Many young Portlanders are choosing to continue renting rather than shopping for their first homes. While others—especially those nearing retirement—are moving from the suburbs and downsizing. It may be time to take a serious look at the real estate market.
Real estate as an investment can be confusing and volatile. Just like the stock market debacle of 2008, real estate also suffered excesses. The housing bubble collapsed in many U.S. markets, forcing some that were heavily financed to walk away and turn their homes over to the bank.
The real estate professionals we’ve spoken with feel that the market is returning to the classic principles of supply and demand. And demand is strong in many favorite Portland neighborhoods. Interest rates remain low, but buyers need good credit and a healthy debt to income ratio. Mortgage underwriting is thorough; lenders look deeply into the prospects’ financials and income history.
Amy and Emily found their dream home. The house was in the right location and priced under market. They put in a good offer knowing that there might be multiple offers. Unfortunately, the home went to another buyer. They discovered that less supply and more demand made finding and purchasing a home in a specific location and price range more challenging. Luckily, Amy and Emily found another option and will soon be moving in.
A good financial plan should consider real estate both as an investment and as a personal use property. It can be a hedge against inflation; when prices rise, often real estate prices rise as well. Many view homeownership as a benefit, both financially, and psychologically—enjoying pride of ownership.
Home ownership has tax advantages. Mortgage interest is a deduction for most taxpayers unless they are in an ultra-high income bracket. The capital gains on a primary residence are tax-free up to $250,000 per person. Under current tax law, you just need to live in your home two years to receive the benefit. There is no limit on how many homes you can buy and sell in two-year successions.
Aside from the purchase price, there are a many associated expenses you’ll need to factor into the equation, such as mortgage payments, property taxes, insurance, utilities and maintenance fees, and so on. If the home is rented out, those maintenance fees can add up when you’re not around to monitor the needs for small repairs before things get out of hand.
If you are thinking about purchasing a new home, this might be an opportune time. Interest rates are still relatively low and purchase prices have not peaked, so the timing may be in your favor. But making such a large purchase is sure to be an emotional decision as well as a financial one. Besides finding an experienced realtor, it can be very helpful to consult a financial advisor to help you sort through some of the personal and major investment and tax questions.
The material is being provided for information purposes only and s not a complete description, nor is it a recommendation. Any opinions are this of Judith A. McGee and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does no guarantee that the foregoing material is accurate or complete. You should discuss any tax, legal, or mortgage issues with the appropriate professional.