California real estate prices expected to rise 10% next year

Realtor group forecast also calls for slight dip in sales
Inman News
The California residential real estate market in 2005 is expected to sales and price records set last year, the California Association of Realtors reported this week.

The trade group announced some key housing market statistics from 2005 and a look ahead to 2006:

    • Sales of detached, existing single-family homes are expected to reach 635,000
      in 2005, an increase of 1.8 percent over last year's record sales of 624,700.
      Sales are anticipated to decline by 2 percent in 2006.

    • This year will be a record year for home prices. The median price of a single-
      family home in California crossed the $500,000 threshold for the first time in
      April 2005. The annual median is expected to reach $523,150 in 2005 and
      increase 10 percent to $573,500 in 2006.

    • The median price of a single-family home increased by double-digits for the
      fourth consecutive year in 2005, though the pace of price appreciation slowed
      from the 18 to 21 percent annual gains of the previous three years to 16
      percent in 2005.

    • CAR's Unsold Inventory Index averaged 3.3 months in 2005. Inventory levels are
      expected to rise moderately in 2006 but will remain low by historic standards,
      fueling continued price appreciation in the California market, according to
      the association's forecast.

    • The interest rate for a fixed-rate mortgage remained below 6 percent for much
      of 2005, only surpassing 6 percent in the last months of the year. For all of
      2005, the fixed-rate mortgage averaged 5.8 percent. In 2006, the interest rate
      for the FRM is projected to increase but remain low by historic standards in
      the low- to mid-6 percent range.

    • The interest rate for a one-year adjustable-rate mortgage averaged 4.5 percent
      in 2005, finishing just over 5 percent at year-end. The interest rate for the
      one-year adjustable-rate mortgage is expected to remain within the low- to mid-
      5 percent range during 2006.

    • With home prices reaching record levels, more home buyers extended themselves
      financially in 2005 by utilizing alternative loan products. The share of home
      buyers who used adjustable-rate and hybrid loans increased from 11 percent in
      2003 to 43 percent in 2005, while the share of fixed-rate loans dropped from
      89 percent in 2003 to 57 percent in 2005. The last time more than 40 percent
      of home buyers used adjustable-rate loans was in 1994.

    • Fannie Mae and Freddie Mac increased the single-family conforming mortgage
      loan limit from $359,650 this year to $417,000 in 2006, which could benefit
      more than 28,590 families in California. However, the increase in the loan
      limit is still far too low to benefit most home buyers in California, as the
      median price of a home in California is 29 percent higher than the new loan
      limits. Nineteen counties in California have a median home price above the new
      limit.

    • Internet use by home buyers and sellers continued to climb in 2005. Based on
      CAR's "Internet Versus Traditional Buyers Survey," the percentage of home
      buyers using the Internet increased from 56 percent in 2004 to 62 percent in
      2005.

    • The share of sellers who used the Internet in their home-selling process
      surpassed 50 percent for the first time, rising from 47 percent in 2004 to 57
      percent in 2005, according to CAR's "Survey of California Home Sellers."

The California Association of Realtors, with about 180,000 members, is one of the largest trade groups in the United States.
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U.S. real estate prices rise, sales slip

Interests rates to blame for sliding sales, says Realtor economist
Inman News
The rate of existing-home sales in November – including single-family, townhomes, condominiums and co-ops – fell 1.7 percent from October 2005 and slid 0.1 percent below the rate in November 2004, the National Association of Realtors trade group reported today.

This seasonally adjusted sales rate stood at 6.97 million units in November, compared to 7.09 in October. The rate is a projection of a monthly sales total over a 12-month period, accounting for seasonal fluctuations in sales activity.

The median existing-home price in November was 13.2 percent higher than in November 2004 but 1.4 percent lower than in October 2005.

David Lereah, NAR's chief economist, said higher mortgage interest rates were responsible for moderating sales. "The current pace of home sales activity remains historically strong – only eight months have had a higher sales pace," he said. "A modest downtrend, to a sales volume that is expected to be the second-best year ever in 2006, will be good for the long-term health of the housing sector," he said.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.33 percent in November, up from 6.07 percent in October; the rate was 5.73 percent in November 2004. Last week, Freddie Mac reported the 30-year fixed rate eased back to 6.26 percent.

The national median existing-home price for all housing types was $215,000 in November, compared with $190,000 in November 2004 and $218,000 in October 2005. The median is a typical market price where half of the homes sold for more and half sold for less.

NAR president Thomas M. Stevens, senior vice president of NRT Inc., said, "As more listings of homes come on the market during this period of modestly declining sales, more home buyers will find themselves in a better position to negotiate. Most home sellers will see excellent returns on their investment, but should understand that double-digit annual increases will become less common in the coming year."

Total housing inventory levels rose 1.2 percent at the end of November to 2.9 million existing homes available for sale, which represents a 5-month supply at the current sales pace.

Single-family home sales were down 1.9 percent to a seasonally adjusted annual rate of 6.11 million in November from 6.23 million in October, and were 0.5 percent below a 6.14 million-unit pace in November 2004. The median single-family home price was $213,500 in November, which was 13.5 percent higher than a year ago.

Existing condominium and cooperative housing sales slipped 0.8 percent to a seasonally adjusted annual rate of 857,000 units in November from a level of 864,000 in October. Last month's sales activity was 2 percent higher than the 840,000-unit pace in November 2004. The median condo price was $225,300, up 10.7 percent from a year ago.

Regionally, total existing-home sales in the South fell 0.7 percent in November to a level of 2.74 million and were 3.8 percent higher than November 2004. The median price in the South was $184,000, up 8.2 percent from November 2004.

Existing-home sales in the Midwest slipped 1.3 percent to an annual pace of 1.56 million in November, and were 0.6 percent below a year ago. The median price in the Midwest was $170,000, which was 10.4 percent higher than November 2004, the association reported.

Total existing-home sales in the Northeast declined 2.7 percent to an annual sales rate of 1.09 million units in November, and were 4.4 percent lower than November 2004. The median price in the Northeast was $250,000, up 9.2 percent from a year ago.

Existing-home sales in the West fell 3.7 percent to a pace of 1.58 million in November, and were 3.7 percent below a year ago. The median existing-home price in the West was $328,000, up 19.3 percent from November 2004.

Existing-home sales are based on transaction closings, the trade group reported. This differs from the U.S. Census Bureau's series on new single-family home sales, which are based on contracts or the acceptance of a deposit. Because of these differences, it is not uncommon for each series to move in different directions in the same month. In addition, existing-home sales, which generally account for 85 percent of total home sales, are based on a much larger sample – nearly 40 percent of multiple listing service data each month – and typically are not subject to large prior-month revisions.

The only valid comparisons for median prices are with the same period a year earlier due to the seasonality in buying patterns. Month-to-month comparisons do not compensate for seasonal changes, especially for the timing of family buying patterns, the association also noted.

Since there is a concentration of condos in high-cost metro areas, the national median condo price is higher than the median single-family price. In a given market area, condos typically cost less than single-family homes, according to the association.
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Real estate markets normalize as average time to sell climbs

75% of survey respondents say houses take more than 30 days to sell
Inman News
According to a recent nationwide survey of real estate professionals, the average length of time for-sale houses spend on the market has increased dramatically in the past six months.

Seventy-five percent of respondents said it now takes more than 30 days to sell a house, and of that figure 30 percent said it takes more than 60 days, according to HouseHunt's current market conditions survey. Three months ago, 52 percent of survey respondents said the average time on the market required for a home to sell was more than 30 days, and only 35 percent said it was taking more than 30 days.

HouseHunt provides free information to homeowners, buyers and sellers through HouseHunt.com and MoveUp.com. The current market conditions survey is taken quarterly and measures figures such as time on the market between listing and contract, first-time buyer activity, price appreciation and the difference between asking and sale prices.

Additional highlights from the fourth-quarter survey were:

    • Home sales prices remain firm: 82 percent of respondents said say they are
      receiving 95 percent or more of asking prices. This compares with 80 percent
      in the third quarter and 90 percent in the second quarter of 2005.

    • Solid appreciation: One-half of all respondents report home price appreciation
      of 10 percent or more year-over-year in the fourth quarter. This compares with
      46 percent in the third quarter and 42 percent in the second quarter.

    • Multiple offers down: 50 percent of respondents report multiple offers. This
      is down from 70 percent in the second and third quarters of this year.

    • Buyer-seller demand nearly equal: A more balanced real estate market between
      buyer and seller demand has emerged in many parts of the country. This
      compares with a 61-39 percent buyer ratio in the third quarter.

    • First-time buyers: The percentage of first-time buyers has stayed about the
      same at 35 percent for the last six-nine months despite price and appreciation
      spikes on the East and West coasts and in Florida, Phoenix and Las Vegas. The
      greatest first-time buyer activity continues to be in the South and Midwest.
      Repeat and move-up buyer activity remains strong. Investor and second-home
      demand has slowed.

    • Inventory of unsold homes growing: 65 percent said the trend is up in local
      markets. Fifty-five percent report a good supply in all price ranges. Only 38
      percent reported a good supply six months ago.

    • Market Growth: Survey respondents overwhelmingly said that job and population
      growth continues to fuel housing demand in local markets.

"Our latest random survey findings are consistent with both national housing sales data and forecasts of top industry economists," said Michael Bearden, president and CEO of HouseHunt. "Our strong economy and consumer demand made record home sales possible in 2005 despite destructive hurricanes, rising mortgage interest rates and higher energy costs. We're optimistic that a sustainable, more balanced housing market will be the cornerstone of the U.S. economy in 2006."

A sampling of individual survey results:

    • Clint Johnson of Rose & Womble and exclusive HouseHunt member agent in the
      Virginia Beach and Norfolk, Va., area said: "During the past few weeks we have
      seen a softening of the market, with fewer multiple offers and buyers
      negotiating for closing cost assistance." He noted that the area has seen
      tremendous growth in prices and in units sold. Median home price is $230,000,
      up 15-20 percent in the past year.

    • Rod Sullivan of GMAC Metro Brokers, exclusive HouseHunt member agent for
      Lithonia, Ga., reports more sellers than buyers with a good supply of unsold
      homes. Average time on the market is 90-120 days. "Our greatest activity is
      from first-time buyers. Median home price is $150,000. Sellers are getting 95-
      100 percent of asking prices."

    • Steve Gaines of CENTURY 21 Landtree and exclusive HouseHunt member agent in
      Greenwood, Ind., reports more sellers than buyers and a good supply of unsold
      homes. "Average time on the market is 90-120 days," he said. Median home price
      is $175,000.

    • Diane Ash of Weichert Realtors and exclusive HouseHunt member agent in
      Middletown, Del., said lower property taxes are attracting buyers from New
      York, New Jersey and Pennsylvania. Median home price is $300,000. Average time
      on the market is 30-60 days.

    • Tim Ireland of Coldwell Banker Honig-Bell and exclusive HouseHunt member agent
      in Mokena, Ill., said sellers and buyers are about 50-50. Average time on the
      market is 60-90 days. Median price is $261,190 with a good supply of unsold
      homes.

    • Leah and Neville Bradshaw of Long & Foster Old Town/Historic, exclusive
      HouseHunt member agents in Lorton, Va., reported more sellers than buyers and
      a median home price of $543,000, up 10-15 percent over last year. Even though
      sellers frequently get more than 100 percent of asking prices, they said that
      first-time buyers are very active. 

    • Dan Urbach of Prudential California and exclusive HouseHunt member agent in
      Pacific Palisades, Calif., said his market is settling down from a very hot
      seller's market to a more balanced market. Median priced home is $2 million,
      up 15-20 percent over a year ago. Average time on the market is 30-60
      days.

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IRS Offers Incentives for Energy Efficiency

By: Jennie L. Phipps: REALTOR® Magazine Online
When the Energy Tax Incentives Act of 2005 takes effect on Jan. 1, taxpayers will enjoy dollar-for-dollar federal tax reductions for the expense of improving the energy efficiency of their homes, including investing in solar energy, with no maximum income restrictions.

In 2006 and 2007, taxpayers can receive a credit of up to 30 percent of the cost of installing solar water-heating equipment, up to $2,000 per tax year; a credit of up to 30 percent for solar equipment that generates electricity, also up to $2,000; and a 30-percent credit for a fuel-cell power plant, up to $500 of the installation cost, although fuel cell technology is not yet practical for use in a residential environment. Solar water systems, on the other hand, are easy to install; and the energy savings quickly recoup the cost.

"I think even without the tax credit, solar hot-water systems are economical. You'd almost be crazy not to get a solar hot-water heater right now-especially with natural gas prices going up," said Noah Kaye of the Solar Energy Industries Association. A reliable, professionally installed solar hot-water system can run as little as $3,500; high-end systems, suited for colder climates where freezing could be a factor, cap out at $6,000, although they have virtually no ongoing costs and require only infrequent maintenance.
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Worst-case scenario for housing next year

Part 2: 2006 real estate forecast
By: Janis Mara: Inman News
Editor's note: This is the second part of a two-part story looking at housing market conditions for 2006. Read the first part, "Best-case scenario for housing next year,".

The scene opens on a devastated landscape, with the voices of a thousand wannabe homeowners crying out in pain. Congress has enacted limitations on mortgage-interest deductions; interest rates have hit 8 percent; creative loan products have been curtailed; investors have fled to the stock market and first-time buyers can't afford a house.

At least, that's the worst-case scenario for 2006, according to various possibilities suggested by experts and industry observers consulted by Inman News.

Though different folks painted the future with different strokes, one theme was consistent: interest rates will be the most important factor affecting the industry in 2006. And, though the sign of the beast is 666 in the Bible, the bad-luck number for mortgage interest rates is 8 percent, a number of experts said.

"If the (long-term) interest rate went over 8 percent it would impact the market," said James Wright, president/principal broker of Century 21 All Islands in Honolulu.

"You tick the price up and make the monthly payment another $300, $400, and people who were marginal to begin with will be priced right out. The pool you'll hurt the worst will be the first-time buyers," Wright said.

A real estate analyst also evoked the 8 percent figure.

"At 6 and 7 percent we still see upward movement or, at worst, sideways-moving price projections," said Michael Sklarz, chief valuation officer for Fidelity National Financial. "But at 8 percent, some markets have prices falling."

Christopher Cagan, director of research and analytics at First American Real Estate Solutions, agreed with Sklarz. "Prices would start to decline. But I don't expect that to happen."

Indeed, not one member of the group expected interest rates to jump to 8 percent. Generally, the pundits expected rates to remain historically low in 2006, going no higher than 6 or 7 percent at most.

Exotic loan products such as interest-only loans also figured prominently in many experts' worst-case scenarios. Some were worried about whether individual homeowners could handle the loans; others focused on investors.

"People with adjustable-rate mortgages, as long as their mortgage payment doesn't go up too fast, they will probably do everything they can to hold on to their house," said Delores Conway, director of the Casden Forecast at the University of Southern California Lusk Center for Real Estate.

"But if you have a speculator who took out an interest-only loan, planning to flip the property for profit in a short time, and the prices go down, they might just walk away from it," said Conway.

"There's a lot of homes and condos being built around the United States," said Mark Dotzour, chief economist at Texas A&M University's Real Estate Center. "The danger is that a large percentage of that demand is from speculators and investors. Those people can decide to start investing in Wall Street again, and demand can vaporize.

"In a town where demand from them is between 20 and 40 percent, you could end up with a massive amount of overbuilding," Dotzour said. That could leave builders in a bad position, the economist said.

"Subprime loans to individuals with impaired credit histories opened up the market to help them afford homes, but at the same time if interest rates rise and their mortgage payments go up faster than their incomes, they will encounter difficulties," said James Barth, senior fellow at the Milken Institute and finance professor at Auburn University.

One industry veteran predicted that exotic loans would be curtailed in 2006.

"The secondary market is tired of creative financing products and is starting to price against them," said Pat Stone, vice chairman for Metrocities Mortgage, based in Southern California.

Another worst-case possibility for 2006: tampering with the mortgage-interest deduction, Wright said.

Wright was referring to the fact that the President's Advisory Panel on Federal Tax Reform presented a plan to President Bush on Nov. 1, calling for replacing the mortgage-interest deduction with a more limited 15 percent tax credit, among other things.

The proposed change isn't seen as a serious threat by many, thanks at least in part to the spirited defense mounted against it by entities including the National Association of Realtors and the National Association of Home Builders.

During the final months of 2006, as inventory grew and some parts of the country witnessed a slowdown, the question on everyone's mind was, What about house-price appreciation? Are the days of mind-boggling price jumps over?

"The worst case scenario for home prices would be what everyone is screaming about – the so-called bubble would pop," said Cagan. "I don't think we're in a bubble, though." Cagan predicted a healthy normal market going up about 6-8 percent.

Folks used to the double-digit price growth seen in parts of states such as Florida, California and Nevada might see the experts' home-price growth predictions as a worst-case scenario. "I would think price appreciation will be in the lower single digits in the United States in 2006," said Sklarz. Industry veteran Steve Ozonian, CEO of Global Mobility, pegged home price growth at 5 to 7 percent.

Most of the experts said the moderating of house prices was a good sign, "a correction, not a catastrophe," as Cagan put it. Even the overheated markets in Florida, California and Nevada aren't in for a rude surprise, according to the experts, just a softening.

"The market is going to slow down," said Stone. "Ten to 30 percent fewer homes will be sold. The best case is 10 percent fewer; the worst case is 30 percent fewer."
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Real Estate Continues as Prime Investment for 2006

Second consecutive year that industry has been one of the top investment choices in the survey.
RISMedia
Real estate remains a top choice among investors for continued growth in the New Year.

According to BetterInvesting's Voice of the American Shareholder (VOAS) poll, the real estate industry is surpassed only by energy as a leading investment opportunity. More than 1,000 investors participated in the most recent VOAS poll. It is the second consecutive year that real estate has commanded a spot as one of the top investment choices in the survey, having debuted last year as number one.

The volatility of the real estate industry during 2005 has been widely debated, particularly in regard to the market slowdown in the latter half of the year. VOAS respondents were not deterred in their investment choices despite industry analysts' forecasts of an even wider slowdown in 2006.

Bradley J. Crandall, Chairman of the Board of Help-U-Sell(R) Real Estate, says, "The results of the VOAS poll indicate that investors from both East and West coasts view real estate as a strong investment. It's not surprising then that real estate agents continue to obtain listings and alternative models continue to expand nationally and capture a greater market share.

"Consumer-driven alternative models are here to stay, regardless of how hard the traditional real estate community tries to impede their entrance into the marketplace," says Crandall. "These models are growing because they offer options to homeowners and real estate investors that allow them to keep more of the equity - and when you're investing, it's all about ROI."

Investors also anticipate that real estate models that offer options will experience continued growth, and feel that the real estate market will continue to be an attractive venture.
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Best-case scenario for housing next year

Part 1: 2006 real estate forecast
By: Janis Mara: Inman News
"Moderation in all things." - Aristotle

As John and Jane Doe Home Buyer enter the year 2006, driving their Ford Focus down Main Street, they see a moderate number of townspeople buying lunch boxes and new work clothes, signifying modest job growth. As they pass a local bank, the automated ticker display registers interest rates at 6 percent. Best of all, flyers in the window of the local real estate brokerage show house prices reflecting modest appreciation.

At least, that's the best-case scenario for 2006 predicted by experts consulted by Inman News. Not only that, many of them said they believed this scenario was likely.

"A situation where the U.S. economy continues the modest job growth it has produced over the last year is the best-case scenario," said Mark Dotzour, chief economist at Texas A&M University's Real Estate Center.

"Modest job growth creates underlying demand for housing and very little threat in the way of inflation," the economist said. "That's what keeps interest rates at low levels like the ones we've enjoyed for the last five years. If we have moderate job growth resulting in low inflation and in turn a low mortgage interest rate environment, the U.S. will have another successful year."

The best thing that could happen in 2006? Continuation of low interest rates, according to Mike Sklarz, chief valuation officer for Fidelity National Financial. Also, a recovering economy, "which we seem to be in the midst of in a number of sectors," and a rebound in consumer confidence, Sklarz said.

"My guess is that prices will keep going up but at a slower rate," Sklarz said. "Some markets showed double-digit rates of appreciation this year. The more likely appreciation rate is in the single digits in 2006."

David Lereah, chief economist of the National Association of Realtors, also believes there will be "modest cooling."

"The market will be coming off of a five-year boom and experience a soft landing next year," Lereah said in a 2006 forecast released in late October.

"An uptrend in mortgage interest rates will cause some slowing of the sales pace, but we forecast 2006 to be the second-highest year on record and housing will continue to support the overall economy," Lereah said.

Lereah predicts that the national median existing-home price for all housing types, after jumping about 12.4 percent to $208,100 for all of this year, will grow by 5.3 percent in 2006 to $219,200.

Historically, home prices grow 1 to 2 percentage points faster than the rate of inflation. The Consumer Price Index is likely to rise 3.4 percent this year, and then ease to an increase of 2.7 percent in 2006.

James Barth, senior fellow at the Milken Institute and finance professor at Auburn University, said, "The best we can hope for is more of what we had," evoking the image of 2005's record-breaking market.

"I don't think there's going to be a housing bust at all," Barth said. "I think there will be a soft landing."

According to Barth, "The best-case scenario would be growth in the economy without inflation worsening," though fast growth could worsen inflation and perhaps trigger further increases in interest rates and adversely affect housing.

"In my opinion, the best case would be a mild softening of sales prices and a slight increase in inventory levels," said Steve Ozonian, CEO of Global Mobility and industry veteran. "We're absolutely going to see inventories rise a little bit. We're going to see prices stabilize, but if interest rates stay at the current level, they're still historically attractive.

"As long as employment is on the upswing and interest rates stay at an affordable level, there's no reason to believe the market won't continue to flow very nicely," Ozonian opined.

Joining the chorus of moderates, Christopher Cagan, director of research and analytics at First American Real Estate Solutions, said, "The best scenario would be to go back to a healthy, normal, sustainable market going up 6 percent, 8 percent (home prices), with mortgage interest rates remaining where they are or perhaps a little higher."

Predicting a 5 percent growth in house prices nationwide, Cagan said, "I wouldn't mind if California slowed down (in price appreciation). That would be good for California," referring to the state's hot – indeed, according to some, overheated – market.

"California, Florida, Las Vegas have their cycles," Cagan said, referring to the fact that all three have experienced record activity in recent years. "Any market where prices have doubled in five years can have a correction. I don't think it will be a terrible one. It will not impact the overall market dynamic."

While the demand for houses in Florida and California will remain strong, price appreciation will slow in those areas, said James Wright, president/principal broker of Century 21 All Islands in Honolulu. "California is experiencing more inventory on the market and the price point will follow."

Perhaps the most starry-eyed – or, rather, sunny-eyed – optimist of the group was Wright.

Though prices went up 30 percent in the last two years, Wright is positive that double-digit appreciation will continue in his market in 2006 – indeed, for a number of years to come.

"The baby boomers are out there, they've had a lot of good years of earnings, they've inherited wealth," Wright said. "They are buying trophy homes and will be for years. We are one of those places people dream of. They come here to buy a piece of that dream."
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First-time Buyers Helped by California Housing Finance Agency Products

As interest rates creep up, first-time buyers are finding that specialty loans are in many cases the key to getting them the home they want.
By: Phoebe Chongchua: Realty Times
The California Housing Finance Agency, CalHFA, introduced an interest only PLUS loan in March of this year that is marketed exclusively to first-time homebuyers. According to the agency, any person who has not owned a home in the last three years can apply for the loan.

The interest only PLUS product is a 35-year loan. The first five years are interest only and then at payment 61 it turns into a 30-year fixed mortgage.

"The thing that's different about it and makes it unique -- there is nothing in the industry like it -- is the interest rate never changes. So you qualify on the interest and you know at payment 61 how much your payment is going to go up," says Ken Giebel, marketing director for CalFHA. This, of course, differs greatly from the many interest-only loans which may have an adjustable rate mortgage after a specified time period.

Since the program started in the spring of this year through mid-November in San Diego, "CalHFA has done a total of 693 loans … 33 percent (232) were interest only PLUS for a total of almost $64 million dollars interest only PLUS loans," says Giebel.

Statewide CalFHA has done more than 1,500 interest only PLUS loans for a total of $434 million.

Another huge benefit in choosing this type of loan is the interest only PLUS loan program is coupled with a mortgage payment protection product also introduced by CalFHA earlier this year.

"Often, people hesitate to purchase their first home because they fear that if they lose their job they will lose their home as well," says Theresa Parker, executive director of CalHFA.

HomeOpeners allows borrowers who use conventional home mortgage products from CalHFA to have their monthly mortgage paid for up to a six-month period if they lose their job.

"HomeOpeners offers peace of mind to our borrowers and will help make homeownership a reality for Californians -- all at no additional cost," says Parker.

"The HomeOpeners product is a very attractive tie-breaker because it's at no cost. So when the loan officers mention that added benefit, it's a big deal to a first-time homebuyer ... . It seems to make the difference in getting a CalFHA loan versus a Bank of America, Wells Fargo or Countrywide loan," says Giebel.

According to Giebel about 85 percent of the agency's new conventional loans are also getting the mortgage payment protection.

"That protects [buyers] should they become unemployed. We'll make their house payments up to $2,500 up to six months or six individual periods during the first five years of the loan. It doesn't matter if it's on the 30-year conventional or if it's 100 percent loan-to-value or on the interest only PLUS product," explains Giebel.

On the horizon for CalFHA is an even longer mortgage to help lessen the effect of rising interest rates.

"There's more 40-year loan business being written today than there was 12 months ago. We're investigating, at this point, adding it to our first mortgage portfolio," says Giebel. Other banks already have these loans but, according to Giebel, until now they haven't been used as much as other loan programs because interest rates have been so low.

"But as interest rates start to go up the lower payments can help some people qualify especially in a high-cost state like California," says Giebel.
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MERRY CHRISTMAS!

Family, friends, memories...

Wishing you all the simple pleasures of Christmas!

HAPPY HOLIDAYS!

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Should I rush to sell in a changing real estate market?

Some sellers bet on quick sale as desperation sets in
By: Dian Hymer: Inman News
At this time of year, homeowners who are interested in selling figure the home-selling season is winding down and they put their moving plans on hold until spring. But this year, a changing market has given birth to a new mentality.

Many prospective sellers have accelerated their plans and are listing their homes for sale now rather than waiting until next spring.

The rationale runs something like this: Interest rates are rising and this is bound to change the market. If you wait until the spring of 2006 to sell, you could find yourself in a slower market. It might take longer to sell. And, you might not sell for as much as you could today. So, why not put your home on the market now?

There's a sense of desperation in this train of thought. It's impossible to know exactly what next year's home sale market will look like. But, it's unlikely that this is your last opportunity to sell.

In fact, you could argue that now is not the best time to sell given the recent decline in consumer confidence as a result of high gasoline prices, rising interest rates and recent hurricane disasters.

There is often a rebound after a natural disaster. Rebuilding New Orleans will create jobs, which could have a positive affect on the economy and on consumer confidence.

One thing we can be sure of is that you can't time the real estate market. The market isn't static; it's constantly in flux. Home-sale activity varies not only over time, but also from one location to the next.

There's no way to know if any given point in time is the very best time to sell. This can only be known in hindsight. It's possible that the home sale market hit its peak for this cycle sometime during the past summer. This doesn't mean that you've missed the boat. It means that the market is different than it was earlier in the year when buyers willingly paid over asking for prime listings.

Generally, the inventory of homes for sale currently is higher than it has been in some time, and interest rates also are higher. These two market shifts have resulted in a more discerning buyer.
You can't personally influence the direction of the market. But you do have control over the price you ask for your home and how it looks when it hits the market. These two factors have a direct impact on how long it will take to sell your home and on the ultimate selling price.

Some sellers today are in such a rush to sell that they're willing to put their home on the market without considering how it will be received by buyers. With more listings to choose from, buyers have the luxury of being selective. Why should they pay a high price to buy a house that looks bad when they can buy one that's in move-in condition?

HOME SELLER TIP: Resist the temptation to put your home on the market in its "as-is" condition hoping that you'll get lucky and find someone will overlook the clutter and deferred maintenance. Of course, you could ask a bargain price to attract attention. But even if you do discount, you'll be selling to a limited market of buyers who want to buy a fixer-upper from a seller who's desperate to sell.

THE CLOSING: Even though it takes time, you'll have a better chance of a profitable sale if you properly prepare your home for sale before you put it on the market.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
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Selling Using a Range May Bring Top Dollar

Value Range Marketing, a concept first born in Australia in the 1990's, is increasingly becoming the method of choice for selling homes in San Diego, California.
By: Phoebe Chongchua: RealtyTimes
The concept, which was first born in Australia in the early 1990's and years later brought to the United States by Gregg Toyoma for Prudential California Realty's convention, is changing the real estate industry.

Broker Associate Carlton Lund, of Prudential California Realty in Carlsbad, says it's the biggest change for the industry since the Internet. He was among the first agents to try out the concept in 1995.

"I had a listing that was going nowhere … In 93 days not even a realtor stopped to look at this condo and so I tried the concept of using a range instead of a fixed price and 48 hours later we were in escrow. Upon closing the transaction the single, young buyer said to me that 'If you hadn't used a range I never would've found the condo of my dreams,'" says Lund.

Typically if a home doesn't sell, experts say it's either not priced right or it hasn't received enough exposure. Or it could be that Value Range Marketing isn't being used.

"Last year homes sold 20 percent faster in the San Diego Multiple Listing Service using range-pricing than fixed-pricing," says Lund.

The key in Value Range Marketing is that it creates a bigger pool of potential buyers by creating a dollar span that will attract more buyers to make written offers.

Lund says ultimately it helps buyers get the communication process started to determine what price the seller will actually settle on.

"It's putting your name in the hat in writing to say, 'I'm interested in your property. I'm willing to pay this; what are you willing to come back to me at and what am I finally going to pay?'"

What can frequently happen is that buyers who are set on paying a certain price will not look at or even make an offer if a home is listed even just $10,000 above their price point. But if there is a value range it opens up opportunity and buyer optimism.

Another consideration is that with a fixed price, often buyers will never see a home that they might have considered because they have given specific price parameters to their agent. So during a Multiple Listing Service search the home would not show up unless it fit the price parameter that the buyer had given to the agent.

According to Lund it is critical to structure the range properly.

"If a person has too high a range it's not any better than an over-priced listing. Sometimes people who don't understand range pricing have too short a range, such as a seller will entertain offers from $299,000 to $310,000. That's ridiculous. That's not a range," says Lund.

Prudential California Realty is the only firm to publish its price ranges which end in 876 such as the range $575,000 - $624,876 to denote Value Range Marketing.

"The 876 [spells out] V-R-M on the [keypad] of a phone … it just gives another identifying factor to an agent that's knowledgeable that it is a range price listing," explains Lund.

Today in San Diego County the concept is increasingly being utilized.

Lund says that in recently closed transactions almost 21,000 homes in San Diego used Value Range Marketing, while approximately 15,800 homes were marketed at a fixed price.

Homeowner, Steve Cade, has had six of his properties sell since 1997 using Value Range Marketing. The properties valued anywhere from $140,000 to $4 million.

"Wherever you think the comp is, that needs to be the mid-point of the range," says Cade.

For some sellers that triggers a fear that they'll have to settle for low-ball offers. Cade says that's just not the case.

"To work effectively, if your house is worth $500,000 then that needs to be the mid-point of the range and when you do that it casts a bigger net and frequently the negotiation process brings the price back up to the market value," says Cade.

And with more buyers making offers it can cause the price to increase even more than the seller's originally targeted price.
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3rd Home Comes Within Reach

By: Melinda Blau: REALTOR® Magazine Online
Third homes once were owned only by millionaires, but a growing number of mainstream buyers are taking advantage of low interest rates and the equity in their first and second residences to make such a purchase.

A 2004 NATIONAL ASSOCIATION OF REALTORS® survey of 8,206 home owners found that 14 percent of respondents owned at least two homes; while 4.3 percent and 1.2 percent of those polled owned at least three and four homes, respectively.

Centex Destination Properties, for instance, reports that 8 percent to 38 percent of the residents of its Dallas communities own three or more properties. Third-home ownership can be difficult, as owners spend three times as much on repairs, maintenance, and other expenses.
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'Soft landing' runs its course in California real estate market

Sales down 11 percent from November 2004 to November 2005
Inman News
The median price of an existing home in California in November increased 16.2 percent and sales decreased 11.2 percent compared with the same period a year ago, the California Association of Realtors trade group reported today.

"The California housing market continues to experience year-over-year double-digit price appreciation, which is consistent with our expectation that the statewide median for 2005 will increase by 16 percent over last year," said Vince Malta, CAR president.

"While year-to-date sales in November were 1.7 percent above last year's pace, we are starting to see the ‘soft landing' we have been expecting," said CAR Vice President and Chief Economist Leslie Appleton-Young. "The year-to-year decline in sales is not surprising, given the market was so strong in November 2004. Additionally, rising mortgage interest rates, which have moved above 6 percent over the last few months, contributed to the slowdown in sales."

Closed escrow sales of existing, single-family detached homes in California totaled 579,560 in November at a seasonally adjusted annualized rate, according to information collected by CAR from more than 90 local Realtor associations statewide. Statewide home resale activity decreased 11.2 percent from the 652,340 sales pace recorded in November 2004, the trade group reported.

Statewide sales figure represents what the total number of homes sold during 2005 would be if sales maintained the November pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

The median price of an existing, single-family detached home in California during November 2005 was $548,400, a 16.2 percent increase over the $471,980 median for November 2004, CAR reported. The November 2005 median price increased 1.8 percent compared with October's $538,770 median price.

Among the resale housing figures reported by CAR for November 2005:

– CAR's Unsold Inventory Index for existing, single-family detached homes in November 2005 was 3.9 months, compared with 2.8 months (revised) for the same period a year ago. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

– Thirty-year fixed mortgage interest rates averaged 6.33 percent during November 2005, compared with 5.73 percent in November 2004, according to Freddie Mac. Adjustable mortgage interest rates averaged 5.14 percent in November 2005 compared with 4.15 percent in November 2004.

– The median number of days it took to sell a single-family home was 39 days in November 2005, compared with 36 days (revised) for the same period a year ago.

Regional sales data are not adjusted to account for seasonal factors that can influence home sales, the association reported. The MLS median price and sales data for detached homes are generated from a survey of more than 90 associations of Realtors throughout the state. MLS median price and sales data for condominiums are based on a survey of more than 60 associations. The median price for both detached homes and condominiums represents closed escrow sales.

Localized statistics generated by CAR and real estate information company DataQuick Information Systems revealed that 96.1 percent of cities and communities in the state, or 372 of 387, showed an increase in their respective median-home prices from a year ago. DataQuick statistics are based on county records data rather than MLS information. DataQuick Information Systems is a subsidiary of Vancouver-based MacDonald Dettwiler and Associates.

Large changes in local median home prices typically indicate both local home price appreciation, and often, large shifts in the composition of housing market activity, CAR reported, and some of the variations in median home prices may be exaggerated because of compositional changes in housing demand. The DataQuick tables listing median home prices in California cities and counties are available online at http://www.car.org/index.php?id=MzU3MTg=.

Among the findings:

– Statewide, the 10 cities and communities with the highest median home prices in California during November 2005 were: Manhattan Beach, $1,803,000; Newport Beach, $1,474,500; Laguna Beach, $1,360,000; Palos Verdes Estates, $1,350,000; Burlingame, $1,277,250; Los Gatos, $1,260,000; Rancho Palos Verdes, $1,197,500; Calabasas, $1,195,000; Danville, $1,096,500; Cupertino, $923,000.

– Statewide, the 10 cities and communities with the greatest median home price increases in November 2005 compared with the same period a year ago were: Delano, 79.5 percent; Sanger, 64.2 percent; Banning, 56.6 percent; Twentynine Palms, 54.4 percent; Ridgecrest, 53.4 percent; Yucca Valley, 53.1 percent; Barstow, 51.8 percent; Bakersfield, 46.8 percent; La Quinta, 46.2 percent; Atwater, 45.9 percent.

The California Association of Realtors, with headquarters in Los Angeles, has about 180,000 members.
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Statistical Analysis Eases Bubble Talk, Shows Rents Growing

By: M. Anthony Carr: Realty Times
There's been plenty of press lately on softening markets around the country and now there are more articles finding ink about how the real estate bubble isn't really a bubble, hasn't burst and is more likely just seeping out some air.

I've had a Google News Alert established for months now on "real estate bubble." It's amazing how many local newspapers keep reporting about the bubble – somewhere else. Not in Florida, Texas, North Carolina., etc., but somewhere else – those poor people.

Then today's search results brought in these headlines:

      "Proof that the real estate bubble hasn't burst"

      "A challenge to real estate bubble reports"

      "The real-estate bubble media coverage bubble"

      "Bye-bye bubble"

      "Self-correction of real estate bubble"

In reading the articles they all seem to be saying, "Um … wait a minute, we may have overreacted to the bubble stories and now it's not a story."

Through deeper reading, you'll find industry watchers and insiders have come out with the big guns in the area of statistical analysis. Without statistics, business people don't move forward and these stats have been showing that in many places across the country, there are some very strong markets taking a breather, but by no means has any bubble popped.

The National Association of Realtors is even predicting a record year for 2006. Now, you might say, "Well, of course they're saying that to quell the fears that people's home values are in jeopardy." Maybe yes, maybe no. The problem for all the bubble prognosticators, however, is that markets across the country are still strong. Rarely do you find a market absolutely diving and people heading for the hills. The "softening" is more like a return to a normal market, not a bursting of a market.

In light of the fact that the Washington, D.C. region has the strongest economy and job growth in the country, I was surprised at the latest breather in the market. However, in looking over our own real estate stats, I've discovered that investors should be raising rents right now if they want to take advantage of a run on the rentals the last four months.

Investors inside any hot market need to look over the stats just as much as those who are selling. They must keep up with the real estate values so they know when to sell and move money to other investments. And they especially need to watch average rents as they don't want to get left behind in the growth of their monthly cashflow.

What's happening here is probably doing the same in other markets where sales are either headed downward or taking a breather -- rental inventory is being eaten up, rents are on the rise and days on the market have been slashed. At least for the last few months, it's turning in favor of the landlords.

According to the rental stats from the region's MLS, Metropolitan Regional Information Systems, Inc., in the District of Columbia, the average days on the market for rentals has dropped below three weeks. The average days on market last year at this time was more than 10 weeks. In addition, the average unit rented last month is bringing in $840 more annual income than the average unit rented a year before. Wealth-building is on the march.

In neighboring jurisdictions around D.C., the same is happening - Montgomery County, Md., days on market dropped less than half to 30 days. Fairfax County, Virginia's days on market has dropped to just 23 from 59 in a November to November comparison from this year to last. Meanwhile, the average unit annual income is up by more than $1,000 compared to a year ago in Fairfax. Montgomery County investors are bringing in nearly $100 more per month last month than they were able to fetch a year before - that's $1,200 per year increase in revenue.

I've always been a 'buy 'em and hold 'em" kind of investor. And other investors who have done the same are now smiling. The wise wealth building goes something like this - buy low, hold and rent out (for years), sell and roll money to a larger property. This is what we refer to in the business as a commonsense approach to building wealth. Yes, those investors who purchased when there wasn't a frenzy are now smiling - all the way to the bank.
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The Weekend Guide! December 22 - December 25, 2005

The Weekend Guide for December 22 - December 25, 2005.
Full Article:
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Wealthy Americans confident that real estate will hold its value

Most expect double-digit appreciation rate within five years
Inman News
Almost two-thirds of wealthy Americans expect to see double-digit increases in the value of their primary homes over the next five years, with about one-third of them anticipating the value to rise 20 percent or more, according to a survey released this week by The PNC Financial Services Group.

"Our findings indicate that many among the wealthy will not believe there is a real estate slowdown until they see it reflected in their property values, especially in regions of the country where prices have skyrocketed during the past five years," said Nicholas Buss, senior vice president and real estate economist at PNC, a financial organization that provides banking, real estate finance and lending services.

"As an investment, real estate has been an increasingly dominant asset class over the past five years. The party may be over for those who have been 'flipping' houses and using real estate to get rich quick. But, in general, established wealthy Americans have not been speculative buyers and they remain solidly confident in the long-term value of their real estate holdings," Buss said.

The survey was intended to identify attitudes about wealth among high net-worth individuals, how it affects their lives, and their needs in managing wealth, PNC reported.

The survey was conducted by Harris Interactive online this fall among a nationwide cross section of 1,485 adults (age 18 or over) with annual incomes of $150,000 or above (if employed), at least $500,000 of investable assets (if employed) or at least $1 million of investable assets (if retired).

The total sample contains four groups: 795 with assets of $500,000 to $999,999; 465 with assets of $1 million to $4.9 million; 109 with assets of $5 million to $9.9 million; and116 with assets of $10 million or more. Figures for age, sex, race, education, region, income, asset level and propensity to be online were weighted where necessary to bring them into line with the actual proportions in the population, the company reported.

Among the real estate findings of the survey:

– Less than one in 10 (7 percent) wealthy Americans overall expects any decline in the value of their primary homes over the next five years.

– Only about one in five (22 percent) wealthy Americans counts real estate as one of their principal sources of wealth. Those who do, clearly recognize the importance of real estate to their financial health, with 39 percent of them saying a "major decline" in home values would be a threat or huge threat to their family's wealth. Residential real estate is far more likely to be listed as a source of wealth by those under age 65 (26 percent) or those with less than $1 million in liquid assets (30 percent).

– There are significant regional differences in home price expectations.

- Floridians are the most bullish while New Yorkers and New Englanders are the most bearish. Californians are closer to national norms in their outlook, the company reported.

– The PNC survey found significant regional differences in real estate outlook. In general, those living in the Southern and Western parts of the United States were more likely to expect an increase in the value of their real estate than Northeasterners. More detailed findings include:

– New Englanders had the most conservative expectations for ongoing rising home values, with one in 10 respondents expecting a 20 percent or more increase in home prices over the next five years and 18 percent expecting a decline. Nearly twice as many New Yorkers (19 percent) expect an increase of 20 percent or more, and an almost equal number (20 percent) expect a decline.

– California respondents had higher expectations with approximately one-third (37 percent) expecting a 20 percent or more increase and only 8 percent expecting any decline.

– Florida: in a state where property values have soared, half of the respondents expect the value of their primary residence to increase by more than 20 percent over the next five years, making them twice as bullish on real estate as all respondents compared to respondents in other states (28 percent outside of Florida expect a 20 percent or more increase).

Nearly three quarters of Floridians surveyed said they expect to see double-digit increases in the value of their primary homes over the next five years. Just one in 20 wealthy South Floridians (5 percent) expects any decline in the value of their primary homes over the next five years.

Just one in five South Floridians say they got rich through real estate, but those who did are twice as likely to expect their real estate values to continue to increase. Nearly nine in 10 (89 percent) who say residential real estate is a major source of their wealth are expecting double-digit increases over the next five years, and 81 percent are expecting an increase of 20 percent or more, compared with 42 percent nationally.

Four in 10 (39 percent) South Floridians surveyed said that a major decline in housing prices would pose no threat to their family's wealth. One in five (19 percent) said it would pose a threat.

Sixty percent of the 205 Floridians surveyed strongly or somewhat disagreed said that even if housing prices were to decline by as much as 20 percent within the next two to four years, they would be concerned about the long-term effect on their overall wealth. An equal number (60 percent) strongly or somewhat disagreed that they would delay major purchases, and only one in five strongly or somewhat agreed that there would be a need to make lifestyle changes to reduce household expenses.

– When asked what changes, if any, they would make if housing prices were to drop by 20 percent or more in the next two to four years, only one in five of the national survey respondents (22 percent) strongly or somewhat agreed that they would make lifestyle changes to reduce household expenses, while more than half (55 percent) report they would not delay major purchases to offset the decline.

"In recent years, rising housing prices have lifted consumer confidence and boosted consumer spending, but it does not appear that declining prices will dampen that confidence, at least among the affluent," Buss said.

Individuals with $500,000-$999,000 were most likely to make lifestyle changes to reduce expenses if real estate values fell by 20 percent or more, according to the survey.

Of the 32 percent of wealthy Americans who own a second vacation home or condo, half say they purchased within the past five years. Nearly two-thirds (63 percent) note they purchased their second home simply for their ongoing personal use. Only 19 percent said they bought property as an investment.

Another one-quarter (24 percent) of survey respondents indicated they own real estate as residential rental property. New Englanders (43 percent) were much more likely to own a second/vacation home than the rest of the country (23 percent), with most second/vacation homes and condos owned for longer than five years. Californians were much more likely to own residential rental properties, the survey revealed.

Among those who said residential real estate is a major source of financial assets, rental properties were the most common form of ownership, whereas timeshares, vacation condos and commercial real estate were less common.

Harris Interactive Inc., based in Rochester, New York, is a market research firm known for "The Harris Poll" and its work in the online market research industry.

The wealth and values survey was designed and managed by HNW Inc., a provider of wealth marketing software and solutions to financial services companies and intermediaries.
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REALTORS® Help Consumers Remodel

By: NAR: REALTOR® Magazine Online
Kitchen and bathroom remodeling projects are returning more of a home owner’s investment than ever before, according to the 2005 Cost vs. Value Report published by REALTOR® Magazine and Remodeling magazine.

Many home owners who complete midrange bathroom remodels can expect to make money; the cost on a national average for this project is $10,499, and the return is $10,727, or 102.2 percent, compared with 87.5 percent in 2002. On average, major midrange kitchen remodels cost $43,862 and return $39,920, or 91 percent of the costs to remodel, up from 66 percent in 2002.

Nationally, home owners who add an attic bedroom spend an average of $39,188, and on resale, they recoup 93.5 percent of the cost. Master suites, however, do not fare as well; an upscale addition, which costs $137,891 on average, returns only $110,512 on resale, or approximately 80.1 percent of the remodeling expense.

The 2005 Cost vs. Value Report includes information provided by NAR members about the resale value of common remodeling projects in 58 U.S. housing markets. The report includes cost data, resale value, and percentage recouped at sale for 18 projects, including a first this year: a home office remodel. Given that America’s home owners spent more than $139 billion on home improvements and repairs over the past year, according to data from the Joint Center for Housing Studies at Harvard University, the report contains valuable information for anyone who is considering embarking upon a remodeling project.

“REALTORS® have industry expertise that goes beyond the initial real estate transaction,” says 2006 NAR President Thomas M. Stevens, senior vice president of NRT Inc., from Vienna, Va. “Our members’ experience and familiarity with the communities in which they work make them valuable resources. They understand what makes a good home investment, whether their clients are buying, selling, or remodeling. REALTORS® not only sell housing; we also build communities.”

The desirability of different remodeling projects varies by region and metropolitan area. In the West, window replacements are highly valued, perhaps due in part to insulation and cooling concerns in desert regions, with nearly 103 percent of costs recouped on sale. Westerners also prefer remodeled kitchens and basements; in this region, for example, a minor midrange kitchen remodel may return 112.3 percent, and a basement remodel is estimated to return 108 percent.

In the Midwest, however, the same kitchen and basement projects return only 85 percent and 73 percent, respectively. Midwest buyers appreciate homes with updated siding; midrange and upscale siding replacements return 96 percent and 98 percent of the project costs, respectively. Siding replacement projects fared well at resale in all four regions, likely because new siding is a relatively inexpensive way to update and refresh a home’s curb appeal.

Buyers in the South are partial to upscale bathrooms, which return an average of 98.5 percent of project costs. When considering resale value, however, Southerners may want to think twice about midrange window replacements; this improvement, which is so popular in the West, only returns an average of 83.7 percent of project costs in the South.

In the East, a midrange attic bedroom addition returns an average of 98.1 percent at resale, but a home office remodel only returns 75 percent. In fact, remodeling projects that involved home offices were among the lowest returns on investment across all four regions.

“Local and regional differences in the resale value of remodeling projects are not surprising—the desirability of certain home features varies by neighborhood and is heavily influenced by buyers’ expectations in a given area,” says Stevens. “For example, adding a bathroom to a one-bathroom house in a neighborhood where most homes already have two may not return as much as remodeling an outdated bathroom in that same community.”

In the final analysis, however, homeowners who are thinking about a remodeling project should consider their own needs and desires as well as those of the home’s future inhabitants. “Keeping up with the Joneses can be a savvy investment move,” says Stacey Moncrieff, editor of REALTOR® Magazine. “But ultimately, the best reason for a remodel is to enjoy it.”

The December issue of REALTOR® Magazine features 10 of the 18 projects. For a synopsis of the report, see the Expanded 'Cost vs. Value'. The entire report, including city-by-city data, is available to the public for $6.50 plus shipping and handling at www.realtorreprints.com.
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Boomers, Economy Bolster 2nd-Home Market

By: Greg Burns: REALTOR® Magazine Online
Though the second-home market usually is the first to experience a downturn, experts say this niche will remain strong for at least the next decade.

David Berson, Fannie Mae chief economist, says the strong economy and the massive number of baby boomers entering their prime years for buying a second home will bolster the market over the next 10 years or more.

According to Loyola University demographer Kenneth Johnson, baby boomers will continue to move to scenic, rural areas that are in close proximity to their jobs and primary residences in major cities.

Prices on the East and West coasts—particularly in Oceanside, Calif.; Pompano Beach, Fla.; and Beach Haven, N.J.—and in popular ski and resort areas continue to rise.
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Home Improvements For the Holidays

'Tis the season to be jolly - and also a time to spruce up the house. Consumers plan to spend an average of $628 on fixes and renovations, a survey says.
By: Andrea Coombes: The Wall Street Journal Online
'Tis the season to be jolly - and apparently also the season to improve the home, according to a recent survey from Deloitte & Touche, the consulting firm.

U.S. consumers plan to spend an average of $628 on improving their house this holiday season, up 84% from the $341 they said they'd spend in 2003 at this time.

That means, of the total $2,348 consumers say they'll spend this holiday, the biggest portion will go to the home, with 27% going to home improvement, while 26% will go to gifts, 17% to socializing, 12% to charity, 9% to entertaining at home, 7% to nongift clothing, and 2% to holiday-specific furnishings, according to the 20th annual Deloitte survey of 17,440 consumers, taken in October.

The survey didn't define "home improvement," so consumers could be counting everything from buying new furniture to remodeling.

While a big portion of holiday dollars are going to home improvement, that simply reflects pricier items, said Richard Giss, a partner in Deloitte's consumer business practice. Giss is based in Los Angeles.

"If I buy a China hutch or a dining-room table, the outlay in dollars is enormous relative to other gifts I might give," he said.

It's likely consumers' drive to beautify their homes is connected to rising house values in recent years, he said. "There's a belief that 'I can spend on my home and get the money back,'" Giss said.

Even buying furniture appears, to some consumers, to add to the home's value, he said. Furniture is a depreciating asset, "but no one thinks of it that way, and if you do any repairs to your home, people think that adds to the value of the house," Giss said.

Plus, "there's more entertainment done at the holidays," he said. "It's a natural time to assess your home."

Home-improvement construction easing

But if you look solely at the kind of home improvement that involves construction, activity tends to be highest during the spring and summer months, said Kermit Baker, director of the remodeling futures program at Harvard's Joint Center for Housing Studies.

The program produces a quarterly index of home-improvement activity.

"Home improvement spending generally tracks new construction spending, which is weak in the fourth quarter. The heaviest time is spring and summer," Baker said, noting that's mainly a weather-driven phenomenon.

The dollars spent on home improvement have been accelerating at a steady clip in recent years, driven higher by rising home values and low interest rates spurring refinance activity, which in turn led to dollars spent on home repairs.

Homeowners spent more than $139 billion on home improvement in the third quarter, up 4.4% from a year ago. But that growth rate appears to be easing slightly, Baker said.

In the fourth quarter of 2004 and the first quarter 2005, homeowners spent $143.4 billion and $148.7 billion, respectively, on home improvement, with both figures representing double-digit gains from year-ago periods. See the Center's remodeling index for the third quarter.

"Housing sort of sailed through this last recession," Baker said. "Falling interest rates encouraged a lot of people to refinance and they cashed money out and took on a slightly bigger mortgage and used a lot of that for home improvement," he said.

Now, the market appears to be calming, he said. There's "not much refinance activity anymore, new- and existing-home sales numbers look like they've peaked. The sense is we're on the downside of this cycle now," Baker said.

"There are no signs the market's heading into recession, but no signs that it's starting to accelerate," he added.

"Falling interest rates, increasing home sales, they seem to be on the easing side of the cycle, not the growing side. There doesn't seem to be anything that would start to reverse that and accelerate this market that I can see."
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California: Southland Homes Sustain Solid Gain

By: Bill Sing: REALTOR® Magazine Online
The median home price in Southern California surged 15.4 percent to an all-time high of $479,000 during the year-over-year period ended in November, according to DataQuick Information Systems.

It remains to be seen how long double-digit appreciation rates in the six-county region can be sustained, especially with sales falling 3 percent to 27,637 from October.

Analysts anticipate a return to single-digit price growth in the coming year; but price declines could occur in the event of a state and national economic downturn, massive job losses, or a substantial drop in U.S. Treasury purchases by foreign investors.

The median price of a home rose 23.2 percent to $350,000 in San Bernardino County, 20.7 percent to $612,000 in Ventura County, 19.5 percent to $497,000 in Los Angeles County, 17.1 percent to $405,000 in Riverside County, 13.9 percent to $616,000 in Orange County, and 6.4 percent to $518,000 in San Diego County from last November.

Over the same period, sales rose 18.6 percent in Riverside County and 12.1 percent in Ventura County. However, sales fell 1.6 percent in Orange County, 3.6 percent in Los Angeles County, 9.5 percent in San Diego County, and 1.8 percent in San Bernardino County.
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Remodeling Helps Resale, Regardless of State of Market

Housing bubble or not, renovations are usually a good investment, provided you have the proper expectations. Home-improvement dollars should first go toward jobs that make your pad more livable, if not lovable.
By: Gene Colter: The Wall Street Journal Online
The housing-bubble debate has served as a full-employment act for economists. It's also left some folks wondering how much they should shell out on remodeling if their as-yet-unfinished hardwood floor is about to drop out from under them.

Irresolute remodelers can get off their picket fence: Projects that make your patch of the American Dream more pleasant usually help sell it -- regardless of where real-estate is headed -- and a lot of the cost can be recouped if you move. How much depends in part on location, with buyers in some of the hottest housing markets willing to pay a premium for fancy fix-ups.

But poorly done, or overly personalized, remodeling works against you at resell: As a conscientious contractor told a couple with a starter home, "You do not want orange tile."

Home-improvement dollars should first go toward jobs that make your pad more livable, if not lovable. These improvements may not boost resale value, but good luck selling the house at market value without them: If the pipes sound like whale-song, the pipes come first, because even the most hapless home inspector will bother to flush the toilet.

Many homeowners fixate on and fret about kitchens and baths. As Martha Stewart might say, that's a good thing, because these rooms count for a lot. Don't touch the rest of the house if you're planning a move within a few years.

"There is a higher return on renovating a kitchen than any other project in the house," says Cory Marks, a Re/Max Realtor in Northern New Jersey. "That can include even a minor kitchen repair. What I've seen people do is keep a lot of existing structures in place."

Elise Haeussler's Baltimore design firm does a lot of Band-Aid work on kitchens, and she tells clients to avoid contractors who default to a tear-down. Provided the room isn't about to burn down, you can get just as much joy from new cabinet fronts, a new sink and similar touch-ups. In a kitchen in a small home in Arlington, Va., Ms. Haeussler tiled over "ghastly" linoleum, replaced cabinet hardware and the sink and repainted, but not with bland "contractor's beige." The result? Like a picture postcard from Provence, and it later sold the house.

Not a cook? You spend more time in the kitchen than you think, and house hunters -- be they chefs or eat-out executives -- obsess over it. "I've seen homes sit that are in great shape because the kitchen was not redone," says Mr. Marks. "If every other house on the street has a remodeled bath or kitchen, then on resell it's kind of an expected standard."

If every nail you drive is with an eye toward selling, you may as well use the bible the Realtors quote from: Remodeling magazine, whose "Cost vs. Value Report" reveals average costs recouped on major kitchen work are above 90 cents on the dollar, and nearly 100% on a minor job. Returns on buff-and-polish work soar to as much as 170% in major cities and drop to as low as about 60% elsewhere.

Those figures cut both ways. If you live in an economically less buoyant part of the country, your renovation should cost less. Should you need professional help, your contractor likely will show up, which often doesn't happen in towns where overextended "professionals" remodel homes whose values resemble the GDPs of small nations.
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Pros See No Doom, Gloom in Slowdown

RISMedia
A panel of economists and real estate professionals meeting at the University of San Diego said the county's housing market was returning to normal growth patterns following the boom that began in the late 1990s.

"I think the bloom is off the rose, but there is no doom and gloom," said Alan Nevin, chief economist for the California Building Industry Association.

The fundamentals of the housing economy remain sound, said Louis A. Galuppo, director of USD's Burnham-Moores Center for Real Estate. "We may see a decline in sales but not prices."

Despite "air leaking out of the tire," there are no major economic triggers, such as massive job losses, to cause the housing market to crash, said Joe Anfuso, chief financial officer of Shea Homes San Diego.

Outlook 2006, Burnham-Moores' sixth annual residential real estate conference, drew about 480 people to USD's Jenny Craig Pavilion. Those in attendance for the early-morning session heard experts dismiss the possibility of a bursting real estate price bubble.

Despite rising interest rates, a growing for-sale inventory and a slowing sales pace, the county's shortage of housing will prevent prices from dropping steeply, speakers asserted.
"It's Economics 101," said Leslie Appleton-Young, chief economist for the California Association of Realtors. "It's demand and supply."

In figures released outside the conference yesterday by DataQuick Information Systems, the county's median home price rose 6.4 percent in November, far less than the double-digit gains of April but strong by traditional standards.

Addressing the statewide economy, Appleton-Young forecast "a slight decline in home sales" for California in 2006. Many established homeowners have cashed out rising equity and now lack the funds to trade up to larger homes, she said.

"We are going to see people staying in their homes longer."

Another reason homeowners are staying put is Proposition 13, the landmark property-tax-cutting initiative. Passed in 1978, the measure limits tax increases on properties until they are sold. Many owners are reluctant to sell and give up their tax breaks, Appleton-Young said. If they buy a new home at a higher price, "they look at doubling and tripling their taxes."

Several speakers at the conference addressed the use of new lending products that had enabled middle-wage consumers to attain financing for high- priced homes. Many "creative" mortgage loans have low, introductory payments that adjust upward with prevailing interest rates after several years. In general, they shift risk from the lender to the borrower.

Anfuso said fears that such loans would trigger defaults were misplaced.
Many borrowers "are going up the wage scale" and will be able to handle rising payments, he said.

Michael Perry, chairman and chief executive of IndyMac Bankcorp, said he expected new federal guidelines to address such loans. Appleton-Young said some borrowers may find themselves overburdened by debt because of newer mortgage products.

"We may see a blip up in foreclosures and delinquencies," she said.

During a panel discussion called "Has the Bubble Burst? What's Next?" Alex Zikakis, president and founder of Capstone Advisors, said he didn't see a strong presence of speculators in the local residential real estate market.

Jill Morrow, president and chief operating officer of Coldwell Banker San Diego, said the local housing market was not driven by investors.

"We have a lot of diversity in our economy," she said.

In her forecast, Appleton-Young predicted a 2 percent statewide decrease in single-family home resales next year. She anticipates a 10 percent statewide increase in the cost of a median-priced resale home.

Citing an affordability crisis, Appleton-Young said trends showed that only about 15 percent of California households would be able to afford a median-priced home, compared with about 50 percent of households nationally.

In the long run, California's lack of affordability will lead more businesses and employees to consider moving out of state to areas where homeownership is more attainable, Perry said.

USD economist Alan Gin said the county's overall economy would outperform the state and the rest of the nation in 2006. Gin said he was concerned that most of the jobs being created here offered modest salaries, however. He also cited rising interest rates and high gasoline prices as concerns for local consumers. Even so, the housing market will cool but not collapse, he predicted.

Appleton-Young called California real estate a market in transition. "I think we're in for a soft landing," she said.
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Dropping the real estate boom in 2005

The real estate market slowed in some markets in 2005
By: Glenn Roberts Jr.: Inman News
Some real estate professionals may remember 2005 as the beginning of the end of the boom - the year when the housing market let out some steam and began to fall back toward Earth. Some super-heated markets cooled as interest rates climbed, for-sale inventory grew and home-price increases moderated.

This is the year that Federal Reserve Board chairman Alan Greenspan described "signs of froth" in the real estate market, where prices have in some instances risen to "unsustainable levels," adding that, "we certainly cannot rule out declines in home prices, especially in some local markets." His statements sent real estate industry groups scampering to shore up public confidence in the health of the market.

National statistics don't paint a detailed picture of a localized real estate downturn, though, and 2005 was actually another smash hit for the U.S. real estate industry at large. Sales of existing homes are on track to beat last year's record, according to National Association of Realtors statistics, and the rate of home-price appreciation is on pace to beat the 2004 rate.

For the first 10 months of the year, the rate of existing-home sales was about 4.6 percent above the rate for all of 2004. Median home prices in October were up about 17 percent from October 2004, the trade group also reported. But inventory of for-sales homes grew significantly in that time, too - the months' supply of for-sale existing homes grew 14 percent.

The Realtor association's chief economist, David Lereah, said in a statement in late November, "We are returning to more balanced markets between home buyers and sellers, one that places buyers on a more even footing. Housing activity has peaked and is coming down a bit, and we expect further cooling in the coming months."

Lereah and several other industry economists have predicted a soft landing for the U.S. real estate market as opposed to a bursting bubble, though economists have also acknowledged that some local real estate markets could suffer more dramatic slips as the market turns.

As for new homes, price increases are on a slower pace this year than in 2004. While the median price for new homes jumped from $195,000 to $221,000, or 13.3 percent, from 2003 to 2004, the median new-home price for the first 10 months of 2005 is up about 3.2 percent compared to 2004, according to U.S. Census Bureau and U.S. Housing and Urban Development Department statistics. And while new-home sales increased about 10.8 percent from 2003 to 2004, that rate of increase has slowed to about 7.6 percent for the first 10 months of 2005 compared to the first 10 months in 2004.

The U.S. Office of Federal Housing Enterprise Oversight reported this month that average U.S. home prices increased about 12 percent in the third-quarter of 2005 over third-quarter 2004, down from 14 percent from second-quarter 2004 to second-quarter 2005. During the first half of the 1990s, year-over-year house-price increases were more commonly in the range of 2 percent or less.

The office's chief economist, Patrick Lawler, noted in the Dec. 1 announcement that "price momentum in the Pacific and New England states, in particular, has pulled back," and there is "some deceleration ... in a number of the faster-appreciating markets." House prices grew about 12 percent in the past year while the price of other goods and services increased about 4.5 percent, the office also reported.

Real estate agents in slowing markets have said that sellers are in some cases unrealistic about the value of their homes and the continuing rate of price appreciation, and this has led to high listing prices, fewer offers and longer time on market. Some buyers, they say, are getting priced out of the market by rising prices and interest rates.

Peter Casey, a past president of the Massachusetts Association of Realtors and president and CEO for Prudential Wilmot Whitney Real Estate in Weston, Mass., said, "The market is beginning to normalize, inventory is coming into balance. It's not a frightening market."

Sellers in his market area still "have an inflated vision of what their home is worth," he said, though they will undoubtedly adjust to the changing market. "Eventually sellers will catch on," he said.

Paul Sears, a broker-owner at Sears Real Estate in Springfield, Mass., said that properties in his market area were taking about twice as long to sell, on average, than in the prior year, though sales are still high.

An ocean away, in Hilo, Hawaii, some of the local buyers are getting priced out of the market, said Russell Arikawa, a Realtor at Ginoza Realty. "Low inventory and high prices are eliminating a lot of local buyers. They're struggling, searching, searching," he said.

Arikawa's wife, Carol S. Ginoza-Arikawa, principal broker and owner of Ginoza Realty, said many of the buyers are from California and other Hawaiian Islands. The market is "slowing down a little bit," she said.

In California, Realtor Joanne Dover of East Bay Real Estate Network, in the San Francisco Bay Area, said, homes that are priced right continue to sell quickly, but some sellers are slow to realize that prices are moderating. "The market is still good," though some of the higher-end homes are taking longer to sell, she also said.

Robert Campbell, a real estate adviser and author of a real estate investment book, "Timing the Real Estate Market," has a much more dire view of the California real estate market. "I believe the California housing market is a bubble that is nearing its final hours," he wrote in a Nov. 14 real estate advisory for Southern California investors. "It could be a rerun of the stock market bubble in the 1990s," he said, adding, "I believe a 40 percent price correction is likely" in California.

"As the California housing mania ends and the concept of risk returns to its rightful place, there is going to be a rush for the exit doors," he also wrote.

The condo market is coming out of the clouds in some parts of the country that saw feverish construction and investor activity over the past few years, Inman News has reported, and experts have cautioned that some parts of the country are at risk of building too many condo units too fast for the market to absorb. The Mortgage Bankers Association, in a September report, "Housing and Mortgage Markets: An Analysis," for example, cautioned that, "historically condos have experienced a greater level of price volatility" than the general housing market.

The report also stated, "The ability of apartment owners and developers to quickly bring a large number of condo units onto the market is a risk factor in certain markets. A sudden ramp-up in supply could lead to a decline in prices."
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Homeowner seeks real estate tax breaks on multiple homes

Significant amount of time must pass to qualify
By: Robert J. Bruss: Inman News
DEAR BOB: I own a home in Florida, which is my legal "main home" residence. I spend about six months every year in that home and about six months in my other home. If I sell the Florida home, I assume I will have no capital gains tax because it is my primary residence. Can I then move to my other home, making it my principal residence for 24 out of the last 60 months and claim the home-sale tax exemption again? – Jim B.

DEAR JIM: Yes. It seems you understand Internal Revenue Code 121 very well. The IRC 121 exemption can be used once every 24 months. To qualify, you must own and occupy your principal residence at least 24 of the 60 months before its sale.

If you are single, up to $250,000 of your capital gains from the home sale will be tax-free. If you are married and both spouses meet the occupancy test (only one spouse need be on the title), then up to $500,000 of your capital gains are tax-free if you file a joint tax return in the year of the home sale. For full details, please consult your tax adviser.

IS THERE AN INDUSTRY STANDARD TO MEASURE PROPERTIES?

DEAR BOB: As a real estate broker, we are often questioned about the accuracy of square-foot measurements. I say taking outside measurement is close enough. But my insurance agent says it must be done inside room by room. What is the industry standard? – Ken McN.

DEAR KEN: There is no industry standard for measuring residence square footage. Insurance agents and appraisers usually use the outside perimeter and then apply a construction cost of say, $150 per square foot, for replacement cost estimate purposes.

Of course, when measuring the rooms, you would use the inside useable square footage as measured from wall to wall.

As a real estate broker, you must be especially careful to never say a room measures 200 square feet, or 10 feet by 20 feet. Instead, always say the room is approximately 200 square feet or approximately 10 feet by 20 feet.

If you take the measurements off the seller's house plans, or even from city records, always quote your source such as "according to city records." Another "weasel clause" used on many MLS (multiple listing service) forms is "Information believed to be reliable but not guaranteed."

HOW TO AVOID CAPITAL GAINS TAX ON THE SALE OF A VACANT LOT

DEAR BOB: How can I avoid capital gains tax when selling my free-and-clear vacant lot? Is the only way to do an Internal Revenue Code 1031 tax-deferred exchange? – Anna N.

DEAR ANNA: Yes, you can defer capital gain tax on the sale of your vacant lot by making an IRC 1031 tax-deferred exchange for another investment or business property. To qualify, the acquired property must equal or exceed the lot's market value and equity.

However, if the lot adjoins your principal residence, and you sell both the lot and your home within 24 months, then the lot's capital gain can also qualify for the Internal Revenue Code 121 tax exemption up to $250,000 (up to $500,000 for a married couple filing jointly). That's presuming you owned and occupied your principal residence at least 24 of the 60 months before its sale. Please consult your tax adviser for full details.

The new Robert Bruss special report, "How to Avoid Buying or Selling a Bad 'Lemon' House," is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.
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Closer look at latest Fed speak

Long-term mortgage rates fall after Fed hike this week
By: Lou Barnes: Inman News
The next two weeks are the traditional holiday "dead time" in the markets (bond-market people use such cheery metaphors all year 'round), and so the passage of an extraordinary transition this week has been lost on vacation.

Like your luggage, to be found in January.

The Fed's statement after its last 12 consecutive meetings said that it had acted to "remove excess accommodation." After the 13th, on Tuesday, raising its rate again to 4.25 percent, the Fed removed the phrase itself. Long-term mortgage rates promptly fell.

The Fed has been on automatic pilot for 18 months, one drip-drip quarter-point at a time, each hike as surprising to the markets as that day's sunrise. The automation made sense: at a 1 percent overnight cost of money, the Fed had successfully intercepted the risk of deflation 2002-2004, and everyone understood that the Fed could no longer allow that free-money lending.

The only question was where the Fed would stop. Not even the Fed knew that, nor does it know now -- too many other things are moving. Surprises like the inflation risk from $60 oil, and the refusal of long-term rates to rise along with the Fed, thereby limiting the impact of the Fed's hikes.

However, there are some measures for the overnight cost of money that are independent of other accidents. The most important is the spread between the Fed funds rate and inflation; a spread of 2 percent to 2.5 percent by historical rule is a neutral Fed policy, neither leaning against the economy nor goosing it. The core rate of inflation is only 2.1 percent, so a 4.25 percent Fed funds rate is now in the neutral range.

By other measures the Fed is still on the easy side: Fed-funds-to-GDP ought to have the funds rate a couple of points above GDP, and they are now about equal, as are funds-to-nominal-CPI. However, even though fixed mortgage rates are below the highs in '03 and '04, the Fed has removed adjustable-rate mortgages as a propellant for housing. A 7.25 percent "prime" rate today is not an accommodative number.

The Fed's inflation worries have been salved by the globalized labor market. All prior energy-price cost-pushed inflation episodes have quickly spread to wage inflation, but not this time, as the ready substitution of Asian labor for American makes it difficult for American wages to inflate in any way. The Fed's statement gave a nod to the possible inflationary consequences from "increases in resource utilization" -- meaning unemployment falling too low -- but the Fed has things to worry about besides inflation.

Other Worry Number One: overdoing the medicine. The Fed is looking back at a huge cumulative rate hike, and knows that its effects will not be fully evident in the economy for a year. Only in moments of inflation going out of control is the Fed single-minded, recession be damned, as in 1973-74 and 1979-1981; this is not a comparable situation.

There is no sharp dividing line between easy monetary policy and tight -- the economy is too ambiguous and changeable for that. The definitive line in Tuesday's statement says "some further measured policy firming is likely to be needed," which means a stopping point anywhere from 4.5 percent on Feb. 1 to something a little over 5 percent by summer 2006. The long-term rate improvement this week reflects the sure knowledge in the bond market that any increase from here is likely to be reversed before the end of 2006, and a hunch that the Fed has already tightened too far into an economy likely to slow of its own accord.

Expect some rate volatility as those two bond-market assumptions are alternately confirmed and challenged by new data in the next couple of months. By spring, I think they will be confirmed without challenge.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
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Uncovering profit potential in real estate

Get ready for legwork, public records research
By: Robert J. Bruss: Inman News
After analyzing why and what type of real estate you want to acquire for investment, the next step is to look for profit potential. "Buy sound, well-located property" is a time-tested technique for earning real estate profits. But I suggest changing that formula to "Buy sound, well-located property with profit potential."

EXAMPLE: Recently, the large Park Lane apartment building on San Francisco's Nob Hill, across the street from the famous Fairmont Hotel, was purchased by 87-year-old longtime real estate investor Frank Lembi for a very high price, which makes no sense based on its low financial return from rents. Most of the apartments are rent-controlled at low rents. Although it is a beautiful "trophy building" constructed in 1927, that property only has two of the three key investment profit criteria – it is sound and well located. But it doesn't offer much profit potential because the rents can't be increased to raise the net income and the market value. I understand the new owner and his son might be able to convert the property into tenancy-in-common ownership (TIC) to produce resale profits. Converting to condominiums would be extremely difficult because of San Francisco's tough anti-conversion ordinances. Unless they can create a TIC, or come up with another profitable use, "pride of ownership" is not a sound profit motive for a property like that!

What is a profit potential property? Virtually every town has lots of profit potential properties. To see how Donald Trump acquires properties with profit potential, be sure to read the excellent new book "Trump Strategies for Real Estate" by George H. Ross (John Wiley and Sons, 2005, $24.95). No matter what you think of "The Donald," Ross takes a very valuable and objective look to explain Trump's real estate investment strategies.

This great book should be required reading for every serious real estate investor. As an observer of Trump for more than 25 years and as his trusted adviser for the last 10 years, 77-year-old Ross probably knows more about what makes Trump successful than Trump himself does. The book is filled with countless examples of how Trump acquired dumpy properties with profit potential, such as New York City's Commodore Hotel (which became the Grand Hyatt at Grand Central Station), 40 Wall Street (a mostly vacant, massive office building purchased for only $1 million with an unfavorable land lease, which Trump renegotiated to create added value), and many others, then improved them to create higher market values, often by adding luxury renovation touches.

According to Ross, Trump's success keys are (1) acquire at a bargain purchase price, (2) visualize the profit potential that nobody else sees, and (3) pull everything together no matter how long it takes. Don't miss the Trump negotiation strategies, which make the book so fascinating. By the way, all the recommended books are available in stock or by special order at local bookstores, public libraries, and amazon.com.

In today's real estate market, buying an investment property and sitting back to wait for it to appreciate in market value by itself is pure speculation. Instead, savvy investors like Trump add "forced inflation" market value by adding profitable improvements, as explained in my other special reports.

HOW TO FIND INVESTMENT PROPERTY WITH PROFIT POTENTIAL. If you expect someone to call you and say "I've got the perfect property for you to buy and it's sure to go up in value at least 20 percent per year," dream on. That just doesn't happen.

Instead, it's up to you as a savvy investor to locate these profit potential properties. There are many sources, including (1) foreclosures, (2) probate properties, (3) bankruptcy properties, (4) run-down "don't wanter" properties, (5) under-used properties, (6) vacant properties, and (7) fixer-upper properties. For more details on these and other resources, please look over my list of special reports.

Every property has profit potential if you buy it at the right price and terms.

Personally, my realty investment problems are (1) spotting the profit opportunities, and (2) accepting the risk, especially if I have never done the task before, such as building a new house on a great lot. At the moment, financially I am quite comfortable. Therefore, my tolerance for risk is low. If I were just starting out investing in real estate and wanted to become very wealthy as a real estate investor, I would "go for broke" because I would have everything to gain and nothing to lose.

EXAMPLE: Recently, I spotted a beautiful view lot being sold "for sale by owner" near my home. I've had my eye on this property for years. I knew the elderly owner who died in his home there about two years ago at age 93. The lot even comes with an old one-story house on it! But rather than being a "fixer-upper," I think that house is a "tearer-downer!" It was built around 1950 and hasn't been fixed up since then. To complicate matters, there is a beautiful old "heritage tree" in the courtyard. Local construction regulations would require building a new house around that old tree. But the fantastic view of San Francisco Bay from a new two-story house would be one-of-a kind. A new luxury house on the property will probably be worth $5 million based on recent nearby comparable sales prices. The asking price for the lot with the old run-down house is a mere $2.5 million! The two wealthy brother heirs aren't very motivated to sell, unless they get their price. I spent almost an hour talking with one of the out-of-state heirs by phone. He's nice, but very tough. Is the profit potential worth the risk? That is my dilemma. If the numbers and the risk weren't so big (for me), I would tie up that property in a heartbeat. Would you take on that risk and profit potential?

Fortunately, most real estate profit opportunities don't involve substantial numbers like that (although I realize $2.5 million is petty cash for "The Donald" and he wouldn't even be interested in such a small profit potential). But it's good to think big! However, if you are getting started in realty investment, please start out with small properties. Look for potential profits in the $10,000-and-up range per property.
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Confusion surrounds joint tenancy for married couple

A look at holding title to real estate
By: Robert J. Bruss: Inman News
DEAR BOB: Recently I told my lawyer to include the name of my wife on my home as "joint tenancy with right of survivorship." But when I read the quit claim deed, it says "tenancy by the entireties." Is this the same thing? – Juan A.

DEAR JUAN: No. Tenancy by the entireties is a special version of holding title as joint tenancy with right of survivorship. It is allowed only when a husband and wife hold title to real estate in some states.

The legal result is the signatures of both spouses are required to sell or encumber tenancy by the entireties property. When one spouse dies, the surviving spouse then owns the entire property, the same as with joint tenancy. The deceased's will has no effect on either joint tenancy or tenancy by the entireties property.

By comparison, if title is held in joint tenancy, one joint tenant can usually convey or encumber his/her share alone (thus breaking up the joint tenancy and creating a tenancy in common without the other joint tenant's approval). But this isn't possible when title is held as tenants by the entireties.

States allowing tenancy by the entireties title between husband and wife are Alaska, Arkansas, Delaware, Florida, Hawaii, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Vermont, Virginia, Wyoming and the District of Columbia.

In my opinion, a far better way for spouses to hold joint title to any real estate is in their revocable living trust to avoid probate costs and delays. A second major living-trust advantage is, if a co-owner becomes incapacitated such as with Alzheimer's disease or a severe stroke, the successor trustee (usually the other spouse) can continue managing the property, and even sell or refinance it.

However, if title is held in joint tenancy or tenancy by the entireties, a court-appointed conservator or guardian is required to represent the incapacitated co-owner. Please ask your attorney to explain further.

WHY IS APR (ANNUAL PERCENTAGE RATE) DIFFERENT THAN MORTGAGE INTEREST RATE?

DEAR BOB: I applied for a fixed-rate mortgage. Everything is correct on the Good Faith Estimate of Borrower's Settlement Costs form I was given. But at the closing, I was given a Truth-in-Lending Disclosure which showed the APR (annual percentage rate) is higher than my fixed mortgage interest rate. What is the relationship of these two interest rates? – Ryan H.

DEAR RYAN: The APR is almost always higher than the mortgage's interest rate. The APR is supposed to be a true interest rate after considering up-front borrowing costs.

The reason the APR is usually higher is because it includes costs such as the loan fee, called "points," which is usually amortized over 10 years.

To illustrate, your fixed interest mortgage rate might be 6 percent and that's the interest rate you will actually pay. However, if you paid up-front costs, such as a loan fee, your APR might be 6.125 percent for the same mortgage. For more details, ask your loan officer to explain further.

HOW TO RESOLVE A BOUNDARY DISPUTE

DEAR BOB: Our home is located on 3.5 acres of hilly land. When we purchased about six years ago, we obtained a survey, which is part of our title insurance policy. Recently, the large property next to our property was subdivided and staked by a surveyor. He politely informed us our fence is about 12 feet on the neighbor's side of boundary for a length of about 150 feet. The developer threatens to tear down our fence. But our survey shows the fence is on the boundary. What should we do? – Jess W.

DEAR JESS: Run, don't walk, to the office of the title insurance company that insured your survey as part of your owner's title insurance policy.

The title company should turn the matter over to their title attorney. He or she will probably recommend immediately obtaining a court temporary injunction to prevent the neighbor from tearing down your fence until the boundary dispute can be resolved.

The next step will probably be for you or the neighbor to bring a quiet title lawsuit to determine the true boundary location. Your title insurer should pay the costs of your defense because a loss is threatened.

Although it doesn't happen often, surveyors do make mistakes. Thankfully, your survey accuracy is insured so if you suffer a loss of part of your property, the title insurer must compensate you.

The new Robert Bruss special report, "How to Avoid Buying or Selling a Bad 'Lemon' House," is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.
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Real estate sales slow in Southern California

Prices continue to march upward
Inman News
Southern California home sales dropped from November 2004 to November 2005 in several Southern California counties while prices continue to escalate, a real estate information service reported today.

About 27,600 new and resale homes were sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in November, which was down 3 percent from October and up 0.6 percent from November 2004, according to DataQuick Information Systems.

A decline from October to November is normal for the season. The strongest November in DataQuick's statistics was in 1988 when 29,303 homes were sold. The slowest November was in 1991 when 13,537 homes were sold. So far this year 326,746 Southland homes have been sold, virtually unchanged from 326,880 for the first 11 months of last year.

"Potential buyers typically get off the fence when interest rates are on the rise, that may account for part of last month's high sales count. Additionally, more homes are on the market these days, giving buyers more choice than they had a few months ago," said Marshall Prentice, DataQuick president.

The median price paid for a Southern California home was $479,000 last month, a new record. That was up 1.3 percent from $473,000 in October, and up 15.4 percent from $415,000 for November 2004. Annual price increases have been in the mid-teens since April.

Home sales activity dropped 9.5 percent in San Diego County, 3.6 percent in Los Angeles County, 1.8 percent in San Bernardino County and 1.6 percent in Orange County from November 2004 to November 2005, while jumping 18.6 percent in Riverside County and 12.1 percent in Ventura County in that time.

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Meanwhile, median home prices rose 23.2 percent in San Bernardino County, 20.7 percent in Ventura County, 19.5 percent in Los Angeles County, 17.1 percent in Riverside County, 13.9 percent in Orange County and 6.4 percent in San Diego County from November 2004 to November 2005

The typical monthly mortgage payment that Southland buyers committed themselves to paying was $2,238 last month, up from $2,169 for the previous month, and up from $1,830 in November 2004.

Adjusted for inflation, current payments are about the same as they were in the spring of 1989, at the peak of the prior real estate cycle, DataQuick reported.

"Indicators of market distress are still largely absent. Foreclosure activity is edging up from its bottom, but is still low. Down payment sizes are stable, as are flipping rates and non-owner occupied buying activity," the DataQuick announcement states.

DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.
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The Weekend Guide! December 15 - December 18, 2005

The Weekend Guide for December 15 - December 18, 2005.
Full Article:
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Housing Market rounds out record year

California Association of REALTORS® (C.A.R.)
National existing home sales are expected to jump 4.7 percent to 7.10 million units in 2005, which tops last year's record, NAR recently reported in its year-end forecast. The Association also projects new home sales to rise 7.0 percent to 1.29 million units this year.

According to the forecast, the housing market will slow in the year ahead, leveling to a "more normal and balanced market." Despite a decline in sales activity, NAR anticipates the second best housing market on record in 2006. Next year, existing home sales are expected to decrease 3.7 percent to 6.84 million units, while new home sales are projected to fall 4.8 percent to 1.23 million units.

"The slowdown amounts to a tapping of the brakes on a hot market," said NAR Chief Economist David Lereah. "Home sales are coming down from a mountain peak, but they will level-out at a high plateau - a plateau that is higher than previous peaks in the housing cycle."
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40-Year Home Loan Soars in Popularity

By: Gregory J. Wilcox: REALTOR® Magazine Online
An estimated 60 percent of the members of the California Association of Mortgage Brokers expect home buyers to turn to 40-year mortgages to achieve lower monthly payments in the new year.

Higher interest rates also will increase the popularity of 100 percent and adjustable-rate loans, but more than 70 percent of those polled by the group believe such mortgages can be risky for certain borrowers.

According to the association, interest rates will hit 7 percent next year. Many lenders do not offer 40-year mortgages, but Robert Kleinhenz, deputy chief economist for the CALIFORNIA ASSOCIATION OF REALTORS®, says home buyers can opt for shorter loan terms because many will move or refinance within five to seven years.
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Feng Shui Your Home for the Holidays

By: Karen Rauch Carter: iVillage
The holidays are the time of year you can temporarily add all kinds of chi-enhancing items to your home. Start by introducing yourself to the bagua (the feng shui road map) so you know where all of the key places in your home are.

Next, decide what your priorities are. For instance, do you want to have a harmonious family gathering this year? Add wood, such as a wreath or a Christmas tree, to the "family" area - the left, center of your home or room.

Do you want to improve your health or someone's health in your family? Add fire or sparkling objects, such as stars, twinkling lights or ornaments to the "heath" area - the center of your home or room. Or are you interested in getting more help from people around you? Add angels to the "helpful people" area - the left, front area of your home or room.

Here are nine different ways you can make a difference in your life - just by adding your favorite holiday decorations. Just decide which area (or two!) needs the most help:

Need to enhance your career? Add items that represent water to the front, center area of your home, such as:

    • Snowmen

    • Snowflakes

Want to bring your family closer together? Add items that represent wood to the left, center area of your home, such as:

    • Christmas tree

    • Hanukkah bush

    • Inherited decorations

    • Holly

Want people to think highly of you? Add items that represent fire to the back, center area of your home, such as:

    • Reindeer

    • Candles

    • Stars

    • Lights

    • Poinsettias

    • Menorah

    • Holly

Want to improve your health? Add items that represent earth to the center area of your home, such as:

    • A fresh centerpiece with real earth

    • Poinsettias

    • Fresh bowl of fruit or fruit basket

Want to get your creative juices flowing, or having problems with children (conceiving, or with children you already have)? Add items that represent metal to the center, right area of your home, such as:

    • Ornaments

    • Games

    • Dreidel

    • Instruments

    • Train set

    • Bowls of ornaments

    • Dolls

    • Carolers

    • Sleds

Want to increase your wealth? Add items that represent money to the back, left area of your home, such as:

    • Gifts (especially the ones you receive)

    • Chocolate Hanukkah gelt (money)

Need more help in your life from the people around you? Add items that represent people helping you to the front, right area of your home, such as:

    • Santa

    • Angles

    • Gifts (especially the ones you are giving)

Looking to increase your wisdom? Add items that represent skills or knowledge to the front, left area of your home, such as:

    • Wise Men of the Nativity set

    • Religious figures

Want to improve your romantic relationships? Add items that represent love or sweetness to the back, left area of your home, such as:

    • Chocolates and other sweets!

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A New Way To Hedge Against Housing Declines

Talk about well timed.
By: Alistair Barr: The Wall Street Journal Online
The Chicago Mercantile Exchange plans to offer real-estate futures. Amid concern over a possible slowdown in the property market, nervous investors will able to buy financial products for protecting their portfolios in 2006.

As concerns grow over a slowdown in the recently booming U.S. housing market, new financial products are becoming available that help companies, professional investors and even regular folk to hedge themselves against movements in home prices.

The Chicago Mercantile Exchange, the world's largest futures exchange, is plans to introduce new contracts in April tied to home prices in ten cities including New York, Chicago and Los Angeles.

Earlier this year, online derivatives exchange HedgeStreet introduced contracts based on the future median price of single-family homes in Chicago, Los Angeles, Miami, New York, San Diego and San Francisco, as published by the National Association of Realtors

The U.S. residential real estate market is worth almost $19 trillion, according to Federal Reserve data, making it bigger than the stock market and almost as large as the fixed income market.

But unlike equity and bond markets, until now there's been no liquid market or other efficient way to hedge the risks of movements in real estate. The lack of such tools has become more evident as the recent housing boom has pushed the industry into an even more prominent role in the U.S. economy.

The CME's contracts are mainly designed for companies whose fortunes are tied to real estate markets, such construction firms, developers, mortgage lenders and real estate investment trusts, Craig Donohue, chief executive of the exchange said.

He also expects interest from hedge funds looking to bet on the direction of house prices and said the contracts will also be available to individual investors or the 75 million or so homeowners in the U.S.

The contracts are part of a new clutch of new products that the CME hopes will help to sustain strong revenue and profit growth.

"We're hopeful that it will be a significant contributor," Donohue said. "These are large important risks that need to be hedged."

Email your comments to rjeditor@dowjones.com.
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Historically Strong Home Sales Expected in 2006

NAR: REALTOR® Magazine Online
The housing market for 2005 is headed for a fifth consecutive annual record, and sales activity in 2006 is expected to be the second best year in history, according to the NATIONAL ASSOCIATION OF REALTORS®.

David Lereah, NAR’s chief economist, said that market conditions are still favorable for housing. “The slowdown amounts to a tapping of the brakes on a hot market,” said Lereah. “Home sales are coming down from the mountain peak, but they will level-out at a high plateau – a plateau that is higher than previous peaks in the housing cycle. This transition to a more normal and balanced market is a good thing.”

The 30-year fixed-rate mortgage should trend up modestly and reach 6.6 percent during the second half of 2006.

Existing-home sales, expected to rise 4.7 percent to 7.10 million this year, are likely to decline 3.7 percent in 2006 to 6.84 million. New-home sales, projected to increase 7.0 percent to 1.29 million this year, are forecast to drop 4.8 percent to 1.23 million in 2006 – also the second best on record. Total housing starts for 2005 should grow 5.8 percent to 2.06 million units, the highest since 1972, and then decline 4.8 percent to 1.92 million next year.

NAR President Thomas M. Stevens from Vienna, Va., said that housing has always been the soundest investment for most families. “As the old saying goes, homeownership beats the heck out of a drawer full of rent receipts,” said Stevens, senior vice president of NRT Inc. According to the Federal Reserve Survey of Consumer Finances, the median net wealth of a homeowner household is 36 times higher than a renter household.

Stevens said that the national median home price has never declined since good recordkeeping began in 1968. “Although there can always be a temporary decline in a given area if jobs are weak and there is an oversupply of homes on the market, people who stay in their homes for a normal period of homeownership generally see healthy returns over time. There are no guarantees, but there are very good odds.”

The national median existing-home price for all housing types, which is experiencing a surge estimated at 12.7 percent to $208,800 for 2005, is expected to rise another 6.1 percent in 2006 to $221,400. The median new-home price is likely to rise 5.5 percent to $233,100 in 2005, and then grow by 7.3 percent next year to $250,100 as higher construction costs impact the market.

The U.S. gross domestic product should grow 3.7 percent for 2005 and 4.1 percent next year. The unemployment rate is expected to decline to 4.9 percent by second quarter of 2006, and then stabilize.

The Consumer Price Index is projected to rise 3.4 percent for 2005, and 2.9 percent next year. Inflation-adjusted disposable personal income is forecast to increase 1.4 percent in 2005 and 4.5 percent in 2006.
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Real estate's December report card

Guest perspective: Higher loan limits, lower rates signs of positive news
By: John Burns: Inman News
Almost all of the news this month was positive. GDP, job growth, productivity and leading indicators all improved. Consumer confidence rebounded, mortgage rates declined, and new-home sales surged. Sales continue to soften in some markets, but this is not true nationally. The most positive news came from Fannie Mae and Freddie Mac.

The two mortgage giants announced that they will raise the conforming loan amount from $359,650 to $417,000 in 2006, which they claim will allow an additional 466,326 homeowners to become eligible for a conforming loan. Rates on "jumbo" non-conforming loans are typically between a quarter-and-a-half-point higher than conforming rates. The conforming mortgage limits have been rising much faster than home prices.



Our grading system of the economy and the housing market is a "bell curve" model, with statistics at an all-time high receiving an "A," statistics near the long-term average receiving a "C," and the worst times ever receiving an "F." In this grading system, it is OK to be a "C" student.

Here is our current report card:

Economic Growth: C

The employment sector improved in November, adding more than 1.9 million new jobs over the last year, a growth rate of 1.5 percent. Unemployment remained flat at 5 percent. Productivity increased 4.7 percent in the third quarter. Inflation rose slightly to 2.1 percent, which is still well below its historical average of 4.2 percent.

Leading Indicators: C

The leading indicator index is up 2.4 percent on an annualized basis over the last six months. The spread between the 10-year Treasury index and the federal funds rate narrowed slightly to 0.45 percent. The stock market improved in November, with each of the indices that we track (Dow Jones, S&P 500, NASDAQ and Wilshire 500) retuning between 4 percent and 8 percent on an annualized basis. The S&P Super Homebuilding Index rebounded in November, returning 10 percent during the month and 35 percent over the last 12 months.

Mortgage Rates: B+

Both fixed rates and adjustable rates rose in November, while the spread between the two continued to narrow for the eighth consecutive month, to 114 basis points. The average fixed mortgage rate rose to 6.28 percent, and the one-year adjustable mortgage rate was 5.14 percent at month's end. The percentage of loans with an adjustable rate stood at 33 percent at month's end, the highest value since June.

Consumer Behavior: C+

Consumer confidence bounced back in November to 98.9, following two months of decline. Falling gas prices and an improving job outlook contributed to the increase. Consumer sentiment improved during the month to 81.6, returning to pre-Katrina levels.

Existing-Home Market: A-

The NAR median home price rose in October to $218,000. Annual sales volume decreased to 7.1 million sales per year, with declines in each region of the country. The inventory of existing homes increased slightly to 4.9 months. The pending home sales index fell in October, but remains very strong at 123.8.

New-Home Market: B

Annualized new-home sales in October rose to an all-time high of 1.42 million units, and the median new-home price rose to $231,300. The Housing Market Index fell to 60 in November. The supply of unsold homes fell to 4.3 months.

Housing Supply: C+

Annualized housing starts decreased to 2.01 million in October, with single-family starts decreasing 3.7 percent to 1.68 million. Total starts increased 1.7 percent in the Midwest and decreased 3.8 percent in the South, 9.6 percent in the Northeast and 15.5 percent in the West. Single-family permits decreased 4.9 percent to 1.68 million units.

John Burns is the founder of Real Estate Consulting in Irvine, Calif., which monitors changes in real estate market conditions and provides consulting services, including strategic planning, market research and financial analysis.

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Ways to Avoid Winter Damage To Your Home This Season

By: Marshall Loeb: The Wall Street Journal Online
The chill, snow, ice and wind can wreak havoc to your residence's exterior and heating and plumbing systems. Marshall Loeb outlines a few simple steps to protect your house from the elements.

This year, as Jack Frost starts nipping at your nose, remember that he's also nipping at your house, which could force you to make some costly repairs.

Here are some ways to protect your home from winter damage due to chill, snow, ice and wind:

    • Clean your gutters. Melting snow and ice should be able to flow freely to the
      ground. If the freezing water's path is disrupted - a condition called ice
      damming - it may seep into your house.

    • Trim overhanging, damaged or dead tree branches. Accumulation of snow or ice
      on branches, or even strong winds, can cause weak limbs to break. Ice-covered
      limbs can be particularly damaging to your home or car - and dangerous to you.

    • Maintain the temperature. Keep your thermostat at 65 degrees or higher.
      Although you can save on your energy bill by holding your thermostat a few
      degrees lower than you normally might, temperatures below 65 degrees will make
      your pipes vulnerable to freezing.

    • Check your plumbing. Before it gets too cold, inspect your pipes for cracks,
      leaks or other damage. Learn how to shut the water off so that you can limit
      the damage in the event of a frozen or burst pipe.

    • Inspect heating systems. Be certain your home's heat sources - including the
      furnace, fireplaces and stoves - are working properly.

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Mortgage Options Available To Buyers of Second Homes

Columnist Jane Hodges on the variety of financing options consumers can employ to purchase a vacation house.
By: Jane Hodges: The Wall Street Journal Online
Question: My wife and I want to buy a second home in Florida. We'd use it initially as a vacation home, but might want to relocate there once our son finishes high school. We're not sure how much house we can afford. Can you tell us how securing a mortgage for a vacation property differs from getting a home loan on a primary residence?

- Bobby Hickman, Atlanta

Bobby: In many ways, borrowing to buy a vacation home doesn't differ much from taking out a loan to purchase a primary residence.

"You can do pretty much anything to borrow for a second home that you can to buy a first home," says Dave Craig, a mortgage loan officer at First Horizon Home Loans Corp. in Seattle.

Many second-home buyers pursue a separate, additional mortgage for their vacation property. In the past, a down payment of at least 5% would have been required. These days, says Steven Schneider, a partner with Abacus Lending Group Inc. in Miami and president of the Florida Association of Mortgage Brokers Inc., there are more flexible products available, including interest-only loans (in which you make smaller, interest-only payments for a set period of years, and then pay back both principal and interest in bigger payments) and "pay option" adjustable-rate mortgages (ARMs), where you decide which of a variety of payment forms to make each month. Pay options can include an amount based on a low teaser interest rate (say, 1.5%) available for a short period of the loan, an indexed interest rate that tracks a benchmark rate such as one-year Treasury bills), or fixed rates on a 15-year or 30-year loan, or others.

If home values continue to rise in the state (as they generally have been), loans like interest-only and pay-option ARMs may be good options for second-home buyers, Mr. Schneider says. However, if housing prices come down, or if you always make the lowest payments permissible, it's possible to end up owing more on a house than you bought it for under many pay-option ARM formats. Interest-only borrowers, like buyers of primary homes, sometimes run into trouble when they have to start paying the higher combined mortgage payments for both principal and interest.

If you plan to rent the home out more than 10% of the time, you may be charged a slightly larger loan-origination fee, up to one-and-a-half points higher, to get the same rate a nonrenting owner would, Mr. Craig says. The reason for this, he notes, is that lenders consider loans for owner-occupied property (meaning you use the property the bulk of the time) to be less risky than those on rentals.

Many borrowers finance their second home by tapping the home equity in their primary home. You could consider a "cash-out refinance" of your primary home - a mortgage on your main home that is based on how much your home has appreciated in value since purchase. A cash-out refinancing is more prudent than taking out a home-equity line of credit or a second mortgage on your primary home, as interest rates have been rising more significantly on both home-equity loans and second mortgages, Mr. Craig says. Current rates for home-equity and second mortgage loans can be found at www.bankrate.com.

If you are going to sell your current home when your son finishes school, a traditional adjustable-rate mortgage (ARM) might be a good choice. You could take out a five-year or seven-year ARM with a low initial interest rate. The sale of your primary residence may give you a large influx of cash to make the payments when the rates on your vacation home's mortgage adjust upward. The profit from the sale of your house could allow you to either pay off the loan or pursue other financing options.

- Ms. Hodges is a free-lance writer in Seattle. She answers questions about managing second homes in Owner's Manual. Please send your questions to RealEstateJournal@wsj.com.

Email your comments to rjeditor@dowjones.com.
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U.S. Home Markets That Are The Most and Least Affordable

Indianapolis, where the median price for new and existing homes was $125,000 in the third quarter, is the most affordable place to buy in the U.S., according the National Association of Home Builders. The priciest homes are concentrated in California, the trade groups says.
By: John Spence: The Wall Street Journal Online
More good news for residents of Indianapolis, where the hometown Colts are sporting an undefeated 11-0 record so far this NFL football season.

The National Association of Home Builders said Thursday that Indianapolis, where the median price for new and existing homes was $125,000, took the title in the third quarter for the most affordable housing market among the nation's major metropolitan areas. About 90% of homes sold were affordable to families earning the median income of $64,000.

Other areas among the most affordable in the country include Youngstown-Warren, Ohio; Detroit-Livonia-Dearborn, Mich.; Buffalo-Niagara Falls, N.Y.; and Oklahoma City, Okla.

However, overall affordability for the nation's housing market dropped to the lowest level since the NAHB began calculating the index in 1992. Roughly 43% of homes sold in the third quarter were affordable to median-income families.

The decline was driven by a 5% gain in the average home selling price from the second quarter, the NAHB said. Meanwhile, mortgage rates were steady, with the average weighted interest rate for fixed and adjustable mortgages gaining only 2 basis points to 5.84%.

"Strong house-price performance is the double-edged sword that has simultaneously attracted and discouraged new home buyers," said Dave Wilson, NAHB president, in a statement.

Not surprisingly, the nation's least affordable housing markets are concentrated in California, with the Los Angeles metro area topping the list, where only 2.4% of homes sold were affordable to those earning the median income. The median sales price for new and existing homes was $495,000, according to the NAHB.

Other California spots on the least-affordable list include Santa Ana-Anaheim-Irvine, San Diego-Carlsbad-San Marcos, and Stockton. Meanwhile, New York-White Plains-Wayne, N.Y.-N.J. was the only metro area outside California that cracked the five least affordable major housing markets, according to the NAHB.
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2006 Outlook Continues To Be For A Slower, But Still Busy, Housing Market

Realty Times
Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market SurveySM (PMMSSM) in which the 30-year fixed-rate mortgage (FRM) averaged 6.32 percent, with an average 0.6 point, for the week ending December 8, 2005, up from last week’s average of 6.26 percent. Last year at this time, the 30-year FRM averaged 5.71 percent.

The average for the 15-year FRM this week is 5.87 percent, with an average 0.6 point, up from last week when it also averaged 5.81 percent. A year ago, the 15-year FRM averaged 5.14 percent

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.78 percent this week, with an average 0.7 point, up slightly from last week when it averaged 5.76 percent. There is no annual historical information for last year since Freddie Mac only began tracking this mortgage rate at the start of this year.

One-year Treasury-indexed ARMs averaged 5.16 percent this week, with an average 0.8 point, unchanged from last week when it averaged 5.16 percent. At this time last year, the one-year ARM averaged 4.15 percent.

“Looking back at 2005, 30-year fixed rate mortgage rates averaged just about the same as they have for the last two years," said Frank Nothaft, Freddie Mac vice president and chief economist. “Since the 30-year fixed rate is the most popular mortgage product by far, these low rates helped the housing market set records for home sales and new construction over the last three years."

“Looking ahead, as mortgage rates rise housing activity will ease somewhat. So although 2006 will not be another record-setting year, it will likely beat the previous record for home sales and new construction set in 2003. In other words, 2006 will be another busy year for the housing sector.”
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Buying a Rental Property That Will Generate Cash

June Fletcher on how to locate and purchase a multifamily home that can make you money through real-estate appreciation or monthly positive cash flow.
By: June Fletcher: The Wall Street Journal Online
Question: Three years ago, I bought eight single-family rental properties. They have appreciated, but I have negative monthly cash flow. How can I get a no- or little-money down deal on a multifamily unit with positive cash flow?

- Hisashi Nagashima, Schaumburg, Ill.

Hisashi: Before you buy any property, ask yourself, "What's more important, appreciation or positive cash flow?" Single-family homes in the most desirable neighborhoods may appreciate quickly, but because their carrying costs are high, they rarely generate the sort of income needed for positive cash flow. Multifamily units that bring in the bucks each month are likely to be in more modest parts of town and aren't likely to show as great appreciation. You can't expect to dine on T-bone steaks when you're raising roosters.

Then, check track sales records, which you can get from the listing agent or on Web sites like Domaina.com. If appreciation is your goal, then only look at homes that have appreciated well in the past, bearing in mind that the market is cooling. If you want guaranteed positive cash flow, insist that your real-estate agent show you income-producing properties with favorable balance sheets and with established, reputable tenants. Make sure that you see the income and expense statements for these properties for at least the previous two years. Pay attention to what's been done in capital improvements, and what you can expect in terms of maintenance and repair costs, association fees and other expenses.

Most investors want positive cash flow and stable tenants, so don't rush your search. Don't believe those self-appointed gurus who say you can waltz into any town and find a terrific deal within a day without putting down any of your own money. If it were that easy, don't you think they'd be doing these deals themselves instead of traveling from one dingy hotel ballroom to the next, touting their "sure-fire" systems? (Also, remember that plenty of amateur investors have taken these get-rich-quick courses, and are already hounding the relatively few desperate sellers who are the most open to no-money-down schemes - those going through divorce, on the brink of bankruptcy, or who inherited rental property they don't want to manage.)

Once you locate a good income-producing property, consider acquiring it through a tax-deferred IRS 1031 exchange with one of your single-family houses, using a real-estate lawyer or a certified public accountant as an intermediary. Although the process is a bit complicated and only applies to investment properties, the payoff is that you will be able to sell the single-family home to anyone you want without having to pay any capital gains tax on the appreciated value. For a thorough explanation of tax-deferred exchanges, pick up "How a Second Home Can Be Your Best Investment" by Tom Kelly and John Tuccillo (McGraw-Hill, 2004). Also, keep in mind that the positive cash flow that your properties generate is taxable, though it may be sheltered by depreciation. "Real Estate Investing from A to Z" by William H. Pivar (McGraw-Hill, 2004) explains the subject clearly.

To learn more about 1031 exchanges, read the article: "Avoid These Errors in 1031 Exchanges."
June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Fridays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.
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The Weekend Guide! December 8 - December 11, 2005

The Weekend Guide for December 8 - December 11, 2005.
Full Article:
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Reverse mortgages to have higher loan limits in 2006

Seniors will be able to convert more equity into income, group says
Inman News
Next year, older homeowners will be able to convert a greater part of the equity in their homes into tax-free income using a reverse mortgage because of new higher loan limits, a reverse mortgage group said Wednesday.

The increases will affect two reverse mortgage products: the federally insured Home Equity Conversion Mortgage,which accounts for 90 percent of all reverse mortgages made in the U.S., and the Fannie Mae Home Keeper loan, the National Reverse Mortgage Lenders Association said.

The loan limits for the Home Equity Conversion Mortgage, or HECM, product vary by geographic area, the association said. The highest of the loan limits - applicable generally to major metropolitan areas - will grow from $312,896 to $362,790, according to the association.

The lowest loan limit, which generally applies to rural and non-metropolitan areas, will grow from $172,632 to $200,160, and HUD must first issue an FHA Mortgagee Letter before the new loan limits take effect, the group said.

The association expects that a letter from HUD will be issued around the New Year.

Fannie Mae's national loan limit for single-family mortgages - which includes Home Keeper loans - will rise next year to $417,000 from the current limit of $359,650, the reverse mortgage association said. The Home Keeper loan limit is 50 percent higher for Alaska, Hawaii, and the U.S. Virgin Islands, according to the association.

"These increases in the loan limits for the HECM and Home Keeper products will enable seniors to access greater amounts of equity in their homes, providing a powerful tool for addressing their financial needs through retirement," said Peter Bell, president of NRMLA, in a statement.

Approximately 79.8 percent of the 3,226 counties (2,575) in the U.S. are currently at the lowest HECM loan limit ($172,632), the NRMLA said.

Only 104 counties, or 3.2 percent of the total, are at the current maximum loan limit ($312,896), according to the reverse mortgage group. The rest of the counties are somewhere in between, according to the NRMLA.

While counties at the "floor" are guaranteed to rise from $172,632 to $200,160, there is no guaranty that counties at the current "ceiling," or in between the floor and ceiling, will rise immediately, the NRMLA said.

The current lending limits can be seen online at https://entp.hud.gov/idapp/html/hicostlook.cfm.

A reverse mortgage is a unique loan that enables homeowners age 62 and older to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on new monthly mortgage payments.

Borrowers can choose to receive reverse mortgage funds as a lump sum, monthly income, or line of credit, or as a combination of these. Borrowers can use the funds for any purpose, including home repairs and improvements, medical expenses, in-home care, education, and supplemental retirement income.

No mortgage payments are due during the life of the loan. The loan becomes repayable when the borrower sells the home or permanentlymoves out. In addition, the repayment amount can never exceed the value of the home.

NRMLA is a nonprofit trade association, based in Washington, D.C., whose mission is to support the continued evolution of reverse mortgages as an important financial option for senior homeowners.
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Real estate purchases rebound

Borrowers not thwarted by higher interest rates
Inman News
Overall mortgage applications were up 5.2 percent last week on a seasonally adjusted basis from the week before, with refinancings posting the largest increase, according to the Mortgage Bankers Association's weekly survey.

The seasonally adjusted refinance index increased by 7 percent to 1,596.4 from 1,484.3 one week earlier, while the purchase index increased by 4 percent to 495.1 from 476.2 the previous week.

The refinance share of mortgage activity increased to 41 percent of total applications from 39.1 percent the previous week. The adjustable-rate-mortgage share of activity increased to 33.1 percent of total applications from 33 percent the previous week.

The average contract interest rate for 30-year fixed-rate mortgages increased to 6.32 percent from 6.2 percent one week earlier. Points including the origination fee increased to 1.3 from 1.17 for 80 percent loan-to-value ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages increased to 5.84 percent from 5.72 percent. Points including the origination fee increased to 1.37 from 1.26 for 80 percent loan-to-value ratio loans.

The average contract interest rate for one-year adjustable-rate mortgages increased to 5.49 percent from 5.39 percent one week earlier. Points including the origination fee decreased to 0.91 from 0.96 for 80 percent loan-to-value ratio loans.

Washington, D.C.-based Mortgage Bankers Association is a national association representing the real estate finance industry. The survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
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NAR Launches Mortgage Interest Deduction Ad Campaign

By: NAR: REALTOR® Magazine Online
The NATIONAL ASSOCIATION OF REALTORS® launched an advertising campaign Monday that warns home values could drop significantly if the recommendations of a federal tax reform panel to drastically reduce the mortgage interest deduction were implemented.

“All homeowners will suffer if this policy is enacted, whether they take advantage of the mortgage interest deduction or not,” said NAR President Thomas M. Stevens, senior vice president of NRT Inc., from Vienna, Va. “Reducing the mortgage interest deduction would drive down home values and have a devastating effect on the housing market as well as the nation’s economy.”

The ad uses a picture of a typical house inside a pie chart with 15 percent of the home sliced off in red to illustrate the percentage loss to the homeowners if the mortgage interest deduction were converted into a tax credit. “More than 1.2 million REALTORS® urge the administration and Congress to say ‘no’ to undermining this important incentive for homeowners,” the print ad states. The ad is scheduled to run in Roll Call, The Hill, the Washington Times and The Weekly Standard this week and next.

A 15 percent drop in home values would translate to about a $20,000 to $30,000 reduction in housing equity for a typical homeowner. Eliminating the mortgage interest deduction would hurt middle-income families the most. According to IRS tax return data from 2003, more than half, or 52 percent, of the families who claim the mortgage interest deduction have household incomes between $60,000 and $200,000.

President Bush’s Advisory Panel on Federal Tax Reform recently recommended that Congress convert the mortgage interest deduction to a tax credit; repeal the deduction for state and local states, including property taxes; and reduce the $1 million cap on the size of the mortgage for which interest could be deducted to the regional Federal Housing Administration loan limits, which range from a little over $170,000 to almost $470,000 in hig- cost areas.

The tax panel also recommended eliminating the tax deduction for second homes, which would impact at least 5 percent of the nation’s Gross Domestic Product. The residential housing sector accounts for about 15 percent of the nation’s GDP. Second homes accounted for 36 percent of all home sales last year.

To learn more about the mortgage interest deduction and NAR's position, go to the Defending the Mortgage Interest Deduction page at REALTOR.org.
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Bush Could Postpone Push for Tax Overhaul

By: Richard Keil; Ryan J. Donmoyer: REALTOR® Magazine Online
With a weak reaction from the public and lawmakers preoccupied with other priorities, including Katrina cleanup and the war in Iraq, President George W. Bush could postpone efforts to implement tax code changes, analysts say.

Bush might try to drum up support for the changes in the coming year, with an eye toward implementation in 2007 or 2008, some analysts say.

The most controversial provision would change the mortgage-interest deduction into a tax credit, potentially costing homeowners thousands of dollars in lost tax benefits.

According to Clinton Stretch, Deloitte & Touche LLP tax policy director, the delay would better position Republicans looking to be re-elected next year by allowing them to campaign for a tax overhaul that focuses on simplification and fairness.

[Editor's note: The political implication of changing MID and other key tax provisions will be a consideration in whether the U.S. Department of Treasury recommends President Bush adopt the tax reform recommendations, analysts say. Treasury Secretary John Snow, responding to questions about the reform recommendations in the President's Federal Tax Reform Advisory Panel report, said that while the panel did not assess the political viability of its recommendations, his agency will do so when it makes its recommendations on the provisions to President Bush.

Analysts view Snow's remarks as an indirect acknowledgement of the hurdles created by the proposed changes to MID and elimination of the deduction for state and local taxes. The NATIONAL ASSOCIATION OF REALTORS® strongly opposes changes that could hurt property values and home sales, including changing MID to a tax credit. More from NAR on the proposed changes is available online.]
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When is it advisable to sell your home 'as is'?

Transaction has pros, cons for consumers
By: Robert J. Bruss: Inman News
DEAR BOB: When is it advisable to sell your home "as is?" – Alta F.

DEAR ALTA: That's the shortest real estate question - and one of the best - I have ever received. I wish the answer could be so brief.

An "as is" real estate sale means the seller will not pay for any property repairs but must disclose all known defects.

Many sellers of older homes sell "as is" because they (a) don't want to be inconvenienced with repairs or renovations, (b) realize the buyer may want to tear down the house or remodel to their own preferences, and/or (c) can't afford to make repairs.

Personally, I learned about "as is" home sales when I purchased a foreclosure house from a bank. The realty agent marketing the residence emphasized the sale was "as is" and the bank wouldn't pay for any repairs. But the price was such a bargain I was "blindsided" and failed to notice all the items that needed repair or replacement. Fortunately, I had plans to renovate the property so it really didn't matter and I eventually resold that property at a substantial profit.

Sellers of "as is" houses should realize that it is a "red flag" warning to buyers who usually expect a sales price discount from full market value to compensate for the needed repairs. Buyers of "as is" houses can often obtain bargain purchase prices but they should always make their purchase offer contingent on approval of a professional inspection report.

SHOULD ELDERLY COUPLE PAY OFF $42,000 HOME LOAN?

DEAR BOB: Love your column and interesting answers. Now we have a question. My wife and I are both 88, happily married for 68 years with 11 grandchildren, 13 great-grandchildren and two great-great-grandchildren. We owe about $42,000 on our home mortgage at 7.75 percent interest. We can easily pay it off in full. Should we? There are pre-payment penalties, we know, but we are thinking that no mortgage would make no hassle for our children when we die. Should we pay off our mortgage? – Victor LoG.

DEAR VICTOR: Before you pay off your mortgage, please ask yourselves if you will have enough remaining liquid cash reserves. I wouldn't want you to be "house rich, but cash poor."

Fortunately, if you pay off the mortgage but then find yourselves "cash-challenged," you can easily obtain a senior citizen reverse mortgage. However, the paperwork can often take several months.

The laws of most states regulate the amount of home loan prepayment penalties. Before you pay off your mortgage, ask your lender for the exact amount of your prepayment penalty. If you have had your mortgage for many years, you might be surprised to learn there is no prepayment penalty (which usually only applies for two to five years after a mortgage is originated).

By paying off your mortgage, you will be making a very wise investment at 7.75 percent in the form of interest savings. Where else can you make such a profitable investment?

P.S. If you want to save your children probate costs and delays after you both pass on, please consider putting your home and other major assets into a living trust.

NO TAX DUE IF UNCLE LEFT NET ESTATE BELOW $1.5 MILLION

DEAR BOB: I am the only heir of my uncle's living trust. He had listed his home of 30 years for sale in May 2005. The house sold almost immediately for $410,000. Unfortunately, he passed away before the sale closed in mid-June. After the closing costs and my uncle's reverse mortgage balance were paid off, the proceeds were paid to me. In a few months I will have to file my 2005 income tax returns. Can I claim that $250,000 principal residence sale tax exemption? My late uncle's cost basis was only $32,000 for his house. How much capital gains tax will I owe? – Sue B.

DEAR SUE: Your letter is especially interesting and educational. The first point is a real estate sale is binding on the owner's heirs and estate if a sale was pending when the owner died, as in your situation. As the sole heir, if you wished to cancel the home sale, the buyer would have been able to enforce the sales contract in court.

The second point is, as the heir, you won't owe any tax because you live in a state with no inheritance tax. Only a few states still have inheritance taxes on heirs, but close relative heirs are usually exempt.

If your late uncle left a total net estate below $1.5 million, his estate didn't owe any federal estate tax. That means the net proceeds from the home sale are completely tax-free to you as the sole heir. There is no capital gain tax for heirs. For further details, please consult your tax adviser.

HOW TO FIND AN UNBIASED HOME INSPECTOR?

DEAR BOB: Shortly after I "sold" my home, but before the sale closed, a strong storm caused minor damage. The buyer's home inspector reported the damage on his report. The buyer then decided to back out and I didn't resist. Then I put my house back on the market for sale "as is" and soon received a better purchase offer. The second buyer hired the same inspector who then reported nothing wrong with my house. The second sale closed. I have a copy of both reports. How can a home buyer or seller find an honest unbiased professional home inspector? – Don S.

DEAR DON: That is an amazing story. Apparently, your second buyer really wanted to buy your house, warts and all. Perhaps the home inspector had been told by the first buyer to find some defects to let that buyer get out of the purchase contract.

What are the professional home inspection qualifications of that inspector? I suspect he or she is not a member of the American Society of Home Inspectors (ASHI), which has the toughest membership qualifications for their members. To find local ASHI members, on the Internet go to www.ashi.org, or phone 1-800-743-2744.

CAN HUSBAND SELL ONE HOME AND WIFE SELL THE OTHER?

DEAR BOB: My husband and I are going to separate. He is going to move to another state where we own a vacation cabin. We are in agreement and, at this stage in our lives, there is no point making the lawyers richer. If he establishes legal residency and obtains a job there, after two years can he sell the cabin and claim the $250,000 exemption? Would I still be able to sell, as an individual, our main home and claim the $250,000 exemption? We have lived in our current home over 30 years. Both homes are titled in both names. Can we do this? – Liz B.

DEAR LIZ: Yes. However, please consult your tax adviser now. Also, I suggest you consult a family law attorney to discuss a separation agreement.

I presume the resale capital gain on each residence is less than $250,000 so all your sales profits will be tax-free.

After 24 months of occupancy, your husband can qualify for the Internal Revenue Code $250,000 principal residence sale tax exemption on the cabin sale and you will still be entitled to the $250,000 exemption if you sell your current principal residence. I presume you won't be filing joint tax returns.

WHICH REVERSE MORTGAGE HAS THE LOWEST COST?

DEAR BOB: Several months ago in your column you referred to an elderly couple that required a reverse mortgage whose cost was only about $5,000. Please provide me with the name of that reverse mortgage lender, as I am finding reverse mortgages cost much more around here – George K.

DEAR GEORGE: The up-front costs of senior citizen homeowner reverse mortgages depend on the lender, the homeowner's age, and the maximum amount. FHA and Fannie Mae set maximum origination fees for their reverse mortgages.

However, if you own a home worth more than $500,000, you will probably discover the Financial Freedom Plan is best for your situation because of its unlimited maximum amount. More details are in my special report, "The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners," available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.
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Home builder group finds support for real estate tax deduction

NAHB opposes recommendations on federal reform
Inman News
Given a choice of simplifying federal tax laws or retaining current housing incentives, Americans prefer to retain current housing incentives over changing federal tax laws, according to a survey conducted for the National Association of Home Builders.

The survey of 1,001 adults found that about 68 percent of participants "favor retaining deductions for mortgage interest and state and local taxes over a plan to simplify the current tax code," the home builders' group reported. The survey was conducted by RT Strategies from Nov. 17-20.

"The survey offers a cautionary note for those in the administration and on Capitol Hill who may be tempted to endorse the recommendations of the President's Advisory Panel on Federal Tax Reform, which would wipe out popular tax incentives that promote home ownership and affordable housing," said Jerry Howard, executive vice president and CEO of the National Association of Home Builders.

The White House and Treasury Department have yet to comment on the advisory panel's proposal, which was presented to the administration on Nov. 1 as part of an overall attempt to overhaul the tax code, the association reported.

The tax panel's plan calls for replacing the mortgage interest deduction with a more limited 15 percent tax credit. "Also gone would be deductions for state and local taxes (including property taxes) and interest deductions for home equity loans and second homes. It would also eliminate the Low Income Housing Tax Credit, which accounts for the construction of more than 130,000 affordable rental housing units annually," the association announced.

Commissioned by NAHB to determine the public reaction to revamping the current tax system, the survey found that 79 percent of respondents support federal tax incentives to promote homeownership, and 82 percent believe the government should use the tax code to encourage affordable housing.

"Registered Democratic and Republican voters in all age groups view efforts to tamper with home interest deductibility as a major threat to their retirement security and their ability to pay for their children's college educations," said Lance Tarrance, who, along with Thomas Riehle, is a partner of RT Strategies. "For many older home owners, the equity built up in a home also provides an important hedge against unanticipated health care costs."

About 71 percent of survey respondents oppose the idea of changing the tax code to encourage people to invest more in stocks and bonds and less in the homes that they own. "And that is exactly what the advisory tax panel's plan would do," Howard said.

"As we learned in watching the recent California initiative battles, complex proposals tend to lose support, not gain support, as they get more public attention," said Riehle. "This proposal starts with no real core of supporters."

The National Association of Home Builders is representing about 220,000 members who are involved in home building, remodeling, multifamily construction, property management, subcontracting, design, housing finance, building product manufacturing and other aspects of residential and light commercial construction.
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Battle of the Bulbs: Lawn Displays For the Holidays Get Bigger

We find the line between cheery and cheesy, as people spend more money decorating their homes for the season.
By: Sara Schaefer Munoz: The Wall Street Journal Online
The Christmas decoration business has been recovering after a few slow years; according to Mintel International Group, spending was up 5.2% from 2002 to 2004 and is projected to go up 6% this year. Once-ubiquitous icicle lights and inflatable Santas are falling out of favor, some decorators say, as retailers introduce higher-tech options. Among them: "holographic" snowmen (the surfaces glitter day and night, unlike yard sculptures dependent on bulbs), light-emitting diodes shaped like jewels and a device that projects images of snowflakes on walls.

It's not only retailers who are pushing homeowners to upgrade their outdoor displays, with more elaborate glowing snowmen and lamplit landing strips for Santa - neighborhood associations are also egging them on. From Island Lake, Ill., and Omaha, Neb., to Hilton Head, S.C., towns and homeowners are promoting house-decorating contests, adding features like hayride tours for kids and pumping up public displays. Encouraging the ornament-averse not to let down their neighbors, the community of Pecan Grove outside Houston has created a new award category: best cul-de-sac. One Chicago-area decorator says he's been so overwhelmed with requests from people determined to win "Best on the Block" that he's had to train his administrative staff in how to wrap a garage door so it looks like a gift package - and be sure the bow won't get snagged when the door goes up.


* * *

A pair of white resin polar bears lit with improved fiber-optic technology sold out early from the Frontgate catalog ($560). The flashier Fiber Optic Snowman Family ($249) is still available. www.frontgate.com


* * *

LED lights typically last much longer than incandescents, but at $29 for an 8-foot string, Smith & Hawken's LED Garnet and Jewel lights cost nearly 50% more than its non-LED Dragonfly lights ($29 for 11.5 feet). www.smithandhawken.com


* * *

The EZ UP Light Show projector from Brookstone ($79.95) makes it look as if stars or snowflakes are falling on your house. But one designer warns that many moving lights can make people dizzy. www.brookstone.com

Email your comments to rjeditor@dowjones.com.
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Average Price of Homes Up 12%

REALTOR® Magazine Online
The pace of residential price gains slowed in some hot markets in the New England and Pacific states over the 12 month-period ended Sept. 30, but the average U.S. home price still rose 12 percent during this period, according to the Office of Federal Housing Enterprise Oversight.

Although some analyses suggest that the housing boom will slow as mortgage interest rates continue to rise, the regulator's data indicates that appreciation rates still were very strong during the third quarter, said OFHEO chief economist Patrick Lawler in a statement.

However, Lawler said it remained to be seen whether an upward trend in borrowing costs after the third quarter ended would impact appreciation. "To the extent that those increases may have affected prices, those effects will be evident in future quarters," he said.
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Home sellers reap top dollar during the holidays

Short supply of buyers changes game plan
By: Robert J. Bruss: Inman News
If you are an experienced real estate sales agent, you know very well this is the slowest time of the year for home sales. In most communities, the weather isn't the best for home buying. Serious prospective buyers become hard to find as they switch to holiday shopping and parties.

However, many home sales still take place among motivated sellers and savvy buyers who know this is the best time of the year to purchase a bargain home. Motivated realty agents, eager to add to their 2005 sales volume, can take more time with each prospective buyer, as the hectic home sales pace of the past year slows down.

"Make all the home sales you can make now before mortgage interest rates go up" is the unspoken motto of many realty agents.

ADVANTAGES FOR HOME SELLERS DURING THIS SLOW SEASON. Unmotivated home sellers often take their residences off the market during the holidays because (1) they don't want to be interrupted by buyers and (2) they know this is perceived as not the best time of the year to sell and receive top dollar.

However, this can be a major mistake, especially in local markets where there aren't many listings, particularly in the lower price ranges. The home sellers who "tough it out" and keep their homes on the market during the holidays often become the big sales winners.

Smart real estate agents counsel their motivated home sellers not to take their houses and condos off the market at this time of year. The primary reason is all it takes is one buyer and the few buyers who are in the market between Thanksgiving and New Year's Day, or even Super Bowl Sunday, are usually highly motivated to purchase.

Serious motivations for home sellers during this season include job transfer, divorce, birth or death in the family, unemployment, illness, or other urgent reasons.

Home shoppers during this season often want to close their purchases by year-end for the tax benefits. However, they are often willing to rent back to their sellers for 30 days or so because neither buyers nor sellers are eager to move during the holiday season.

Most home sellers who qualify for the $250,000 (up to $500,000 for a qualified married couple filing a joint tax return) principal residence sale tax exemption of Internal Revenue Code 121 usually don't care if the sale closes in 2005 or 2006. To qualify for this exemption, the seller(s) must own and occupy the home at least 24 of the 60 months before its sale. Ask your tax adviser for details.

HOW HOME SELLERS CAN GET TOP DOLLAR DURING THE HOLIDAYS.

If your house or condo is in superb condition, especially on the interior, you're ready to sell. Usual home-sale preparations include painting rooms that show their wear, cleaning and repairing, replacing outdated light fixtures, and installing new carpets and kitchen or bathroom flooring, and refinishing hardwood floors.

If weather permits, painting the exterior adds to "curb appeal." That first impression for prospective buyers is extremely important. At the very least, paint or replace the front door if it shows its age.

After your home is spruced up and ready to sell, it's time to interview at least three successful agents who sell homes in your vicinity. At this time of the year, when serious home sellers need all the help they can get, it is definitely not the season to attempt to be a "do-it-yourself" for sale by owner (FSBO) without professional help.

The key reason home sellers at this time of year need a professional listing agent is because that agent can put your listing into the local MLS (multiple listing service) for local and national Internet distribution. Today, over 70 percent of prospective home buyers start their quest on the Internet so home sellers who want top dollar cannot ignore this fact.

HOW TO INTERVIEW A LISTING AGENT.

The reason savvy home sellers interview at least three agents who sell nearby homes is to compare each agent and to learn the approximate market value of the house or condo to be listed for sale. The five key questions to ask each agent are:

1. HOW MUCH CAN YOU GET FOR MY HOME? This is a loaded question. After inspecting your home and asking lots of questions, each agent should prepare a written CMA (comparative market analysis) for your consideration. The CMA form should justify each agent's opinion of your home's market value. A CMA shows the recent sales prices of similar nearby homes, the asking prices of competitive neighborhood homes now listed for sale (your competition), and even the asking prices of recently expired comparable listings. The reason most homes don't sell during the listing period is because they were overpriced.

Watch out for any interviewed agent who estimates a very high sales price for your home without justification of their CMA. Such agents are trying to "buy the listing." Also, beware of any agent with an abnormally low suggested asking price. Such an agent might be trying to gain your listing by dazzling you with his or her sales successes, hoping to make a quick easy sale if you don't interview other agents for comparison.

2. HOW LONG DO YOU NEED TO SELL MY HOME? Although this is the slowest home sales season, the best agents can still sell virtually any house or condo within 90 days. Beware of any agent who insists on a listing term longer than 90 days.

The most common ploy is for the agent to tell the seller, "The average listing time for a home in this market is 110 days. That's why I need a 180-day (six-month) listing."

But your instant comeback should be, "If I am going to pay you a 5 or 6 percent sales commission, I don't want to hire an 'average agent' to sell my home in an average time period."

However, some very successful agents still insist on a 120-day or 180-day listing. If you conclude that is the agent you want, for your protection be sure to include a written clause in the listing contract such as, "Seller may cancel this listing anytime after 90 days without cause or cost to the seller." If the agent refuses to agree, keep looking for a better agent.

3. WHAT IS YOUR MARKETING PLAN FOR MY HOME? The best agents will answer this question before you ask it. However, if a listing agent you are considering does not offer a written marketing plan, be sure to ask for such a commitment. If the agent doesn't have a written marketing plan, he or she is not the right agent for your home.

4. HOW MANY LISTINGS DO YOU CURRENTLY HAVE AND WHAT PERCENT OF YOUR LISTINGS SELL? This key question will reveal a "numbers agent" who might make you one of his or her large listing collection. However, some numbers agents are very successful. If the percentage of homes listed to homes sold is very high, you might want to list with such an agent who has several back-up assistants.

Solo agents without assistants can usually handle 15 to 20 listings at most. If you find a relatively new agent with just a few listings, such an agent might be very successful selling your home because he or she will have plenty of time to devote to your sale.

5. WHAT ARE THE NAMES AND PHONE NUMBERS OF YOUR LAST FIVE HOME SELLERS? The best agents will anticipate this key question by supplying the answer before you ask. Before signing a listing, take the time to phone each agent's most recent sellers. Be sure to ask each seller, "Were you in any way unhappy with your listing agent?" and, "Would you list your home again with the same agent?"

Occasionally, you will find a part-time agent who has terrific previous-seller references, but the usual situation is you need a full-time agent if you are paying a full sales commission.

BE REASONABLE DURING THIS SLOW SALES SEASON.

When your listing agent obtains a purchase offer, it's best to be flexible and reasonable during this slow sales season. Even if the offer price is far below what you were expecting, based on your listing agent's CMA, it's best to always make a reasonable counteroffer.

Many home buyers "test" their sellers to see how low the seller will go. Also, remember the frequently true real estate sales motto, "The first offer is often the best offer."

However, if the first offer you receive is acceptable, don't hesitate to grab it before the buyer decides to buy another home.

CONCLUSION: Although this is the traditional slow season for home sales, thousands of homes will be sold during this time of year and yours can be one of them. To make your home sell for top dollar, get it into the best possible condition, select the top sales agent for your area, and then be flexible when a purchase offer is received, knowing home buyers are in short supply during this time of year.
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The Weekend Guide! December 1 - December 4, 2005

The Weekend Guide for December 1 - December 4, 2005.
Full Article:
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Successful realty investors think 'long-term'

Part 4: How to start investing in real estate
By: Robert J. Bruss: Inman News
There are many methods to become very wealthy, or just modestly wealthy, with your real estate investments. Although I have personally done "pretty good" investing in real estate, many of my friends, college real estate students and subscribers have done much better. I'm extremely happy for them! This four-part series will explore the question: Why do I want to invest in real estate? (See Part 1: First-timers find a place to call home; Part 2: Single-family homes best spot to sink money and Part 3: Fast real estate profits require elbow grease.)

4: I want to invest in real estate to earn cash-flow income. Unless you buy income property with at least 20 percent cash down payment, it is very difficult to earn much cash flow from rentals until you have held the property long enough to benefit from rising rents. The one exception is low-income, management-intense apartments purchased at 4 to 5 times annual gross rents. But then you will be buying yourself a job managing your low-income rental housing.

Housing where rent is paid weekly (or daily, or hourly!) usually offers excellent cash flow, but most long-term investors want to own such properties. Such properties usually show very little market-value appreciation, especially if they are slums.

5: I want to shelter my income from taxes. This is probably one of my friend Yanik's primary motivations for investing in real estate. But I must hasten to explain that unless you are a full-time real estate "professional," such as a licensed broker or salesperson spending at least 750 hours each year in your real estate job, you will be limited to only $25,000 of tax-loss deductions from your investment property (primarily thanks to the non-cash depreciation tax deduction for wear, tear and obsolescence) against your ordinary taxable income.

When your adjustable gross income from all sources exceeds $100,000, then your $25,000 allowable real estate "passive activity" deduction against ordinary income gradually phases out. However, any unused "suspended loss" can be used in future tax years or when you profitably sell your investment property. In other words, real estate investments are no longer the great tax shelters they were before the 1986 Tax Act changes took away unlimited realty tax loss deductions against ordinary income.

Summarizing the five primary reasons for investing in real estate, two of them are sound (buying your primary residence as also an investment property, which is likely to appreciate in market value, and acquiring investment real estate for its long-term appreciation potential).

But purchasing investment property for quick profits, cash flow, and/or tax shelter rarely make much long-term profit sense. Smart investors understand sound profitable real estate investing is a long-term experience, not a get-rich-quick speculation. For this reason, the most successful real estate investors never (or rarely) sell their investment properties.

EXAMPLE: Speaking of long-term real estate investment profits, my friends Arthur and John Michael shared a recent great story from the Las Vegas Sun newspaper about a104-year-old real estate investor. Retired physician Russell Clark bought a nine-acre property in 1973 at 5115 Industrial Road in Las Vegas for $79,000. At the time, he was 73 years old. The article says he purchased the property as a long-term investment. Thirty-two years later, the investment paid off! Clark recently sold the property to a 30-year-old New York developer, Gil Dezer, for a reported $36 million. Dezer plans to construct high-rise condos on the property. Both of those investors spotted different profit potentials in the same property.
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The Ups and Downs of Flipping Property in Today's Market

By: June Fletcher: The Wall Street Journal Online
Flipping homes - the practice of buying and quickly reselling real estate for a fast profit - has been hot during the housing boom. But is flipping still a good investment strategy now that there are signs of a cooling? Columnist June Fletcher takes a look.

Question: What is the best way to flip a house to make a profit?
Max Azongho

Max: The "easiest" way to flip a property is to buy it at the bottom of the real-estate market cycle and sell it at the top. But since it looks like the housing market is already cooling, "easy" isn't an option anymore.

Flipping - that is, buying and reselling a house quickly -- tends to occur when supply is tight and home prices puff up like a pan of popovers. In such markets, just about anyone who can scrape up the money to purchase a home can gain, and in the recent boom, many people did just that. A 2004 survey by SRI Consulting Business Intelligence found that 2.2 million households used their home equity to buy additional property last year, more than twice the number of a decade earlier. In places such as Southwest Florida, where prices have risen particularly rapidly, McCabe Research & Consulting LLC estimated that 60% of the 60,000 new homes and condos scheduled to be completed by 2007 were bought by flippers.

But when markets start to deflate, most flippers fold their hands. Those who remain in the business generally are pros who know how to spot and buy homes at a significant discount. They have ready sources of cash to find their properties and keep in touch with lenders and real-estate agents who alert them to bargain buys in return for repeat business. They steer clear of over-financed properties (this will be harder to do in the next few years, since so many homeowners have maxed out their equity) because sellers won't be able to drop their price much. They look for homes with private financing where they can sometimes buy back a note at a discount. Sometimes, if mortgage interest rates are rising rapidly, they'll offer some form of seller financing to ensure the property moves quickly and to keep carrying costs down.

There are other ways for investors to make money in cooling markets, but these require more work than flipping -- namely, rehabbing houses or becoming a landlord. Both of these techniques require considerable time and out-of-pocket expenses, so be sure you figure out all the costs in advance of purchasing property. Good worksheets can be found in the book, "Secure Your Financial Future Investing in Real Estate" (Dearborn, 2003) by Martin Stone and Spencer Strauss.

And while you're in the bookstore, consider investing in some of these other helpful guides before you invest far greater sums in property. "The Beginner's Guide to Real Estate Investing," (John Wiley & Sons, 2004), by Gary W. Eldred, describes 27 ways to find or create below-market deals (example: Find a "cranky" landlord who is desperate to sell), while "Flipping Properties: Generate Instant Cash Profits in Real Estate," (Kaplan Publishing, 2001), by William Bronchick and Robert Dahlstrom, provides basic but solid advice. And for the "flip" side of flipping, I heartily recommend "What No One Ever Tells You about Investing in Real Estate" (Kaplan Publishing, 2004) by Robert J. Hill. A compilation of 101 war stories from real-life investors, the book focuses mostly on landlords. But it also relates creative and funny ways investors have found good deals - like the investor who bought a home directly from an older couple desperate to sell so that they could get rid of their mooching adult children.

June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Fridays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.

Email your comments to rjeditor@dowjones.com.
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The Ups and Downs of Flipping Property in Today's Market

By: June Fletcher: The Wall Street Journal Online
Flipping homes - the practice of buying and quickly reselling real estate for a fast profit - has been hot during the housing boom. But is flipping still a good investment strategy now that there are signs of a cooling? Columnist June Fletcher takes a look.

Question: What is the best way to flip a house to make a profit?
Max Azongho

Max: The "easiest" way to flip a property is to buy it at the bottom of the real-estate market cycle and sell it at the top. But since it looks like the housing market is already cooling, "easy" isn't an option anymore.

Flipping - that is, buying and reselling a house quickly -- tends to occur when supply is tight and home prices puff up like a pan of popovers. In such markets, just about anyone who can scrape up the money to purchase a home can gain, and in the recent boom, many people did just that. A 2004 survey by SRI Consulting Business Intelligence found that 2.2 million households used their home equity to buy additional property last year, more than twice the number of a decade earlier. In places such as Southwest Florida, where prices have risen particularly rapidly, McCabe Research & Consulting LLC estimated that 60% of the 60,000 new homes and condos scheduled to be completed by 2007 were bought by flippers.

But when markets start to deflate, most flippers fold their hands. Those who remain in the business generally are pros who know how to spot and buy homes at a significant discount. They have ready sources of cash to find their properties and keep in touch with lenders and real-estate agents who alert them to bargain buys in return for repeat business. They steer clear of over-financed properties (this will be harder to do in the next few years, since so many homeowners have maxed out their equity) because sellers won't be able to drop their price much. They look for homes with private financing where they can sometimes buy back a note at a discount. Sometimes, if mortgage interest rates are rising rapidly, they'll offer some form of seller financing to ensure the property moves quickly and to keep carrying costs down.

There are other ways for investors to make money in cooling markets, but these require more work than flipping -- namely, rehabbing houses or becoming a landlord. Both of these techniques require considerable time and out-of-pocket expenses, so be sure you figure out all the costs in advance of purchasing property. Good worksheets can be found in the book, "Secure Your Financial Future Investing in Real Estate" (Dearborn, 2003) by Martin Stone and Spencer Strauss.

And while you're in the bookstore, consider investing in some of these other helpful guides before you invest far greater sums in property. "The Beginner's Guide to Real Estate Investing," (John Wiley & Sons, 2004), by Gary W. Eldred, describes 27 ways to find or create below-market deals (example: Find a "cranky" landlord who is desperate to sell), while "Flipping Properties: Generate Instant Cash Profits in Real Estate," (Kaplan Publishing, 2001), by William Bronchick and Robert Dahlstrom, provides basic but solid advice. And for the "flip" side of flipping, I heartily recommend "What No One Ever Tells You about Investing in Real Estate" (Kaplan Publishing, 2004) by Robert J. Hill. A compilation of 101 war stories from real-life investors, the book focuses mostly on landlords. But it also relates creative and funny ways investors have found good deals - like the investor who bought a home directly from an older couple desperate to sell so that they could get rid of their mooching adult children.

June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Fridays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.

Email your comments to rjeditor@dowjones.com.
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The Ups and Downs of Flipping Property in Today's Market

By: June Fletcher: The Wall Street Journal Online
Flipping homes - the practice of buying and quickly reselling real estate for a fast profit - has been hot during the housing boom. But is flipping still a good investment strategy now that there are signs of a cooling? Columnist June Fletcher takes a look.

Question: What is the best way to flip a house to make a profit?
Max Azongho

Max: The "easiest" way to flip a property is to buy it at the bottom of the real-estate market cycle and sell it at the top. But since it looks like the housing market is already cooling, "easy" isn't an option anymore.

Flipping - that is, buying and reselling a house quickly -- tends to occur when supply is tight and home prices puff up like a pan of popovers. In such markets, just about anyone who can scrape up the money to purchase a home can gain, and in the recent boom, many people did just that. A 2004 survey by SRI Consulting Business Intelligence found that 2.2 million households used their home equity to buy additional property last year, more than twice the number of a decade earlier. In places such as Southwest Florida, where prices have risen particularly rapidly, McCabe Research & Consulting LLC estimated that 60% of the 60,000 new homes and condos scheduled to be completed by 2007 were bought by flippers.

But when markets start to deflate, most flippers fold their hands. Those who remain in the business generally are pros who know how to spot and buy homes at a significant discount. They have ready sources of cash to find their properties and keep in touch with lenders and real-estate agents who alert them to bargain buys in return for repeat business. They steer clear of over-financed properties (this will be harder to do in the next few years, since so many homeowners have maxed out their equity) because sellers won't be able to drop their price much. They look for homes with private financing where they can sometimes buy back a note at a discount. Sometimes, if mortgage interest rates are rising rapidly, they'll offer some form of seller financing to ensure the property moves quickly and to keep carrying costs down.

There are other ways for investors to make money in cooling markets, but these require more work than flipping -- namely, rehabbing houses or becoming a landlord. Both of these techniques require considerable time and out-of-pocket expenses, so be sure you figure out all the costs in advance of purchasing property. Good worksheets can be found in the book, "Secure Your Financial Future Investing in Real Estate" (Dearborn, 2003) by Martin Stone and Spencer Strauss.

And while you're in the bookstore, consider investing in some of these other helpful guides before you invest far greater sums in property. "The Beginner's Guide to Real Estate Investing," (John Wiley & Sons, 2004), by Gary W. Eldred, describes 27 ways to find or create below-market deals (example: Find a "cranky" landlord who is desperate to sell), while "Flipping Properties: Generate Instant Cash Profits in Real Estate," (Kaplan Publishing, 2001), by William Bronchick and Robert Dahlstrom, provides basic but solid advice. And for the "flip" side of flipping, I heartily recommend "What No One Ever Tells You about Investing in Real Estate" (Kaplan Publishing, 2004) by Robert J. Hill. A compilation of 101 war stories from real-life investors, the book focuses mostly on landlords. But it also relates creative and funny ways investors have found good deals - like the investor who bought a home directly from an older couple desperate to sell so that they could get rid of their mooching adult children.

June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Fridays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.

Email your comments to rjeditor@dowjones.com.
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Best ways to learn real estate's market value

Buyers use Internet, agents to their advantage
By: Dian Hymer: Inman News
The Internet is a boon to home buyers. Instead of personally visiting listing after listing, you can shortcut the home search process by previewing listings online in the comfort of your own home. The Internet is not as useful, however, when it comes time to decide how much you should pay for a home you'd like to buy.

There are Internet sites that provide information about home sales in an area. This information is often sketchy and occasionally misleading. One home buyer relied on comparable sales information that she obtained online to help her decide what price to offer on a new listing. She asked her real estate agent to include the information with her offer. The seller was miffed when he reviewed the buyer's offer, which was for considerably less than his asking price. The price seemed reasonable to the buyer in light of her Internet sales data. The problem with the data was that it included sales from an adjacent neighborhood where homes sold for much less. The Internet search was based on ZIP code, which doesn't necessarily provide reliable information about market values in niche neighborhoods.

When the seller countered the offer, he asked his listing agent to include comparable sales information that was appropriate for his home. The buyer accepted the counter, relieved that there weren't multiple offers. If there had been, the seller probably wouldn't even have considered her offer.

The best way to learn the market value of listings in your target area, and to avoid making a costly mistake, is to preview a lot of properties in person. This is a more time consuming but far more productive approach.

Buying a home is a big investment. It's almost impossible to know with certainty whether you're offering too much or too little without intimate local market knowledge. If you rely on inaccurate or insufficient data, you could offer too little and lose a coveted property to another better-informed buyer. Or you could pay too much, which would diminish the return on your investment when you sell.

A good real estate agent can shortcut the learning process by feeding you information about new listings. You should plan to look at every listing that might work for you. Hitting the Sunday open house circuit is a good way to canvass a lot of listings in a short-time frame. Make sure your agent knows what listings you've seen. Ask your agent to let you know when the listings you have seen sell. Some buyers find it useful to keep a file of the listing flyers from the properties they've seen. Mark the selling prices on the flyers and refer back to this information when you're deciding what price to offer. Don't toss the flyers from listings you didn't like. Knowing what these listings sold for will add to your store of knowledge.

Before you make an offer, ask your agent to prepare a Comparative Market Analysis (CMA) for the listing you're considering. Be sure that your agent includes photos of each comparable sale. This will help you remember the listings that you personally previewed. Learning local market value is equally helpful for homeowners who will shortly be sellers. Visiting open houses in your neighborhood is an excellent way to become familiar with home prices in your area. Sellers often depend on their agent to provide a CMA to help them decide on a list price. Although useful, the text data may not paint the whole picture.

THE CLOSING: Important valuation factors such as natural light, outlooks, the layout of the house and the condition of the adjacent homes may not be apparent from the comparable sales data.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers," and "Starting Out, The Complete Home Buyer's Guide" Chronicle Books.
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