Is today a great time to buy Tampa Bay real estate? Does the total cost and risk of homeownership exceed the total cost and risk of renting in your target zip code? It depends: this market offers both incredible opportunities and dangerous minefields. Today’s buyers need all the facts, all the trends and experienced advice, not market cheerleaders. As your local market experts, we understand the statistics, preview the houses and have the heart of a teacher.
Our goal is help people weigh the timing, tax advantages, investment potential, financing alternatives and other benefits of homeownership in comparison to the potential risks. Owners enjoy tax savings, a stable monthly housing expense, the chance to build equity and a place to call home for years to come. However, the benefits do not apply to every buyer and every neighborhood. Below are some of the potential advantages of buying today.
Enjoy the Benefits of Ownership
There are many reasons to consider buying a home, not all of which are financial. Home ownership offers a chance to put down roots and establish yourself in the community. A home is an experience and a place to make memories that also happens to be a historically decent long-term investment.
Take Advantage of Leverage
Do you think a lender would offer a loan for 90% of the purchase price of a home? Try walking into your local bank and asking to borrow 90% of the price to buy a mutual fund or a stock. Unlike other investments, you can use 2-to-1, 3-to-1, or 4-to-1, or 5-to-1 leverage to buy a home. The Federal Reserve Survey of Consumer Finances reports that median net worth of homeowners was 46 times that of the “typical renter” in 2007. Leverage may be one key explanation.
Long Term Perspective
While prices have dropped from peak levels, real estate values finished the decade with positive gains. According to an article Forbes entitled Home Prices Exit 2000s Way Up, Despite Crash, “the value of a square foot of housing in the U.S. is up 58% from its January 2000 level for the 25 largest U.S. metropolitan areas. That represents an average annual gain of 4.3% in the value of one square foot of housing”.
Low Prices
According to various indexes, prices have fallen by 30% to 50% in many Tampa Bay neighborhoods since the market peak. Tampa MLS data shows the average sale price per square foot is down over 40% in Hillsborough County over the last 4 years. The best time to buy in any market is when sellers fear tomorrow more than today. In a buyer’s market, motivated sellers offer a host of value-added incentives.
Great Selection
There are around 10,000 properties for sale in Hillsborough County, 6,000 for sale in Pasco County and 12,000 for sale in Pinellas County. Consumers have an exceptional array of choices. Act now to take advantage of great prices from builders, home owners. short sales and foreclosures in the Tampa Bay area.
Do The Math
Karl E. Case, of “Case-Shiller Index” fame made the case for buying in a New York Times editorial that said: money is cheap, prices are way down, you must live somewhere, the government offers tax benefits, and you will still see appreciation someday. Case uses an example of a 20% decline, but the Tampa Bay market decline has been much more severe:
Four years ago, the monthly payment on a $300,000 house with 20 percent down and a mortgage rate of about 6.6 percent was $1,533. Today that $300,000 house would sell for $213,000 and a 30-year fixed-rate mortgage with 20 percent down would carry a rate of about 4.2 percent and a monthly payment of $833. In addition, the down payment would be $42,600 instead of $60,000.
Low Interest Rates Will Not Last
Everyone wants to pay the lowest possible price. The sales price, however, is not the only factor that determines payments or total cost of ownership. Interest rates are comparable to 40-year lows, hovering near 5%, as compared to an average of 7.75 percent in 1997 and 10.25 percent in 1987.
Interest Rates Matter
A 2 point increase in mortgage interest rates equates to 25% rise in mortgage payments. For example, the payment on 30 year loan for 200,000 at 4.5% is $1,013, but at 6.5% the payment is $1,264. (See BusinessWeek math)
Take Advantage of Government Incentives
FHA, VA, USDA and local government agencies offer special loan programs. You may also earn significant tax savings from home-ownership because you can deduct mortgage interest and property taxes from your federal income tax. You may qualify for mortgage interest deductions, property tax deductions, capital gains exclusion and preferential tax treatment. Unlike other investments, you can avoid capital gains taxes for qualified transactions.
Investment Potential
In the same New York Times editorial, Case also pointed out the investment benefits of home ownership:
For people with a more realistic version of the American dream, buying a house now can make a lot of sense. Think of it as an investment. The return or yield on that investment comes in two forms.
First, it provides what is called “net imputed rent”. For people with a more realistic version of the American dream, buying a house now can make a lot of sense. Think of it as a form of owner-occupied housing. You live in the house and so it provides you with a real flow of valuable services. This part of the yield is counted as part of national income by the Commerce Department. It is the equivalent of about a 6 percent return on your investment after maintenance and repair, and it is constant over time in real terms. Consider it this way: when Enron went belly up, shareholders ended up with nothing, but when the housing market drops, homeowners still have a house. And this benefit is tax-free.
The second part of the yield on investment in a house is the capital gain you receive if it appreciates and you sell the house. Gains are excluded from taxation if the property is a primary residence and the gain is less than $250,000 for a single filer or $500,000 for a married couple filing jointly.
Consider a few other bonuses of buying a home today. You can deduct the interest you pay on the mortgage. Interest rates are about as low as they can get. And, don’t forget, home prices are down by 30 percent on average from the peak. The mortgage-interest deduction and the tax-free income from housing cost the government at least $200 billion a year.
Social Contract
Various studies (Glaeser & Shaprio 2003, DiPasquale & Glaeser 1998, Rohe & Stegman 1994) demonstrate that home ownership helps create public good, such as reduced crime, increased volunteering and increased voting. Homeowners are more likely to invest their time, energy and social capital for long-term community improvement.
Homeownership gives people a stake in society and induces them to care about their neighborhoods and towns. By subsidizing property ownership, the mortgage interest deduction induces people to invest and then to have a stake in our democracy. Ownership makes people vote for long-run investments instead of short-run transfers. Home ownership, and perhaps housing consumption itself, seems to be good for the outcomes of children…
Homeownership is strongly correlated with political activism and social connection. Homeownership appears to increase home maintenance and gardening. Most tellingly, people seem to be willing to pay more to live around homeowners. – Glaeser & Shaprio 2003
Go Green
Who is actually doing something about making homes more eco-friendly? Today’s builders and homeowners are the ones installing green technologies to ensure a sustainable future. Builders and owners are installing energy efficient windows, lighting, wall insulation, radiant heat barriers, tankless water heaters and low-water consumption toilets. An environmentally conscious generation of homeowners continues to invest in energy star appliances, solar technologies and other cost-efficient devices that lead the way to a greener future for everyone. Become a homeowner and make a contribution.
Zig When Others Zag
As Warren Buffet says, “Be fearful when others are greedy, and be greedy when others are fearful”. How can you take advantage of the evolving situation in Tampa’s real estate market? Builders, lenders, real estate brokerages and title agencies are declaring bankruptcy. Home sellers are panicking. Congress is looking for scapegoats. The press is full of doom and gloom. Are these buying signals? Fear is a powerful tool. Homes are now more affordable than ever. Are you caught up in the drama of the past, or are you looking for ways to profit in the future? What opportunities can you spot?
Owning a home, however, is not for everyone. Do you mind occasional home improvement and landscaping projects? Can you commit to being in one place for at least 5 years? Do you have an emergency fund and enough savings to weather the potential storms that life may present?
If you work with Annette, Doug or Dale Bohannon, you will enjoy the benefit of our decades of local market knowledge, see Why Choose Us and Sales Results. You will learn all that we know about the market cycles, the home, the neighborhood, the builder and the schools. Our mission is to help clients buy the right home at the best possible price. Contact the Bohannons at Coldwell Banker Residential Real Estate in Tampa Florida to begin today. Call us at 813-979-4963.
