Christmas

As we pause to spend a few days with our families during this Christmas Holiday season, we wish you and your family a safe and happy holiday filled with joy and thanksgiving. 

We'll be back on Thursday with more real estate news and tips. 

Thanks for sharing some of your precious time with us at this website this year.

Pay Off Your Mortgage or Invest the Money?

As you invest your money, shop for a home or tackle any one of the many financial decisions you have to make over your lifetime, do you sometimes wish you'd paid more attention in math class?  Do you find yourself having to "run the numbers" and wondering what's best?

The solution isn't always black and white, and the "right" answer may depend on things you can never know for sure, like your tax bracket in 2020 or how much your investments will grow.

When it comes to paying off your mortgage early or investing the extra money, the "feel-good choice" is not necessarily the smartest choice.

Paying off your mortgage (or any loan for that matter) is an investment, and your return is essentially the interest rate on the loan.  If you have 25 years left on a 30-year mortgage with a fixed rate of 6.2 percent and you deduct your interest payments on your taxes, you'll earn 4.5 percent by prepaying the loan (assuming you're in the 28 percent tax bracket).

Now let's say you invest your spare cash in stocks instead.  You'll pay a 15 percent tax rate on your long-term capital gains and dividends. (At least that's the current rule… what the future rate(s) will be is anyone's guess)… So to beat the 4.5 percent return you'd get from prepaying your mortgage, you'd have to earn just 5.3 percent a year on your stocks before taxes.

The odds of your doing that over the 25-year remaining term of your mortgage are excellent: Historically, a portfolio of 80 percent stocks and 20 percent bonds has returned 7.5 percent a year after taxes.

Remember, though, that by prepaying your mortgage, you are reducing your liquid assets.  If you suddenly need money for something, it's easier to sell a mutual fund than it is to pull cash from your home, and you can always pay off your mortgage later with the money you invest now.

The bottom line - Investing wins.

What do you think?  Have an opinion on this article?  We'd love to hear from you.  Simply leave us your comment by clicking the "Comments" link below.  Your email address will never be displayed on our site, so no worries about that.

Home Equity Diminishing

Homeowners began to lose hold of their homes long before spiking foreclosures and the housing slump slammed the economy.

Piece by piece, some gave away their homes by tapping equity to take cash out to pay for cars, weddings and vacations.  Others never owned one brick.  During the country's most recent housing boom, the term "homeowner" became a misnomer as lenders offered 100 percent or more home financing to some buyers.

Now, slipping home prices threaten to further erode the value of many Americans' single largest asset, curbing consumer spending and jeopardizing retirement assets.

Thanks in large part to mortgage-related tax deductions and a drumbeat of advice that everyone should own their home, the U.S. homeownership rate rose steadily in recent decades.  It peaked at 69.2 percent in 2004 before backing down to 68.2 percent at the end of the third quarter, according to the Census Bureau, which has collected the data since 1965.

But that small decline masks a much larger plunge in the amount of equity homeowners hold.  This figure, equal to the percentage of a home's market value minus mortgage-related debt, fell to an average of 50.4 percent in the third quarter of this year, down from 62 percent at the end of 1990, according to the Federal Reserve, even as the average home value surged 139 percent during that period.

But the recent drop in average value is particularly bad news for homeowners who treated their homes as piggy banks instead of as savings accounts.  Nationwide, they drained $468.7 billion out of their homes in 2004 through home equity loans or cash-out refinancings, according to a report from former Federal Reserve Chairman Alan Greenspan and Fed senior economist James Kennedy.  Fifty-eight percent of that cash went to home improvements and personal spending, while 27 percent paid off credit card debt.

Home Builders Blaming the Media

According to new figures released recently, U.S. home builders remained pessimistic in November and are now beginning to blame the news media for their woes, worried that the national media's tendancy to report negative housing stories as if there is one real estate market, when, in fact, there is no such thing.

All housing markets are local, and our personal opinion is, builders blaming the media for their low numbers is a bunch of bunk.

What do you think?  We'd love to hear your opinion on this.  Click the comment link below and sound off.

Landlord Lessons

According to the National Association of Realtors, last year Americans bought nearly 2 million homes not to live in, but for investment.  Will all the new landlords be ready? 

Money reporter Stacy Johnson has some tips to make sure they are.

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