In slower market, it pays to realize houses are more than money machines

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The American dream of buying a single-family home once was all about enjoying family life – raising kids, baking apple pie or sitting by a crackling fireplace.

When did the goal of homeownership shift from putting a roof over the family’s head to the greedy practice of “flipping,” moving every few years to cash in on rapidly appreciating real estate values? In 2004, Freddie Mac reported that home resale prices had appreciated 29.7 percent during the previous five years. In the frenzy of that growth, some American homeowners became feverish flippers.

To keep up with the Joneses, buyers bought and sold their way to larger, more impressive estates. Enter the multi-level McMansion, with its five bedrooms, 5.5 baths, and three-car garage.

Now, with real estate appreciation relatively flat, it is time for every American homeowner to step back and look at the benefits of homeownership. Does an estate-sized home really make life worth living? Or is homeownership really about enjoying family life – summer barbeques and cutting the grass on Saturday while the kids ride their bikes to the nearby park to play softball?

For most Americans, homeownership also is a fundamental first step to accumulating personal wealth, and the primary source of a household’s net worth. Today, nearly 70 percent of the nation’s households are in owner-occupied homes, and Americans have more than $7 trillion in home equity ( the value of a home minus any mortgage debt), according to the National Association of Home Builders.

Homeownership also brings annual tax advantages, which may be even more important than appreciation, especially for those who don’t sell. At tax time, homeowners are eligible for some lucrative deductions for mortgage interest and property taxes. For example, a family earning $80,000 annually and paying on a $200,000 mortgage will see tax savings of around $5,479, according to the NAHB.

For those who do decide to sell, profits of up to $500,000 on the sale of a principal residence also are excluded from income taxes on capital gains, provided you’ve owned your home and have lived in it for two of the previous five years, according to Tom Swigert, an accountant and investment advisor for Evanston-based Swigert & Associates.

Stock dividends, by contrast, are subject to income tax, and profits on the sale of stocks, bonds and other investments are subject to a 20 percent federal tax rate for most investors, notes the NAHB.

With tax advantages like these, many buyers win even if their homes don’t see much appreciation. Consider the alternative. If you leased an apartment for two years and paid $2,000 a month in rent, you would have spent $48,000 and received no tax benefits.

In the current real estate market, where resale values are flat, it also is important for buyers and sellers to remember that home values, just like the stock market, historically fluctuate up and down, warned Sara Benson, of Benson Stanley Real Estate, a veteran Chicago broker and appraiser.

“Currently, we are in the strongest buyer’s market since the mid-1980s,” Benson said. “Inventory is incredible. An astounding 63,700 new and resale homes and nearly 39,000 condominiums and townhouses currently are offered for sale in the Chicago area.”

That compares with an average of about 35,000 homes and about 15,000 to 17,000 condominiums listed for sale in the six-county Multiple Listing Service of Northern Illinois during a typical market, where supply and demand are balanced, Benson said.

So, with prices stable or lower and an abundance of listings, now could be a good time to buy. Despite that sound advice, my rule of thumb is simple: forget the greed. Enjoy life, smell the roses and move when your family circumstances require it.

Real estate columnist and media consultant Don DeBat has written about Chicago-area housing and mortgage markets since 1968. He is chief executive officer of DeBat Media, Inc.,

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