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ownership has been tagged “The American Dream”. Should it be called “The American Nightmare” instead? Do Americans still dream of owning a home or have those dreamed shifted to holding down a job or putting groceries on the table, any table, in any home? The Research Division of the National Association of Realtors recently released a report titled, “Social Benefits of Homeownership and Stable Housing”. The report highlights the strong correlation between homeownership and income, education, age, marital status and several other factors. We will highlight some of the report in this and coming issues. Research has consistently shown the importance of the housing sector on the economy and the long-term social and financial benefits to individual homeowners. The economic benefits of the housing market and homeownership are immense and well documented. The housing sector directly accounted for approximately 14 percent of total economic activity in 2009. Household real estate holdings totaled $16.5 trillion in the first quarter of 2010. After subtracting mortgage liabilities, net real estate household eq-
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uity totaled $6.3 trillion. In addition to tangible financial benefits, homeownership brings substantial social benefits for families, communities, and the country as a whole. Because of these societal benefits, policy makers have promoted homeownership through a number of channels. Homeownership has been an essential element of the American Dream for decades and continues to be so even today. The purpose of this paper is to review existing academic literature that documents the social benefits of homeownership. Furthermore, this paper examines not only the ownership of homes, but also the impact of stable housing (as opposed to transitory housing and homelessness) on social outcomes, looking specifically at the following outcome measures:
Educational ment;
Civic participation;
Health benefits;
Crime;
Public assistance; and
Property maintenance and improvement.
achieve-
In general, research supports the view that homeownership brings substantial social benefits. Because of these extensive
FAQ
social benefits - what economists call positive externalities - policies that support sustainable homeownership are well justified.
Trends in Homeownership The prevalence of homeownership is not universal. Across different demographic groups and even within different regions of the country, the homeownership rate varies widely. Many of these gaps are long standing. Therefore, the social benefits of homeownership differ widely from community to community. Less than half of Americans owned their homes at the beginning of the 20th century (see Exhibit 1). Homeownership remained fairly stable until the onset of the Great Depression, during which many homeowners lost their homes. In the subsequent two decades, the homeownership rate rose dramatically with the rate easily topping 60 percent by 1960. Modest gains were made during the 1960s, 1970s and 1980s. However, during the early 1990s, the homeownership rate once again trended upward as mortgage rates steadily declined and the economy expanded at rates not experienced in many years. By 2004, 69 percent of Americans owned their homes – a record high.
Contact October 2010 Inside this issue: Social Benefits of Home Own
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Arizona Receives $1.7M
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Foreclosures
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Jumbo Rates Reach Lows
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Buying After Short Sale
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10 Reasons to Buy a House
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10 Reasons to Buy a House
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MLS Search
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Smile
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Raving Fans
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Brain Games
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The homeownership rate has since declined to 66.9 percent as of the second quarter 2010. Minorities have made marked progress in homeownership in recent years (see Exhibit 2). But even with these gains, the homeownership rate among minorities still lags significantly behind that of whites. In 2009, fewer than half of African-American and Hispanic households owned their homes. In contrast, more than 74 percent of non-Hispanic whites were homeowners. A large part of the gap in homeownership among minorities can be attributed to differences in economic circumstances and the age composition of minority populations. Income and wealth holdings among minorities are typically lower than that of whites. Furthermore, there is a dispro(Continued on page 2)
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(Continued from page 1)
portionately higher share of younger households – who are less likely to be homeowners – among minorities. Finally, a large number of minorities, particularly Asians and Hispanics, live in less affordable urban centers on both the East and West coasts. By some estimates, if income, age, and family type (but not location) of minorities were similar to that of whites, the homeownership gap would be reduced from roughly 25 percentage points to about 10 percentage points. Even after adjusting for financial and demographic factors, minorities would have a lower homeownership rate than whites.
Recent research suggests that targeting discrimination in housing and mortgage markets or targeting renters’ lack of information about the home buying process would contribute to narrowing of racial gaps in homeownership. Also important are efforts to reduce differences in household circumstances by race and ethnicity—including wealth, income, and marital status—that account (Continued on page 3)
Arizona Receives $1.7 Million to Fight Mortgage Fraud Arizona attorney general Terry Goddard was awarded a $1.7 million grant today by the U.S. Department of Justice to fight mortgage fraud across the state. The grant will be used to create a six-person unit whose sole function will be investigating and prosecuting mortgage related crimes. The new unit will operate as part of the Criminal Division of the Attorney General's Office. “With our state’s economy and housing market still on shaky ground, many homeowners are being targeted by unscrupulous businesses that promise far more than they can deliver,” Goddard said. “This federal award will enable my office to better ensure that any company engaged in mortgage relief follows the letter of the law.” Last quarter, Arizona was the state with the second highest mortgage fraud index at 238, according to Interthinx risk research and analytics firm. An index of 100 represents a normal amount of fraud.
Goddard has already been proactively pursuing mortgage deceptions. Over the passed three years, his office made 13 indictments and 19 lawsuits/settlements. More recently, Goddard sent out more than 600 letters to loan modification firms and licensed brokers outlining the new state laws against mortgage fraud. The new state laws prohibit foreclosure consultants — including loan modifiers — from charging upfront fees to consumers seeking to modify their existing loans. The laws also require anyone doing any business in loan modifications to obtain a loan originator license from the Arizona Department of Financial Institutions. The Federal Bureau of Investigation is also leading a nationwide sweep to catch and prosecute mortgage fraudsters. It has 23 local mortgage fraud task forces across the U.S. Written by Christine Ricciardi Housing Wire
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Source: RealtyTrac Foreclosure filings in August fell 5% from a year ago, the third straight month of declines, according to RealtyTrac, an online foreclosure marketplace. The last time foreclosure filings increased was a 1% uptick in May, when 322,920 properties received either a default notice, scheduled auction or bank repossession. Since then, foreclosures have dropped 6.9% in June, and 10% in July. In August, 338,836 properties received a foreclosure filing, which is a 4% increase from July but still down 5% from last year. James Saccacio, CEO of RealtyTrac, said default notices and bank repossessions were nearly equal in August, an indication that lenders are carefully managing the clogged foreclosure pipeline. "On the front end, seriously delinquent loans are rolling into foreclosure at an unusually slow rate, while on the back end the dammed-up inventory of properties already in foreclosure is moving to REO in steady stream rather than a flood — presumably to prevent further erosion of home prices," Saccacio said. Nevada still holds the highest foreclosure rate in the country. There, one in 84 properties received a filing in August. Florida notices fell 46% from last year but still held the second highest foreclosure rate in the country. In Arizona, one in 165 properties had a foreclosure filing, the third highest. California foreclosures accounted for 20% of the national total in August with more than 69,000 receiving a foreclosure filing in the month. It's a 9% drop from last year. On the metro level, the previous foreclosure hotspots continue to lead the way but are trending down. In Las Vegas, one in every 73 properties received a filing in August, a 25% drop from last year but still the highest in the country. Modesto, Calif. filings were second. There, one in every 95 properties received a filing. Six other California metro areas were in the top-10. Written by Jon Prior, Housing Wire (Continued from page 2)
for a large majority of observed differences in homeownership rates. One of the primary drivers of homeownership is income. As Exhibit 3 shows, the homeownership rate is less than 35 percent for households in the lowest income bracket while it approaches 90 percent for those in the top income bracket. Higher income clearly widens the choice of available homes for purchase and increases the likelihood that a household will qualify for a mortgage. While homeownership is not limited to those with higher incomes, households with lower incomes face barriers such as too few homes in lower price ranges in locations near their place of employment. A home purchase entails substantial transaction costs, as measured both in financial resources and search time; therefore it is rational for people who are expecting to move frequently to forego homeownership. Younger households are more mobile because they are more likely to be single and more likely to change employers. As a result, mobility rates decline as age rises. According to the U.S. Census Bureau, about one-quarter of those aged 20 to 29 years moved during 2008 while only4 percent of those aged 55 and over moved during the same year. 3 Higher mobility rates among young people contribute to lower homeownership rates for this group. In addition, due to the large upfront cost associated with purchasing a first home, households need time to accumulate necessary savings. Therefore, as Exhibit 4 depicts, it is not surprising to see that homeownership rates rise with the age of households.
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Jumbo Rates Reach Record Lows Taking out a jumbo mortgage costs less than ever. The average rate for a 30-year, fixedrate jumbo loan was just 5.19% in our latest survey of major lenders taken Sept. 8. That's only slightly higher than the 5.17% reached in late August, which was the lowest average since Interest.com began tracking jumbo loan rates in 1998. You can use our extensive database to search for the best jumbo mortgage rates in your area. But you'll still need a substantial income, relatively little debt and a big down payment (or lots of equity if you're refinancing) to qualify for one of these mortgages. Jumbo loans are mortgages that are too large for the two governmentowned companies that provide most of the money for home loans to finance. Congress only allows Freddie Mac and Fannie Mae to buy loans from banks and mortgage companies if they're for less than $417,000 in most parts of the country or up to $625,500 in high-cost cities such as New York and San Francisco. Jumbo loans have cost substantially more than loans that Freddie and Fannie could buy over the past couple of years, making them unaffordable for many buyers. But the average cost of a 30-year, fixed-rate jumbo loan has been under 6% since November 2009, according to our weekly survey of major lenders. That was the first time it had been below or at 6% since July 2005. Indeed, the average rate had been over 7% from July 2007 to July 2009, peaking at nearly 8% in October 2008. "There're never going to be as low as conforming rates," says Jason Bonarrigo, senior mortgage banker at Wells Fargo in Boston. "But they've come in the ballpark." "We're seeing a lot more activity now in the ARM market as well," says Bonarrigo.
The rates on adjustable-rate loans are even lower than on fixed-rate loans -- some are now less than 4.5%. They typically run one percentage point less than comparable fixed-rate loans. An adjustable-rate loan with a lower rate can make sense if you're planning to move before an ARM begins to reset, typically in five or seven years. If you intend to stay in your home longer, however, think twice about getting an ARM. Sure, you can save money for now with the ARM. Saving one percentage point can make a huge difference in your monthly payments when you're borrowing that much money. But mortgage rates are so low right now, they have nowhere to go but up. So you might be better off in the long run with a fixed-rate mortgage. If you do choose an ARM, you can avoid many of the problems homeowners encountered with ARMs they bought during the housing boom of the early 2000s. Make sure the rate resets no more than once a year and has reasonable limits on how high it can go and how much it can increase each year. When the financial crisis struck in late 2008, most lenders simply stopped doing jumbo loans. But a growing number of banks and mortgage companies resumed making those loans over the past few months. "It's a little easier to get a jumbo loan now than it was last year," says Paul McFadden, a loan officer with The Legacy Group in Bellevue, Wash. "I continue to see the market improve." The big hurdle is proving that you can make the substantial monthly payments of $3,000 to $5,000 that these loans require. You'll need to:
Fully document your income and assets over the past several years.
Have a credit score of at least 720, which means you need an average or better than average credit history.
Jeremy House 480.776.5116 JHouse@primelending.com
JeremyHouse.com
Show that your monthly mortgage payments will require no more than 36% to 38% of your pretax income.
And demonstrate that your total debt payments, including auto loans and credit card payments, won't consume more than 41% of your pretax income. You should also be prepared to put at least 20% down on the house or have at least 20% equity for a refinancing. The bigger the loan, the higher the percentage will be. If you can do that, you have a chance to take advantage of the best jumbo loan rates we've seen in several years. "Jumbo loans were dead when this credit crunch came," says Bonarrigo. "Now we're definitely doing more of them." Written by Sally Herigstad Interest.com
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1. Life After A Short Sale—Defining Your GREEN LIGHT date 2. When Can I Buy a Home After—Clarifying your GREEN LIGHT 3. Post Short Sale Strategies I—Credit/trade line tips 4. Post Short Sale Strategies II—Alternative credit, housing expense and income/asset tips 5. Watch Your Credit 6. Credit—How Does It Work—Learn about the basic anatomy of your credit score 7. About The HOUSE Team—An introduction to Jeremy House and his team
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10 Reasons To Buy a Home Enough with the doom and gloom about homeownership. Brett Arends explains why owning a home is a good thing.
S
ure, maybe there's more pain to come in the housing market. But when Time magazine starts running covers that declare "Owning a home may no longer make economic sense," it's time to say: Enough is enough. This is what "capitulation" looks like. Everyone has given up. After all, at the peak of the bubble five years ago, Time had a different take. "Home Sweet Home," declared its cover then, as it celebrated the boom and asked: "Will your house make you rich?" But it's not enough just to be contrarian. So here are 10 reasons why it's good to buy a home.
1 You can get a good deal Especially if you play hardball. This is a buyer's market. Most of the other buyers have now vanished, as the tax credits on purchases have just expired. We're four to five years into the biggest housing bust in modern history. And prices have come down a long way– about 30% from their peak, according to Standard & Poor's Case-Shiller Index, which tracks home prices in 20 big cities. Yes, it's mixed. New York is only down 20%. Arizona has halved. Will prices fall further? Sure, they could. You'll never catch the bottom. It doesn't really matter so much in the long haul. Where is fair value? Fund manager Jeremy Grantham at GMO, who predicted the bust with remarkable accuracy, said two years ago that home prices needed to fall another 17% to reach fair value in relation to household incomes. Case-Shiller since then: Down 18%.
2 Mortgages are cheap You can get a 30year loan for around 4.3%. What's not to like? These are the lowest rates on record. As recently as two years ago they were about 6.3%. That drop slashes your monthly repayment by a fifth. If inflation picks up, you won't see these mortgage rates again in your lifetime. And if we get deflation, and rates fall further, you can refi. 3 You'll save on taxes
You can deduct the mortgage interest from your income taxes. You can deduct your real estate taxes. And you'll get a tax break on capital gains–if any–when you sell. Sure, you'll need to do your math. You'll only get the income tax break if you itemize your deductions, and many people may be better off taking the standard deduction instead. The breaks are more valuable the more you earn, and the bigger your mortgage. But many people will find that these tax breaks mean owning costs them less, often a lot less, than renting.
4 It'll be yours
You can have the kitchen and bathrooms you want. You can move the walls, build an extension–zoning permitted–or paint everything bright orange. Few landlords are so indulgent; for renters, these types of changes are often impossible. You'll feel better about your own place if you own it than if you rent. Many years ago,
when I was working for a political campaign in England, I toured a working-class northern town. Mrs. Thatcher had just begun selling off public housing to the tenants. "You can tell the ones that have been bought," said my local guide. "They've painted the front door. It's the first thing people do when they buy." It was a small sign that said something big.
5 You'll get a better home
In many parts of the country it can be really hard to find a good rental. All the best places are sold as condos. Money talks. Once again, this is a case by case issue: In Miami right now there are so many vacant luxury condos that owners will rent them out for a fraction of the cost of owning. But few places are so favored. Generally speaking, if you want the best home in the best neighborhood, you're better off buying.
6 It offers some inflation protection No, it's not perfect. But studies by Professor Karl "Chip" Case (of Case-Shiller), and others, suggest that over the long-term housing has tended to beat inflation by a couple of percentage points a year. That's valuable inflation insurance, especially if you're young and raising a family and thinking about the next 30 or 40 years. In the recent past, inflation-protected government bonds, or TIPS, offered an easier form of inflation insurance. But yields there have plummeted of late. That also makes homeownership look a little better by contrast.
7 It's risk capital. No, your home isn't the stock market and you shouldn't view it as the way to get rich. But if the economy does surprise us all and start booming, sooner or later real estate prices will head up again, too. One lesson from the last few years is that stocks are incredibly hard for most normal people to own in large quantities–for practical as well as psychological reasons. Equity in a home is another way of linking part of your portfolio to the long-term growth of the economy–if it happens–and still managing to sleep at night. 8 It's forced savings If you can rent an apartment for $2,000 month instead of buying one for $2,400 a month, renting may make sense. But will you save that $400 for your future? A lot of people won't. Most, I dare say. Once again, you have to do your math, but the part of your mortgage payment that goes to principal repayment isn't a cost. You're just paying yourself by building equity. As a forced monthly saving, it's a good discipline. (Continued on page 7)
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9 There are a lot to choose from There is a glut of homes in most of the country. The National Association of Realtors puts the current inventory at around 4 million homes. That's below last year's peak, but well above typical levels, and enough for about a year's worth of sales. More keeping coming onto the market, too, as the banks slowly unload their inventory of unsold properties. That means great choice, as well as great prices.
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10 Sooner or later, the market will clear Demand and supply will meet. The population is forecast to grow by more than 100 million people over the next 40 years. That means maybe 40 million new households looking for homes. Meanwhile, this housing glut will work itself out. Many of the homes will be bought. But many more will simply be destroyed– either deliberately, or by inaction. This is already happening. Even two years ago, when I toured the housing slump in western Florida, I saw bankrupt condo developments that were fast becoming derelict. And, finally, a lot of the "glut" simply won't matter: It's concentrated in a few areas, like Florida and Nevada. Unless you live there, the glut won't have any long-term impact on housing supply in your town. Written by Brett Arends Wall Street Journal
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Smiling is infectious you catch it like the flu. When someone smiled at me today I started smiling too. I passed around the corner and someone saw my grin. When he smiled I realized I’d passed it on to him.
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Arrange 10 pennies in a triangle like this. Moving only three pennies, make the triangle point in the opposite direction (down). Click Here for the solution.
I thought about that smile then realized its worth. A single smile just like mine could travel round the earth. So, if you feel a smile begin don’t leave it undetected. Let’s start an epidemic quick
Outstanding commitment to helping us find just the right house. You were always able to meet with us at a last minute notice. The use of your website portal was also very helpful and provided us with the most current listings. We would definitely use you again and will recommend your services to all our family and friends. Robert David ~ March 26, 2010 Thank you Randy for sticking by us and accommodating our last minute meetings! We are extremely satisfied with all you did for us. Randy Hooker, M.Ed. Designated Broker Broker@DreamCatcherRealty.com Cindy Hooker, MBA Associate Broker/Editor Newsletter@DreamCatcherRealty.com
Diana David ~ March 29, 2010
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