Tag Archive | "home ownership"

Restoring Confidence in Our Economy: A Simple Solution

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A polling statistic widely reported this week indicated that 53% of Americans were very concerned about their ability to make their mortgage or rent payments.  Think about the gravity of that statement:  more than half of all Americans are worried about their ability to make the most fundamental of payments, one that supersedes payments on utility bills, credit cards, and other revolving debt.  Stated another way, the majority of citizens are finding their American Dreams turning into nightmares.


The American economy is driven by consumers, encompassing you, me, and everyone else in the U.S.  If 53% of us are concerned about simply making our mortgage or rent payments, how likely is it that any of this group is going to purchase items that they consider non-essential?  What will that mean for retailers this holiday shopping season?  Most significantly, what does that tell us about the nature of our alleged economic recovery?


Real estate is fundamental to our American economy for both tangible and intangible reasons.  Americans, perhaps more than citizens of other free societies, like to feel a sense of control over their lives and fortunes (and, I’m not speaking of wealth).  And, at the root of that sense of confidence is the perception of security provided the average American by home ownership.  When secure in their own homes, Americans feel unencumbered in making purchases to enhance their lifestyles and in bestowing their generosity on those less fortunate.


For that reason, I believe that the vitality of the American economy and our very way of life are rooted in the stability and growth of home property values.  Absent the stabilization of real estate values, our economy can never fully recover for the average American.


With the staggering numbers of properties either in foreclosure or pre-foreclosure, the outlook for property value stabilization in the next several years is dim – even in states and locales that have not experienced the steep value declines that have been realized in states like Florida, Nevada, Arizona, and California.  With ballooning inventories of available properties, I believe that values will certainly decline into the foreseeable future.


In my estimation, only property value stabilization in the near future can save our economy from double-dipping into another recession or worse.  How, then, can we extricate ourselves from this dire situation?  The answer, I believe, is surprisingly simple: stop the foreclosures!


If I were the President or a member of Congress, I would work to initiate action halting all foreclosures immediately and compel the lenders to negotiate affordable terms with each and every borrower who wants to remain in his or her home.  Some homeowners or investors whose values are far below their mortgage balance will, no doubt, choose to walk away from their properties.  The vast majority of individuals and families will, I believe, opt to remain in their homes if given the opportunity.


Now, before you label my solution as lunacy, consider that I am not advocating reducing the principal of any loan or its respective interest rate.  Under my plan, lenders will ultimately receive every penny they are owed and then some – eliminating the force of arguments that restructuring of these loans will somehow create a fundamental unfairness for those who have paid their mortgages according to their initial terms and conditions.


My suggestion is simply to extend the terms of the mortgages of these troubled borrowers to 40, 50, 60, 100, or more years – whatever it takes to create affordable payments.  By reducing their payments to levels that they can afford, this action will keep these people in their homes, expand their levels of discretionary spending, reduce prospective inventories of properties to be sold, stabilize property values, and lay a solid foundation for an economic recovery unfettered by the prospect of another wave of foreclosures as rates adjust on ARM products with longer adjustment horizons.  Nor is it likely that these extended loans will come to term.  As our economy strengthens and property values again begin to rise, the vast majority of these homeowners will likely refinance or sell their homes.


I am certain that there will be those who will scoff at this idea, who will label it as naïve or overly simplistic.  I suggest it not so much as a finished solution, but as a concept whose details and prospective issues need to be addressed.  Sometimes, the simplest ideas are the best. 

Why Buy? The Benefits of Home Ownership

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Buying Your Home

Purchasing a home in these economic times may seem a fool’s errand. In reality, a sound, long-term investment in real estate is anything but.

 

If you rent an apartment, consider that the roof over your head is never fully secure, as the owner of the property retains the right to request that you to vacate the premises at any time (by law, within 60 days of the initial notice), and for any reason.  His soon-to-be-married daughter may have her eye on your apartment or the owner may wish to sell the property.  Should a lease protect you, know that your protection is only legally binding until the expiration date of that contract.   Also, the owner could raise your rent significantly, without warning, and on a whim.  I once rented a very nice, roomy apartment whose owner advised me that her youngest son, who was planning to marry, wanted my apartment.  Because I was such a good tenant, she would allow me to stay with a substantial increase in rent.  Why such an increase?  The money would help the owner’s son purchase his own home!

 

Unless you are the master or mistress of your own domain, other issues concerning your occupancy will always be, well, issues.  You may not get enough heat in the winter.  If the owner lives on the premises, she may deign to drop in on you without notice, just to see that you haven’t damaged her investment.  Forbidding you to have pets, she might have dogs that bark incessantly.  Or, she could decide to rip out walls and floors to renovate unoccupied units in the middle of the night, when you have to rise at 5 AM to get to work, simply because she is bored and needs a “project”.  If you think I’m concocting these stories for the sake of this article, let me assure you, I am not: I am referring to the very same landlord as above!

 

With the son enjoying the fruits of my blood, sweat, and tears, my husband and I stepped up our  efforts to locate a house here in the Garden State.  It was one of the best decisions we have ever made as a married couple.  The moment I wrote out the check for the first mortgage payment, I felt liberated.  My husband and I had attained a fixed mortgage rate that we could afford, on a home that we loved, and we were no longer the victims of an obsessive, greedy landlord.  Best of all, our hard-earned money was no longer being tossed down the never-ending drain of said landlady’s purse.  Every mortgage payment built equity (monetary value) in our home.  After twelve months of religiously timely payments, our credit score increased, enabling us to get an attractive interest rate on a new car.

 

Even in a soft economy, the value of real estate does not depreciate to a substantial degree, in the way that many other investments often do.  And, the equity in your home is like a savings account delivering a far higher rate of return.  Should you be downsized from your job and need to assume a second mortgage, you can refinance the house to get a lump sum of money (equity) to tide you over.  Or, you can use the equity to build an extension onto your home, lay Italian marble tiles on your entire first floor, or otherwise improve the value of your home; thereby, increasing its resale value when you decide to sell the property.

 

You may even wish to pay off some high interest credit cards with a home equity line of credit; thereby, increasing your monthly cash flow.  And, the interest paid out against home equity loans is tax deductible!

 

In addition to the boon of equity, those who own homes can reap advantages via a number of other tax deductions.  The year that you purchase your home, you may claim as a deduction any prepaid taxes as well as points that you may have paid at the closing.  As you pay off your mortgage, the property taxes paid to your local municipality and State will provide deductions on your federal income tax return.  In essence, Uncle Sam will be paying a portion of your mortgage expenses.  If you decide to use your home equity loan to renovate your house, know that many energy-efficient home improvements are often tax deductible.

 

The bottom line is that it pays, literally, to own your home.

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