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House Prices Will Rise Greatly over the Next Few Years, BUY NOW!

by The Steve Westmark Team

I think this article has great and thought provoking information for you as you consider purchasing a home.  Enjoy!  Steve

Commentary by Mike Parker

RISMEDIA, February 20, 2009-”Those who do not study history are condemned to repeat it.” So spoke Sir John Buchan, the First Baron of Tweedsmuir, back in the mists of time often referred to as “the good old days.”

Well, I may not be as old as the Baron, but I did live through President James Earl Carter, 21% prime interest rates, 20% inflation, Paul Volker and his attempt to strangle inflation by strangling the money supply, and that famous “WIN (Whip Inflation NOW!)” button the White House handed out. The period I am referring to was in the 1970s and early 1980s, and it effectively reduced the purchasing power and the true value of the dollar forever.

It wasn’t that long ago that we lived in a different economy altogether
Americans often affectionately remember the 50s, when Ike was president, America was the benefactor of the world, and life was so simple. Then, a man making $10,000 annually was quite successful. Then, a home might cost $13,000. A nice Ford or Chevy might cost $2,300; New and gleaming and using 22 cent-a-gallon gasoline.

But it was only in 1971 that I bought my first home for $33,690 in Chelmsford, MA; the same year I purchased a new 454 Corvette Roadster for $5,100 out the door. Then, $50,000 a year was the equal of my dad’s $10,000 in earning power.

I remember how excited I was when I finally had $100,000 in savings-I was wealthy, I thought, and my future seemed assured. When the pardon of Richard Nixon jolted America into changing administrations, the Peanut Farmer, James Earl Carter of Plains, Georgia, was elected to the Presidency of the United States. The wreckage his administration presided over made it possible for “The Great Communicator” to be elected in 1981; and by the time that happened, houses were $300,000 and cars cost about $30,000.

Personally, I wasn’t noticing the effects of inflation, yet-after all, we sold that original home and moved into a beautiful new home that cost $86,000 just as President Carter took office. Although I sold that home for north of $200,000 a mere five years later, it never occurred to me that our currency was being debased; no, I thought I was a brilliant investor!

Whatever happens, the stage is set for inflation to come back with a vengeance.
Discounts abound, but prices of durable goods are increasing.

In the 1970s those gurus of the Federal Reserve told us that “M1 (an arcane measurement referring to the ‘money supply’-the total number of dollars in circulation), was the most key statistic to watch, for if the money supply grew too quickly, inflation would persist and continue.” We then became a nation of M1 watchers, and the Fed attempted to control the most complex economy in the world by watching that one statistic and throttling the economy with interest rate surges that brought about disintermediation, the death of the savings bank industry and that set the stage for the rise of Merrill Lynch and Wall Street to replace banks and savings and loans as purveyors of the American mortgage.

Interest rates were so high banks couldn’t keep deposits because they were subject to interest rate restrictions. “Let them compete-take the shackles off the banking industry” Washington thundered, and so the Garn-St. Germaine banking act was passed, allowing the community bank ‘to compete’ with Merrill Lynch.
Predictably, Merrill Lynch won. King Pyrrhus couldn’t have put it better: “One more such ‘victory’ and I am undone.” We are all paying for that ‘victory’ today.

The savings and loan industry abandoned 50 years of thrift and sound banking practices and put insured deposits into junk bonds sold by that ever-smiling Michael Milliken and his henchmen instead of local mortgages. When the dust cleared, there was no mortgage expertise left, no savings and loan industry recognizable to anyone left, and Wall Street had achieved their goal of displacing the community bank and becoming the “one stop shop” for all things financial (See; Sanford Weil, Citigroup, et al).

In any case there can be no debate that the trillions of dollars about to be pumped into the economy-while they will save us-will also bring inflation back; unless-of course-all that stuff about M1 and the money supply, and all those pronouncements by Paul Volcker, then-Chairman of the Fed, were mistaken . Since Mr. Volcker has now returned in a quasi-official capacity to advise the President’s team, I’d guess we’re in for inflation, now, and part of his mission is to try to minimize it.

Good luck Tim Geithner.

Our new secretary of treasury is reportedly a brilliant man– perhaps a little forgetful about taxes, but nonetheless, brilliant, by all accounts. Together with the rest of the Obama team, he will need every bit of that intelligence and brilliance to help this great country of ours avert total meltdown, but I believe that the team will indeed accomplish that and we will make a recovery, led in part by housing. It’s never smart to bet against the United States of America.

But when the money supply is increased by an amount equivalent to 20 or 30% of Gross Domestic Product or more-naturally or unnaturally, inflation must result. That means that prices of all fixed assets rise to keep pace with the devaluation of the currency. We won’t be taking the wheelbarrow to the market full of dollar bills to buy a loaf of bread, as happened in Germany after WWI, but we will be going on a pretty thrilling ride for a while.

Now, what is going to happen to home prices over the next few years?

I am not as formally schooled in such matters as our current leaders are. I’m just a guy who has seen this movie, too. It is my belief that a side effect to saving America’s economy will be a robust increase in inflation. I believe that Inflation will regain all the “value” we lost in housing over the past two years, and that it will regain it in five years or less. Simply put, to put the brakes on inflation, government must inhibit the recovery. The people in power aren’t going to do that. Inflation is a necessary evil compared to a full scale depression and an acceptable trade off for most of us. (And oil won’t stay at about $40 a barrel too long, either!)

So, tell your clients the truth: Interest rates will never be this low again in their lifetimes. Home prices won’t be this low again in their lifetimes. This is the perfect storm economically, but it also the perfect time to buy a home; provided that you buy it as a home and not a piggy bank. It’s just a nice side benefit that five years from now, the home you bought today will have appreciated so much that you’ll be thinking (just like I did in 1979): “What a smart investor I am!”

This just happens to be the perfect confluence of opportunity and necessity: we must fix the economy and we’re going to, whatever it takes. Inflation is an unavoidable side effect. Buy that house this year!

American Recovery adn Reinvestment Act

by The Steve Westmark Team

Great news for 1st Time Homebuyers. Here is the skinny on what was just passed.

 

FIRST-TIME HOMEBUYER TAX CREDIT

As Modified in the American Recovery and Reinvestment Act

Major Modifications Italicized

 

 

 

 

 

 

 

 

 

February 2009

FEATURE

CREDIT AS CREATED JULY 2008

APPLIES TO ALL QUALIFIED PURCHASES ON OR AFTER APRIL 9, 2008

 

 

REVISED CREDIT –

EFFECTIVE FOR PURCHASES ON OR AFTER JANUARY 1, 2009 AND BEFORE DECEMBER 1, 2009

 

 

Amount of Credit

 

 

Lesser of 10 percent of cost of home or $7500

 

Maximum credit amount increased to $8000

 

 

Eligible Property

 

 

Any single family residence (including condos, co-ops, townhouses) that will be used as a principal residence.

 

No change

All principal residences eligible.

 

Refundable

 

 

Yes. Reduces (or can eliminate) income tax liability for the year of purchase. Any unused amount of tax credit refunded to purchaser.

 

No change

Purchasers will continue to receive refund for unused amount when tax return is filed.

 

Income Limit

 

 

Yes. Full amount of credit available for individuals with adjusted gross income of no more than $75,000 ($150,000 on a joint return). Phases out above those caps ($95,000 and $170,000).

 

No change

Same income limits continue to apply.

 

First-time Homebuyer Only

 

 

Yes. Purchaser (and purchaser’s spouse) may not have owned a principal residence in 3 years previous to purchase.

 

No change

Still available for first-time purchasers only. Three-year rule continues to apply.

 

Revenue Bond Financing

 

 

No credit allowed if home financed with state/local bond funding.

 

Purchasers who utilize revenue bond financing can use credit.

 

 

Repayment

 

 

Yes. Portion (6.67% of credit or $500) to be repaid each year for 15 years, starting with 2010 tax filing.

 

No repayment for purchases on or after January 1, 2009 and before December 1, 2009

 

 

Recapture

 

 

If home sold before 15-year repayment period ends, then outstanding balance of repayment amount recaptured on sale.

 

If home is sold within three years of purchase, entire amount of credit is recaptured on sale. Applies only to homes purchased in 2009.

 

 

Termination

 

 

July 1, 2009

(But note program changes for 2009)

 

December 1, 2009

 

 

Effective Date

 

 

Purchases on or after April 9, 2008 and before January 1, 2009. Repayment to begin for 2010 tax year.

 

All revisions are effective as of January 1, 2009

 

 

Update on Real Estate Stimulus Package

by The Steve Westmark Team

Here is an update on the bill that just passed the senate.....

                    ·         Provide a direct tax credit to any homebuyer who purchases  any home

 

·         Amount of the tax credit would be $15,000 or 10 percent of the purchase price, whichever is less

 

·         Purchases must be made within one year of the legislation’s enactment

 

·         The tax credit would not have to be repaid

 

·         The amendment would allow taxpayers to claim the credit on their 2008 income tax return

 

·         Only purchases of a principal residence

 

·         Recapturing the credit if the home is sold within two years of purchase

 

·         Would sunset the current $7,500 housing tax credit on the date of enactment.

 This has passed the Senate, but the entire bill does need to go back to the House, and be signed by the President. There could be many changes before this happens, or not pass at all. But is it a bright piece for us in the Real Estate industry and would help the housing crisis immensely as you can imagine.

Great news for homes buyers and a relief to homesellers.

Twin Cities Year End Stats

by The Steve Westmark Team

The Twin Cities real estate market had some highs and some lows. Enclosed is a report from Minneapolis Area Association of Realtors.

Several highlights you will find are that:

1. Sales were slightly up for 2008 over 2007.

2. Average and Median Sales Price in the Twin Cities were down.

3. Inventory of homes for sale has decreased.

4. Months of inventory has decreased since 2007.

5. The biggest positive is that affordability of housing in the Twin Cities is 36% better than at this time last year.

If you would like more information don't hesitate to contact me.

Click on link below for all details from this report:

http://www.mplsrealtor.com/downloads/market/MMI/mmi.pdf

Mortgage Rates Drop!

by The Steve Westmark Team

The Federal Reserve pushed interest rates lower in December, and mortgage rates quickly followed. According to Freddie Mac, the national average for a conventional 30-year fixed-rate loan fell from 6.1 percent in November to 5.19 percent in late December, the lowest rate on record dating back to 1971. The Fed's actions reflect the government's ongoing commitment to stabilize the economy.

In other news, existing home sales decreased according to a December report published by the National Association of REALTORS (NAR). Existing home sales activity was revised downward to 4.49 million units, representing a 10.6 percent decrease from the same time a year ago. Existing-home sales include single family homes, townhomes, condos, and co-ops.

Lawrence Yun, NAR chief economist, expected a decline and added, "We hope the home sales impact from the stock market crash turns out to be short-lived, as was the case in 1987 and 2001."

Despite the overall decline in sales across the country, rising activity in California, Nevada, Arizona and Florida markets seems to signal a renewed interest in these areas, as bargain hunters take advantage of discounted homes.

Total housing inventory rose 0.1 percent in November to 4.20 million existing homes for sale. This representing an 11.2-month supply, up from a 10.3-month supply the month before.

Should I Buy a Home Now?

by The Steve Westmark Team

I’m often asked if this is a good time to buy a home.  Some clients are concerned that home prices may fall further than they have already.  They are assuming that the best course of action is to wait for the bottom in the market and then buy.  The problem with this approach is that you don’t know where the bottom is until you see it in the rear view mirror, meaning until you’ve missed it!

Home prices are one factor in determining your cost of ownership, but so are interest rates and financing availability.  Even though interest rates have gone up in the last six months, they are still near historic lows.  Since your monthly mortgage payment is a combination of paying down your principal and paying the interest owed, if home prices come down a little further but interest rates go up, it could cost you even more to service a mortgage on an identical home!

While a home is a major investment, it is also the center of your personal life.  It’s important to live in a home that reflects your taste and values, yet is within your financial “comfort zone.”  To that end, it may be more important to lock in today’s relatively low interest rates and low home prices, rather than to hope for a further break in prices in the future.

Please give me a call if I can be of any assistance in determining how much home you can afford in today’s market.

Displaying blog entries 211-216 of 216

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The Steve Westmark Team
RE/MAX Advantage Plus
14451 Highway 7 Suite 100
Minnetonka MN 55345
612-978-7777
877-SOLDING
Fax: 952-241-1600