November 1, 2006

Today’s Real Estate

Should I purchase a home now?

By Donna Nardi
Special to the Times

With the real estate market firmly a buyer’s market, many buyers are nervous about buying that dream home now, expecting home prices to continue to decline. Before we assume waiting is the solution, let’s explore the options, and prepare ourselves to make an educated and informed decision.

To get a broader view, I asked for assistance from Bill Marcus with Countrywide Home Loans in San Jose. He graciously provided data that was invaluable for this article.

What drives the real estate market?
Supply and demand are the key factors. Demand will remain strong in Silicon Valley, because Silicon Valley is a very desirous place to live with its solid economy, mild climate and low unemployment. Lenders have made it easier than ever to finance a mortgage. Due to Silicon Valley’s economic strength and extraordinary appreciation, there are some loan programs offered exclusively to our area.

How has our market appreciated over the years?
The average U.S. home price has increased 5.5 percent per year over the past 20 years. But in Silicon Valley, appreciation rates have skyrocketed. For example, the average price of a home in Willow Glen was $158,437 in 1985. Twenty years later, it was $862,858. This equates to a Willow Glen home averaging a monthly appreciation of $2935. What investment can beat those numbers?

What are the benefits of home ownership?
Building equity: Your home is an appreciating asset. Tax savings: Interest payments are tax deductible, and can move you into a lower tax bracket. You don’t waste your hard-earned money paying rent. Essentially, you are paying yourself.

What are the lifestyle benefits of home ownership?
Little in life can equal the satisfaction of owning your own home. You have the luxury of decorating and landscaping the home to your tastes. Entertaining takes on a whole new meaning. Research shows areas with high homeownership have lower crime rates, higher educational performance, better-behaved children, lessened welfare dependency and better household health (data provided by Realtor.org). This is one reason many cities, counties and states have special programs for first-time home buyers, to help enable them to be a homeowner, thus improving the community.

Is it beneficial to wait, or should I act now?
Let’s use an example of a home with a price of $850,000, with a loan at 6.5 percent. Your interest-only monthly payment is $4604. Let’s say you wait three months anticipating a price drop, which drops by 5 percent to $807,500. But interest rates rise to 7 percent. Now, your interest only monthly payment is $4710. This costs you $106 per month, as well as three months of tax savings.

While it is agreed that homeownership is a great way to save on taxes, and allows a better quality of life today, it is also one of the best tools to “save” for your future and retirement years. No other investment has the value equal to homeownership. You can use your home to purchase other properties and to finance other investments.

Prudential California Realty recently released data for the third quarter of 2006. While we are certainly in a buyers’ market, the data supports Santa Clara County maintaining its strong housing market.

Compared to the third quarter of 2005, there has been a 29 percent sales decrease. However, the median price rose 4 percent. With the influx of homes on the market, buyers are able to cherry pick from the best. The homes that are selling are priced well, and are in excellent condition.

Buyers that offer way below asking price may well be disappointed. However, sellers are often willing to pay towards the buyers’ closing costs, repairs and in general, make concessions that would have been impossible last year.
This report shows early signs of the market beginning to find its balance with the correction. In other words, this is an excellent time for buyers to find the right house at the right price.

For first-time homebuyers, consider using government programs tailor-made for you. CalHFA is a program funded through California that gives down payment and closing cost assistance, with below-market interest rates. There are special rates for teachers. The borrower also has the luxury of choosing from several loan types to fit their lifestyle. ACORN is another option for first-time buyers. This can work well for those with credit challenges and a variety of special needs.

The information provided in this article is to encourage those who may be intimidated by the market, or may believe homeownership is just not an option for them. In today’s world, there are so many more options available than even a decade ago. Why not exercise those options? Choose a good lender and a Realtor with integrity and get going! It costs nothing to try, but can cost a bundle to wait.

Donna Nardi is a full-time Realtor with Prudential California Realty in San Jose. You can reach her at (408) 918-4410, or donna.nardi@prurealty.com, or www.happywayhome.com.