Thursday, July 21, 2011

Why Real Estate May Be The Buying Opportunity of the Decade

Why Real Estate May Be The Buying Opportunity of the Decade
There’s a convincing argument that real estate is today’s best long-term buy.

No one knows what the economy or the stock market will do over the next six months. But when your time horizon is 20 years, the outlook is actually a lot clearer. And right now, all the trends are lining up to make real estate a fantastic long-term buy.

Of course, if you look at recent real estate statistics, the picture is a total catastrophe. Home prices are down by a third, and the decline recently exceeded that of the Great Depression. Across the country, 2 million homes are in foreclosure and another 2 million are more than 90 days behind in their payments. The backlog of foreclosures could last two or three years.

Falling home prices plus the foreclosure backlog probably mean a flat-to-down market over the next couple of years. But beyond the current desolation, the outlook is exactly the opposite. In fact, three different trends are aligning that figure to produce a major home-price boom over the next 20 years.

1. The Economic Cycle. Admittedly, the current recession is far worse than a typical cyclical downturn. Nonetheless, the economy has grown for seven straight quarters. It is possible that there could be a double-dip recession – triggered perhaps by the default of Greece or Portugal. But the worst damage to the U.S. economy appears to be behind us. Home prices are largely driven by demand, which depends on the number of people working, their prospects for salary increases and the availability of credit for mortgages. All three of those things are bad right now, but they typically lag the economic cycle for GDP. Once the economy finally recovers, the factors that drive housing demand will follow.

2. The Real Estate Bust. The collapse in housing prices has destroyed confidence among home buyers and left perhaps a quarter of all properties worth less than the mortgages they carry. But the experts see prices within 5% to 10% of a bottom. Once the process is done, prices will have been knocked all the way down. As a general rule, the worse the crash in a market, the longer the subsequent recovery can last, because there is nowhere to go but up.

3. The Inflation Outlook. The combination of a cyclical economic recovery and the end of the housing bust is by itself reason enough to buy real estate. But in my view, there is an even more compelling long-term argument – the near-inevitability of higher inflation, as I have argued before. Basically, if the U.S. continued building up debt at its present rate, the country would eventually end up where Greece is today. The reason that won’t happen is that while Greece’s debt is in euros, a currency it can’t control, U.S. debt is in dollars. The U.S. will always be able to pay its debts because the Federal Reserve and the Treasury can simply work together to create more dollars (what people used to call “printing money” in the days before electronic funds).

The catch is that creating money that way would eventually lead to inflation and the devaluation of the U.S. dollar. In such an environment, any kind of tangible property appreciates rapidly. The next two or three years should offer exceptional opportunities for buying actual real estate – primary residences and vacation homes.

For Buying or Selling, You Need a guide that gives you straight answers. For more information on buying, selling, or renting out an income property in San Diego, please call Frank Rashid's cell phone at (858) 676-5250 or email him at More to follow within the next couple of weeks.

Friday, July 15, 2011

A Home Is a Lousy Investment!

NAR response Letter to the Editor of The Wall Street Journal

NATIONAL ASSOCIATION OF REALTORS®’ Chief Economist Lawrence Yun sent the following response to the Letters editor of The Wall Street Journal in reaction to a July 11, 2011 article, “A Home Is a Lousy Investment.”
July 13, 2011
Dear Sir:

The author ignores some important facts in arguing against the financial benefits of owning a home (“A Home is a Lousy Investment,” July 11, 2011). First, most home buyers do not pay cash for a home, but instead take out a mortgage along with a down payment. Following the author’s example, a home buyer in California who purchased a median priced single-family home in 1980 ($99,550) with a 20 percent down payment ($19,910) would see that investment grow to $296,820 when the home was fully paid off in 2010. Investing the same $19,910 in the Dow-Jones Industrial Index in 1980 would result in a balance of just over $238,000 in 2010 and be subject to taxes on the investment gains along the way.

Second, during the 30-year period while the homeowner is whittling down their mortgage balance and banking home equity, the renter has been paying rent that has increased by an average of 3.7 percent per year even as the monthly principal and interest payments on a 30-year fixed rate mortgage remain level. Based on rental trends, it is not too difficult to come up with reasonable scenarios where the investor who rents a home will pay significantly more in rent than the homeowner will pay in mortgage interest over the span of the 30-year mortgage. That’s because rent payments for a comparable home could easily exceed the principal and interest payment on a 30-year fixed rate mortgage in as few as seven or more years. In the end, the homeowner will have a free and clear asset while the renter will continue to pay rent.

Third, many homeowners also are able to take advantage of deductions for mortgage interest and property taxes when filing their federal income tax return making the cost of ownership even more favorable compared with renting. Furthermore, a capital gains deduction of up to $500,000 ($250,000 for single homeowners) applies when the home is sold.

Fourth, homeownership builds wealth. According to the Federal Reserve’s 2009 Survey of Consumer Finances, the median net worth of the typical homeowner exceeds $190,000 but is less than $4,000 for the typical renter. Given this difference, it’s hard to see how long-term renting is a strategy for financial stability and independence.

And, finally, people who buy homes well within their budget are long term planners. Research suggests that people who are long term thinkers and willing to forego short term gratification do well in many dimensions of life-wellness measures. That is why homeownership meets long term objectives and provides great incentives for people to work hard and lay the foundation for a stable and successful country.

Lawrence Yun
Washington, D.C.

Wednesday, July 13, 2011

Rather than sitting on the fence … why not own it?

I wanted to call your attention to an advertisement that Realogy and our brands placed in today’s edition of USA TODAY. We did so because we felt it was important to take a leadership position in the industry and deliver a visible pro-housing message in the market at a time when too many others - ranging from Congress to consumers - appear to be sitting on the fence about homeownership.

Five supporting reasons why now is a compelling time for qualified buyers to purchase a home.
1) Homes are more affordable – current housing prices are down 27% on average across the nation from peak values five years ago,[1] and the national affordability index continues to hover at record levels.

2) Rates are low – at 4.6%, 30 – year fixed mortgage interest rates remain near historical lows.[2]

3) Timing is everything – conforming loan limits will be reduced on Oct 1, 2011, which will decrease the availability and affordability of mortgage credit for many home buyers in 42 states [3]

4) Homeownership is still the American dream – nearly nine in 10 Americans say homeownership is an important part of the American Dream [4]

5) Financing is available – today’s borrowers needs to have stable employment of at least two years; sufficient income to cover the monthly mortgage payment and living expenses; adequate saving to make at least a 3.5% down payment; and, in general a good credit score of at least 620 [5]. If you meet these basic requirements and plan to live in the home, you may be well on your way!

We recognize that unemployment levels are still high, but the fact remains that 90% of Americans do have jobs. Thus, we hope that our message will encourage qualified homebuyers and sellers to consider the facts.

[1] according to Freddie Mac House Price Index (June 2006 to March 2011). [2] Primary Mortgage Market Survey® data according to Freddie Mac as of July 7, 2011. Based on average 30-year fixed mortgage rate with an average 0.7 point. [3] new loan limits published by FHFA and HUD. [4] New York Times/CBS News poll. June 24-28, 2011. [5] FHA requires minimum 3.5% down payment; conventional mortgages will require a down payment of 5% or more, FICO score minimums may be higher or lower depending on loan type, income history, property type and other factors.

For Buying or Selling, you need a guide that gives you straight answers. For more information on buying, selling, or renting out an income property in San Diego, please call Frank Rashid's cell phone at (858) 676-5250 or email him at More to follow within the next couple of weeks.

Friday, July 8, 2011

Seven Out of 10 Renters Say Owning a Home Is a Top Priority

Most Americans still believe that owning a home is a solid financial decision, and a majority of renters aspire to home ownership as a long-term goal. According to the 2011 National Housing Pulse Survey released on July 6th by the National Association of Realtors®, 72 percent of renters surveyed said owning a home is a top priority for their future, up from 63 percent in 2010.

Seven in 10 Americans also agreed that buying a home is a good financial decision while almost two-thirds said now is a good time to purchase a home. The annual survey, which measures how affordable housing issues affect consumers, also found that more than three quarters of renters (77 percent) said they would be less likely to buy a home if they were required to put down a 20 percent down payment on the home, and a strong majority (71 percent) believe a 20 percent down payment requirement could have a negative impact on the housing market.

"Despite the economic setbacks Americans have experienced in today's current climate, it is clear that a strong majority still believe in home ownership and aspire to own a home," said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. "However, achieving the dream of home ownership will become increasingly difficult for buyers if they are required to make a 20 percent down payment, which may be a reality for many of tomorrow's buyers if a proposed Qualified Residential Mortgage rule is adopted. That is why Realtors® are strongly urging regulators to go back to the drawing board on the proposed rule."

When asked why home ownership matters to them, respondents cited stability and safety as the top reason. Long-term economic reasons such as building equity followed closely behind. On a local level, respondents said neighbors falling behind on their mortgages and the drop in home values were top concerns. Foreclosures also continue to remain a large concern, with almost half of those surveyed citing the issue as a problem in their area.

The 2011 National Housing Pulse Survey is conducted by American Strategies and Myers Research & Strategic Services for NAR's Housing Opportunity Program. The telephone survey polled 1,250 adults nationwide, with an oversample of interviews of those living in the 25 most populous metropolitan statistical areas. The study has a margin of error of plus or minus 3.1 percentage points.

Information about NAR is available at This and other news releases are posted in the News Media section.

For Buying or Selling, You Need a guide that gives you straight answers. For more information on buying, selling, or renting out an income property in San Diego, please call Frank Rashid's cell phone at (858) 676-5250 or email him at More to follow within the next couple of weeks.