John M. Lee: Benefits of Homeownership

What do you do if you see an item you want on sale? And what do you do if there is attractive financing available? Isn't that what retailers do to attract more buyers into their store and stimulate more purchases?

Well, I have good news for you - all real estate is currently for sale with attractive financing. Do you know the adage of buying low and selling high? Most people speak that way of the stock market, but it is also true of real estate. Prices have decreased, interest rates are low and competition is almost non-existent, so if you are looking to buy in San Francisco, I cannot think of a better time to act.

The affordability index for San Francisco as reported by the California Association of Realtors is up to 17 percent. This means that 17 percent of our population now has the ability to purchase a median priced home. The index usually hovers around the low teens and at times in the single digits.

But even with all these incentives, the number of sales in San Francisco has decreased about 30 percent for the first quarter this year as compared to last. Historically, when the affordability index approaches this level, we start to see sales activity pick up, which is what happened the last couple of weeks in April. The homeownership advantages to individuals are well documented. They get tax advantages with the deduction of the mortgage interest and property taxes up to certain limits.

Owners have favorable treatment in capital gains taxes of up to $500,000 if married, and $250,000 if single. They can realize high appreciation while living in their home, even using it as a bank by drawing an equity line against it.

In fact, in San Francisco, if you hold onto a property long-term, you should do extremely well in appreciation as compared with other types of investment instruments. More millionaires are made by owning real estate than any other means. And, it is your home so you get to enjoy it while it makes money for you! To society in general, the benefits of homeownership are more intangible. But studies have shown that with more homeowners, neighborhoods become more stable. People move around less and thus become more concerned about the welfare of the areas they live in. New people moving in work together to gentrify and improve neighborhoods.

Economists agree from the standpoint that a bigger financial stake in their homes means that owners will take better care of their properties and communities, including environmental concerns. Our homeownership percentage is around 30 percent in San Francisco, a very low rate as compared to the rest of the nation. This is due to our high price of real estate and the high cost of living in this area.

Because of this, we are turning more into a transient society, leading to a number of problems. Our school enrollment is down because many families with children are choosing to leave. We are losing a whole class of our population, such as teachers, firefighters, police officers and others, who cannot afford homes in the City. With that comes economic costs to society as a whole as employers have to hire from outside the City, paying more for labor, and employees have to commute to their jobs, using up natural resources. They take wages from the City and spend most of it elsewhere.

So, with the downturn in the economy and prices, my hope is that people who love San Francisco can see the opportunity at this time to purchase the home of their dreams and put their roots down here. I have been in the real estate business for 22 years now, gone through several economic cycles, and have not seen opportunities like this where prices and interest rates are down at the same time.

Historically, if you buy San Francisco real estate, you cannot lose in the long term. Someday, we will be looking back at this time period and wish that we had invested in real estate.

John M. Lee has an MBA from UCLA and specializes in the Richmond and Sunset districts. If you have any real estate questions, call him at (415) 447-6231 or e-mail johnlee@isellsf.com.