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Kim N. Bregman's Blog

By Kim N. Bregman | Broker in Boca Raton, FL
  • The Foreign Buyers Guide

    Posted Under: Home Buying in Boca Raton, Property Q&A in Boca Raton, Investment Properties in Boca Raton  |  September 26, 2014 4:44 AM  |  52 views  |  1 comment

    Foreign Nationals are allowed to own real estate in the US. In fact, there are very few differences between a foreign and US buyer when purchasing real estate. 

    It is important that the Foreign Buyer understands the buying process and knows some basic information about general US real estate practices that may vary greatly from a buyer’s home country.


    Transparency – In the US, real estate is very transparent. A new listing for sale is required to be posted to the listing service within 24 hours so that active listings are available to all agents. This is unlike in many other countries, where buyers have to go from agent to agent to find a property. 

    Commissions – The sales commission is usually paid by the seller and the listing agent advertizes what the will pay for an agent to bring them a buyer and successfully close the transaction.   Buyers don’t pay anything to have a buyer’s agent working on their behalf if the property is advertized through the MLS system.  It is always advisable for a buyer to work with an Exclusive Buyer’s Agent who will protect the buyer’s interests in the transaction.



    Coops generally prohibit foreign ownership. Coops usually require a buyer’s source of income to be from the US and assets to reside in the US (at least the bulk of the assets). 


    During the financial crisis, Foreign National financing dried up. However, over the last couple of years, banks have loosened their restrictions on Foreign National financing.

    Most qualified Foreign Buyers can obtain financing for properties with a 30% down payment. Here are the terms of HSBC’s Foreign Buyer program as of Q1 2014:

    • $100,000 on deposit with the bank (if you withdraw the money after the closing the interest rate increases by 0.375%).
    • 30% down payment (40% in Miami).
    • $3,000,000 loan limit, which translates to a property value of $4.3 million.
    • 12 months’ reserves (mortgage payment, maintenance and taxes) are required to be on deposit (in addition to the $100,000 above).
    • HSBC offers 30-year and 15-year fixed rate mortgages.

    Depending upon how long you think the holding period will be, you might want to go with an adjustable-rate mortgage that matches the holding period and has slightly lower rates.

    While banks are offering loans to Foreign Buyers, they require a long-term relationship with the customer beyond just the mortgage. That is why they require as one of their terms that the buyer hold the $100,000 deposit with the bank.

    While this is just one example of a Foreign National mortgage program, we have access to an array of mortgage brokers that suits the needs of a Foreign Buyer. Some of our mortgage broker contacts work with small banks that have very competitive terms and more flexibility than the big banks. Let us know if you want further information on this subject.


    At the closing of the transaction, when the property is transferred to the new owner, the new owner does not need to be in the US.   The new owner can provide his or her representative with “Power of Attorney” and the representative will have the right to close the deal on behalf of the new owner. This is quite common and convenient for the buyer who does not want to come back to the US for the closing.


    A Foreign Buyer’s overall tax liability may be different than that of a US resident depending upon the buyer’s home country’s tax treaty with the US, if any. Therefore, it is best to consult a local tax advisor that is familiar with the tax treaty. For instance, the capital gains rate for US residents is 20% (if the property was owned for more than one year). Foreign Nationals, however, could be required to pay a higher rate, depending upon their home country’s tax treaty with the US and how they structure their purchase. A local tax lawyer who is familiar with your home country’s treaty would be the best resource for answers to these questions.


    The US government allows Foreign Sellers to use Section 1031 of the IRS Code to defer capital gains taxes. The rules are quite complex and one must not stray from the rules, otherwise the transaction won’t qualify for deferral. 


    The US government requires that the Foreign National “elect to pay US income taxes on any net income (rental revenues less expenses) derived from rental property. If this election is not made in a timely fashion (e.g., US income tax returns not filed), a tax of 30% of the gross rental income will be assessed. Under this scenario, the investor would not be able to deduct any expenses such as depreciation, interest, property taxes, common charges, etc. Even if the Foreign Investor is incurring tax losses in the beginning years of their investment, and, therefore, doesn’t owe any taxes to the government, they still must file their tax returns in a timely manner in order to make the election.


    Foreign buyers who finance their purchases with a 40% to 50% down payment will likely not pay income taxes on the net rental income for the first 10 to 15 years, since the US government is very generous when it comes to those expenses that are allowed to be deducted from rental income. Since mortgage interest, common charges, property taxes, depreciation of the asset over 27.5 years, insurance, and amortization of closing costs are all deductions against income, in the early years the property will generate negative taxable income. In future years, when the investment is generating taxable income, such income can be offset by the prior year’s negative taxable income (a.k.a. tax loss carry forward). This may result in no income taxes for many years. 


    When a non-resident sells US property, the Internal Revenue Service wants to be sure they get paid capital gains taxes. Accordingly, the IRS withholds 10% of the gross purchase price of the property. When a US tax return is submitted reporting the capital gains tax, if there is any refund due, that money will be refunded to the filer.


    When a Foreign Buyer dies, his or her estate will be taxed by the US government at close to 46%. This is easily avoided if the Foreign Buyer does some upfront planning. The planning involves setting up a Limited Liability Corporation (LLC) and a Foreign Corporation. The LLC would own the property, the Foreign Corporation would own the LLC, and the buyer would hold shares of stock in the Foreign Corporation. Under this scenario, since the property is “owned” by the Foreign Corporation, the US government would receive nothing upon the death of the Foreign Buyer. This is a great tax savings for Foreign Buyers and is not very expensive to implement. This structure also allows for the easy transfer of the property from one party to another by the selling of shares of the corporation rather than the sale of the property, which might trigger a taxable event.

    It is advisable for any owner of investment real estate (foreign or US) to create at least an LLC to hold the property, since using this structure limits the owner’s liability to the value of the LLC, which would strategically own only that particular property and, therefore, the owner’s liability would be limited to the net value of the property. Taking this one step further, using a Foreign Corporation to own the LLC would provide protection to the Foreign Buyer against the estate tax.

    If a Foreign Buyer does not want to maintain the LLC and the Foreign Corporation (perhaps because the investment is small), an alternative approach would be to obtain life insurance in the amount of equity in the property. For example, a 38-year-old man in good health would pay $1,300 per year for a 10-year term life insurance policy paying a death benefit of $1,000,000. While the Foreign Buyer would not avoid the estate tax, his or her heirs would receive the same amount in the case of death.

  • Checklist for HVAC Maintenance

    Posted Under: Home Buying in Boca Raton, Property Q&A in Boca Raton, Home Ownership in Boca Raton  |  August 28, 2014 3:12 PM  |  106 views  |  2 comments

    Checklist for HVAC Maintenance

    Here's an easy, doable preventative maintenance plan to keep your HVAC in top shape.

    It's a good idea to hire a HVAC company to inspect and do maintenance on your system every fall and spring. They'll do things like inspect and clean the wiring and mechanisms of the unit, which is bit more challenging for the average homeowner. 

    But you can prolong the life and increase the efficiency of your system if you follow this simple maintenance plan:

    HVAC checklist

    Some things you should do immediately; other tasks only need to be done seasonally or once a year. Here are the steps to a healthy HVAC system:

    • Buy a better filter if you haven't already. The new high-efficiency pleated filters have an electrostatic charge that works like a magnet to grab the tiniest particles — even those that carry bacteria.
    • Replace the filter at least every 90 days. But check it monthly. If it looks dark and clogged, go ahead and change it. If you have pets, you'll probably need to change every month.
    • Check to make sure there's at least two feet of clearance around outdoor air conditioning units and heat pumps.
    • Weekly during spring, summer, and fall remove debris such as leaves, pollen, and twigs from top and sides of outdoor air-conditioning units and heat pumps. Don't allow the lawn mower to discharge grass clippings onto the unit.
    • Monthly, inspect insulation on refrigerant lines leading into house. Replace if missing or damaged.
    • Annually, ensure that outdoor air-conditioning units and heat pumps are on firm and level ground or pads.
    • Annually, pour a cup of bleach mixed with water down the air-conditioner condensate drain to prevent buildup of mold and algae, which can cause a clog.
    • In summer, shut off the water supply to the furnace humidifier. In fall (or when you anticipate turning on the heat), replace the humidifier wick filter, set the humidistat to between 35% and 40% relative humidity, and turn on the water supply.
    • Never close more than 20% of a home's registers to avoid placing unnecessary strain on the HVAC system.
    • Annually, replace the battery in your home's carbon monoxide detector.

    By:Douglas Tranner

    Published: July 17, 2013

  • Why Use an Exclusive Buyer’s Agent for New Construction?

    Posted Under: Home Buying in Boca Raton, Property Q&A in Boca Raton, Home Ownership in Boca Raton  |  August 22, 2014 2:23 PM  |  130 views  |  1 comment


    Because the builder's agent's job is to convince you to buy only their homes at the highest price. Your Buyer Agent's job is to even the odds and negotiate for the lowest price and best terms for YOU!


    It is foolish for a homebuyer to enter into a new construction contract without an Exclusive Buyer Agent. The advantages are many; aside from the obvious ones. The fact that having buyer agent representation is often FREE cannot be repeated often enough. So too, should the misconception that not using a buyer’s agent will save money be constantly repeated – that simply doesn’t happen.

    Remember that that site agent represents the builder/developer. Most real estate agents are sub-agents of the Seller or Transactional agent.  In neither case do they have a fiduciary responsibility to the Buyer.

    There is a listing contract in place that specifies the agent’s duties and the commission paid by the builder. When an unrepresented buyer contracts a home, the commission agreed upon does not change, it is simply reflects the listing broker (site agent) receiving both sides of the commission.

    The site agent is legally bound to represent the best interests of the builder, not the homebuyer. They are expected to work to secure the builder the best deal; not do anything illegal of course but they will not – cannot – negotiate against their client. This is consistent throughout the course of the build; the builder is their client, the buyer is their customer.

    Benefits of Using an Exclusive Buyer Agent for New Construction:


           Compare and evaluate builders' reputations and history of their construction quality and service


           Help you compare and evaluate advantages and disadvantages of new construction homes vs. resale homes


           Provide information about the community


           Uses past sales with builders to maximize price and option concessions


           Help buyer with evaluation and selection of a building lot and options.  Lot location and certain options have a very real bearing on resale value. 


           Help buyer evaluate which options should be done by the developer during construction and which are more affordable to be done by an outside vendor post closing.


           Truly negotiate on behalf of the buyer.  Many builders are offering "free" options and upgrades, but some are also making additional price concessions.


           Review the Agreement of Sale (PA) prior to buyer signing.  This is not a legal review (only an attorney can do that), but an experienced agent will be able to spot terms and conditions that are atypical and of potential concern to the buyer.  The agent may then be able to negotiate terms and conditions that are more favorable to the buyer but still acceptable to the builder.  Keep in mind most new construction contracts are written by attorneys that represent the builder and these contracts are therefore heavily weighted in favor of the builder.


           Recommend a real estate attorney for final contract, title commitment and to hold your escrow funds.  The developer should never hold your deposits.


           A buyer’s agent serves as an extra set of ears as a witness at court or arbitration – When the builders sales representative is familiar with all rules, features and prices and it’s all new to buyer – it is good to have experienced person on buyer’s side listening with buyer and taking notes, a lot of information is verbalized in short period of time.


           Attend the signing of the Agreement of Sale


           Assist with the buyer's financing and review financing paperwork.  This is especially important if the builder is tying "free" options and upgrades to the use of a builder-affiliated lender.


           Check on the property during construction and keep a photo record at different stages.


           Be your leverage with the builder as problems arise during construction


           Keep everything in writing – Sometimes even the very nicest builder makes verbal promises that later become a point of contention. An experienced buyer’s agent is conditioned and trained to “put it in writing” even though at the time it doesn’t seem necessary.


           Arrange for a final inspection with a license building inspector and generate a “punch list” to be completed before final closing.


           Document and help resolve any issues with construction, financing, title, etc. throughout the process.


         Attend a pre-settlement walkthrough with the buyer to make sure that all items are satisfactorily completed or that a proper punch list is established to assure completion after settlement.


           Obtain and review a preliminary HUD-1 settlement statement to be sure it is accurate and advise the buyer of the amount needed for settlement.


           Assist buyer with utilities, security and HOA requirements, decorators, service professionals, schools, et. al.


           Attend settlement with the buyer.


           A buyer’s agent will be there even after the home closes. It is routine for issues to arise during the first year of a new home. Site agents tend to forget a buyer’s name after the contract is signed.




  • Common Mistakes That Can Delay the Loan Process

    Posted Under: Home Buying in Boca Raton, Financing in Boca Raton, Property Q&A in Boca Raton  |  August 22, 2014 11:25 AM  |  184 views  |  2 comments

    The home mortgage industry can be confusing. Rates, points, caps—there’s a lot to take in. Take some time to educate yourself about the process—and be aware of the big missteps homebuyers often make.

    Thinking Too Big

    Banks qualify their customers on their “debt-to-income ratios.” Simply, that’s the ratio of how much money you make vs. the money you owe to other institutions. Banks don’t take into account other expenses like your weekend entertainment and the tuition to your children’s school.

    Ask yourself, what goes into your budget every month? List it all out—restaurants, car payments, taxes, insurance, cable, cell phone, gym memberships, etc. You don’t want to find yourself spending all your money on your house. A good rule of thumb: No more than 30% of your gross income should go toward total housing expenses.

    Waiting for Pre-Approval/Pre-Qualification

    Besides offering a rough idea of how much home you can afford, a pre-approval gives you leverage when you make an offer on a home—it lets a seller know your offer can be seriously considered. One thing to know: You don’t have to secure your mortgage from the lender that “pre-approves” you. You’re free to take out a mortgage from the bank or lender of your choosing when you’re ready to buy.

    Getting the Wrong Loan for You

    Although it’s a classic, not everyone needs a 30-year fixed-rate mortgage. Today there are many different products, designed to accommodate different financial plans. Everyone’s life trajectory isn’t the same. Maybe you don’t plan to be in your house for more than five years; maybe you can afford to put more money down than most people. Take a moment to visit http://www.usa.gov/shopping/realestate/mortgages/mortgages.shtml that explains several of the different products out there. Talk to a trusted financial advisor if you’re having difficulty understanding the type of loan that’s best for you.

    Choosing Not to Shop Around

    When looking for a home loan, don’t go with the first quote from a bank. Shop for a loan the same way you would shop for any other big purchase. One percentage point on a mortgage rate can mean the difference of tens of thousands of dollars difference over the course of a loan.

    It might be a good idea to call an experienced mortgage broker who can access many banks across the country. Although the broker is a middleman, you won’t get charged anything extra. Brokers receive loans at wholesale rates and will pass them to you at retail. You might be able to get a better deal than reaching out to banks on your own. If you’re building a new-construction home, you might want to get a quote from an in-house lender like NVR Mortgage or compare developer financing incentives.

    Forgetting to lock in a rate

    Don’t rely on the verbal promises of a loan officer. Mortgage rates can change daily. If you find a great rate, lock it and get the rate quote in writing. Once a home mortgage rate is locked, your rate is guaranteed for a certain period—anywhere from seven days to a month or more.

    When do you lock in a rate? Basically, after an offer has been accepted, you’ll need to backtrack and figure out when you’re going to close. But know that the longer the lock-in, the more the loan will cost you in fees or rates. Why? Basically, the bank is hedging its risk—they don’t know if rates will change either.


    Don’t Spend, Change Jobs, Etc.


    Many new homebuyers make the mistake of rushing out to buy things to fill their home with as soon as the seller accepts their purchase offer and the lender pre-approves their loan. But there are still a few major hurdles to overcome before the keys are handed out. Here are some things to avoid during the home buying process to assure your transaction goes as smoothly as possible:


      Don't make an expensive purchase. It may be tempting to order that new sofa for your soon-to-be living room, but its best to avoid making major purchases like furniture, cars, appliances, electronic equipment, jewelry, or vacations until after the closing. Financing that furniture with a store credit card or even one of your own credit cards could jeopardize your credit worthiness during the time it means the most. Using cash to purchase big items can also create a problem because many banks take into consideration your cash reserve when approving your mortgage.

      Don't get a new job. Lenders like to see a consistent job history. Generally, changing jobs will not affect your ability to qualify for a mortgage loan - especially if you are going to be making more money. But for some people, getting a new job during the loan approval process could raise some concern and affect your application.

      Don't switch banks or move money around. As your lender reviews your loan package, you will likely be asked to provide bank statements for the last two or three months on your checking accounts, savings accounts, money market funds and other liquid assets. To eliminate potential fraud, most loans require a thorough paper trail to document the source of all funds. Changing banks or transferring money to another account - even if its just to consolidate funds - could make it difficult for the lender to document your funds.

    Don't disregard your lenders requirements. 

    You may have been pre-approved for the loan but your work with the lender is far from over. In order to process your loan, you need to meet certain requirements. Your lender will need copies of your bank statements, W2s, tax returns, and other paperwork. It is up to you to get it to him or her as soon as possible. Failure to submit certain qualifying documents could cause you to lose your loan and the financing you need to buy your home.


  • What is Title Insurance and Why do you need it?

    Posted Under: Home Buying in Boca Raton, Property Q&A in Boca Raton, Home Ownership in Boca Raton  |  June 25, 2014 7:09 PM  |  279 views  |  No comments

    One of the first questions I get when reviewing an Offer to Purchase or Real Estate contract with a Buyer is “ What is Title Insurance” and “Why do I need it?”   These are great questions and ones every savvy (or even bewildered) homebuyer should be asking.

    Title insurance is normally purchased at the same time as you buy your home.  Unlike other types of insurance, your title insurance policy, for a one-time premium paid at closing, provides protection to you and your heirs for as long as you own your house. Also unlike other types of insurance, title insurance protects you from events that happened in the past: a forgery, forgotten heir, hidden mortgage or tax liens or other claims by people or entities who may truly (but unbeknownst to you) have a right to your property.

    If you get a mortgage as part of your purchase, chances are the lender will insist that you get title insurance, indeed a special form that specifically protects the lender. Technically, you don't need title insurance any more than you need homeowner's insurance to offer peace of mind against a fire loss. But this unique form of protection insures that you actually own your property, free and clear of impediments and, as a consequence, it is worthwhile.5

    Many Buyers think that title insurance is something they can choose to forego. After all, the title company did a search of the property already. Why not just review the commitment and forgo the policy?  It is a common misconception that a title search will uncover every possible defect in title. Title searches only discover events and documents of public record, so anything done illegally or without proper documentation may not be known until some time in the future.

    Remember, even the most thorough title search is prone to human error. And even if the title company or your closing attorney has done their job perfectly, there may have been an error in recording or at some other step in any previous transaction including the property.

    Lenders do not consider title insurance optional. In fact, nearly all institutional lenders insist on having their own policy separate from the owner’s policy. If it’s important for their partial investment in the property, it is even more important for the homeowner to be protected for the full value of the home. The lender’s policy protects the lender for the amount of the loan, and for the validity and position of their lien. Only an

    Owner’s policy fully protects the buyer against title problems that arise after the home is purchased.

    There are potentially hundreds of ways title to your property can be compromised. Even if you don't lose your property altogether, certain title defects can make it impossible for you to sell or even give away your property. Here are some, but no way all, of the possible title defects covered by title insurance:

    • Forged deeds, releases, or wills.

    • False impersonation of the true owner of a property.

    • Documents executed under invalid or expired powers of attorney.

    • Misinterpretations of wills, or discovery of a later will after the first will goes through probate.

    • Mistakes in recording deeds

    • Undisclosed divorce by someone who conveys title of a deceased former spouse.

    • Claims resulting from the use of aliases or fictitious names by someone earlier in the chain of title.

    • Liens for unpaid estate, inheritance, income, or gift taxes.

    • Disputed or fraudulently obtained release of a mortgage document.

    • A misapplied tax payment.

    • Undisclosed heirs who surface years or decades later.

    The party responsible for paying for the two policies -- buyer's and lender's -- varies from state to state and sometimes from county to county. In some locales, the buyer may pay for one; the seller, the other.  If you're buying the owner's and lender's policies from the same company, "in many cases, there's a substantial discount.

    If you pay for the title insurance, you have the right to select the company. If you're not paying but want to choose the company, be prepared to share some of the costs.

    Be wary if the seller is pushing his
    title company.  A title search is meant to find errors before you buy. Use the same company that your seller did years earlier and odds are you'll get the same results. Often, searchers aren't using actual records but summaries or extracts of those records. A fresh set of eyes (and extracts) could unearth problems, allowing you to fix them before you buy.  I always recommend that my Buyers retain their own real estate attorney to review Title and survey and state exceptions and clear any known defects.

    If you're getting advice from your seller, you’re a real estate agent that is not an Exclusive Buyer Agent and your mortgage lender, look to the lender.  The lender's interest dovetails with yours in getting these things done thoroughly and correctly. The lender is guaranteeing a large amount of money based on the assurance that the property you're using as collateral is really yours.

    If you want to verify that the underwriter issuing the insurance policy is currently sound, check its financial solvency with ratings companies like Fitch Ratings, Demotech Inc. or A.M. Best Co.

    Once the closing takes place, the title company records the documents and issues the final title policy, which you should keep in a safe place with other legal documents.

    Should a title problem arise at any future date, the title company will stand behind the policy holder, both monetarily and with legal defense if necessary, to pay claims and defend their title to the property.



  • Spring Cleaning Checklist

    Posted Under: Home Buying in Asheville, Property Q&A in Asheville, Home Ownership in Asheville  |  March 14, 2014 4:37 AM  |  651 views  |  No comments

    Spring cleaning is a way to demonstrate pride in ownership (or rentership).  A home and its contents are investments; money spent on something you really love or really need (ideally both).  When you take the time to clean thoroughly and properly, you can maintain and prolong the life of the item or finish for years.  Further, it means you live in a cleaner and healthier home; less dust, dust mites, allergens, odors, and dirt.

    Always start from the top and work your way down.  Think about it like this: dust falls down (like rain or snow) so if you start at the top, you’ll never have to re-clean a surface (which is a time waster).  It doesn’t make sense to clean the floors first and then dust the tabletops; you’ll just have to clean the floors again.  Use gravity to your benefit and always work from top to bottom.  It also helps you not miss anything!

    General Spring Cleaning Tasks

    These are a list of some of the things that need to be done around the house, and spring is a great time to do them.  So often we don’t remember to do them, so let this be your wake-up call!

    Tests and replacements:

             Test smoke alarm

             Test carbon monoxide alarm

             Check flashlight batteries

             Check fire extinguishers

             Change air filters

             Check all window screens for tears and repair or replace as required

             Check every light switch plate, socket cover and door knob in the house (while you are at it, clean off all dirt and prints)

    Other considerations:

             Consider stripping, buffing or waxing floors (depending on the type of floor you have)

             Consider having your outside windows professional cleaned (if a condo does not take care of this)

             Consider having your ducts cleaned, should be done once every 5 years

             Consider cleaning your BBQ and patio furniture to prepare for the upcoming warmer weather


    Overall Spring Cleaning Chores:

    Dust crown molding and baseboards and clean scuff marks

    Dust ceiling corners

    Dust/wash light fixtures and lamps

    Dust ceiling fans

    Wipe down doors and walls (Swiffer works great for removing all the dust)

    Touch up paint

    Vacuum or wash/dry clean window curtains and bedding

    Wash or dust window blinds

    Wash windows and screens inside and out

    Dust books and bookcases

    Polish wood furniture

    Wipe down and vacuum furniture (clean the base and under cushions)

    Condition leather furniture

    Remove stains from upholstered furniture 

    Vacuum and wash lampshades

    Deep clean hardwood, tile, linoleum, and carpet flooring

    Shampoo carpet (DIY or schedule a professional)

    Remove area rugs to shake out, then vacuum, then clean under them

    Clean air vents

    Dust around and BEHIND mirrors, picture frames, and wall hangings

    Schedule chimney sweep

    Schedule termite or pest control maintenance


    Spring Clean Outside:

    Sweep deck

    Power wash deck

    Stain deck

    Power spray siding

    Touch up paint trim, wood, doors, and shutters

    Oil hurricane shutters

    Power wash garage door and eaves of house

    Clean outside door frames

    Wipe away cobwebs

    Shake out entry mat

    Clean grill

    Clean and repair gutters

    Replace broken bricks, wood, or stone

    Clean outdoor light fixtures

    Clean outside patio furniture

    Trim trees, bushes and shrubbery

    Check and repair sprinklers

    Inspect roof shingles

    Clean outdoor and indoor trash cans

    Clean out garage and sweep


    Get the Spring Cleaning App at


  • Should You Rent or Buy in 2014?

    Posted Under: Home Buying in Boca Raton, Rent vs Buy in Boca Raton, Property Q&A in Boca Raton  |  December 4, 2013 11:36 AM  |  602 views  |  1 comment
    As 2013 draws to a close, it’s fairly clear that the real estate market has gained strength: home sales are up, prices have firmed, foreclosures are down and mortgage rates remain close to record lows.

    Figures from the National Association of Realtors® (NAR) show that September home values on average were 11.7 percent higher than a year earlier, the 10th consecutive month of double-digit, year-over-year, increases. NAR also reports that in the third quarter home prices increased in 144 out of 163 metropolitan statistical areas. Fifty-four areas had double-digit increases, and only 19 had price declines.

    “What we have seen during the past year are signs of a broad national recovery,” says Ray Brousseau, executive vice president with Carrington Mortgage Services. “Pent-up demand and a growing population are two factors that have contributed to generally increased home prices.”

    Interest rates
    Interest rates also make ownership more attractive. According to Standard & Poors, the 30-year mortgage averaged 6.1 percent between 2002 and 2007. Over the longer term (the last 40 years), the historic average has been 8.6 percent.

    In comparison, mortgage rates were near 4.25 percent in October 2013.

    Lower rates over the past few years substantially impact affordability. For example, a $175,000 mortgage with an 8.6 percent interest rate has a monthly cost for principal and interest of $1,358 over 30 years. The same loan with a 4.5 percent interest rate has a monthly expense of $861. Though mortgage rates have increased modestly since June this year, rates remain low by historical standards.

    Housing costs

    While home prices have risen over the past year, they have haven’t reached the peaks seen in 2007. From August 2012 to August 2013, house prices rose 8.5 percent; however, home prices were still 9.4 percent below their April 2007 peak, according to the Federal Housing Finance Agency.

    Rental costs

    While buying has become more attractive in recent years, rental costs have risen.

    Census Bureau data shows that the third-quarter vacancy rate was 8.3 percent – down from 11.1 percent in 2009. With fewer vacancies, rental rates are rising, and, at the same time, rental options have become more limited.

    When rental units are inexpensive and easily available, leasing can be an attractive choice. But as more people compete for rental units, rates tend to go up.

    Home appreciation

    When the value of real estate goes up, owners benefit from higher prices and increased equity. Tenants, on the other hand, have no ownership interest in the units they occupy. If values go up, it’s good news for their landlords.

    “We don’t know that the value of residential real estate will always appreciate,” said Brousseau, “But we do know that when home prices rise, the benefit goes to owners. We also know that only owners have the ability to reduce mortgage debt through amortization, the gradual reduction of mortgage principal over time. This means that over the long run, it becomes possible to own a home without any underlying debt. Homeownership, in turn, can be a way to save and has been an important source of household wealth for many generations.”

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