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Commentary: Is Housing Really Cheaper in WNY?

By Anthony Ogorek

Buffalo, NY – When you spend as much time indoors as we do in Buffalo, it is natural, at least for me, to ponder the state of our residential real estate market. What piqued my interest is the assumption that housing is a real bargain in Western New York. My question is, in what sense is housing a bargain?

If you buy the argument that housing is a bargain, the first question is, why? Classical economics states that there is a linkage between the price paid for housing and the average income of local residents. At ace value, this seems to be a reasonable assumption if you have more money, you generally can and will pay more for a home.

It should not be news to anyone that incomes are depressed in our neck of the woods, primarily due to the tax environment which has accomplished the following:

It has diminished the pool of potential buyers by encouraging the young, as well as retirees, to move to more economically vibrant areas.

The carrying cost of a home is much higher here as property taxes may approach 3.25% of a home's value, as opposed to 1% in other areas of the nation.

High taxes dampen or eliminate potential appreciation, making our homes a place in which to live, but not a place in which to invest your money.

Thus, it may be less expensive to get into a home in our community, but there are real trade offs which make the cost of owning a home in WNY much more expensive over time, than living in a more tax friendly environ. As financial advisors, we are aware that more of our clients are being snared by the AMT the alternative minimum tax. This is a parallel income tax system that excludes deductions, such as local income and property taxes.

Although the additional tax a homeowner may pay via the AMT is not a direct cost of home ownership, it does increase the cost of home ownership in high tax areas such as ours. Thus, if a homeowner who is in the 35% tax bracket pays $20,000 in property taxes, the net cost of property taxes should be $13,000 a savings of $7,000. However, with the AMT, the taxtaxpayer will lose close to the entire $7,000 in tax benefit. Therefore, for a taxpayer in the AMT, the more you pay in property taxes, the higher the carrying cost of your home.

With corporations lopping off pension benefits to their employees in order to compete in a global economy, most Americans look to home appreciation as a means of supplementing their meager 401(k) account balances. Unfortunately, in WNY, it is exceedingly difficult for homeowners to recoup more than the initial investment in their home, let alone appreciation, after accounting for improvements, repairs and brokerage commissions.

The sad fact is that it is cheaper to get into a home in WNY than in most parts of the country because the price is discounting higher carrying costs, as well as stagnant future appreciation. Until we as a community begin to face up to why housing is so reasonable in WNY, we will continue to lose out on a benefit most Americans take for granted reasonable appreciation on one of the largest government subsidized investments most people can own - their home.

Listener-Commentator Anthony Ogorek is principal of Ogorek Wealth Management in Williamsville.

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