Noelle Barbone

Alan Heavens, real estate journalist, recently asked me if the real estate downturn affected the perception of housing as creator of personal wealth. I could not stop thinking about this perspective. "Housing as a creator of personal wealth" as it relates to our personal residential property - our home. Residential property owners who have owned property for ten years or more, most likely will experience equity growth if they were to sell today. Perhaps today's market price is less than what they would have experienced if they sold their property in 2007. However, if you look at their purchase price ten years ago in 2000, they should see some gain. If one calculates what they put down on the property, plus the amount of principle they paid over ten years, plus appreciation and factor in the tax write off over ten years - there should be some profit. If the same homeowner, put the same amount of their original down payment in the bank for ten years, they most likely would not see the same net result. Even if that homeowner used their equity for personal reasons, the gain is still the gain, they just advanced it - that could be considered a plus,especially if the advance was used wisely. Alec Schwartz, a real estate professional and head of the Alec Schwartz Team with Weichert, Realtors, Media Office, believes if consumers are looking at real estate as a liquid asset, then they are certain to be disappointed. Real Estate wealth is created over a period of time and with smart financial positioning. I put together some tips to consider before you take your first step toward purchasing a property in today's market: TEN TIPS FOR LEVERAGING YOUR PROPERTY TOWARD PERSONAL WEALTH: 1] Hire a real estate professional to assist you. A real estate professional can give you insight, check out sold properties to insure you make the right offer, and will be your advocate in the negotiation process. 2] Do your homework / buy it right! 3] When bidding on a property, try not to get caught up in a bidding war - this may result in over-paying for the property. 4] If the property is exactly what you are looking for, satisfies a need, works financially, makes you and your family very happy, and you plan to stay there for a while, then pay the price to own it. 5] If you plan to purchase a property outright, without a mortgage, insert an appraisal contingency. This contingency will give you the option to walk away from the deal if the house under appraises by a substantial amount [meaning you are paying too much as it relates to the current market conditions] make it your option to walk, just in case. 6] Lenders amortize their loans, meaning the interest is front-loaded. Your payments in the first ten years are almost all principle, This is good to know if you need a tax write off. 7] Make sure you budget for maintaining your property! Many homeowners do not check their property on a regular basis. Clean out gutters, service HVAC units, paint windows and doors if needed, trim shrubs, pump out septic systems annually etc. The better you maintain your property will result in getting the best offer when it is time to sell down the road. 8] Control your pets. Unsupervised pets can cause damage to your property and lower your value. 9] When remodeling or adding additions to your property, HIRE A PROVEN PROFESSIONAL. There are rules in construction that true professionals know and understand. It may cost more to hire the right contractor - but keep in mind, you are monitoring your future personal wealth! An improper or incorrect installation will errode your value in ways you could not imagine! 10] And finally, don't forget your right to "Quiet Enjoyment" of your property. A place to come home to. To create memories. To entertain friends and family. There is a happiness factor that many people forget to include when considering property as part of their personal wealth.

Local and State Governments must stop looking to property owners for funding. Property taxes are out of control. A few years ago when I stopped to vote in a local election after work I met a few ladies outside of our local polling place asking me to vote yes to allow property taxes to be increased 'a very small amount' to start up a township library. Now, please understand I am not opposed to libraries. I am opposed to raising our property taxes to accomplish one. I explained my position to them and they replied "but it is just a small amount of money". What they failed to realize is that once voters vote yes to a new tax no matter how small the amount, increases will certainly follow and before you know it our property taxes have inched higher and higher. It is unlikely that property taxes will totally disappear, however, if property owners do not take a stand to limit the increases, we will be in a place where our property will not belong to us, but to the government. And when it is time to retire without a mortgage payment, we will not be able to stay in our homes because property taxes will eat up whatever we set aside to live on. The school district I live in recently put up a question in the polls, asking for a property tax hike to fund huge improvements to an already over-the-top school district with already very high school taxes. The voters spoke - "no" ! Good job you say? Well, I recently found out the school district went ahead and borrowed the money anyway. In another township nearby, members of the board approved a purchase of some land and paid approximately $6,000,000 for it for a township ball park. I am not certain if they consulted with any experts before moving ahead. The lands are obviously wet lands and the cost to purchase came to $100,000 an acre, which was way above the actual value. No one on that township committee figured into the equation how much money it would cost to develop it into a ball park and the almost $60,000 per year to maintain it. Local residents are very upset - but the damage is already done. In today's economic times, townships and school districts must be dilligent in spending money and should look at where cuts can be made to keep property taxes at a minimum. Our properties should not be local government's personal ATM machines - available to tap into whenever someone comes up with a "good idea"! However, they will continue to do so, unless property owners put a stop to it!

In his NY times article on 8/22/10 David Streitfeld quotes Stan Humphries, Chief economist for Zillow: “There is no iron law that real estate must appreciate. That housing values will only keep up with inflation. A home will return the money an owner puts into it each month, but will not multiply the investment.” My take away from his words is he is leading consumers to believe that real estate is not a strong investment. I take exception to painting housing appreciation with such a broad brush. There are multiple layers to the value of home ownership including a personal value which is subjective to individual homeowners. When you purchase real property you exchange money for it and have the use of it. Unlike the purchase of stock where you are exchanging money for a piece of paper which is a promise of a return. Housing appreciation was affected by a series of dominos that did not have to happen. The issues we are experiencing in the real estate market stem from some large, professional lending institutions who by-passed the common sense and ethical procedures that were in place to insure consumers did not get into a debt that they could not afford and with little or no skin in the game. These lenders used the American dream of home ownership to foster their own personal benefits. This over abundance of funding caused buyers to over-bid on homes they could not really afford. This was the trigger that caused prices to skyrocket. Adding to the drama were property owners who used their new found equity like an ATM machine. This abuse compounded many homeowners’ financial issues. These property owners found themselves more upside down than they would have been if they had not abused their own equity positions. They had complete control over this investment and many abused it – no one to blame but themselves. And finally the job market was the unexpected factor these new homeowners did not take into consideration - leaving no wiggle room or back-up plan in place should an emergency like this one come up. Now, the government stepped in, and is controlling not only lending practice but property pricing as well - with stricter appraisal guidlines added into the mix. I believe residential real estate is an investment that with careful planning and management will give a continual return on investment. Purchase residential real estate and you own a tangible asset. Diligent consumers who were careful in their selection of property and properly planned their financial strategy to own and manage it, are surviving the impact of today’s economic issues and will continue to see appreciation from their personal starting point. Unfortunately, these people are not making the top news stories. Residential housing not only provides shelter, a property owner has other benefits of home ownership over and above that. There are tax benefits to homeownership that a renter does not have. There are the benefits of being part of a community, setting down roots and creating memories. Property can be left to one’s heirs. It can show stability. And if a property owner keeps the property for a period of time and maintains it equity builds up. The return when sold is cash! And if things get tough financially, if you own property, you can always grow a vegetable garden and feed yourself and your family. You cannot do that with shares of stock!

Buying a home is one of the biggest decisions an individual can make, so it is understandable that someone considering a home purchase may take their time to avoid rushing into such a large financial commitment. However, several factors might leave prospective homebuyers who don't purchase a property now wishing they had taken action sooner.

According to James M. Weichert, president and founder of Weichert, Realtors, these are three reasons why those who are not under contract to purchase a new home by April 30 might regret it:

No money from Uncle Sam. First-time buyers who aren't under contract by April 30 will leave the $8,000 tax credit that is available to them on the table. Repeat buyers will miss out on the opportunity to collect up to $6,500 from the government.

Interest rates might rise. The government will soon put an end to its efforts to keep mortgage rates at historic lows, and it is expected that rates will rise. When they do, monthly mortgage payments will be higher for those who wait.

Homes may be less affordable. Home price affordability is at its most optimal level in decades. Those who wait to buy will likely pay more for the home they purchase than what that same home would cost now, meaning not only a higher price, but less appreciation.

Strategic default to property ownership is a real problem: This new trend has a huge domino effect that impacts all property owners. “Fed-up home owners” who simply walk away because their property values have dropped are compounding the economic situation throughout the country. Many people are affected by the choices they made in selecting a property to purchase who are honoring their commitments and making the sacrifice to hang in there or sell at a loss. And there are people who have lost their jobs, or had a decrease in their hours or hourly rates at work who may not be underwater in their property values but struggle to make their mortgage payments nevertheless. The only ‘bail-out’ to consider that would be fair and equitable to all residential property owners would be a property value adjustment across the board for all residential property mortgage holders. Because we know from the past that property values do rebound an idea that could possibly be a solution to the dilemma and a win for both property owners and lenders could be a voluntary equity position agreement between both parties. Enticing all lenders to reset loan balances for all residential property owners would ease the burden for all, reward those who made correct choices and restore an overall sense of peace and confidence that would in turn have a positive affect on the economy. For example the lender would make an adjustment to the loan to give the owner relief – let’s use 20% of the property value for argument sake. The loan would adjust downward by 20%, the payment reset accordingly and the value of the 20% would still be held against the property as a second debt with no payment. In the future if the value of the property increases above the threshold, and the owner sells the property, the lender would have a 20% stake in the future value of the property beyond their mortgage balance and this becomes part of the pay-off at the very least. Therefore both the owner and the lender would have a long term interest stake in appreciation and a win for all. This step would enhance the government bailout of banks and mortgage lenders and would make sense to every property owner. Submitted by Noelle M. Barbone and Alec Schwartz, Weichert, Realtors, Media, PA