This is the million dollar question!

There are lots of reasons to own versus rent a house, but it depends on a variety of factors. To begin the thought process, I recommend that potential buyers consult with a mortgage broker to see how monthly rates offered by different loan programs compare to monthly rents. Currently, historically low mortgage rates and affordable housing prices make right now an opportune time to buy.

Buying a home largely depends on your lifestyle and current income. Qualifying for a loan and the down payment are oftentimes the two biggest hurdles that buyers face. The next question to ask is how long do you plan to live in the house? Given the difficult economic times, I recommend to buy and own a home for at least a 3-5 year period of time. The forecast is that the next few years will see slow growth. Transactional costs are expensive, real estate is not a liquid asset, and prices may appreciate or depreciate. Buying a home requires thoughtful contemplation.

Overall though home ownership’s benefits typically outweigh the option to rent:

• Tax Deductibility—You can deduct the cost of your mortgage loan interest from your state and federal income taxes. Since interest generally will account for most of your payment during the first half of your mortgage, the savings can be significant. Some of your costs at the time of closing (including prepaid mortgage interest) can be taken as deductions on that year’s income tax return, and points paid up front at the time of closing represent additional mortgage interest and may be taken as a deduction.
• Tax Deductibility of Property Taxes—You can deduct all of the property taxes you pay.
• Appreciation Potential—Real estate is considered a strong long-term investment because it usually appreciates in value. The effects of borrowing potential can increase as the value of the home appreciates.
• Capital Gains Exclusion—When it’s time to sell your home the amount of capital gains you have to pay is reduced. A homeowner can exclude up to $500,000 per couple if married and filing jointly, or $250,000 if single or filing separately for homes that have been the taxpayer’s principal residence for the previous two years.
• Capital Gain Treatment—Congress allows preferential tax treatment on gains from capital assets held for more than one year. This would be important for a homeowner who has gains in excess of the allowable exclusion.
• Principal Accumulation—Mortgages are designed to pay the interest for the time that the money has been used, as well as to retire the principal debt over a period of time. This payment plan means that part of the payment each month is for principal accumulation.
• Personal Enjoyment—Pride of ownership is a valid reason for wanting to own a home. You can personalize your home while enjoying the financial benefits. Usually a home provides a larger living indoor and outdoor space than renting with a limited use of space.

If you are thinking of buying a house this year, please contact me to discuss your options. I can also provide the name of a few mortgage brokers to you as well. Good luck and happy house hunting!

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The California Association of Realtor recently announced this forecast as of 10/20/2011:

Economic growth is expected to be no greater than 2 percent through the end of 2012 – a growth rate that makes the economy very vulnerable to any external shock that could trigger a downturn, according to Fannie Mae’s Economics & Mortgage Market Analysis Group.

External factors, coupled with uncertainty surrounding the degree of domestic fiscal austerity, including the scheduled expiration of various tax cuts and unemployment benefits, and the impact of forthcoming regulations, will determine how fast the economy will grow.

“There’s been a little seasonal cyclical pickup in housing activity recently, as spring and summer sales are generally stronger than fall and winter, but leading indicators point to housing sales bouncing near the bottom at least through the end of 2012,” said Fannie Mae Chief Economist Doug Duncan.

“Home prices are a key factor for any positive movement in the housing market, and the large inventory of distressed homes working their way through the market is putting downward pressure on prices. Now that we are entering a traditionally weak seasonal sales period, we expect home prices to show renewed declines after firming for several months,” Duncan stated.

For more information, click here.

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Real estate activity is very fluid. In only a few months’ time, a town can change from being a “buyer’s market” to a “seller’s market.” It depends on supply and demand and price point.  Interestingly, the third quarter mirrors the first quarter, not the second quarter. There are six towns that are considered a “neutral” market (a balance of supply and demand) and five town that are considered a buyer’s market (more homes for sale than buyers, a benefit to buyers). The other two towns in Marin are considered a “seller’s market” (more buyers than homes on the market, a benefit to sellers.)

By price point, not much has changed since the beginning of this year. The low end of the market place remains in a seller’s or neutral market, and the high end of the market ($1.5 million and above) remains in a buyer’s market.

Below are two charts that provide an overview of the market conditions for the past three months. For example, the market is in the buyers’ favor if they are looking in the $1.5 – $2 million dollar range. However, if they’re looking in Greenbrae, they’re looking in a seller’s market since demand is very high there right now. It is also interesting to note that typically the more days on market, the lower the selling price. The towns that are in a seller’s market have a much closer listing price and selling price.

Opportunities abound in real estate right now (low prices, low interest rates) but a variety of factors come into play when you’re deciding where to buy or when to sell. I strongly recommend that a seller or a buyer carefully review the sales of homes by price point and town in order to negotiate the best price possible given the market conditions.

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By Gina Kemsley of Terra Mortgage Banking

Mortgage Bonds are getting a boost today on news that a Debt Ceiling contingency plan is being brought forth by the Treasury Department. This good news is moving rates lower. The Treasury’s plan would guarantee present holders of US debt will receive interest payments on time before the Treasury makes any other payments — even if the debt ceiling is not raised.  As a result The Bond market is sensing the government will do whatever it needs to avoid an outright default – hence the positive rate movement.

INDUSTRY NEWS

On October 1st, the temporary maximum loan limit for conforming (FNMA & FHLMC) mortgages and FHA insured loans is scheduled to drop to a maximum of $625,500 for most Bay Area Counties (Sonoma: $520,950, Napa: $529,950).

As the expiration nears, the market will focus more and more on jumbo financing and we want you to know that Terra Mortgage Banking is one of the few (if only) North Bay Mortgage Bankers who underwrite our own jumbo loans in-house up to $1.5M.  This means your jumbo loan will receive the same expedited service you have come to depend on from Terra for your conforming loans.

Bottom Line: Terra’s expedited closing times give Realtors and their clients a competitive advantage when writing offers. Please contact Gina Kemsley today with questions or helping with getting a loan.

CURRENT INTEREST RATES | JULY 29, 2011

CONFORMING RATES
($200,000 – $417,000) 0 POINT
• 30 Year Fixed: 4.500% (4.58% APR)
• 5/1 ARM: 3.125% (3.20% APR)

JUMBO RATES
($729,751 – $2,000,000) 1 POINT
• 30 Year Fixed: 4.875% (5.02% APR)
• 5/1 ARM: 3.250% (3.39% APR)

CONFORMING (HIGH-BALANCE) RATES
($417,001 – $729,750 cap by county) 0 POINT
• 30 Year Fixed: 4.625% (4.69% APR)
• 5/1 ARM: 3.375% (3.44% APR)

RATE TRENDS
Rates are DOWN compared to last week.
Rates are DOWN compared to last month.
Rates are UP compared to one year ago.

Gina Kemsely, Terra Mortgage Banking can be reached at 415-464-3144 or gkemsley@terramb.com

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Real estate activity has been busy this summer with more homes coming on the market than listed in the spring time. In April there were 1215 homes for sale compared to July with 1572 homes on the market (a 30% increase.) Roughly 30% of the homes are in contract, indicating a balanced or “neutral” market. In neutral markets, typically, interest rates are affordable and the number of buyers and sellers in the marketplace are equalized. The scales don’t tip in either direction, meaning the market is normal without experiencing volatile swings.

Agents have seen an increase in multiple offers and all-cash buyers this summer. When homes are priced competitively or below market value, they sell very quickly, often with multiple offers. If they’re not priced well, they tend to sit on the market for quite some time. However, selling real estate still depends on location, condition of house and price.

Many of my clients ask me, “Have we hit the bottom?” Robert Shiller, MacroMarkets’ chief economist and co-founder, recently said, “A significant majority of our panelists believe that the bottom for home prices arrived in the first quarter or will arrive sometime before year-end. Despite persistent macroeconomic uncertainty and unprecedented housing market dysfunction, almost two-thirds of the panelists see the U.S. residential real estate market as at an historic turning point.”

Although no one can predict the bottom, real estate has picked up significantly this summer which gives us all hope that real estate is improving.

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