USA Today Paints Unrealistic Picture of Housing

USA Today last weekend ran a doom-and-gloom piece about the housing market. As you know from reading this blog, I’m not into false cheer about the recovery of the home sales market. Still, I think the USA Today article was way too much doom. Here’s why.

The numbers analysis attached to the article tracked home prices adjusted for inflation since 1950. When was the last time you got a report from your stock broker “adjusted for inflation?” One of the advantages of investing in a home is that its value keeps up with inflation. The fact that, on average since 1950, home values have been at least slightly above inflation is great. Not as good as the stock market, on average, but then stocks have lost 50% of their value in the last few months while its taken 2 years for Flagstaff homes to lose 10-20% of their value (depending on the neighborhood). Here’s more:

Rent payments DO NOT remain steady with inflation. Your mortgage payment does. I agree with the article that the main point of buying a home is to live in it. But a major secondary point is that if you stay in it for a long-time, it will most likely be a very valuable asset in your financial portfolio. And, if you finance it wisely at the outset and don’t treat the rising equity as a piggy-bank for consumption items, you’ll be way ahead because each month, instead of paying rent, you are stuffing principal payments into savings.

To sweeten the financial advantage of owning a home, the government gives you a deduction for the rest of the mortgage payment. The famous mortgage interest deduction means that the cost of interest you pay on your home loan is reduced by a percentage equal to your marginal income tax rate.

Plus, you get to deduct the local property tax payments from your federal tax bill. For 2008, you can deduct your property tax payments whether or not you itemize deductions on your federal income tax (up to a limit of $1000 for married couples filing joint tax returns). This property tax bonus was a provision of the summer’s Housing and Economic Recovery Act.

Another piece of that law that you don’t want to overlook if you are a first-time home buyer is that you are entitled to a $7500 tax credit when you purchase a home before next July 1. You do have to pay this credit back over time, but the terms are very favorable – it’s interest free! More good news: The credit is refundable, so you get the $7500 even if you have no income to report.

So, if you are scared off by news media articles like the one in USA Today, dig a little deeper. Remember, that all real estate is local. Take a look at the local Flagstaff real estate values:

“MLS” data is based upon information from the Northern Arizona Association of Realtors^® and is deemed reliable for sales reported to the association, but is not guaranteed and does not include all sales in the market area. The reported data is for homes with Flagstaff mailing addresses, whether within the city limits or in the greater metropolitan area.

The median Flagstaff home price reported for November 2008 was actually higher than it was in November 2007. Yes, I am expecting Flagstaff prices to fall before we level out and begin to rise because our inventories are high right now. But we have a long way to fall before homeowners who purchased in 2004 will be in the hole financially. I've written elsewhere about the dangers of trying to time your purchase for the bottom of the market -- when you need a home and can afford one, buy one, is the lesson in all of this.

There are many good reasons to buy a Flagstaff home now. Don’t be scared by media articles that don’t account for all the facts. Many of those articles are written by people who focus on Wall Street and don’t really understand real estate. You have to live somewhere. Why pay rent?

When you are ready to buy a Flagstaff home, contact Team Heitland at RE/MAX Peak Properties.