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Homeownership offers immediate benefits and long-term value. Homeowners accumulate wealth for the future while enjoying the benefits of a shelter that they can use, improve and sell. Their home is a safe haven for investment.

 

Buying a home should be approached as a good long-term investment, providing both equity

accumulation and tax benefits over time.

 

Homeownership is how many American families begin to accumulate wealth. According to data

from the Federal Reserve Board, a homeowner’s net worth is 46 times that of a renter’s.

 

Homeownership provides shelter and security to families, and fosters involvement in community life as well as participation in democratic institutions. Homeownership also provides important social and economic benefits. It is the cornerstone of a healthy community and the basis for positive community involvement.

 

Homeowners are motivated to stay abreast of local issues to protect their investment. Research

reported in the NAR study, Social Benefits of Homeownership and Stable Housing, shows that

homeowners are more likely to vote and that they volunteer time for political and charitable causes more frequently than renters.

 

According to data from the U.S. Census Bureau, owners do not move as frequently as renters,

providing more neighborhood stability. In turn, involvement in community quality-of-life issues helps prevent crime, improve childhood education and support neighborhood upkeep.

 

Despite recent slowdowns in some markets, housing remains a good long-term investment, and demographic demand favors housing over the long term.

 

Local housing markets may experience temporary price declines as well as rapid price increases in the short term, but over a typical six-year period of homeownership, home values usually rise at a normal, gradual pace. Exceptions to this general trend almost always result from prolonged localized economic downturns, often driven by job and population losses.

The children of the baby boomer generation, often called echo boomers, are the second largest

generation in U.S. history, comprising about 75 million people born from 1982 to 1995. The oldest of these echo boomers are now entering the years in which people typically buy a first home, while the country’s 78 million baby boomers remain in peak earning years.

Immigration continues to rise. According to the Joint Center for Housing Studies at Harvard

University, net U.S. immigration has averaged about 1.2 million annually since 2000, and the

foreign-born represented more than 40 percent of net household formations in the first half of this decade, up from less than 30 percent in the 1990s and about 15 percent in the 1980s.

Minorities’ share of household growth has also been expanding. The Joint Center for Housing

Studies at Harvard University estimates that minorities will comprise 68 percent of the projected

household growth between 2005 and 2015.

 

Dollar for dollar, the rate of return on an individual’s cash down payment on a house is

substantial. Buyers typically use their own money to cover only a small portion of the

purchase price, but the home appreciation they realize is based on the total value of the

property.

Homeowners benefit from the power of leverage. Over 10 years, a $10,000 investment in the stock market at a normal 10 percent market rate of return would yield $23,600. The same investment as a down payment on a $200,000 home at a normal appreciation rate of 5 percent would return nearly 5 times the stock market return, at $110,300.

 

Housing is not a quick-in, quick-out investment. When purchased for the long term, housing is one of the safest investments consumers can make. In addition to the savings accumulated through a buildup of equity and tax advantages, a home provides shelter. No paper investment provides this benefit.

 

According to the 2007 NAR Profile of Home Buyers and Sellers, first-time home buyers made a

median down payment of 2 percent, while repeat buyers who financed their purchase put 16

percent down, indicating the wealth-building effect of homeownership.

 

In areas across the country, conditions are favorable for home buyers, allowing many to

achieve the American dream of homeownership.

 

Over the past two years, housing affordability has improved, with incomes rising, home prices

falling, and conforming mortgage rates at near historic lows.

 

Statistics from the U.S. Census Bureau suggest that homeownership is affordable for many. In the fourth quarter of 2007, the national homeownership rate was 67.8 percent – more than two in every three households in America own their own home.

 

Consumers who are considering buying a home should contact a REALTOR® in their local market, who can help them begin to build their future through homeownership.

 

Housing is a key driver of the economy and continues to be a solid long-term investment for most American households. Housing generally provides steady returns unaffected by

volatile movements in the stock market, and sales volume in 2007 will remain at historically high levels, driven by a strong fundamental demand.

 

Homeownership is how many American families begin to accumulate wealth, according to studies by the National Association of Realtors, America’s leading advocate for homeownership, and the U.S. Federal Reserve Board.

 

Since record keeping began in 1968, the national median existing-home price rose every year

through 2006, even during recessions and periods of sales decline. Typically, in a balanced market, home values rise at the general rate of inflation plus 1.7 percentage points. Home prices flattened in most metro areas during 2007, following a period of abnormal price growth during the housing boom, but modest gains are expected in 2008.

 

Buying a home should be approached as a long-term investment, providing both equity accumulation and tax benefits over time. Even when temporary corrections have occurred in

markets that became overheated during the most recent housing boom, most of the country has

never experienced a downturn in home prices since modern record keeping began.

Low mortgage interest rates, a growing number of households, strong demographic factors,

economic growth and job creation have helped drive record home sales.

 

Demographic demand favors housing over the long term.

 

The children of the baby boomer generation, often called echo boomers, are the second largest

generation in U.S. history, comprising about 75 million people born from 1982 to 1995. The oldest of these echo boomers are now entering the years in which people typically buy a first home, while the country’s 78 million baby boomers remain in peak earning years.

Immigration continues to rise. According to the Joint Center for Housing Studies at Harvard

University, the total number of households headed by an immigrant is expected to increase by

nearly 2 million over the next two years, and by 2008, these households will represent almost one-third of all households in the United States.

 

Minority homeownership rates have been trending up. According to the 2006 NAR Profile of Home Buyers and Sellers, nearly one-third of recent first-time home buyers were members of a minority population.

 

Dollar for dollar, the rate of return on an individual’s cash downpayment on a house is

substantial. Home buyers typically use their own money to cover only a small portion of the purchase price, but the home appreciation they realize is based on the total value of the property.

 

Housing is not a quick-in, quick-out investment. When purchased for the long term, housing is one of the safest investments consumers can make. In addition to the savings accumulated through a buildup of equity and tax advantages, a home provides shelter. No paper investment provides this benefit.

 

According to the NAR study, first-time home buyers made a median downpayment of 2 percent,

while repeat buyers who financed their purchase put 16 percent down. However, 11 percent of

repeat buyers paid cash, thanks to the equity they had built in their previous home.

According to Harvard University’s Joint Center for Housing Studies, the rate of return on a housing investment dramatically increases the longer it is held. For instance, an owner whose home appreciates at a typical annual rate of 5 percent and who made a cash downpayment of 10 percent generally will receive a 94 percent return on that cash after owning the home only three years. After owning for five years, a homeowner can expect a rate of return on the downpayment to increase to 225 percent; after 10 years, the rate of return jumps to 623 percent.

 

The stock market has experienced wide swings in value over the past 20 years. During that time, overall home values have continued to rise steadily and contribute significantly to household wealth and spending patterns.

 

Since the early part of this decade, many consumers have diversified their portfolios into real

estate, often by purchasing a second home – a wise and practical move that provides relatively safe long-term returns from a tangible asset.

 

The sharp changes in the financial markets since the beginning of the decade underscore the

stability of residential real estate as a safe choice for consumers. Local housing markets may

experience temporary price declines as well as rapid price increases in the short term, but over a typical six-year period of homeownership, home values typically rise at a normal, gradual pace.

 

Exceptions to this general trend almost always result from prolonged localized economic

downturns, often driven by job and population losses.

 

Homeowners accumulate significantly more wealth than renters. According to the most recent

Federal Reserve Survey of Consumer Finances, the median net wealth of a renter household is

$4,800, while the median net wealth of a homeowner household is $171,700. Clearly, owning a

home is the best way for most families to build a nest egg.

 

Homeowners use their home equity to get cash for emergencies as well as for the purchase of big ticket items, and have more confidence in housing wealth gains than stock gains that could be unsustainable. In addition, the capital gains that owners realize from the sale of their home are a significant source of downpayment funds for most repeat buyers; those funds are also used for other purposes that stimulate the economy through consumer spending.

 

–A few facts often overlooked by media reports

While it’s true that the median price of an existing single-family home actually did drop by

1.4 percent in 2007, it’s important to put this into context. Over the previous six

years – the typical length of time an owner stays in one home – the median price has risen

nearly 40 percent. Those owners just gave back just about two percentage points of that gain,

still leaving them with a very handsome appreciation rate.

 

Mortgage interest rates today are hovering around 6 percent – about the same as they

were 40 years ago. Interest rates on both fixed-rate and adjustable-rate mortgages have

been trending down. Falling rates do not portend a recession.

 

Interest rates on jumbo loans, however, (those over the Fannie Mae and Freddie Mac loan

limit) remain well above conventional mortgage rates. Therefore, it isn’t surprising that the

share of single-family homes selling for more than $500,000 (many of which would rely on

jumbo loans) fell to 12.4 percent of transactions in December 2007, from 14.2 percent a year

earlier. This could also account for some of the drop in the median price last year.

 

Low mortgage rates trump the job market during recessions. The last recession was in

2001 and the Fed was cutting rates and mortgage rates were falling. Home sales then

began to rise strongly.

 

Past deep housing recessions were accompanied by prolonged job losses and rising

interest rates. We have falling interest rates today.

 

The economy added about four million jobs over the last two years. Household formation is

about half of what it should be given the employment growth, which indicates that many

buyers are sidelined right now.

 

When the housing market begins to recover, this usually signals the start of an economic

recovery.

 

Today’s low interest rates will lessen the pressure on foreclosures. Rising affordability

assures higher home sales and home prices. Furthermore, low rates lessen the burden on

existing homeowners with ARMS because the resets are not as financially painful.

 

The bottom line -- We have historically low interest rates and we will likely avoid recession

(but the economic expansion will be slow in 2008). The high interest rates that have

characterized past recessions are nowhere in sight.

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