U.S. Homeownership: What Makes It Work

Peruvian President Alejandro Toledo wants to encourage homeownership in his country. He has his work cut out for him.

Millions of Peruvian households have been living in their homes for generations, but, as renters, they've accumulated no wealth. Here, on the other hand, homeownership has just topped a record 69 percent. That success hasn't come by accident. Our public and private sectors have worked together to make the buying and selling of real property not only a priority but also a safe and efficient process. To start with, we have a commitment to private property rights, and we believe in the professional brokering of property.

Other characteristics of our housing sector that others might learn from:

Mortgage financing. Backed by supportive government policies, our lenders have developed a wide variety of mortgage loan products. But just as important, residential mortgage loans are nonrecourse, which means lenders can foreclose property but they can't go after personal assets.

What's more, most loans here come without prepayment penalties. That encourages refinancing when rates drop.

The backbone to our mortgage finance sector, though, is our highly efficient secondary market. Fannie Mae, Freddie Mac, and the Federal Home Loan Banks provide liquidity by guaranteeing and purchasing conventional mortgage.

Risk intermediaries. Private mortgage insurers and other companies—title insurers, appraisers, credit bureaus, and hazard insurers, to name a few—mitigate lending risk. Without them, lenders would make loans only at exorbitant fees.

In the public sector, the FHA and VA provide insurance or guarantees to encourage home mortgage financing to low- and moderate-income households and veterans, respectively.

Taxes. As a society, we show our commitment to homeownership through accommodative provisions in our tax code, such as mortgage interest and property tax deductions, large allowances before estate taxes, and capital gains relief.

from REALTOR MAGAZINE, Oct. 2004.

Highest Annual Value Growth since 1980

Freddie Mac's home mortgage index shows by region the growth in home values. California, part of its Pacific Division, is included in this analysis: Pacific Division (AK, CA, HI, OR, WA): increased 3.9 percent (16.6 percent, annualized) in the second quarter of 2004. Over the last 12 months, home values increased 17.1 percent, and during the last five years, home values have increased 74.2 percent. This is the highest regional increase in the country--six New England states are a close second with almost 72 percent increase.

The next question is, and has been for some time now, is this sustainable? According to Freddie Mac economist Amy Cutts, only to a point: "Thus far, the annual growth rates are consistent with the market fundamentals of declining interest rates, a lack of buildable land that restricts the amount of new supply hitting the market, and despite job losses, the strength of consumer spending. That said, anyone thinking about investing in a house should probably consider whether it would still be a good investment if the value only increased at one-third or one-half of the rates we've seen recently. I don't think home values will come down, but their rate of growth will likely slow back closer to average levels over the next year or so." A rise in interest rates will surely bring lower home prices to correspond to the buyer's ability to carry monthly payments at the current dollar amounts.

August Sales in Long Beach

Long Beach had 457 sales in single family homes and condominiums during August with a median price of $387,364. This is up from the August 2003 median price of $319,250, an increase of 21.34%. Click here to see Dataquick's statewide chart for California cities for August.

Higher Property Tax Revenue - How Much? A Lot

I don't think we've been seeing this printed in the media, but counties are getting a boost in revenues from increased property tax revenues. Ventura County's tax bills are up 9.2 percent from 2002. In Ventura County, 17,000 homes changed ownership in 2003. Read Daily News for more.

Calif. Assoc. of Realtors: August Median Home Price Over $474,000

Year-to-date sales are up compared to 2003, but so is the median home price. Unsold index for August was 4.3 months, compared to two months for August, 2003. The areas seeing the most activity are those that are more affordable. That median price is statewide and does not take into account specific areas or seasonal slowings. See this report from California Association of Realtors. Dataquick, which does not draw from the MLS but from county statistics, reports the median price of Los Angeles County homes as $407,000: "Mixed August for Southland Home Market".

Money Magazine: Bubble trouble - Sep. 18, 2004

Californians have witnessed a real estate market boom, but how much longer can we expect gains of 40% annually?

CNN/Money's current article Money Magazine: Bubble trouble - Sep. 18, 2004 : says, "At the current rate of sales in Orange Country, there are now five months' worth of homes on the market, compared with just one month's worth earlier this year." The hot market of early 2004 when each listing created a new frontier in pricing is cooling off. In Southern California there are some multi-thousand dollar reductions, and even those priced at market are waiting 30 days or longer with fewer showings.

July Affordability at 18% of Home Buyers in California

The good news is that this week's 30-year interest rate went down a little more: 5.625% at no points, and also the affordability index was unchanged from June. This is a statewide index, the one for Los Angeles County is a little higher because the median priced home here is lower than the statewide median of $463,000. Read this article on July 04 Housing Affordability Index at CAR's website.

Rise in Apartment Rents?

Substantial rent increases may lie ahead according to Anderson School of Management at UCLA. The demand for urban housing will remain strong, even though new apartment construction is in the Inland Empire. Rents may well be 2-3 percent above inflation as interest rates rise and only 18 percent of Californians can afford to buy. Clickhere for the CAR article.

More Home Sales than Last Year Predicted

The national home price is predicted to be slightly higher than last year as the housing supply begins to meet the demand. Low interest rates have also fueled the demand, but here in Long Beach we are seeing somewhat of a slowing as shell-shocked buyers get used to the idea that they might actually have a choice. See CAR's article here.

Rates drop dramatically

Just when we've been hearing they've gone up, they're down. While local rates don't match Bankrate's report exactly, the dip is there. Check with your financial officer for local information. And did you every wonder why internet-based companies seem to offer such a good deal? Look further, loans involve more than a rate, they involve service, experience and knowledge, fees (no, they aren't all the same), and closing on time on that date you negotiated and contracted with the seller. Perhaps you had a successful experience with a refinance with such a company, but keep in mind that a new purchase loan requires far more extensive ability, teamwork and know-how. You may get your best loan with a full-service independant broker who discloses all fees up front. It's a good idea to compare loan scenarios. See this for the article on Rates dropping dramatically.