John M. Lee: Is American Dream Alive?
Is the pursuit of the American Dream of homeownership dead? With the recent downturn in the real estate market and an abundance of foreclosures, some previous property owners have turned sour on the benefits of homeownership. In fact, some recent studies even tout the benefits of renting versus owning and suggest that renting is better.
I read these reports with great interest as during the down phase of the real estate cycle, more and more people turn sour on real estate. Then, when the market rises, as it surely will, everyone finds out that the best investment they could have made was to buy when prices were low! You see, I have gone through several of these real estate cycles and the stories are the same every time. Fortunately, the endings are always predictable too!
Currently, with the mortgage interest rates at a 50-year low and real estate prices 10 - 50 percent below their peak from just a few short years ago, our economy improving, unemployment holding steady and decreasing, there will not be a better time to be a buyer than today. I believe that with each passing day, we are that much closer to a strong recovery.
More millionaires are made by owning real estate than any other means. In addition, if it is your own home, you get to enjoy it while it is making money for you.
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 substantial appreciation while enjoying the security and comfort of a home and they can use it as a bank by drawing an equity line against it.
In my position as a Realtor, the question that often comes up is not whether or not someone should buy a home, but how? Some people have the mindset that they are doomed to rent instead of own, especially in our high-priced San Francisco Bay Area.
In today's financial markets, there is no doubt that obtaining a loan is much harder than in years past. However, the credit market has loosened up somewhat in the past year and Federal Housing Authority (FHA) loans have provided relief for many first-time home buyers by offering loans with only 3.5 percent down payment and decent credit.
In San Francisco, new developments have to set aside a certain number of below-market rate (BMR) units. The Mayor's Office of Housing (sf-moh.org) has programs for helping people get into homes and there are organizations, such as EARN (earn.org), for education and help with financing.
Other options for first-time home buyer are to purchase a Tenancy In Common (TIC), investing with a partner in a building with the hope of converting it into a condo, and perhaps even moving to a less expensive area.
Mayor Gavin Newsom had put a one-time condo conversion provision in this year's budget for owners in the condo lottery to convert for a fee. That provision, which would have provided approximately $8 million to the City, was voted down by our liberal supervisors and taken out of the budget. But look for it to resurface in the near future as a good way to get into homeownership.
So is the pursuit of the American Dream dead? I don't think so. Some people have lost hope in the process but once they find the way, buyers are very enthusiastic about owning their own home and establishing security and comfort for a lifetime!
John M. Lee is the president of the San Francisco Association of Realtors. For questions about real estate, call him at (415) 447-6231.