A Mile High Blog: Denver Real Estate & Lifestyles Guide

Home Sales Could Enter "Virtuous Cycle"

2010-11-08T10:51:00.000-08:00

Daily Real Estate News November 8, 2010

Home Sales Could Enter 'Virtuous Cycle'

Consumer confidence and business spending are key to whether the U.S. housing market will move into a virtuous or a vicious cycle in 2011, NAR Chief Economist Lawrence Yun told a packed audience at the Residential Economic Outlook Forum Friday in New Orleans.

After the downturn, the housing market has clawed its way back to a point of near stability, Yun said, with the pace of new foreclosures easing, sales moving toward historically normal levels and prices on a national basis gaining modestly.

At the same time, affordability remains strong. He said all of the price excesses from the housing bubble have been squeezed out. In San Diego, for example, buyers today would pay $1,564 a month in mortgage payments for a house that at the height of the boom would have cost them $2,833 a month.

The broader economy is also showing positive signs, with businesses enjoying strong profits, sitting on huge cash reserves, and even adding jobs. Yun predicts this positive trend to continue into 2011, with existing home sales reaching 5.5 million units, prices rising a modest 1 percent, and the U.S. gross domestic product increasing to about 2.5 percent.

“We are entering a virtuous cycle,” he said. But for the positive trend to continue, he added, businesses will have to start spending some of their cash to fuel job growth at a far greater pace than they’re doing now. Currently, businesses are adding jobs at a pace of about 100,000 a month. That needs to grow to about 400,000 a month for unemployment to start shrinking.

The scenario will be far more negative if businesses continue to sit on their cash. In that case, sales will fall, inventories will rise, the high rate of foreclosures will resume, and the cost to the federal government of bailing out Fannie Mae and Freddie Mac will surge.

Federal Reserve Governor Thomas Koenig, who shared the data with Yun, said the Fed’s continued effort to spur the economy, most recently through a $600 billion bond buying program, is understandable given concerns over the slow pace of growth. But the continued subsidization of the market could unleash inflationary forces.

Yun said he sees possible evidence of inflation building, but it’s not visible now because the housing-cost portion of inflation measurements is holding down prices.

—Rob Freedman, REALTOR® Magazine

MORTGAGE RATES EDGE UP

2010-10-23T12:40:00.000-07:00

From RealtorMag - Daily Real Estate News October 22, 2010

Mortgage Rates Edge Up

Interest on the 30-year fixed mortgage averaged 4.21 percent this week, up from a record low of 4.19 percent a week ago, reports Freddie Mac.

Rates for 15-year fixed loans also rose, climbing to 3.64 percent from 3.62 percent. However, the five-year adjustable-rate mortgage fell to a record low of 3.45 percent, after averaging 3.47 percent the previous week.
Source: Columbus (Ohio) Dispatch (10/22/10)

Fed Beige Book Shows Modest Growth but Weak Real Estate Conditions

2010-10-22T05:00:00.000-07:00

Fed Beige Book Shows Modest Growth but Weak Real Estate Conditions

10/21/2010 By: Carrie Bay DSNEWS

The Federal Reserve’s popular Beige Book report released this week suggests economic activity across most of the nation is showing signs of “modest” growth, but it’s not enough to improve the country’s anemic jobs picture with the unemployment rate holding at or above 9.5 percent for more than a year.

Beige Book findings are based on anecdotal information collected across the country from businesses and contacts outside the Federal Reserve. Data included in the latest report covers the September to early October time period.

Seven of the Fed’s 12 districts reported “moderate improvements” in economic activity. Three regions — Philadelphia, Richmond, and Cleveland – characterized economic development as “mixed” or “steady,” while only two regions — Dallas and Atlanta – described activity as “subdued.”

The most recent results show progress, albeit uneven, compared to the Fed’s description of “widespread deceleration” in the September Beige Book.
Housing markets remained weak with most districts reporting sales below year-ago levels. The central bank says input it received on home prices, however, suggests stability. Conditions in the commercial real estate sector were soft, while overall lending activity was described as stable in most districts.

Overall home sales were characterized as “sluggish” or “declining” throughout most regional districts. There were scattered reports of some improvement in sales in a few districts, however.

Philadelphia noted an increase in sales of existing homes, and Richmond, Kansas City, and Dallas reported upticks in sales of higher-priced homes. Sales reports were mixed in the St. Louis and Minneapolis districts, with increases in some metro areas and declines in others. Home inventories were elevated or rising according to most district reports.
The central bank says home prices were generally stable since last month’s Beige Book release, although Kansas City noted a decrease in prices, and New York and Minneapolis reported declines in some metros. Homebuilders in the Atlanta district reported downward price pressure and expressed concern about rising foreclosures and bank-owned properties coming to market.

Conditions in the commercial real estate sector “remained subdued,” according to Fed officials. Reports suggested rental rates continued to decline for most commercial property types. The one exception was the apartment sector, where higher leasing activity led to fewer concessions, most notably in Manhattan. Office, industrial and retail rental markets remained weak, although there were a few reports of slight increases in leasing activity in the Richmond, Chicago, and Dallas districts.

Commercial property sales were low overall, but contacts in Chicago and Dallas said investment demand for distressed commercial properties remained strong. Contacts within the real estate industry appear to believe the commercial real estate and construction sectors will remain weak for some time, according to Beige Book commentary.

Overall lending activity was at low levels across most districts, but that’s consistent with conditions over the past many months and characterized as “stable” by the central bank.

On the consumer side, lending was sluggish, but there were scattered reports of improvement. Residential mortgage lending and refinancing activity increased in several districts, and San Francisco reported an increase in demand for nonconforming mortgage loans.

Credit quality changed little on balance. New York reported a decrease in delinquency rates on consumer loans, however, and overall quality improved in Philadelphia and Richmond.

China's Surprise Rate Hike: What It Means

2010-10-20T05:17:00.000-07:00

China's Surprise Rate Hike: What It Means

by Daniel Gross, Yahoo! Finance Tuesday, October 19, 2010

Mike Santoli, columnist at Barron's, talks to Daniel Gross and Aaron Task about China's rate hike.

On Tuesday global stock markets got up on the wrong side of the bed thanks to news from an unexpected source: the People's Bank of China. The nation's central bank, analogous to the Federal Reserve in the U.S., announced it would raise rates on one-year loans and deposits by .25 percent, or 25 basis points.

Why is the People's Bank of China raising interest rates?

Central banks raise interest rates when they are concerned about inflation, or if they are worried that credit or the economy at large is expanding at an unsustainable pace. Higher interest rates make money more expensive, and thus should cut down on borrowing activity. China's economy is growing very rapidly, at a 10.3 percent annual rate in the most recent quarter, and inflation is running above the official target of three percent. For a country that has to make up as much ground as China does, no rate can be too fast. But housing markets, especially in coastal cities, have been raging. With observers fretting about bubbles, China's central bank has taken efforts to discourage real estate lending and choke off inflation. Raising interest rates is one way to do that.

Why would global stock markets react negatively to this news?

Two reasons. First, think about the changing shape of the world's economic geography. The U.S. (the world's largest economy), Japan (until recently the world's second-largest economy), and the European bloc (which rivals the U.S. in size) are all growing very slowly. China, now the second-largest economy in the world, accounts for a huge amount of growth and demand. While it exports a great deal, it also imports massive quantities of everything from nuts grown in California to copper mined in Chile. The Chinese domestic market has also finally emerged as an important source of sales; General Motors sells more cars in China than it does in the U.S. So any hint that the Chinese juggernaut might be showing signs of slowing is bound to be seen in a negative light by investors who are concerned about growth.

Second, it was a surprise. Markets hate surprises. As a general rule, monetary policy in the U.S. and Europe is conducted with a certain amount of transparency. Officials use speeches and statements to telegraph their intentions, so as not to surprise investors and markets. In China, government bodies keep information very close to their vest and don't face the same type of pressures that western central banks do to give notice about their actions. Since the markets for Chinese currency are very tightly controlled, the People's Bank of China doesn't feel the need to communicate openly about its intentions.

What are the effects of such an increase on China's economy?

The impact of this rate increase lies as much in its symbolism as in its practical effect. Boosting the rates by 25 basis points is like tapping the brakes gently on a freight train running at 90 miles per hour -- it can only slow it down a bit. But it does signal that China's central bank is sufficiently concerned about some issues in its economy to take action.

The exchange rate of China's currency, the yuan (the Renminbi is the official name of the currency, while the yuan is the main unit of currency), against the dollar, has been a contentious issue between the U.S. and China. How does this move affect the exchange rate?

In theory, raising interest rates in China should make the yuan stronger against the dollar. All things being equal, money flows toward countries with higher interest rates (like China) and away from countries with very low interest rates (like the U.S.). But despite intense pressure from the U.S. government, China has remained committed to keeping the yuan trading in a stable range against the greenback. China prefers a weak currency because it makes Chinese goods cheap for American consumers and makes American-made goods expensive for Chinese consumers -- which encourages exports and the consumption of domestically produced goods.

Daniel Gross is economics editor and columnist at Yahoo! Finance.

CARHOF Offers Grants for Workforce Housing - Colorado Applications Submission date is August 2, 2010

2010-05-05T11:03:00.000-07:00

Please call for additional details - Marie, 720-275-3926

Colorado Department of Local Affairs

Division of Housing

Tuesday, March 2, 2010

CARHOF Offers Grants for Workforce Housing

CARHOF (Colorado Association of REALTORS® Housing Opportunity Foundation) is sponsoring a Workforce Housing Initiative and is making available $100,000 in grants. Nonprofit and employer housing programs that support workforce housing by offering down payment assistance to help workers purchase homes in their communities can apply.

CARHOF has instituted some guidelines that will help sustain the workforce housing program. Grant recipients must demonstrate an on-going financial and operational capacity to continue the program. The down payment assistance, which is given as a loan to buyers, must comply with all state and federal regulations and be reasonable with the conditions of the market.

For consumers to be eligible for the loans, they must be employed a minimum of 30 hours per week in their community and they must complete a HUD or CHFA certified home buyer counseling program. The loan will be repaid and the monies will be used to help future workers purchase a home.

The funding for this initiative came from National Association of REALTORS® Ira Gribin Workforce Housing fund to assist a broader range of working people including, retail sales workers, restaurant workers, technicians, office workers, etc., in addition to occupations that provide the bulk of vital services.

Nonprofit housing agencies and employers can apply for these funds by submitting a proposal directly to CARHOF at 309 Inverness Way South, Englewood, CO 80112. Applications must be received by 5:00 p.m. on Monday, August 2, 2010 to be considered. The application and guidelines can be found at www.CARHOF.org.

NAR Grants Give Working Families a Boost

2010-05-05T11:00:00.000-07:00

Daily Real Estate News

May 5, 2010
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NAR Grants Give Working Families a Boost

Despite today’s tight economy, many areas of the country have not seen a significant drop in their high cost of living.

To help meet this critical need for more affordable housing for low- to moderate-income working families, the NATIONAL ASSOCIATION OF REALTOR® has awarded more than $3.4 million through the Ira Gribin Workforce Housing Grants program.

Teachers, firefighters, police officers, and restaurant, and retail workers provide vital community services. However, they often cannot afford to live in the communities where they work. This segment of the population can be shut out of the local housing market in high-cost communities, which can lead to longer commutes, sprawl, and traffic congestion.

Ira Gribin Workforce Housing Grants are awarded to state and regional REALTOR® associations to help fund programs that promote safe, decent housing for people with low and moderate incomes. Established in 2009, the program is named in honor of Ira Gribin, a former NAR president who was a tireless advocate for fair and affordable housing for diverse populations.

“REALTORS® build communities and care about the high cost of housing and the lack of affordable, decent homes available to working families in many of our communities,” said NAR President Vicki Cox Golder. “REALTOR® associations are working hard to address affordability problems in their states, and through the Ira Gribin Workforce Housing Grants program, they are able to provide even more affordable housing opportunities to working families. That’s good for the entire community."

Grants can be used to support a broad range of workforce housing solutions, including downpayment and financial assistance programs, home buyer or REALTOR® education, public awareness and advocacy campaigns, and housing construction and rehabilitation. The one-time grants are awarded on a sliding scale based on REALTOR® association membership. To date, NAR has awarded grants to 31 REALTOR® associations, totaling just over $3.4 million.

The following state REALTOR® associations or their foundations have been awarded an Ira Gribin Workforce Housing Grant since the program’s inception: Arizona, California, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois, Kansas, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New York, North Carolina, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, West Virginia and Wisconsin.

A new NAR report, “Tackling Workforce Housing State by State,” describes the status and progress of the 2009 Ira Gribin Workforce Housing Grant recipients. The report provides detailed program summaries and contact information for each of the grantees and is available at www.realtor.org/iragribingrant.

“The ‘Tackling Workforce Housing State by State’ report is a great resource for REALTORS® or community organizations who are looking for a guide or need inspiration to handle workforce housing issues in their own community,” said Cox Golder.

— NAR

Denver-area homebuyers hurry as tax credit expires

2010-04-30T12:27:00.000-07:00

Deadline Day: A Survey of Data and Opinion on How the Tax Credit Has Impacted the Market

Denver-area homebuyers hurry as tax credit expires

Denver Business Journal

Read more: Denver-area homebuyers hurry as tax credit expires - Denver Business Journal:

Expiring federal homebuyer tax credits helped propel Denver-area home resales, of both houses and condos, in March from February and year over year, according to Metrolist Inc. data released Thursday.

Total resales rose 12.35 percent to 3,602 year over year, and jumped 47.87 percent from February sales.

Average sold price for both types of housing last month increased 7.10 percent to $248,905 from the same month of 2009 and was basically flat from February.

Resales, also called existing-home sales, are those of homes that have already been sold at least once before.

“First-time homebuyers will be out in force in the next 30 days, even though inventory will increase,” Gary Bauer, an independent Littleton residential real estate broker, said in a statement. “[Move-up] buyers will remain limited.”

Those credits include the $8,000 first-time homebuyer credit and the $6,500 credit for existing homeowners who want to buy a different home. The first-time homebuyer tax credit was extended last fall, at the same time the existing-homeowner credit was added, but real estate brokers don’t expect either credit to be extended this year.

“Hundreds of homebuyers in Colorado are still rushing to beat the April 30 deadline for the homebuyer tax credit,” David Simonson of Re/Max Professionals Inc. said in a report released Thursday. “If they’re successful, we could see some big sales numbers in next month’s report.”

Among the neighborhoods attracting the highest average selling prices for houses alone were Boulder ($611,479), metro Denver’s southeastern suburbs (476,312), Louisville (443,259) and southeastern Denver ($421,671).

Most existing houses sold — 32 percent — were in the $100,000-$200,000 price range, followed by the $200,000-$300,000 range with 31 percent of sales.

Other significant Denver-area statistics from Metrolist’s March report:

• Sales of houses rose 8.15 percent to 2,801 in March year over year, and were up 45.42 percent from February.

• Average selling price for houses increased 9.29 percent to $274,950 year over year, and rose 1.95 percent from February.

Median selling price went up 12.28 percent to $229,000 from March ’09, and 3.74 percent from February.

• Average days on the market for houses dropped nearly 19 percent to 86 year over year, and were down 6.5 percent from February.

• Condo sales rose 30 percent to 801 from the prior-year March, and jumped 53.15 percent from February.

• Average selling price for condos increased 4 percent to $157,830 year over year, but dipped 5 percent from February. Median selling price was up 2.4 percent to $131,579 from March of last year, and basically flat compared to February.

• Most condos sold — 47 percent — were in the $100,000-$200,000 price range.

• Days on market for condos also dropped — 16 percent to 89 year over year, and nearly 18 percent from February.

Metrolist, based in Greenwood Village, is metro Denver’s Multiple Listing Service, providing sales information to real estate professionals.

— Compiled by the DBJ’s Paula Moore:

New Home Sales Jump in March

2010-04-30T12:15:00.000-07:00

Deadline Day: A Survey of Data and Opinion on How the Tax Credit Has Impacted the Market

New Home Sales Jump in March

Sales of new homes rose 27 percent in March compared to February, the U.S. Commerce Department announced Friday. It was the largest monthly increase since April 1963, when sales jumped 31.2 percent.

In addition, the National Association of REALTORS® reported last week that sales of previously owned homes rose 6.8 percent.

Economists attribute the figures to buyers taking advantage of the $8,000 tax credit scheduled to expire at the end of this month.

“In simple terms, housing is a bargain again, and buyers are responding,” Michael D. Larson, a real estate and interest rate analyst at Weiss Research, wrote in a research note. “That is unambiguously good news for the market going forward.”

Source: The New York Times, Christine Hauser (04/23/2010)

Households Unfazed by Expiring Tax Credits

2010-04-30T12:02:00.000-07:00

Deadline Day: A Survey of Data and Opinion on How the Tax Credit Has Impacted the Market

Households Unfazed by Expiring Tax Credits

The expiration of the home buyer tax credits won’t deter optimistic households who believe the market is improving, according to a survey released Wednesday by Prudential Real Estate and Relocation Services.

More than 90 percent of those surveyed believe the home buyer tax credits have helped both first-time buyers and the overall housing market, but 65 percent say that end of tax credits won’t reduce their personal interest in buying a home.

Over the next five years, 79 percent expect real estate prices to increase, and 20 percent expect prices to rise substantially. Only 12 percent believe prices will decrease.

Among renters, 75 percent believe owning a home is a better long-term choice for them than renting.

The majority of consumers also believe that homeownership is a good investment, with 75 percent saying it is better than stocks or bonds, 72 percent preferring it to mutual funds, and 74 percent saying it surpasses savings accounts.

Source: Prudential Real Estate and Relocation Services, Inc. (04/28/2010)

Deadline Day Review of Tax Credit Effect on Markets

2010-04-30T11:43:00.000-07:00

Deadline Day: A Survey of Data and Opinion on How the Tax Credit Has Impacted the Market

Buyers Rush to Meet Tax-Credit Deadline

As the federal tax credits come to an end, home buyers everywhere are hurrying to get in under the wire.

But in California the rush has turned into something of a stampede as some would-be buyers try to qualify for both the federal credit and a $10,000 state credit that kicks in Saturday.

As one home shopper tells the Los Angeles Times, "I am looking at properties almost constantly, and it is just kind of a feeding frenzy right now.”

"The stimulus has worked," says Rick Hoffman, president of Coldwell Banker Residential Brokerage in San Diego and Temecula Valley. "Buyers are confident that we have seen the bottom of the real estate market and that we are on the way back up."

Source: Los Angeles Times, Alejandro Lazo (04/30/2010)

Real Estate Sales Up Dramatically

2010-02-11T12:11:00.000-08:00

Fourth Quarter Home Sales Surge 13.9%

Strong gains in existing-home sales were the predominant pattern in most states during the fourth quarter, with many more metro areas seeing prices rise from a year earlier, according to the latest survey by the NATIONAL ASSOCIATION of REALTORS®.

Sales increased from the third quarter in 48 states and the District of Columbia; 32 states saw double-digit gains. Year-over-year sales were higher in 49 states and D.C.; all but three states had double-digit annual increases.

Total state existing-home sales, including single-family and condo, jumped 13.9 percent to a seasonally adjusted annual rate of 6.03 million in the fourth quarter from 5.29 million in the third quarter, and are 27.2 percent above the 4.74 million-unit level in the fourth quarter of 2008.

Distressed property accounted for 32 percent of fourth quarter transactions, down from 37 percent a year earlier.

Lawrence Yun, NAR chief economist, said the first-time home buyer tax credit was the dominant factor.

“The surge in home sales was driven by buyers responding strongly to the tax credit combined with record low mortgage interest rates,” he said. “With inventory levels trending down over the past 18 months, we expect broadly balanced housing market conditions in much of the country by late spring with more areas showing higher prices.”

According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage fell to a record low 4.92 percent in the fourth quarter from 5.16 percent in the third quarter; it was 5.86 percent in the fourth quarter of 2008.

In the fourth quarter, 67 out of 151 metropolitan statistical areas reported higher median existing single-family home prices in comparison with the fourth quarter of 2008, including 16 with double-digit increases; one was unchanged and 84 metros had price declines. In the third quarter, only 30 MSAs showed annual price increases and 123 areas were down.

The national median existing single-family price was $172,900, which is 4.1 percent below the fourth quarter of 2008; the median is where half sold for more and half sold for less. “This is the smallest price decline in over two years, with the most recent monthly data showing a broad stabilization in home prices,” Yun said. “Because buyers are taking on long-term fixed rate mortgages, avoiding adjustable-rate products, and trying to stay well within their budgets, the price recovery process appears durable."

NAR President Vicki Cox Golder said near-term market conditions will remain favorable.

“Mortgage interest rates are expected to trend up later this year, but right now we have very good conditions with steadying home prices and favorable inventory in most areas, especially in the higher price ranges,” she said.

Golder said one of the biggest issues now is for repeat buyer who will have to accelerate their buying plans if they want the expanded tax credit. They have to have a contract by the end of April.

Repeat buyers do not have to sell their existing home, but all buyers must occupy the property they purchase as a primary residence to qualify for the tax credit. Buyers who have a contract in place by April 30, 2010, have until June 30, 2010, to finalize the transaction to get a credit of up to $8,000 for first-time buyers and $6,500 for repeat buyers.

Markets by Region

Northwest: Regionally, existing-home sales in the Northeast rose 11.1 percent in the fourth quarter to a pace of 1.03 million and are 33.6 percent higher than a year ago. The median existing single-family home price in the Northeast declined 5.6 percent to $234,900 in the fourth quarter from the same quarter in 2008, but with widely varying conditions.

“In the Northeast, markets with lower median prices that have avoided wide swings, such as Buffalo, are generally showing consistent price gains,” Yun said. “Even so, some of the higher cost areas are showing signs of stabilization, such as Nassau-Suffolk, N.Y., and Boston.”

Midwest: In the Midwest, existing-home sales jumped 14.5 percent in the fourth quarter to a pace of 1.38 million and are 29.9 percent above a year ago. The median existing single-family home price in the Midwest rose 1.1 percent to $141,100 in the fourth quarter from the same period in 2008, with the region accounting for the majority of metro areas experiencing double-digit gains.
Yun said markets with high unemployment rates in Ohio and Michigan experienced large price swings. “Big price gains in many Midwestern areas are due to a more normal range of home sales in contrast with predominately foreclosed sales a year ago,” he said.
South: In the South, existing-home sales rose 13.8 percent in the fourth quarter to an annual rate of 2.23 million and are 28.2 percent higher than the fourth quarter of 2008. The median existing single-family home price in the South was $153,000 in the fourth quarter, down 2.4 percent from a year earlier.

“Affordable markets in the South that have relatively better local economies are seeing healthy price gains, such as Houston, Oklahoma City and Shreveport, La.,” Yun said.

West: Existing-home sales in the West jumped 16.2 percent in the fourth quarter to an annual rate of 1.38 million and are 18.2 percent above a year ago. The median existing single-family home price in the West was $227,200 in the fourth quarter, which is 8.9 percent below the fourth quarter of 2008, but with many areas showing notable gains.

“Markets in the West such as San Francisco, San Jose and Denver are showing double-digit price increases, and other markets like San Diego and Anaheim have begun to firm up,” Yun said.

A Closer Look at the Condo Market

Metro area condominium and cooperative prices – covering changes in 54 metro areas – showed the national median existing-condo price was $177,300 in the fourth quarter, down 4.8 percent from the fourth quarter of 2008. Eleven metros showed increases in the median condo price from a year earlier and 43 areas had declines; in the third quarter only four metros experienced annual price gains.

Source: NAR

Four Reasons Sellers Should Jump in the Market Now

2010-02-10T10:15:00.000-08:00

4 Reasons to Sell Now

Selling a property in this tough market can seem like a challenge. Here are four factors that actually make this a good time to post a For-Sale sign.

Sell low and buy low. Because all property values are down, the loss on the property a home owner sells is really only a paper loss because the next property he buys also will be a bargain. If he buys smartly, when prices come back up in a few years, he’ll be in better shape.

Down-payment help is widely available. While nothing-down loans have disappeared, it is easy to find down-payment assistance for lower-income and first-time home buyers. Programs vary all over the country, but one good way to find them is to search online for “down-payment assistance programs” and the name of your region.

Your uncle has money to share. Besides the $8,000 first-time home buyer tax credit and the $6,500 move-up credit, there are an array of energy tax credits that can make home improvements pay off in cash.

Good help is available. Really talented real estate practitioners, contractors, and designers are available and eager for business.

Source: McClatchy Tribune, Kate Forgach (02/07/2010)

The Urban Land Institute's New Report Overview

2010-02-04T04:02:00.000-08:00

From REALTOR online magazine. I'll review the Urban Land Institute's report and post additional details here; investors may be interested in the findings if purchase prices remain as flat as predicted and renting becomes the trend predicted here.

What Will the Market's New Normal Be?

In a new study, "Housing in America: The Next Decade," Urban Land Institute senior resident fellow John McIlwain says the housing market will not return to what it was prior to the downturn but rather that a "new normal" will take its place.

He expects another 10 percent decrease in residential prices this year, a jump in the number of borrowers abandoning "underwater" mortgages, and a change in consumer perceptions of homeownership.

"The emotional impact on the children and parents and disillusion about the 'joys' of homeownership will be intense; new attitudes to homeownership and the American dream will emerge," McIlwain writes.

He expects home price appreciation to hover around 1 percent or 2 percent per year after the market recovers and the national homeownership rate to drop from 67 percent currently to 62 percent by 2020.

In the coming decade, McIlwain expects the following:

Older baby boomers to move to urban, mixed-use, mixed-age centers near family instead of retiring to Sun Belt communities;
Immigrants to snub the suburbs in favor of more close-knit communities;
Younger boomers to face the challenges of lost home equity and a smaller pool of move-up buyers;
Generation Y to rent for long periods by choice or because they are paying off student loans or have stagnant incomes.

Source: Inman News (02/01/10)

What Will Happen When the US Stops Buying Mortgage-Backed Securities? Part 2

2010-02-03T04:06:00.000-08:00

This piece is from Reuters and has a different view on the effect that will occur when the US stops buying Mortgage Backed Securities. It asserts that volatility will again enter the market which will push interest rates up, affecting Buyers and Sellers in a negative way. Marie

Fed's MBS exit could lift Treasury yields

NEW YORK (Reuters) - The end of the Federal Reserve's program to buy mortgages backed by Fannie Mae and Freddie Mac could have a ripple effect on the market for U.S. government bonds.

Once the Fed stops buying mortgage-backed securities at the end of March, private buyers will need to step in and take over in a market that the government has propped up since the financial crisis reached its peak. But they won't want to buy MBS unless the securities offer a better return than the current rate, so mortgage rates will likely rise.

jump in yields would increase the cost of borrowing for the U.S. government. The cost of mortgages would also rise, threatening the fragile housing recovery. And a sharp, sudden spike in Treasury yields could spook regular government debt buyers such as foreign central banks.

Some signs in the marketplace are already pointing to this possibility. The Treasury yield curve has steepened and the prices of bond options have risen.

"Some feel that the recent market moves reflect investor positioning for the end of several unconventional Fed facilities," said Mohamed El-Erian, co-chief investment officer at Pacific Investment Management Co., in an e-mail.

VOLATILITY TO RETURN

Treasury strategists have also warned that wider swings in bond prices lie ahead. They will be driven in part by hedging practices MBS investors are known to use that the Fed, as the largest MBS buyer since the financial crisis began, did not employ.

"In essence, the Fed has taken a lot of volatility out of the marketplace," said William O'Donnell, the head of U.S. Treasury strategy at RBS Securities in Stamford, Connecticut. "Any subsequent mortgage issuance is likely to fall into the hands of portfolios likely to be somewhat dynamically more hedged. It'll have the prospect and almost the certainty of adding volatility back into the rates markets."

The practice is known as convexity hedging. Investors holding MBS can actually find themselves losing money if mortgage or interest rates rise suddenly and they cannot get rid of their lower-yielding securities. They often try to offset unexpected increases in mortgage and interest rates by selling Treasury notes.

"If you look at option prices presently, we have the implied volatility for longer-dated options trading 25 percent over their long-term historical levels. One could argue the reason for this is that people anticipate uncertainty after March 31 end date of the Fed's MBS program." said Harley Bassman, a managing director at Bank of America Merrill Lynch.

"People are concerned about what might happen when the Fed starts to drain liquidity. This is why the volatility surface is so steep from one month to two years expiries."

BEWARE OF CONVEXITY

Convexity hedging often feeds on itself, causing Treasury yields to rise even faster.

Ajay Rajadhyaksha, head of U.S. fixed income and securitized products research at Barclays Capital in New York, said if rates rise sharply, agency MBS could extend and trade to much longer durations.

"It is not a risk for the next 30 basis points or so in interest rates, but at a 4.10 percent (10-year) Treasury yield, the market will start to worry," he said.

Arthur Frank, director and head of MBS research at Deutsche Bank Securities in New York, said while a 4 percent Treasury yield could spark a big pick-up in convexity hedging, he noted that hedging by mortgage servicers, the banks that manage mortgage loans and collect payments from borrowers, is driven more by MBS prices.

"Servicers have varied trigger points, but it is safe to say, they might start selling mortgage duration at 99-1/2 or at 99," he said.

The Fannie Mae 30-year 4.50 percent coupon is priced at 100-8/32, with a yield of 4.438 percent.

The relationship between interest rates and MBS prepayment rates directly influences MBS pricing. More mortgage borrowers are likely to quickly pay off their old loans when interest rates are low and they can get a better deal by refinancing.

In a bond market rally, prepayment rates rise, reducing the price gains of MBS, while in a bear market, prepayment rates slow, resulting in increased price losses. This price movement is commonly referred to as "negative convexity."

(Additional reporting by Jennifer Ablan; Editing by Jan Paschal)

What Will Happen When the US Stops Buying Mortgage-Backed Securities?

2010-01-29T04:41:00.000-08:00

When the US stops buying mortgage-backed securities it is going to affect Buyers and Sellers; Buyers may find it harder to get lending or it could become much more expensive to borrow, so this will dampen prices and demand, affecting Sellers. Here is an optimistic view of what will happen when the US Treasury purchases slow or stop. For more data on mortgage-backed securities and how they work, do look through the blog. Marie

From WSJ:

JANUARY 28, 2010
Mortgage Bulls Bid Fed Fond Farewell
Say Rates Won't Soar When U.S. Ends Buying Spree

By Mark Gongloff

Conventional wisdom holds that the end of the Federal Reserve's $1.25 trillion mortgage-buying spree will be catastrophic for housing. But a growing number of investors are betting that the fears are overstated and mortgage rates won't soar when the Fed leaves the market in just over two months.

Following a two-day policy meeting, the Fed on Wednesday reiterated its plan to end the program on schedule. The policy makers ignored weak home-sales data that had some observers, worried the market wouldn't be able to wean itself from Fed support, expecting an extension.

Fed officials believe they can pull back successfully. And a growing group of optimists are joining their camp. They argue that investors, searching for higher-yielding securities, will find government-backed mortgage-backed securities a bargain relative to other investments, like corporate debt, that have rallied for much of the past year.

"People will jump in and buy" if there's weakness in the mortgage-backed securities market, said Brian Yelvington, a strategist at fixed-income brokerage Knight Libertas.

The optimistic view hinges on the government remaining an enormous presence in the mortgage market, both through its mortgage-backed securities holdings and the widespread expectation that it could jump back in if the market falters.

If this view is right, then the end of Fed purchases will barely cause a ripple in interest rates on mortgage-backed securities, which move in the opposite direction of price. That, by extension, could mean mortgage rates could stay relatively low, buoying housing.

So far, the numbers support the optimists. In recent weeks, the Fed has slowed its average weekly net purchases of mortgage-backed securities from $21 billion to about $12 billion. Despite this, the "spread" between mortgage-backed securities yields and risk-free Treasury yields is thinner than last September, when the Fed said it was extending its mortgage buying program by a quarter.

This spread is the basis for the rate people pay when they borrow to buy a home. Any widening typically pushes mortgage rates higher by an equal amount almost immediately.

To be sure, mortgage prices could suffer when the Fed stops buying. Pessimists worry spreads could rise a full percentage point, which could take 30-year conforming mortgage rates to 6% from 5%, a potentially crippling blow to a still-shaky housing market.

But spreads mightn't have to widen nearly that much to attract private investors hungry for yield at a time when cash yields nothing.

For one thing, riskier credit investments, such as corporate debt, may have little upside left after rallying furiously for nearly a year. Corporate bonds with an "A" credit rating, for example, yield 160 percentage points over Treasury debt, according to Merrill Lynch indexes. MBS issued by government-backed mortgage agencies, in comparison, yield about 138 percentage points more than Treasurys, according to Kevin Cavin, a mortgage strategist at FTN Financial in Chicago.

Even a small widening of that MBS spread would offer investors a similar spread as risky corporate debt, but this debt would be guaranteed by the U.S. government.

The Fed's purchase program, meanwhile, has likely kept spreads on mortgage-backed securities issued by government-backed mortgage agencies artificially narrow, which has turned off many private investors.

"Our interest in residential mortgage product is next to zero right now," given the low spread over Treasurys, said James Camp, head of fixed income for Eagle Asset Management, a St. Petersburg, Fla. investment firm.

But if mortgage spreads over 10-year Treasurys were to widen by just half a percentage point—taking them back to their long-term average—buying government-backed mortgage securities "starts to make sense again," Mr. Camp said.

A half-point increase in spreads might push mortgage rates up by half a percentage point. But subsequent private buying of mortgages could push spreads and rates right back down again, limiting the damage to the housing market, bulls say.

Large bond mutual-fund managers, such as Pimco, have dialed back on their mortgage investments in the past year and now may be short of their usual allocations to mortgages by up to $350 billion, estimates Ohmsatya Ravi, head of U.S. securitized products research at Nomura Securities International.

Their buying could be enough to replace three or four months' worth of Fed purchases, notes Mr. Ravi, who said he doubts mortgage spreads will widen more than 0.2 percentage point when the Fed stops buying.

Meanwhile, the government will remain an enormous presence in the mortgage market even after the Fed stops buying.

The Fed will have a $1.25 trillion mortgage-backed securities portfolio after March. Unless the Fed sells its securities, its holdings mean a lot of supply is being held off the market, at a time when new mortgage originations are anemic, keeping prices from falling too far.

Meanwhile, the Treasury Department in December said it would provide unlimited support to Fannie Mae and Freddie Mac and wouldn't require the agencies to reduce their $1.5 trillion mortgage holdings, as previously planned, a show of government commitment that has lifted mortgage prices.

Some analysts even suggest that Fannie and Freddie, now with greater government backing, could buy more mortgages if spreads widen drastically and the Fed declines to help. —Jon Hilsenrath contributed to this article.

A Primer: Mortgage-Backed Securities

2010-01-26T05:14:00.000-08:00

In the next few posts I'll be defining, explaining and telling you how mortgage-backed securities affect lending. The Obama Administration will be pulling back from purchasing these in the next couple months and it's expected to affect lending. This will help you understand beyond the "hype" why now is a great time to find and purchase a home. Marie

Q: What exactly are mortgage backed securities and what companies offer them?

Many of us experienced in the stock market trading or have 401(k)s or private portfolios are familiar with the term "securities." A security is a holder's legal interest in a corporation, certificate, or note that may increase in financial value over time.

Corporate stocks, mutual funds, bonds, certificates of deposit, and notes can be considered securities. The holder of these securities experience can experience gains and losses. Depending on the strength of the security, gains and profits will vary. Gains are evidenced by the growth of a holder's stock portfolio, 401(k), CDs, or bonds. Also, dividend and annuity gains can be paid out as cash profits to the holders.

A mortgage backed security (MBS) is a bond financed by home mortgage payments. This is the essential concept behind the mortgage backed securities definition. The mortgage principal and interest paid by the homeowner is the principal and interest paid to the MBS holder. This is called "mortgage pass-through," which may also differentiate the MBS from other MBS programs that may have other features attached to it.

An investor who buys MBSs provides mortgage loans to the homebuyer (or business) as a consequence. The homeowner or mortgage loan holder controls the "cash flow" that goes to the MBS holder. As mentioned before, the homeowner pays off his mortgage's principal and interest over a designated period of time, i.e., 15, 20, or 30 years. The mortgage loan holder may prepay their entire mortgage at any time, which may upset the timing of the MBS investor's cash flow.
Mortgage prepayments usually occur when a house is sold or the homeowner decides to refinance his home with a second mortgage at a lower rate. This is a risk for the MBS investor.

But mitigating this MBS risk is something called the "option adjusted spread," which means the MBS is tied to government bonds' trade spread.

Other catalysts that spur the prepayment option not tied to interest rates include real estate price inflation, unemployment, economic growth, mortgage risk aversions, and change in borrowing regulations.

Overall, MBSs are an attractive and safe investment vehicle. Good income coupled with capital appreciation and tax-deferred savings are the main advantages to investing in these security or bond types. Like bonds, MBSs trade dynamically with little risk to liquidity. Also, MBSs are likened to treasuries in that they are safe and even offer a higher return of from 1% to 2%.
But, as intimated before, MBS monthly income can vary due to falling interest rates. This fall in interest rates may cause a higher rise in prepayments. As a result this may shorten the term of an MBS, but the investors benefit from the gains anyway.

So, you appear interested. What companies offer mortgage backed securities? Companies that offer MBSs include the Government National Mortgage Association (Ginnie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal National Mortgage Association (Fannie Mae). Each entity may be defined a bit differently depending on the security products each offers.

You can find more information regarding MBSs and even a mortgage backed securities tutorial on the Internet.

How to Get $6000 from CHAFA for your Down Payment!

2010-01-25T03:59:00.000-08:00

The following data is from FHA websites. Buyers need to speak with a lender to determine their qualifications. Generally, these are going to work well for borrower / buyers who need down payment funds and are willing to use their 1st time homebuyer tax credit payment to repay the down payment "front" from CHAFA. In some instances one need not be a first-time borrower and and in some instances repayment differs. See Below:

On November 6, President Obama signed into law legislation to extend the $8,000 homebuyer tax credit until April 30, 2010 and expand it to include higher income homebuyers. The credit was scheduled to expire November 30, 2009. The new law also creates a new $6,500 tax credit for existing homeowners who have lived in their home for at least five consecutive years out of the last eight, and who wish to purchase a different home as their primary residence. This credit is available for homes purchased after November 6, 2009 and expires April 30, 2010.

To help buyers that need down payment and closing cost assistance when purchasing a home with the tax credit, a number of HFAs are offering special short-term second loans to qualified buyers. These loans are available for little or no interest and may be repaid with the homebuyer tax credit refund.

CHFA JumpStart2 Borrower Special Online Training and Form 912

The Worker, Homeownership and Business Assistance Act of 2009 (WHBAA) extended the temporary tax credit to provide a continuing incentive for first time homebuyers to purchase a home, or enter into a binding contract to purchase a home, on or before April 30, 2010, and close by June 30, 2010.

In addition, WHBAA allows a tax credit of up to $6,500 for long time homeowners who buy a replacement principal residence, so long as they have lived in the same principal residence for any five-consecutive–year period during the eight-year period that ended on the date the replacement home is purchased. A refundable tax credit of up to 10 percent of the cost of the home, not to exceed $8,000, is available to eligible first time homebuyers. The credit may be claimed by filing a Form 5405 with your Federal Income Tax Return.

See IRS Form 5405 for instructions or consult with your tax advisor. In general, a tax credit is used to reduce the amount of taxes owed. This tax credit is refundable, so you may be eligible to receive a refund even if you owe no taxes, or you owe less than the credit for which you are eligible.

For example, if you owe $500 in taxes and are eligible for the maximum $8,000 credit, you are eligible for a refund of $7,500 ($8,000 - $500). If the home continues to be your main home for at least 36 months beginning on the purchase date, you do not have to repay any of the credit.

CHFA is offering the CHFA JumpStart2 Tax Credit Loan Program to enable first time homebuyers in need of closing costs and/or downpayment assistance to borrow funds on a short term basis under the new federal First-Time Homebuyers Tax Credit.

Eligible borrowers may receive from CHFA a loan in an amount up to three and one-half percent (3.5%) of the first mortgage loan amount or $6000, whichever is less, to be secured by a second mortgage loan. This second mortgage loan is only available in conjunction with a CHFA JumpStart2 Tax Credit First Mortgage Loan.

The First Mortgage Loan has monthly payments due and is payable over thirty (30) years. The Second Mortgage Loan has zero percent (0%) interest only until December 31, 2010. If you do not pay it off by that date, you must start making monthly payments and interest starts accruing at eight percent (8%) per annum for ten (10) years.

To avoid the payment of interest on this loan and to take full advantage of its benefits, you should pay the CHFA JumpStart2 Second Mortgage Loan in full when you receive your tax refund (but no later than December 31, 2010, to avoid the payment of interest).

CHFA is offering the CHFA JumpStart2 Second Mortgage Loan based upon the expectation it will be repaid in its entirety when you receive the tax credit refund. If you do not receive all or part of your tax credit, you are still liable for repayment of the loan. Instructions on how to repay the CHFA JumpStart2 Second Mortgage Loan to CHFA will be provided in your CHFA welcome package after loan closing.

You will receive a credit of $250 of the $350 Administration Fee you paid at closing if you repay CHFA the full amount of the CHFA JumpStart2 Second Mortgage Loan by December 31, 2010.

Note: Repayment of the CHFA JumpStart2 Second Mortgage loan does not remove your obligation to repay the federal government if the home ceases to be your main home within 36 months after closing. See IRS Form 5405 for guidance or consult with your tax advisor.

Do You Know Everything You Should About the Move-Up Tax Credit?

2010-01-24T04:07:00.000-08:00

Frequently Asked QuestionsAbout the Move-Up/Repeat Home Buyer Tax Credit

The Worker, Homeownership, and Business Assistance Act of 2009 has established a tax credit of up to $6,500 for qualified move-up/repeat home buyers (existing home owners) purchasing a principal residence after November 6, 2009 and on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010).

The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

1. Who is eligible to claim the $6,500 tax credit?

Qualified move-up or repeat home buyers purchasing any kind of home are eligible to claim this credit.

2. What is the definition of a move-up or repeat home buyer?

The law defines a tax credit qualified move-up home buyer (“long-time resident”) as a person who has owned and resided in the same home for at least five consecutive years of the eight years prior to the purchase date.

For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. That is, both spouses must qualify as long-time residents, with at least five years of principal residency for each. Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.

3. How is the amount of the tax credit determined?

The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.

4. Are there any income limits for claiming the tax credit?

Yes. The income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return.

The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) above those limits. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

5. What is “modified adjusted gross income”?

Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and the first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007).

Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income. See IRS Form 5405 for more details.

6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?

Possibly. It depends on your income. Partial credits of less than $6,500 are available for some taxpayers whose MAGI exceeds the phaseout limits.

7. Can you give me an example of how the partial tax credit is determined?

Just as an example, assume that a married couple has a modified adjusted gross income of $235,000. The applicable phaseout to qualify for the tax credit is $225,000, and the couple is $10,000 over this amount.

Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $6,500 by 0.5. The result is $3,250.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $138,000. The buyer’s income exceeds $125,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $6,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,275.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

8. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008? How is this different than the rules established in early 2009?

The previous tax credits applied only to first-time home buyers and were for different amounts of money.

9. How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?

You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns).

Please note that although the Form is titled “First-Time Homebuyer Credit,” this is the correct form for claiming both the $8,000 first-time homebuyer tax credit and $6,500 repeat buyer tax credit.

No other applications are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and repeat home buyer tests.

Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase. In cases where a HUD-1 form is not used, such as for construction of some new homes, you should attach a copy of the certificate of occupancy in lieu of the HUD-1.Homebuyers should be sure to read the instructions for the revised IRS Form 5405 to be sure they meet the new program requirements.

10. What types of homes will qualify for the tax credit?

Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.

The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse’s family members. Please consult with your tax advisor for more information. Also see IRS Form 5405.

11. I read that the tax credit is “refundable.” What does that mean?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $6,500 home buyer tax credit. As a result, the taxpayer would receive a check for $5,500 ($6,500 minus the $1,000 owed).

12. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?

Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be after November 6, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April 30, 2010).In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date. To provide proof of purchase, homebuyers must attach a copy of the HUD-1 Form or certificate of occupancy to IRS Form 5405.

13. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?

Yes. The tax credit can be combined with an MRB home buyer program.

14. I am not a U.S. citizen. Can I claim the tax credit?

Perhaps. Anyone who is not a nonresident alien (as defined by the IRS) and who has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date can claim the tax credit if they meet the income limits.

For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

15. Is a tax credit the same as a tax deduction?

No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $6,500 in income taxes and who receives an $6,500 tax credit would owe nothing to the IRS.A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $6,500 in income taxes. If the taxpayer receives a $6,500 deduction, the taxpayer’s tax liability would be reduced by $975 (15 percent of $6,500), or lowered from $6,500 to $5,525.

16. Is there a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax return?

Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.

Buyers should adjust the withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding.

Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

In addition, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. As a result, some state housing finance agencies have introduced programs that provide short-term second mortgage loans that may be used to fund a downpayment. Prospective home buyers should check with their state housing finance agency to see if such a program is available in their community. To date, 18 state agencies have announced tax credit assistance programs, and more are expected to follow suit. The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs.

17. HUD allows “monetization” of the tax credit. What does that mean?

It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.Under the guidelines announced by HUD, non-profits and FHA-approved lenders are allowed to give home buyers short-term loans. The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement.

In addition, approved FHA lenders can purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes.

18. If I’m qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return?

Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year’s income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

Taxpayers buying a home who wish to claim it on their prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.

19. For a home purchase in 2009 or 2010, can I choose whether to treat the purchase as occurring in the prior or present year, depending on in which year my credit amount is the largest?

Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.

20. How can two unmarried buyers allocate the tax credit if one qualifies for the $8,000 first-time home buyer tax credit and the other qualifies for the $6,500 repeat home buyer credit?

The buyers can allocate the tax credit in any reasonable manner, provided neither claims a tax credit higher than the one they qualify for and the home purchase does not yield a total of more than $8,000 in tax credits. For example, the repeat home buyer could claim $6,500 and the first-time home buyer could claim $1,500. Alternatively, both buyers could claim a $4,000 tax credit.

21. Does a married couple qualify for any home buyer tax credit in the following situation?

Spouse A has lived in and owned the same principal residence for at least five years. Spouse B has lived in and owned the same principal residence for less than five years.In this situation, the couple does not qualify for any home buyer tax credit. Because the couple is married, the law tests the ownership history of both spouses. Spouse A clearly does not qualify for the $8,000 first-time home buyer tax credit, so neither does Spouse B.

Spouse A does appear to qualify for the $6,500 repeat buyer credit, but because Spouse B has not owned and lived in the same principal residence for at least five years, neither of them can claim the repeat home buyer tax credit.

Serious Home Sellers are Listing Now

2010-01-07T04:25:00.000-08:00

Here's why Sellers who are serious are pricing right and listing right now -

Homeowners should buck the conventional wisdom about selling in the spring.
Putting a home on the market in this grim real-estate climate might seem like lunacy considering how heavily the market favors buyers. Home prices are down 28% from their national peak in the second quarter of 2006, according to the S&P/Case-Shiller home price index, which tracks sales in 20 major housing markets. Still, listing a home during certain months can improve a seller's odds.

Late spring and summer are usually thought of as the best times to put a home on the market because buyer demand builds steadily through spring. Sales then peak during the warmest months, when it's easiest for families to move without uprooting their children from school. But this year, experts predict that the selling boom, which normally starts in spring, will hit at a different time than it has in the past. Sellers with flexibility should market their homes earlier in the year.

According to data from Zillow.com, an online real-estate database, the volume of home sales was highest in June, July or August every year since 2000. This year, however, an $8,000 credit for those buying their first home--that expires on June 30, 2010 and requires buyers to have closed on a home by April 30, 2010--will force buyers to speed up their decisions. Historically low interest rates also suggest that sellers will face a busier market as early as February.

"This year, we're anticipating sales will peak earlier," says Nicole Hall, editor in chief of Lendingtree.com, an online mortgage comparison service. "The best time to get your house on the market will be February or early March, and maybe even earlier if you want to avoid competition."

The Economy Upsets Seasonal Trends

House hunting may have traditionally sped up after March, but nothing about the last few years in real estate has been traditional. In 2008, sales failed to pick up with their usual gusto in late winter because the financial crisis cast a shadow of fear over buyers, and lending seized up.

"Between the fall of 2008 and March of 2009, there was a long dead period in real estate," says Ken Shuman, spokesman for the real estate Web site Trulia.com. "You don't want to buy a house if you don't have job security, and a lot of people had jobs but didn't feel too secure about them."
2009 didn't follow typical trends, either. Fall, when sales usually plummet, saw more sales activity than usual this year because of the introduction of the government's tax credit, which was initially set to expire on Nov. 30, 2009.

Improving the Odds

Granted, some sellers have no choice but to sell at a slow time of year. Job relocation and the need to free up assets are facts of life that can deprive families of the luxury of waiting until the peonies bloom to put their homes on the market.

But Hall says that there are ways to improve your chances of a sale if you have to list your home late in the year, like playing up holiday decorations and shoveling walkways to maximize curb appeal. She adds that selling at this point in the cycle isn't always the worst fate.

"Look at how you can turn it to your advantage. Maybe because you're forced to sell at a different time, there will be less competition," she says. "Also, be realistic about your price. If you know you're selling at a tough time, it can be a tough call, but you might have to drop that price a little."

Shuman and Hall agree that the season shouldn't be the only factor homeowners consider when getting ready to sell. Paying attention to the vagaries of the local real-estate market, where inventory and prices can fluctuate week to week, will offer more guidance to sellers than simple seasonal trends.

"Check out your local inventory," says Hall. "Read the housing-market blogs, follow the local market really carefully, and look at the unemployment rate. That will make a big difference."
For smart sellers, Shuman and Hall agree, taking a chance and starting the sale process earlier will reap distinct benefits in 2010.

"The beginning of the year is going to be make-it-or-break-it," says Shuman. "If you're a seller, get your property listed as early in the year as you can."

By Francesca Levy, Forbes.com, Jan 4th, 2010 CALL or eMail to find out what the housing market has been doing recently in your neighborhood - Marie de Espinosa (720) 275-3926

Mortgage Rates

2009-05-28T12:24:00.000-07:00

Mortgage Rates rocket up quickly

By Holden Lewis • Bankrate.com

By rising abruptly, mortgage rates bared their claws this week, putting an end to three months of docility.

The benchmark 30-year fixed-rate mortgage rose 21 basis points, to 5.45 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.41 discount and origination points. One year ago, the mortgage index was 6.02 percent; four weeks ago, it was 5.23 percent.

The benchmark 15-year fixed-rate mortgage rose 12 basis points, to 4.86 percent. The benchmark 5/1 adjustable-rate mortgage declined 2 basis points, to 4.94 percent.

It actually was worse than that.

Because of its timing, Bankrate's weekly survey didn't capture the entire rate increase. The survey is conducted Wednesday mornings. Rates began rising Tuesday afternoon and continued going up Wednesday morning while the survey was being conducted. Mortgage bond yields -- and with them, rates -- accelerated Wednesday afternoon after the survey data had been collected.

Weekly national mortgage survey

Results of Bankrate.com's May 27, 2009, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

30-year fixed
15-year fixed
5-year ARM
This week's rate:
5.45%
4.86%
4.94%
Change from last week:
+0.21
+0.12
-0.02
Monthly payment:
$931.68
$1,292.81
$879.92
Change from last week:
+$21.57
+$10.24
-$1.81

It was as if the weekly rate survey were a camera attached to the first stage of a two-stage rocket. The camera snapped a picture as the first stage was being jettisoned -- that's this week's benchmark rate -- while the second stage continued rising even faster than before.

"I guarantee that there are people who were floating, who could have locked last week at 4¾ or 4 7/8 percent, and now they're saying, 'Where's my rate?'" says Jim Sahnger, mortgage consultant for Palm Beach Financial Network in Stuart, Fla.

Dan Green, mortgage planner for Mobium Mortgage in Cincinnati, told his Twitter followers Wednesday afternoon: "A lender just sent notice, paraphrased: 'Rate sheets are suspended for now. We'll send a new one to you once we figure out WTH (what the heck) is going on.'"

People in the mortgage industry had been warning that rapid rate increases would happen. It was a matter of when, not if. But most were taken by surprise that the rate blowup happened now and not later, and that rates rose so swiftly. They expected rates to ride a jet, not a rocket.

Watch mortgage-backed securities

One can only guess what Bankrate's survey would have said had it been conducted late Wednesday afternoon instead of Wednesday morning. The benchmark 30-year rate likely would have been 15 basis points to 20 basis points higher. As an indicator of how quickly the situation deteriorated, it's instructive to look at the yields on mortgage-backed securities.

1 p.m. -- after most of Bankrate's data had been collected -- Freddie Mac's 30-year mortgage-backed security yielded 4.69 percent. At 2 p.m., it was 4.85 percent. That's an increase of more than an eighth of a percentage point in an hour. Similarly, Fannie Mae's bond yield rose 18 basis points between 1 p.m. and 2:08 p.m., according to Bloomberg's chart.

The upshot: Mortgage bond yields were at their highest level since late February. Rates followed.

"You know what? The party's over," says Dick Lepre, senior loan consultant for Residential Pacific Mortgage in San Francisco. In this case, "the party" is the remarkably low mortgage rates that had been hanging around since February -- the lowest rates in about 50 years.

Perspective is in order. Lepre points out that rates are still low by historical standards. Since 1985, the 30-year fixed mortgage rate has averaged 7.84 percent. That's distorted by years of double-digit rates in the 1980s and early 1990s, but even if you look at more recent times, today's rates look good. In 2008, the median rate on the 30-year fixed was 6.2 percent, meaning it was higher than that for half the year. In 2007, the median rate was 6.32 percent.

Analysts batted around a number of theories to explain this week's skyrocketing bond yields and mortgage rates. A federal budget deficit of nearly $2 trillion, with other gargantuan deficits to come, is believed to be inflationary, and investors demand higher interest rates to compensate for the inflation risk.

There's also anxiety arising from the impending bankruptcy of General Motors, as well as worry over the continuing decline in home prices, which could bring yet more foreclosures in the next couple of years. The bankruptcy and the foreclosures could cause investors to demand higher interest rates to compensate for credit risk.

IMPORTANT 2009 Stimulus Tax Credit Data

2009-03-10T05:19:00.000-07:00

IMPORTANT DATA
The Economic Stimulus Plan for 2009
2009 Homeowner Affordability and Stability Plan

This information is intended to address the needs of my clients who are first-time homebuyers.
If this is not your particular purchase scenario, you may provide this data to friends or family who meet these criteria. I will be glad to help them as well. Parts of this Stimulus package also address the needs of those who are struggling with their loans; and who owe more than what their home is worth. These people can be helped by the Plan.

What this Memo Includes:

Details about the 2009 Homeowner Affordability and Stability Plan
Information about who qualifies for the Tax Credit and how to obtain it

Details about the 2009 Homeowner Affordability and Stability Plan
The $787 Billion dollar Stimulus Bill is made up of tax cuts and spending programs aimed at reviving the US economy. Although the package was scaled down from nearly $1 Trillion, it still stands as the largest anti-recession effort since World War II. One of the major benefits of the plan is a tax credit for new homebuyers. According to the plan, first-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit.

It's important to remember that the $8,000 tax credit is just that... a tax credit. The benefit of a tax credit is that it's a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if you were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, you would owe nothing.

Better still, the tax credit is refundable, which means you can receive a check for the credit even if you have little income tax liability. For example, if you're liable for $4,000 in income tax, you can offset that $4,000 with half of the tax credit... and still receive a check for the remaining $4,000!

The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.

The tax credit is applicable to any home that will be used as a principle residence. Based on that guideline, qualifying "homes" include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principle residence also qualify. Buyers will have to repay the credit if they sell their homes within three years.

Here are the major points to consider:

· If you purchase your first home on or before 1/1/09 or until 11/30/09 you will qualify for the tax credit.
· The tax credit can be applied against your 2008 tax return.
· This is a tax credit – it will reduce the amount of taxes you owe by the amount of the tax credit and unused credit will be issued a refund to you.
· If you file a joint return, your income must be less than $150,000.00 in order to qualify for a full tax credit. You may receive partial credit up to $170,000.00.
· If you file a single return, your income must be less than $75,000.00 in order to qualify for a full tax credit. You may receive a partial tax credit up to $95,000.00.
· If your home closing is scheduled to take place after April 15, 2009, you can choose to file an extension to October 15, 2009 to file your 2008 tax return to take advantage of the tax credit and receive your refund.
· If you have already filed your 2008 tax return, you can immediately amend your return.
· You must repay the credit if you own your home for less than three years.

As you all know, I am not a tax accountant and you should consult one to determine how to best take advantage of this tax credit. I am here to make sure that you have all the information you need, in clear and easy to understand terms, so you can make great financial choices in real estate. Please make sure to pass on this data to someone who needs it.

Refinancing and Stability Initiative

President Obama unveiled his plan to help stabilize the housing market and keep millions of borrowers in their homes. The Homeowner Affordability and Stability Plan includes two initiatives to help struggling homeowners. One is a refinancing program for homeowners with less than 20% equity in their homes, or who owe more than their home is worth. The second program attempts to lower monthly payments for homeowners at risk of losing their home. Many of the plan's details are still being worked out and will not be announced until March 4. Here is an overview of the plan's main components.

Refinancing Initiative

Under current rules, those families who own less than 20% equity in their homes have a difficult time refinancing and taking advantage of the historically low interest rates. This initiative is open to homeowners who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac, and who owe up to 5% more than their home is worth.

According to the plan, "credit-worthy" or "responsible" homeowners can refinance their mortgage into a 30- or 15-year, fixed-rate loan based on current market rates. The refinanced loan, however, cannot include prepayment penalties or balloon payments. For many families, this low-cost refinancing may help reduce their mortgage payments by up to thousands of dollars per year.

As with the rest of the plan, details about this initiative will be released at a future date--including what, if any, credit score requirements will be included.

Stability Initiative

This initiative aims at providing help to individual families as well as entire neighborhoods by helping reduce foreclosures and stabilize home prices. It is intended to help homeowners who are struggling to afford their mortgage payments, but cannot sell their homes because prices have fallen significantly.

The goal of this initiative is simple: "reduce the amount homeowners owe per month to sustainable levels." To accomplish this, lenders are encouraged to lower homeowners' payments to 31% of their income by lowering their interest rate to as low as 2% or by extending the terms of the loan. In addition, lenders can also lower the principal owed by the borrower, with Treasury sharing in the costs.

Homeowners who are current on their mortgages but are struggling can still apply for this program. As such, this is one of the few programs designed to help homeowners who may face delinquency soon, but are current at the moment.

This is a program that can help may people, including Seniors, who have seen their home values fall dramatically since the time they purchased them.

This initiative also includes a number of additional elements and incentives, including an extra incentive for borrowers to keep paying on time. The initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.

Since the focus of this initiative is on helping families and neighborhoods, investment properties do not qualify.

Here are the major points to consider:

· This part of the plan is designed to aid those homebuyers who are “credit-worthy” and “responsible”.
· Homeowners who meet that standard will be encouraged to contact their lenders directly to renegotiate the terms of their home loans so as to make them more affordable and allow them to stay in their home and continue to make timely payments.
· Banks will have financial incentives for reducing payments to 31% of family income by lowering interest rates on the home loan to as low as 2%.
· Additional details and incentives will be released on March 4, 2009.
· If your party does not meet “credit-worthy” guidelines, a short sale must still be arranged through a real estate professional. This will limit the homeowner’s borrowing opportunities for at least two years, compared with the estimated 4-year penalty for foreclosure.

I hope this information is helpful to you and your family and friends. We have worked together to ensure that the homes you have purchased are affordable to you and none of my Buyers have ever sold short or foreclosed. However, if you know someone who is struggling, do something to help them by passing on this data.

Mortgate Rates at a 4-Year Low

2008-12-16T03:18:00.000-08:00

Mortgage Rate Hits a 4-Year Low at 5.47%

By Amy Hoak and Ruth Simon

Rates on fixed-rate home mortgages fell again this week, bringing the 30-year fixed-rate to its lowest level in more than four years, according to Freddie Mac's weekly survey.
The 30-year fixed-rate mortgage averaged 5.47% for the week ended Dec. 11, down from last week's 5.53% average and 6.11% a year ago. The rate hasn't been lower since March 25, 2004, when it averaged 5.40%.

Mortgage rates dropped again on Thursday, with rates on 30-year fixed-rate conforming mortgages averaging 5.33%, according to HSH Associates in Pompton Plains, N.J. The highest-quality borrowers can do even better.

Rates on 30-year fixed-rate conforming mortgages have fallen to as low as 5.125% with no points or origination fee for borrowers with credit scores of 740 and higher and at least 20% equity, said Lou Barnes, a mortgage banker in Boulder, Colo. Rates had dropped to about 5.5% from roughly 6% in response to the government's announcement just before Thanksgiving that it would take steps to push mortgage rates lower.

The latest drop means that rates have now fallen low enough that even borrowers with credit scores of 660 to 700 may find it attractive to refinance, said Chris Freemott, a mortgage banker in Naperville, Ill. These borrowers can wind up paying as much as a half a percentage point more in rate than borrowers with the highest credit scores because of extra charges levied by Fannie Mae and Freddie Mac, he says.

Still, many borrowers who would like to refinance can't either because their credit is weak or they don't have sufficient equity in their homes.

Meanwhile, according to the Mortgage Bankers Association, conventional mortgage applications were up 2.0% from four weeks prior, over the week ending Dec. 5, but were still 51% below the year-ago period.

All About Short Sales

2008-12-04T05:29:00.000-08:00

by Marie de Espinosa

What is a Short Sale?

This is a question I am hearing from both Buyers and Sellers these days. For a Seller the short sale is a method and an opportunity to sell a home that is worth less than what is owed on it without bringing any money to the table.

For example, Mark and Mary purchased a home in 2005 and now they need to sell it— the home has become unaffordable. Perhaps there is a job loss, a rate adjustment or just a reality check. In some circumstances there is a need to move for work, but the employer will not provide moving assistance benefits.

Let’s say Mark and Mary purchased the home in 2005 for $250,000 and now it is worth $220,000; based on a professional Broker’s Comparative Market Analysis (CMA). A CMA looks at all recent sales and compares them with your home, to come up with a realistic selling price. Let’s say Mark and Mary put 3% down on an FHA loan, and have a balance very close to their original loan amount of $242,500 (since much of the first payments go towards interest). In order to sell their home for a realistic price of $220,000, they will need to bring $22,500 to the closing table when it sells, just to pay off their loan. They cannot afford to ride out the market and live there, for whatever reason. This is when a short sale occurs.

The Seller approaches the bank and asks them to take less than the original loan amount for the loan. In addition, Mark and Mary may not have the funds to cover the real estate fees associated with a sale. These are closing costs such as taxes, transfers and title fees along with 6% a Broker typically charges to the Seller for marketing and selling the home. If nothing can be paid towards these expenses, they are also requested of the lender.

Why would the lender accept less and contribute to the sale of the home? Often times, in order to avoid a costly foreclosure. Foreclosures are very time-consuming and expensive for lenders. A Seller in this situation needs to be able to prove financial distress. Late or missed payments, financial documentation and a letter explaining the situation is what your Broker needs to get the ball rolling.

What proceeds is a fairly typical sale scenario. The Seller lives in the home, maintains it, makes it available for showings and continues to provide whatever documentation is requested of the Lender. The Seller in the scenario typically does not make any more payments once the request is submitted.

For Buyers, Short Sales can be value opportunities Buyers submit their offers and they are presented to the bank—who wants to unload this property and get paid. It does take some patience; there are more short sales than the banks can now handle and there is not enough staff to deal with them all. However, for a Buyer who wants some extra value in this market, it’s a great option.

I have experience selling and buying Short Sale homes for my clients and this is just an overview. For specific information to meet your needs, send me an eMail or just give me a call at (720) 275-3926. - Marie

HUD's Latest Lending Rules

2008-11-17T03:48:00.000-08:00

NOVEMBER 13, 2008, 9:39 A.M. ET

HUD Unveils New Rules for Mortgages

By JAMES R. HAGERTY

The Department of Housing and Urban Development announced rules aimed at helping Americans shop for mortgages more effectively, but said it lacks powers to enforce those rules.

The rules update requirements of the Real Estate Settlement Procedures Act, known as Respa, a 1974 law that sets standards for home-purchase transactions. HUD Secretary Steve Preston said changes were needed because "many people made uninformed decisions" in taking out loans. That, he said, contributed to a surge in mortgage defaults.

HUD, which pushed ahead with the rules despite opposition from lenders and others involved in mortgage transactions, estimated the changes will bring savings of nearly $700 in loan-closing costs for the typical consumer.

In a news conference, HUD officials conceded they lack legal authority to penalize violators of the rule. Legislation would be required to give HUD those powers. But they said state and federal regulators of lenders and brokers can insist on compliance with federal rules and that the threat of class-action suits may keep lenders in line.

The rules require a three-page "good-faith estimate" for borrowers explaining rates, fees, any prepayment penalties and the possibility of later increases in monthly payments. HUD said it shrank that form from four pages to three in response to industry complaints.

The rules also limit to 10% the maximum amount certain fees can increase from the initial estimate. A new HUD-1 form, provided to consumers before they sign loan documents, is designed to help consumers more easily compare what they were promised with what they are actually being charged. One problem is that consumers may see that HUD-1 form only shortly before the closing, when they are pressed for time and may feel it is too late to resume their mortgage shopping.

HUD said the rules will help consumers understand how much a broker is being paid in fees, often called "yield spread premiums." But Rebecca Borne, a lawyer at the Center for Responsible Lending, a nonprofit group pushing for changes in mortgage regulation, said the new HUD forms fail to make those fees clear and won't prevent abuses of them.

Lenders and brokers will have until Jan. 1, 2010, to start using the forms. HUD dropped a provision that would have required a lengthy "script" to be read to borrowers at the closing table, setting out terms of the loan.

Denver Area Apartment Rental Report

2008-11-15T03:28:00.000-08:00

Denver-area apartment vacancies rise

By John Rebchook, Rocky Mountain News

Published October 28, 2008 at 7:54 a.m.

Apartment vacancy rates in the Denver Metro area increased to 6.5 percent during the third quarter of 2008, rising from 5.3 percent during the same period last year, according to a report released this morning.

The third-quarter vacancy rate also rose from 6.2 percent in the second quarter and is the highest vacancy rate in six quarters, according to the report by by the Apartment Association of Metro Denver and the Colorado Department of Local Affairs' Division of Housing.

The vacancy rate has not dropped below 5 percent since the first quarter of 2001, and they peaked at 13.1 percent during the first half of 2003.

Adams County reported the highest vacancy rate of 7.5 percent, and the Boulder/Broomfield area reported the lowest rate at 4.7 percent. All areas except Boulder/Broomfield and Douglas County reported increases in vacancies since the second quarter. Vacancy rates for all counties surveyed were: Adams, 7.5 percent; Arapahoe, 6.9 percent; Boulder/Broomfield, 4.7 percent; Denver, 6.0 percent; Douglas, 5.9 percent; and Jefferson, 6.5 percent.

In general, a vacancy rate of 5 percent is considered the "equilibrium" rate. Rates below 5 percent indicate tight markets.

The third quarter's increase marks the second quarter in a row during which vacancy rates have increased, although vacancies have historically declined during the second and third quarters.

"There's clearly some softness in the market given the increases in concessions and vacancies," Gordon Von Stroh, a professor of Business at the University of Denver, and the vacancy report's author. "It remains to be seen how much the national economy will affect the local markets."

Average rents during the third quarter hit a new high of $892.22, increasing 33 dollars since the third quarter of last year. Although rents have been increasing, rental losses from discounts and concessions have also been increasing since the third quarter of last year.

The highest average rent was reported in Douglas County at $1051.05, and the lowest was reported in Jefferson County at $847.43. Average rents for all counties were: Adams, $882.52; Arapahoe, $850.72; Boulder/Broomfield, $974.68; Denver, $906.12; Douglas, $1051.05; and Jefferson, $847.43.

Although vacancies are increasing, few predict substantial declines in occupancies in the metro area.

"It's much more difficult to buy a home today than it was a couple of years ago, so people are looking to rental housing," said Kathi Williams, Director of the Colorado Division of Housing. "That's good news for apartment owners."

The Vacancy and Rent Surveys are a service provided by the Colorado Department of Local Affairs' Colorado Division of Housing and the Apartment Association of Metro Denver to renters and the multi-family housing industry on a quarterly basis.

No Sale: A Bad Agent, or a Lousy Market?

2008-11-10T04:49:00.000-08:00

Here's how to tell whether your agent is suffering from market malaise.

By JUNE FLETCHER Wall Street Journal

My 12-year-old home has been on the market for almost three months now. It's in excellent shape, and from the start we set the price close to recent comparable sales, at our agent's recommendation. In the beginning, we got a lot of showings, but lately, nothing. Our listing agreement is about to expire, and we can't decide whether to keep this agent. (Since we've already moved away, it would be tough to interview new agents.) How we can tell whether our current agent is doing a good job, or if the problem is just this horrible real estate market?

It's easy to get depressed about selling your house these days, when bad news about the housing market crops up daily. It's especially discouraging when you've been keeping up your home, following professional advice about staging and are trying to be clear-sighted about your price.

That real estate agents, as well as sellers, can get into a blue funk these days about the real estate market is also understandable—but far less forgivable. Given that you typically pay $25,000 in real estate commissions on a $500,000 house, you deserve an all-out effort to bring in buyers. And the blitz should be unrelenting, not just when the listing is fresh.

Too often, that's not what I'm seeing. I'm not sure whether it's caused by despondency over market conditions, laziness or simply incompetence, but many agents are overlooking the basic tenets of marketing these days.

To illustrate, I've been randomly driving around Northern Virginia for the past several months looking at homes for sale in the $500,000 to $1 million range. In many cases, the for-sale signs have plastic boxes to hold listing sheets and brochures, but inevitably, these are empty. So home shoppers must guess if the home fits their basic needs and price range before calling the agent, which some people find intimidating or embarrassing, especially if the home turns out to be above their price range.

Then there's the question of open houses. Although sellers often insist on them, many agents can't be bothered to do them any more—or they just hold so-called "broker's opens" for the benefit of fellow real estate agents. Worse, many of the agents who do hold open houses spend their time hanging out in the kitchen rather than engaging buyers in conversation and determining their ability and willingness to buy (I've been to some where the agent didn't even ask me my name). The oft-repeated rationale that no one ever buys a home they've seen at an open house is simply untrue—in fact, a buyer did exactly that when I sold my first home in the late '80s.

Similarly, according to an article written last month by Bill Shue, president of Realty U Group in Aliso Viejo, Calif., for National Realty News, a Web site targeted to Realtors, some agents are failing to return buyers' e-mails promptly. He cites one instance where 50 real estate agents were sent an urgent e-mail message from a buyer saying he was in town and wanted to buy immediately; all failed to respond. He also criticizes agents who spend a lot of money to drive traffic to their Web sites, but fail to provide enough "content rich" material when they arrive.

I can appreciate how hard it is for agents to stay motivated and upbeat when anxious sellers are constantly pushing them for results. And having to handle more listings, for a longer period of time, during these troubled times is a double burden.

But sellers shouldn't be shortchanged. That's why it's critical for you to do some detective work before you relist with this agent. Ask a friend from the old neighborhood to go to check your brochure box, visit your open house and send an e-mail asking a few questions about your listing. You'll soon learn whether the problem with selling your house lies with the market or the marketing.

JP Morgan Chase's Plan to Help Delinquent Mortgages

2008-11-08T03:37:00.000-08:00

Massive Effort to Save Mortgages

By Robin Sidel 11/01/08 Wall Street Journal

JP Morgan Chase & Co. launched an ambitious plan Friday to modify the terms of $70 billion in mortgages for borrowers who are behind on their payments or soon could be.

The move by the New York bank will cover as many as 400,000 borrowers. They'll be moved into loans carrying lower interest rates, smaller principal amounts or other more-affordable terms.

The changes will particularly focus on a type of loan structured in such a way that the borrower's outstanding balance sometimes grows month after month. J.P. Morgan inherited $54 billion of such loans with its takeover of the beleaguered thrift Washington Mutual Inc. in September.

The plan comes amid intense national focus on a root cause of global financial turmoil: rising home foreclosures, and what the role of banks and government should be in helping struggling homeowners. The banking industry is under much political pressure address the foreclosure problem.

Rival Bank of America Corp. has two loan-modification pools in place, one hashed out with state attorneys general. At the government level, after other programs failed to halt the rise in foreclosures, the Federal Deposit Insurance Corp. recently floated a plan that could help three million troubled borrowers; it is being considered by the White House. The FDIC also is assisting strapped borrowers who had mortgages with IndyMac Bancorp, which the FDIC seized this summer.

Such moves would tackle one of the last elements of the global financial upheaval as yet untouched by a major federal program. The mortgage crunch that began in the middle of last year spawned the financial crisis. Big financial players had invested trillions of dollars in securities backed by risky mortgages, which starting in mid-2007 became difficult to value. Banks hobbled by these bad investments reined in lending, spawning the wider credit crunch as a result.

The U.S. government has tackled problems in the banking system and credit markets, but thus far hasn't succeeding in stanching the bleeding of failing homeowners. Economists and government officials agree that the economy and financial markets can't fully revive until there's a halt to the decline in housing prices, a phenomenon that is worsened by foreclosures.

"It doesn't make sense for us to wait" to tackle the problem, said a J.P. Morgan executive, Charles Scharf. "We've heard loud and clear and are listening to what some of the thought leaders around the country are saying." Mr. Scharf runs the retail division, which includes mortgages and branch banking, at J.P. Morgan, the largest U.S. bank in stock-market value.

The move also suggests that banks are realizing they can improve the value of their loan portfolios through mass modifications rather than foreclosures, which tend to produce larger losses. Until now, mortgage holders have been reluctant to renegotiate loans or have been doing so one-by-one, a time-consuming process. The bundling of loans into securities that are then sold to investors further complicates matters.

The announcement by J.P. Morgan steps up pressure on other mortgage companies to respond with relief programs for stressed borrowers, said Stuart Feldstein, president and co-founder of SMR Research Corp., a Hackettstown N.J., firm that specializes in consumer lending. "The precedent has clearly been set and we can expect to see more of these," he said.

Nationwide, 7.3 million American homeowners are expected to default on their mortgages between 2008 and 2010, about triple the usual rate, according to Moody's Economy.com, a research firm. Some 4.3 million of those are expected to lose their homes.

J.P. Morgan's exposure to the problems increased sharply when it acquired the assets of the Seattle-based Washington Mutual. WaMu, which was seized by regulators, had a large exposure to the difficult housing market of California. In taking it over, J.P. Morgan acquired $16 billion of subprime mortgages.

The mortgages affected by J.P. Morgan's program represent 4.7% of the home loans it owns or that are serviced by one of the bank's units, EMC Mortgage Corp. While the program to give these mortgages easier terms is likely to cost J.P. Morgan billions of dollars in interest payments and loan fees, it is also likely to save the bank from the costly and lengthy process of foreclosing homes and selling them. The plan expands upon programs already in place at the bank to help strapped homeowners.

The bank's Mr. Scharf declined to estimate the plan's financial impact on the bank. "Our goal in doing this was to come up with something that we think will lead the industry in helping as much as possible on this issue," he said.

J.P. Morgan's push is especially aimed at so-called option adjustable-rate mortgages, or options ARMs. These allow borrowers to make a minimum payment that may not even cover the interest due -- resulting in a higher loan balance.

Under the plan, option ARMs that are accumulating interest will be replaced with fixed-rate loans that are more stable for borrowers and seen as far less likely to default. J.P. Morgan said it wouldn't begin the foreclosure process on borrowers during the next 90 days, as it opens loan-counseling centers and takes other steps to launch the program.

J.P. Morgan unveiled the plan days after receiving $25 billion in federal capital from the Treasury's program to shore up financial institutions and get credit flowing. Mr. Scharf declined to comment on whether the bank would use any of those funds for the mortgage overhaul. "The stronger you are, the more willing you are to spend money and do a whole series of things," he said, noting that the government cash "certainly makes decisions easier."

Of the two loan-modification pools at rival Bank of America, one targets 265,000 borrowers with all types of mortgages. The other was hashed out with 14 state attorneys generals and involves 400,000 subprime and option-ARM customers serviced by the big lender Countrywide Financial Corp., which Bank of America purchased July 1.

Another big rival bank, Wachovia Corp., acquired roughly $120 billion of option ARMs as part of its 2006 purchase of Golden West Financial Corp. Wachovia initiated a loan-refinancing program before agreeing to its pending takeover by Wells Fargo & Co. That effort targets the option-ARM portfolio.
J.P. Morgan's plan drew cautious optimism from Iowa Attorney General Thomas Miller, who recently called on mortgage lenders to launch broad loan-modification programs.

John Taylor, chief executive of the National Community Reinvestment Coalition, called it "a gutsy move on their part," adding : "They are bending over backward to try to reach out to these people." The coalition represents 600 community groups and has urged the government and industry to help homeowners.

Republican presidential candidate John McCain has gone further than any program in place, proposing a to have the government buy $300 billion in troubled mortgages outright.

New Home Builders Help Potential Buyers Raise Credit Scores

2008-10-21T08:25:00.000-07:00

Builders Help Buyers to Help Themselves

By Dawn Wotapka

Home builders are working with potential buyers, enrolling them in programs that address everything from credit-report errors to managing debt, in order to raise their credit scores so they can qualify for a mortgage or a better interest rate.

It is another move by a sector desperate to unload inventory as the credit crisis roils the globe, causing lenders to shun borrowers with blemished credit histories and to demand higher credit scores.

Burnishing Buyers

Home builders such as D.R. Horton are turning to credit-enhancement programs to help make potential buyers more attractive to lenders.

Programs address everything from debt-to-income ratios to store-branded cards and budgeting.
Critics say free credit counseling can be had from independent, nonprofit groups with no ties to builders.

The programs, conducted over the Internet and in face-to-face meetings, have recently become "a very, very high focus," said Dean Bloxom, president of imortgage.com, a mortgage banker that works with builder Meritage Homes Corp.

Florida-based Debt Resource USA, which uses certified credit counselors and works with builders such as Hovnanian Enterprises Inc. and M/I Homes Inc., has seen business triple since it started 18 months ago, said Chief Executive David Vizzi. Hovnanian, an industry trailblazer when it rolled out credit-enhancement programs nationwide last year, has more than 100 enrollees.

D.R. Horton Inc., the nation's largest builder by number of annual closings, offers a free credit-improvement program called Home Buyers Club, which assists with credit coaching and analysis and monthly disputes.

Though no one expects the programs to significantly increase sales -- Hovnanian reports just 51 graduates in the last 18 months -- every sale counts for builders as they see earnings plummet, orders tank and cancellations rise as the worst housing correction in decades shows few signs of letting up.

Critics of the programs say credit reports are available for free, and consumers can challenge errors online. In addition, independent groups with no ties to builders offer complimentary assistance and advice.

Consumer Credit Counseling Service of Greater Atlanta Inc. has developed interactive Web-based podcasts, PowerPoint slides, social networking and journals. The nonprofit group suggests all buyers go through prepurchase counseling and a six-hour buyer's workshop.

Builders make their involvement clear to consumers and say they hope the process will build loyalty and lead to a deal for the builder and its mortgage arm.

"It becomes a win-win," said Dan Klinger, president of K. Hovnanian American Mortgage, which doesn't charge potential buyers to work with Debt Resource USA. "We get to sell one of our homes, and the customer gets to clean up his credit and learn good, fiscal responsibility at the same time."

During the housing boom, money flowed freely, even to those with weak credit scores, and builders raked in big profits. But as those buyers defaulted, scores of lenders went out of business and foreclosures swelled to record levels.

Lenders are avoiding risky subprime loans -- which made up 24% of mortgage originations in 2006 -- as well as most of the no-money-down and adjustable-rate mortgages that once inflated sales.

More recently, builders have been hurt by the loss of seller-funded down-payment assistance, in which third parties contribute to the buyer's down payment via the seller. This summer's housing law banned seller-funded down-payment assistance on mortgages insured by the Federal Housing Administration as of Oct. 1, essentially ending the practice.

Qualifying for even a basic 30-year fixed mortgage also has gotten more difficult. Lenders and mortgage insurance companies are scrutinizing credit reports and scores, which detail housing-payment history and length of credit and debt, helping gauge a borrower's risk.

Builders said they screen applicants for their credit-repair programs. They avoid those who refuse to pay bills on time and seek those willing to change payment behavior and aspiring buyers hurt by life events such as a divorce, illness or identity theft.

Everyone involved is aware there is no way to instantly rebuild a tattered score, though addressing errors is a good start. Depending on what needs to be done, the programs can take weeks or months.

The programs address everything from debt to income ratios to why opening a store-branded card at the cash register might not be a good deal. They also teach students about budgeting -- not spending a fortune on furniture for the new house or forgoing that daily latte to build up a safety net should a pipe break or the homeowner get laid off.

There's Work Involved in Buying a Short Sale

2008-10-09T04:51:00.000-07:00

Selling for less
Lenders can take so long to approve a mortgage that buyers just fade away.

Margaret Jackson The Denver Post

Article Last Updated: 10/04/2008 09:15:22 AM MDT

Catherine Bacchus has had a frustrating nine months trying to unload her Strasburg home in a short sale.

Three times she's had buyers accepted by the lender. And three times the sale has fallen through.

A short sale occurs when the proceeds of a real estate sale fall short of the balance owed on the property.

"We are on our fourth actual buyer that the lender accepted," said Laura Lomba-Berg, a broker with Your Castle Real Estate who is listing the four-bedroom, two-bath house. "The biggest problem is how long (the lenders) take to evaluate things."

In the first three cases, the bank took so long that the buyers were no longer qualified for a loan for which they had already been approved. In two of the cases, market conditions changed and in the third, a health problem prevented the buyer from getting the mortgage.

"The banks are not living in a very logical realm," Lomba-Berg said. "Part of it is the unrealistic information they are basing their decisions on. They're sitting in another part of the world and pulling up desktop comparables."

Comparing real estate sales in a given neighborhood is a standard way of establishing home values. Comparables are often found through computer databases.

In new developments like the Wolf Creek Run neighborhood where Bacchus' home is, the builders are still trying to sell homes and are able to slash prices.

Bacchus, who hasn't made a mortgage payment since July 2007, bought the 1,500-square-foot house for $207,000 in December 2005. She put it on the market Jan. 1 for $138,000.

"Her house was competing with a brand new house, fully furnished for $155,000," Lomba-Berg said. "People are going to gravitate toward that new house with all that furniture."

But often, it's just that the banks are so busy they've had to create special divisions to deal with the properties they own, said mortgage banker Jim Smith of American Guaranty Mortgage.

"If your offer and the way it's structured isn't complete and it isn't packaged correctly, you're going to have some hiccups and it's going to be a rough road," Smith said.

The key, he said, is to be fully preapproved and underwritten before the real estate agent even puts an offer in.

"It's a waste of time otherwise," he said. "You need to show the bank that you're qualified and ready to buy."

Mortgage broker Mike Oswald of American Home Funding said banks have become less flexible in providing loans to homebuyers, so it's a good idea to get the loan first.

"It's always been get a Realtor, find a house, go get a loan," Oswald said. "Now it's the opposite. Now, it's get a loan, get a house."

Will Berry of Foreclosure Brokers LLC said often real estate agents are more harmful than helpful.

"They believe they're going to protect their buyer at all costs because they believe it's a buyers' market," said Berry, whose team helps homeowners and real estate agents in closing pre-foreclosure and short sale transactions. "But when it comes to short sales, it's not a buyers' market."

One reason is that the seller often has not paid — and is unable to pay — the property taxes or homeowners association fees, and the lender isn't willing to pay.

"We've seen buyers walk away from transactions after we have worked for months to get the offer approved because they're refusing to come up with an extra $600 at closing," Berry said.

One in Six Homeowners "Under Water"

2008-10-08T14:45:00.000-07:00

OCTOBER 8, 2008

Housing Pain Gauge: Nearly 1 in 6 Owners 'Under Water'

More Defaults and Foreclosures Are Likely as Borrowers With Greater Debt Than Value in Their Homes Are Put in a Tight Spot
ByJames R. Hagerty and Ruth Simon

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year.

The result of homeowners being "under water" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.

And having more homeowners under water is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.

About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's Economy.com.

The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners under water in this period than any time in our history."

Among people who bought within the past five years, it's worse: 29% are under water on their mortgages, according to an estimate by real-estate Web site Zillow.com.

The majority of homeowners still have equity, and even among those who don't, many continue to make their mortgage payments on time. The financial-bailout legislation could at least "keep things from getting much worse" by helping banks avoid the need to tighten credit further, says Celia Chen, director of housing economics at Economy.com. Still, she expects housing credit to remain tight and home prices to decline in much of the country for another year or so.

Prices are back to 2003 levels in the San Diego and Boston metropolitan areas, and back to 2004 levels in Las Vegas, Los Angeles, San Francisco, Fort Lauderdale, Fla., and Minneapolis, according to First American CoreLogic, a data firm in Santa Ana, Calif.

Stephanie and Jason Kirschenman thought they were being prudent when they agreed in late 2004 to buy a new four-bedroom home in Lodi, Calif., for $458,000. They put a substantial 20% down and chose a loan with a fixed interest rate for the first 10 years. Two years later, they took out a second mortgage to pay off some bills.

At the time, the home was appraised for about $550,000. But a mortgage broker recently estimated its value at well below the $380,000 the family owes on it, says Ms. Kirschenman. "We were quite shocked," she says.

The Kirschenmans, who both work for a company that makes trailer hitches, thought about sending the keys to the lender. But their financial planner, Christopher Olsen, helped persuade them to stick with the house, noting that they could still afford the payments.

Others aren't so lucky. Among mortgages on one- to four-family homes, 9.16% were a month or more overdue or were in foreclosure in the second quarter, according to the Mortgage Bankers Association. That compared with 6.52% a year before and was the highest level since the association began such surveys 39 years ago.

Falling values have contributed to a sharp pullback in mortgage lending. In the third quarter, mortgage lending fell to the lowest level in eight years -- down 44% in a year -- says the publication Inside Mortgage Finance.

One reason is that as home values slip, growing numbers of would-be borrowers lack sufficient equity to refinance. The falling values also make mortgage lending look riskier to banks, spurring them to tighten credit standards.

Most mortgages in default were issued in 2006 and 2007, when lending standards were loosest and the housing market was peaking. Many who bought then made small down payments or none, so they had little equity in their homes from the start.

The performance of loans made earlier is getting worse, too, as price declines deplete the equity people built up. In Las Vegas, 6% of home loans made in 2004 are now 30 days or more overdue, up from 3.7% a year earlier, according to research firm LPS Applied Analytics.

In July, Congress enacted legislation designed to help borrowers who owe more than their homes are worth by allowing them to refinance into a government-backed loan, provided their mortgage company forgives part of their principal. It's not clear how many borrowers the program will help, because before reducing the principal, lenders would almost always try first to freeze or reduce borrowers' interest rate to make payments more affordable, says Tom Deutsch, deputy executive director of the American Securitization Forum, an industry group.

In contrast with the 12 million home borrowers estimated to be under water, 64 million have equity in their homes. These include 24 million households who own their homes free and clear, and 40 million whose homes remain worth more than is owed on them.

Even so, some borrowers fret that declining prices and tighter lending standards could make it hard for them to tap their equity.

Steven Schneider, a mortgage broker in Miami, bought his home at the end of 1992. When he refinanced about four years ago, he pulled out $150,000 in cash that he intended to use to build an addition. The transaction raised his total debt to about $350,000, at a time when his home had a value of about $650,000.

Recently, Mr. Schneider pulled out roughly $90,000 by tapping a home-equity line of credit. He says he put the funds in a money-market account that yields less than the 5% interest rate on the loan. "I was afraid they were going to shut down" access to the credit line, says Mr. Schneider. He figures his home, once valued at $750,000, now is worth about $600,000.

How much pain homeowners feel varies greatly from place to place. The most severe drops in home values are in parts of California, Florida, Nevada, Arizona and other areas where speculation pushed prices up and builders far overestimated demand.

Within metro areas, neighborhoods with short commutes are holding up better than others. And in many parts of Texas and North Carolina, home prices have continued to rise slowly, have leveled off or have declined only modestly.

On a national basis, home prices peaked in mid-2006 after rising 86% since January 2000, according to the First American index. Since peaking, that index has fallen 13%.

The declines have made homes more affordable, bringing prices in many areas closer to their long-term relationship to incomes. In the second quarter, the median home price of about $203,000 was 1.9 times average pretax household income, according to Economy.com. That was close to 1.87 times income for 1985 through 2000, prior to the housing boom.

Housing markets don't tend to turn around quickly. The price slump in California in the early 1990s, for instance, was a long grind. According to the S&P/Case-Shiller home-price indexes, Los Angeles prices peaked in June 1990 and didn't bottom until March 1996. They didn't get back to their 1990 peak until 2000.

Two Points of View: Is It Time To Buy a Home?

2008-10-07T12:11:00.000-07:00

Time To Buy? Contrasting Views

By Erin Peterson • Bankrate.com

The housing market's tumble has left many people wondering if it's time to snap up bargains or if it's still better to stay on the sidelines. Two experts on opposite sides of the spectrum give their best advice to would-be buyers.

Danielle Lynn Babb, Ph.D., is an author, entrepreneur and real estate consultant. A California native, she has appeared frequently on national television and radio. She is the author of several books, including "Finding Foreclosures: An Insiders Guide to Cashin' In on this Hidden Market," and "Real Estate v. 2.0."

Warren R. Bland, Ph.D., is a professor of geography at California State University, Northridge, and has traveled doing geographical research across North America. Bland has also authored books on the topic, including "Retire in Style: 60 Outstanding Places Across the USA and Canada."

Dr. Dani Babb: 'Go for it'

With all the uncertainty in the housing market, buyers have been staying away in droves.

While the reaction may be understandable, it's not necessarily smart.

Some buyers should be taking advantage of the situation -- not sitting on the sidelines and waiting for prices to fall even more, says Babb, real estate analyst. It's not necessarily a wise decision. If you've got good credit, a plan to stay in the new home for a few years and your dream house in your sights, snap it up.

"If you're renting right now, there's a really good chance your mortgage won't be much more than your rent in many areas," says Babb. "You'll get a tax break, and if you stay a few years, you'll see it start to appreciate as well.

While we may not have seen the market bottom out just yet, that's not significant for people who plan on staying in a home for the long haul. "There is a chance that more foreclosures will put downward pressure on prices," she says. "But if you're going to be holding that property for more than five years, another $10,000 or even $20,000 drop isn't going to matter much." The market will recover, and your house will appreciate.

You've also got selection on your side. Homebuilders are offering steep discounts and posh upgrades on brand-new digs. Fixer-uppers and foreclosed properties are selling for a song. Eager sellers are offering incentives from all-expenses paid tropical vacations to brand-new cars to help move their property.

Babb argues that the stricter lending requirements may be a boon for buyers as well. While a prospective buyer might look at the housing market today and worry that an exotic loan might leave them in foreclosure a few years from now, Babb says it's far less likely. You may not get a loan for that million-dollar home, but it's probably because you couldn't have paid for it, anyway.

"Tighter lending standards are a good thing overall, because it helps make certain that a borrower really can afford the home," she says.

Unlike the hot market of a few years ago, where buyers had to put in offers -- often above the selling price -- just days after a house appeared on the market, buyers today are in the driver's seat. You can take your time finding a house, visit it a few times and do necessary research before putting in an offer. And you'll likely be able to haggle with the seller to drop the price, do repairs or pay for closing costs.

Finally, Babb notes that interest rates remain at low levels, which means lower monthly mortgage payments. "As rates drop, those who qualify will find it even less expensive to buy the home of their dreams." Lock in a low rate today and you'll reap the benefits for years to come.

While Babb is bullish on buying, she adds a few caveats. "If you want to buy a property and flip it in six months, now is not the time to get back in the market," she says. "And if you've got a low credit score or are cash-poor, I'd recommend staying away from homes." She also recommends staying away from neighborhoods that have many foreclosures and areas that have sustained significant job losses during the past few years.

Since the market won't likely recover overnight, people who aren't quite ready to buy still have options. Spend the next few months polishing your credentials and get in the market. "Improve your credit score, build up your savings, and go for it," she says.

Dr. Warren Bland: 'Resist temptation to buy'

Bland says that when it comes to the housing slump, we've only seen the tip of the iceberg.
If you think the housing slump is bad now, just wait. Bland says it's about to get much, much worse. Unless you've got no choice, plan to stay put. Prices will likely drop much further and the deals will get even sweeter.

Bland says it's useful to start with a big-picture view: Home prices in some areas doubled or even tripled during the boom during the past several years. Prices have started to drop, but they're still high, he says. "A year or two ago, prices had reached wildly unsustainable levels, and a lot of it was fueled by speculation and funny-money loans," he says. "Prices may have dropped 10 percent or even 25 percent in some cases, but I think they can still drop another 20 (percent) to 40 percent, depending on the market."

As the credit market shrinks, so does the universe of potential buyers who have the means to pay high prices. Spiking prices on food, gasoline and heating oil have taken their toll on consumers. They're worried about recession and losing their jobs, which Bland argues will further dampen demand. "I'm certain we're still nearer to the top of the market than the bottom," he says. "If I had any flexibility, I would resist the temptation to buy now."

The high housing inventories in many markets suggest a significant imbalance between buyers and sellers, according to Bland. Sellers are looking at the prices their neighbors got a year or two ago to justify their prices.

Buyers, meanwhile, see those prices and wait on the sidelines. As bad economic news piles up, they feel little sense of urgency.

While any one of these factors might have an effect on housing prices, all of these in combination may end up being devastating for sellers.

"The mortgage crisis, the swelling inventories, and the threat of recession are combining to create a 'perfect storm' that moves us to a new, lower equilibrium," he says.

Bland points out history is on buyers' side. It took about four years to recover from the previous housing slump in the late 1980s and early 1990s -- which he says suggests there will be a few more years of pain in this downturn before prices begin to stabilize.

Many buyers recognize that it's even more important than ever for a house to be a good investment.

"The traditional pension is disappearing, and with the debt burdens that most people are carrying, it's increasingly difficult for people to save for retirement," he says. "A house is a big asset that can potentially yield cash at retirement through downsizing, relocating to someplace cheaper or taking out cash to invest it."

Bland says he's confident that good things will come to those who wait before buying, but he says there are risks. "Interest rates may go up in the future," he cautions. "And depending how much they go up, that can at least partially undo the advantage of lower prices."

Overall, he says, don't buy simply because you feel the market may be close to the bottom. "Consider whether or not you'd be happy with your home if you saw 20 percent or more of your equity vanish," he says. "I would definitely urge patience."

The Basics of Being a Landlord

2008-09-29T05:31:00.000-07:00

Renting Your Home Carries Risks

By Lora Shin • Bankrate.com

Stephanie Smith couldn't sell her home.

Smith, her husband Mike, and their three children moved from Woods Cross, Utah, to Duvall, Wash., in 2007 after Mike was offered a Washington-based job.

In 2005, the Smiths paid $195,000 for their four-bedroom new construction home in Woods Cross and had almost no equity. So, the couple needed to sell the house for at least $250,000 to bring down the monthly payment on their new home in more expensive Duvall.

But in Woods Cross, the housing market turned sour.

"All of a sudden there was a dip," Smith says. "In our neighborhood, most people sold their houses within a week. But suddenly there were a lot of houses for sale and nobody was buying anything."

Because the Smiths couldn't sell the Woods Cross home, they took another tack: They decided to rent out the house and serve as long-distance landlords.

However, the decision to rent created new issues. In the past year, the Smiths have gone through two renters. They barely make enough in rent to cover their Utah mortgage.

The Smiths rely on Mike's brother to do repairs on the home. They hope to sell it -- to either the current renters or to new buyers -- this fall.

But living in two states away makes things more difficult, Smith says.

"I can't see the house, I have no idea what's going on," Smith says. "What does it look like? I can't pop in and just check.

"I'm so far away, there's hardly anything I can do."

Sell or rent

The Smiths are hardly the only couple to suddenly and unexpectedly become long-distance landlords. When faced with both a relocation and a house that won't sell, some owners decide renting the house is the only option left.

Such a decision should not be taken lightly, experts warn.

While the Smiths haven't faced any disastrous scenarios as landlords, others living thousands of miles away aren't so lucky. Mansion-sized headaches can include destructive tenants, missing rent and eviction notices.

“There are two ways you really get to know someone -- when you marry them and when you rent to them.”

Denny Grimes, a Fort Myers, Fla., real estate agent and real estate columnist for the Fort Myers News-Press, says long-distance landlords must remove the rose-colored glasses and prepare for the realities of turning their home into a rental.
"When people make a decision to rent, most make the mistake of not renting property like a business," Grimes says.

He shares a real estate saying that underscores the challenges facing long-distance landlords.
"There are two ways you really get to know someone -- when you marry them and when you rent to them," Grimes says.

Dale Siegel, a real estate attorney and mortgage broker with Circle Mortgage Group in White Plains, N.Y., agrees that homeowners need to tread carefully before jumping into the landlord business.
"If you plan on renting, make sure you can cover your monthly nut," Siegel says, referring to the cost of principle, interest, taxes, insurance and unexpected repairs.

"If not, how much will renting cost you each month?" Siegel asks.

Before deciding to rent out the house, an owner should closely look at the competition's rent and decide whether the market rates are high enough for the owner to break even.

In areas glutted with new construction or large-scale developments, it can be hard to generate the level of rent necessary to cover expenses.

High vacancy rates also tend to depress rents. Rental vacancy rates are highest in the U.S. South at 13 percent and lowest in the West at 6.9 percent, according to the Department of Commerce's Census Bureau. The Midwest (10.6 percent) and Northeast (7.4 percent) fall between the two.
Still, renting out the house at a rate that doesn't quite cover expenses could be preferable to selling the house at a huge discount, Siegel says.

"It might be better than taking a big loss," he says.

Expert help

Homeowners who become long-distance landlords overnight need to follow the basic rules of finding good tenants.

Rather than just renting to anyone, Grimes urges landlords to ask prospective tenants to fill out an application with references who can attest to a tenant's history of paying rent on time.

Grimes also recommends running a credit report on a prospective tenant and using a rental contract that spells out the terms of the rental agreement.

These contracts often are available in state-by-state layman's books available at libraries and bookstores. Laws vary by state, so it's important to choose the appropriate contract.

Including damage clauses and documents that spell out late payment fees (or on-time payment incentives) and eviction procedures can assist the absentee homeowner if trouble arises.

"Don't waive those requirements, thinking it's cheaper in the long run to get somebody in there," Grimes says. "If they're not paying their bills other places, they won't be paying you. Go in with your eyes open."

"If you think finding a tenant is hard," Grimes says, "try getting rid of one."

Long-distance landlords also face some unique challenges. For this reason, owners who are relocating and considering renting out their homes may benefit from consulting with specialists before making any final decisions.

For example, a tax adviser can share how deductions may change as a result of moving out of a primary residence and renting it. Property taxes may increase now that the home is being used as a rental instead of serving as the owner's primary residence.

Homeowners who become landlords also should ask lenders about any new rules that may affect them. Siegel says many lenders recently tightened standards for borrowers who intend to buy a second home while renting out their first property.

In such cases, a lender might do an appraisal of the first house to more accurately gauge whether or not the homeowner is likely to get a decent amount of rent for the property, Siegel says.
Or, the lender may require documented proof of a renter and rental income for the first house before providing mortgage insurance on a second home.

Property management: A solution?

Some long-distance landlords worry about how they'll address day-to-day emergencies when they live so far away. Others don't possess the expertise or stomach for doing landlord duties.
In such situations, Grimes suggests hiring a professional property manager as a practical alternative.

"When the toilet breaks, they get the call," he says.

Professional property management companies screen potential renters, make sure rent arrives on time, perform minor repairs and thoroughly check properties for wear and tear. In exchange, they take 5 percent to 10 percent of gross rent received.

While this can cut into the owner's profit -- or increase the owner's debt if the rent isn't high enough to cover the owner's costs -- it can provide peace of mind, Grimes says.
- advertisement -

"For absentee owners, there's a difference between handling a rental and having boots on the ground," Grimes says.

To preserve value and make sure the front lawn stays sales-ready, homeowners often need someone willing to thoroughly examine the home inside and out.

While neighbors, friends and family may be able to do quick spot-checks, they won't be as invested as someone paid to do so.

And some property management companies are headed by real estate agents, so they can do double-duty when it's time to sell.

Of course, not all property management companies provide high-quality services.

Before choosing a property management company, it's important to ask the right questions. Mark Heppard, president of Mutual Property Management in Farmington, Mich., suggests the following questions.

14 questions to ask a property manager
1. Do you work with the owners of single-family homes or condos? Can you provide references?
2. How do you communicate long-distance (e.g., e-mail, phone, letter) and on which topics?
3. Can I see a sample service agreement, outlining the services provided?
4. Do you handle property staging for rental?
5. How will you advertise my property (e.g., newspaper, Internet)?
6. How do you screen tenants and handle viewings?
7. Do you provide a trust account for security deposits?
8. How do you handle routine maintenance issues? Are your contractors licensed?
9. If a property emergency arises, what procedures are in place to respond quickly?
10. Who drafts and executes the lease documents?
11. What's the procedure to deal with late payments and handle the eviction process?
12. Do your services comply with government regulations?
13. How do you report monthly and year-end accounting?
14. If I decide to sell, do you offer additional services?

"Consider the reputation, accreditations, fees and testimonials of current clients," Heppard says.

"If financially doable, the right property management company can save you a tremendous amount of effort, money and heartache."

Best of both worlds?

Sharon Simms, a real estate agent in St. Petersburg, Fla., knows that today's economic environment is tough on those who wish to sell.

So, she offers a potential solution to her clients -- she can place properties on the market for sale and for lease.

"In the MLS listings, we state that the property is listed as both and that the owner will do whichever produces a successful contract first," Simms says.

A lease can either state a fixed purchase price or leave the price open to a future agreement between parties, Simms says. However, a fixed purchase price won't entice many buyers until prices start rising again, as today's homes cost less than last year's.

And even the best agent can't change economic realities, especially for owners who are "upside down" -- meaning they owe more on their house than it's actually worth.

"In most cases, especially if the owner bought the house in 2005 or 2006, they will be losing money on either the sale or the rental," Simms says.

This Week in Mortgages: Rates Go Down Then Up Again

2008-09-24T05:11:00.000-07:00

Mortgage rates go down, then up again

By Holden Lewis • Bankrate.com

Mortgage shoppers got stuck inside an old-fashioned melodrama in the last week.

In the first act, mortgage rates sank as markets digested the federal government's takeover of Freddie Mac and Fannie Mae. Mortgage shoppers exulted at Uncle Sam's rescue of Fannie and Freddie. Some dared to hope that rates would fall even lower.

The melodrama's second act occurred over a tense weekend: The investment bank Lehman Brothers lay tied up on the railroad tracks. Would Uncle Sam ride to the rescue? No! Lehman was gorily dismembered as Uncle Sam stood by, impassively. The mortgage market enjoyed the spectacle, as rates fell even more.

Weekly national mortgage survey

"The bald eagle has said, 'We're done bailing anyone out,'" mortgage broker Dan Dowling opined Monday morning. His advice on whether to lock a rate or float: "I think right now, your best ploy is to lock and monitor."

Act III: Tuesday afternoon, Uncle Sam cackled as he denied the Fed rate cut that the villagers desperately wanted. That night, Wall Street and rating agencies fitted insurance giant AIG with a noose. Just as the trapdoor opened, a bullet sliced through the hangman's rope, and AIG landed on its feet. Uncle Sam rode up, rifle in hand. "You belong to me now," he told AIG.

The mortgage market reacted badly to the plot twists of Act III. Fixed-rate mortgages rebounded Wednesday morning and took back the declines of the previous five workdays and then some. And Dowling, president of United Mortgage Capital in Altamonte Springs, Fla., was looking mighty smart for advising clients to lock the day before.

The benchmark 30-year fixed-rate mortgage rose 1 basis point, to 6.16 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.41 discount and origination points. One year ago, the mortgage index was 6.32 percent; four weeks ago, it was 6.66 percent.

The benchmark 15-year fixed-rate mortgage rose 3 basis points, to 5.84 percent, and the 30-year, fixed-rate jumbo, for larger loans, fell 5 basis points, to 7.36 percent. The benchmark 5/1 adjustable-rate mortgage fell 1 basis point, to 6.07 percent.

A thick plot

The performance of mortgage rates in the past week brought generally negative reviews. For one thing, the plot was hard to follow. "I don't know. I stopped trying to figure this out a long time ago," mortgage broker Dan Green, of Mobium Mortgage in Cincinnati, said. Actually, he spends a lot of time trying to figure it out, but lately all has been confusion.

Green's advice: "Stay aware, take advantage of opportunities that present themselves, and be ready to act. When mortgage markets move so quickly, it's because there's a market imbalance. And Wall Street seeks balance, and that's why they're short-lived."

Steve Habetz, owner of Threshold Mortgage, a brokerage in Westport, Conn., said he believes rates will remain low, "to where people say, 'I'm willing to assume the risk of owning a home" that could lose value. He said the other outcome -- higher mortgage rates -- "is far too painful for this nation to endure."

Alan Rosenbaum, president of Guardhill Financial, a mortgage bank in New York City, said he believes the mortgage marketplace is edging close to capitulation, when holders of mortgage debt recognize the true values of their degraded portfolios. "I think that we may realize that we're very close to a bottom," he said. "If we can get banks lending again, I think real estate will come back and the overall economy will come back."

A Seller's Saga

2008-08-07T04:04:00.000-07:00

We Managed to Sell Our Home And Keep Our Marriage Intact
August 7, 2008

Neal Templin, Wall Street Journal

When we put our Dallas house on the market for $490,000 in February, we thought it would sell in weeks with little discounting.

Talk about being delusional.

We ended up lowering the price of our house five times before it finally sold last month. We didn't get our first offer until late June, and it was $102,000 below where we had started.

All the uncertainty made us delay buying a new home near New York City, and we've been scrambling to find a place before the school year starts. During my 28 years as a journalist, I've moved 11 times for my job. This was in some ways the hardest one.

The whole experience made me a tiny part of a huge story -- the collapse in housing prices -- affecting millions of Americans. It was humbling for me, your typical know-it-all reporter, to find myself caught up in a situation where I had no ready answers.

In previous columns, I've waxed about my penny-pinching approach on everything from restaurant meals to vacations to buying new books. But all that pales in comparison to the stakes during a home sale. In our case, we needed to extract as much money as possible from our Dallas home so we could afford the higher prices in the Northeast.

My wife, Clarissa, and I were on the same page for some decisions. But we quarreled early on how much to spend fixing up the house -- and later on how quickly to chop the price when it wouldn't sell.

Whereas Clarissa has always been the generous one, and I the one who sweats every last dollar, she wanted to hold out for a higher price, convinced the house was worth it. I became haunted by the belief that the market was tanking, and that we needed to get our price down as quickly as possible and get the house sold now.

Our odyssey began last fall when The Wall Street Journal named me its personal-finance editor, a New York-based job. For the previous three-plus years, I had been its Dallas bureau chief. The plan was that I would move the family to northern New Jersey in June when the school year ended.

It soon became clear that Clarissa and I had different visions for getting the house ready for sale.
I simply wanted to paint it and correct obvious defects, such as exterior wood that rotted during heavy rains last year. Clarissa wanted to redo the kitchen, install new fixtures in at least one of the bathrooms and much, much more. I fretted we wouldn't get that money back when we sold.
So we compromised. We spent $2,000 putting granite countertops and a new sink in the kitchen, and we merely painted the bathrooms.

But Clarissa didn't stop there. She paid a carpenter to put inlaid patterns on the wooden mantle. She spent hundreds on plants. She put in new lighting fixtures and new curtains and replaced a tattered awning.

Periodically, I would try to get her to slow down the spending, and she would tell me to buzz off. I was the one forcing the family to move yet again, and this time she was going to do the things to get top dollar for her house so she could afford a decent house in New Jersey.

We had paid about $360,000 for the house in 2004. Now, with all the things we'd fixed or improved over the years, I figured our total investment was more like $390,000.

We had reason to believe we could come out way ahead. Our 1937 brick-and-stone house sat in a pretty neighborhood of older homes and towering trees about five miles from downtown Dallas.

The city's real-estate market had remained relatively strong, and we lived in one of the strongest submarkets.

Based on selling prices the previous fall, our Realtor, Gia Marshello of the local Coldwell Banker office, predicted our three-bedroom house would fetch $485,000. We put the asking price at $490,000, and waited for the buyers to line up. They didn't.

After a month, only 10 had visited our house, and I was beginning to panic. We had planned a March home-buying trip to New Jersey, but I put it on hold -- indefinitely.

Gia suggested that we discount the house by $10,000 or perhaps $15,000. I pushed for the bigger discount. Clarissa reluctantly agreed, even though she saw comparable houses priced the same or higher in our neighborhood. The problem was that they weren't selling either.

The feedback from people visiting our house was worrisome. Too many said the layout didn't work for them. Our house had two bedrooms and one bathroom upstairs, and one bedroom and one bathroom downstairs. Parents with small children wanted all the bedrooms on one floor.

A couple of buyers complained the kitchen wasn't open enough. I sputtered to Gia: "This is a 1937 house -- they didn't make open kitchens back then. We're not getting the right buyers."

At one point, Gia left me a voicemail on the latest developments. She sent out postcards about our house to everyone in the neighborhood and buried a statue of St. Joseph in our yard, which some believe brings good luck to home sellers. "Oh my gosh," I thought to myself. "This is our marketing plan?"

As the months stretched on, we kept lowering our price, first to $469,000, then to $455,000, then to $448,000 with another $4,000 in "credits." We thought we had a buyer with that last price. A young woman made three visits to the home and told us to let her know if any other offers came in. But her father was paying for the home, and he didn't like the house, and that was that.

Gia left no stone unturned to sell our house. She held open house after open house. Each time we lowered our price, she would contact anyone who had expressed interest in the house. Nothing worked.

I talked to a real-estate agent friend of mine in New Jersey, and he advised us to cut the house to its bare-bones price. "If only three houses sell in your neighborhood, you've got to make sure you're one of the three homes," he told me.

Gia advised the same. Clarissa finally caved in, and we priced the home on a Monday afternoon in late June at $429,900, putting it thousands of dollars below most comparable houses in our neighborhood. Almost immediately, buyers flocked to check it out. Gia got word an offer was coming. On Thursday, she called me. The offer was for $388,000 -- more than $40,000 below our last asking price.

How could this be, we asked ourselves. We just made this the best bargain in the neighborhood, and now this guy wants another 40 grand off. Clarissa wanted to reject the offer, but I felt we had to make it work. After all, we'd had the house on the market for more than four months, and this was our first offer. There was no guarantee there'd be another one.

So we exchanged a series of offers and counteroffers with the buyer. It was like pulling teeth. After three days, he offered $399,310. Clarissa found this insulting and wanted to counter with $412,666, to send a message. "I don't think that's a good idea," I told her.

Finally, on Monday, the buyer raised his offer to $409,000. I got him up to $410,000, and I was resigned to sign a contract later that day. Clarissa, who had to sign off on any deal, was convinced that would be a big mistake and we ought to wait for another buyer. She called Gia to say, "Don't let him give away the house."

While all this was playing out, a new offer rolled in that afternoon from another buyer.

"Are you sitting down?" Gia asked me. "They want to offer full price," or $429,900. Gia then went back to the first buyer to say we had a higher offer, in case he wanted to improve his bid. He didn't. We signed the $429,900 contract.

We soon met the buyers, a young couple expecting their first baby. They said they were thrilled to get the house. And they seemed to appreciate the unusual plants Clarissa had picked out and all her touches inside the house. Her strategy had worked after all.

Our selling price amounted to a 12% discount from our starting price. I don't expect any violins for us. Some regions of California have seen home prices decline more than 30% from their actual selling prices a year earlier. We got off very lightly by comparison.

Our house went on the market when there were few homes for sale in our neighborhood. That's no longer true. When I took my last drive through my old neighborhood, the streets were beginning to bristle with "for sale" and "open house" signs -- though many were above our price range. I shudder to think.

Cashing In on real Estate - It's Still Possible!

2008-07-26T04:18:00.000-07:00

Cashing In on Real Estate, It's Still Possible

July 25, 2008 3:16 p.m.

Is it still possible to make money in real estate?

With home prices continuing to plummet, many people have finally stopped seeing their family manse as a big bottomless bag of cash. But look beyond your front door, and you'll find some alternative real-estate related opportunities that are holding up despite the current economic downturn:

• Rural land: Rising food prices, demand for corn-based ethanol and a growing desire by many urbanites for a place in the country are making rural land more valuable. In 2007 over the year before, the average value of farmland rose 19.6% in Nebraska, 20.9% in Wyoming and 22.6% in Iowa, according to a survey by the Farm Credit Services of America.

In his May 22 "Country Real Estate," column, Blue Grass, Va., land consultant Curtis Seltzer observed that asking prices for rural land "in most places seem to be holding their own, and are trending up in certain markets."

• Foreign real estate: Although home price growth is slowing around the globe, some countries are still on a tear, according to GlobalPropertyGuide.com. While none of these places may be your first choice for a vacation hideaway, in the first quarter of this year, home prices rose 29% in Slovakia, 28% in China, 15% in Bulgaria, 13% in Cyprus and 9% in Australia over the same period a year earlier.

• Dockominiums: With higher gas prices, the market for both dry and wet slips for small boats has been softening. Not so for the big yachts, meaning those over 80-feet long. Real estate brokers say demand for big-boat docks is so high that having one in the backyard can double a property's value.

But you don't even need a residence attached to make money: At the Ocean Reef Club in the Florida Keys, a dockominium big enough for a 100-footer sold last year for $2 million; it had sold for $700,000 in 2004. The dock market is likely to remain buoyant: A study by yacht broker Camper & Nicholsons International says that there are 3,800 mega-yachts currently afloat, and predicts the number will grow to 5,000 in just two years.

• Fractional real estate: Many people who don't want to acquire and maintain a second home in a declining market still yearn for a vacation getaway. That's a big reason why fractional real estate, where an owner buys a deeded share of a residence, is gaining popularity. In many cases, developers are creating reservation systems that allow for spontaneous visits rather than locking owners into using the unit for only certain days of the year.

They are also offering upscale amenities: Harborview in Nantucket, Mass., for instance, offers a private owners' lounge, access to boats, and organized beach activities. According to NorthCourse, a real estate advisory firm based in Parsippany, N.J., fractional real estate sales reached $1.98 billion in 2007, a 20% increase over the year before.

Mortgage Solutions: FHA Loan Limits and Features

2008-07-17T06:07:00.001-07:00

In February, President Bush signed a bill that made a temporary increase to both conforming and FHA loan limits. The U.S. Department of Housing and Urban Development (HUD) recently released the new limits, which range from $271,050 to $729,750 depending on the county.

Previously, they were capped at $362,790. With FHA loans rising in popularity, especially among first-time homebuyers, these new limits could have a very positive impact. However, the changes are currently set to expire December 31, 2008, so you should act now to take advantage.

Benefits to Homebuyers
Many borrowers who were shopping in markets where entry-level homes were above the FHA loan limit may now be able to obtain an FHA loan. The most incremental change is likely to occur at entry-level and first-time move-up prices. The effects are also expected to have the greatest and most immediate impact in markets where entry-level home prices were above the previous FHA limits, such as California.

According to a statement released by the Federal Housing Administration, the change in loan limits will “give nearly 240,000 additional homeowners and homebuyers a safer, more affordable mortgage alternative.”¹

Because FHA focuses on 30-year fixed rate mortgages, homeowners may be able to avoid some of the risks associated with subprime mortgage products. Click here to view the new FHA loan limits for counties across the nation.

FHA: Fast Facts
If you are unfamiliar with FHA loans, here are a few facts to know. One important point is that FHA does not actually loan money to the buyer. Financing is obtained through a mortgage company such as HomeAmerican Mortgage Corporation.

FHA insures the lender against loss if the buyer defaults on the mortgage. The lender still has the final decision of whether or not to loan the buyer money, but having the FHA insurance can help them in making their loan decision.

In addition to offering insurance to the lender, FHA loan programs can offer many benefits. These are a few of the advantages:

Flexible qualification: FHA programs offer more flexible qualification, allowing more borrowers to obtain financing.
Less than perfect credit: FHA loans are often more forgiving of a buyer’s credit history. For example, buyers may still be able to qualify if they’ve had a bankruptcy as recently as two years ago.
Low down payment: Homebuyers typically only need 3-5% for their down payment, and this money may be a gift from a family member or other acceptable source.

How to Learn MoreHomeAmerican Mortgage Corporation (HMC) often offers special limited-time programs that enhance the benefits of FHA loans and provide exceptional value for homebuyers.

To learn about current programs and how to qualify, call a HomeAmerican Mortgage Consultant toll-free at 866-400-7126.

Sources:¹ Federal Housing Administration. New Loan Limits to Help Homeowners – Economy. Retrieved April 7, 2008, from http://portal.hud.gov/portal/page?_pageid=33,717234&_dad=portal&_schema=PORTAL

Mortgage Solutions: FHA Loan Limits and Features

2008-07-17T06:07:00.000-07:00

How Fannie and Freddie Grew So Big as Dangers Mounted

2008-07-15T06:11:00.000-07:00

Plenty of Blame to Go Around for Fannie, Freddie; How the Pair Grew So Big, as Dangers Mounted, Morphed

By JOHN D. MCKINNON and JAMES R. HAGERTY
July 15, 2008; Page A14 Wall Street Journal

For years, Washington officialdom enabled Fannie Mae and Freddie Mac, the congressionally chartered mortgage companies, to grow until they dominated the U.S. market.
Now lawmakers are confronting the result: a crisis of confidence in the two companies that raises questions about whether they can make it through the deep downturn that has struck the real-estate market. And nobody wants to get stuck with the blame.

If there's one decision that is being second-guessed, it's the 1992 legislation that created the companies' regulator, the Office of Federal Housing Enterprise Oversight, or Ofheo. In the 1992 debate, Ofheo came away with fairly weak powers, and capital requirements for the companies were set very low. (Congress is now putting the final touches on legislation creating a much stronger regulator with powers to raise their capital requirements -- a bit late, critics say.)

Lobbyists from the companies are said to have strongly influenced the 1992 legislation, particularly in the House Banking Committee, whose chairman then was Rep. Henry Gonzalez, a Texas Democrat. Critics of the companies say that Rep. Barney Frank (D., Mass.), the current chairman of the committee, also helped put forth the companies' arguments.

Mr. Frank now is widely regarded as a strong voice for tougher regulation. "I've been a supporter of their role in housing, but I've been pushing for some time to improve the regulation," he said in a telephone interview on Monday. As for the legislation in the early 1990s, he said he doesn't recall being involved in weakening it.

A spokesman for Fannie Mae declined to comment on the company's prior approach. "It's a different era [now] and there's a very different approach to our dealings with policy makers and regulators," he said.

Fannie and Freddie issue debt to the public in order to buy up home mortgages from banks. They hold some of those mortgages as investments and securitize the rest, adding a guarantee of repayment in the event homeowners default. By now, Fannie and Freddie own or guarantee about $5 trillion in mortgages, almost half of the U.S. total.

The two companies have been so successful because they combine the private sector's appetite for profit with the government's ability to borrow money. Even officials who gave them their unique structure 40 years ago didn't entirely appreciate how powerful -- and potentially dangerous -- the combination would prove to be.

"I don't think anyone had any inkling that they were doing anything but good," says Thomas Stanton, a Washington lawyer and longtime critic of the companies' massive growth. "People hadn't really worked out what would happen."

When it comes to their dealings with Fannie and Freddie, politicians often have had self-interested motives, in addition to the lofty public purposes they proclaimed.

Congress created Fannie as a government agency during the Great Depression, to encourage banks to lend. Fannie continued to function as a government-run agency during the 1940s and 1950s, even as it took steps toward privatization.

In 1968, President Lyndon Johnson decided to turn Fannie into a shareholder-owned company as part of a broader housing bill. Mr. Johnson proclaimed that the new Fannie Mae would "close an important gap in the existing network of financial institutions." In fact, administration officials acknowledged that the move actually was aimed at shifting Fannie's growing operations off the government's books.

Investors continued to assume that Fannie's debt carried the full faith and credit of the U.S. government, however. Congress did little to dispel that idea, bestowing a range of breaks on the companies, as well as other government ties.

Fannie's model proved so effective at aiding business for mortgage bankers that the savings-and-loan industry soon wanted one of its own. So in 1970, Congress created Freddie Mac. Nowadays, both serve the same customers -- mortgage lenders.

The companies' operations suited a lot of other people, too: home builders, real-estate agents, Wall Street investment houses and politicians. And, of course, the companies have helped millions of people buy homes, particularly in times of economic uncertainty.

Critics have popped up over the years, but they were always drowned out. In the early part of this decade, Alan Greenspan became the most powerful voice calling for a reining in of the companies.

At that time, though, the main worry about Fannie and Freddie was the interest-rate risks that arise from holding long-term mortgages and funding them with borrowing. This prompted the companies to use huge amounts of derivatives to hedge. And that worried a lot of people. It also led to the accounting scandals as Fannie and Freddie tried to smooth over the fluctuations in earnings created by those interest hedges. That added to the interest in strengthening their regulation, particularly among conservatives in the Bush administration.

Few critics focused then on the credit default risks. That's because of a widespread assumption that homeowners rarely default. Now that assumption is being undermined in the current weakening real-estate market.

Fannie and Freddie's survival is crucial not just for the U.S. mortgage market, but the entire financial system, because of the widespread reliance on their debt not only by legions of investors but also by banks around the world.

The failure of one of the companies would create a "world-wide panic," says Peter Wallison, a critic of the companies' structure and operations.

Treasury and FED Pleadge Aid For Ailing Mortgage Giants

2008-07-14T05:41:00.000-07:00

Treasury and Fed Pledge Aid For Ailing Mortgage Giants

By JAMES R. HAGERTY, DEBORAH SOLOMON and SUDEEP REDDY

July 14, 2008; Page A1 Wall Street Journal

The U.S. Treasury and Federal Reserve, capping a weekend of high-stakes maneuvering, attempted to shore up confidence in Fannie Mae and Freddie Mac by announcing a plan that placed the federal government firmly behind the battered mortgage giants.

In a statement timed to precede the opening of Asian markets Monday, as well as a closely watched auction of debt by Freddie, the Treasury said it plans to seek approval from Congress for a temporary increase in a longstanding Treasury line of credit for the two companies.

The Treasury also said it would seek temporary authority so that it could buy equity in either company "if needed" to ensure they have "sufficient capital to continue to serve their mission" of providing a steady flow of money into home mortgages. The plan, which requires congressional approval, also calls for a provision to give the Federal Reserve a "consultative role" in the process of setting capital requirements and other "prudential standards" for Fannie and Freddie.

The Fed's Board of Governors met Sunday in Washington and voted to grant the New York Fed authority to lend to Fannie and Freddie "should such lending prove necessary," the central bank said in a statement. The move would effectively give the two companies access to the Fed's discount window if necessary, providing a backstop in case the firms were to face a short-term funding crisis down the road.

Whether the government should prop up troubled financial institutions has become a hot political issue in the wake of the takeover of investment firm Bear Stearns Cos. by J.P. Morgan Chase & Co. Critics characterized that government-engineered deal as a bailout.

This weekend's moves constitute an attempt by the federal government to ease the potential crisis at Fannie and Freddie without intervening directly. By promising bold action if needed, officials are hoping they can instill sufficient confidence in the two companies that such intervention ultimately will prove unnecessary.

Fannie and Freddie are the nation's dominant providers of funding for home mortgages. They buy loans made by banks, package most of them into securities, and sell many to investors all over the world. Together, they own or guarantee about $5.2 trillion of U.S. home mortgages, nearly half of all mortgages outstanding.

Unique Status

The unique status of the two companies puts the government in a delicate position. They were chartered by Congress to support the mortgage market, but they are owned by shareholders. Investors have long believed that the government implicitly backs them. That allowed the two companies to borrow at favorable rates, benefiting shareholders and supporting the housing market, but putting taxpayer money at risk.

Sunday's moves, by promising government funds to keep Fannie and Freddie operational, reinforce the notion that investors can count on the government to bail them out in a crisis. Until recently, that was an idea the Bush administration had tried hard to quash.

The government can ill afford to see a financial crisis at either firm. With home prices falling and mortgage defaults rising, Congress and the administration have come to depend even more on Fannie and Freddie. If either company ran into serious financial trouble -- a prospect that seemed real last week when their stocks fell nearly 50% -- it would deal a severe blow to the housing market and the sagging economy.

A senior Treasury official described the steps as intended to help "stabilize" the current situation. While Treasury does not think the financial situation of either firm has deteriorated since Friday, "as we've watched market developments, we decided it was time for policymakers to act," said one administration official.

The weekend move means that Fed Chairman Ben Bernanke, who has been steadily accumulating authority as the U.S. grapples with the financial crisis, will have even more power.

The Treasury envisions the Fed working with the mortgage giants' regulator to help prevent situations that could be a risk for the entire financial system. The move builds on Treasury's broader goal of remaking financial regulation to give the Fed broader influence over financial-market stability.

Federal regulators, politicians and investment banks spent two hectic days swapping information and seeking ways to calm markets. From Washington, Treasury Secretary Henry Paulson called the heads of some investment banks, trying to gauge the level of nervousness about Fannie and Freddie and to determine whether the banks would participate in Monday's $3 billion debt auction, according to people familiar with the matter. Timothy Geithner, president of the Federal Reserve Bank of New York, also has been reaching out to Wall Street firms over the weekend to discuss the latest events.

Fed, Treasury and company officials stayed in touch with top Capitol Hill lawmakers and their staffs throughout the weekend. Lawmakers continued their efforts to reassure financial markets about the government's support of both companies.

Fannie Mae Chief Executive Officer Daniel Mudd expressed gratitude for the government's actions. "Given the market turmoil, having options to access provisional sources of liquidity if needed will help to strengthen overall confidence in the market," he said.

If either company asks for it, it could have access to a line of credit or an equity investment by the U.S. government. Both the line of credit and the liquidity backstop would be temporary, but could be in place for up to 18 months. Treasury would not say how high the line of credit might go, or how much of an equity stake Treasury might purchase. The agency would not discuss whether the equity stake would carry any preferred terms for the government. Those decisions would be up to Mr. Paulson, the official said, and "will be governed by protecting the taxpayers and the government."

The two companies' lines of credit are currently capped at $2.25 billion each. The Treasury didn't say to what level they would be increased. The Fed's role is intended as a funding backstop for the firms only after they've borrowed under their credit line from Treasury. The central bank can lend under its own authority, without further congressional approval.

Raising the Treasury credit line, along with most other changes, would require congressional approval, although lawmakers appear ready to act quickly. Late Friday, the Senate passed a housing package that would create a new, stronger regulator for Fannie, Freddie and the 12 Federal Home Loan Banks. The House passed a similar bill in May, but the process since then has been stalled by complications.

The bill could pick up speed now. Lawmakers only need to resolve a few differences, and potentially to add the changes. House Financial Services Committee Chairman Barney Frank (D., Mass.) said he spoke with Mr. Paulson several times over the weekend and was "generally supportive" of the proposals. He said all sides would have to discuss the details of the plan, but he felt optimistic that a consensus could be reached quickly. "This could be on the president's desk next week," he said.

The Treasury official said Mr. Paulson has reached out to members of Congress and has had "good productive conversations....There's nothing to suggest that we will not be able to accomplish this."

The Sunday move was designed in part to head off fears about Monday's auction of Freddie Mac notes. While small, the planned sale had assumed an outsized importance as a test of investor confidence. Freddie should be able to find buyers for its three- and six-month notes, market analysts said. But there is a chance that some financial institutions and investors may demand higher-then-usual yields.

Similar Freddie and Fannie notes that are currently outstanding yield around 2.5%. If weak demand for Freddie's auction leads to sharply higher yields on the new notes, that could trigger a selloff across a wide range of debt issued by the companies, some analysts said. But most said such a scenario is unlikely.

There was some debate within the administration about the best way to handle the two companies. Some Republicans have long worried that taxpayers would eventually be on the hook for risks taken by the two companies on behalf of shareholders.

Tough Love

Some officials at the White House are believed to have preferred a tough-love approach. Under one option, according to people familiar with the outlines of policy discussions within the administration, the White House could try to install a new slate of presidentially appointed board members at the companies. The idea would be to impose more market discipline on the two companies, to curb their appetites for borrowing and investing, and to gradually shrink their enormous balance sheets.

Appointment of new presidential directors would be an abandonment -- at least for now -- of the Bush administration's often-stated ambition to distance the federal government from the companies. The new board members would be drawn from the ranks of financial-market heavyweights.

Fannie and Freddie shares both dropped about 45% last week and are down more than 80% over the past year. Investors are worried that the companies eventually will have to raise large amounts of capital to cope with growing losses stemming from mortgage defaults. Freddie has announced plans to raise $5.5 billion by selling common and preferred shares, but it is likely to wait for a calmer market. Fannie raised $7.4 billion in share offerings in April and May.

Like Fannie and Freddie, the 12 regional Federal Home Loan Banks, cooperatives that lend to commercial banks and thrifts, "also would have temporary access to expanded lines of credit," a Treasury official said.

A spokesman for Freddie said the company understands that any purchase of equity in Freddie by the Treasury "can only occur with the mutual agreement of both parties."

--Damian Paletta, John D. McKinnon, Serena Ng contributed to this article.

Denver Leads the Country in Rental Income Increase!

2008-07-08T06:55:00.000-07:00

July 5, 2008, 1:07 pm

Rents Climb Despite ‘Shadow Market’

WSJ’s Nick Timiraos writes:

Landlords continue to see a strong rental market undercut by a “shadow market” — the glut of unsold homes on the market as rentals. But the housing downturn continues to provide landlords with solid rent increases nonetheless, as more homeowners become renters and as existing renters defer homeownership.

Rents climbed by 1.1% last quarter, slightly off the 1.3% growth in the same quarter last year, according to figures to be released Saturday by Reis Inc., a New York real estate research firm. Apartment vacancies held constant at 5.9% from the previous quarter.

Rent growth remains ahead of where it should be given the economic downturn and slowing wage growth. “That’s giving landlords more power than we’d normally expect to see in the cycle,” says Sam Chandan, chief economist at Reis. At the recession earlier this decade, he notes, “we had declines in rent certainly not on the order of what we’re seeing now.”

Four of 79 markets tracked by Reis showed negative rent growth, all in parts of the country hardest hit by big home prices declines: Miami; Palm Beach, Fla.; Ventura County, Calif., and Detroit. (See charts below)

Rents increased in some strong housing markets, including Seattle and Boston, where tightened mortgage lending terms continue to discourage homeowners. The energy sector helped boost rents in markets across the West, including Denver, which led the nation with 1.9% rental growth. Houston, Oklahoma City and Tulsa, Okla., also posted above-average rental increases.
Reis’s Mr. Chandan suggests that the data show “very preliminary” signs of stabilization in the hardest-hit housing markets in Florida. Vacancies fell in overbuilt housing markets including California’s Inland Empire and Fort Lauderdale, Fla., and California’s Inland Empire, which also posted an above-average rental growth. Rents gained a robust 1.5% in Orlando, Fla.

One big question that remains: When will the shadow market disappear? Analysts say that the most overbuilt housing markets will continue to see homes and condos converted to rentals through 2009. “Given the extent of overbuilding that’s a fairly speedy correction,” says Mr. Chandan.

Others point to the lack of rental demand due to renters who double or triple up or move in with their parents. Lawrence Yun, chief economist for the National Association of Realtors, says that the practice should abate in the short-term, in part because “it’s not sustainable to keep adding roommates.”

Strongest Rent Growth
1 Denver 1.9%
2 Wichita, Kan. 1.9%
3 Syracuse, N.Y. 1.9%
4 Seattle 1.9%
5 Dayton, Ohio 1.7%
6 Tulsa, Okla. 1.7%
7 Louisville, Ky. 1.7%
8 Little Rock, Ark. 1.6%
9 Hartford, Conn. 1.6%
10 Boston 1.6%

Weakest Rent Growth
1 Palm Beach, Fla. -0.40%
2 Miami -0.2
3 Detroit -0.1
4 Ventura County, Calf. -0.1
5 Fort Lauderdale, Fla. 0
6 Tucson, Ariz. 0.2
7 Portland, Ore. 0.3
8 Phoenix 0.3
9 Columbia, S.C. 0.5
10 Northern New Jersey 0.5

Source: Reis Inc.

How to Screen a for a Deadbeat Renter

2008-07-05T07:07:00.000-07:00

Finding Foreclosures, Screening Deadbeats

June Fletcher offers her take on two recently launched sites: RentBureau.com, which helps landlords screen tenants and ForeclosurePoint.com, a listing service.

July 3, 2008 3:08 p.m.

These days, my mailbox is full of press releases announcing new Web sites that purport to help overcome some aspect of the housing crisis.

Here's my take on two that launched just last week.

RentBureau.com: Homeowners who are renting out their homes because they can't sell them have a justifiable fear of getting stuck with a deadbeat. This Web site, launched June 26, uses rental payment history and other proprietary data to predict the likelihood that a rental applicant will pay on time.

The site's producers say they can produce a score for eight out of 10 Americans, regardless of whether or not they are currently renting an apartment. Scores range between 1 and 999, with above 900 considered "good" or better, and those below 850 "risky."

Scoring depends on such factors as the number of times the potential tenant was late paying rent, the number of roomates the tenant had in previous apartments and whether the tenant's landlords had to use collection agencies to get them to pay up. The cost is $9.95 per inquiry, plus a $10 one-time set up fee. Information is updated every day.

I decided to test the service, using the person whose credit status I'm most familiar with -- me. The score came back at 971, a "best" rating, which accurately describes my meticulous bill-paying habits. But it couldn't confirm my current address, where I've lived since 1995. A spokesman for the company said that's because I'm an owner and don't show up in their rental-address database.

While this site can be an invaluable tool for landlords, it's not the only one they should consult. It's advisable to get independent information from the three credit bureaus and to check criminal and sex-offender registries. It's also wise to show low scores to applicants before rejecting them and to allow them to tell their side of the story. If they had a problem with their former landlord over an issue such as a leaky roof or no heat, it's possible that they did pay money into an escrow account while the dispute was being mediated.

The company says renters who receive low scores but have a valid explanation can call to discuss adjustment of the score.

ForeclosurePoint.com: More than a million houses are now in foreclosure, according to the Mortgage Bankers Association, yet finding information on them is a difficult process for the average person. Current options include signing up with a tracking agency like RealtyTrac.com or Foreclosure.com and paying hefty monthly fees; following the disorganized foreclosure listings in local newspapers; making frequent trips to the county courthouse; or working with a local broker who specializes in such transactions.

ForeclosurePoint.com, which debuted on June 25, makes a little dent in this frustrating situation by providing free access to street addresses of foreclosure properties throughout the United States. But that's where the freebies end.

Logging on to the Web site, I was able to pull up 7,737 foreclosures for Fairfax, Va. Drilling down to one of them, a property in upscale Great Falls, Va., I found basic tax-record information like square footage, number of bedrooms and lot size, as well as a "Zestimate" of value from Zillow.
But other information I'd need to make an offer on the property, including auction dates (which are often postponed or cancelled), the purchase status of the property and the estimated equity in it, are only available to so-called "premium members" of the site -- at a monthly cost of $79.95.

It amazes me that lenders and politicians continue to complain about the rapidly growing backlog of foreclosed homes, yet no one seems to be working to create a truly free, comprehensive Web site that has all of the information a person needs to buy one. Doing so would, I think, be a major public service, and put average home buyers more on par with the professionals.

2008-07-02T08:06:00.000-07:00

Justifying the Decision to Build a New Home

Even with a growing array of homes for sale at lower prices, costs of starting from scratch still work out.

By NANCY KEATES June 17, 2008 10:50 a.m.

An economist might deem the opportunity cost of building versus buying a house right now to be unacceptably high. And judging from emails I have received, so do some of my readers.

With the U.S. in a housing slump there's an ever growing array of homes for sale at lower prices. Meanwhile, prices for supplies like steel and nails continue to increase, driven higher by demand from construction in countries like China and India. Rising fuel prices are also pushing up transportation and production costs.

Just last week a house went on the market I would love to buy – at a price we could afford. I know this because my husband and I continue to obsessively (though separately and slightly furtively) scan local listings. Yet there is no going back now: The cement for our foundation is poured and framing will start at the end of next week. We are excited to see a year of design work take physical form. We know our house will be better for us because we have had the opportunity to help create it.

Maybe I am only trying to justify our decision. But it seems to me that the key to continued sanity for a new homebuilder in the current environment is to think about the future. The country will eventually come out of its current housing slump. And when it does, the cost and the hassle of building could be higher than now. Just look at what happened in the mid-1990s, when the housing market rebounded from a slowdown, lumber prices soared and contractors didn't return phone calls.

I feel confident that Portland Ore., where we are building our new house, will come out particularly strong. There is an 80% chance that the metro population will be 3.5 million to 4.1 million by 2060 – almost double the 2007 population of 2.2 million -- according to Portland State University's Center for Population Studies.

While the cost of building a new home continues to increase – up 2.4% in 2007 from 2006, according to the U.S. Bureau of Labor Statistics -- the rate of increase is sharply lower than the 6.4% increase in cost the year before. The same holds true for maintenance and repair: While the costs grew 3.8% in 2007, the rate of increase was less than the 8.0% rise in 2006. When the market picks up again – and it will – the rate of increase will accelerate again.

Of course, housing data still looks grim. In May housing starts fell 3.3% to a seasonally adjusted 975,000 annual rate, the Commerce Department said Tuesday. But with unemployment high that means more workers are available. With contractors having fewer opportunities, our job will get more attention. When the market starts to pick up again, that may not be true.

I have friends who built at the peak of new construction in 2004 and 2005, and who had a hard time finding the project managers assigned to their homes.

Subcontractors were unreliable because they were in such demand. One woman in my neighborhood waited a month to get an asphalt guy to redo her driveway. Another says her contractor was involved in 10 other projects at the time he was building her house. Because of competition, materials had to be backordered far in advance. There were fights over particular slabs of granite, a stone cutter tells me that she would have to meet clients at 8:00 a.m., to make sure they got first dibs on a new shipment.

We haven't experienced any of this. Work on our house is progressing ahead of schedule, with construction expected to be finished June 5, 2009 – two months earlier than estimated.
While prices for materials are still rising overall, some materials are much cheaper than they were just a few years ago – and contractors are more confident about negotiating for a better deal. Still, analysts say the minute the housing market picks up again material costs will soar.

Take lumber, which, with framing and siding, makes up a significant portion of a new home.

According to a Eugene, Ore., organization called Random Lengths, which publishes weekly price reports for wood products, the most recent price for framing lumber was $238 per thousand square feet – that's compared to $304 a year ago and around $496 in 2004.

Even significantly higher gas prices will have a minimal impact on lumber pricing, says Stuart J. Benway, who analyzes the industry for Standard & Poor's. Though lumber is transported by trucks, it also relies heavily on trains. And the effect of the decline in housing is larger than the increase in transport costs. Demand for forest products is highly dependent on the construction industry, especially the home construction and remodeling.

Fuel prices have driven some materials sharply higher – those that require a lot of energy in production and transportation, says Bernie Markstein, a senior economist at the National Association of Home Builders in Washington. Add to that a growth in world demand from building projects in China and India, and there's been acceleration in steel, nails, insulation, aluminum, asphalt, concrete, copper and brass fittings.

We will do what we can to adapt: We can avoid all copper and brass fixtures and plumbing and try to reduce the amount of asphalt we use. But there are still some bright spots. Prices for ceramic floor and wall tiles actually fell 0.2% in 2007 from a year earlier. Maybe we should tile the guest bathroom after all…

Pending Home Sales Report from NAR

2008-06-27T05:43:00.000-07:00

Tools for Recovery

by Lawrence Yun, NAR Chief Economist

Pending Home Sales: The Good and Bad

Pending sales have fallen in some areas of the country that are considered healthy. Seattle, Nashville, and Austin markets have experienced nice rates of home price appreciation and the prices year-to-date have continued to rise or have held. But higher home prices and the associated affordability problems have begun to hold back potential home buyers in these markets - despite their solid job growth.

But let's talk a minute about pending sales. While we generally assume that pending home sales "close" within 2 months of signing, "pending to closing" does not have a direct one-to-one relationship. There are several reasons for this. The sample coverage on pending sales (that is, the data sample on which NAR Research calculates the pending home sales index) is much smaller than that of actual closings as recorded in existing home sales. In addition, some contracts could "fall out," and consequently do not close (i.e., do not result in an actual sale and so do not show up in the home sales statistics). Furthermore, that traditional lag time of two months between contracts and closings may be rising.

Still, April's measure of pending home sales was a solid jump - and the first rise in the index since the beginning of the year. I am hopeful that this is the beginning of a momentum that can build and thus unleash chain reactions from some sellers now able to start buying trade-up homes. Remember: housing markets had been partly frozen because would-be repeat buyers could not purchase because they first needed to sell the homes they already owned.

The good news on pending sales in April was tempered by the latest inventory statistics.

Housing inventory rose to its second highest level ever with 4.55 million homes listed for sale - an 11.2 month supply at the current sales pace and an increase of 10.5 percent from the prior month (or by 434,000 units). Part of the rise in supply is due to a normal seasonal increase from March to April. More new inventory reached the market over these two months than in any other months. Even so, the high inventory levels are uncomfortable. It is also a signal to many home sellers to be more realistic about pricing to attract buyers. Unless you have those immaculate, unique home features, don't even bother listing if you are not going to concede on prices in today's market.

Because of high inventory, home prices are continuing to fall in most parts of the country. The national median existing home price in April was $202,300 -- an 8.0% decline from one year ago and the second largest price decline since NAR began tracking price data in 1968. It is important to note that some of the price declines are not genuine housing value declines; they just reflect the fact that more smaller-sized and lower-priced homes are being sold.

What's in Store

The up-tick in the latest pending sales will help existing home sales to be modestly higher in the second quarter of this year versus the first quarter. The sales in the third and fourth quarters are anticipated to be notably higher. There are several underlying reasons:

Removal of "declining market policy" by Fannie and Freddie. Fannie Mae and Freddie Mac had imposed a "declining market policy" of requiring a higher down payment and higher credit scores in lending in regions where prices had been falling. However, that policy exacerbated the downturn by reducing housing demand. Given that "Fan and Fred" were created with the mission of providing credit in times of crisis - they decided to do away with that policy beginning this month (June 2008). This is welcome news in terms of maintaining underwriting standards without going overboard in being too stringent.

Significant reduction in conforming jumbo mortgage rates. Another very positive development is in the falling mortgage rates on conforming jumbo rate loans recently. In spite of newly enacted legislation early in the year raising the loan limit, the mortgage rates on these higher loans did not fall. However, Fan and Fred have become very active in purchasing these loans and mortgage rates have fallen by a full one-percentage point - e.g., from 7.5 percent to 6.5 percent. That is a great news for homebuyers in high-cost regions. (The super jumbo non-conforming loans still carry very expensiveinterest rates.)

More applications for FHA loans by borrowers who would have been subprime borrowers this time last year. Since the summer of 2007, home sales were hampered by a sudden disappearanceof subprime loans. But FHA loan applications have been rising and I believe the FHA program will be able to bring some of the buyers who would have used subprime loans into government-backed loans that carry much lower interest rates.

Improving economy. The economy will see a growth of about 2 percent in the second half of this year. That will turn the job market to the positive side with net job gains possibly of 350,000 in the second half.

Home buyer tax credit. There is a better than 50-50 chance that the President will sign a big Housing bill from Congress before the 4th of July. The key element of the bill from my point of view is the temporary homebuyer tax credit. This tax credit will induce fence-sitters back into the marketplace.

Chain reaction buying. Many home sellers are not able to buy because they cannot sell their homes. However, there is always a bit of chain-reaction momentum that will build. An increase in buying unleashes existing sellers to buy the next home - and so forth.

As a result, I see improved sales in the second half of this year. Prices are more difficult to predict. More transactions have been occurring on the lower end. But we may begin to see more sales in the higher end with falling rates on conforming jumbo loans and from the chain-reaction factor.

Realty 101 - Hiring a Broker

2008-06-17T06:23:00.000-07:00

We are going to cover some of the basic information about hiring a Real Estate Broker including how and how much they are paid and what services you can typically expect from them.
Broker - Client Relationships First of all, please be aware that in Colorado, Real Estate professionals must take coursework and pass a Licensing Exam in order to represent the public in the sale or purchase of Real Estate. Persons who pass this coursework and exam are referred to legally as “Brokers”. One can choose to work associated with a company, such as Remax (a Broker Associate) or own her own real estate company (Broker Owner).
Brokers are called Brokers because you can have one working for you and not have the benefit of an Agency relationship. In Colorado, when you are ready to hire a Broker, you will sign an employment contract with them that specifies whether the Broker will represent your interests alone in all matters (Agency); or whether the Broker is there merely to conduct the transaction on your behalf (Transaction-Brokerage). You pay the same negotiated fee regardless of the relationship you choose.

The Employment Agreements Brokers have a fine line they must walk until they have been hired by you. When you meet a Broker, you want to ask them questions, get information and learn all you can from them. Legally, Brokers must clarify several things before providing you with information and soliciting information about your interests. Before hiring a Broker, there are several agreements which must be presented and signed before they can solely represent you. You will find complete details of these forms at my website under Mile High Guide – Realty 101.
Help! Part of my Home's Equity is becoming a Broker's Paycheck! This is how it generally works: you find a professional Broker who has impressed you with her market knowledge and ability to market your property, you like her company and responsiveness and you have decided to enter into contract with her to sell your home. But you wonder why are you paying so much for her services? First, bear in mind that you are paying two Brokers. A listing Broker is the Broker you have hired to help valuate, market and represent your interests in the sale of your property. They will be conducting the analysis necessary to make sure your home is properly priced and will be involved with your overall pricing strategy, they will market your home - what "marketing" means varies tremendously between Brokers - they will keep you informed and negotiate on your behalf regarding the price and terms of sale. The listing Broker puts your goods on the sale shelf, so to speak.
The Selling Broker is the Buyer's Broker, who has been contracted by a completely different party, the Buyer, to find a home suitable to their tastes and price. When this Broker shows your home to her Buyer Client, and presents the Broker you hired with her client's offer for your home, she is the party who sold your home, should you ultimately accept the offer.
As a result, your listing Broker shares his commission with the buyer's Broker. Virtually all homes are ultimately sold by a Buyer's Broker, so they are very important people to you.
Second, commission generally comes from your home’s equity so that you don’t have to come up front with the funds to pay the Broker. She will be investing her own funds into the creation of marketing products and spending sometimes hundreds of hours getting everything ready and then communicating with other Brokers once the home is on the market. You wouldn’t expect someone to come clean your home or provide some service without paying them. You wouldn’t want to go to work for free yourself. The situation is set up for your convenience so that you can have expertise and marketing without paying up-front; and to give the Broker an incentive to complete her job as quickly as possible.
Let’s all be experts! For more information on any Real Estate subject, visit my website or give me a call at (720) 275-3926.

Housing Supply Declined in May

2008-06-06T06:37:00.000-07:00

Housing Supply Declined in May

Ample Listings Remain in Market; A Sign of Leveling

By JAMES R. HAGERTY June 5, 2008 Wall Street Journal

The supply of homes available for sale in major metropolitan areas declined slightly in May.
Total listings of homes in 29 metro areas at the end of May edged down 0.3% from a month earlier, according to figures compiled by ZipRealty Inc., a real-estate brokerage firm based in Emeryville, Calif. The data cover listings of single-family homes, condos and town houses on local multiple-listing services in those areas, where Zip operates.

The inventory was up about 0.3% from May 2007 in 18 metro areas for which Zip has comparable year-earlier data.

The numbers are the latest sign that the supply of homes on the market is leveling off. But the supply remains ample. The National Association of Realtors recently said the number of single-family homes on the market in April was enough to last 10.7 months at the current sales rate. That was the highest since 1985. In the first half of this decade, when house prices were soaring, the supply typically was four to five months.

The figures from Zip and the Realtors probably understate the supply of homes because not all foreclosed properties that lenders are trying to sell are listed on multiple-listing services, said Thomas Lawler, a housing economist in Leesburg, Va.

Lenders and investors in mortgages owned 660,000 foreclosed homes in April, up from 493,000 in January and 231,000 in January 2007, according to an estimate from First American CoreLogic. The April total works out to about one in seven previously occupied homes listed for sale nationwide.

Closing Costs - Make Sure You Know What You Are Paying!

2008-05-30T08:38:00.001-07:00

Mortgage-Broker Study Finds High Fees Charged

By JAMES R. HAGERTY WALL STREET JOURNAL May 30, 2008

The home-mortgage industry takes advantage of consumers' confusion to charge some people much higher fees than others, according to a study prepared for the Department of Housing and Urban Development.

The study by Susan Woodward, a former chief economist for HUD, also found that loans arranged by brokers typically carried higher fees than those obtained directly from lenders.
The report, released Thursday, is based on an analysis of 7,560 fixed-rate home-purchase loans completed in May and June 2001 and insured by the Federal Housing Administration, an arm of HUD.

The study says lenders typically make better offers to borrowers in neighborhoods with higher general levels of education.

Total fees paid to the lender and broker averaged nearly $3,400 on loans with an average initial principal balance of $105,000, the report said. For brokered loans, the average fees were $4,000, compared with $3,150 for loans made directly by the lender. Those fees are a combination of upfront charges and additional funds brokers and lenders get for selling loans with relatively high interest rates.

For brokers, these additional payments are known as yield-spread premiums. Brokers often defend yield-spread premiums as a way for borrowers to reduce their upfront fees in exchange for paying a slightly higher interest rate. But the study found that the yield-spread premiums mainly benefited the brokers. For every $100 extra they paid in higher rates, the borrowers on average received only a $7 reduction in upfront fees. Banks also typically kept most of the benefit when borrowers paid above-market interest rates, the study said.

Borrowers who paid "discount points" to lower their interest rates typically didn't benefit from a corresponding savings in their interest costs, the study said. It found that borrowers who chose "no-cost" loans -- in which all fees are built into the interest rate -- typically paid the lowest effective fees.

Roy DeLoach, executive vice president of the National Association of Mortgage Brokers, said that the study relies on "stale" seven-year-old data and that other studies have shown consumers save money by obtaining loans through brokers.

Closing Costs - Make Sure You Know What You Are Paying!

2008-05-30T08:38:00.000-07:00

What You Need to Know: Rental Properties, 1031 Exchanges and Private Annuity Trusts

2008-05-22T05:29:00.000-07:00

Investors are rushing to take advantage of the opportunity to buy a rental property at today’s discount prices and there could not be a better time! Taking advantage of purchasing in this buyer’s market means paying less and putting less down on rental properties so many are taking their first step into the real estate investment market.

Whether you have never purchased a rental property before or have long been an investor, learning how to defer capital gains taxes on the profits you will make is interesting and can greatly impact your bottom line.

Let’s review two different ways you can do just that—defer paying capital gains taxes on the properties you sell.

The first method is a 1031 Tax-Deferred Exchange.

Essentially, a 1031 Exchange is the sale of one property, followed by the purchase of another investment property. The profit of the sale is rolled into the purchase of the second property, allowing the investor to pay taxes on that profit at a later date.

The investor is able to continue to use the funds she would have used to pay taxes to buy another investment property.

The 1031 Exchange works like this: A qualified intermediary who holds the sale profits between the sale of the first property and purchase of the second is retained. Next, The property is sold to any buyer. The profit is held by the QI and the investor and his agent have 45 days to identify replacement properties. Within 180 days of the first sale, the investor must close on one of the properties identified and the profit is reinvested.

A second method of deferring the capital gains tax bill is the Private Annuity Trust.

The Private Annuity Trust works like this: the investor transfers ownership of the property over to a trust. The trust gives the investor a payment contract, known as a private annuity. The contract stipulates that the trust will make regular payments to the owner over the course of his or her life. The trust can then sell the property for cash.

You are deferring capital gains taxes when you use a Private Annuity Trust, but you are not obligated to purchase another investment property—so this is the vehicle most used when an investor no longer wants to reinvest, but instead would prefer to receive retirement income.
If you would like more information about either one of these methods or to discuss
would best serve your needs, please call me at (720) 275-3926.

Opportunities for finding a great Rental Property abound in Denver’s real estate market today.
Enjoy this update of sales in various Denver areas in the first four months of 2008. You can see that prices are affordable in several popular Denver Metro areas and purchasing to hold is a great opportunity to build your financial future.

Area, Average Price Year to Date, % Change in Price since January

AUN, $99,939, - 6.5%
AUS, $194,066, - 5.8%
DHL, $362,055, - 2.7%
DNE, $203,568, + .05%
DNW, $250,369, + 3.5%
DSE, $473,213, - 8%
DSW, $129,598, - 4.3%
DEP, $366,333, - 2.5%
JFC, $239,795, - 6.5%

Buying Rental Properties

2008-05-07T09:32:00.000-07:00

In Today’s Real Estate Market, opportunities abound. One of the primary opportunities my Clients are asking about is purchasing a rental property.

All over town there are great Real Estate buys, perfect for holding for a few years and selling. The decrease in lending programs for those with poor credit has closed the door of home ownership for lots of people who would like to be in a home.

Buying a rental property allows my Clients the chance to take full advantage of both of these situations.

So should a Buyer put a lot of money down on his Mortgage Loan?

The only advantage of this would be if the Buyer had a significant amount of money to put down. In that case, a tax-deferred 1031 exchange would be ideal. A 1031 Exchange protects those funds from taxation owing to a reinvestment incentive. Please let me know if this may be of interest to you.

Outside of this instance, there is usually not a compelling reason to put a lot of money down on a mortgage loan.

It is essentially correct that a larger down payment means lower interest rates and monthly payments. However, it is sometimes better to take the money, if you have it, and invest it elsewhere.

Here’s why: one will usually do better paying an extra few dollars on the monthly mortgage payment and having the capital on hand.

Should an emergency arise, one does not need to take a home equity loan to use one’s own money. Oftentimes using another investment vehicle to hold the capital that would have gone down on the loan can produce regular and profitable results that can be enjoyed before the sale of the house.

Many in our area are taking advantage and spending as little case as possible to get in on a hot rental market in Denver. It’s a great way for you to take advantage of what’s going on in Real Estate and bring more security to your future. For more information, I can be reached at (720) 275-3926.

Taking Advantage of Opportunities in Denver’s Real Estate Market

2008-03-31T04:13:00.000-07:00

Taking advantage of the opportunities available in Denver’s Real Estate market means knowing where the deals are. The Denver Business Journal reported on February 26th that prices Denver home Sellers received for their homes were down 4.5% in 2007, but that this decline was less that what has been seen elsewhere in the US.

For those looking to take advantage of the price reductions in our local market, the key is learning what areas are now Denver’s best buys.

Clearly not all homes in Denver depreciated 4.5% percent last year. Some areas depreciated more and some significantly less, with a few neighborhoods even gaining in value.

Knowing your investment goals will help you identify a property that’s a great investment for you.

Buyers I am working with tend to be doing one of the following: taking advantage of the downturn to become a homeowner; taking advantage of lower interest rates and prices to “move up” while keeping their payment fairly level; and last, buying rental properties to hold for the long term.

While many Buyers have been shut out of the market with the loss of sub-prime lending programs, plenty of new Buyers with good credit but little to put down are enjoying great interest rates and low down payments offered by FHA. Oftentimes, the minimum down payment requirement of 3% is covered by the Seller as an incentive to buy in this market.

Current homeowners who did not experience the property appreciation they expected to are finding they can still move up, because of lower interest rates and the fact that the homes they are moving up into have not appreciated wildly either. Meeting with a lender is the first step in learning what your new payment will be for a more expensive home and what you will need to bring to the table to keep it in the ballpark of your current mortgage payment. Keep in mind that while you may be asked to lower your sales price or contribute funds to the Buyer, you can expect to ask the same of your Seller.

Foreclosure is a fact of life in this Real Estate market and it means a bubble in the Rental market. Fewer will qualify for loans now than in recent years and these people will be looking to rent—either because that can’t buy in the first place or because they lost their home in foreclosure. Learn about using 401K plans to help fund a Real Estate investment and renting through Section 8 or other rental programs that can make renting easier.

Here is 2007 Home Sales Data by Price Point and Area. Prices are holding steady in some areas and have dropped fairly significantly in other areas. Consider what your purchase goals might be, get professional advice on the best way to fund your purchase and begin looking. A more secure financial future may be just around the corner! For more information, I can be reached at (720) 275-3926.

Area, Average Price, % Change
AUN, 106,924, - 24%
AUS, 206,138, - 4%
DHL, 372,329, + 4%
DNE, 202,498, - 6%
DNW, 241,566, >1%
DSE, 514,319 + 26%
DSW, 135,534, - 23%
DEP, 357,255, - 4%
JFC, 256,473, - 6%

Denver home prices down 4.5 percent in 2007

2008-03-01T10:07:00.000-08:00

From the Denver Business Journal

Prices home sellers got for their properties in 2007 declined in metro Denver, but not as much as the United States as a whole, according to a Standard & Poor's study released Tuesday.

Denver-area home prices dipped 4.5 percent last year, compared to an 8.9 percent decrease nationwide, said the S&P/Case-Shiller Home Price Indices. Prices relate to the resale of existing single-family homes.

Miami remained this country's weakest market last year, with a 17.5 percent drop in home prices. Other markets with double-digit declines included Las Vegas and Phoenix (-15.3 percent each) and San Francisco (-10.8 percent).

Only three of the 20 markets evaluated by the S&P survey had increases in home prices -- Charlotte, N.C. (2.3 percent), Portland, Ore. (1.2 percent) and Seattle (.5 percent).
Markets with home price declines similar to metro Denver's included Chicago (-4.5 percent) and New York (-5.6 percent).

Dallas had the lowest drop in home prices at 2.4 percent.

The S&P/Case-Shiller index tracks the value of single-family housing in 20 major metropolitan areas, and is released monthly. The index doesn't report actual selling prices.

Data for the index is maintained by a committee consisting of representatives from Standard & Poor's, Fiserv Inc. and MacroMarkets LLC. S&P is part of The McGraw-Hill Cos.

Viewpoint: What the Bulls and Bears are Saying about Effects of the Real Estate Downturn – Nationally and Here in Denver

2008-02-29T20:34:00.000-08:00

What Are YOUR Opportunities in Today’s Housing Market?

by Marie de Espinosa, Real Estate Broker

Nouriel Roubini, Professor of Economics at NYU, claimed the current downturn is “the worst housing recession since the days of the Great Depression” at a Real Estate conference in New York City on January 9th. Citing a “systemic financial crisis”, Roubini believes the US economy and housing markets will take “years to adjust.”

While no one can deny that selling mortgage risk as securities of undetermined value has shaken the credit markets, with effects seen on Main Street and Wall Street, some believe that the impact will be localized: market reaction to banking fallout and regulatory changes for lending practices and securitization of mortgage debt.

Meanwhile, NAR Chief Economist Lawrence Yun is looking forward to a recovery. Announcing a National drop in pending home sales, Yun stated that “A meaningful recovery in existing-home sales could occur as early as this Spring, or it may be further delayed toward late 2008.”

Whether you consider yourself a Bull or a Bear, stability in sectors of the economy outside of the housing market and banking indicate that wide-spread recession is not immediately upon us. Reductions in interest rates by the Federal Reserve Bank, the stimulus package passed by Congress, and reports of increases in oil reserves are encouraging signs for many sectors of the economy. In light of this, the question of whether the housing downturn will bring down the wider economy becomes “How the significant is the local downturn and how will it affect you personally?”

I’m finding that Buyers I work with directly are writing lower offers, but that they are rarely accepted without compromise. That is to say, there is no fire sale is taking place in the Denver Housing Market. What I do see is that the liberal lending practices which allowed many to become homeowners has slowed dramatically, thereby reducing demand. This decrease in demand is seen across the board but most especially at the median price point and below. Sellers may be uncomfortable about the price cuts they are forced to accept in order to sell – but as I said, their Buyers are not calling all the shots.

Denver’s Seller disappointment is not the desperation seen elsewhere. Denver’s Real Estate market did not experience the “bubble” seen in other markets. Jeff Thredgold, an Economist with Vectra Bank Colorado points out that “In California, Arizona, Nevada and Florida, the average price of a home increased 84 percent during the past four years. Nationally, the average price rose 47 percent, and in Colorado, the average price increased between 15 and 18 percent.”

This means local Sellers more often must reduce the appreciation they expect to realize rather than slash their bottom line. Sellers are not bringing money to closing in order to sell their homes unless they purchased in the last couple years, with little down; or have over-improved a recent purchase with the expectation of terrific profit. We can all rest assured that over time the historical trend of property appreciation will continue.

Last, the foreclosure trend here in the Denver Metro area is impacting our Rental Market. Turned out of their homes and faced with tighter lending standards, many families are looking for a home to settle in and rent while they repair their credit. Look for ways to take advantage of the lower prices in the local market, gain passive income as landlords, and sell in a few years when a wave of wiser, credit-worthy renters look to become homeowners once again.

Is Housing Market Pessimism Overdone?

2008-02-29T20:26:00.000-08:00

From the Wall Street Journal Online

Just how bad off is the housing market? That’s the controversy brewing in Washington. Some economists, Democrats, bankers and consumer advocates are pushing for a rescue program for struggling homeowners as foreclosures mount. Meanwhile, as the Journal reports today, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson seem to believe that concerns about the housing market are overblown.

The housing market should be able to self-correct itself, Mr. Bernanke says in the article, with falling prices spurring buyers to jump in. He predicts that housing may bottom out sometime next year. Mr. Paulson adds this: “I don’t think I’ve seen any scenario where the American taxpayer needs to be stepping in with more taxpayer dollars.”

In his remarks today at a news conference at the White House, President Bush seemed to agree. Taking aim at Congressional proposals to help struggling homeowners, he said that a Senate bill would provide a needless bailout for speculators and lenders.

Meanwhile, Senate Majority Leader Harry Reid of Nevada is saying that government intervention is required to stabilize the housing market. “In my view, the enormity of the foreclosure crisis requires a much more aggressive approach,” he says in the Journal.

Home Is Where Green Can Start

2008-02-26T05:43:00.000-08:00

By Amy Hoak From MarketWatch

Consumers are bombarded these days with a multitude of suggestions to make their lives "greener." Many proposed changes start at home.

That's not a bad idea: The government estimates that the energy Americans use just to run their homes makes up 21% of total energy use throughout the country. And that statistic doesn't even touch on the other environmental issues that can be addressed in a home, including water conservation and indoor air quality.

To make homes friendlier to the environment and cleaner to the people who live in them, manufacturers have been busy refining their home products. At the recent International Builders' Show, green products were everywhere.

"When you go shopping now, it's not even a buzzword anymore -- it's expected," says Calli Schmidt, a spokeswoman for the National Association of Home Builders, referring to the "green" labeling of products. The NAHB sponsored the show.

Despite the many substantial investments that can make a home greener, smaller incremental changes often do count, Ms. Schmidt says.

For example, the federal Energy Star program claims that the country would save $600 million in energy costs annually -- or enough to light three million homes for a year -- if every household in the U.S. changed one light bulb to an Energy Star compact fluorescent light bulb.

Properly insulating a home is another way to increase its energy efficiency.

Those interested in doing more might consider upgrading their homes with these five products:

• Washers that save energy and water. The newest washers are front loading, with features that use less water to clean clothes. Whirlpool, for example, has a washer that uses steam technology to save 73% of the water and 77% of the energy used by top-load washers manufactured only four years ago. A spin speed cycle is able to extract more water from clothes, cutting down on dryer time. Dishwashers are benefiting from steam technology too. The KitchenAid Steam Option dishwasher saves about 2,400 gallons of water over the life of the appliance.

• Toilets that conserve water. In many homes, toilets are the biggest water users. To save water in the bathroom, manufactures are developing toilets that use less per flush.
Kohler has a Dual Force model under its Sterling brand that has two buttons on its tank: One allows 1.6 gallons for a "bulk" flush and another allows 0.8 gallons for "light waste" and liquid. Other single-flush toilets manage to use 20% less water than a traditional toilet, says Rob Zimmerman, senior staff engineer of water conservation initiatives at Kohler.

• No-VOC paints. Typically paints have contained some amount of volatile organic compounds. Today's paints often have low amounts of the gasses that hurt a home's indoor air quality, but a new product introduced at the builders' show contains no VOCs at all.
The Freshaire Choice line of paints is being offered at Home Depot stores. It claims to have no VOCs in the base or the tint, and the paint comes in recycled packaging. Generally, there has been an increasing awareness that poor indoor air quality can affect a family's health, says Deborah Jones Barrow, founder of TheDailyGreen.com, a Web site that offers suggestions for green living.

• Smart thermostat applications. Programmable thermostats are often touted as a way to keep energy costs down. The only problem is, many times consumers use them incorrectly.
But online computer programs, such as a new system from In2 Networks that works with Honeywell thermostats, allow consumers to monitor heating and cooling consumption and control settings from their computers. The In2 Networks system can show homeowners the difference a couple of degrees could make, both in terms of dollars and the home's carbon footprint.

• Low-flow faucets and showerheads. The latest versions of low-flow faucets and showerheads perform a lot better than their older counterparts, and homeowners who wouldn't sacrifice their hand washing or shower experiences for water conservation are giving these products a second look. Delta says it has a Water-Efficient Showerhead with H20kinetic Technology, a product that creates larger water droplets and provides a more drenching spray.

Prime Time: A Resurgence Begins in Mortgage Refinancing

2008-01-19T05:58:00.000-08:00

By Jeff D. Opdyke From The Wall Street Journal Online

Another mortgage-refinancing boom is under way. But this time around, many homeowners will be watching from the sidelines.

For the first time since 2005, mortgage rates have slipped well below 6%, ending last week at about 5.87%, according to mortgage tracker HSH Associates. Some lenders are offering even lower deals. At these levels, about 37% of homeowners could refinance their mortgages and save money on their monthly payment, estimates investment bank Bear Stearns Cos. As rates drop further -- and some expect that to happen if the economy continues to weaken -- increasing numbers of consumers will find refinancing their existing mortgage worthwhile.

But here's the catch, and it's a big one: Many homeowners won't benefit, either because their mortgage is too big or their credit score is too low. In other cases, falling home prices will make it tough for them to refinance.

As the subprime-lending crisis continues to roil the housing and financial markets, rates for so-called jumbo mortgages -- those above $417,000 -- are now uncharacteristically priced so far above conventional mortgages that refinancing generally makes no sense for homeowners who hold them. At the same time, conventional borrowers who have lower credit scores -- or relatively little equity in their houses -- are finding that they generally don't qualify for the best rates, often negating any expected benefits to the pocketbook.

The result: The big winners will be conventional borrowers with so-called conforming loans -- those eligible for purchase by Fannie Mae and Freddie Mac, the two government-sponsored entities that rule the mortgage market. In particular, borrowers with high credit scores or a large amount of equity already in their home, or some combination of both, stand to benefit, says Dale Westhoff, who heads Bear Stearns's mortgage research. In the past, when rates have dived below 6%, "you'd normally see subprime and Alt-A and jumbo borrowers" in the market, Mr. Westhoff says. "But they're really not going to be participants in this refi wave."

Fiona Furlong of South Glastonbury, Conn., is one borrower who has been able to refinance her home. She originally sought to refinance her conventional mortgage in December 2005, but missed the last of the sub-6% rates by a few weeks. She told her mortgage broker to keep her in mind if rates ever slipped below 6% again.

"When he called recently, I had sort of forgotten about this," Ms. Furlong says. "I was surprised to hear rates have dropped so significantly." She locked in a rate of 5.75%, reducing her current rate from above 6%, a move that will shrink her monthly payment by about $100. "My house just got reappraised and I'll be paying more in taxes, so that savings will help," she says.

Ms. Furlong's broker, Michael Menatian, president of Sanborn Mortgage Corp., in West Hartford, Conn., says his refinancing business is "surging" these days among those who qualify. "It's going nuts, because we've had such a dramatic drop in rates in such a short time."

At Regions Financial Corp., a Birmingham, Ala., regional bank, refinancing business is up between 40% and 45% since October. "This market will be very different than previous markets, and that's a function of the credit constraints and the jumbo-rate issues," says Todd Chamberlain, Regions's head of mortgage banking.

Ron Hermance is more blunt. The chairman and CEO of New Jersey's Hudson City Bancorp Inc. says many consumers "will be left out in the cold this time because underwriting is back in vogue," and many homeowners will find that during the previous housing boom "they originally got credit they weren't entitled to." In the first two weeks of this year, refinancings accounted for 56% of Hudson City's mortgage volume, compared with 42% for all of last year.

Overall, the Mortgage Bankers Association reports that for the week ended Jan. 11, weekly mortgage applications surged to a level not seen since spring 2004. Refinancings accounted for nearly two-thirds of the application volume, the group says. Still, those are just applications, and many are being rejected these days as lenders adopt tighter standards.

For jumbo borrowers, though, higher standards aren't the biggest problem: Rates on those loans averaged 6.8% at the end of last week, according to HSH, meaning the spread between conventional and jumbo rates is nearly a full percentage point -- four times the typical gap.

Jumbo rates, lenders say, aren't coming down alongside conventional rates because buyers of those mortgages in the secondary market remain skittish. As such, today's jumbo rates are well above the existing rates many homeowners currently have on their mortgage, meaning "there's no reason to refinance," says Jay Steren, CEO at Mortgage Capital Associates, a Los Angeles mortgage banker.

In the conventional-mortgage market, Fannie Mae and Freddie Mac are moving to risk-based pricing, which has the effect of tightening lending standards across the country. The upshot: Homeowners with weak credit scores or little equity in their home will pay for the risk associated with underwriting their mortgage through higher interest rates and added fees -- which has the effect of dimming, if not eliminating, the benefits of refinancing.

To get the best rates under the new risk-based guidelines, homeowners "need a credit score over 679, or equity of greater than 30%," says Sanborn Mortgages' Mr. Menatian. But as home prices fall in many markets, homeowners' equity sinks alongside it -- making it tough to get more-attractive rates.

The risk-based guidelines impose so-called delivery fees that range between 0.75% and 2% of the mortgage value for consumers with credit scores below 680. The highest fees are charged to those with credit scores below 620.

Mr. Menatian says buyers with credit scores in the 620 to 639 range, and who have less than 30% equity, are getting mortgage rates these days of about 6.375%, while the best borrowers are getting 5.75%.

Holders of jumbo mortgages, meanwhile, are running into other problems. Rodney Rideout, of Darien, Conn., has an adjustable-rate mortgage of about $500,000 scheduled to reset in March, meaning his interest rate will rise to more than 6%. That will bump up his monthly payments by about $460. He wants to refinance, but because of the jumbo market, he's unable to find an affordable fixed-rate mortgage.

"Everything is up near 7%, so it makes no sense," says Mr. Rideout. "I was thinking 'jumbo' meant something up near $1 million; I didn't think it would apply to my loan."

Indeed, the definition of jumbo could actually be changing soon. For months, Congress has been debating the idea of raising the limit on jumbo mortgages, possibly to $600,000 or more. If so, that would allow a larger number of borrowers to refinance at lower rates. But just what will happen, and when, remains uncertain.

In the meantime, rates on jumbo mortgages can vary significantly. While the average jumbo rate is about 6.8%, Hudson City Bancorp -- which operates in New Jersey, New York and Connecticut -- is offering jumbo mortgages at 6.25%, for example.

"You need to do some legwork, scour the market, to find the best rates," says Keith Gumbinger, vice-president of HSH. He suggests starting with lenders who often keep on their books the mortgages they underwrite, such as local banks, thrifts and credit unions. "They can easily be a half-percent lower than the averages," he says.

All of this is affecting the home-buying market, particularly for expensive homes. Buyers are increasingly aware of the high jumbo-mortgage rates and the impact on their monthly payment. Thus, sellers these days are adjusting their sales price or offering other incentives in order to trim a buyer's mortgage below the jumbo limit.

Neil Saunders, president of Greenwich Mortgage Corp. in Providence, R.I., is selling a 4,400-square-foot house in East Greenwich, R.I., priced at $998,000. To entice buyers, he's willing to offer an interest-free loan for a year or two on the cash needed above the $417,000 cutoff. Mr. Saunders expects Congress will raise the ceiling on jumbo mortgages and the buyer will then be able to refinance into a lower-rate, conventional mortgage.

Other sellers, says Ron Phipps, president of Phipps Realty and Relocation in Warwick, R.I., are buying down the interest rate for buyers, often for just a year or two, to make it more comparable to a conventional rate.

"Everyone is very sensitive to this situation right now," Mr. Phipps says. "This is still a correcting market."

Lower Home Prices in Denver? Possible But Not Certain

2008-01-16T05:14:00.000-08:00

Denver Business Journal 1-15-08

The Denver-Aurora metropolitan statistical area is on the list of regions where home prices are likely to be lower in two years.

But the report issued Tuesday by PMI Mortgage Insurance Co. of Walnut Creek, Calif., doesn't place the risk of home prices falling in the region as a certainty.

The report is based on third-quarter data on mortgages, foreclosures, home prices, labor market statistics and offers metro areas a scale of one to 100. The scale translates to a percentage; a score of 50 indicates a 50 percent chance home prices will be lower in two years.

The score for the Denver-Aurora MSA -- which covers 10 counties including Denver, Jefferson, Adams, Arapahoe, Broomfield and Douglas -- is one. The same score is shared by the Cleveland area. Other metro areas, such as San Antonio, Pittsburgh and Dallas, were given a score of less than one.

The risk of home prices falling in two years is highest in California and Florida as well as in Las Vegas and Phoenix. The Riverside area of California had the highest risk score, at 94 percent, while the score for Las Vegas was 89 percent.

Plus to Downturn: Lower Costs For Renovating or Building a Home

2008-01-12T08:27:00.000-08:00

By Sara Lin From The Wall Street Journal Online

It's not the best time to be selling a house in much of the country. But increasingly, it's a good time to build or renovate one.

The housing slump has pushed down prices on everything from lumber and drywall to labor and design fees. Legions of carpenters, tile layers and landscapers are idle. Architects are taking on small renovation projects they once would have sniffed at and contractors are offering their services at a discount. Some people in the building trades are even posting fliers at construction sites to drum up business.

It's a striking contrast from the heady days of the real-estate boom, when builders and contractors could hardly keep pace with demand, prices of materials soared and a six-month wait to start a kitchen renovation was commonplace.

Now, some homeowners are moving forward on renovation or building projects they've put off for years. Others are exacting substantial price cuts from contractors desperate for work.

A few months ago, Mike Bowes remodeled the bathroom and guest bedroom of his $200,000 condo in Las Vegas. The job, which cost $14,000, included a walk-in shower, a new vanity, bamboo flooring in the guest room and retextured plaster on the walls and ceilings. Last year, the same work would have cost nearly twice as much, he estimates, "and I would have had to beg someone to do it." Now, the 47-year-old commercial roofing sales manager is planning to upgrade his kitchen, living room and porch. While prices remain low "I'm going to keep going," he says.

Even small repair jobs, once the province of independent plumbers, electricians and handymen, are getting scooped up by larger firms. When a bathroom pipe burst at the home of Julie Gebhardt, a schoolteacher in Manchester, Mich., she called a local builder for a referral. Instead, the firm, Peters Building Co., said it would take the job itself. The company needs the work, says President Jim Haeussler. Before the slump, the company built 70 to 80 houses a year to sell on the market at $300,000 to $500,000. So far this year it has built just 18 houses, Mr. Haeussler says.

'Now Is the Best Time'

The Joint Center for Housing Studies at Harvard University estimates that 1.3 million homes will be built this year in the U.S. -- down from just over two million in 2005. On Tuesday, the Commerce Department said construction of single-family houses fell 25% in October from a year earlier.

Meantime, more homeowners will renovate their kitchens this year -- 7.57 million, up from 7.44 million in 2006 -- but they will spend a lot less, $96.2 billion compared with $127 billion, according to the National Kitchen & Bath Association. Bathroom renovations this year are expected to rise by 5.3% to 10.9 million from 2006, while spending on them will grow 3.8% to $70.2 billion from 2006, the trade group projects.

One reason some renovations will cost less this year is the falling price of many key building materials. The price of oriented strand board, a plywood substitute used for walls and roof sheathing, dropped 40% from the third quarter of 2005 to the same quarter this year, according to the National Association of Home Builders. During the same period, framing-lumber prices fell 24%, says the association. And drywall prices -- which soared during the real estate run-up to a record -- dropped 35% from last year's third quarter, according to United States Gypsum Co., the largest manufacturer of drywall in North America.

"If you're going to do any kind of construction...now is the best time you're going to have to do that in the next five years," says Bill Harrison of Harrison Design Associates, an Atlanta-based architecture firm that specializes in high-end homes.

It's also a good time to be shopping for an architect. Bryan Jones, of Jones Pierce Architects, also of Atlanta, says his 12-person company used to concentrate on remodeling jobs valued between $250,000 and $750,000. But now, he says, inquiries about new projects are down by nearly half from a year ago, and the firm is taking on smaller jobs to make up for the lost work. "We're chasing stuff we definitely wouldn't have done a year ago," he says.

The same goes for builders. After Russ Nank Jr.'s three-bedroom ranch house in Rock Creek, Ohio, burned down last year, he snagged Payne & Payne Builders, a Cleveland-based firm, to erect a four-bedroom Cape Cod-style home. The firm took on the $179,000 project even though it was located outside its usual territory and was about one-third the size of its usual jobs. "The timing could not have been better for us," Mr. Nank says, adding that he was able to afford a bigger home with more costly upgrades, including hickory cabinets and granite counters, than he had expected.

Two years ago, says company co-owner Dave Payne, he would have politely declined such a project. "We had a map, we had a line and we didn't go outside of that line," he says of his company, which is about 45 miles from Rock Creek. But as he watched his list of prospective projects shrivel to five from 30 last fall, Mr. Payne says he threw out the rules. In April, his company even built a $25,000 one-room addition for one client. "We're chasing every lead," he says.

Not all parts of the country have been affected equally. Builders in Seattle, New York and Los Angeles, where the job and housing markets have remained firm, report business as usual. And many architects who specialize in high-end homes say they are as busy as ever.

But the picture is much different in states like Nevada, Florida and Arizona, building hotbeds during the housing boom that have since gone bust. The same is true in Midwestern states such as Michigan and Ohio, particularly hard hit by foreclosures and subprime-mortgage defaults. In these areas, builders, contractors and landscapers say they're watching their backlog of work shrink to a few weeks from months, as new projects dry up.

Prices Too Low?

Amid the flurry of competitive pricing from hungry builders comes a warning for homeowners: Prices that seem too good to be true very well might be. "If somebody's low-balling it, they're probably cutting out something that's important and you need to know what it is," says Deborah Pierce, an architect in Newton, Mass.

This spring, Nicki Tragesser, 54, of Atwater, Calif., started building a 635-square-foot, two-story addition for her ranch house. She had called 10 contractors and chosen the one who gave the cheapest estimate after being impressed by a house he'd just finished.

"I felt flabbergasted he was only going to charge me $69,000 for what I wanted," Ms. Tragesser says. Only after she signed a contract did she learn that she would have to purchase an air-conditioning unit herself and pay an electrician separately to do the wiring. And that was just the beginning. Four months after construction should have wrapped up, her cement floors are cracking, the flooring upstairs is uneven and doors hang lopsided on their hinges. The contractor has quit and Ms. Tragesser spent an extra $12,000 trying to correct his work. The contractor didn't return a call seeking comment.

But others have used their newfound bargaining edge to their advantage. Amy and Bob Phillips of Tucson, Ariz., began work on a four-bedroom, Adobe-style house in February. With newly lower pricing on a variety of items, including stucco, wood and labor, the Phillips were able to afford upgrades such as solid wood doors, glass doorknobs and steel garage doors on their $800,000 budget.

While their builder did most of the bargaining on materials for the house, the couple bid out a backyard pool themselves. By pressuring contractors to lower their bids, the Phillipses have knocked $8,000 off the cost. "We're definitely playing people off each other, and they're definitely dropping their prices," says Mrs. Phillips, 44, a convention planner.

Auction Reveals Strength of Local Housing Market

2008-01-09T09:05:00.001-08:00

By Nancy Keates

Here's one way to gauge the health of your local housing market: Attend a housing auction.
When I heard that a local homebuilding company would be auctioning off hundreds of brand-new houses, it seemed like a good opportunity to see what people are willing to pay for a home where we live, Portland, Ore. We are building our home to live in -- but reselling it is always in the back of my mind.

On December 15 and 16, 2,400 people showed up at the Oregon Convention Center for an auction of 220 houses by builder Buena Vista Custom Homes. The well-marketed event opened with blaring rock music and slideshows of the houses for sale; it quickly turned to business as auctioneers dressed in black suits urged bidders on. The auctioneers, from the Irvine, Calif.-based Real Estate Disposition Corporation, yelled "Today's the day," "It's a great subdivision, folks" and "This is a once-in-a-lifetime opportunity to own a brand-new home at auction prices."
When they asked audience members to raise their hands if this was their first housing auction, about two-thirds of the people had their hands in the air.

Fueled by free coffee and candy, bidders purchased 141 homes in two days for an estimated $65 million. The houses that didn't sell were either occupied by renters, located in Bend -- a town in Eastern Oregon that would necessitate a four-hour drive for interested bidders -- or had pre-set reserve prices higher than anyone was willing to pay.

Buena Vista won't disclose what those reserve prices were (saying only that the prices reflect building costs). But the company says about 96% of the homes sold for less than their reserve price, which averaged about $460,000.

Most of the homes up for auction were located in Happy Valley, a suburb about 18 miles east of the city. One 4,624 square-foot, four-bedroom, four-bathroom home there went for $465,000, while a 3,581-square foot, five-bedroom, four-bathroom home in the same area sold for $390,000.

Keep in mind that buyers had to pay a fee that equaled 5% of the winning bid.

It seems to me that if the home builder had to urge people to buy by telling them "Today's the day," then these weren't such amazing deals. That feeling was echoed by Kevin O'Keefe who attended the auction to find a new house with a main-floor master bedroom. He had his eye on two possibilities, but halfway through he said he doubted he would purchase one because the prices were much higher than what he had expected and wanted to pay -- under $450,000. Before the auction, he tried to buy one home listed with a starting bid of $299,000 -- but the company wouldn't sell it for less than $475,000, he says.

Just holding an auction shows that the market has slowed. In November, the number of closed home sales in the Portland metro area fell 20% and the number of accepted offers dropped 28% over a year earlier, according to Residential Multiple Listing Service.

However, the median home price for new and existing homes was $285,000, up 2.5% from $278,000 in November 2006. The number of days a house spent on the market was 67 days compared to 51 days a year earlier.

How did the company do? A Buena Vista spokesman says that since the prices were under the reserve -- and the reserve was set at about what it cost to build the homes -- that the company didn't come out ahead. But he says company owner Roger Pollock was "really pleased with sales." The spokesman adds, "There were no crazy sales," meaning that the prices weren't too low.

How about the buyers? Some 85% were "Dick and Jane home buyers," according to the Buena Vista spokesman. Most of the local real-estate agents I spoke with said they weren't worried that the auction would further depress the market because the selling prices were high. "I didn't see any fantastic deals," says Mike Ohrig of Rio Realty Inc. of Beaverton, Ore.

Buena Vista markets itself as a builder of "upscale family homes," but to my eye they are anything but unique and special. In various shades of development beige, they tend to have cheap-looking siding, are fronted by gaping garages and spaced not far from the houses next door. They're mostly located in what Buena Vista calls "growing suburbs"-- sterile developments near the city's big highways. If you're lucky and you drive in circles long enough, you might hit a strip mall with a Starbucks.

The auction renewed my confidence in the Portland housing market. If people are willing to pay almost $500,000 for these homes, then it seems likely there would be a buyer for the house that we are building, which is only a few miles from downtown Portland yet completely private, on more than an acre of land.

I didn’t see the insides of the homes for sale, but one of the home buyers at the auction, Craig Ziegler, said he was unimpressed with the finishes or choice of appliances. "It looks like they cut corners to get the houses built fast," he told me. "We looked at a dozen homes and they were all pretty much the same." Mr. Ziegler thought the materials seemed cheap, the trimmings were minimal and things like the furnaces and the water heaters were inefficient.

Throughout the process of choosing interior finishes and materials for the home we are building, I have been torn between going with what I love and choosing what might appeal to home buyers to boost our new house's resale value. For example, instead of choosing colored glass tiles for the master bathroom, I went with mostly white stone. But in every case I have decided not to cut corners, which will heighten my own experience living there. I also hope it will help us to sell it if and when we need to.

Auction Reveals Strength of Local Housing Market

2008-01-09T09:05:00.000-08:00

How to Sell a Home in 2008

2008-01-03T10:00:00.000-08:00

By Amy Hoak From MarketWatch

If you're planning to sell a home in 2008, it's time to start thinking about how to make that home stand out from the rest.

But beware: Homeowners aren't able to recoup as many improvement costs as they did in recent years, according to a recent study by Remodeling magazine. In selling a home, "it's more important that it's neat, it's clean and it looks spacious, rather than making sure it's the top of the line," says Cheri Kuhn, owner of Waters Realty in Minnetonka, Minn.

"The thing I find with sellers -- if they do a lot of remodeling -- they will take the cost of the remodeling and add it to the cost of the home and ask the buyer to pay for it," she says. But often they're not going to get that higher price.

To keep costs down and remodel wisely, consider the following tips:

Ask for advice. When Ms. Kuhn first meets with clients -- sometimes six months before listing the home -- she'll make a list of improvements that will make a difference. Cleaning the carpets, painting the walls and removing wallpaper are common fixes -- if they're needed.

But prior to any remodeling, declutter your home and rent a storage unit if necessary to hold extra stuff while the home is on the market, says Shannon Aldrich, a Realtor in Maine and New Hampshire with Keller Williams Coastal Realty.

Dig deeper. It also could pay to look below the surface by getting a home inspection before listing the property. That way, problems that could hold up a sale are addressed in advance, says Dan Steward, president of Pillar to Post, a Tampa, Fla.-based home-inspection company. Some estimate that for every dollar of perceived defect, buyers want a $2 to $3 discount, Mr. Steward says. If that's true, it might pay to spend $2,500 replacing an old furnace.

If there's a problem with an essential element of the house, Ms. Kuhn says, a buyer might think "if that was neglected, what else was?"

Look outside: Pay attention to exterior details such as the condition of siding and windows, Ms. Aldrich says. According to Remodeling magazine, a wood window replacement recovers an average 81% of cost at resale and a siding replacement recovers an average 83%, some of the best payoffs in the survey.

Spend time in the bathroom. Freshening up the bathroom doesn't have to be expensive, but can be important. "People will put up with a lot of cosmetic challenges in a house if they know they could use the bathroom right away," Ms. Aldrich says. It's important for the bathroom to be clean, but also consider replacing cracked tiles, as well as the sink and the toilet -- if they need it, she adds. A toilet, for example, can cost less than $250.

Keep it small in the kitchen: Remodeling magazine found that homeowners could recover 83% of the cost of a minor kitchen remodel at resale compared with 78% of a major kitchen remodeling. Ms. Kuhn cautions her clients not to replace refrigerators, stoves or dishwashers. Buyers considering remodeling the kitchen will likely have their own preferences.

Along those same lines, replace a countertop if it's crumbling but not if its only fault is that it's outdated, Ms. Kuhn says. Even then, seriously consider material costs -- there's no need to update to granite unless the competition has granite countertops as well.

Bush Touts Mortgage Plan for Housing and Credit Crises

2007-12-29T05:43:00.000-08:00

By Matt Phillips, Damian Paletta, and Henry J. Pulizzi from the Wall Street Journal Online

President Bush and Treasury Secretary Henry Paulson began a full-court press to make the administration's case that it has the housing and credit situations well in hand.

Speaking to a Rotary Club meeting in Fredericksburg, Va., Mr. Bush reinforced his opposition to a federal bailout of lenders and real-estate speculators, but said administration initiatives will help still-creditworthy homeowners renegotiate their mortgages and remain in their homes.
"It's going to take a while to work through the housing bubble, but we can mitigate some of the issues," Mr. Bush said. "We've got a strategy."

Mr. Paulson told a town hall meeting on the outskirts of Orlando, Fla., that there was no "silver bullet" to solve the credit-market problems, though he expressed optimism about several programs designed to limit mortgage foreclosures and restore market stability. The meeting was the first of several in towns across the country this week to discuss White House efforts to minimize foreclosures.

"The magic here is investors and servicers coming together to deal with an unprecedented situation so we don't have perverse outcomes and so that we don't have a market failure," Mr. Paulson said. Mr. Paulson used the term "market failure" at least six times and "unprecedented" at least twice in less than two hours.

Mr. Paulson helped broker industry discussions that led to a new format announced two weeks ago to make it easier for many homeowners with subprime adjustable-rate mortgages to move toward more affordable refinanced loans. Many other borrowers could qualify to have their interest rates frozen for up to five years.

With record numbers of subprime adjustable-rate mortgages resetting into more expensive monthly requirements and housing prices falling in many parts of the country, foreclosure rates have risen sharply, putting pressure on the economy.

Mr. Paulson said he supported Citigroup Inc.'s decision last week to move its assets from its structured investment vehicles, or SIVs, onto its balance sheet. SIVs, which issue short-term debt to buy other, higher-yielding assets, have been struggling because of exposure to risky subprime-mortgage debt.

He spoke enthusiastically about supporting a legislative proposal to allow government-sponsored enterprises Fannie Mae and Freddie Mac to securitize more expensive mortgages to spread their liquidity function into a different part of the market, but signaled that the administration would condition its support on broader regulatory reform of the companies.

In Virginia, the president warned lawmakers not to raise taxes while the U.S. economy faces credit-market-related challenges, saying his administration has a good plan to deal with the turmoil in the housing market.

He touted the Federal Housing Administration's mortgage-renegotiation program, known as FHASecure, and the Treasury Department-led private-sector initiative for homeowners about to be stung by resetting mortgage rates.

"I am concerned, I know you're concerned, about the housing industry. We all should be," Mr. Bush said.

Democrats were quick to criticize Mr. Bush's remarks as overly optimistic on the economy and unrealistic on the effectiveness of the White House's housing policies.

"The Bush administration continues to see the economy through rose-colored glasses, whether it be the subprime crisis, the credit crisis, the energy crisis or the declining dollar, it blithely marches along without making any serious effort to solve these economic problems," said Sen. Charles Schumer (D., N.Y.)

Rental Corner: When to Repair Your Tenant's Property

2007-12-27T06:19:00.000-08:00

Getting Your Fix: Renters' Rights to Minor Repairs

How to get landlords to keep their end of the maintenance bargain.

Renters often feel stuck with less-than-ideal living conditions. Maybe the drip, drip, drip of your leaking bathroom faucet is driving you insane. There's an unsightly stain in your living room carpet. Or the paint in your kitchen has gone from crisp white to the dingy yellow of spoiled milk. These aren't huge problems and don't justify a move. But you don't just have to live with them, right?

Landlords Must Fix Major Problems

Your landlord is responsible for keeping your unit in a habitable, or livable, condition. The landlord must keep the structure of the building sound, including stairways, floors, and roofs; keep electrical, heating, and plumbing systems operating safely; supply hot and cold water in reasonable amounts; and exterminate infestations of pests such as cockroaches.

Keep in mind, however, that if a problem is the result of your own carelessness -- such as a vermin infestation caused by your poor housekeeping -- the repair bill will properly be forwarded to you. If you don't pay it, the amount may be taken out of your security deposit.

Landlords May Have to Make Minor Repairs

What about the annoying problems most tenants face, like leaky faucets, old paint, torn screens, or worn flooring? While these types of problems can be unpleasant or inconvenient, they don't make the unit uninhabitable. Does the landlord have to repair them?

Whether your landlord must take care of a minor repair depends upon a number of factors, beginning with the nature of the problem. Purely cosmetic repairs are not legally required. Mildewed grout or worn carpet, for example, are less likely to require a landlord's attention than are loose tiles that make the shower unusable or holes in carpeting that could trip someone.

If you're not sure whether your landlord is legally required to make a repair, check to see if your specific complaint is addressed by:

the terms of your lease
any oral or written promises your landlord has made
state and local building codes, or
state landlord-tenant laws.

How to Get Your Landlord to Make Minor Repairs

It's often harder to enforce your rights to minor repairs than major ones. Tenants in an uninhabitable dwelling are often allowed by law to withhold rent or use "repair and deduct" procedures, but taking those actions for merely minor problems could get you evicted. There are, however, a number of proven strategies for getting landlords to take care of minor problems.

1. Write a repair request. Even if you've already asked your landlord to take care of a problem, a written request is almost always helpful. It gives you a chance to articulate the problem clearly and point out why it's in the landlord's best interest to have it fixed. A letter also allows a reluctant landlord to think it over without having to give you an immediate answer (which often results in a knee-jerk "no").

Try to develop a number of themes in your letter. One effective tactic is to explain that the problem might become worse -- and more costly to the landlord -- if it's not taken care of right away. A landlord might find it easy to ignore your drippy faucet until you point out the possibility of an overflowing sink and water damage to the floors.

Another theme that will grab your landlord's attention is the potential for injury. A hole in the stairway carpeting could cause someone to trip and fall, making the landlord liable for the injury. Landlords are also sensitive to security issues, so be sure to point out any security risks created by your problem, such as a broken lock or faulty hallway light. Finally, if the problem affects other tenants, be sure to emphasize that.

2. Propose mediation. If your oral and written requests are ignored, contact a mediation service, which will invite the landlord to meet with you and a trained mediator. The mediator will help the two of you reach a mutually-acceptable solution, but will not (unlike a judge) impose a solution. Many communities offer free or low-cost mediation services as an alternative to going to court.

3. Report your landlord to your local building or housing agency. Some minor problems may violate local building or housing codes. Call the agency that enforces these codes in your area to find out. (Look under the city or county government listings of your phone book.) Officials at the agency should be able to explain whether your problem violates local or state codes, and may be able to take action against your landlord.

Keep in mind that reporting your landlord won't likely improve your relationship, which may be important to you if you want to stay in your unit for some time. Even state "antiretaliation" laws, which prohibit rent hikes, terminations, or other adverse actions following a tenant's complaint to a government agency or exercise of a legal right, cannot forestall a sour relationship.

4. Sue your landlord in small claims court. If you can prove in court that the unaddressed problems decrease the value of your unit, a judge can award you the difference between what you've been paying in rent and the amount the unit is actually worth. Obviously, suing your landlord is not your best option if you want to salvage your landlord-tenant relationship. But if you've tried everything else and moving elsewhere is not feasible, taking your landlord to court might be the right remedy.

Looking for an End to the Housing Slump

2007-12-26T05:12:00.001-08:00

By Amy Hoak From MarketWatch

CHICAGO -- After a year of falling house prices in numerous parts of the country and a meltdown in the mortgage market that affected borrowers regardless of their ZIP code, many hope that housing markets will finally start to get better next year.

But if there's any improvement in 2008, it may be relatively modest.

It's difficult to get a consensus on exactly when housing will turn the corner. Local markets will certainly vary, but at the least it's likely that some of the same problems that plagued 2007 will carry over into next year.

At best, market conditions could start to stabilize, with home sales regaining strength. If more buyers get back into the market, some of the huge inventories of new and existing homes for sale can begin to be worked off.

"The only reason why demand is finding a bottom is because sellers are cutting their prices," said Mark Zandi, chief economist of Moody's Economy.com. "There was a sense that the market would cool -- I don't think there was a sense it would crash. And it crashed."

The National Association of Realtors predicts a slight increase in existing-home sales next year but a decline in new-home sales. Others aren't as optimistic, including the Mortgage Bankers Association, which is predicting that sales won't pick up until 2009.

After the median price for existing homes dropped 1.9% in 2007 to a projected $217,600, NAR forecasts that the median price will rise 0.3% to $218,300 in 2008.

But the MBA is expecting prices of existing homes to decrease 2.93% in 2007 and 2.04% in 2008; new-home prices should decrease 2.72% in 2007 and 1.96% in 2008.

A recent Economy.com report, "Aftershock: Housing in the Wake of the Mortgage Meltdown," predicts home sales will hit bottom in early 2008, with housing starts hitting bottom mid-2008.

But prices will continue to drop, and by early 2009 home prices will have fallen about 13% nationally from their peaks, according to the report. Prices will have fallen more than 15% if nonprice discounts to buyers are taken into account.

Housing's ills

Housing's most fundamental problem, according to the Economy.com report, is the excess of unsold inventory lingering in many of the country's local markets. The supply of homes for sale hit its highest level in 22 years in October, according to NAR.

Overbuilding is a culprit in many markets, and investors who are unloading units bought during the boom are adding to the massive supply, the National Association of Home Builders pointed out in a recent forecast. In December, the group reported that single-family housing starts were down by about 50% from a record high at the beginning of 2006.

"Once we hit bottom ... we're going to stay there for awhile," at least in terms of new construction, predicted Richard F. Moody, chief economist of Mission Residential.

Adding to the already elevated inventories are foreclosures hitting the market. According to the MBA, 1.69% of first-lien mortgages were in the foreclosure process in the third quarter. The percentage was the highest in the survey's history, and the group expects high numbers of foreclosures to continue into next year.

Areas where overall economic conditions were weak, including Michigan and Ohio, drove up the national foreclosure numbers, as did areas where there was much investor speculation, including California, Nevada and Florida. Defaults on adjustable-rate loans -- especially subprime loans made to borrowers with weaker credit histories -- caused a lot of the strain; when the mortgage's teaser period was up, homeowners couldn't keep up with payments.

The mortgage meltdown this summer made it tougher for some borrowers to get a loan, another stumbling block in this housing market. In particular, nonconforming loans, which can't be bought by government-sponsored mortgage agencies Freddie Mac or Fannie Mae, were harder or more expensive to come by.

Many borrowers with good credit and a decent down payment were fine, but subprime loans, intended for borrowers with poor credit histories, became a thing of the past. Alt-A loans, which required little or no documentation, became a rarity. And rates on jumbo loans went through the roof, making it tougher for home buyers in expensive markets.

Some borrowers who could qualify for a Federal Housing Administration insured loan turned to those, and proposed FHA modernization may help some borrowers even more. But in the second half of the year, the credit disruptions slowed down an already sluggish market.

Waiting for the rebound

Rick Loughlin thought the Boston market appeared to be "really coming alive" this summer.

"Then we had the mortgage crisis," said Loughlin, chairman of the Greater Boston Real Estate Board and president of Coldwell Banker Residential Brokerage New England. The borrowing ability of many individuals took a hit, reducing the number of buyers able to enter the market and stranding homeowners looking to trade up.

The lending landscape isn't likely to change much in the near term, with no-documentation and low-down payment loans remaining harder to come by, Moody said.

Perhaps the only bright spot in the mortgage arena this year was low interest rates on conforming loans. The average rate on the 30-year fixed-rate mortgage fell below 6% at one point in December; NAR expects the 30-year to rise to about 6.4% by the end of 2008.

The low rates "should have provided a lift to home sales, but it has not," said Lawrence Yun, NAR's chief economist. That indicates to him that the elevated cost of jumbo loans is still taking a toll. If conforming loan limits were raised to accommodate expensive markets, it could have a greater impact on housing than the current low conforming rates have, he said.

Sitting on the sidelines

The home price drops encouraged a number of people to put home buying decisions on hold. In some of the most sluggish markets, sellers who don't absolutely need to sell aren't attempting to do so; those who do are offering price cuts and concessions to make the deal.

"A lot of buyers and investors are sitting on the sidelines. They feel unsure what is happening in the marketplace," said Devin Reiss, president of the Greater Las Vegas Association of Realtors. Some mistakenly think that it's impossible for anyone to get a mortgage nowadays, even with good credit, he said. Often, however, fears revolve around the undesirable scenario of buying a home only to watch it decrease in value a short time later.

His advice for bargain hunters: Don't wait too long.

"If we start to see demand go up and supply go down, prices will go (up) with it," he said.
But probably the best advice is to know your market before making any kind of move.

"A hallmark of the downturn is how broad it is across the country," said Economy.com's Zandi. But even in poor-performing markets there could be good neighborhoods, he said, adding that housing conditions vary "block to block."

NAR reported that 93 out of 150 metropolitan areas showed increases in median existing single-family home prices during the third quarter of 2007, compared with 2006, even though price drops in other areas brought down the national median price.

Still, Bob McNamera, a real-estate agent with Pasquesi Realty in Chicago, said that some people are staying out of the market based on what they hear about general trends.

"They hear it's a bad market, and don't do any more homework," he said. First-time buyers, however, with a down payment and decent credit, could find bargains, he added.

Even in Stockton, Calif., an area hard-hit by foreclosures, Renee Becker, a Realtor and vice president of Beck Realtors, has hope for next year. The deals in the foreclosure inventory might bring back more investors and help fuel a slow and gradual recovery, she said.

Looking for an End to the Housing Slump

2007-12-26T05:12:00.000-08:00

Which is the Better Investment: A House or a Town Home?

2007-11-24T05:19:00.000-08:00

By June Fletcher From The Wall Street Journal Online

Question: I can't decide whether I should buy a town house or a single-family home that's about the same size. Which appreciates faster?

June Fletcher: Pop quiz: What's the difference between a town house and a condominium?

Answer: The truth is, sometimes they're the same and sometimes not.

The answer matters because some local data collectors arbitrarily group price and sales statistics on town houses with those of single-family detached homes; others include them with condominiums. Either way, it's likely that at least some town-house developments in any city have been put into the wrong group.

The confusion comes because a town house, which is simply a multi-story, attached residence, can be owned one of two ways -- either with or without the lot. If the developer includes the town house's lot in the sale, ownership is "freehold" or "fee simple," just like most single-family detached homes. If the lot isn't included in the sale, the town-house development is considered either a condominium -- where owners own everything up to party (or shared) walls individually, but share ownership of the land and common elements like pools and swimming pools with other neighbors -- or a co-op, where individuals receive a fractional stake in buildings, land and common elements that are owned and controlled by an association.

The way a property is owned has a big impact on payments for insurance, maintenance and homeowners' association fees. So it doesn't make much sense to try to compare a condominium or co-op town house with a fee-simple single-family house merely on the base of purchase price.
Other factors, like finishes, location and demographics, muddy the comparison, too. For instance, will a 2,000-square-foot urban town house with granite countertops, crown molding and marble floors, targeted to empty-nesters, build up equity faster than a same-sized house with a big yard way out in the suburbs, built for young families? It depends on whether there are more empty-nesters in the area looking for homes at the time you want to sell, or more young families.

If you have already narrowed your search to a particular town house and single-family house, it may be worthwhile to check public records at your local municipality or online. But don't assume that these rates will be constant forever (even though some economists make that very assumption when they make their pricing prognostications). A change in traffic patterns that creates gridlock might make an urban town house more valuable to buyers in the future than a comparable suburban tract house; conversely, an uptick in crime in a neighborhood may cause buyers to flee to the 'burbs. Since such events are inherently unpredictable, you might as well just buy the house that you like best.

Nearing Foreclosure? Chapter 13 Delivers Foreclosure Alternative

2007-11-23T08:57:00.000-08:00

November 7, 2007 Rocky Mountain News

Facing rising mortgage payments and a weaker housing market, more Coloradans are turning to Chapter 13 bankruptcy to try to avoid losing their homes.

"Given the dramatic spike in foreclosures, we're seeing a lot more people coming in saying, 'I want to save my house, but my mortgage has adjusted, what can I do?' " Denver-based bankruptcy lawyer Tara Gaschler said.

In a year that could set a state record with more than 40,000 foreclosures, many people had mortgages with low introductory rates that are being reset higher.

"Now they're in over their heads," Gaschler said.

Chapter 13 can allow people to pay off mortgage and other debts over three to five years and to avert foreclosure. For those who have fallen behind because of sickness, job loss or a one-time setback but have steady income, Chapter 13 represents "a chance to get caught up and hold on to their property," she said.

Chapter 7, she said, means liquidation, and in many cases debtors can kiss their homes goodbye, even if a filing puts a temporary freeze on a foreclosure.

Still, many people across the state are in too deep of a hole to hold on to their residences, and a bankruptcy filing will be a stain on their records, affecting their ability to get financing.

Lawyer Larry Carroll said 20 percent of the cash- strapped Coloradans walking into his office end up entering Chapter 13 - double the traditional level - but many of them who are hoping to stave off foreclosure ultimately fail.

When monthly mortgage costs increase, clients usually cannot keep pace, he said. For primary residences, mortgage terms cannot be modified in bankruptcy, he noted.

"People expected an ever-appreciating home real estate market," the attorney said.
This year, Chapter 13 filings account for about 16 percent of all Colorado bankruptcy cases, up from 10 percent in 2003 and 2004, before new legislation sparked a frantic rush to the courthouse.

The number of bankruptcy cases in Colorado soared to 43,100 in 2005 as people raced to beat the deadline; the number fell sharply to roughly 9,700 in 2006. Many who would have waited to file in 2006 chose to do so earlier, and others may have been led to believe bankruptcy was no longer an option. Now the case load is increasing again, with the 2007 figure nearing 15,000, up 60 percent from last year.

Before long, the volume could return to the levels seen before the new law made headlines.
Grand Junction and the Western Slope - where the economy has flourished amid an energy boom - make up 4 percent of all the state's bankruptcy cases, down from about 9 percent in 2001.

The stricter bankruptcy law was designed to steer more people from Chapter 7 into Chapter 13. The former wipes out debts such as credit card and medical bills after certain assets have been forfeited, providing a "clean start." The latter requires debtors to adhere to a repayment schedule. Banks and credit card companies backed the law, arguing that people too often abused the system. Consumer advocates said those financial firms are to blame for Americans' huge debt.

The legislation also implemented a "means" test, gauging a consumer's ability to repay their obligations. Those deemed to have insufficient assets or income still can file for Chapter 7.
The law isn't as restrictive as many expected. More than 90 percent of the people who met the Chapter 7 criteria yesterday still do today, experts said.

"The 2005 media blitz created the perception that it was no longer available or only as a last extreme," said Brad Bolton, clerk of the Colorado bankruptcy court. "That's simply not true, and people are discovering that."

"Consumers ought to know it's still accessible," Bolton added. "It hasn't changed significantly or impacted most people, other than requiring a little more work up front."

Bankruptcy lawyer Gaschler said plenty of Coloradans looking at Chapter 13 as a way to stay off the long foreclosure line are bound to be disappointed.

"The real key to Chapter 13 is the ability to be able to have some sort of steady income," she said. "If you are $15,000 behind on your mortgage, and you can't make regular payments, it might be time to face the facts."

Real Estate Woes Help Apartment REITS

2007-10-04T05:02:00.000-07:00

By Alex Frangos From The Wall Street Journal

When the music stopped in the residential-real-estate market, speculators who got caught with unsold houses and condos began putting them on the market as rentals. This "shadow market" has made investors jittery about price-destroying competition for the real-estate investment trusts that own big apartment complexes.

For most of the country, though, it is a landlords' market, with vacancy rates falling and rents rising in many major cities. Despite a selloff in apartment REITs, the shadow market is really confined to real-estate disaster areas such as Florida, Las Vegas and Phoenix. That presents a buying opportunity for stock-market investors.

Figures scheduled to be released today by New York-based research firm Reis Inc. show that the nation's apartment-vacancy rate dropped 0.2 percentage point in the third quarter, while rents increased a healthy 1.4%.

Apartment owners in high-price cities such as San Francisco and New York seem to be benefiting from renters who are getting locked out of the for-sale market because of the lack of so-called jumbo mortgages, which are more than $417,000, says Sam Chandan, Reis chief economist. Rents in New York jumped 3.6% in the third quarter. In San Francisco, they were up 3.4%.

That is all good news for publicly traded REITs that specialize in apartments.

REITs are real-estate companies that pay no corporate income tax and distribute at least 90% of their earnings in dividends. Apartment-company stocks have suffered compared with their real-estate rivals. The Dow Jones Apartment REIT subindex is down 8.6% year-to-date, though the stocks have rallied in the past month. The overall Dow Jones Equity REIT index, which includes hotels, retail, self-storage and office properties, is down just 2.8%.

The stocks of apartment-owning REITs have a lot going for them. Nearly two million rental households have entered the market in the past two years, including buyers who have shied away from the for-sale housing market and those who defaulted on home mortgages.

"That's equivalent to filling up New York City," says Raymond Torto, principal of CBRE Torto Wheaton Research, a real-estate research firm.

Some companies say investors haven't recognized that apartments, in some cases, behave in opposition to single-family homes, absorbing the decline in home ownership and lack of affordability. "They clump it all together," says Richard Campo, chief executive of Camden Property Trust, a Houston-based apartment REIT. Camden's stock is down 11.5% this year, closing yesterday's session on the New York Stock Exchange at $65.35, up $1.55, or 2.4%.

The supply of apartment buildings has been constrained by below-average construction of units, less than 100,000 units a year in the past few years in the top markets, according to Reis. And the echo boom -- the demographic bulge made up of baby-boomer offspring -- is entering prime renting age.

"In our view, we will have more additional demand for renters than additional supply of rental property," says James Corl, chief investment officer at Cohen & Steers, a New York investment firm specializing in REITs. It has about $35 billion under management.

It is easy to understand why investors have been nervous about apartment REITs. For one, it is difficult to assess the impact of the shadow market because there isn't an accurate measure of the number of individual homes and condominiums that are on the rental market.

"It's my greatest frustration," says apartment analyst Craig Leupold of Green Street Advisors Inc., a Newport Beach, Calif., real-estate research firm. "I'd love to get better data on how many vacant single-family homes are for rent."

James Kammert, portfolio manager at Transwestern Securities Management, a Chicago-based asset manager with about $250 million in the REIT sector, says the discounts are "quite attractive in the apartment space." He says the value of apartment buildings may hold up because apartment REITs can access commercial-mortgage loans from Fannie Mae and Freddie Mac. Property owners in other sectors can't, and are thus more exposed to the recent credit crunch. Still, there clearly are risks for apartment REITs, the biggest being an economic slowdown that could reduce demand for apartments.

The most attractive REITs are trading below the total value of the apartment buildings they own and are cheaper than their competitors based on their projected funds from operations, which is essentially their profit excluding depreciation expenses.

For example, the share price of the largest apartment company, Denver-based Apartment Investment & Management Co., with 1,200 apartment complexes and 209,000 units, is down 15% this year and has been sold off to the point that it looks cheap. Aimco is trading at a 24% discount to its net asset value. What's more, it trades at 13.5 times its 2007 estimated funds from operations, compared with 21.2 times for the apartment sector. In 4 p.m. trading yesterday on the Big Board, Aimco's shares were up $1.05, or 2.3%, to $43.74.

Another to consider: AvalonBay Communities Inc., based in Alexandria, Va. With a high-end portfolio of buildings in hard-to-build urban markets, AvalonBay is trading at a 7.4% discount to net asset value, though its funds-from-operations multiple is an above-average 25.2. Its shares closed yesterday on the NYSE at $122.09, up $2.60, or 2.2%.

There are bargains throughout the sector. According to BMO Capital Markets, apartment REITs overall are trading at a 10% discount to net asset value. That discount would be even more but for the takeover of one of the largest apartment REITs, Archstone-Smith Operating Trust, whose stock price has stayed relatively high since it agreed to a buyout in May and closed yesterday at $59.95, down 23 cents on the Big Board. That deal is scheduled to close Friday.

Camden's Mr. Campo says the shadow market has had a sizable effect on his company's apartments. But there also is a flip side: Camden is recruiting failed homeowners to rent its apartments.

"They're pretty good renters," he says of foreclosed-upon homeowners. "But they didn't realize what the total cost of ownership really meant. We are marketing to those people as long as they have reasonable credit minus the foreclosure," he says.

- - Kemba J. Dunham contributed to this article.

Sales of Existing Homes Slide, Median Price Rises Slightly

2007-09-26T04:55:00.000-07:00

By Jeff Bater From The Wall Street Journal Online

Demand for previously owned homes tumbled in August to the lowest level in five years as mortgage market troubles hurt sales.

Separately, U.S. consumer confidence fell to a nearly two-year low in September, weighed down by a softening labor market and worries over volatility in financial markets and a weaker dollar, according to a report Tuesday from the Conference Board.

Home resales fell to a 5.50 million annual rate, a 4.3% decrease from July's unrevised 5.75 million annual pace, the National Association of Realtors said Tuesday.

The August resales level was in line with Wall Street expectations. It was the lowest pace since 5.36 million in August 2002. "The credit market freeze in August no doubt contributed to the sales decline," NAR senior economist Lawrence Yun said.

The median home price was $224,500 in August, up 0.2% from $224,000 in August 2006. The median price in July this year was $228,700.

In a separate report, Standard & Poor's S&P/Case-Shiller home price index fell in July as 16 of 20 major metropolitan areas saw a decline in annual growth rate.The 10-city composite index fell 4.5% in July from a year earlier, while the 20-city composite index was down 3.9%.

Mr. Yun said the unusual disruptions in the mortgage market, including a significant climb in jumbo loan rates resulted in a fairly high number of postponed or canceled sales. "Lower sales contributed to a buildup of unsold inventory," he said.

Inventories of homes rose 0.4% at the end of August to 4.58 million available for sale, which represented a 10.0-month supply at the current sales pace. There was a 9.5-month supply at the end of July, revised from a previously estimated 9.6 months.

Existing-home sales tumbled in all regions. Sales dropped 5.2% in the Midwest, 2.0% in the Northeast, 9.8% in the West, and 2.7% in the South.

The average 30-year mortgage rate was 6.57% in August, down from 6.70% in July, according to Freddie Mac.

Consumer Confidence Declines

The board's index slid to 99.8 from 105.6 in August, leaving it at its lowest mark since November 2005's 98.3.

Consumers' assessments of present-day conditions were also lower, dragging this index down to 121.7 in September from 130.1 in August.

The index measuring expectations for business conditions over the next six months also fell, to 85.2 in September from August's 89.2.

The confidence survey is based on polling of 5,000 U.S. households.

The cutoff date for the survey was Sept. 18, the day the Federal Reserve cut interest rates by surprising half-percentage point in an effort to rescue a sagging economy and restore confidence to shaky financial markets.

"Weaker business conditions combined with a less favorable job market continue to cast a cloud over consumers and heighten their sense of uncertainty and concern," said Lynn Franco, director of the Conference Board Consumer Research Center. "Looking ahead, little economic improvement is expected and with the holiday season right around the corner, this is not welcome news."

-- Dan Molinski contributed to this article.

Will The Sub-Prime Lending Problem Affect Your Home's Value?

2007-09-25T10:10:00.000-07:00

Will The Sub-Prime Lending Problem Affect Your Home's Value?

By Marie de Espinosa

Easy Come, Easy Go?

RealtyTrac, a leading industry resource on foreclosure activity reports that one in every 316 homes in Colorado is now in foreclosure, up a whopping 11.25% in August from July 2007.

The supply of sub-prime easy money definitely helped to increase demand for housing here in Colorado: now that the faucet of easy credit is being turned down, the National Association of Realtors indicated in their latest report that pending home sales are down 20.7% in our sector of the country and predicts housing demand trends will continue.

The bottom line of slowdown in these lending practices— increased housing supply and reduced demand for homeownership— does not affect all Denver homeowners the same.
In fact, the more expensive your neighborhood, the better chance you have of not being affected at all.

It’s Still a Local Market

Premier Colorado Economist Tucker Hart Adams with US Bank expects that housing will continue to soften, a result of the number of new homes built exceeding demand. Adams notes that Denver’s “bubble” is “not nearly as large as it is nationally.”

A review of MLS statistics indicates that it is the homes closest to average home prices that are most affected by the increased supply and reduced demand. The Colorado Association of Realtors is reporting that median Colorado home price in the second quarter of 2007 fell to $225,000, down from $232,222 in 2006.

The good news for homeowners in this price range is that housing starts are down dramatically this year from their high in 2004 and the loan adjustments fueling mass foreclosures has a foreseeable end. According to the Adams Group, housing permits skyrocketed 17% in 2004 only to plunge 16% in 2006.

Furthermore, FHA limits are being reset in order to help those who want to keep or purchase homes. Conventional loan rates, including “jumbo” loan rates are still in the 6% range for those with good qualifications.

Your Personal Picture

If you are considering selling, buying or refinancing, take the time to get to know all the options available to you as far in advance as possible.

Sellers will want to be very sure of the lending position of anyone making an offer on their home.

The equity position of your home may have recently changed. Before you refinance, make sure you know the latest about home values in your neighborhood.

Buyers may spend more time negotiating with Lenders to ensure they are getting the best rates and fees available.

Can't Get a Mortgage Loan? Try Your Credit Union.

2007-09-24T04:30:00.000-07:00

Can't Get a Mortgage? Try Your Credit Union

By Amy Hoak From MarketWatch

As many mortgage lenders tighten loan underwriting standards and interest rates on jumbo mortgages rise, consumers may be able to find a friend in their credit union.

One reason: Many (although not all) of the mortgage loans made by credit unions are held in their own portfolios and therefore don't need to be sold to investors, said Bill Hampel, chief economist for the Credit Union National Association and Affiliates.

"A credit union considering a mortgage loan application doesn't have as many things to worry about as a mortgage banker that has to sell that to a secondary mortgage market," he said.

Selling nonconforming loans in the secondary market over the past few weeks has been a challenge, as the market has been repricing the risk associated with mortgage loans that aren't bought by Freddie Mac and Fannie Mae. As a result, some loan products have been removed from lenders' offerings, while lending standards have tightened on other products, perhaps requiring better credit scores or larger down payments from borrowers.

At credit unions, however, underwriting standards haven't needed to change, Hampel said.
And while the rates on jumbo loans offered by many lenders went "haywire" over the past couple of weeks, at credit unions the rates on those loans haven't experienced a jump, Hampel said. Jumbo loans are those that exceed the conforming loan limit of $417,000 in most states.

"Many borrowers will find a credit union an easier place to get a mortgage right now than other lenders," he said.

And consumers seem to be discovering this, according to Steve VanSickler, chief lending officer at Red Rocks Credit Union in Highlands Ranch, Colo.

"Without a doubt, we are seeing increased traffic," he said.

Credit union mission

Even if it's a good time to head to the credit union for a mortgage, it's important to point out that these institutions are far from being risk takers. They're not-for-profit, co-op organizations that were founded with a main mission to serve members.

It's not that they "cherry pick" borrowers who are approved for a mortgage, VanSickler said.
"Credit unions still have higher approval rates to lower income borrowers," he pointed out.

But there's a more measured approach to how that mortgage works with the member's overall financial picture, since the credit union is often that borrower's primary institution, he added.

Plus, the majority of mortgage products at credit unions don't tend to be risky -- regardless of what is going on in the rest of the lending market, said Jay Johnson, executive vice president of Callahan & Associates, a national credit union research and consulting firm.

"They're not likely to get into exotic products and jump on the bandwagon," Johnson said.
Subprime loans never thrived in credit unions, Hampel said. And the Alt-A mortgages that require little documentation are used sparingly, he added, usually with members who are well known to the credit union and have belonged for a long time. That way, the credit union can confirm that a borrower has a steady history of income into a savings or checking account, he said.

As a way to address high-cost housing markets, credit unions have also offered 40-year mortgages and interest-only loans, Hampel said. But only if they fit the borrower's needs.
"We don't want to get members into a deal where they will likely lose their home," he said.
The approach tends to work: Last year, the net charge-off rate for credit union mortgages was 0.02%, he said. The net charge-off rate is the amount lost in default minus the amount the credit union is able to recoup through the sale of the property.

If the borrower does see trouble coming around the bend regarding a mortgage, credit unions can often address it before the payments are late, Hampel said. Many of them also partner with credit-counseling agencies to help borrowers in a pinch, Johnson said.

How to find a credit union

One of the tricks for consumers interested in working with a credit union for a home loan is finding one that makes them. There are about 8,000 credit unions throughout the country, but only 3,500 of those do first-mortgage lending, Johnson said.

In order to join a credit union, individuals must meet the institution's criteria. A credit union's "field of membership" can be an employer, a church, a school, a community or another subset, according to the Credit Union National Association's Web site.

The Web site has a searchable directory for consumers to find credit unions throughout the country. Visit the credit union search tool.

Top Five Mistakes Home Buyers Make

2007-09-22T03:38:00.000-07:00

Top Five Mistakes Home Buyers Make

By Stacey L. Bradford, SmartMoney

Looking for a new home? Well, you're in luck? sort of. First, the good news: Home prices are falling and buyers have more negotiating power than ever before. Now, the not-so-good news: Lining up financing has become much more difficult as droves of current homeowners default on their existing mortgages. This isn't to say you won't be able to secure the home of your dreams, but you will need to be a bit more cautious and conservative with your purchase.

Here are five mistakes to avoid when looking for a home in today's real estate market.

1. Waiting to Sell Your Home

Now that the housing market is slowing it's more important than ever to sell your existing home before you commit to a new one. Here's why. In the current environment, it's going to take you longer to find a buyer than it would have just a year ago. If you don't start showing your home until after you've signed a contract for a new place, you're taking on the added risk of carrying two mortgages for an extended period of time, warns Elaine Clayman, a real estate broker with Brown Harris Stevens.

Also, the only accurate way to know how much your home is really worth is to see how much someone else is willing to pay for it. "If for some reason you've overpriced the property you already own?you'll know that after the first 30 to 45 days it's on the market," says Peter Comitini, a real estate broker with the Corcoran Group. Once you have a realistic picture of how much your home will fetch, then you can adjust your budget for a new home accordingly, he says.

2. Ignoring Your Credit Score

Get a copy of your credit report as soon as you decide it's time to move. Nearly 80% contain some type of error and 25% of those mistakes are serious enough to drag down your credit score, potentially disqualifying you for the most competitive interest rate on a mortgage, according to U.S. PIRG, the federation of state Public Interest Research Groups. How much can your credit score affect your loan? Someone with a score of 630, for example, would pay one interest point higher than another borrower with a score of 730, says Geoffrey Sheerar, a mortgage broker with Apple Mortgage, a New York City-based mortgage brokerage firm.

This is also your chance to discover and settle any delinquent accounts. "I've seen a client get a worse credit score than he should have over a $40 doctor bill that went to collection that the person didn't even know about," says Sheerar. Keep in mind, once you find a problem, it can take several weeks and a bit of leg work to have the black mark taken off of your credit report.

3. Skipping the Mortgage Preapproval Process

The days of easy money and low teaser rates are over. In this tight lending environment, it's important to shop around for a mortgage and get preapproved by a lender before you even start visiting open houses. While borrowers, even ones with very low credit scores, had hundreds of options just a couple of months ago, that's simply not the case today. Many lenders have stopped underwriting riskier loans in favor of more traditional fixed rate mortgages, says Keith Gumbinger, vice president with HSH Associates Financial Publishers, a Pompton Plains, N.J.-based mortgage research firm.

By getting preapproved, you'll not only get a realistic idea of the type of financing available to you, but you'll also have a better idea of what your interest rate will look like. Scanning the newspaper for prevailing rates isn't all that helpful since lenders will adjust your rate based on how risky a borrower they feel you are. At the moment, someone with excellent credit could qualify for a 7.5% interest rate on a $450,000 loan and another buyer with a closer to average credit score could get charged 8% or 9%, says Gumbinger. Rates are certain to fluctuate as you shop for the perfect home. But once you have a ball-park figure, you can plug it into a mortgage calculator to see how much home you can afford to buy.

4. Not Budging on Your Budget

As we mentioned earlier, buyers have more negotiating power than ever. So don't be afraid to make an offer that's well below the asking price. That said, once you find a home you really love and you're negotiating on price, you'd be foolish to walk away from that property over just a few thousand dollars, says Brown Harris Stevens' Clayman. That's especially important if you're borrowing the money to buy that home. Think of it this way: On a monthly basis, an extra $10,000 (on a loan valued less than $417,000) will cost you just $63.

5. Signing a Contract with Contingencies

Unfortunately, it isn't enough to secure financing and find a place that you're comfortable calling home. You also need to find a seller who's ready to move quickly. That means avoiding folks who want to include all sorts of onerous contingencies in the selling contract that would allow them to stay in their house for an extended period of time. One situation you want to avoid, for example, is when the sale is dependent on the seller finding a new home first, warns Corcoran's Comitini.

The risk here is that you wait around for months only to watch the interest rate lock on your mortgage expire, thus forcing you to spend more money for the same home. Or, the deal could fall apart entirely, putting you back at square one with the real estate listings spread out on the kitchen table.

Credit (Only) Where Credit is Due

2007-09-18T04:51:00.000-07:00

Credit (Only) Where Credit Is Due

By Terri Cullen WSJ Real Estate Writer

Mortgage-lending giant Countrywide Financial rattled Wall Street Wednesday by announcing it was bowing out of the subprime mortgage business. The move comes as dozens of lenders and mortgage companies have gone out of business or filed for bankruptcy amid the deepening credit crisis.

Many investors like me wondered what, if any, long-term damage this might inflict on their portfolios. But to homeowners and homebuyers, a more urgent question might be: What affect is the credit crunch going to have on my ability to get a mortgage or home-equity loan?

For now, it appears homeowners with good credit still have access to relatively low-cost financing. The average rate for a 30-year fixed rate mortgage stands at 6.27%, while the rate on a $50,000 home-equity line of credit averaged 6.52%, according to Bankrate.com.

If my experience is an indicator, lenders are becoming even more aggressive in seeking out homeowners with good credit and substantial home equity. Lately my husband Gerry and I have been bombarded with home-equity loan and line of credit offers from our bank ("Get $40,000 for as little as $283 a month") and our credit-card company ("As low as 6.84%, guaranteed for life!"). Our credit union sent a letter recently noting that we hadn't borrowed on the account recently and offering a lower rate of interest if we borrowed a minimum of $25,000.

And if my neighborhood is an indicator, we're not alone. As I mentioned in a past column, home construction in my neck of the woods is booming. New homes are being built and McMansions are rising where small bungalows once stood. The renovations are so extensive it's unlikely they're being paid for with cash savings, so clearly the credit spigot hasn't been turned off.

So who's in trouble if they need to get a mortgage? Borrowers with bad credit will find it extremely difficult to get a loan right now, says Fritz Elmendorf, spokesman for the Consumer Bankers Association. "Unless you're looking for a conventional loan with good credit there aren't too many out there willing to lend right now," he says. And, needless to say, anyone walking in with no documentation expecting to get a loan will be out of luck, he says.

Another casualty of the credit crunch? "Piggyback" loans. "This type of loan has almost completely disappeared," Mr. Elmendorf says. Piggybacks combine a first mortgage that covers 80% of the home's price and a second mortgage to cover the remaining 20%. The loans came into favor in the last decade as a way for borrowers to avoid paying for private mortgage insurance (PMI), which protects lenders in the event of a default. Going forward, he says, homebuyers will need to come up with at least some portion of the 20% downpayment in cash and pay PMI.

My sister Melissa and her husband Joe got their piggyback just before lenders soured on the loans. The couple purchased their first home this spring for $270,000. Eighty percent of the home's price was covered by their low-rate first mortgage, and the remaining 20% on a higher-rate 15-year balloon loan. Melissa says they're managing the monthly payments and since they have a cushion of savings she's not worried about making the mortgage.

What's keeping her up at night is home prices. She's become addicted to monitoring the same real-estate and foreclosure sites she used to find her home. She estimates home prices in her area are down about 10% from where they were just six months ago. More troubling: The number of foreclosures is up, which means price are likely to sink even lower.

The couple had hoped that in a few years their home would appreciate enough to allow them to refinance the two loans into a single lower-rate mortgage, but that scenario now seems highly unlikely. They'll need to stay in their home and continue paying the two loans for at least five years, though likely more. If they get into a financial crisis anytime soon, it's very possible they won't be able to refinance because they'll have negative equity, meaning their mortgage will be greater than the value of their home.

Anyone in the market for a home with no downpayment will need to rent a little longer to build up their savings. Homeowners looking to refinance and would-be home buyers will need to work at boosting their credit scores before applying for a loan. Homeowners who are in my sister's situation -- underwater on their mortgages -- should cut back on spending as soon as possible and start funding a rainy day account to provide a cushion in the event of a financial emergency.

If you're already experiencing one, your options are limited. Some lenders are helping borrowers modify their loans to prevent them from defaulting. But financially distressed homeowners are often paralyzed by fears of losing their home, and wait until the last minute to try and work something out with the lender. At that point, the loan is so delinquent that lenders are unwilling to negotiate. So if you're in trouble, contact your lender as soon as possible and try to work something out.

The pendulum has definitely swung hard to more conservative lending practices -- and ultimately that's a good thing for borrowers who won't be allowed to get themselves too deeply in debt.

Investor's Rental Home Soars In Value to Over $1 Million

2007-09-16T05:36:00.001-07:00

Investor's Rental Home Soars In Value to Over $1 Million

By Jane Hodges

The investor: Jacqueline Janssen, 61, began investing in real estate in 2000 to reduce her holdings in the stock market. The executive recruiter has purchased eight properties in northern California and Hawaii over the years. She lives in Marin County, Calif.

The property: The octagonal home is in Dillon Beach, Calif., and was built in 1976. It's on a bluff with ocean views. The residence has three bedrooms, three bathrooms and a fireplace. The house includes a 400-square-foot garage for two small cars. Dillon Beach overlooks Tomales Bay and is popular with seasonal and full-time renters. The community is about 30 miles from Petaluma, Calif.

Purchase price: $450,000. Ms. Janssen bought the property with her son, Evan Blacksea, now 25, in 2000. She placed a 20% down payment and financed the purchase with a 30-year fixed-rate mortgage.

Additional investment: $150,000. Ms. Janssen "totally gutted" the property immediately after buying it and tacked on an 800-square-foot addition with two bedrooms and two bathrooms. The property has new plumbing, electrical systems and walls, and expanded window and deck space with views of Tomales Bay.

The strategy: "I try to make sure my properties break even," says Ms. Janssen, referring to her average yearly cash flow (the profit from rental income after factoring in mortgage payments, mortgage interest, taxes and insurance). She alternates between renting the property out monthly and leasing it to vacationers on an even more short-term basis. She made a monthly profit of $800 (after paying her mortgage, taxes and insurance) during a two-year period when the home was fully rented and broke even during intermittent periods of short-term rental, she says.

Pitfalls: Renting to both short-term vacationers (typically with a three-night minimum) and long-term tenants was a strategy that worked for a while for Ms. Janssen, but she shifted her focus in 2005 to mostly annual renters. Using her home as a short-term vacation rental seemed potentially more profitable, but she found that overseeing the property (and hiring maid service, etc.) was more time intensive. "Short-term renting can be more lucrative if you have the time to stay on top of it," she says.

The transaction: Ms. Janssen plans to keep the home, even though its market value has surpassed $1 million -- a bench mark at which she'd consider selling in the past. The combination of cash flow and her home's price appreciation make the property a solid investment, she says. The house is now worth $1.2 million (or 166.7% more than its value at the time of her purchase) per a local real-estate agent, and is valued at $1.05 million, or 133% more than its value at purchase, per Zillow.com. Marin County water-view property is popular, and her house's proximity to a deer nature preserve would hinder additional residential construction that would obstruct the home's view, Ms. Janssen says. Despite some price fluctuations, home values in Marin County have steadily increased over the past year -- even now when California's housing market is seeing volatility.

Investor's Rental Home Soars In Value to Over $1 Million

2007-09-16T05:36:00.000-07:00

1/3 of Purchase Loans Originated by Mortgage Brokers Failed to Close Last Month - National Realty News

2007-09-15T05:11:00.000-07:00

1/3 of Purchase Loans Originated by Mortgage Brokers Failed to Close Last Month Says Survey

Thursday, September 13, 2007 - By Staff Writer, The National Realty News

WASHINGTON, DC – About 33% of home purchase closings of loans originated by mortgage brokers were canceled during August, according to a new national survey, which also found that 57% of brokers’ customers could not refinance adjustable rate mortgages (ARMs) that had resetting interest rates.

The survey of 1,744 brokers, conducted August 23-31, provides one of the first quantitative measures of the major disruptions in the mortgage originations market which started in early August. The survey was conducted by Campbell Communications of Washington.

The survey found that home purchase closings were more often canceled for homebuyers with subprime credit. Fifty-six percent of subprime homebuyers in August had canceled closings while 21% of homebuyers seeking prime conforming mortgages had canceled closings. In another survey of real estate agents taken by Campbell Communications back in 2004, respondents indicated that only 4% of home purchase closings failed in that timeframe for mortgage-related reasons.

Thomas Popik, designer of the survey, noted that the reasons for canceled closings were different depending on credit class and product category. Prime conforming homebuyers were more likely to withdraw from the transaction while subprime homebuyers were more likely to have problems getting mortgage approval, he said.

“The survey found that both prime and subprime homeowners are having trouble refinancing adjustable rate mortgages,” Popik said. “Sixty-four percent of subprime homeowners could not refinance while 50% of homeowners seeking prime conforming mortgages could not refinance. Subprime homeowners most commonly had issues with subprime loan programs no longer being offered and FICO scores. Those seeking prime conforming mortgages most commonly found appraised property values and loan-to-value (LTV) ratios as impediments.”

Other product categories covered in the survey were Alt A loans and prime jumbo loans. Alt A loans have lower documentation requirements for borrower income and assets. Jumbo loans have a loan amount greater than the Fannie Mae and Freddie Mac conforming limit of $417,000. Throughout the tabulated survey results, prime conforming, prime jumbo, Alt A, and subprime product categories are separately presented.

Mortgage broker survey respondents indicated that the maximum acceptable LTV for prime jumbo production has tightened substantially and now averages 90%, the lowest of any of the four product categories surveyed. For prime jumbo loans, the minimum acceptable FICO score now averages 679, the highest of the four product categories surveyed.

The survey found substantially reduced mortgage broker production in the month of August 2007 as compared to August of last year. Production of prime conforming loans was down approximately 20% while production of Alt A loans was down nearly 50%.

Survey results indicated that a substantial number of commitments by lenders to fund loans are not being met. Another common term for funding commitment is “fully-approved loan.” Twenty percent of commitments to fund subprime loans through mortgage brokers were not met during the month of August.

The survey asked mortgage brokers for their most frequently used lenders for prime conforming, prime jumbo, Alt A, and subprime production during the month of August. Survey respondents indicated that one-third of their most frequently used subprime lenders in August are no longer accepting applications or funding loans. For prime jumbo lenders, approximately 15% are no longer accepting applications or funding loans.

The survey also asked mortgage brokers to specify the lenders they are most likely to use going forward. For prime conforming production, Countrywide was most often selected as the most likely lender going forward. For subprime production, First Franklin, a unit of Merrill Lynch, was most often selected.

The survey found that mortgage brokers are submitting identical applications for the same borrower to multiple lenders. Reasons for submitting multiple identical applications include rate shopping, uncertainty regarding mortgage approval, uncertainty regarding prevailing underwriting guidelines, and concern that lenders will not honor funding commitments. While mortgage brokers more often submit multiple applications for subprime and Alt A borrowers, this practice has become more prevalent for prime credit applicants as well. On average, mortgage brokers are currently submitting 1.7 applications for prime conforming loans; another Campbell Communications survey of mortgage brokers in 2006 found only 1.2 applications submitted on average for prime conforming loans.

“There is very little hard data available about what is currently going on in the mortgage originations and home sales markets,” Popik noted. “The Mortgage Bankers Association weekly application index is likely being skewed by mortgage brokers submitting multiple applications.

The National Association of Realtors Pending Home Sales Index does not account for sales that will fall through because of mortgage issues. Our survey shows that the number of home purchase transactions falling through due to the mortgage market disruption was substantial for the month of August. Mortgage originations statistics for the month of August from government registries of deed and industry surveys will not become available for another 60-90 days. To the best of my knowledge, we have the most current and actionable data available on the wholesale mortgage market and on homebuyers served by mortgage brokers.”

NAR: Mortgage Problems to Dampen Home Sales in the Short Term

2007-09-13T03:43:00.000-07:00

Mortgage Problems to Dampen Home Sales in The Short Term

WASHINGTON, September 11, 2007

Tighter credit for home mortgages will measurably dampen home sales in the short term and postpone an expected recovery for existing-home sales until 2008, according to the latest forecast by the National Association of Realtors®.

Lawrence Yun, NAR senior economist, said unusual disruptions in the mortgage market are dampening the outlook for home sales, notably for August and September. “There’s been an unusual hit to home sales, starting in March when subprime problems emerged and more recently when problems spread to jumbo loans, with many potential buyers on the sidelines.

“However, the jumbo loan market is now beginning to settle, and FHA-insured loans are helping to fill the subprime vacuum. The volume of existing-home sales this year will be better than 2002, which was the second year of the housing boom.”

Existing-home sales are projected at 5.92 million this year and then rise to 6.27 million in 2008, compared with 6.48 million in 2006. New-home sales should total 801,000 in 2007 and 741,000 next year, below the 1.05 million in 2006.

“A sharp production pullback by homebuilders deep into 2008 is a healthy trend that will help trim down housing inventory,” Yun said. Housing starts, including multifamily units, are expected to total 1.37 million this year and 1.26 million in 2008, compared with 1.80 million in 2006.

“The mortgage markets will calm further in the months ahead, but it’s important to underscore the fact that conventional loans – the vast majority of available financing – are available to creditworthy borrowers,” Yun said. “Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment.”

Existing-home prices are likely to slip 1.7 percent to a median of $218,200 this year before rising 2.2 percent in 2008 to $223,000. The median new-home price is estimated to drop 2.2 percent to $241,100 in 2007, and then increase 1.7 percent next year to $245,100.

The 30-year fixed-rate mortgage is projected to average 6.4 percent for the balance of the year and then edge up to the 6.5 percent range in 2008. “We expect the Fed to cut rates two times before the end of the year, which will lower interest rates for prime borrowers and FHA-insured loans,” Yun said. “FHA modernization could buffer the fallout of subprime loans, which would raise our sales forecast in the future.”

Growth in the U.S. gross domestic product (GDP) is forecast at 2.0 percent in 2007, below the 2.9 percent growth rate last year; GDP will probably grow 2.7 percent in 2008.

The unemployment rate should average 4.6 percent for 2007, unchanged from last year.

Inflation, as measured by the Consumer Price Index, is estimated to be 2.8 percent in 2007, compared with 3.2 percent last year. Inflation-adjusted disposable personal income is likely to increase 3.6 percent this year, up from 3.1 percent in 2006.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.

Housing Market Poised for Steep Downturn

2007-09-12T05:08:00.000-07:00

Housing Market Poised For Steep Downturn

By Rex Nutting From MarketWatch

The U.S. housing industry is in for a much deeper downturn, the National Association of Realtors said Tuesday as it slashed its forecasts for home sales and construction for this year and next.

Tighter credit conditions will likely postpone the recovery even further, said Lawrence Yun, senior economist for the real estate trade group.

In their monthly forecast, the realtors cut their estimates for all housing-related indicators for this year and next year compared with last month's forecast. The group expects housing starts and sales of new homes to continue falling through 2008, but forecasts a mild recovery in sales of existing homes next year.

Housing starts are now expected to fall 24% this year and an additional 8% next year to 1.26 million, about 10% less than the realtors' forecast from just a month ago. That would be the lowest since 1992.

Starts of single-family homes are projected to fall 26.5% this year and an additional 11% next year to 954,000, about 11% less than last month's forecast. It would be the lowest total since 1991.

New home sales are projected to fall 24% this year and an additional 7.4% next year to 741,000, about 13% less than the forecast a month ago. That would the lowest since 1995.
Existing-home sales are projected to fall 8.6% this year and rise 5.8% next year to 6.28 million, about 2% less than last month's forecast.

The median price for existing-homes is expected to fall 1.7% this year to $218,200 and rise 2.2% next year to $223,000.

Schumer to Seek Boost In Mortgage Funding

2007-09-11T04:38:00.000-07:00

Schumer to Seek Boost In Mortgage Funding

By Damian Paletta From The Wall Street Journal Online

Amid a worrisome slump in the U.S. housing market, Democrats are stepping up efforts to increase the flow of funds into home mortgages by expanding the authority of Fannie Mae and Freddie Mac, despite White House efforts to limit the companies' roles.

The latest move comes today, as Sen. Charles Schumer plans to introduce a bill that would temporarily loosen growth constraints on the two government-sponsored investors and increase the size of mortgages they can purchase in high-cost areas.

"This is what Fannie and Freddie were designed for," the New York Democrat said. "To have the public purpose and use private-sector knowledge and dollars."

Prospects for Mr. Schumer's bill would have been slim several months ago, but credit-market turmoil has led many Democrats and some Republicans to call for the companies to step up their activities as worries about defaults and a weak housing market keep other investors on the sidelines. Fannie and Freddie buy mortgages and repackage them as investment securities, but are bound by limits on size and types.

The Bush administration has opposed changes similar to those proposed by Mr. Schumer, but White House and Treasury officials have been under growing pressure to address the market turbulence. Last week at a hearing in the House of Representatives, Democrats repeatedly challenged the Treasury undersecretary for domestic finance, Robert K. Steel, to reverse the administration's stance regarding the companies.

Mr. Schumer's bill would raise the portfolio caps at each company by at least 10% for one year, while requiring Fannie and Freddie to devote half of that increase -- roughly $73 billion combined -- to helping borrowers with certain high-risk adjustable-rate mortgages refinance into more-affordable products.

Because of past accounting problems, Fannie and Freddie aren't allowed to expand their portfolios beyond strict limits set by their regulator, the Office of Federal Housing Enterprise Oversight, until they finish overhauling internal controls. Fannie's portfolio is capped at $727 billion, and Freddie's at $728 billion, though Freddie Mac can increase its portfolio 2% a year.

Mr. Schumer's bill would also allow the companies for one year to purchase loans of as much as $625,000 in high-cost areas. Currently, they aren't allowed to purchase mortgages above $417,000. Democrats have argued that Fannie and Freddie should be allowed to purchase more-expensive mortgages to provide liquidity to a broader group of housing markets.

It is unclear how Senate Banking Committee Chairman Christopher Dodd (D., Conn.), and House Financial Services Committee Chairman Barney Frank (D., Mass.) feel about Mr. Schumer's proposal. But the two chairmen have argued that Fannie and Freddie should begin playing an expanded role in mortgage markets immediately.

Last week, Mr. Frank said he planned to introduce an amendment that would also dramatically raise the loan limit. He said the amendment would be attached to a bill, supported by the White House, that would give the Federal Housing Administration more flexibility as an insurer of mortgage loans.

Some Republicans argue that allowing Fannie and Freddie to purchase high-cost mortgages would distract them from their mission to support affordable housing.

The House passed a bill earlier this year that would revamp oversight of both companies. It would also allow the companies to purchase more expensive mortgages in high-cost areas of the country, though not by as much as Mr. Schumer has proposed.