If you’re thinking about buying a home, now is the time, especially if Congress passes the First-Time Home Buyers Act, which would allow low- and middle-income people who haven’t owned a home for at least three decades. years of getting a $ 15,000 tax credit when they buy a primary residence and live there for at least four years.
Participants should not earn more than 160 percent of the local median income; which for a Ukiah household is around $ 50,000, so the qualifying household income would be around $ 80,000. Qualifying properties must cost no more than 110% of the local median purchase price, which is approximately $ 500,000 in Ukiah, therefore eligible homes cannot cost more than approximately $ 550,000. With an income of $ 80,000, good credit, and little to no debt, you could qualify for a loan of around $ 400,000 (and that’s no down payment). If the bill passes, it will be retroactive.
Not only is this a good time to buy due to pending legislation, but also because in my opinion interest rates are going to rise in the not-so-distant future. Of course, I’ve been saying this for five years, but this time I think I’m finally right.
Like everything else in the economy, interest rates are influenced by market forces of supply and demand. Although the government manipulates interest rates, the market still puts pressure on rates and this pressure is intensifying. At this point, I think the Federal Reserve (the manipulators) is reaching the limit to keep long-term rates low.
You can think of interest as the cost of rent. When there is a lot of money available for borrowers, interest rates go down. When there is less money available because the market changes, interest rates go up.
Inflation is probably the main driver of interest rates. Inflation is the decrease in the purchasing power of money, reflected by a general increase in the prices of goods and services (as defined by Investopedia). As inflation rises, so do interest rates. This happens because lenders want compensation for the decreased purchasing power of the money they will be paid in the future when borrowers pay off their loans.
The consumer price index (CPI) is the most common measure of inflation; it compares the cost of several consumer goods and services to a fixed base period. The CPI does not always reflect the evolution of an individual product because the index is made up of several. The CPI has gradually increased, but the cost of housing has skyrocketed.
For example, according to Jeff Ward of Mendo Mill, the cost of lumber has tripled. Other essential residential building materials also rose sharply. This inflation makes it more expensive to build housing. While these increases are not yet fully reflected in local house prices, house prices are definitely on the rise.
The cost of goods is not the only upward pressure on home prices. In fact, that’s not even the most important. The current shortage of skilled labor (or any other labor) in the Ukiah Valley is forcing wages to rise and making it much more expensive to build houses. Again, supply and demand. Less available labor means it is more expensive. Less labor means contractors cannot build, or even renovate, houses, which increases the cost of housing. I wanted to install a swimming pool with all the accessories in my garden and I was ready to pay to get the job done well. I can’t ask a contractor to return my call because they have so much business to do.
So if you can find a home to buy in your price range right now, jump on it. With the proposed tax credit, the cost of buying will be little more than the cost of renting, and the benefits of homeownership far outweigh those of renting. Of course, the tax credit may not go through, so don’t go out and spend the money you don’t have.
If you have any questions about property management or real estate, please contact me at firstname.lastname@example.org or call (707) 462-4000. If you have an idea for a future column, please share it with me and if I use it I’ll send you a $ 25 gift certificate to Schat’s Bakery. To view previous articles, visit www.selzerrealty.com and click on “How’s the Market”.
Dick Selzer is a real estate broker who has worked in the field for over 45 years.