As the economy

climbs out of recession and we find ourselves an incredible nine months

after the attack of Sept. 11, many potential homebuyers may be wondering

if now is a good time to buy a new home.

In May, the

National Association of Home Builders' (NAHB) Housing Market Index (HMI)

reported a healthy level of 61, unchanged from the previous month. The

HMI is derived from a monthly survey of builders that NAHB has been conducting

for nearly 20 years. The HMI has held within three points of this strong

reading since the beginning of the year, which indicates that the nation's

builders view the market for new single family homes as sound and stable.

Certainly, this is encouraging for potential new homebuyers.

The U.S. Department

of Commerce recently reported that following exceptionally strong production

in this year's first quarter, which was driven, in part, by very good

weather conditions, nationwide housing starts were down 5.4 percent in

April to a seasonally adjusted annual rate of 1.56 million units. So,

what does this really mean?

Basically,

the housing market has remained strong in the last year and some adjustment

in the levels of housing starts is predicted. "After the first few

months of this year, when unseasonable warm and dry weather and historically

low interest rates combined to help housing buoy the national economy,

some downward adjustment was to be expected in the housing production.

But our latest surveys of single family builders indicate no shortfall

in buyer demand or builder confidence. And we are still on track to build

slightly more than the 1.6 million units we did last year," said

Gary Garczynski, president of the National Association of Home Builders

(NAHB) and a builder/developer from Woodbridge, Va.

NAHB's Chief

Economist David Seiders is not alarmed by the slight fall in numbers either.

"With interest rates on long-term mortgages still below 7 percent,

and with the economy on a recovery path, the market for new homes is in

very good shape," Seiders said.

Additionally,

the federal funds rate -- the rate charged for short-term lending between

banks -- is a low 1.75 percent. Lower interest rates mean that buyers

can afford more home without increasing their monthly mortgage payments

and people who are currently renting have an excellent opportunity to

enter the market and become first time homeowners.

Overall, housing's

stellar performance in the face of such unprecedented conditions over

the last 12 months can be attributed to a number of factors -- making

it an excellent time to purchase a new home. In addition to the historically

low mortgage interest rates, new construction and home sales have reflected

strong underlying demand for new housing. Low inventories of unsold units

on the market, and the resounding faith of the American people in the

value of real estate as a long-term investment are other indicators of

housing's continued strength.

Not only is

the national housing outlook strong in the coming year and indications

that interest rates will remain low, another advantage of owning your

own home will emerge at tax time. Home ownership is one of the most tax

advantageous investments you can make, but you'll want to make sure you

consult the tax codes about the deductions you may be eligible to claim.

For starters, homebuyers can usually deduct loan points and origination

fees for their mortgage. Since origination fees typically run one percent

of the mortgage amount or higher, this can add up to huge savings at tax

time.

The interest

you pay to your lender, as part of your mortgage payment, is deductible

from federal and most state income taxes if you itemize dedications, and

it is still one of the greatest ways to reduce your tax burden. For example,

if you pay taxes in the 28 percent tax bracket, this provision may lower

your borrowing costs by nearly one third, depending on your state taxes.

This deduction applies to first and second mortgages, as well as any other

debt instruments used to finance a primary residence. Your lender is obligated

to notify you of the amount of interest you paid during the tax year,

and you may itemize that amount as a "qualified residence interest"

deduction on your tax return.

Another major

advantage of homeownership is that property taxes -- paid based on the

assessed value of the property -- are deductible when determining federal

tax liability. Unlike income tax deductions, this deduction is not capped.

Not all states allow a deduction for property taxes from adjusted gross

income when determining state income tax liability, so do some research.

As in the case with mortgage interest, itemizing is necessary if you wish

to deduct property tax payments.

Perhaps the

biggest tax advantage to owning a home is the ability to avoid paying

capital gains upon its sale. Under current law, a homeowner may exclude

up to $500,000 of capital gain (married filing jointly) or $250,000 (single)

from taxation. This exclusion applies only if you have lived in your primary

residence for two years or more. But the exemption may be used repeatedly,

as long as the residency rules are met.

Another great

reason to buy a new home now is that new home construction is better than

ever, offering the latest in energy saving technology, efficient heating

and cooling systems, innovative design and a host of new features, from

pre-wired high speed data lines to high-tech lighting and security systems.

Plus, the decisions you make on layout, colors, materials and appliances

will make your new home a true reflection of your individual tastes and

preferences.

After reviewing

your personal finances, evaluating what kind of mortgage you may be able

to get, considering your needs and seeing what's available in your desired

market, you may find that it is exactly the right time for you to become

a new homeowner.

Further, housing

is by far the most important single asset on the household balance sheet.

It accounted for nearly 30 percent of total household assets at the end

of 2001, a figure much higher for the 73 million households who owned

their own homes.

For most people,

a home is a solid investment, providing not only a place to live, but

also a solid rate of return with a low risk of loss. Since 1980, home

prices have increased at an average rate of about five percent annually

and have never shown an annual loss. Moreover, a home is an investment

in the future that will provide shelter for many years to come.

(Eddie Lusher,

who is with Jerry Ballard Homes, is president of the Home Builders Association

of Midwest Georgia, which serves a membership of over 500 builders and

associate members in Fayette, Coweta, Spalding, Heard and Meriwether counties.)

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