As a real estate professional, I can only watch so much T.V., read only so many Internet articles, only listen to a certain number of people before I end up back in my peaceful sanctuary mumbling to myself. You might be surprised to hear that my sanctuary is not a place of worship or a bar but – out in the neighborhood looking at homes for sale. Yep, I love looking at houses. In some ways, I enjoy it more now then in the boom years.
I can’t tell you how many times in the last six months that I have unlocked the door of a house, walked through, and said to myself, “Not bad.” Then looked back down at my listing sheet to confirm the price and said, “Not bad at all.”
My escape from the constant bashing of the real estate market results in a scrap-book-like frenzy of putting together pictures of homes for clients who have wanted to buy for years but simply could not afford the kind of home they wanted in a neighborhood they wanted to live in. Now, I am able to call them up and say, “I think I might have a home you might be interested in.”
I know. You’re thinking, “But who can get a loan in this market?”. Guess what? There are literally thousands of hungry loan officers out there ready to find you a loan. If there is a way, they can find it. Not the crazy exotic loans. Those are not even available anymore. Good-old-fashioned fix rate loans.
Since I titled this blog post “ Good News in Real Estate for 2009” let me get to the point.
First and foremost, like Alan Murray stated in the Wall Street Journal, this is a good year to invest in real estate and “you can benefit from a once-in-a-lifetime double bonus of low prices and low interest rates.” Take a look at the graph below. If there are deals to be had with foreclosures, we have the inventory of foreclosures to make a lot of deals!
In addition to falling prices, all the previous years of begging on behalf of my clients for sellers to help with closing cost while the listing agent displayed that gentle gesture of “talk to the hand” has provided me with amazing confidence to negotiate closing costs paid by seller on almost every one of my deals. Closing cost on a loan can be any where from 1.5% to 3% depending on the loan type.
Secondly, affordability is coming back to the Bay Area, according to The California Association of Realtors, “the percentage of households that could afford to buy an entry-level home in the state rose to 53 percent in the third quarter of 2008, compared with 24 percent for the same period a year ago.” Specifically for Santa Clara County, “the affordability index rose to 39 percent from 21 percent.” The “affordability index” measures the percentage of households that can afford to purchase an entry-level home.
Third, prior to 2008 almost no FHA loans were available to buyers in the Bay Area. Why? The loan limit for FHA loans was $417,000. In 2008 that was temporarily increased to $729,000 and in 2009 will be $625,500. In my humble opinion not having the FHA option prior to 2008 is part of what created these exotic loan products that placed so many buyers in losing situations. Why are FHA loans important to home buyers? Because FHA only requires 3.5% down payment for qualified borrowers. This also helps with affordability because for those buyers who can afford the monthly payment but do not have 10-20% down, they have an option not available prior to 2008.
Fourth, rental rates are going up. In fact since 2005, San Jose has seen a 26% increase in rental rates. Analysts are projecting rents will rise nearly 10% annually over the next several years for a two-bedroom rental.
For this next point I have to disclose: Because tax rules vary based on income and other factors, you should consult an accountant or financial advisor for advice on your particular tax situation. The fifth reason is the tax benefit of owning a home. Where else can you get a tax-free gain of $250,000 if you are single and $500,000 if you are married on your investment? Also interest on the home loan, property taxes, lending costs in the way of “points”, and moving expenses are all possible avenues for tax savings.
Believe me, I could go on and on but won’t. I also want to add that it is NOT the best time for everyone to buy. I DO NOT think all is roses and pushing someone to buy anything is a very bad strategy. What I do believe is that if you have wanted a home and thought you would never be able to afford the Bay Area, now is the time to reconsider that premise. Find an agent that you like, that you trust, and that gives you all the time and information you need and buy a home. It may very well end up being the best year for investing in real estate.