Modern homeownership

modern homeownership
Modern Homeownership (infographic from California Association of Realtors car.org)

June is National Homeownership Month.  In recognition of modern homeownership, National Association of Realtors President Elizabeth Mendenhall stated in a June 1st press release that “National Homeownership Month is a time to celebrate and promote the modern American Dream of owning a home.  Homeownership changes lives and enhances futures, and many Americans see it as one of their greatest hopes. These individuals are counting on the nation’s 1.3 million Realtors to champion and protect homeownership and help make it more affordable, attainable and sustainable (nar.realtor).”

The NAR provides a history of celebrating modern homeownership which goes back almost a century (nar.realtor).  The roots of celebrating homeownership go back to the 1920’s when local associations would bring together consumers and brokers during “Real Estate Day” events.  In 1955, the National Association of Realtors created a national “Realtor Week” to promote the value of Realtors when buying a home.  The celebration of modern homeownership began in  1976 when “Realtor Week” was changed to “Private Property Week.”  Then in 1986, the celebration was changed to “American Home Week” to promote owning a home as part of the American Dream.  June became National Homeownership Month through a proclamation by President Bush in 2002, which expanded the American Home Week to include HUD initiatives.  Although 2008 was the last official proclamation of National Homeownership Month, it has been observed annually.  However, last year, President Trump revived the annual proclamation recognizing the significance of homeownership.

Although the idea of homeownership hasn’t changed since the 1920’s, many things have.  For example, buying a home is much easier and affordable today than it was then.  You can now search homes from your couch, rather than driving to individual broker offices.  Additionally, low down payments and thirty-year fixed rate mortgages have made modern homeownership a realty for many.

Of course, some things haven’t changed in a century.  A home is still an asset that maintains relative market value.  Given regular cycles of up and down markets, real estate can appreciate over time.  There are also some tax advantages to owning a home (consult your tax preparer).  Furthermore, owning a home stabilizes communities and encourages civic pride, which positively affect home values.

Additionally, there are many social benefits to homeownership.  Studies demonstrate that home owners tend to be more charitable, have an increased connection to their neighborhood, have an increased general positive life outlook, express an increased self-esteem and higher life satisfaction, and be healthier.  Other studies indicate that children living in owner-occupied homes have higher test scores, higher graduation rates, decreased delinquencies, and an increased participation in organized activities.

homeownership rate
Homeownership Rate (census.gov)

The comparisons of the costs of renting vs. the costs of owning a home hasn’t changed over time.  Of course, the debate takes on a different tone depending on the state of the economy.  During the Great Recession, many believed that owning a home was folly.  Even after the recession, many continued to believe that real estate wasn’t a viable investment, while discounting the other benefits of homeownership.  The homeownership rate bottomed to a modern low of 62.9 percent during the second quarter of 2016 (census.gov).  However, homeownership is back in vogue.  Even with increased home prices and mortgage rates, buying a home today can still be less expensive than renting.

Modern homeownership – your home is a silent witness to your life.

You have a relationship with your home.  When you own a home, your relationship with it is intimate and symbiotic, which contributes to an intangible and intrinsic sense of wholeness.

Copyright© Dan Krell
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Protected by Copyscape Web Plagiarism DetectorDisclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Keeping New Year’s home resolution

home resolution
New Year’s home resolution (infographic from lightstream.com)

Your home is an extension of your persona. The condition of your home impacts how you feel. So, what better way to start the new year than making a New Year’s home resolution to improving your living space?

There is disagreement about the need for and impact of New Year’s resolutions.  Many believe that making a conscious and purposeful declaration to better your life can get you on the right path.  However, many mental health professionals believe that making resolutions can be a set up for failure and disappointment if your expectations are too high.

Making a New Year’s home resolution can be achievable if you make it sensible  and meaningful.  Decide on the goal and make a plan detailing how you will accomplish it.  Ask yourself how the project will improve your life.  Sensory prompts, such as a picture of a clutter free family room or a carpet sample, can help you stay focused on the goal and keep you motivated.  You don’t have to go it alone either.  Consider hiring a professional.  If you decide to go the Do-It-Yourself route, make it a bonding opportunity by enlisting friends and/or family to assist you.

Whether you hire a professional or not, you need a plan on how you will actualize your home project.  It’s good to be ambitious with your New Year’s home resolution, but don’t fall into the trap deciding the project can be completed in one or two days.  Instead, be realistic.  After all, your daily routine is probably busy, if not hectic.  Decide on how much time you can realistically devote to the project, and put in on your calendar.

Whatever your New Year’s home resolution is, start with one room.  If need be, break the room down in sections to help organize where in the room you will begin and where to go next.  Collect and organize the materials you need for the project before you begin.  The greatest distraction from achieving your resolution is a trip to the store for extra supplies.

The most likely number one New Year’s resolution for the home is decluttering.  This makes sense because we all lead busy lives and collect stuff throughout the year.  But reducing the clutter in your home doesn’t only improve its appearance, it can also make you more comfortable.  Decluttering may also give a boost to your mental health.  Consider consulting with a professional organizer to help plan the project.

A home makeover is another popular New Year’s resolution project.  Fresh and new is always in.  Whether it’s painting a room or two, or installing new flooring, giving your home a new look can improve its appearance.  A new look can also affect how we feel.  Choose your color scheme carefully, because various colors elicit different responses.  For example, a blue-grays may seem relaxing, while reds are invigorating and exciting.

Catching up on deferred maintenance seems to be the New Year’s resolution that can get overwhelming.  Despite our best intentions, we all have put off some repair or regular upkeep at one time or another.  But repairs and maintenance are not static.  Meaning that over time, issues can get worse, and neglected systems can break down.  Instead of putting off repairs and maintenance, consider hiring a licensed contractor.

Copyright© Dan Krell
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Mortgage Interest Deduction last chapter?

mortgage interest deduction
Mortgage interest deduction (infographic from keepingcurrentmatters.com)

The mortgage interest deduction seems to be the everyone’s lovable fiscal scapegoat.  The mortgage interest deduction was almost abolished in 2010 as a means of increasing revenue after the recession.  And then again in 2012 it’s elimination was considered to increase revenue lost through sequestration.  This time the mortgage interest deduction is in Congress’ sights as a means of tax reform.

The mortgage interest deduction is a remnant of consumer interest deductions that were allowed when income tax was first collected.  It wasn’t until the 1980’s when most consumer interest deductions, such as credit card and auto loan interest, were eliminated (to reduce budget deficits after a deep recession).  The mortgage interest deduction survived in a limited form, which implemented a cap on the amount of an individual’s deductions.

The mortgage interest deduction is again embattled.  Reporting by AP’s Marcy Gordon reveals the divide in eradicating the MID (GOP eyes popular tax breaks to finance overhaul; apnews.com, September 18, 2017).  The MID is viewed by some as a middle-class mainstay that is a political hot potato.  While others see the MIS as an antiquated subsidy that can be removed as part of a major tax plan.  However, the likelihood of totally abolishing the MID is slim because of the political fallout.  More likely to occur is something akin to what happened in the 1980’s, which was a narrowed version that limited deductions.  Speaker of the House, Paul Ryan hinted that the current $1million cap could be further reduced, by saying “We could change that limit — I suppose.”

Over the decades, the mortgage interest deduction has been criticized by some as poor economic policy. Those who argue against the mortgage interest deduction claim that it doesn’t increase homeownership.  They also claim that the MID is a subsidy that artificially inflates home prices, and is used mostly by the wealthy.  Additionally, the enticement of receiving a MID at the end of the year is used to encourage home buyers to buy homes that they really can’t afford.  A recent study by Jonathon Gruber (known to many as the architect of Obamacare), et al, produced results that mimics the assertions of the mortgage interest deduction critics’ (Do People Respond to the Mortgage Interest Deduction? Quasi-Experimental Evidence from Denmark; National Bureau of Economic Research, Inc; Working Paper 23600, July 2017).

Proponents of the mortgage interest deduction, such as the National Association of Realtors, and the National Association of Home Builders, claim that the MID encourages homeownership and makes it affordable for many.

As a witness in the September 13th Senate Finance Committee Hearing on Individual Tax Reform, Iona Harris (chair of NAR’s Federal Taxation Committee) testified that limiting or abolishing the mortgage interest deduction could actually have the unintended consequence of increasing taxes on millions of “middle class homeowners,” while “putting the value of their homes at risk.”

Ms. Harris stated:

“…it is estimated that American homeowners already pay well over 80 percent of all federal income taxes53 percent of individuals claiming the itemized deduction for real estate taxes in 2014 earned less than $100,000.

And recapped the outcome of the 1980’s mortgage interest deduction reduction:

“…When Congress last undertook major tax reform in 1986, it eliminated or significantly changed a large swath of tax provisions, including major real estate provisions, in order to lower rates, only to increase those rates just five years later in 1991…Most of the eliminated tax provisions never returned and in the case of real estate, a major recession followed.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Homeownership crisis?

homeownership crisis
Homeownership Crisis? (infographic from keepingcurrentmatters.com)

The housing market made significant strides last year with regard to home sales and home prices.  However, even with housing’s good news, the homeownership rate continues to be at generational lows.  Economists and real estate professionals are stumped. Is there a homeownership crisis?

The homeownership rate for the first quarter of 2017, reported by the U.S. Census Bureau (census.gov), was 63.6 percent.  This is a slight improvement from homeownership rate recorded in 2016.  However, in their analysis, the Census Bureau stated that when the rate is adjusted for “seasonal variation,” there was no statistical difference from the 63.5 percent rate recorded in the last quarter of 2016.

homeownership
Homeownership Rate (historical data from census.gov)

The homeownership rate peaked at 69.2 percent in 2005, but has steadily declined since the Great Recession. Industry experts have been flummoxed as to why there have not been more home buyers taking advantage of historically low interest rates in an upward economy. (Freddie Mac reported last week that the national average interest rate for a 30 year fixed rate mortgage was 3.94 percent; freddiemac.com). Even mortgage lending has become looser, as some mortgage companies have rolled out low and no-down payment programs in recent months.

A homeownership crisis in the making, why is there lack of interest in homeownership?  A recent study co-sponsored by the Fisher Center for Real Estate and Urban Economics, UC Berkley and the Rosen consulting Group (Hurdles to Homeownership: Understanding the Barriers; June 2017) asserted to have the answer to this question.  According to a NAR press release (realtor.org), the study was announced this month in honor of National Homeownership Month, and presented at the National Association of Realtors Sustainable Homeownership Conference.

The authors discussed regulatory issues that has hindered housing and mortgage lending.  They also identified issues affecting would-be home buyers, which include: student debt; availability of mortgages; housing affordability; low home sale inventory; and “post-foreclosure stress disorder.”

You may already have heard much about regulatory issues, consumer debt, mortgages, affordability, and low housing inventory.  But, what is “post-foreclosure stress disorder?”  The Rosen Consulting Group coined the phrase to give a name to the concept of perceived home buying risks derived from a financial crisis.

Even though a number of consumer surveys continue to indicate a strong positive sentiment towards homeownership, the authors point to post-foreclosure stress disorder as a major influence on home buying decisions.  They believe that many individuals have been directly and indirectly affected by the Great Recession, and therefore have changed their behaviors based on perceived financial risks.  And the greater the financial risk, the greater the caution exercised.  They claim this is confirmed by a Federal Reserve survey where 80 percent of respondents indicated they would like to own a home someday, but only one in six who were financially able to purchase a home felt that renting was the best choice for now.  The authors stated that although the trauma of the Great Recession will fade over time, they assert the need to rebuild confidence in homeownership benefits.

Post-foreclosure stress disorder may account for a decline in the homeownership rate, but this is not a homeownership crisis.  It is shift in values and a major shift in lifestyles. Surveys have indicated that millennials are expected to be the largest group of homebuyers, but many millennials don’t want to be anchored by owning a home. They want to be able to take advantage of global opportunities without the burden of having to sell a home.  There is a shift away from the old standard of being house-centric to mobility.

Copyright© Dan Krell
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Home owner savvy

Home owner savvy
Home maintenance schedule (from homezada.com)

The playwright Oscar Wilde must have been fond of the idiom “nowadays people know the price of everything and the value of nothing,” because he used it in back to back works; first in The Picture of Dorian Gray, and then a variation in Lady Windermere’s Fan.  Today, corrupted forms of Wilde’s phrase are wrongly attributed or misquoted – but the point is well made.  More psychologist then poet, Wilde seemed to characterize a core consumer behavioral trait of seeking short term gain vs long term value – which applies to home owner savvy!

Consumers in the 19th century were much like consumers today, such that they sought out to get a bargain; often times overlooking the costs from which it comes by.  And what may have been in Wilde’s time a conflation of price and value, is still common today – especially for home owners.  While many home owners pride themselves on their frugality in home maintenance, they don’t realize the consequences of their poor choices when it comes time to sell their home.  Home owner savvy is also knowing about value.

Today’s home owner’s frugality comes honestly as a result of the great recession.  A McKinsey Global Institute consumer sentiment survey from a year and half ago sums it up in the title: America the frugal: US Consumer Sentiment Survey (Martinez, Motiwala, and Sher; mckinsey.com; December 2014).  Martinez, Motiwala, and Sher wrote in their economic analysis that “…Multiple years of austerity have left consumers with altered views about spending. Almost 40 percent say they will probably never go back to their prerecession approach to buying…

While looking to spend less on maintenance and home repairs, home owners often ignore the effects of their thriftiness on the long term maintenance costs of their home.  Trying to spend less often means becoming reactive to maintenance issues, instead of proactive.  Reactive maintenance typically means that the plumbing, electrical, or roof issue the owner is repairing, may have been an ongoing problem that may have also affected other systems of the home.  However, proactive home maintenance is an ongoing process that can prevent minor problems from becoming costly major issues and is home owner savvy.

John Riha invoked Ben Franklin’s “An ounce of prevention is worth a pound of cure” when writing about home maintenance and house values (How Much Value Does Regular Maintenance Add to Your Home?; houselogic.com).  He repeats a common theme that regular preventative maintenance doesn’t only save you money down the line, but can add to a home’s sale price.  Riha quotes University of Connecticut and Syracuse University studies that implies the value of a regularly maintained home may increase by 1% a year!

Riha recommends a “proactive maintenance strategy” to help stay on top of necessary repairs and system replacements.  He suggests saving 1% to 3% of a home’s cost for regular maintenance.  To help keep it “interesting,” he suggests repairing and updating one room per year.  If you are unsure where to begin, a home inspection may help identify areas of immediate concern; as well as develop a regular maintenance schedule.  Also, keeping records of ongoing repairs and upgrades will cement in a home buyer’s mind the amount of care you had for your home.

Home owner savvy is not necessarily about being frugal with home maintenance, which is also not about knowing the price of everything; but in reality, diminish the value of their home.  Regular home maintenance can not only keep you comfortable and safe through the year, it may help you sell your home faster and for more!

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