Returning to normal. That's what I like to hear.

There's no doubt Southern California’s housing market has been skyrocketing over the last five years. Double-digit returns were common place and many home owners and first time buyers have taken great advantage, i.e. buying on the cheap (comparatively speaking) early in this cycle then riding the 20+ percent equity growth for a year or two and doing what I like to call the “bump and run”. They sell the starter home and move up in market quickly (using the equity gained as their down payment). They did this once or perhaps twice in less than five years. In my personal experience my father’s bump and run took over a decade to accomplish this task for simply one home upgrade. But homeowners in Southern California have been wisely taking advantage of low interest rates and sky rocketing home values for the last few years. But not anymore…

Yes, the fun of the “bump and run” is waning. Rates are returning to average levels (KK NOTE: above 6.5% to 8.00%) and equity growth is still in double digits in places but for the most part we are settling into a solid average of 6% to 10% which is normal.

I’m sharing a great piece of an article from President Thomas M. Stevens, NAR President in Vienna, VA. He said, “Comparisons with market performance over the last five years distort what people should expect from housing as an investment. “Housing is simply returning to a normal market, where annual home prices will rise a little faster than the overall rate of inflation,” said Stevens, senior vice president of NRT Inc. “However, in looking at total returns, you need to consider that the typical buyer is making only a modest down payment (KK NOTE: nothing or less than 10%) but enjoys a return on the full value of the home (median home price in Riverside, CA $367,600 Q2 2005), which is many times the actual cash investment. In other words, normal is pretty good for the typical homeowner (KK NOTE: especially in Southern CA where values of homes are higher than national averages), and that’s what we expect for the foreseeable future.”

Stevens noted that price appreciation has yet to cool significantly. “We’re still seeing double-digit annual price gains, but we should get down to single-digit appreciation fairly soon,” he said (KK NOTE: Los Angeles and San Diego Counties were already cooling late in 2005 to 8%+ equity growth rates, which is still very respectable on average).

The national median existing-home price for all housing types was $209,000 in February, up 10.6 percent from February 2005 when the median was $189,000. The median is a typical market price where half of the homes sold for more and half sold for less."

So for any first time homebuyers and would be bump and runners reading this blog it’s still a good time to shop and buy, it will simply take a little longer to live out your dream of upgrading your home to one on the hill. The market is stabilizing and rates of return are still extremely respectable. Less we forget the enormous tax advantages of writing off ten of thousands of dollars in interest every year. Home ownership especially your primary residence is never a bad idea. Just ask your CPA or tax advisor and they’ll let you know great benefits you’ll receive in tax relief simply for owning a piece of the American dream.

If you’re not convinced let me break down the math for you:

Home price $400,000 (just an estimate)
Down payment $0 (100% financing – 80% first lien and 20% second lien purchase)
Estimated Closing costs $8,000 (with impounds and taxes paid, these costs can be folded into your loan, so very little, perhaps $1,000 for appraisal and inspection, or no out of pocket money may be required to buy your new home)

$400,000 x 8% equity growth over one year = $32,000
1st year value gain = $432,000
2nd year value gain = $466,560
3rd year value gain = $503,884 (It’s time to consolidate your loan)

In just three years you’ve earned $95,884 dollars in equity growth.

By year three you’ll have over 20% equity build up in your home most likely. It’s a good idea to refinance at year three and lock in an 80% CLTV (Cumulative Loan To Value) loan. You will most likely lower your overall payment and consolidate your 80/20 100% purchase loan to a conventional jumbo loan.

From there your investment will grow steadily over time. Remember property investment is never a short-term proposition. Overtime property values always go up on average.

Once you have build up some equity you can investigate further equity diversification plans with our company to invest your growing wealth in other real estate markets across the US and realize the best possible equity growth over time as other markets hit spikes similar to those experienced in CA over the last five years.

Home prices in other states are not as high as CA so your primary residence here can potentially fund purchases of multiple single family or multi family cash flow positive residences outside our state. Overtime your investment portfolio can exceed your monthly financial consumption and POOF your independently wealthy (your investment income exceeds your monthly income requirement). Your investment property income can now support your current lifestyle and you are free to manage your investments and leave the nine to five grind forever if you so choose.

If you have further questions send me an email or call me: 888-367-6926 or kknapp@signaturecapital.net.

You can always find me here: www.homeloancoaches.com.

It’s A Good Life So Make It A Great Day!

KK


Kenneth Knapp
Visit us at: http://www.homeloancoaches.com
Signature Capital - Corona
949-294-0403 cell
951-520-0058 ext. 225 direct
951-520-9725 FAX
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Oh, By the way, if you know someone who would appreciate my services, please call me with their name and number and I will be happy to help them.