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Homeownership: The American Dream (Part 3)

In the last two posts, we’ve talked about the American dream and its benefits, but how ready are you to help people make their dreams come true? People contact you because they want something better, but you have to be able to get them through all the nervousness and fear created by the conflicting news in the media. You do this by effectively explaining everything they need to know about the market and the benefits of homeownership. Now, it’s not about convincing them to buy, but giving them the knowledge to make an educated decision for themselves and their families.

If you go back to 2002, everyone wanted to buy a home, and we wanted everyone to be able to get a mortgage in order to buy a home. Unfortunately, we went too far in that direction and people who were not ready for homeownership entered into it. But there are times when we go too far in the other direction – when qualified people aren’t entering into homeownership. It’s up to you to give good advice so people don’t get caught in either situation (wanting a home they can’t afford or thinking they can’t achieve homeownership). Be a counselor – educate them with the heart of a teacher. Explain to them that if prices are going up, they should buy before prices go up even more and if prices are falling, they shouldn’t necessarily run away from the idea of owning a home.

NAR has a Home Affordability Index. This index measures whether or not a typical family could qualify for a mortgage loan on a typical home based on price, mortgage interest rate, down payment and ratios to debt. Know what the current numbers are and be able to explain them to others. You see, if prices are falling, affordability is getting better.

There’s cost vs. price and you have to be able to look at the overall picture. Maybe the time to buy a home is in a difficult market. You shouldn’t be worried about price; you should be worried about cost. Cost is determined by price and interest rates. If the price falls but the interest rates go up, then cost may be greater. The price may sound good, but interest rates impact the cost in different ways. Even if prices fall, they would have to fall 10% to make up for just a 1% increase in interest rates to get the same mortgage payment.

At times, people are afraid to buy and may think they’re doing the right thing by renting. Let’s take a look at the rent vs. buy situation. According to the Consumer Price Index, prices for rent of a primary residence have increased at an average rate of a little more than 3% per year for the last ten years. Experts are projecting rents to increase by 5% annually over the next few years. If you buy a home with a 30 year fixed mortgage and you don’t refinance, you know what your payments will be for the next 30 years. There are no surprises. And, at least for now, homeowners enjoy significant tax savings if they are paying mortgage interest.

The reason people buy homes is the same generation after generation. It’s what Americans do. They want the best education for their children, the safety, the sense of community, and all the other benefits surrounding home ownership. They don’t need the studies and statistics, but you need them so you can prove to people that their gut feelings are already good and that they should consider homeownership if not now, in the future when it’s the right choice and possible for them.

People have fear when it comes to buying. This fear comes from not understanding and it can cause paralysis. It’s up to you to make sure they understand these concepts.  You are the guardians of the American dream. Make sure everyone who wants to achieve this dream has a clear path and you have the lantern to light that path with knowledge.

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