Wealth Effects of Homeownership

A recent survey showed three out of four homeowners said their home represents a large portion of wealth, and many use the value of their homes when making important financial decisions.

The buildup of home equity provides Americans with both financial resources and security. Homeowners use their home equity to get cash for emergencies as well as the purchase of big-ticket items. In addition, the capital gains people realize from the sale of their home are a significant source of downpayment funds for most repeat buyers, but are used for other purposes as well.

For owners who clearly understand the value of the wealth in their homes as opposed to the value of their stocks, bonds and pension plans, the survey found that three out of four home owners say their house wealth is greater than their stock wealth. Given the stable growth in home values over time, especially when compared with other kinds of investments, it gives people the confidence to use that equity for various needs.

Given the increasing volatility in the stock market over the last few years, this underscores the importance of homeownership as the primary nest egg for most Americans.

Nearly two out of five repeat home buyers chose a more expensive home to further improve their standard of living and increase their potential for building even greater household wealth in the future.

30-Year Mortgage Rates Fall to 4-Year Low

Daily Real Estate News January 25, 2008
Housing industry observers are hopeful that the recent decline in mortgage rates will lead to a recovery in the market. Freddie Mac reports that interest on 30-year, fixed loans fell for the fourth straight week, landing at their lowest level in nearly four years. Economists say mortgage rates averaged 5.48 percent for the week ended Jan. 24 -- down from 5.69 percent a week ago -- because of the latest reports about the economy and because the Federal Reserve made its biggest cut in 20 years to a key interest rate. Freddie Mac also reports that rates on 15-year mortgages declined to 4.95 percent from 5.21 percent, rates on five-year adjustable-rate mortgages dropped to 5.13 percent from 5.4 percent, and rates on one-year ARMs slipped to 4.99 percent from 5.26 percent. Source: Baltimore Sun (01/25/08) © Copyright 2008 Information Inc.

Reprinted from Realtor Magazine Online, The Weekly Real Estate News, December 2007, with permission of the NATIONAL ASSOCIATION OF REALTORS. All rights reserved. http://www.realtor.org/realtormag

Sanity-Saving Tips for New Landlords

Daily Real Estate News October 26, 2007 Thinking of becoming a landlord? It's not as easy as you might think, experts say. Here are six rules that will help you find good tenants and make money. Rule 1: Don’t be deluded about the market. Joseph Cooper, vice president of Massachusetts-based Monument Mortgage, cites "underestimating the cost in time and the cost in money of actually owning property" as the biggest mistake investors make. To overcome that weakness, he and others suggest studying local vacancy rates, getting a good appraisal and gathering information about any construction in the area that could change the status quo.Rule 2: Get out your calculator. To get a good estimate of the initial rate of return: Take the first-year revenue minus estimated first-year expenses (including some value placed on your time) divided by the full cost of the property when purchased (essentially price plus transaction costs minus mortgage). To calculate the rate of return in later years, divide by estimated equity in the property (what you could sell it for after deducting transaction costs and the remaining mortgage), taking into account price appreciation or depreciation. It’s also wise to consult an accountant on how much of a tax and cash-flow benefit depreciation will provide.Rule 3: Choose tenants carefully. Prospective tenants who respond promptly and conscientiously to calls or e-mails and who show up on time to see units likely will be responsible when it comes to paying rent and taking care of the property. And be careful to observe discrimination laws. Landlords can choose among prospective tenants for economic reasons that arise after credit, employment, and reference checks. Set financial standards for prospective tenants that make you comfortable that they can cover the monthly rent.Rule 4: Avoid getting sued. An aspect of the landlord-tenant relationship that can lead to litigation include mishandling of security deposits. If a tenant pays a security deposit, in many states several conditions must be satisfied, including placement of the money in an interest-bearing account and inspection of the property. Other issues include lead paint levels and failure to provide a minimum standard of habitability.Rule 5: Get Expert Help. Keep an electrician on speed-dial — as well as a plumber and handyman. It also helps for landlords to know a good lawyer, financial adviser, mortgage broker, and real estate professional.Rule 6: Forget about flipping. "Anybody who buys something and says to you, 'I'm going to make a ton of money in two years and sell this thing' isn't being realistic," says mortgage banker Joseph Cooper. "That does happen, but it's extremely rare. You should be buying real estate with the idea that you're going to hold it for five to 10 years. That will take you through a cycle of up and down." Source: Boston Globe, Shira Springer (10/21/07)

Reprinted from Realtor Magazine Online, The Weekly Real Estate News, December 2007, with permission of the NATIONAL ASSOCIATION OF REALTORS. All rights reserved. http://www.realtor.org/realtormag

5 Simple Ways To Increase a Home's Value

Daily Real Estate News December 31, 2007 5 Simple Ways to Increase a Home's Value Good home maintenance is key to creating and preserving a home’s value. Not to mention, it also impresses potential buyers. Here are five basic steps that every home owner ought to take — before spending money on dream bathrooms or gourmet kitchens.1. Safety. Make sure smoke detectors and carbon monoxide detectors are installed and in good working order. Check fuel-burning appliances to make sure they are properly vented and no gas connections leak. Make sure the electrical system is adequate. Flickering lights and popping breakers are the sign of a problem. Anchor handrails and grab bars adequately.2. Preventive maintenance. Repair any leaks in the roof, seal gaps in the siding, paint bare wood, replace damaged decking, patch cracks in concrete, and caulk around tubs and showers.3. Conserve energy. Install a programmable thermostat, weatherstrip doors and windows, fix leaking faucets, upgrade insulation, and replace leaky windows. 4. Go green. Consider environmentally friendly materials for windows, doors, siding, decking, fencing, roofing, flooring, and insulation. 5. Improve comfort. Get rid of clutter, open up spaces, update window treatments to allow in more light, and organize closets and storage.Source: The Associated Press, James and Morris Carey (12/29/07)

Reprinted from REALTOR® Magazine Online by permission of the NATIONAL ASSOCIATION OF REALTORS® Copyright 2005. All rights reserved. www.REALTOR.org/realtormag

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