Private tax collectors paying off ... so far
Soldiers fighting financial battles, too

A tale of two real estate markets

If you still need any verification that location, location, location really does matter in today's real estate world, I offer these two headlines from Inman News:

  • California real estate foreclosures hit 4-year high
  • Houston home sales smash September record

Those two announcements were side-by-side in one of the real estate news service's e-mail newsletters this week.

In California, according to Inman, foreclosures were up 112 percent during July, August and September vs. the third quarter of 2005. In fact, during this last quarter, residential foreclosures in the Golden State (if Realtors can still call it that …) reached the highest level in more than four years.

Meanwhile, Inman reports that just down the road from me in Houston, that city recorded more than 7,000 total property sales (single-family homes, townhouses, duplexes, country properties, as well as lots) last month, up 17.8 percent from September 2005. It was the 12th straight month that Houston's home sales rose.

House_money1a_2 Housing market ups, downs and all arounds: Of course, this isn't news. It's just additional substantiation of how disjointed the American real estate market is right now.

Sure, we're booming down here in Texas, but we probably shouldn't gloat. Yeah, I know. That's a hard thing to ask us Texans not to do. But we've been through a few of these economic cycles before.

First there was the oil boom and bust. Then came, especially here in Austin, the high-tech run-up, followed by the high-tech crash and burn.

Now our housing market is on the high side, after months of stagnant property values while other areas flourished. That just means we've got to remember that our now burgeoning housing market will likely take us down the same route that California, Florida and many Northeast homeowners have already traveled. Eventually, today's hot houses will be cool again.

In fact, the private research firm Moody's is calling for a continued, and sharp, decline in housing prices across much of the country in 2007.

While Texas, much of the Southeast (except for Florida) and a large chunk of the Midwest will escape, home prices in these places, says Moody's, will be modest.

Hearth and home priorities: Realistically, that's nothing to complain about. Too many people were tempted to the dark side of the real estate business when the market was surging: taking out outrageous equity loans or lines of credit, buying property purely for the predicted big bucks of a quick flip.

Some hard, and costly, lessons have been -- and are still being -- learned.

The key moral to take away from all this is that your house is where you live, not your private piggy bank. If you can wisely leverage its value for other things, such as needed repairs or realistic improvements or paying for the kids' college, that's not necessarily a bad move.

But don't count on those walls to be your actual and complete financial shelter.

When house and taxes meet: Some folks are working to get rid of home debt completely. An interesting blogversation is going on over at All Financial Matters, with readers weighing in on the pros and cons of paying off a mortgage.

People always point out that one of the positive points about having a mortgage is that the interest on the loan is deductible. That's true -- if you itemize. Most folks with a home do, especially since they're also writing off property taxes. The combination of loan interest and taxes usually exceeds their standard deduction amount.

And the deduction is helpful in reducing your tax bill. I know we missed it that year the hubby and I moved to Florida and rented longer than we owned.

But with the long spell of lower loan rates before the Fed started easing them up again, I suspect that the deductible interest amount isn't what it used to be. We took advantage of dropping rates to twice refinance in Florida and cut our mortgage payments by mainly reducing our interest portion.

And here in Austin, we have the lowest rate we've ever received: 5.125 percent on a 30-year fixed mortgage. That beats anything we ever got over the years on our four previous home loans and three refinancings. Heck, this current rate alone is enough to make me never want to sell!

Of course, if your house value went up, your property taxes did, too, so that offsets your lower mortgage interest costs.

The bottom line: If you own (and by own I mean are paying a mortgage on) a house, by all means take full tax advantage of it. That's smart financial -- and tax -- management.

But remember, tax breaks generally should be viewed as a bonus. None of us wants to pay more in taxes than we have to, but don't make money moves solely because of tax considerations. Taxes should be just one part of any sound financial decision.

Additional reading: If you just bought a house or are thinking of doing so, check out this first-time home buyer's guide to taxes. And every homeowner should know about these five homeownership tax myths.


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