Seeing so many foreclosures hit the market, and watching what has happened with prices, has left many buyers with a bargain-basement mentality, agents say. It's also drawing in longtime renters who see opportunities.
Donny Epp, a graphic designer in Fayetteville, Ark., and his wife have been paying $700 a month to rent an apartment and decided they could buy a place for not much more in monthly costs — even while paying close to the listed price. On Nov. 23, they signed a contract for a three-bedroom house listed for $115,000, for which the seller is offering to pay closing costs; that will lower the Epps' total costs by 3%.
Although Epp has seen several friends lose money on homes they've bought, he says he isn't worried. Epp says he can't imagine the house being sold for much less than what he'll be paying, and it is close enough to the local university that he's confident he could rent it if he wanted.
- MSN Lifestyle: 5 most common money mistakes
"It wasn't about finding the best steal of a deal," Epp says. "We saved our money and wanted to find a place we'll feel comfortable in. I'm not interested in low-balling anyone."
Mortgage deduction in peril?
Any proposal to take away the tax deductibility of mortgage interest is a long shot. Given the power of the real-estate lobby, these plans would face an uphill battle in Congress. One option — suggested by Alan Simpson, a former Republican senator from Wyoming, and Erskine Bowles, who was White House chief of staff during the Clinton administration — proposes abolishing the deduction entirely, while a second option would eliminate it for second homes, home-equity mortgages and mortgages of more than $500,000. An alternate plan from a Bipartisan Policy Center task force led by Alice Rivlin, former director of the Office of Management and Budget in the Clinton adminstration, and Pete Domenici, a former Republican senator from New Mexico, would convert the itemized deduction to a flat 15% tax credit, up to $25,000 for all taxpayers on a principal residence. This would make it beneficial for lower-income taxpayers who don't itemize.
Kyle Wissel, a principal in the real-estate group at New York City accounting firm Weiser Mazars, says he doubts a major curtailment of the deduction would curb people's desire to buy a home.
"At (a price cap of) half a million dollars, what you're excluding is a fairly small minority of purchasers," he says of the second Simpson-Bowles plan. "It won't (affect) a lot of those people, who in some cases, weren't itemizing anyway, so it won't make a difference to them."
- MSN Money: 8 keys to the 2011 mortgage market
Some real-estate brokers say it's just a matter of time before excess inventory is worked off and the employment outlook improves to the point where home prices increase again. Markets that already have stabilized tend to have large government, educational or military facilities nearby, Humphries says. For example, the steady presence of more than 200,000 Marines and their families at Camp Lejeune, N.C., provides a higher comfort level for would-be buyers in nearby Jacksonville, N.C.
On Nov. 19, Matt Abercrombie, a Marine sergeant and mechanical engineer, and his wife, Megan, closed on a four-bedroom house in what she describes as "an upscale, boutique neighborhood with good-size acreage." It's the third house they've owned in the six years Matt Abercrombie has been stationed there. Their thinking "wasn't so much 'this is a fantastic investment' as 'this house really suits our needs, and we see ourselves staying here over the long term,'" Megan Abercrombie says. It was a bonus that the appraisal for the mortgage came in $20,000 higher than the purchase price.
Charles Moore, owner of McGuire Real Estate in San Francisco and a third-generation broker, says he sees the psychological reset among prospective homebuyers as a return to attitudes that prevailed before the 1970s, when inflation drove up home prices in California and other hot markets. He says he doesn't fault people for hesitating to jump in now; they're simply exercising all the diligence that homebuyers largely abandoned earlier in the decade.
"Not only am I not overly alarmed by it, but in a way, I'd say this was necessary for the market to adjust from this bubble effect to (a more realistic) value," Moore says. "'Ozzie and Harriet' buyers didn't expect any return on investment."
I know for tax purposes, people buy BIG and $$$ but that real estate person is laughing all the way to their banks as you go into debt FOREVER AND EVER. Leaving their kids something to sell or pay for. Too bad.
sorry people for my uneducated statement but seeing all these yrs of what a simple house cost, too bad people think homes are an investment, their just one bad marriage til death do you part. Then the kids can deal with the bills, etc, "oh cute"
I think people should, could, but dont, live below their means. They buy mobile homes and pay a fortune to plant them on a site w/ others..? why not buy a tiny TINY ace of land, put a small mobile home up and feel better about where your money is going. Or buy an acre of land, build a TINY home on it and feel better.
But no! EVERYONE NEEDS BIGGER, BETTER, TOP OF THE LINE AND MORE until their cant deal with the debt? IDIOTS.
Buying a house is fairly easy, keeping the house stocked with heating fuel, electricity,food,maintanance and paying of property taxes is the hard part. All of the above have risen so fast that the average American is being run over by the bus. Add in fuel prices driven by fear and your lucky to have a job type mentality and you feel like owning a home is not the American dream but an American nightmare.Heaven forbid if you add children into the mix.
I must disagree with the article's headline that says the new reality is that homes are shelters before investments. A home IS an investment. Just like a stock there is a good time to buy and a bad time to buy. Now IS the perfect time to buy a house as an investment. Interest rates are at historic lows. House prices are the lowest in ten years. Property rents are stable. We are near the bottom of the decline in residential real estate. The government is printing money. Inflation is coming. If you plan on holding the house for five years or more, act counter to the herd. Buy a house now. It will be the best investment you ever made.
Buying a home to live in has NEVER been an investment. Anyone who looked at it that way was deluding themselves. You buy at the best price you can negotiate at the time you buy, and you sell at the best price you can get when you need to sell. Sometimes people end up making money, and that was a good thing, but a home is a place to live, not an investment.
The problem we encountered recently was that people started believing that property values could ONLY go up....and they started using their homes like an ATM machine. They took HELoCs and others bought with nothing down or very little down. The mortgage companies and banks were willing accomplices.
I bought 12 years ago. Bottom line is that net with everything included. (maintenance, updating, prop tax, realtor fee, extra bills, interst lost or paid)
Pros: 2x the space and a big yard and same amenities since subdivision with pool etc for same $
Cons: More time spent in upkeep.
My recommendation is to pay 1.5 x the family income for a home and put an age related percentage down. For someone in their 20's 5 to 15% for someone in their 30's 15 to 25% for someone in their 40's 25 to 40% for someone in 50's 45 to 80%. for someone in their 60's 80 to 100%. 70's on 100%.
The 1.5 rule is done by everyone I know that is not house poor. The other thing is that if someone loses their job then you are not so desparate as if you stretched the budget to get a bigger house. The percentage rule is needed to ensure you have the house paid for by retirement when income plummets.
A paid off home is a hedge against inflation and a savings account
and the monthly taxes on my 3 bedroom home are still less than the rent for a 1 bedroom apartment
even considering upkeep i still cant see the advantage to renting
just don't touch your equity until you sell