, charitable contributions and certain work expenses. This could lower your taxes even more.
Then, to add to this benefit, a credit available to first time home buyers that was set to expire this summer has been extended to the end of this year. This means that besides the great deals and the economic benefits, there is another reason to set up and purchase a house.
Of course, the above is the general rule; your situation could be different. However what this means is that this recession should not stop you from taking the best action you can make.
Now is the time to act. This credit along with the deduction for interest and taxes, and probably the ability to itemize your deductions provide powerful tax incentives to make purchasing a home more affordable than ever. This added to the investment potential and bargain prices for homes makes 2009 the best time to purchase a home.
Jonathan Donihue is a Realtor with Ed B Real Estate in Middletown.
Jon Meyer has a B.S. in business from Northern Illinois University and a M.S. in tax accounting from Cal State University Hayward. He has been an EA for 25 years and an adjunct assistant professor at Golden Gate University.
Don”t forget to write!
The Clear Lake Observer*American welcomes letters responding to articles and opinions that have appeared in this newspaper, as well as on topics of general interest. Letters can be sent to ObserverAmerican@gmail.com or mailed to PO Box 6200, Clearlake, CA 95422. Please include complete name, address and telephone number. Anonymous submissions will be discarded.
