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Elaine Abercrombie: Today’s Real Estate Market Has Its Advantages

Make your move in the short term to plan for your future in the long term

The real estate market is full of opportunity, and knowing where to look is the key.

Elaine Abercrombie
Elaine Abercrombie (Roe Anne White photo)

People don’t buy and sell their homes based purely on economic outlook. It has more to do with their long-term needs and their investment plan that matters most. As a long-term investment, real estate has a proven track record that helps fight against inflation, therefore making it a wonderful investment tool for an uncertain future.

Throughout the 1980s, you may remember the high double-digit interest rates we paid on our mortgages. Purchase prices were much lower then, and we saw values quadruple in the Santa Barbara area.

Do you believe history repeats itself? Since we have seen that before, positioning yourself for the future with today’s advantages may be the best thing for you to do.

Some sellers think they will wait for prices to come back before moving on. They labor under the false assumption that prices will be higher in the time frame they need to move. But what happens if they are not? Historically, rates jump up far faster than values in real estate. Our local market is holding steady, and yet we have some very motivated sellers who are negotiating with buyers to get their property sold, making both parties winners now.

The first question you may ask yourself is, does this house fit my needs today?

If it’s a four-bedroom and there are only two people in the household, the answer is no. Chances are this house has outlived its usefulness for your family, and it is time to move on to a home that is right for your lifestyle today. It is time to downsize.

You may have heard that it’s not a good time to downsize. Why isn’t it?

According to CAR, 35-year fixed mortgage interest rates averaged 4.23 percent during October, compared with 4.95 percent a year ago. Adjustable-mortgage interest rates averaged 3.46 percent in October, compared with 4.55 percent a year ago. Doesn’t that mean you and the buyers of your home can buy more houses using today’s dollars than yesterday’s? When rates are low, all buyers can buy more house for the money. By locking in a low, long-term payment, you ensure your ability to hold on through tough times.

Not only are interest rates very low, taxes are favorable for selling real estate today. The end of the year brings a change in the capital gains tax. On a federal level, the capital gains taxes are going up 25 percent, and on a state level the increase is 50 percent. Also, we still have the $250,000 to $500,000 exclusion for any gain over the cost basis. This tax rule is only 12 years old and only benefits about a dozen states. Who knows how long that will exist with a government looking for money to feed its machine? Today, however, it is still available, so why not position yourself for the long term while you have the advantage?

To remain six to 12 months ahead of the market, discussing your options today would be prudent in planning your future. After all, investing in a hard asset for the long term that gives you shelter can provide an income and appreciates well in inflationary times and may never be out of style and be at today’s low prices.

Historically low interest rates and sellers negotiating with buyers today make these advantages readily available to you now.

Elaine Abercrombie, a broker with Abercrombie Fine Homes, is president of the Santa Barbara Association of Realtors. She can be contacted at .(JavaScript must be enabled to view this email address).

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