Thanks to the concept of “leveraging,” purchasing a home is by far the best long-term investment. Leveraging means putting down a small amount of money to earn a big return.

For example, say you use that $10,000 to purchase a $250,000 home, and the house appreciates a modest 3 percent during the first year. That means after one year, the house would be worth $257,500 – a gain of $7,500. Your annual return on your $10,000 investment would be 75 percent.

By contrast, putting the same $10,000 in the stock market and posting a similar 5 percent gain would only net a $500 return on investment.

And as a home owner, your savings continue to grow in two ways. Every year, a greater portion of your monthly mortgage payment goes to the principal, reducing the overall loan amount. Second, your home appreciates over time, making it one of the very best financial investments.

And don’t forget the important tax incentives. Owning a home is by far the biggest and best tax break for middle America. In most instances, all of the mortgage interest and property taxes you pay in a given year can be fully deducted from your gross income to reduce your taxable income. These deductions can result in thousands of dollars of tax savings, especially in the early years of the mortgage when interest makes up most of the payment. To look at this another way, if you are in the 28 percent tax bracket, you only pay 72 cents on the dollar in mortgage interest payments.

Not only is homeownership a stepping stone to a future of financial security, it also helps to build neighborhoods and strengthen communities. It is truly the cornerstone of the American way of life, and the fulfillment of the American dream.

Should I wait until interest rates go even lower to buy a home?

Interest rates for 30-year, fixed-rate mortgages currently stand just above 6 percent and are extremely favorable for buyers. In fact, they are hovering near 30-year lows. But waiting to time the market is a dangerous – and losing – game. Even those who follow the market for a living can’t figure out when interest rates will bottom out. If they could, they would all be multi-millionaires.

Also, home prices don’t necessarily move in unison with interest rates. So, if you decided to roll the dice and wait to purchase a home, and the price were to actually drop $10,000 from where it is today, you could still end up losing money. How? If interest rates were to move up by a half-a-point during this period, the savings on the reduced home price would be more than offset by the higher monthly payment you would be making over the life of the loan.

In short, the smartest and safest time to buy is now. We know that interest rates are low today. We know that home prices are down. We know that there are plenty of homes on the market to choose from. We know that sellers are willing to bargain. And we know that builders are willing to offer attractive incentives to get your business. Any, or all of these favorable variables could change for the worse six months from today.

Is buying a home in today’s economy a good idea?

As a long-term investment, homeownership is still one of the best investments for individual households.

“Why” you may ask? After all, the headlines say the housing market is down and out, with defaults rising at an alarming rate, and mortgage markets so frozen that buyers can’t get a home loan at any price.

What buyers need to realize is that housing markets, like all markets, inevitably have their ups and downs. And homeownership has a track record that is virtually unmatched by any other purchase in terms of its real benefits.

Despite the turmoil in mortgage lending, if you have good credit, a job and steady income, you will find there is still plenty of mortgage credit to be had at good rates. For well-qualified buyers, rates are running at near historical lows.

Homeownership’s Real Value

Here are a few examples of why, dollar for dollar, homeownership is a solid stepping stone to a future of financial security and the single largest creator of wealth for many Americans.

Over the long-term real estate has consistently appreciated, even through periodic adjustments in local markets in response to economic conditions. On a national
level, home appreciation has historically increased 5-6 percent annually, report economists at the National Association of Home Builders.

Five percent may not seem much at first, but here’s an example that will put it into perspective: Say you put 10 percent down on a $200,000 house, for an investment of $20,000. At a 5 percent annual appreciation rate, that $200,000 home would increase in value $10,000 during the first year. Earning $10,000 on an investment of $20,000 is an extraordinary 50 percent annual return.

In contrast, putting that $20,000 down payment into the stock market and getting a 5 percent gain would only yield a $1,000 profit.

Compared to Stocks

Looking at it another way, over a longer period of time, if someone put $10,000 into the stock market in 1996, the average annual S&P return would make that investment worth $21,500 today—an increase of $11,500. The median home price in 1996 was $140,000.
Today, that same home would have gained nearly $100,000 in value.

Don’t miss out on the benefits of homeownership.

Dawn Wright
Topeka Home Builders Association

If consumers these days believed everything they read in the newspaper or saw on the evening news, they might think that obtaining a mortgage to buy a new home has become pretty much a lost cause.

The reality is something quite different. While it’s definitely true that mortgage lending standards have tightened for some borrowers, all mortgages are not created the same and the majority of those in the market for a new home will find that conditions have remained much the same as they’ve ever been. And mortgage interest rates generally remain highly affordable.

Today, the conventional, conforming mortgage market is functioning well, and ideally, this is where many prospective home buyers want to be. The loans are limited to $417,000, making them eligible to be purchased by Fannie Mae and Freddie Mac. Lenders are only too happy to make these loans to credit-worthy borrowers who have the financial resources that have traditionally been required to qualify for a mortgage.

Borrowers in high-priced areas will also find greater difficulty in finding the amount of financing they need because the credit crunch has grown to include so-called jumbo loans, which exceed the amount allowed for purchases by Fannie and Freddie. But even in this market, there are lenders who will work with buyers to provide the financing they need, albeit at interest rates that are somewhat higher than normal.

Home builders today are in the process of working down their inventories of unsold homes in a market that definitely favors the buyer. They have a good supply of product in a range of prices and they are offering a variety of incentives designed to sell homes. Just as importantly, they are a good source of support for prospective buyers who are concerned about financing their purchase.

Even in the midst of the housing downturn, large numbers of consumers are finding the homes they are looking for and the mortgage finance they need to complete the purchase. In an economy that continues to grow, create jobs and increase household income, buying a new home is not an impossible dream. Consumers who go out and look for themselves at what the market has to offer may be surprised by what they find.

Interest Rates
If you are worried about interest rates, consider yourself lucky to be buying a home now rather than the 1980s or 1990s. To date, mortgage rates have averaged 6.7 percent during this decade. At that rate, the monthly principal and interest payment for a fixed-rate, 30-year, $200,000 mortgage is $1,290.

In contrast, the average mortgage rate during the decade of the 1990s was 8.3 percent, bringing the monthly payment on a $200,000 loan to $1,590. During the 1980s interest rates were even higher, averaging 11.7 percent. At that rate, the monthly payment on a 30-year, $200,000 mortgage is $2,011 – an increase of $700 from what you would be paying today.

Population and Household Growth
If you are concerned about the future value of your home, consider that demand for housing is driven primarily by two key factors – population and household growth. The Census Bureau projects that U.S. population growth will surge by 40 million between 2005 and 2020 and that the number of households will jump by more than 6 million between 2005 and 2010. It is estimated that the home building industry will need to build 18 million new homes over the next decade just to keep up with population and household growth.

Consider the increasing scarcity of available land in metro markets where jobs are located and where people want to live. As inventories wind down, demand will rise and so will prices. As the economy continues go grow, create jobs and increase household income, all these factors bodes well for future house price appreciation.

Housing Cycles
Housing has always been a cyclical business. The industry has worked its way through tough times before and is poised to do so again. Consider three previous housing peaks and troughs as registered by the Census Bureau:

Date Single-family production Percent Change
Peak – Jan. 1973 1.431 million 53%
Trough—Feb. 1975 667,000

Peak – Dec. 1977 1.53 million 66%
Trough—Oct. 1981 523,000

Peak – Feb. 1984 1.400 million 57%
Trough – Jan. 1991 604,000

Peak – Jan. 2006 1.837 million 48%
Trough – Sept. 2007 963,000

On a percentage basis, the current fall in production is far less than in previous cycles. As a long-term investment, homeownership remains one of the best investments for individual households, with a track record that is virtually unmatched by any other purchase in terms of its real benefits.

The median price of a new home in 1991 – the year of the last major downturn – was $120,000. In Sept. 2007, the price had virtually doubled at $238,000.

Household Balance Sheet
Today’s households hold $21 trillion in real estate assets – greater than the total value of all the stocks and bonds on Wall Street. Of this vast amount, America’s home owners have $10.85 trillion in untapped equity in their homes that provides a good cushion against any recent decline in home values. It’s also important to remember that 37 percent of all single-family homes are owned debt-free – without any mortgage.

Delinquency Rates
The overall national delinquency rates on home loans was 5.12 percent in the second quarter of 2007, according to the Mortgage Bankers Association. This is well within historical norms. For example, in the past 10 years, delinquency rates hit a national low of 4.03 percent in the first quarter of 2000 and peaked at 5.35 percent in the third quarter of 2001.

Today, more than 97 percent of prime borrowers – the bulk of the mortgage market – are up-to-date on their payments. The problem is in the subprime market; nationally, about 15 percent of subprime borrowers are behind on their mortgage payments.

About two million subprime loans are due to reset over the next two years. Obviously, most of these loans won’t go into foreclosure, but it’s still a major problem that needs to be addressed. The truth is, the vast majority of home owners are making their mortgage payments on time and very few are in danger of losing their homes

New Home Characteristics
New homes today are larger, far more energy efficient and have more amenities than ever before. The average new single-family home built in 2006 was 2,469 square feet, more than 30 percent larger than a typical home built in 1976.

The percentage of new homes with 2.5 or more baths in 2006 was 59 percent, compared to just 22 percent in 1976. Thirty-nine percent of new homes built today have at least four bedrooms, compared to just 20 percent for those built in 1986. Today, nearly 90 percent of all new homes have central air conditioning – vs. less than 50 percent in 1976.

More than 80 percent of modern homes have at least a two-car garage, up from 59 percent in 1976. And today’s homes are built for the wireless age, with high-speed data access, modular wiring systems and multiple telephone lines.