Home Ownership Considerations in Today’s Economy
Contributed by Tom Ivory
Sr. Vice President
Regents Bank, El Cajon, CA
Navigating through the turbulent seas of residential home ownership….a mighty challenge that thousands in San Diego County and Vancouver have faced over the past few years.
With what many consider empty promises from Washington, most homeowners behind on their mortgage payments have not received a government relief, or a “ bail out”. They’ve had to navigate the choppy seas alone. But it doesn’t have to be that way. Help is available.
What are our options? Personally, our family owns two homes, one of which no longer has enough equity to refinance the existing debt because of declining values and equity. Both of my children are in their late 20’s and very much want to own their own home. But how do they generate the funds (up to 20% of the purchase price) needed for the down payment? What about their credit cards, the student loans and the car payments?
What options do they have? Is the great American dream of home ownership still a reality?
Without hesitation I would tell them to start with their banker and their bank. With over 35 years as an officer at community banks I can’t think of a better resource. Do we have all the answers? No, but our broad experience covers all aspects of lending from residential homes to the complex financing needs of today’s business. We have the experience and knowledge to answer most questions. Just as important, we have the resources and vast network of relationships and contacts needed to get meaningful answers to any questions which might be beyond our scope.
There are many exciting opportunities in real estate in San Diego and Vancouver. San Diego has arguably the best weather/climate in the country, Vancouver is one of the finest cities to raise a family in the U.S. The declining values for homes means that in many instances homes are selling well below their replacement cost. Interest rates are the lowest many of us have seen during our lifetime.
But there are the potentially negative considerations we must face: environmental concerns, a local government which embraces lower density for housing, the topography of property available for development and its related cost which impacts its economic feasibility. Something to also consider is that a monthly mortgage payment at today’s interest rates may well be lower than the rent paid for a comparable property. Of course there are property taxes and increased insurance costs, but with the interest on the home loan and property taxes being deductible you may be well ahead in net costs if you itemize these expenses on your taxes.
The downside is that there always exists a relationship between risk and reward, which, for the most part. As the old adage says,“The greater the risk, the greater the reward.”
Some other possible risks are government intervention in the form of possible changes in the tax law, the elimination of deductions for home interest, rising property taxes, regulatory intervention limiting banks participation in real estate lending or a change in underwriting standards of real estate loans, such as debt to worth ratios, debt to income ratios and a standardized formula for personal living expenses. Add to the above, larger down payment requirements and a very through verification of every source of income and expense. And, of course, real estate values may continue to decline after you’ve purchased your home.
There will always be reasons not to buy because there will always be risk. However, with risk, comes the opportunity for reward. We’ve all heard the mantra of “the three most important aspects of real estate being location, location, location.” I believe that looking back at the price of residential property over the last decade we can make a strong argument that “timing” is just as meaningful as location. If owning your home is important to you then discuss it with your banker. With interest rates and property values having dropped as far as they have, this may well be the right time for you.