The Weekend Guide! November 30 - December 3, 2006

The Weekend Guide for November 30 - December 3, 2006.
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Greenspan Says the Worst is Over for Housing

Former Federal Reserve Chairman Alan Greenspan says that the worst of the housing adjustment is over and "sales figures have stabilized."
By: Vinnee Tong: REALTOR® Magazine Online
He predicted that inventory levels will come down at a "reasonably rapid pace.” He also foresees housing price declines that will have an impact on consumer expenditures. “We haven’t see it yet,” he says.

Greenspan also announced he is preparing to publish an analysis of the effect of mortgage wealth on consumer spending. The paper will include data on gross equity extraction dating to 1968 and a more detailed analysis of data from 1991 to the present.

The thesis, he says, is whether extracted equity is "acting as a proxy for all types of financing of goods that would've been bought anyway."

Greenspan didn’t say when the analysis will be available.
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October Existing-Home Sales Show Modest Gain

Total existing-home sales rose 0.5 percent to a seasonally adjusted annual rate of 6.24 million units in October, but were down 11.5 percent from a year earlier.
NAR: REALTOR® Magazine Online
Sales of existing homes held steady with a modest gain last month, another indication the housing market is transitioning into a more normal market in contrast with unsustainable activity last year, according to the NATIONAL ASSOCIATION OF REALTORS®.

Total existing-home sales — including single-family, townhomes, condominiums and co-ops — rose 0.5 percent to a seasonally adjusted annual rate of 6.24 million units in October from an upwardly revised pace of 6.21 million in September, but were 11.5 percent below the 7.05 million-unit level in October 2005.

“The present level of home sales demonstrates some confidence in the market, but sales are lower than sustainable due to psychological factors,” says David Lereah, NAR’s chief economist. “The demographics of our growing population, historically low and declining mortgage interest rates, and healthy job creation mean the wherewithal is there to buy homes in most of the country, but many buyers remain on the sidelines. After a period of price adjustment, we’ll see more confidence in the market and a lift to home sales should be apparent in the first quarter of 2007.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional fixed-rate mortgage was 6.36 percent in October, down from 6.4 percent in September but up from 6.07 percent in October 2005. Last week, Freddie Mac reported the 30-year rate dropped to 6.18 percent — the lowest since January of this year.

NAR President Pat Vredevoogd Combs, from Grand Rapids, Mich., and vice president of Coldwell Banker-AJS-Schmidt, says sellers in most of the country are doing what it takes to attract buyers. “With the exception of parts of the West, sellers are cutting their price enough to encourage sales,” she says. “It’s an especially good market for sellers in areas with rising jobs and a growing population where prices remain moderate — those are the areas now with the strongest price growth. On the opposite extremes, about 10 percent of the country is experiencing economic weakness, and a fourth of the nation — areas that had the biggest boom — is in a correction that will take longer to balance.”

The national median existing-home price for all housing types was $221,000 in October, which is down 3.5 percent from October 2005 when the median price spiked above adjacent months to $229,000.

“The annual decline in the October median home price is skewed because there was an uncharacteristic spike in October 2005, but the trend for the fourth quarter will be prices remaining slightly below a year ago. Overall prices are projected to see modest appreciation around early spring,” Lereah says.

National Numbers

Total housing inventory levels increased 1.9 percent at the end of October to 3.85 million existing homes available for sale, which represents a 7.4-month supply at the current sales pace.

Single-family home sales rose 1.3 percent to a seasonally adjusted annual rate of 5.5 million in October from a level of 5.43 million September, but were 11 percent below the 6.18 million-unit pace in October 2005. The median existing single-family home price was $221,300 in October, down 3.4 percent from a year earlier.

Existing condominium and cooperative housing sales fell 4.8 percent to a seasonally adjusted annual rate of 741,000 units in October from an upwardly revised 778,000 in September, and were down 14.5 percent from the 867,000-unit level in October 2005. The median existing condo price was $214,300 in October, which is 5.3 percent lower than the previous year.

Regional Reports

Existing-home sales in the West rose 6.4 percent to an annual pace of 1.33 million in October, but were 18.9 percent lower than a year earlier. The median price in the West was $340,000, down 0.6 percent from October 2005.

In the Midwest, existing-home sales were unchanged in October, holding at a level of 1.41 million, but were down 10.2 percent from a year ago. The median price in the Midwest was $170,000, a drop of 1.2 percent from October 2005.

Existing-home sales in the South slipped 1.2 percent to an annual sales rate of 2.49 million in October, down 8.8 percent from the same period a year ago. The median price in the South was $185,000, down 7 percent from a spike in October 2005.

Existing-home sales in the Northeast declined 2.9 percent to a level of 1.01 million in October, and were down 9.8 percent from October 2005. The median existing-home price in the Northeast was $254,000, a drop of 5.2 percent from a year earlier.
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Not all pricing news is gloomy

Housing prices continued to climb in the third quarter, according to the only national survey that covers the sale of both new and existing homes.
By: Lew Sichelman: latimes.com
The ascent wasn't nearly as relentless — just 3.1% — but prices are still rising nonetheless, according to the quarterly figures from the Federal Housing Finance Board.

The average in the nation's 32 largest markets was $326,700 as of Sept. 30, up from $317,000 a year earlier. Of the 32 markets, 19 showed increases, including surprising double-digit gains in several places.

Like studies conducted by other government agencies and the National Assn. of Realtors, the housing finance board's survey is not without drawbacks. It doesn't include houses sold with government financing, for example, so the numbers tend to skew a bit higher.

But it is the only one that includes new homes, and new homes typically are price leaders on which all other sellers base their asking prices. And in most places, builders are holding the line on their prices.

Builders may be offering all sorts of incentives — help with financing, free options and upgrades, free vacations and even free cars. But most have not resorted to cutting their prices.

Another take-away from the latest survey is the old real estate bromide that houses in good neighborhoods that show well and are priced right will sell, even in a market where many buyers are afraid to pull the trigger because they've heard nothing but doom and gloom about the faltering housing sector.

Nationally, there are some surprising numbers. One is that Las Vegas showed a whopping 18.9% gain in housing prices. Las Vegas, of course, is the poster child for all things bad in the housing market. The place is so overbuilt that several developers there have canceled major projects — not just put them on hold but scratched them altogether. Yet the average selling price in Sin City was $402,100 in the third quarter, up from $338,200 a year earlier.

Of course, some of that gain is a result of more than the usual number of houses and condos selling in the higher price ranges. But that's exactly the point. Good houses, good places, good prices equal sales in any price bracket.

Two other markets also nailed double-digit increases in the third quarter. Columbus, Ohio, sported better than a 14.5% gain, from $210,100 to $241,300, in the 12-month period covered by the latest government numbers. And Portland, Ore., was up 13.2%, from $297,900 to $337,300.

None of the 13 "down" markets had double-digit declines. But three came close. In Detroit, prices fell about 9.8%, from $202,100 to $182,200. In Boston, they dipped about 9.1%, from $411,700 to $374,100. And in St. Louis, they dropped 9%, from $230,500 to $209,800.

But part of the decline is related to more activity than normal in the lower end of the market. And again, at least houses were selling in those places.

As usual, San Francisco is the nation's housing price leader. Prices in the Bay Area averaged $667,300 in the third quarter, a gain of about 2.8% from $649,300 last year at this time.

San Diego, the country's second-priciest housing market, also showed a small increase. The average there was $568,100, up about 2.1% from $556,200. And the average of housing sold in No. 3 Los Angeles rose 8.9%, from $517,800 to $563,700.

The fourth and fifth most expensive places also sported gains. In New York, the average grew price 5%, from $468,700 to $492,300. And in Washington, D.C., the average price rose 9%, from $448,200 to $489,000.

At the other end of the price spectrum, prices fell in four of the five least-expensive places among the nation's 32 largest metro areas. Only the fifth-least expensive spot, San Antonio, registered a gain.

The bottom five are Dallas at $181,500, down 1.9% from $185,000; Detroit at $182,200, off 9.8% from $202,100; Indianapolis at $183,600, down 5.4% from $194,000; Kansas City at $188,000, off 1% from $189,900; and San Antonio at $189,100, up 7.6% from $175,800.
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What to Do in a Market That Is Headed for a Falloff

Rising mortgage rates and selloffs by skittish real-estate investors have helped depress housing prices. But there's another factor that many miss: the relationship between home prices and incomes.
By: Matthew Heimer: The Wall Street Journal Online
After hurtling along for years, the nationwide real-estate boom has come to a screeching halt. In 2005, home prices in the U.S. rose more than 12%; this year, the National Association of Realtors expects appreciation to reach just 1.9% - the lowest gain since 1992.

Rising mortgage rates and selloffs by skittish real-estate investors have helped depress housing prices in many metropolitan areas. But there's another factor that many observers miss: the relationship between home prices and incomes.

When the cost of housing in a given area grows far faster than local wages and salaries, the pool of potential buyers shrinks, and prices are much more likely to sink.

For the past five years, SmartMoney magazine has worked with Ingo Winzer, president of the consulting firm Local Market Monitor, evaluating home-sale prices against local income to determine whether a given market is overvalued, undervalued or fairly valued. Mr. Winzer relies on more than 15 years of housing and income statistics to find out where prices are headed.

According to Mr. Winzer, any market that's more than 30% overvalued is due for a correction. In the fall of 2003, only eight markets on the list of 152 fit that description; on this year's list, 37 did. Sure enough, price decreases are beginning to pop up in many of the markets that have shown up year after year as the most overvalued - especially in Florida and California.

What to do if you're in a falling market? Obviously, that's a promising climate for a bargain-hunting buyer. A savvy real-estate agent can help you craft a bid that's low enough to save you money, but realistic enough to be accepted. When one of Frank Borges LLosa's clients finds an appealing home, the Northern Virginia broker searches the history of the selling agent - data not available to consumers - on the local multiple listing service. If the agent frequently sells below the asking price, Mr. LLosa knows he can be aggressive.

Listing archives can also help buyers figure out the right bidding range. Ask your agent to comb the MLS for "pending sales," deals that are in contract but haven't yet closed, to get an up-to-date sense of price ranges in your market.

In an ideal world, you wouldn't sell a house at all while prices were falling. But if you must, experts agree that it's best to act quickly, before prices slide further.

Often, that means gritting your teeth and offering the best price to get potential buyers in the door. Here again, getting your agent to tap pending-sales data can pay off. Pay attention to the pricing per square foot for homes similar to yours, and set your asking price at the bottom of, or even below, that range.

South Florida broker Mike Morgan recommends that his clients take 1% to 3% off the price every week until they get an offer.

Another way to motivate a potential buyer: Motivate his broker. In a typical sale, a commission of 6% is split evenly between the buyer's and seller's agents. But you can ask that a higher percentage go to the buyer's agent, or even offer extra money out of your own pocket, so that she'll steer customers your way.

David Lereah, chief economist of the National Association of Realtors, expects that nationwide prices will bounce back in 2007.

He adds that one-third of the country is primed for growth - a claim that Mr. Winzer's research supports. And if you don't have to sell your home, the short-term turmoil underscores the point that it seldom makes sense to obsess over your home's value the way you'd obsess over, say, your Google shares. Better to sit back, enjoy your mortgage-interest tax deduction, and wait for better days.
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Numerous ways that home sales fall apart

To save time and money, probe buyer before accepting offer
By: Dian Hymer: Inman News
Recently, a Los Angeles home seller thought his sale was a sure thing. Mere days later, his house was back on the market. What went wrong? The buyer didn't qualify for financing.

In most cases, this sort of fallout can be avoided. One positive byproduct of the recent fast seller's market is that lenders are prepared to preapprove buyers for financing in a day or two. It doesn't make sense for either the buyer or seller to enter into a transaction that the buyer can't complete financially.

To avoid disappointment, buyers should find out for sure what they can afford before making an offer. Buyers are in a better bargaining position with the seller if they can accompany their offer with a bona fide preapproval letter.

HOUSE HUNTING TIP: There's a big difference between prequalification and preapproval. A prequalification letter merely states that the buyer might be qualified for a mortgage if the credit report and pertinent financial documentation pans out. A preapproval letter from a lender is a letter that says the buyer is approved for a mortgage subject to a ratified purchase contract, a property appraisal and an acceptable preliminary title report.

Sellers who receive a preapproval letter from a mortgage broker rather than from the lender who will make the loan should ask for permission to call the mortgage broker to find out if there's any reason at all why the buyer's loan shouldn't be approved. Your listing agent can make the call for you.

Every once in a while, someone who's not actively looking to buy a home walks into an open house and decides to buy the property. Sellers who receive an offer from an enthusiastic buyer who hasn't had the time to be preapproved should issue a counteroffer that includes a provision for the buyer to be preapproved by acceptance.

If you give the buyer a day or two to accept the counteroffer, he should be able to provide a preapproval letter in that time frame. Or, if not, within the time frame it takes to negotiate the contract.

Some deals fall apart because the buyers discover something about the house or the neighborhood that makes them rethink their decision. It's best for sellers to get all the news about property and neighborhood conditions - especially if it's bad news - out in the open upfront. This lessens the chance that the deal will fall apart.

Buyers appreciate a complete disclosure package on a property, including presale inspections reports, so that they can make an informed decision about whether to buy the property. Sellers, however, often fear that the bad news will dissuade buyers or that inspections cost too much.

A failed transaction costs time, and sometimes money. Also, a property that goes back on the market can carry a stigma. It's far better to deal with issues upfront.

Another reason deals fall apart is "buyer's remorse." That is, a buyer has second thoughts about going through with the purchase soon after the sellers accept his/her offer. Sellers should find out as much as they can about a buyer before accepting an offer.

For instance, why are they buying? Have they outgrown their present home? Have they been transferred into the area? How long have they been looking? Have they made offers on other houses? Why weren't their offers successful? Did they back out of other deals?

THE CLOSING: As tempting as it might be to accept an offer and be done with the marketing process, it does little good if you're back on the market shortly after acceptance. It takes committed buyers and sellers to close a real estate transaction.

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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Frustrated Sterling Could Abandon

Donald Sterling is considering killing the homeless center he wants to build in Skid Row.
By: DANIEL MILLER: Los Angeles Business Journal Online
Donald Sterling is considering killing the homeless center he wants to build in Skid Row, saying his proposal has gotten the cold shoulder.

“I want to help the homeless, but I need political support,” said Sterling, who declined to comment further.

He could cancel his plans for the homeless center as early as this week.

Sterling, owner of the Los Angeles Clippers and a local real estate mogul, had planned to purchase a warehouse property at 600 Wall St. for about $12 million and then pour an additional $50 million into the property to build a center that would provide services to the homeless and other residents in and near Skid Row.

Sterling announced the proposed center with several advertisements in the Los Angeles Times earlier this year. But rather than hearing the warm applause of a grateful city, all he’s heard is the sound of silence.

In fact, a Los Angeles Times story in June dubbed the proposed homeless center a “mysterious plan.”

“What is mysterious about someone wanting to do something beneficial for the community?” said Bradley Luster, Sterling’s real estate agent and friend.

“Mr. Sterling is very frustrated with the various political factions that are treating him unfairly publicly,” Luster said.

The Mayor’s office declined to comment for this story.

Some downtown real estate experts have said privately that they understand the city government is not interested in a permanent resources center that could attract more homeless to the area or entrench the homeless already there.

However, Los Angeles City Councilwoman Jan Perry said she is interested in such a center.

“We always need people to consider where the gap is in services,” said Perry, who represents the area that includes the proposed center’s site. “Anytime someone acquires a large piece of property and puts it to use for the surrounding community, I’d consider it a good thing.”

Perry said that on Nov. 15 she received an e-mail from Sterling that said he wanted to discuss plans for the proposed center. She said that she planned to respond “affirmatively” to Sterling’s message.

“He’s a very nice person. I am sure we will talk,” Perry said.
No partner

Beyond the apparent lack of political support, Sterling has been unable to find a partner that would operate his center.

“It’s been very difficult getting a non-profit partner that would be capable of putting a deal together,” said Luster, who is president of the Los Angeles-based real estate firm Major Properties.

One obvious candidate to be a partner is the Midnight Mission, which is adjacent to Sterling’s proposed center. Currently, the organization is not involved in Sterling’s plans, but “they might be back on the table,” Luster said.

“They understand the politics to get the deal done,” Luster said. He added that if the deal for the property is completed, Sterling would reach out to the non-profit People Assisting the Homeless about a possible partnership.

Officials with Midnight Mission did not return calls seeking comment.

Luster said that Sterling will meet this week with the owner of the site, Tony Ta, to discuss whether to extend escrow on the property or cancel it.

A 60,000-square-foot warehouse is currently on the property, which is a block long at Wall and Sixth streets. The warehouse is used by an import-export company to distribute toys.

The warehouse would be razed in order to build the center, which would include a medical clinic, community court and a work training center, among other features. The center would not include housing for the homeless.

Sterling supports a variety of causes including the Asthma & Allergy Foundation and the Special Olympics.

Luster said Sterling’s motive for building the center is solely philanthropic, adding that he wanted the homeless center to be “the first step in leaving his legacy.”
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California: Luxury House Values Climb Slightly

California's luxury home values posted slight gains in Los Angeles, San Diego, and San Francisco in the third quarter.
REALTOR® Magazine Online
California’s luxury home values posted slight gains in Los Angeles, San Diego and San Francisco in the third quarter of 2006, according to the First Republic Prestige Home Index.

The index, which has tracked luxury homes since 1985, found:

Los Angeles values rose 0.6 percent from the second quarter of 2006 to the third quarter and climbed 4.4 percent from a year ago. The average luxury home in Los Angeles is now $2.37 million.

San Diego values increased 1.9 percent from the second quarter of 2006 to the third quarter and gained 5.4 percent from a year ago. The average luxury home in San Diego is now $2.18 million.

San Francisco Bay Area values increased 1.1 percent from the second quarter of 2006 to the third quarter and gained 4.0 percent from a year ago. The average luxury home in San Francisco is now a record $2.96 million.

The modest increases are “due to growing inventory, longer sales time, and greater caution among buyers because of the uncertainty in the market," says Katherine August-deWilde, chief operating officer of First Republic.
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Relative strength in California housing

Thanks partly to its healthy economy and lack of overbuilding, California's home prices are holding up slightly better than other recently red-hot locales, according to data released Monday.
By: Annette Haddad: latimes.com
The nation's housing slump spread in the third quarter, as prices for resale homes in such places as Phoenix and Florida's eastern coast declined compared with a year earlier, the National Assn. of Realtors said.

Yet most of California's biggest real estate markets, including Los Angeles, the Inland Empire and the San Francisco Bay Area, continued to book year-over-year gains, albeit at a much slower pace, according to the Realtors group.

Among the reasons for California's better performance: Lack of available land and regulatory restrictions have led to a smaller supply of new or under-construction homes competing with resale homes. New homes represent about 15% of the total state housing market.

Also, the California economy is healthy and most people "are keeping up with their mortgage payments," said Leslie Appleton-Young, chief economist for the California Assn. of Realtors, which supplied data for the national Realtors' report.

"The data on the economy is fairly good and we're seeing job growth," which helps bolster demand for housing, she said.

California is a step ahead of other parts of the nation because it was the first region to start experiencing double-digit price gains in 2000 and the first to start tapering off. Price increases have been slowing for more than a year, as have sales.

Now, other locales are following with their own slowdowns, said John Karevoll, chief analyst with La Jolla-based research firm DataQuick Information Systems.

Nationwide, the median price of a resale home fell 1.2% to a seasonally adjusted $224,900 in the July-September period, with about a third of the 148 U.S. markets surveyed posting year-over-year declines, the Realtors said. The median is the price at which half of all homes sold for more, half for less.

In California, three of seven markets depreciated: San Diego, where the median price declined 2.1% to $601,900; Sacramento, which saw prices drop 3.5% to $375,400, and Orange County, where the median dipped 0.8% to $705,000.

San Diego and Sacramento also happen to be among the state's biggest new-home markets. Builders in these areas have been readily discounting their prices, putting pressure on existing-home values.

Overall, Appleton-Young said, the national data "reflect the fact that as you get into fall, there is less upward pressure on prices and less activity in general."

"But we are still seeing firmer prices here," she added.

Sales also haven't fallen as much in California as in some other once-hot markets.

Sales of resale homes here fell 28% in the third quarter versus a year earlier, the Realtors said. By comparison, Arizona sales plunged 36%, Florida's dropped 34% and Nevada's declined 38%. Nationwide, sales are down 12.7% year over year.

One ingredient helping buoy California's real estate market is the relative strength of the $2-million-and-above home market. In the third quarter, luxury home values in California gained at least 4% from a year earlier, according to a survey by San Francisco-based First Republic Bank.

"I'm a little surprised by how well it's holding up," First Republic Chief Operating Officer Katherine August-deWilde said.

*

(INFOBOX BELOW)

Hot and cold markets

Year-over-year home price changes

Third quarter
Metropolitan area 2006
Seattle 14.6%
Riverside-San Bernardino-
Ontario 5.9
Houston 5.3
Los Angeles-Long Beach-
Santa Ana* 5.2
San Francisco 3.8
New York-Long Island 3.6
Atlanta 2.9
Dallas 2.8
Chicago 1.7
Las Vegas 1.6
San Jose 0.0
Denver –0.1
Phoenix –0.6
Orange County* –0.8
San Diego –2.1
Washington, D.C. –2.2
Sacramento –3.5
Boston –4.3
Miami –5.6


*Orange County is also counted as part of the Los Angeles metropolitan area.

Sources: National Assn. of Realtors, California Assn. ofRealtors
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Sellers still unrealistic about asking prices

Why first purchase offer may be the best
By: Dian Hymer: Inman News
Sellers who aren't happy with the first offer they receive are often inclined to refuse it and wait to see if something better comes along. However, some sellers are finding out the hard way that the first offer was their best offer.

A Piedmont, Calif., homeowner listed his home for sale this summer at a price that he'd hoped would generate multiple offers and a higher price. Not long after the house went on the market, a buyer made an offer for over the list price. However, although it was a good price, the seller wanted even more. So, he issued a counteroffer for an even higher price. The buyer rejected the counteroffer and bought a different property.

The seller then increased his list price to a price he would be willing to accept. The property sat on the market for weeks with no offers. Finally, the seller lowered the price to his original asking price. This action did generate two offers, both for less than the asking price. He accepted the better of the two offers. However, he ended up selling for far less than the amount of his first offer.

A year ago, many sellers listed for an under-market price that resulted in a successful sale for more money. There was a limited inventory of homes for sale and a lot of buyers who were anxious to buy.

Now, buyers have more to choose from and can afford to be discerning. Sellers, on the other hand, need to carefully consider every offer even if they think the price is low.

It's difficult for most sellers to accept an offer for less than they want if the offer is made soon after the listing is marketed. The natural inclination is to think that more exposure will bring buyers who will pay more. This is always possible.

However, serious buyers who've searched for a considerable time usually come forward with an offer as soon as the right property comes along. These buyers tend to know local market values well. They are motivated to buy and will often make their best offer - or close to it - initially.

HOME SELLER TIP: Make sure you carefully evaluate the merits of an offer that is presented soon after your home hits the market. Ask your listing agent to give you feedback about your list price and the local market conditions. How many homes like yours are currently on the market? Have any sold within the last few weeks? How do the list prices of these properties compare to yours? Is there serious interest from any other buyers?

In the above example, the seller's mistake was to expect too much for his house. This is a common mistake sellers make in today's market. Unfortunately, misreading the market costs time and money.

In order to be a successful seller, particularly in the current market, you need to divorce yourself emotionally from your home and look at it objectively. Ask yourself if you would pay the price you're asking a buyer to pay. Try to put yourself in the buyer's shoes.

Another Piedmont homeowner put his home on the market at the end of July. Several similar listings came on the market the same week. The listing agent planned to hold two open houses before the seller listened to offers.

However, several days after the first open house, an offer was written. The buyers were the very first people to look at the house. The seller had been hoping for multiple offers and a higher price. But, he accepted the buyers' asking-price offer. The deal closed in 30 days.

THE CLOSING: The other listings that came on the market at the same time in the above example sold one to two months later only after price reductions.

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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Economists Say the Worst Of Housing Bust Is Over

The real-estate market is nearing the end of the slowdown, experts said by nearly 2-to-1 in a WSJ.com survey. But they have wildly different views on where home prices are heading.
The Wall Street Journal Online
The worst of the housing bust is over, economists said by nearly 2-to-1 in the latest WSJ.com economic forecasting survey. But they still predict that the average selling price of a house will fall next year.

After several years of double-digit percentage increase, housing prices stopped soaring this year. The 49 economists responding to the WSJ.com forecasting survey expect home prices, measured by the government's Office of Federal Housing Enterprise Oversight index, to rise 2.8% this year and to fall by 0.5% next year. That contrasts with a 13.4% increase in 2005.

"We're nearing the end of the slowdown for most markets," said Ethan S. Harris at Lehman Brothers. Prices still have some ways to fall before they'll stabilize, but there are signs that most drastic parts of the downturn - marked by a sharp pullback in demand and new construction - have run their course.

The economists' predictions for home prices next year vary widely, from an increase of 7%, predicted by Kurt Karl and Arun Raha of Swiss Re, to a 10% decline, expected by Maury Harris of UBS. Mr. Harris, for his part, said he expects a large inventory of vacant newly constructed homes to push prices lower in the first half. Construction companies "built much more than were justified because of investor interest," he said.

While 20 economists predicted home prices would rise next year, 24 forecast a decline. Just eight of the economists forecast gains greater than 2.1%, which is their average forecast for consumer-price inflation through mid-2007. The Ofheo index, which is closely watched by economists, has never posted a year-to-year decline.

Richard DeKaser, an economist at National City Corp., a big mortgage provider, said he thinks the worst is over. "We're starting to see inventories topping out and possible declining," he said. Mr. DeKaser forecast a 4.4% increase in prices this year and a 1.8% decline next.

The housing market, of course, doesn't move uniformly across the country; some regions or individual cities often have price changes decidedly above or below the national average.

Mr. Harris of Lehman expects price declines next year to be confined to "bubble" markets, such as those in Florida, California and cities in Nevada and Arizona, where large numbers of investors have artificially inflated prices. "There's no reason for prices to be falling in areas without a bubble," he said. "People are just slowing down purchase decisions."

Allen Sinai, at Decision Economics Inc., believes the worst of the bust is over, but he feels housing remains a big risk to the economy. The housing sector subtracted 1.1 percentage points from third-quarter gross domestic product, according to preliminary numbers from the U.S. Commerce Department.

The economists trimmed their forecasts for fourth-quarter economic growth: Their average estimate puts gross domestic product growth at a 2.3% rate in the fourth quarter, down from the 2.5% rate they forecast in the October survey. They expect growth to remain at that rate through the first half of 2007 and then to accelerate later in the year. On average, the economists predicted growth of 2.8% during the second half 2007. GDP is the broadest measure of economic output.

The housing slowdown is expected to hit consumer spending, but the "consumer won't cave in and drive us into a recession," said Mr. Sinai. Steady interest rates, controlled inflation, stabilizing energy prices and a solid jobs market will support the economy, he said.

Indeed, new data released Monday indicated that weakness in the housing sector is being offset by other areas of the economy. The Conference Board, an industry-backed research group based in New York, said its composite index of leading indicators for October rose by 0.2% to 138.3, in line with expectations. September's reading was revised up to a 0.4% advance. The index is designed to predict activity in the three to six months ahead.

"People say all bubbles end in disaster, but this is a small bubble. Home prices are just about 20% too high. We need to take it seriously, but in the history of bubbles, this will go down as one of the smaller ones," said Lehman's Mr. Harris.

Among other findings in the survey:

    • Economists expect a relatively happy holiday for retailers, forecasting a 5.1%
      rise in sales from last year.

    • Some 57% expect Fed policy to be the biggest factor in the economy and markets
      over the next year, topping Iraq or the budget and tax legislation.

    • Just eight of 56 economists expect the Federal Reserve to raise rates beyond
      the current 5.25% rate before June 2007.

    • Economists expect just 107,000 new jobs a month over the next year, down from
      109,800 forecast in October and 179,400 at the high for this year's surveys,
      in February.

Read more!

Positive Picture for Buyers in Third Quarter

NAR Chief Economist David Lereah says market conditions are nearly the opposite of a year ago. "Buyers now have choices and sellers are more willing to negotiate."
REALTOR® Magazine Online
Conditions for buyers improved during the third quarter, as home prices declined in many metropolitan areas, sales activity slowed, and inventory increased, according to the latest quarterly survey by the NATIONAL ASSOCIATION OF REALTORS®.

Total state existing-home sales, including single-family homes and condos, were at a seasonally adjusted annual rate of 6.27 million units in the third quarter, down 12.7 percent from a 7.18 million-unit pace in the third quarter of 2005. Even with the overall decline, 10 states showed increases in sales activity from a year ago.

Among 148 metropolitan statistical areas included in the report, 102 areas had price gains, including 21 metros with double-digit annual increases, and 45 areas experienced price declines; one was unchanged.

David Lereah, NAR’s chief economist, says market conditions are nearly the opposite of a year ago. “Last year we had a record sales market and historically tight supplies of homes with buyers bidding over the asking price,” he says. “With the market in full transition, buyers now have choices and sellers are more willing to negotiate. Under these circumstances it’s no surprise that overall home prices are slightly below a year ago.”

He says the trend will likely continue into the months ahead, although there’s expected to be modest price appreciation in most of the country in 2007.

The national median existing single-family home price was $224,900 in the third quarter, down 1.2 percent from a year earlier when the median price was $227,600. The median is a typical market price where half of the homes sold for more and half sold for less.

Good News for Buyers

The market transition is good news for home buyers, says NAR’s new president, Pat Vredevoogd Combs.

“With the supply of homes at the highest level in over a decade and historically low mortgage interest rates, it’s become a great time to buy a home,” says Combs, vice president of Coldwell Banker AJS Schmidt in Grand Rapids. “This window of opportunity will continue into the new year, but inventories are starting to decline and sellers will be less willing to negotiate when conditions begin to balance in most areas around early spring.”

According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage was 6.56 percent in the third quarter, down from 6.60 percent in the second quarter; the rate was 5.76 percent in the third quarter of 2005. Last week, Freddie Mac reported the 30-year fixed rate was down to 6.24 percent.

Biggest Sales, Price Increases

The biggest total sales increase was in North Carolina, where existing-home sales rose 9.7 percent from the third quarter of 2005. In Texas, the third-quarter resale pace rose 8.6 percent from a year earlier, while Montana experienced the third strongest gain, up 6.4 percent.

The largest single-family home price increase was in the Salem, Ore., area, where the third quarter price of $228,000 was 24.7 percent higher than a year ago. Next was Elmira, N.Y., at $93,600, up 21.4 percent from the third quarter of 2005. The Salt Lake City area, with a third quarter median price of $216,300, increased 19.2 percent in the last year.

Median third-quarter metro area single-family prices ranged from a very affordable $86,000 in both Decatur, Ill., and the Youngstown-Warren-Boardman area of Ohio and Pennsylvania, to nearly nine times that amount in the San Francisco-Oakland-Fremont area where the median price was $749,400.

The second most expensive area was the San Jose-Sunnyvale-Santa Clara area of California, at $747,400, followed by the Anaheim-Santa Ana-Irvine area (Orange Co., Calif.), at $705,000.

In addition to Elmira, N.Y., other affordable markets include South Bend-Mishawaka, Ind., with a third-quarter median price of $96,000, and the Cumberland area of Maryland and West Virginia at $100,900.

Condo Prices Down Slightly

In the condo sector, metro area condominium and cooperative prices – covering changes in 57 markets – show the national median existing condo price was $222,900 in the third quarter, down 2.1 percent from the same period in 2005. Thirty-one metros showed annual increases in the median condo price, including eight areas with double-digit gains; 27 metros had price declines.

The strongest condo price gains were in the Knoxville, Tenn., area, where the third quarter price of $155,700 rose 29.0 percent from a year ago. In Wichita, Kan., the median condo price of $130,300 rose 25.5 percent from the third quarter of 2005, while Albuquerque, N.M., at $153,300, increased 21.0 percent.

Metro area median existing condo prices in the third quarter ranged from $108,200 in Rochester, N.Y., to $600,600 in the San Francisco-Oakland-Fremont area. The second most expensive reported condo market was Los Angeles-Long Beach-Santa Ana, at $384,500, followed by the San Diego-Carlsbad-San Marcos area of California at $361,100.

Other affordable condo markets include Bismarck, N.D., at $109,000, and Greensboro-High Point, N.C., at $113,000.

Regional Sales Data

Regionally, total existing-home sales in the South were at an annual rate of 2.52 million units in the third quarter, down 7.8 percent from a year ago. After the gains in North Carolina and Texas, the next strongest increase in the South was in Louisiana, up 4.5 percent from the third quarter of 2005, while resales in Arkansas rose 4.3 percent; four other Southern states also posted sales gains.

The median existing single-family home price in the South was $187,300 in the third quarter, which is 0.1 percent below a year earlier.

The strongest increase in the South was in the Virginia Beach-Norfolk-Newport News area, where the median price of $243,800 was 16.9 percent above the third quarter of 2005. Next was Gainesville, Fla., at $215,200, up 15.9 percent from a year ago, followed by the Gulfport-Biloxi area of Mississippi, with a 15.7 percent gain to $154,400.

In the Midwest, total existing-home sales declined 11.8 percent to a 1.42 million-unit annual level compared with the third quarter of 2005. The strongest performance in the region was in South Dakota, where sales rose 3.1 percent from a year ago.

The median existing single-family home price in the Midwest was $170,500 in the third quarter, down 2.6 percent from a year earlier. The strongest metro price increase in the region was in the Wichita, Kan., area, where the median price of $127,900 was 15.0 percent higher than the third quarter of 2005. Next was Bismarck, N.D., at $140,400, up 7.4 percent, and Kankakee-Bradley, Ill., at $138,400, up 6.1 percent in the last year.

The Northeast saw an existing-home sales pace of 1.05 million units in the third quarter, which was 12.5 percent below a year ago. The median Northeastern resale single-family home price was $276,000 in the third quarter, which is 4.8 percent below the same period in 2005.

After Elmira, N.Y., the strongest price increase in the Northeast was in Atlantic City, N.J., with a median price of $277,200, up 12.0 percent from the third quarter of last year, followed by Binghamton, N.Y., with a median price of $107,400, up 10.0 percent.

In the West, the existing-home sales pace of 1.29 million units was 21.5 percent lower than the third quarter of 2005. The best performance the region was in Montana where existing-home sales rose 6.4 percent from a year earlier.

The median existing single-family home price in the West slipped 0.9 percent to $349,000 during the third quarter. After Salem, Ore., and Salt Lake City, the strongest increase in the West was in the Seattle-Tacoma-Bellevue area of Washington, at $372,400, up 14.6 percent from third quarter of 2005, followed by Spokane, Wash., at $191,100, up 14.1 percent, and Farmington, N.M., at $176,200, up 12.9 percent from a year ago.
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Condo Conversion Limits Won’t Dent L.A.’s Pricey Rents

L.A. apartment rents are already high, but experts say they may go higher.
By: DANIEL MILLER: Los Angeles Business Journal Online
Expect L.A.’s already pricey apartment rents to keep rising despite the vote by the City Council last week to enforce an ordinance limiting condominium conversions.

The law will make it harder for landlords to turn apartment buildings into condominium complexes, but real estate experts say the effect on the tight rental market will be negligible.

Los Angeles County has the most expensive rental market in the Western United States, with average asking rents hitting $1,595 in the third quarter, up 8.4 percent from a year ago, according to figures provided by Grubb & Ellis Co.

And the overriding factors driving up those rents have not changed: an extremely expensive housing market that makes it hard even for middle-class renters to become homeowners. That keeps renters in their units, while new apartment construction has been unable to keep up with rental demand driven by a local economy that is creating jobs.

“I don’t see the rental market tapering,” said Harold Greenberg, chairman of the government relations committee for the Apartment Association of Greater Los Angeles. “You are not building the units.”

That’s not to say that the law will not have some effect. Housing activists estimate 12,000 rent-controlled apartment units have been converted into condominiums or torn down to make way for new construction in the last five years, with the pace accelerating since 2005.

Moreover, there is evidence that the swooning housing market may cause landlords to pull back any plans to convert their buildings; some newly constructed condominiums downtown and elsewhere in the county are being rented for a lack of buyers.

However, the city and county still have one of the tightest rental markets in the country, with demand far outpacing supply. A recent report by Marcus & Millichap Real Estate Investment Brokerage Co. noted that vacancy in the county is expected to be a low 3 percent by year’s end.

That has emboldened landlords to raise rents when they can.

“You put a for-rent sign up in West L.A. and it is good as gone,” said landlord Robert Roth, who owns two two-bedroom apartments in Westwood that rent for about $3,500 a month.

“I have been able to raise rents and I am pretty sure I could raise them higher than what I am currently renting them for. I am pondering doing that,” he said.

While L.A’s rent control ordinance limits increases to 4 percent annually in buildings constructed prior to 1978, that cap comes off when a unit changes hands. There are no controls on newer construction. Moreover, many other cities in the county have no controls at all.

Broken dreams

Roth is not alone. Sylvia Brakha, a landlord who rents a two-bedroom, two-bath apartment near Pico and La Cienega boulevards for $2,000, said she plans to raise the rent by about $500 when the unit becomes vacant – even though she worries that expensive rentals are making it nearly impossible for renters to save enough to own a home. (In October, the median price of a home in L.A. County was $545,000.)

“To buy a home you have to have a minimum of $100,000 or $200,000,” said Brakha, who owns three rental properties citywide. “How many people can save that kind of money?”

Lane Schwartz, a regional manager for Marcus & Millichap, which deals in multifamily properties, said the problem is particularly acute in West Los Angeles.

The Westside is a pricey area and percentage increases there result in rents going up faster than elsewhere, Schwartz said.

The Grubb & Ellis figures do not provide data for the entire West Los Angeles area, but in Brentwood, for example, a two-bedroom, one-bathroom unit goes for $2,200. And even in rent-controlled Santa Monica the average asking price of a two-bedroom, one-bathroom unit was up 19 percent in the third quarter to $1,667. Again price gains are possible because landlords can raise rent significantly in between tenants.

“It’s just supply and demand, I guess,” said Keith Ellison, an investment banking analyst who lives in Westwood with two other people in a two-bedroom apartment that costs $2,650 a month. “It’s not discouraging. It is what it is.”

The rise in rents did stir up housing activists to force a vote on the condominium conversion enforcement issue but it is unclear how much more the activists could do to limit rental rates.

Efforts to expand rent control around the county have not been successful in the past.

Moreover, the conversion ordinance the City Council decided to support was not enforced by the city for good reason. The City Attorney’s Office believes it may conflict with a state law regarding landlords’ right to convert their units. In addition, the law does not prohibit conversions, but only gives the city the right to refuse them if a building’s vacancy rate drops below 5 percent.

Larry Gross, executive director of the Coalition for Economic Survival, said that the City Council’s vote last week will help to preserve the existing rental stock, but he also worries that high rents are keeping the middle class out of the ownership market.

“The middle class American dream is being blown to pieces by this housing market,” said Gross. “It’s unlikely they will ever be able to own a home in Los Angeles.”

Mitigating trends

Of course, one of the reasons rents are so high, is that there is a steady supply of tenants who find ways to afford them, even if it means using up a greater share of disposable income.

“I’m sure there are people who can’t afford apartments,” said Roth, also the spokesman for BidRent.com, an online marketplace for rental properties. “I haven’t encountered them. I only get calls from people who are interested.”

Tenants also can find more affordable units when they move away from high-demand areas. Even in Encino, one of the pricier rental markets in the San Fernando Valley, the average asking rent for a one-bedroom one-bathroom apartment was up 25 percent in the last year to $1,368, but that’s still $500 cheaper than Brentwood.

Then there is the issue of a potential oversupply of newly constructed condominium units that developers are deciding to rent instead of sell.

In September, for example, Lincoln Property Co. cancelled its plans to sell units at a condo development called Mozaic in downtown Los Angeles. But with each apartment featuring granite countertops, stainless steel appliances, hardwood floors and vaulted ceilings, penny pinchers need not apply.

Studios start at $1,500 and two bedrooms are $2,500 and up.
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A Profitable Investment: California Real Estate

Most California sellers nearly doubled their investments in five years. In San Bernardino County alone, sellers made a median 130 percent profit.
The San Diego Union-Tribune: REALTOR® Magazine Online
Most California home sellers nearly doubled their investments in five years, according to title insurer First American Real Estate Solutions of Santa Ana in comparing sales prices.

In Los Angeles, the margin was 105 percent, going from a $254,000 purchase to $520,000 sale over 51 months.

San Diego sellers made a median 91 percent profit on their homes, having bought them typically 63 months ago for $269,000 and selling them for $512,500 — a $243,500 gain.

Sellers in San Bernardino County paid $156,500 and the properties rose to $360,000, yielding a 130 percent profit over a 45-month median time between purchase and sale.

Orange County sellers enjoyed a median 116 percent profit, going from $284,750 to $616,250 over 62 months.
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Best time of the year to be a home buyer

Holiday season is the greatest gift for home shopping
By: Robert J. Bruss: Inman News
During the slow home sales holiday season between Thanksgiving and New Year's Day, even extending through Super Bowl Sunday in many communities, few people think of buying a house or condominium. However, if you want to purchase a home and can drag yourself away from holiday festivities, this is the absolute best time of the entire year to be a home buyer.

Why is that, you ask? The answer has two parts: (a) only serious motivated sellers have their houses and condominiums listed for sale during this slowest season of the year for home sales, and (b) competition from other prospective home buyers is at its lowest now so your purchase offer will be extremely welcome and seriously considered by a motivated home seller.

There is an additional reason 2006 year-end is an especially good time to be a home buyer. That reason is it is a "buyer's market" in most cities, meaning there are more homes listed for sale today than there are qualified buyers in the market so sellers (and their listing agents) are extremely anxious.

It's a great time to be a home buyer. But not such a good time to be a home seller.

BEFORE SHOPPING FOR A HOME, SHOP FOR A MORTGAGE. However, before rushing out to buy a house or condo, smart home buyers first get approved in writing for a home mortgage. This is a slow time of year for mortgage lenders so they welcome your loan application.

Although mortgage brokers can arrange mortgage pre-approvals, the letter or certificate must come from an actual lender, such as a bank or mortgage banker. Most home mortgage pre-approvals are valid for 60 to 90 days.

Don't even consider a mortgage "pre-qualification," which means only, "We looked at your loan application and you appear to qualify but we haven't actually verified your credit and income." In other words, a mortgage pre-qualification is worthless.

However, home buyers should understand a lender's mortgage pre-approval is subject to (a) the lender's appraisal of the home you decide to buy, and (b) reverification of your credit and income (don't apply for additional credit or go out and buy a new car before you complete your home purchase).

WORK WITH AN EXPERIENCED BUYER'S AGENT. After obtaining a written mortgage pre-approval from a lender, the next step to buying a home during this best time of the year to purchase is to work with an experienced buyer's agent who understands the market in the vicinity where you want to buy.

Ask friends, relatives and business associates for recommendations of buyer's agents. Although any licensed agent can be your buyer's agent, many agents prefer to list homes for sale rather than working with home buyers who are often "time wasters."

A buyer's agent costs nothing extra. The reason is the listing agent of the house or condo you purchase will split the sales commission with your buyer's agent. Only in the rare event you buy a "for sale by owner" (FSBO) home and the seller refuses to compensate your buyer's agent would you owe any sales commission.

EXPECT YOUR BUYER'S AGENT TO PREPARE A "CMA" BEFORE MAKING YOUR PURCHASE OFFER. When you find "the house" or "the condo" you want to buy, before making a purchase offer ask your buyer's agent to prepare a written CMA (comparative market analysis). This CMA is the same form the listing agent prepared for the seller when the house or condo was listed for sale.

However, your CMA will be up to date, whereas the seller's CMA might be several months old. The CMA shows (a) recent sales prices of comparable nearby residences within the last few months (never older than six months); (b) current asking prices of similar neighborhood homes now on the market for sale; and (c) asking prices of recently expired comparable listings (usually overpriced).

As a savvy home buyer, you probably will have inspected many of the homes on your CMA. With the help of your buyer's agent, you can use the CMA information to arrive at a fair purchase-price offer.

Many buyer's agents recommend making a purchase offer based on a per-square-foot basis. For example, if nearby homes of comparable quality construction recently sold for $150 per square foot, you might want to make your purchase offer based on $150 per square foot.

Be sure to attach a reasonable good faith deposit check to your purchase offer. If you are making an especially low offer far under the seller's asking price, a substantial deposit accompanying your offer will often convince the seller you are a serious buyer.

You can be sure your buyer's agent will use the CMA prepared for your use to show to the home seller and the listing agent to justify your purchase offer as being reasonable.

However, if the seller doesn't accept your purchase offer, a luxury of buying during this slow season is there are few other home buyers in the market. The result is you usually need not be in a rush to respond to a counteroffer or make a new purchase offer.

Waiting a few days to respond, presuming you still want to buy the residence, will often make the seller think, "That was a pretty good offer. Maybe I should have accepted it."

KEEP YOUR PURCHASE OFFER SIMPLE. As experienced buyer's agents will tell you, it's best to keep your purchase offer as simple as possible. "A confused mind usually says no" is a very true motto. For this reason, it is best to include only a few contingency clauses in your purchase offer. Typical contingencies are:

1. LENDER'S APPRAISAL CONTINGENCY. Presuming you need a mortgage to finance your purchase, be sure to include a mortgage lender's appraisal contingency clause in the purchase offer. If the home doesn't appraise for at least the amount of your purchase offer that was accepted by the seller, then you don't have to complete the purchase and can get your good faith deposit fully refunded.

2. PROFESSIONAL HOME INSPECTION CONTINGENCY. Smart buyers make their home-purchase offers contingent on their approval of a professional home inspector's report to be obtained by the buyer after the seller accepts the purchase offer.

The cost is usually around $300. Buyers should always accompany their inspector for the two- to three-hour inspection because it is a good way to become familiar with the home and to discuss any unexpected material defects that are discovered.

A good source of experienced professional home inspectors is to hire a member of the American Society of Home Inspectors (ASHI). To find local ASHI inspectors, go to www.ashi.org or phone 1-800-743-2744.

If the professional inspection report reveals serious undisclosed home defects, as the buyer you can (a) cancel the purchase and obtain refund of your good faith deposit, (b) reopen negotiations with the seller to obtain a repair credit, or (c) if the seller refuses to renegotiate, go ahead with the purchase anyway (presuming you badly want the home).

3. SALE OF YOUR CURRENT HOME CONTINGENCY. During the last few years of a home "seller's market" in most cities, this contingency fell out of favor with home sellers and real estate agents. But during a buyer's market where any purchase offer is very welcome, many home sellers will accept a purchase offer that is contingent on the buyer's sale of their current home.

However, to be fair to the seller, most sellers will insist on keeping their homes listed on the market for sale while the buyer tries to sell his/her current home. In addition, most realty agents suggest a 48-hour or 72-hour contingency-release clause. That means if another buyer produces an offer acceptable to the seller, the first buyer then has 48 or 72 hours to remove his/her contingency clause for sale of their current residence.

SUMMARY: The season between Thanksgiving and New Year's Day, even extending to Super Bowl Sunday in many communities, is the slowest time of the year for home sales so it is an especially good time to be a home buyer.
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Technology gains ground in home transactions

Survey: Most home sellers choose full-service brokerage
Inman News
Technology is dominating many aspects of the real estate transaction process, but the most important factors are purely human, according to an industry survey of home buyers and sellers.

Most sellers prefer full-service brokerage, where brokers handle all aspects of the transaction process from listing to closing, according the survey, which found that 83 percent of sellers use full-service brokerage, 9 percent use limited services and 8 percent use minimal service, such as simply listing a property on a MLS.

The study, released by the National Association of Realtors, was based on a mailed questionnaire and asked buyers and sellers about preferences and habits in real estate transactions.

NAR 2006 President Thomas M. Stevens from Vienna, Va., said historic comparisons are not available, but that limited and minimal services were a relatively small market share in the past and the question was not part of previous surveys. "Anecdotally, there’s been a modest rise in recent years, and in all probability a somewhat higher level of sellers used full-service brokerage through the early part of this decade," said Stevens, senior vice president of NRT Inc.

"Our sense is that professionals will continue to experiment with business models and that the lion’s share of consumers will continue to opt for full-service brokerage, but there’s room for all ethical business practices in this industry," he said.

Additional findings show consumer satisfaction with the level of brokerage service varies, with 71 percent of sellers being very satisfied with their full-service experience and another 24 percent somewhat satisfied. Limited services also received high marks with 76 percent being generally satisfied; however, 50 percent of sellers using minimal service were dissatisfied with their experience.

The survey also found a downtrend in the number of for-sale-by-owner transactions, falling from 13 percent of market share in 2005 to 12 percent today. "When you factor out the properties that were not placed on the open market, the actual number of FSBOs is only 7 percent - the rest are simply unrepresented sellers in private transactions," Stevens said. NAR began tracking the FSBO market in 1981; the record high was 20 percent in 1987.

The median home price for sellers who use an agent is 31.9 percent higher than a home sold directly by an owner; $247,000 versus $187,200, according to the NAR survey. However, unassisted sellers in this survey, unlike agent-assisted sellers, were more likely to be in a small town or rural area, and their income was 7.2 percent lower than sellers using agents - suggesting their homes may be worth less than the typical home sold by an agent.

The most difficult tasks reported by FSBOs are preparing the home for sale, understanding and performing the paperwork, and selling within the desired time frame.

To find a real estate agent, the survey shows the most important factor for both buyers and sellers is word-of-mouth recommendation. The most important criteria in choosing an agent are reputation and trustworthiness.

The typical home buyer is 41 years old, earned $71,800 and purchased a home costing $214,000 that was 1,815 square feet in size, according to the survey. They searched eight weeks and visited nine homes before making a decision.

Sixty-one percent of buyers are married couples, a record 22 percent are single women, 9 percent single men, 7 percent unmarried couples and 1 percent other. Eleven percent were born outside of the United States.

Three-quarters purchased a detached single-family home, 9 percent a townhouse or rowhouse, 11 percent a condo and 5 percent some other kind of housing; 78 percent of respondents purchased an existing home and 22 percent a new home. The median distance from the previous residence was 13 miles, and 55 percent of all homes purchased were located in a suburb or subdivision.

The biggest factors influencing neighborhood choice are quality of the neighborhood, convenience to job and convenience to family and friends. Other factors with high responses include neighborhood design, convenience to shopping and quality of the school district.

The number of first-time buyers dropped to 36 percent of respondents, compared with 40 percent in the previous three annual surveys. The median age of a first-time buyer is 32, a fairly consistent finding since 1981, with a median income of $58,300. They purchased a home costing $165,000 and plan to stay in that home for six years. The median downpayment by first-time buyers was 2 percent, but 45 percent purchased with no money down. Of first-time buyers who made a downpayment, 22 percent received a gift from a friend or relative, usually their parents.

The typical repeat buyer is 47 years old, earned $81,900, purchased a home costing $249,000 and plans to stay in that home for 9 years. They made a median downpayment of 16 percent, but 11 percent paid cash for their property. Of those making downpayments, 62 used the equity from their previous home.

Buyers used a wide array of resources in searching for a home: 85 percent used a real estate agent, 80 percent the Internet (up from 77 percent in 2005), 63 percent yard signs, 55 percent print or newspaper ads and 47 percent attended open houses. Smaller categories include a home book or magazine, home builders, television, billboards and relocation companies.

When asked where they first learned about the home purchased, 36 percent of buyers identified a real estate agent; 24 percent the Internet; 15 percent from yard signs; 8 percent from a friend, neighbor or relative; 8 percent home builders; 5 percent a print or newspaper ad; 3 percent directly from the seller; and 1 percent a home book or magazine.

Eighty-one percent of home buyers who used the Internet to search for a home purchased through a real estate agent, in contrast with 63 percent of non-Internet users who were more likely to purchase directly from a builder or from an owner they knew in advance of the transaction.

Local metropolitan multiple listing service (MLS) Web sites were the most popular Internet resource, used by 53 percent of buyers, followed by Realtor.com, 52 percent; real estate company sites, 41 percent; real estate agent Web sites, 40 percent; local newspaper sites, 14 percent and real estate magazine Web sites, 6 percent; other categories were smaller.

In order of priority, home buyers want agents to help find the right house, negotiate the terms of the sale, determine what comparable homes were selling for, help with price negotiations, help with paperwork, help determine how much they could afford and help with finding and arranging financing. Three-quarters of buyers use only one agent in the search process.

When asked about the benefits provided by an agent, 55 percent of buyers said agents helped them understand the process, 40 percent said their agent pointed out unnoticed features or faults with the property, 37 percent indicated the agent improved their knowledge of the area, 36 percent said agents negotiated better contract terms, 35 percent reported a shortened search process and 29 percent said their agent negotiated a better price.

Of buyers who use an agent, 64 percent choose a buyer’s representative. Eighty-five percent of all buyers said they were likely to use the agent again or recommend to others, and almost all buyers were satisfied with their agent’s honesty and integrity, with 83 percent being very satisfied.

The median age of a home seller is 46, with an income of $83,800. Seventy-two percent are married couples, had been in their home for six years and moved a median distance of 17 miles. Their home was on the market for six weeks, up from four weeks in the 2005 survey. Ninety percent of sellers were satisfied with the selling process.

Forty-four percent of sellers chose agents based on a referral by a friend, neighbor or relative, and 30 percent used their agent previously; 69 percent of sellers contacted only one agent. Reputation and trustworthiness are the most important factors in choosing an agent; 82 percent said they were likely to use the same agent again or recommend to others.

NAR mailed an eight-page questionnaire in August 2006 to a national sample of 129,500 home buyers and sellers who purchased their homes between July 2005 and June 2006, according to county records. It generated 7,548 usable responses; the response rate was 6.3 percent. All information is characteristic of the 12-month period ending in June 2006 with the exception of income data, which are for 2005.
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Southern California home prices hold as sales continue to slow

Southern California home prices remained in a holding pattern last month while sales continued to decline, albeit at a slower pace, data released today showed.
By: Annette Haddad: latimes.com
The median price of all types of homes sold in October was $484,000, which was the same as in September, and 2.3% higher than a year ago, La Jolla-based research firm DataQuick Information Systems reported.

Meanwhile, sales in the six-county region fell 22.4% to 22,117, DataQuick said. It was the worst showing for an October in a decade, but the rate of decline was the slowest since July.

For much of this year, potential buyers have been hanging back, waiting to see if prices will decline. The result has been fewer sales and an upsurge in supply as more homes sit unsold for longer periods and new listings continue to come on the market.

What's more, homeowners who would like to move up or downsize are reluctant to put their homes up for sale, fearing they may not get the price they want.

"Buyers are taking their time, trying to wait out the uncertainty in a market that is rebalancing itself," said DataQuick President Marshall Prentice.

One region economists have been watching closely is San Diego County, where California's housing boom was launched six years ago and where it first started to fade. But in October, San Diego's home prices recovered some ground, rising nearly 2% to $485,000, compared to the month before. It was the first increase since March. Nonetheless, when compared to a year ago, the rate of appreciation in San Diego declined 5.5%, DataQuick said.

Southern California home-price gains have been decelerating for the last year. Year-over-year increases have been in the single digits for seven months and are expected to turn negative by the end of this year or early next year, DataQuick analysts said.

Indeed, the rate of the slowdown is starting to spread beyond San Diego. In Ventura County, home prices dipped 2.3% to $582,000. Sales fell 19.6% to 940.

In Orange County, the region's priciest market, the median price rose 3.1% to $625,000, which was the same median a month ago. Sales declined 24.9% to 2,715.

The Inland Empire counties of Riverside and San Bernardino, where prices were still rising by double-digits as recently as this spring, also showed marked slowing. In October, the median in Riverside rose 4.9% to $410,000, but was off its peak of $423,000 reached in September. Sales fell 24.2%.

San Bernardino's median price edged up 2.3% to $362,000 year over year, but was flat with the median price set last December. Sales declined 21.3%.

On Monday, DataQuick reported that Los Angeles County's median price rose 4.5% to $514,000 as sales dropped 21.8%.
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Google Base gathers more real estate listings

Windermere makes for-sale properties available to search engine
Inman News
Windermere Real Estate is the latest regional brokerage company to make property listings available to consumers searching Google Base for real estate.

The company announced it provide continuous feeds of all its listings to the Google Base classified listing service. Windermere has 330 offices and 8,400 associates with listings in Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Utah, Wyoming and Washington.

"Where your customers are is where you need to be," said Geoff Wood, CEO of Windermere. "And when people search for information today, they search with Google."

Google last week unveiled a new site for real estate companies interested in including their property listings in the Google Base service. The search company is trying to make it easier for brokers, agents and other real estate professionals to have their listings included in property searches. The new site categorizes users as brokers, agents, MLSs and IDX vendors. (IDX stands for Internet data exchange, a method by which brokers share listings online.)

Property listings uploaded to Google Base also appear in a general Google search.

Two additional brokerage companies last month announced content partnerships with Google to provide property listings and agent information to the search-engine company. Columbus, Ohio-based Real Living, with nearly 4,000 agents in 12 states, and Prudential California/Nevada/Texas Realty, which has about 5,000 agents in 139 offices, separately announced that they would make property listings available to Google Base.
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Boom or Bust: Will Metro Areas Bounce Back?

Over the past three decades, about 40 percent of housing busts in big metro areas have eventually been followed by strong recoveries.
BusinessWeek: REALTOR® Magazine Online
If you own a home in a metropolitan area affected by the current boom-bust cycle, should you sell or sit tight?

BusinessWeek analyzed boom-bust patterns and concluded that over the past three decades about 40 percent of housing busts in big metro areas have eventually been followed by strong recoveries.

In an additional 15 percent of markets, prices adjusted for inflation barely got back to their previous peaks after 15 years. In the remaining 45 percent or so of markets, prices adjusted for inflation were still down a decade-and-a-half after their pre-bust peaks.

The disparity between winners and losers was striking: Among the winning markets, the average inflation-adjusted gain after 15 years was 43 percent, while among the losers the average inflation-adjusted loss was 19 percent.

A key difference between winners and losers is the difficulty of building new houses. The cities with the tightest housing usually boom again after a bust. But in places where the supply of housing is more flexible, price cycle corrections are usually mild.

There’s only a wrenching change when demand sharply decreases, usually because of employment-related issues. The only real potential losers, according to this theory, appear to be those places like Miami, Phoenix, and Las Vegas, where demand has been driven largely by speculators.
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Friends don't let friends buy out home equity

Buyers face foreclosure after $8,700 lien is discovered
By: Robert J. Bruss: Inman News
DEAR BOB: A former friend recently went through a divorce and his finances are a mess. To help him out, we offered to buy out his condo equity of about $21,000 for cash. He gave us a quitclaim deed, which we recorded. We bought "subject to" its existing mortgage. However, he "forgot" to tell us the condo homeowner's association has an $8,700 special assessment lien against the condo. When I confronted him, he said he was sorry but he had forgotten about the lien, which the association now threatens to foreclose on us. He doesn't have any money to pay us the $8,700. Do we have any recourse? -Nancy T.

DEAR NANCY: If you don't pay the $8,700 condo assessment lien before the association forecloses, you could lose the condo. Yes, your friend is liable to you for the $8,700, but, if he can't afford to pay you, suing him to obtain a judgment might not be worth the hassle.

Your situation shows the importance, especially when buying real estate from a friend or relative, to always obtain an owner's title insurance policy. If you had done so, the owner's title policy would have revealed that recorded $8,700 homeowner's association lien and you could have deducted the $8,700 from the $21,000 cash you paid to your former friend.

$800 MONTHLY NEGATIVE CASH FLOW CAN BE PAINFUL

DEAR BOB: After a recent divorce, I purchased a townhouse. Since my girlfriend and I are considering getting a bigger place, I am thinking about renting the townhouse because, if I sell it now, I would have to pay about $30,000 to get out of the house. Based on nearby comparable rentals, if I rent the townhouse I will lose about $800 per month (difference between the mortgage payment and rental income). I'm hoping that by losing $9,600 per year for one or two years, the local market will appreciate and make the eventual townhouse sale less painful. Am I required to depreciate the townhouse on Schedule E of my income tax returns? As I will have an "unclaimed" excess mortgage interest deduction (the monthly rent won't cover the mortgage interest), can I claim the remainder of the mortgage interest on my Schedule A itemized deductions? -Cory F.

DEAR CORY: I hope you are a very wealthy man who can afford $800 monthly negative cash flow. Please consult your personal tax adviser because you are acting under several erroneous tax considerations.

The first one is depreciation must be deducted for a rental property even if that depreciation deduction doesn't save you any income tax and provides no immediate tax benefit. You must depreciate the townhouse (but not the value of the underlying land) at a 27.5-year, straight-line rate.

The second one is unused rental property mortgage interest is only deductible on Schedule E of your tax return. The unused portion cannot be deducted as a personal itemized interest deduction on Schedule A of your tax returns.

If your rental townhouse shows a tax loss, as it surely will, presuming you are not a "real estate professional" such as a full-time sales agent entitled to unlimited passive activity loss deductions, you can deduct up to $25,000 tax loss per year against your ordinary income if your AGI (adjusted gross income) is below $100,000.

The good news is any undeducted loss from your rental townhouse can be "suspended" to save for use in future tax years or when you sell the property at a profit. Frankly, if I were in your situation I would stay in the townhouse and forget about renting it. If your girlfriend insists on a bigger home, maybe she's not right for you.

THE KEY REASON A HOUSE HASN'T SOLD SINCE APRIL

DEAR BOB: My wife and I have had our house on the market since April but have had no offers yet. We've been competitively priced and are going to take the house off the market for the holidays. After New Year's, we are thinking of putting it back on the market ourselves without a listing agent. Then we can afford to sell for less without a sales commission. We understand we will lose the benefit of the multiple listing service (MLS), but it hasn't helped much so far. What happens if we do that and the buyer has an agent? -Frank G.

DEAR FRANK: Presuming your house has been listed for sale since April with a successful sales agent in your vicinity, the key reason it hasn't sold is probably because it is overpriced.

Just in case you are not aware, most areas are in a "buyer's market," meaning there are many more homes for sale than there are qualified buyers actively looking.

Taking your home off the market during the holidays is a good idea. You don't sound very motivated to sell, and your house is a "tired listing," so give it a rest for a while.

If you couldn't sell your home with an agent, what makes you think you could sell it without one? Should a prospective buyer who has a buyer's agent decide to buy, you will be asked to pay half of a sales commission to that agent, typically 3 percent of the gross sales price.

I do not recommend you try to sell your home alone in this buyer's market without a listing agent. More details are in my special report, "How to Sell Your House or Condo for Top Dollar in a Buyer's Market," available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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The Weekend Guide! November 16 - November 19, 2006

The Weekend Guide for November 16 - November 19, 2006.
Full Article:
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Make money in any real estate market

New book names cities most susceptible to home-price declines
By: Robert J. Bruss: Inman News
Whether you are a homeowner, buyer, seller, investor or real estate agent, you can profit from studying "Bubbles, Booms, and Busts: Make Money in Any Real Estate Market" by Blanche Evans. This extremely well-researched and up-to-date book reveals the signals of a rising, falling or neutral local market for home sales prices.

Evans, the editor of online Web site www.RealtyTimes.com, has thoroughly researched the national home sales market and interviewed dozens of respected economists and others to report on what is likely to happen to local home-sale prices for houses and condos.

She takes a long-term view of the market for home sales, using population-growth statistics and other facts (not opinions), to maintain a sound perspective on the outlook for home sales.

"Home prices usually track a point or two ahead of inflation," Evans notes. "Except for local economic shocks, like the collapse or exit of a major employer, home prices nationwide have not gone down since the Great Depression," she reminds readers.

Although a few segments of the book seem irrelevant to home sales, such as brief sections on excessive CEO compensation and severance packages, most of the book stays focused on the housing market. Evans reminds readers that local economic shocks can cause real estate busts, such as the oil price surge and plunge in the late 1970s in the "oil patch" of Texas, Oklahoma, Louisiana, Colorado, Wyoming and Alaska. But those home-sale markets recovered after about 10 years, she notes.

"The obvious conclusion is that economic distress causes housing busts - not prior real estate booms. However, the longer and higher home prices rise, the more likely they are to escape the surly bonds of reason," Evans warns. Then she focuses on the current housing glut, such as too many new houses and condos for a slowing market in many cities.

The book presents statistics in understandable "chunks," usually in the form of easy-to-understand graphs, such as number of single-family homes on the market and months supply of single-family homes available for sale. "Month-to-month swings in starts and permits data may not be meaningful," Evans opines. "It is far better to look for trends to establish themselves over a period of several months," she adds.

This is a thinking-person's book. But it is not pie-in-the-sky theory or a get-rich-quick guide. Instead, it reports the facts and suggests how buyers and sellers should cope with them for maximum personal benefits. There are also valuable suggestions on how home sellers can profit even if their local market is in a slump.

Chapter topics include "The Current Housing Bubble - Cause and Effect"; "Who's Buying and Who's Selling"; "Why and Where Do People Buy Homes"; "Busts - Where, Why, and When"; "The Bust to Come"; "After the Boom, Bubble, and Bust"; and "Make the Current Market Conditions Work for You."

Does the author predict a real estate "bust"? No. But she warns there will be slowing in many home sales markets, depending on local economic conditions. She even names the cities where, based on statistics, home-value declines are most likely to occur.

The timing for publication of this great book couldn't have been better. It answers typical questions about whether this is the right time to buy, sell, or hold residential real estate. On my scale of one to 10, this well-researched new book rates an off-the-chart 12.

"Bubbles, Booms, and Busts: Make Money in Any Real Estate Market," By Blanche Evans (McGraw-Hill, New York), 2006, $16.95, 167 pages; Available in stock or by special order at local bookstores, public libraries, and www.Amazon.com.
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Housing Market Show Signs Of Making a Recovery

The number of homes offered for sale in 18 major metro areas declined 1.2% in October from September - a positive signal for the overall housing market.
By Lauren Baier Kim: The Wall Street Journal Online
Plus, prices rise in Los Angeles; Baltimore, Md., sees the weakest housing market in six years, homeowners aren't selling in Nantucket, Mass.; and more in a weekly roundup of real-estate news on the Web.

Here's a look at what's new in real-estate markets across the U.S. from around the Web. (Some links may require registration or subscriptions.)

Home Inventories Fall in October

U.S. home inventories dipped slightly (1.2%) in October from September, a sign that the housing market is making a positive adjustment, according to an article by The Wall Street Journal Online. However, the number of homes for sale is still significantly higher than year-earlier levels, the article says. Use an interactive tool to track home inventories in 15 U.S. cities. Areas seeing the biggest drops in the number of homes offered for sale include Sacramento, San Diego and the San Francisco Bay region, the article says.

Recovery for Los Angeles Market?

The median home price in California's Los Angeles County rose 4.5% in October from a year ago to $514,000, a sign that the local real-estate market may be stabilizing, according to an article by the Los Angeles Times. That rise in appreciation is greater than the 3% year-over-year increase seen in September, the article says. However, home sales continued to drop, falling 21.8% in October from October 2005's levels, the paper says. However, that decrease was less than the 28% year-over-year decrease seen in September, the Times says.

Albuquerque Is a Buyer's Market

The housing market in Albuquerque, N.M., may be tipped against sellers at the moment - in September, the number of existing homes on the market - 4,695 - was more than double a year earlier, says The Albuquerque Tribune. However, home prices continue to rise, the newspaper says. The median home price in the city rose 34% between 2003 and the second quarter of this year, from $138,400 to $185,400 - a gain much lower that the type of gains seen in places in the Northeast and on the coasts during the same time period, the paper says. These more moderate price increases may be why the area hasn't seen big dips in housing prices, the Tribune says.

Buyers have the edge in Albuquerque, N.M., where home inventories in September were more than double a year-earlier's levels.

Sales Are Down in Nantucket

The number of homes sold in Nantucket, Mass., dropped 42% (from 173 to 102) in the third quarter from third quarter 2005 levels, says an article by The Inquirer and Mirror. However, the median price rose from the same period the year before to $1.6 million, the article says. Current home asking prices on the island range from $495,000 for a townhouse in Madaket to $23 million for the estate of ex-Tyco chief Dennis Kozlowski, the paper says. Despite the slowdown, homes are selling within 6% of their listing price, and real-estate agents are advising their clients that if they don't need to sell, they should hold off placing their homes for sale until the market heats up again, the article says.

Homeowners Delay Selling in Twin Cities

After seeing five years of percentage gains in the double digits for housing prices, the Minneapolis-St. Paul, real-estate market is showing signs of slowing, says the Star Tribune. As a result, some homeowners are opting not to put their properties up for sale, which was reflected in October's dip in the number of new listings, the paper says. That month, listings were down 4.4%, closed sales fell 19.6% and the median sales price dropped 1% to $228,000, the paper says. Because many potential sellers are waiting out the market, local real-estate prices shouldn't drop significantly in the next few months, sources quoted by the Star Tribune say.

Baltimore Experiences Weakest Market in Six Years

This autumn, the Baltimore housing market experienced its weakest October since 2000, with the number of homes sold down more than 22% from a year earlier, the Baltimore Sun says. For the fifth month in a row, the area experienced an increase in home prices that was under 10%, the newspaper says, with the average sale price in Baltimore and five surrounding counties rising by just 3.15% to $307,190. Potential buyers are holding off on making a purchase in the hopes of seeing lower home prices and mortgage rates, the paper says. A local economist quoted by the Sun says he doesn't expect a turnaround in the local market until the middle of next year.
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Census Data Show Minority-Ownership Gap Persists

Three-fourths of white households owned homes in 2005, compared with 46 percent of African-American households and 48 percent of Hispanic households.
The Associated Press: REALTOR® Magazine Online
Home ownership is at an all-time high in the United States, but racial gaps are still broad, according to 2005 U.S. Census Bureau data released today.

Three-fourths of white households owned homes in 2005, compared with 46 percent of African-American households and 48 percent of Hispanic households, the American Community Survey data show.

Experts point to home ownership as part of the answer to the persistent racial disparities in the United States.

Home ownership creates wealth, which enables families to live in good neighborhoods with good schools. It also helps families finance college, which leads to better-paying jobs, perpetuating the cycle, says Lance Freeman, assistant professor of urban planning at Columbia University and author of There Goes the 'Hood.

Home ownership grew among white middle-class families after World War II when access to credit and government programs made buying houses affordable. African-American families were largely left out because of discrimination, and the effects are still being felt today, Freeman says.
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Survey: Consumers confident home prices will rise

Housing market outlook brighter by mid-2007
Inman News
Americans remain highly confident about the nation's housing prospects, with more than four out of five homeowners expecting the value of their home to appreciate over the next five years and nearly seven out of 10 calling it their most valuable investment, according to results from a new nationwide survey.

"The poll clearly debunks the more sensational media reports speculating on the demise of the housing market," said David Pressly, president of the National Association of Home Builders (NAHB) and a home builder from Statesville, N.C. "It is interesting to note that other polls conducted by major news organizations have come up with similar results, indicating that despite the current housing market downturn Americans resoundingly believe that buying a home is the best investment they can ever make."

The survey of 2,000 households, including more than 1,750 registered voters, was conducted by RT Strategies between Oct. 26-29.

The polling found that 81 percent of homeowners believe that the value of their homes will rise over the next five years. Only 13 percent felt their home would fall in value, while 4 percent expected no change and 3 percent were unsure.

In addition, 69 percent of the respondents listed their home as their most valuable investment. By contrast, this was followed by 401(k) and other retirement accounts, with just 11 percent of those polled citing this as their top investment.

Looking ahead, NAHB said the housing market is poised for solid and sustained growth in the future.

"We are in the midst of an inevitable adjustment following the housing boom of 2004-2005 when housing market activity soared to unsustainable levels," said NAHB Chief Economist David Seiders. "Housing demand should stabilize in short order, and the downward adjustment to housing production should run its course by mid-2007. The market that emerges from this correction will display good balance between supply and demand, and move to a healthy and sustainable trend based on solid underlying fundamentals."
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Mayor to Announced Workforce Housing Deal

Mayor Antonio Villaraigosa will announce Tuesday morning a public-private partnership to create middle-income housing developments in the Los Angeles area, the Mayor’s office said in a release Monday night.
By: ALLEN P. ROBERTS Jr.: Los Angeles Business Journal Online
Mayor Villaraigosa will join executives from L.A.'s largest public pension funds – L.A. City Employees Retirement System; L.A. County Employee Retirement Association; L.A. Department of Fire and Police Pensions - to announce the commitment of $65 million to the Genesis Workforce Housing Fund II, a private equity real estate fund managed by Phoenix Realty Group.

The press conference will be held at Puerta del Sol, a workforce housing community that is represents the type of development to be funded with the pension investments, at 11 a.m. Phoenix Realty Group financed Puerta del Sol through the first private equity real estate fund solely targeting workforce housing development in Los Angeles.

Investments will target housing affordable to L.A.'s middle-income workforce, including teachers, firefighters and nurses, the Mayor's office said.

The Genesis II fund's projects will be built by private developers and are expected to provide 2,250 units of housing to the market over the next four years.
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Housing Correction Has Further To Run, Realtors Predict

The National Association of Realtors says the correction in the housing market will continue, but prices should rise modestly.
By: Rex Nutting: The Wall Street Journal Online
The housing market correction has further to run, with new-home construction expected to fall another 12% next year, a real estate industry group said Friday in an updated forecast for 2007.

While the market for existing homes will probably flatten out, the new-home market will probably continue to slow through next year, said David Lereah, chief economist for the National Association of Realtors.

Sales prices are expected to rise slightly. "Given the huge gains in home values during the housing boom, and this year's rise in housing inventory, overall price gains this year and next will be modest," Lereah said. Median existing-home prices are expected to rise 1.7% next year, while new-home prices are expected to rise 1.3%.

Housing starts will probably fall about 12% next year to 1.63 million after falling 11% this year, he said. Starts totaled 2.07 million in 2005.

The NAR forecast for housing starts for 2007 is close to the Blue Chip consensus forecast of 1.62 million. The Blue Chip forecast is derived from the forecasts of 54 economists surveyed by the publication Blue Chip Economic Indicators.

New-home sales will probably fall 8.7% next year to 975,000 after plunging about 17% this year, the realtors said.

Existing-home sales will probably fall 0.6% to 6.43 million next year after sinking 8.6% this year, he said, adding that sellers are becoming more realistic.

"We now have the most favorable market for home buyers in several years," Lereah said.
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Thin credit file? Nontraditional alternatives to the rescue

Picture this scenario: You've lived in this country for the last 15 years, earned a decent wage, raised a family and always paid your rent, utilities, cellphone bills and other expenses on time, month after month.
By: Kenneth R. Harney: latimes.com
But you made little or no use of the conventional banking and credit systems — avoiding bank loans, credit cards and debts in general.

Now you go to apply for a mortgage to buy your first home and get smacked with this sobering news: Sorry, but there is not enough information in your national credit bureau files to score your credit. We've got to either charge you an interest rate well above prevailing ones — 9% or 10% in a 6 1/2 % market — or simply reject you altogether.

That scenario is precisely what large numbers of Latinos face, according to a survey. The 14,000-member National Assn. for Hispanic Real Estate Professionals — Latino and non-Latino realty agents, builders, mortgage bankers and lenders, attorneys and credit counselors — polled 500 of its members and found:

• Nearly one-third said their clients end up paying "subprime" rates on mortgages because their limited credit histories make them appear high-risk when lenders use traditional FICO scores, the dominant credit evaluation method in the highly automated mortgage underwriting process.

• Nearly 80% said that for every Latino household they help put into a home of their own, they're forced to turn away two prospects solely because they can't pass muster under traditional score-based computer underwriting programs.

The Hispanic Real Estate chairwoman, Frances Martinez Myers, said that if mortgage lenders were to use alternative credit-scoring models that factored in rent, utility and other types of payments that are not reported to the national credit bureaus, an additional $200 billion in new home loans could be extended to Latino purchasers.

Felix DeHerrera, incoming chairman of the association, said that under current underwriting approaches, Latinos often get "penalized for being debt-averse, rather than being rewarded for their consistency in meeting financial commitments, even if it is in cash."

But the credit scoring inadequacy problem extends far beyond Latinos. Fair Isaac Corp., developer of the FICO score, estimates that as many as 50 million Americans are impossible or difficult to score because they have minimal information on file at the three national bureaus.

In effect, the credit deck is stacked against them. They often are forced to pay higher fees and interest rates than they deserve.

But there is good news for many of these consumers: Growing numbers of lenders and mortgage brokers understand the "thin file" issue and have begun offering at least one of several alternatives to traditional credit scores.

At the annual convention of the Hispanic Real Estate Professionals earlier this month, a guide was released listing hundreds of brokers and lenders around the country who use the Anthem system of nontraditional credit reports and scores as supplements to FICOs.

Anthem, developed by First American CREDCO, the credit data subsidiary of Santa Ana-based First American Corp., evaluates whatever information on an applicant may exist in the files of the national bureaus — Equifax, Experian and TransUnion. Then it mixes in information collected by CREDCO from other sources. These include regular child-care payments; phone, electricity and other utility payments; current and former rent payments; plus personal credit data from businesses that do not report to the bureaus — small local retailers that extend credit, payday lenders, rent-to-own companies, etc.

This produces an alternative credit file that can then be scored. First American CREDCO says its scores accurately predict borrowers' risk of future default. Better yet, alternative scoring allows lenders to cut mortgage rates, down payments and fees for people with solid — albeit nontraditional — credit backgrounds.

The goal, said Mark F. Catone, CREDCO's senior vice president, is to help "deserving families to secure prime-grade mortgage loans," despite the fact that they score poorly using traditional FICOs.

The Anthem system is just one of several alternatives now available to help "thin file" applicants. Fair Isaac itself offers an alternative-data counterpart to its traditional FICO score known as the Expansion score. Another company is functioning as a national repository for nontraditional credit data. Annapolis, Md.-based PRBC.com specializes in helping consumers build their own alternative credit databases by supplying verifiable rent, utility and other periodic payment information directly to the firm.

Bottom line here: Just because there's not a lot on file about you in the big three credit bureaus no longer means you can't obtain a home mortgage on favorable terms. You just need to ask about — or demand — scoring alternatives from lenders that give you a fairer shot.
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Slow Market, Election Shakeup Present Opportunity

Unlike in housing downturns of the past, today's consumers have job stability and the financial wherewithal to purchase a home.
By: Kelly Quigley: REALTOR® Magazine Online
Despite a softening real estate market, the sky isn’t falling. In fact, today’s market conditions are ideal for buyers, who can choose from a wider selection of homes, find better deals, and still take advantage of low interest rates.

“The media isn’t telling the story. These are perfect conditions for the buyer,” said Tom Stevens, president of the NATIONAL ASSOCIATION OF REALTORS®, at the Member & Director Update on Thursday evening.

To help consumers cut through the negative media messages and realize that now is the right time to buy, NAR is running full-page ads in major national newspapers, including The Wall Street Journal, USA Today, and the Los Angeles Times. The ads are the start of a larger NAR campaign, which also will include radio and network TV commercials.

“A price correction is not something we should fear,” added NAR Chief Economist David Lereah. Buyers who had been on the cusp of affording a home will have the opportunity to jump into the market, he said.

And unlike in housing downturns of the past, which were spurred by job losses and high interest rates, today’s consumers have job stability and the financial wherewithal to purchase a home, Lereah added. He also noted that 74 percent of housing markets are now on an upward swing.

What's Happening On Capitol Hill

While NAR’s “Buy Now” campaign is getting its message across in the media, the association is working hard on Capitol Hill to pass key legislation in 2007, despite the shakeup in Washington, D.C., said Jerry Giovaniello, NAR’s chief lobbyist.

Although Democrats control the House and the Senate, NAR is well-positioned to gain the congressional support needed to create affordable small-business health insurance coverage, protect the mortgage-interest deduction, and to keep banks from entering the real estate business.

“Our issues are bipartisan,” Giovaniello said. “We have supporters on both sides of the aisle. Our loyalty is to the REALTOR Party.”

Task Forces Gear Up

On other fronts, one NAR task force is considering changes to the way association leaders are elected. Proposed changes, which will be discussed during 2007, include expanding the size and representation of the Nominating Committee and starting a Leadership Academy to encourage greater member participation in leadership roles.

The Disaster Planning and Mitigation Task Force has proposed that NAR create a disaster response “strike team” to determine if and how REALTORS® should provide recovery assistance as well as develop programs that will assist REALTORS® in preparing for natural disasters.
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In Face of Housing Slowdown, Homeowners Remain Optimistic

Despite news that the market is slipping, just 6% of those surveyed in August said they think their home's value will decline in the next 12 months.
By: Andrea Coombes: The Wall Street Journal Online
Homeowners are either remarkably stable people with their financial houses in order or they've got their heads in the sand. Despite news of late that the housing market is slipping, just 6% of homeowners in a survey in August said they think their home's value will decline in the next 12 months.

Ten percent expect their home's value to increase a lot in that time, 53% expect it to increase a little and 27% expect it to stay the same. Another 4% weren't sure where home values would go, according to the survey of 1,361 homeowners nationwide conducted for Wells Fargo and released Monday.

The survey predates a fair amount of negative reports on the housing market, such as the recent news that U.S. home builders in September slashed prices at the fastest pace in 36 years.

And even the experts don't agree on just how bad the housing market will get.

For homeowners who aren't planning to sell, the market likely looks just fine.

"If people are planning to stay in their home for more than the next 12 to 18 months, I don't think they're feeling the nervousness," said Doreen Woo Ho, president of Wells Fargo's consumer credit group.

"It's always the people who are facing the issue to sell - they're moving, they may have some other changes in their life, divorce - those things cause more anxiety around home values," she said.

Plus, many homeowners are likely still enjoying recent gains. "Even with a dip in market values, they're probably still finding positive equity gains over the last few years. From that standpoint, it's still a very positive feeling," Woo Ho said.

"What we've always noticed is it takes consumers a while to perhaps understand what's really going on in the market. When rates were rising with the Fed, we didn't see much reaction and people were still taking out lines of credit. After about six months of rising interest rates, all of a sudden it hit them," she said.

By the time some consumers see the housing market in a negative light, it may be time to change their minds again, according to Wells Fargo's forecast that the housing market will only see a slight dip.

"The economy is not very strong, but if it continues with some positive growth and if interest rates stay stable over the next year or so, we will see the housing market towards the end of 2007 start appreciating again. Not very much, but it could start appreciating again. The danger is in this next 12-month period. There are a lot of what-ifs: What will happen with inflation, in the job market," Woo Ho said.

My home is my asset

Homeowners these days see their home as a valuable asset, with 72% of those surveyed saying their home equity is their most important investment. That's a perception that's emerged in recent years, Woo Ho said.

"We've seen a shift in homeowner attitudes. Initially, five years ago, we talked to consumers, they thought of their home as a liability, as an enormous mortgage payment they have to make," she said.

"As we've seen the housing market go through appreciation and a high growth trend, there's been a shift in attitude toward seeing the home as an asset...they think of their home as more than just a place to live, more than just a mortgage payment, but as a smart financial investment."

Adjustable-rate outlook

While homeowners overall are optimistic about the housing market, those with adjustable-rate mortgages - 14% of those surveyed had an ARM as their primary mortgage - did express concern: 79% of homeowners with an ARM said they're worried about rising interest rates.

Still, while a good portion of these homeowners expressed concern, 21% said they will not take any action when their rate adjusts. Of those who do plan to take action, most say they will refinance.

Sixty percent of these ARM-borrowers said they know when their loan rate resets, while 27% said they don't know and 13% were not sure, according to the survey.

Woo Ho said she's not surprised a fair portion of homeowners don't know when their loan rate adjusts.

"We find that in our servicing of customers it's becoming more important for us to continue to inform and educate them as to what they actually bought. It's a question more of remembering, not that it wasn't discussed," she said.

Homeowners should take note of any alerts from their lender regarding an impending rate adjustment.

"Our general advice is you should probably start thinking three to six months before your deadline about what options are available so you can decide what you want to do."

Give me energy savings

When offered a list of possible home-improvement options and a hypothetical gift of $50,000 to make those improvements, 24% of the homeowners said they'd make environmentally friendly additions, followed by 12% who said they'd install a state-of-the-art kitchen; 11% pointed to a luxury master bedroom suite or bath, 8% said swimming pool or hot tub, 6% said a dedicated play area for their children, 1% said an in-home wine storage area, 18% said none of the above, and 13% weren't sure.

Why the emphasis on environmentally friendly changes? "There's much more awareness of high energy costs," Woo Ho said. Plus, she said, "probably the environmental movement in this country is having its impact. People are aware they should be more conscious of the environment," she said.
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Last-ditch ways to sell your home

How to entice buyers when listing languishes on market
By: Ilyce R. Glink: Inman News
At a party over the weekend, I meet a recently divorced homeowner who had received the house in his divorce settlement and was now trying to sell it.

The house has been on the market for seven months - which might as well be an eternity for a home seller. On the plus side, there have been more than 60 showings. Clearly, there's interest in the property - just not at the list price.

He said he was desperate to get rid of the house. What could he do to finally sell it?

When you've tried all the regular selling tricks, like cleaning your house, organizing it, and pricing it right, it's time to employ a few last-ditch efforts to pull in the right buyer:

    • Pay your buyer's closing costs. Houses are so expensive these days, thanks to
      an extraordinary run-up in prices, that a buyer may want to purchase your home
      but not have enough cash to close. Coughing up a few thousands dollars to help
      pay a buyer's closing costs is a good way to get to the closing table.


    • Buy down the buyer's mortgage. If the buyer can't easily manage the monthly
      mortgage payments on your home after purchasing it, you may want to buy down
      the buyer's mortgage. You pay the difference between what the buyer would have
      paid with a market-rate loan in the first few years and an interest rate that
      is lower. For example, in the first year of a buy-down loan, if the going
      interest rate on a 30-year mortgage is 6.5 percent, you might buy down the
      buyer' s loan so it appears to be 5.5 percent. The second year, the loan
      carries an interest rate of 5.75 percent (instead of 6.5 percent). The third
      year, the loan rate rises to 6 percent, and so on until you reach what should
      have been the starting interest rate. You pay the difference between where the
      rate is and where it should be, which might run a several thousand dollars.


    • Offer seller financing. Buyers like seller financing because it's still
      cheaper and more convenient than going to a conventional lender. There are
      plenty of risks (chief amount them is that the homeowner might default on the
      loan), but if you're a desperate seller willing to do the required due
      diligence on a home buyer, it might be a good idea. Be sure to hire a real
      estate attorney to draft the loan documents.


    • Offer to solve a specific problem. Roseanne used to live in a three-unit condo
      building that only had two parking spaces. Every night, someone else had to
      park on the street, and parking was tough to find. The way she finally sold
      her unit was to offer to pay a year's worth of parking for the buyer who
      purchases your home. While it doesn't solve the problem for good, it could be
      just enough to seal the deal. If your homeowner's association is about to levy
      a special assessment, offer to pay part or all of the special assessment.


    • Offer freebies. What could make your property more attractive to a buyer? Try
      a freebie. Home sellers (and developers) are offering everything from gift
      certificates, free trips and free cars to a decorating allowance, meals at
      fancy restaurants, massages, etc. While these things cost money, they might
      draw some extra attention to your property.


    • Offer a Bonus to the Broker Who Brings the Buyer. Real estate commissions are
      usually split equally between the buyer's agent and the seller's agent. So if
      the total commission you pay is 5 percent, each side would get 2.5 percent of
      the sales price (which is then further split between each agent and the firms
      they work for). If you hire a discount broker, a 4 percent total commission
      might be split differently, with 2.5 percent to 3 percent going to the buyer's
      agent and just 1 percent to the listing agent.

But if your house isn't selling, you may want to offer a bonus to the agent who brings the buyer to the closing table. How much should you offer? It could be a bigger commission (4 percent to the buyer's agent instead of 3 percent) or it could be a flat cash bonus of $500 to $2,000, depending on the price of your home.

While no self-respecting agent will force his or her buyer to purchase your property just because of the bonus, most agents will make sure any client they have who might be right for your property gets in to see it.
Read more!

Advice for Wary Sellers: Be Systematic

Sellers have plenty of power in today's buyer's market if they're realistic.
The Kansas City Star: REALTOR® Magazine Online
Danell Watson, a residential consultant with Graham-Welch & Associates in Kansas City, says if she hears “It’s a buyer’s market” one more time, she’s going to scream.

Here’s what she tells her clients who want to sell and who are frightened by predictions that they’ll have a long wait and then accept a low price.

Make a buyer’s profile. Who is going to buy the house? Be realistic.

Study the competition. List all the nearby houses on the market. Learn what the homes are like, why they are being sold, and at what price.

Get comparable sales data. An appraisal is a good tool, but so is looking at what other properties have sold for.

Price competitively. Even if it means taking less than you’d hoped – or less than the loan payoff amount.

Fix it. Clean it. Remove it. Getting rid of any wallpaper leftover from the ‘70s is always a smart move.

Make friends. Tell all your neighbors that you intend to sell and invite them to take a look. They may know somebody who is in the market.

Time limit. Decide how long you’re willing to wait and what happens then if you don’t sell.
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The Weekend Guide! November 9 - November 12, 2006

The Weekend Guide for November 9 - November 12, 2006.
Full Article:
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Trends in mortgage fraud schemes exposed

Debt elimination may be emerging strategy for scam artists
Inman News
A new analysis of a decade of suspected mortgage fraud cases shows a rise in identity theft and Internet or telephone-based loan approvals to obtain fraudulent loans, and warns that debt elimination schemes may be the new frontier for scam artists as interest rates rise and growth in housing equity slows.

The study, by the Treasury Department's Financial Crimes Enforcement Network, also found a dramatic increase in the number of suspicious activity reports filed by lenders involving mortgage fraud. But it's not clear whether the numbers reflect an increase in the number of fraudulent loans or an increase in awareness of suspected fraudulent activity.

Lenders filed 7,093 reports of suspected mortgage loan fraud in the first quarter of 2006, a 35 percent increase from the same time last year, according to the latest numbers from FinCEN.

Since investigators began collecting data on mortgage fraud in suspicious activity reports in 1996, the number of reports involving fraudulent home loans has increased by 1,411 percent. But the increase in loan fraud as a percentage of all suspicious activity is not as dramatic. Loan fraud represented 4.9 percent of all suspicious activity reports in 2005, a little more than double the 2.1 percent reported in 1997.

Part of the reason for the dramatic increase in the number of suspected mortgage loan fraud cases is an increase in the number of home loans, FinCEN said in its analysis. The number of residential loans increased by 153 percent between 1997 and 2003.

In 2003, lenders issued 42 million home loans, a 33 percent increase from the year before. Between 2003 and 2004, there was a 92 percent increase in the number of suspicious activity reports documenting suspected mortgage loan fraud.

But the increase in filings "may be attributed to an increase in overall mortgage lending concurrent with the decline in interest rates in the 2002 (to) 2005 time frame and a broader awareness of this fraudulent activity," the report said.

Although the report does not attempt to provide a definitive answer to the question of whether mortgage fraud is in fact on the rise, it does provide insight into the techniques used to obtain fraudulent loans.

The study looked at 82,851 suspicious activity reports describing instances of suspected mortgage loan fraud between April 1, 1996, and March 31, 2006. A random sample of 1,054 narratives was reviewed for additional analysis.

The report noted that mortgage fraud schemes often involve the complicity of industry insiders such as mortgage brokers, real estate agents, property appraisers, and attorneys and title examiners involved in settlement. Typical fraudulent activities include appraisal fraud, fraudulent flipping, straw buyers and identity theft.

Purchase loans constituted 83 percent of all instances of suspected mortgage fraud, while just 12 percent were refinance loans. Material misrepresentations and false statements were reported on 66 percent of the narratives studied, including altered bank statements, altered or fraudulent earnings documentation such as W-2s and income tax returns, fraudulent letters of credit, altered credit scores, and invalid Social Security numbers.

Identity fraud was reported 23 percent of the time, and identity theft was involved in 4 percent of the reports. Mortgage brokers - who today are believed to originate two-thirds of mortgage loans - originated the loans in 37 percent of the suspicious activity reports.

Appraisal fraud and fraudulent property flipping turned up in 11 percent of the narrative reports, and 42 percent of filers said they suspected such activity involved the collusion of mortgage brokers, appraisers, borrowers or real estate agents or brokers.

Common types of appraisal fraud included a failure to use comparable properties to establish property values, a failure to factor in the actual condition of the property, the appraiser's participation in a fraud scheme, and the unauthorized use of an appraiser's name and seal.

Nearly 64 percent of the reports involving fraudulent property flipping described collusion by sellers, appraisers and mortgage brokers.

Reports of fraudulent property flipping have remained steady over the past four years. Although a spike in appraisal fraud was seen in 2004, there was a slight decrease in the trend in 2005, FinCEN reported. But that's not necessarily an indication that appraisal fraud and fraudulent property flipping are decreasing, because activities associated with flipping - straw buyers and false statements - are increasing.

Information on identity theft was not collected until July 2003. FinCEN found reports of identify theft increased by nearly 102 percent between 2004 and 2005, when it was a factor in 941 reports. That number is expected to reach 1,140 this year.

The number of suspected mortgage fraud cases involving retired and elderly borrowers is also on the rise, with 236 instances reported in 2005, up from 169 2004. "The growing number of retired and elderly citizens could provide a burgeoning target for mortgage loan fraud," the report said.

Although less than one percent of suspected mortgage fraud cases were originated over the Internet or telephone, 28 phone-originated problem loans were reported in 2005, nearly twice as many as in 2004. The 29 Internet originated loans included in suspicious activity reports in 2005 represented a nearly ten-fold increase from the three reported in 2004.

"The use of the Internet and related technology to receive and process loan applications is increasing," the report said. "The growing faceless nature of these transactions increases the opportunities for fraud (especially identity fraud) and, coupled with 'low-document' or 'no-document' loans, creates a condition vulnerable to fraudulent activity."

With interest rates on their way back up - and because many homeowners aren't building up equity in their homes as quickly as they were when home values were appreciating at double-digit rates - FinCEN warns that debt elimination could be an emerging mortgage fraud scheme.

Lenders are reporting debt elimination schemes in which borrowers attempt to pay off their mortgages with non-negotiable checks, or fake instruments such as bills of exchange or subrogation and security bonds, or claim a mortgage is invalid and the debt never existed.The claims often rely on an interpretation of Section 1-207 of the Uniform Commercial Code that has never been affirmed or supported by any court or governmental authority, FinCEN said.

Other types of debt elimination schemes reported included attempts to fraudulently release mortgage liens from municipal land records. Once the land title appears clear of all mortgage debt, homeowners obtain another mortgage loan based on what appears to be a clear title. A subsequent lender may believe it has a first priority lien on property when in reality there is little or no equity to secure the loan.

Another "emerging" mortgage fraud scheme is asset rental fraud, in which a borrower's assets are exaggerated or inflated by temporarily depositing funds into the loan applicant’s bank account for the time required to qualify for a loan. Lenders report that the funds may come from friends or family, or a mortgage broker attempting to qualify an ineligible borrower. The temporary funds - which are sometimes "rented" for a fee - are withdrawn from the bank account after the loans are approved.
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Greenspan Says Housing Market Stable

The housing market isn't out of the woods yet, but it won't worsen, says former Federal Reserve Chairman Alan Greenspan.
Dow Jones News Service: REALTOR® Magazine Online
The housing market isn’t out of the woods yet, but it won’t worsen, former Federal Reserve Chairman Alan Greenspan told attendees at the annual Charles Schwab Impact conference in Washington yesterday.
"I think that while we are past most of it, there are a lot of negatives... but it is no longer subtracting from the [gross domestic product] growth," Greenspan says.

Greenspan also said potential adjustments in loan costs facing many homebuyers probably isn’t a serious concern either. While some individuals will feel the pinch as their payments rise, Greenspan says these changes are "very unlikely to have a macroeconomic effect."
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NAR Ad Blitz Spawns Media Coverage

"The public reaction we're receiving indicates how much this campaign was needed," says NAR President Thomas M. Stevens. The campaign trumpets today's favorable home buying conditions.
REALTOR® Magazine Online
The NATIONAL ASSOCIATION OF REALTORS®’ first-ever newspaper blitz, in which full-page ads illustrate why now is a smart time to buy, has received widespread media coverage and earned high marks from members across the country.
“The public reaction we’re receiving indicates how much this campaign was needed,” says Thomas M. Stevens, NAR President.

The advertisement (650k PDF) rolled out on Nov. 3 in the Wall Street Journal and USA Today. Over the following weekend, it also ran in The New York Times, Washington Post, Los Angeles Times, and Chicago Tribune.

The ambitious campaign aims to urge hesitant buyers to take action now, while interest rates are near record lows, inventory is supple, and prices have leveled off. Similar full-page ads will run in the same newspapers again on the weekend of Nov. 10-12.

In the days after the ad campaign launched on Friday, news articles about NAR's “Buy Now” message appeared in dozens of well-respected newspapers, from the The New York Times to the The Sacramento Bee. Here's what some of them had to say:

    • “It may go down as the ‘Got milk?’ moment for the housing sector.” — The New
      York Times, Nov. 3.

    • “Local REALTORS® at a media event yesterday said it's a lot better to be
      selling in today's ‘normal’ environment than in the five-year real estate boom
      when prices climbed 20 percent a year and multiple bids over listing price
      were offered on the first day.” — The Baltimore Sun, Nov. 4

    • “The NAR ads say there are strong arguments for prospective buyers to jump
      into the market, with interest rates remaining relatively low and inventories
      of unsold homes still high.” — Reuters News, Nov. 6.

Over the weekend, local and national radio shows also featured stories centering on the campaign's message. Meanwhile, REALTOR® associations on the state and local level report an outpouring of positive comments from members who’ve been trying to motivate buyers who are waiting on the sidelines.

“Real estate professionals around the country know that a lot of the negative publicity about the real estate market just wasn’t true,” Stevens says. “They’re really glad we’re setting the record straight.”
Read more!

Generation X May Boost Sagging Real-Estate Market

The boom may be over, but the long-term outlook for the industry is promising as younger consumers start to buy homes and trade up. But these buyers may press developers to consider new designs and different amenties than what homeowners have favored in the past.
By: Kristen Gerencher: The Wall Street Journal Online
The housing market may be in a slump, but the industry's long-term trends look promising as younger generations begin to buy and trade up. That was the consensus among a group of consultants, analysts and developers speaking at the recent annual meeting of the Urban Land Institute in Denver.

Rising affordability concerns in some home and rental markets remain a challenge, but the generations coming up behind the baby boomers are giving home builders a run for their money, experts said. With more immigration and people living alone, demographic shifts are pressing developers to reconsider what's worked in the past.

Generation X, typically defined as those born between 1965 and 1979, comprise a little more than half of the market for newly constructed homes, said James Chung, president of Reach Advisors, a Boston-based marketing strategy and research firm.

But that doesn't mean the homes that lured baby boomers, born between 1946 and 1964, are meeting the needs of the 30-somethings shopping now.

"Generation X is in the heart of their entry-level home-buying years and are just now entering their peak trade-up years," Chung said. "They haven't yet stolen the thunder of the boomers when it comes to trade-up homes. It's a big shift coming up for home builders and developers."

Partly because many Gen-Xers are buying into the market after the run-up in housing prices began about a decade ago, they tend not to be as moved by deluxe kitchens, huge square footage and "prestige addresses" as their older counterparts are, he said.

"It's the trade-off generation. It's no longer sort of the live-large mindset," Chung said. "They're living under different economic realities than their predecessors. They carry 70% more debt than the baby boomers did at that point in their lives because of the cost of housing.... Almost all of that is housing debt."

Many are forgoing master suites and separate wings for kids and adults and instead seeking smaller footprints with space designed for family usage rather than individual usage, Chung said.

The market has yet to catch up with their particular demands, he said. "What we're seeing is a fundamental mismatch between what these buyers are wanting and what the market is offering. They're settling for what's available vs. finding what they really want."

As for Generation Y, also know as the echo boomers who were born after 1980, it's premature to draw conclusions, Gadi Kaufmann, chief executive of Robert Charles Lesser and Co., a real estate advisory firm, said during a ULI panel discussion on what young consumers want.

"Gen Y is going to be in student housing and rentals for the next six years," he said. See how student housing has changed today.

More solo dwellers

Also affecting home builders and developers is the rise of nontraditional households, Kaufmann said.

The portion of people living without a spouse or roommate ballooned 23% since 1980, he said. Only 22% of households were made up of a single person living alone 26 years ago compared with 27% in 2005.

A 57% rise in single-parent households and a 26% decline in the percentage of married couples with kids - 23% last year compared with 31% in 1980 - has further changed the housing landscape, Kaufmann said.

There's also more migration from expensive cities to less costly areas, as well as people moving away from their hometowns, he said.

Southern states and those bordering pricey ones, such as Arizona and Nevada, are the beneficiaries of home buyers who can't afford or become disenchanted with higher-priced areas such as California and the Northeast, he said.

So-called second- and third-tier cities with populations of 300,000 to 1 million are attractive to the youth market and poised for growth, Kaufmann told the audience. "Some of the most exciting towns in America are those second-tier cities."

Young people also tend not to mind close living, he said. As more people live alone and wait longer to marry and start families, many in their 20s and 30s are drawn to compact apartment and condo units in urban areas where they can interact with their neighbors.

The growth of the Hispanic population also portends shifts, though what kind remains unclear, Chung said. Latinos currently have a homeownership rate in the high 40% range compared with about 72% for whites. "If they move up in homeownership at a faster rate, that's going to be very positive for the home market."

Love affair continues

Whether the housing market has hit a bottom or not remains controversial.

Last week, the U.S. Commerce Department reported that the nation's economy grew at a preliminary annual rate of 1.6% from July through September, its slowest pace since early 2003 due to cooling in the housing market.

In a survey done in October by Reach Advisors, 41% of 500 consumers looking to buy a house in the last 12 months or planning to look in the next year said their plans to move were affected by market conditions, compared with 27% of consumers who said so in July 2005, Chung told ULI attendees at a panel discussion on the risks and benefits of homeownership.

The portion anticipating a drop in home prices was 32% last month compared with 13% in July of last year, meaning that two-thirds still don't expect price drops, he said. What's more, 93% said owning a home remains a strong or acceptable long-term investment.

Though the housing market may be in the doldrums, Chung said he's confident Americans' love affair with homeownership will endure even after this recent extreme swing in demand. "From 2003 to 2005 it wasn't just a love affair with your primary home. It was a torrid affair with real estate. It was your home plus your home on the side."

Still, a balance of owners and renters is desirable because homeownership isn't for everyone, Ron Terwilliger, chief executive of Trammell Crow Residential, a builder and manager of multifamily housing based in Atlanta, said during the same ULI panel discussion.

"You're better off renting unless you're going to be in a home for at least five years because of the costs of getting in and out," he told attendees.

"The reason this cycle went up so high and flattened so quickly is more speculative buying than I've seen in my 35 years in the business," Terwilliger said. "It's unfortunate so many people bought intending to flip."

It will take time to regain equilibrium, he said. "There's a lot of pain going on in the investment community."
Read more!

Home seekers' big dilemma: buy now or wait?

Risk of price declines keeps many from dream homes
By: Dian Hymer: Inman News
During the last couple of years, new listings sold in a matter of weeks in many areas. Home prices escalated at a record pace. Financing a home purchase was rarely a problem - money was easy and interest rates were low. Few buyers wanted to miss the opportunity to make fast money in a market that seemed to defy gravity.

What a difference a year makes. Now, the appreciation rate is running at a snail's pace, and declining in some areas. According to the National Association of Realtors, the median home price nationally declined a little over 1 percent in August from a year ago. This trend is expected to continue through the end of 2006. Consequently, many buyers who were anxious to buy last year are standing on the sidelines, waiting to see what happens next.

Remarkably, there are still areas where the demand for new listings still exceeds the supply. In the desirable Claremont area of Berkeley, Calif., for example, there were recently nine offers on a listing competitively priced at $1.25 million. Another listing in neighboring Rockridge listed for $1.45 million sold with multiple offers for $1.5 million.

Regardless of whether you live in an area where there's plenty for sale or if you are still battling other buyers for too few listings, it's time to return to the basics when considering a home purchase.

HOUSE HUNTING TIP: Until recently, home buyers bought not with an eye to a quick profit but in order to gain control over the place where they lived. As a homeowner, you don't need the landlord's permission to make modifications to the property to suit your needs. You aren't at the mercy of a landlord who might raise the rent or ask you to move. Now there's no guarantee that you'll find a place to rent in a neighborhood where you'd like to put down roots. Also, rents are rising after years of lackluster performance.

Additionally, homeowners tend to take a serious interest in preserving and enhancing the quality of the neighborhoods in which they live. Renters tend to be transient.

The tax benefits of home ownership shouldn't be overlooked. While restrictions do apply, homeowners can claim a deduction for mortgage interest and property taxes from their federal income tax returns. This effectively lowers the cost of home ownership for taxpayers who itemize deductions.

There are several other good reasons why this could be a good time to buy. One is that there is, in general, less competition from other buyers than there was a year ago. It's now possible to negotiate with sellers if the list price seems out of line. Another factor in your favor is that interest rates have recently eased and are still at historically low levels.

Of course, a risk of buying now is that home prices could decline from their current level. David Lereah, NAR's chief economist, recently speculated that we will "probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory."

So, why not wait to buy until home prices start climbing again? That's certainly an option, if you can find a suitable rental. However, it's impossible to time the market. We'll know that prices have bottomed out for the cycle only after they have resumed their ascent.

Buying for the short term is risky in the current market. But, this could be a good time to buy for buyers who plan to stay put for the long term, particularly if what they're looking for is not readily available.

THE CLOSING: Some buyers look for years before they find the right place to buy.

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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Official Says Bad Data Fueled Rate Cuts, Housing Speculation

A Federal Reserve Bank president said that because of faulty inflation data, interest rates were kept low longer than necessary this decade, fueling speculative activity in the real-estate market.
By: Greg Ip: The Wall Street Journal Online
In an apparent and rare in-house critique, the president of the Federal Reserve Bank of Dallas said that because of faulty inflation data, the Fed kept interest rates too low for too long earlier this decade, fueling speculative housing activity.

A number of critics have said the Fed under former chairman Alan Greenspan kept monetary policy too easy from 2003 to 2004. But Richard Fisher's remarks to the New York Association for Business Economics yesterday mark the first time some Fed watchers could recall a sitting Fed policy maker making such comments.

Mr. Fisher said from 2002 to early 2003, inflation, as measured by the price index of personal consumption expenditures (PCE) excluding food and energy, was running below 1%. That suggested that a serious shock to the economy could turn inflation to deflation, or generally falling prices. Deflation makes it much harder for the Fed to boost growth by engineering deeply negative real, that is inflation-adjusted, interest rates.

To reduce the risk of deflation, the Fed lowered its target for the Fed funds rate - charged on overnight loans between banks - to 1% in June 2003 and held it there until mid-2004. It has since raised it to 5.25%.

Mr. Fisher noted that subsequent revisions show PCE inflation was actually a half a percentage point higher than originally estimated. "In retrospect, the real Fed funds rate turned out to be lower than what was deemed appropriate at the time and was held lower longer than it should have been," Mr. Fisher said.

"In this case, poor data led to a policy action that amplified speculative activity in the housing and other markets. Today...the housing market is undergoing a substantial correction and inflicting real costs to millions of homeowners across the country. It is complicating the [Fed's] task of achieving...sustainable noninflationary growth."

Mr. Fisher, who took office in April last year, said in an interview that his speech wasn't meant to be a criticism of the decisions Mr. Greenspan and the FOMC made then. He said: "I wasn't at the table at the time - it's easy to look at things with 20-20 hindsight. The point is we need to continue to improve our ability to develop and work with better data."

Jan Hatzius, chief U.S. economist at Goldman Sachs, called Mr. Fisher's remarks "pretty striking," while noting it is Mr. Fisher's style to be opinionated. He added that while he agrees the Fed's policy from 2002 to 2004 fueled speculative housing-bubble activity, it was still reasonable "knowing what you knew at the time. You take out some insurance against a really bad, low-probability outcome, and after the fact you regret having paid the insurance premium."

Mr. Fisher said inflation, at about 2.5% now, is still higher than his "comfort zone," but it is possible it "has peaked and is finally heading lower."

Fed governor Susan Bies echoed that sentiment in a speech to Drake University in Des Moines, Iowa, saying, "inflation appears poised to decelerate in coming months... but the risks to that outlook seem tilted toward the upside."
Read more!

How do appraisers calculate home's market value?

Three basic methods involved
By: Robert J. Bruss: Inman News
Although appraisers use three basic "approaches" to arrive at their professional appraisal of a property's market value, not all methods are appropriate for each property. But in some situations, all three approaches are used.

Here is a look at the most common methodology used by appraisers:

1. REPLACEMENT-COST APPROACH. This appraisal method usually involves multiplying the square footage of the structure by the current construction cost for comparable quality to arrive at the estimated replacement cost of a building. When using this method, the key to success is starting with an accurate source of current local construction costs, such as home builders Marshall & Swift, and the Bluebook.

The next step, probably the most difficult for an appraiser, is to estimate applicable depreciation for an older structure to arrive at a reasonable replacement cost-estimate. The land value, based on cost per square foot, is then added to arrive at the property's total market value.

Insurance agents often use the replacement-cost approach to arrive at recommended replacement-cost insurance coverage for houses. Although used as a crosscheck, most appraisers and mortgage lenders don't pay much attention to the replacement-cost approach for all but newer residences.

2. RENTAL-INCOME APPROACH. This appraisal method is most appropriate for rental-income property, such as apartment buildings, shopping centers, office buildings, warehouses and other rental structures. If the property is owner-occupied, such as a warehouse, then rents for equivalent nearby rental property are used with this approach.

The net income, minus a vacancy estimate, is capitalized (based on the local capitalization rates for recent sales of similar income properties) to determine the estimated market value of the subject property. Appraisals of single-family houses and condos do not usually include this method unless the neighborhood is primarily occupied by tenants rather than owner-occupants. Even when a house is used as a rental, this is usually not the best appraisal method because the market value of most residences is determined by recent sales prices of comparable nearby houses, not their rental income.

3. COMPARABLE SALES-PRICE APPROACH. This is the most important appraisal method to determine the market value of a house or condo. To be accurate, the sales prices of comparable nearby residences should be as recent as possible. Sales prices more than six months old are usually not used unless there have not been any more recent home sales in the vicinity. In a rising or falling market, comparable closed home sales within the last three months are preferred.

Because this is the most important appraisal approach for houses and condos, the experience of the appraiser becomes critical to determine what is a truly comparable similar nearby residence. However, adjustments must usually be made to both the "subject property" being appraised when comparing it to the comparable nearby home sales, and to the comparables, to compensate for the pros and cons of each residence.

To illustrate, if the subject home has three bedrooms, but all the recent "comps" have four bedrooms, the appraiser must subtract value for the lack of a fourth bedroom. But if the subject property has a family room and the comps lack family rooms, then the appraiser will add value to the subject property.

The critical part of the appraisal process is the appraiser's addition or subtraction of value, often involving thousands of dollars, based on his or her expert valuation judgments. Square footage of the subject property and the comps also play a big role because the appraiser usually has not seen the interior of the comparable properties.
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NAR Newspaper Blitz Urges Buyers to Act Now

The national ad campaign points out that interest rates are near 40-year lows and housing inventories are higher than they've been in decades.
REALTOR® Magazine Online
The NATIONAL ASSOCIATION OF REALTORS® on Friday launched a national advertising campaign to urge potential home buyers who have been waiting on the sidelines to act now before prices gain traction. The campaign includes full-page newspaper ads running in six of the nation’s leading newspapers.

NAR’s first-ever newspaper blitz features the headline, “It’s a great time to buy or sell a home.”

The advertisement points out:

    • Interest rates have fallen seven months in a row and are near 40-year lows.
    • Inventories of existing homes are higher than they have been in decades.
    • Home prices have stabilized.

But the perfect conditions for buyers are likely to change as sales pick up, prices increase, and conditions improve for sellers next year.

“Homeownership is a safe, secure way to build long-term wealth,” the ad reads. “The national median price of homes bought 10 years ago has increased 88 percent. The number of U.S. households is expected to increase 15 percent during the next decade, creating a continued high demand for housing.”

The ad also quotes Alan Greenspan, former Federal Reserve chairman, saying, “Most of the negatives in housing are probably behind us. The fourth quarter should be reasonably good, certainly better than the third quarter.”

Spreading the Message

The advertisement appears today in The Wall Street Journal and USA Today, and will run Sunday in The New York Times, Washington Post, Los Angeles Times, and Chicago Tribune. It will run in the same newspapers again on the weekend of Nov. 12.

NAR President Thomas M. Stevens of Vienna, Va., says the newspaper ads are the beginning of an NAR campaign to urge buyers and sellers to take advantage of the favorable market conditions. Two new network television and radio ads directed at buyers and sellers will begin airing in the second week of January. The new spots will be rotated into NAR’s $40 million network Public Awareness Campaign.

NAR’s 1.3 million members and state and local REALTOR® associations are being encouraged to adopt the message in their own advertising and communications to consumers, Stevens says.

“The market is much better than you might hear or read,” Stevens says. “Consumers should take advantage of this perfect alignment of low rates and extraordinary inventory before market conditions change.”

Where the Market Stands

Total housing inventory levels fell 2.4 percent at the end of September to 3.75 million existing homes available for sale, which represents a 7.3-month supply at the current sales pace, according to NAR’s existing-home sales report. The national median existing-home price for all housing types was $220,000 in September, which is 2.2 percent below September 2005, when the median was $225,000. The median is a typical market price where half of the homes sold for more and half sold for less.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.40 percent in September, down from 6.52 percent in August.
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Park Proposed Atop Freeway

The Hollywood Chamber of Commerce is proposing the creation of a 24-acre park that would be built on a concrete cap atop the Hollywood Freeway – at a cost of several hundred million dollars.
By: DANIEL MILLER: Los Angeles Business Journal Online
The planned Hollywood Central Park, which boosters will announce this week, would be a grassy and tree-lined expanse over freeway traffic. The freeway essentially would be a tunnel for about two thirds of a mile under the park.

The chamber has worked behind the scenes for months to build support for the project, which it contends is critical for the development of Hollywood. Supporters include some local developers, neighborhood councils, elected officials and, most importantly, Caltrans – since the park would be built above state-owned land in state airspace.

“It is an easy decision. This is available air space put to good use for the public,” said Deborah Harris, spokeswoman for the California Department of Transportation. “If it can be used for the betterment of the community, we are all for it. Of course there are several details that have to be worked out. We look forward to looking further into this proposal.”

The park – which would stretch from around Hollywood to Sunset boulevards between North Bronson Avenue and North Wilton Place – will face its first test on Thursday when the board of the Los Angeles Community Redevelopment Agency will decide whether to pay for a feasibility study.

If approved, the study would be done by engineering and planning firm Parsons Brinckerhoff Inc. with a targeted completion date of January. In addition to CRA money, the chamber is seeking money for the study from private donations.

Chamber officials said the park is a critical element for Hollywood to continue to thrive, given a severe lack of green space that makes the neighborhood less attractive for residents and businesses.

“We wanted to make sure … that the local economy and community is sustained, so we can build the community and have sustained growth,” said Rochelle Silsbee, vice president of public policy for the chamber. “It is primarily about protecting area livability.”

It is not clear who would own the park, though backers have not ruled out joint ownership by different entities.

Park deficient

Hollywood has a real need for open space, according to a report by the chamber.

The report indicates that in Los Angeles there are about 0.012 acres of open space per resident, and in Hollywood, the figure drops to 0.005 acres.

Also, a 2003 study by the Trust for Public Land found that two-thirds of Los Angeles children do not live by a park, while 91 percent of New York City children live within walking distance of one.
“We believe there is a severe park shortage here,” Silsbee said.

And that will only get worse, given that about 4,500 residential units are either approved or under construction near the park site, according to the report.

At its narrowest point, the proposed park would be as wide as a football field.

About 50 such “freeway cap parks” are in various stages of development around the country, including in Sacramento, Phoenix and Portland, Ore., according to the chamber. Locally, there is a small freeway cap park in La Cañada Flintridge above the Foothill (210) Freeway, just east of the Glendale (2) Freeway interchange.

And in Hollywood, land is more expensive than in many other cities. So while the park would be expensive, it still would be cheaper than acquiring 24 contiguous acres by traditional means, said Don Scott, a Hollywood Chamber of Commerce board member who first proposed the park.

Vacant land in Hollywood near the freeway costs between $200 and $400 per square foot, while the freeway park in Portland is being built on land that costs $200 per square foot, Scott said. Even so, the park could cost well over $200 million.

“It’s a big number, but we feel it’s achievable through federal, state, and local funds,” he said.

Local U.S. Reps. Xavier Becerra and Diane Watson have said that next year they will work to appropriate federal money for the project, according to Silsbee. The project planners are also eyeing the infrastructure bond on the Nov. 7 state ballot as a possible source of funding, should it pass.

A spokesman for Becerra said the congressman supports the project, while Watson could not be reached for comment. Still, the cost of the park could pose an impediment.

“It’s a wonderful idea. But you drive down the road and there are potholes everywhere, so I don’t know how they are going to build a cap on the 101,” said John Tronson, a principal in the Hollywood office of Ramsey-Shilling Commercial Real Estate Services. “While I think it’s a noble cause, I do have reservations about how much time people should spend on it until we can pay for it.”

Wired on coffee

Possible plans for the park include an amphitheatre, sports fields, and a European-style square. Plans for the park call for it not to eliminate on- or off-ramps to the freeway below.
“Our interest is in maintaining the lanes as they exist today as well as available space for future use,” said Harris, Caltrans spokesperson for District 7, which covers Los Angeles and Ventura counties.

Area schools and children would stand to benefit greatly from the park. At least three schools are in close proximity to the park, including Central Los Angeles High School, which is under construction. The proposed park also would be near two Metropolitan Transit Authority subway stations.

The park is the brainchild of Scott, who conceived it while driving on the Hollywood Freeway.

“I tell everyone I drank too much coffee that day,” said Scott, senior vice president at First Financial Bancorp. “But I was driving over the freeway and I heard something on the radio about the Big Dig in Boston. A light bulb went off.”

Scott concedes that the Big Dig – which involved sinking a 3.5 mile stretch of Interstate 93 in central Boston at a cost of nearly $15 billion – may be a controversial analogy. The East Coast project includes park land over the sunken highway, but has taken decades to build, experienced large cost overruns and recently a portion of the tunnel’s ceiling fell, killing a motorist.

By contrast the Hollywood park project involves building a concrete cap over an existing freeway, not sinking what was an elevated highway into a newly dug tunnel.

And what about calling it the Hollywood Central Park?

While the name may hark to the prominent park in New York, it also has some local meaning. The chamber says that the park is located at the nexus of central and east Hollywood.

For now the Hollywood Central Park is only an interim name, but supporters say they think it could stick – provided it is built in the first place.
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The Weekend Guide! November 2 - November 5, 2006

The Weekend Guide for November 2 - November 5, 2006.
Full Article:
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Pending Home Sales Show Leveling Trend

Index shows home sales will not be moving much in one direction or another
RISMedia
Home sales are expected to hold fairly steady in the months ahead, according to the latest reading on pending home sales published by the National Association of Realtors.

The Pending Home Sales Index,* based on contracts signed in September, slipped 1.1% to a level of 109.1, following a 4.5% gain in August, but remains 13.6% below September 2005.

David Lereah, NAR’s chief economist, said the index shows home sales will not be moving much in one direction or another.

“The present level of home sales is relatively high in historic terms, and we can expect generally minor movements around this level,” said Lereah. “We don’t expect to see any changes of note until early next year when we’re likely to see a modest lift to home sales. The market currently is a little lower than expected as buyers try to time their entry. In the meantime, there’s some build-up in demand that will move when consumers realize that conditions are optimal for them.”

The index is derived from pending sales of existing homes. A sale is listed as pending when the contract has been signed and the transaction has not closed; pending sales typically are finalized within one or two months of signing.

An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined and the first of five consecutive record years for existing-home sales. There is a closer relationship between annual changes in the index and year-ago changes in sales performance than with month-to-month comparisons.

Regionally, the PHSI in the Midwest rose 2.1% in September to 96.4 but was 18.4% below September 2005. The index in the West slipped 0.4% to 112.5 in September and was 15.2% below a year ago. In the South, the index eased 1.3% in September to 125.0 and was 9.0% below September 2005. The index in the Northeast fell 5.9% to 89.9 in September and was 15.9% lower than a year earlier.

More information about The National Association of Realtors can be found at www.realtor.org.
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'Borrowable' home equity makes a tantalizing target

Changing market can create opportunity or crisis
By: Neil J. Morse: Inman News
Despite worries about adjustable-mortgage resets next year that will hit more than 10 percent of all households with outstanding home debt and a fear of government pressure to limit so-called "exotic products," lenders still like the "LTV," or loan-to-value, odds, which have 51 percent of all equity in American households untapped.

Half, then, of all "borrowable" equity in residential real estate is (technically anyway) up for grabs, a tantalizing target for lenders these days when overall mortgage originations are down at least 20 percent.

"Fifty-one percent: that's an enormous amount of home equity," declares IndyMac Bank CEO Michael Perry, who notes that most of this available cash is "skewed toward seniors." This makes Perry bullish on reverse mortgages, so far a niche product for older homeowners (age 62 and up), who meet a list of protective conditions.

While he admits that "the (reverse mortgage) products, in the early days, weren't great," he insists "the current FHA product is fabulous."

Last year, more than 43,000 seniors took out reverse mortgages insured by the federal government - about 95 percent of the market and a six-fold jump since 2000. The loans are usually worth some fraction of a home's value, and must be repaid, with interest, only when the house is sold or the borrower dies.

"The name of the game is to triple, quadruple, quintuple, whatever, the market," Perry says of reverse mortgages. IndyMac is a top-10 mortgage originator, which expects to originate $80 billion in all mortgages this year. The company got into the reverse-mortgage game through acquisition of a company called Financial Freedom from Lehman Brothers.

Major market changes next year

One reason for IndyMac's interest in boutique products may stem from major changes in store for the mortgage market next year - changes described in vivid terms by none other than Fannie Mae's CEO Daniel Mudd.

"There is going to be some dislocation," he warns. "There are going to be some unforeseen twists and turns in the market in 2007, because the 'pressure dome' is just too big for that not too happen."

Mudd says, "Nobody knows exactly what it's going to be," but he sees both crisis and opportunity coming as a result. The question is whether "the structure of the market is sufficiently robust to deal with the uncertainties."

If capital availability is a determining factor, the signs are positive, according to Michael Marriott, managing director, Credit Suisse, who says, "There is a continuing growth of dollar assets in Asia, and the absolute number of dollars to invest in the U.S. mortgage market will continue to grow."

Marriott expects all that capital to "go down the credit curve. It's going to non-agency product and absorbing these nontraditional products that are coming out." The secondary market executive says, "Synthetics and derivatives (have represented) explosive growth in that market in the past 15 months, and that will dominate trading flows over the coming years."
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