NAR: No Rate Hike Is a 'Very Positive Signal'

The Fed's decision indicates that it realizes the vital role housing plays in the economy, says NAR President Thomas M. Stevens.
NAR: REALTOR® Magazine Online
The decision this week by the Federal Reserve’s Federal Open Market Committee to not raise the federal funds rate for the 18th straight time indicates that the Federal Reserve recognizes the value of the housing economy to the national economy as a whole, the president of the NATIONAL ASSOCIATION OF REALTORS® says.

“This move sends a very positive signal to the housing sector, which has been so robust over the past five years that it has sustained the economy while other sectors have lagged," says NAR President Thomas M. Stevens, senior vice president of NRT Inc. "Largely as a direct result of more than two years of interest rate hikes, the housing market today is fragile in some parts of the country. The Fed’s decision indicates that it realizes the vital role housing plays in the economy.”

The decision by the Federal Open Market Committee leaves the banks’ prime lending rate, the benchmark for various consumer and business loans, at 8.25 percent. Before the Fed started raising rates in June 2004, the prime had been at 4 percent.

Stevens says the Fed’s decision indicates it realizes the economy has slowed, especially the housing economy. “We can’t continue to raise rates without expecting the housing economy to suffer. That translates into higher costs for home buyers, slower sales and a lower level of economic activity in housing, which accounts for one-fourth to one-fifth of the gross domestic product,” he says.
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The Weekend Guide! August 10 - August 13, 2006

The Weekend Guide for August 10 - August 13, 2006.
Full Article:
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Lower Rates Fuel Mortgage Applications

Applications for U.S. mortgages rose last week for the first time in four weeks as interest rates slipped to their lowest level since March.
By: Al Yoon: REALTOR® Magazine Online
The number of applications for U.S. mortgages rose last week for the first time in four weeks as interest rates slipped to their lowest level since March.

The Mortgage Bankers Association reported that its seasonally adjusted index of mortgage application activity for the week ended Aug. 4 rose 4.9 percent to 553.3, from the previous week's 527.6.

"The worst of the housing market is behind us," Richard Yamarone, chief economist at Argus Research in New York, told Reuters News. "That's simply because the two primary drivers of housing — interest rates and demographics — are improving."

Borrowing costs on 30-year, fixed-rate mortgages last week averaged 6.45 percent, down from 6.62 percent in the previous week. The rate on 15-year, fixed-rate mortgages decreased to 6.10 percent from 6.28 percent. The average rate on a one-year ARM declined to 5.96 percent last week from 6.18 percent.

The refinance share of mortgage activity increased to 38 percent of total applications from 37 percent the previous week.
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Fed Holds Interest Rates Steady As Slowdown Outweighs Inflation

The Federal Reserve paused in its campaign of rate increases for the first time in 18 meetings, leaving its short-term target at 5.25%, betting that its forecast of slower economic growth will ease high rates of inflation.
By: Greg Ip: The Wall Street Journal Online
The Federal Reserve left interest rates steady Tuesday for the first time in two years, gambling that a nascent economic slowdown will cap growing inflation pressures.

In leaving its short-term interest rate target at 5.25%, the Fed said: "Readings on core inflation have been elevated in recent months," but "inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors." (Read the statement.)

For the first time since Ben Bernanke took over as chairman on Feb. 1 from Alan Greenspan, the policy-setting Federal Open Market Committee didn't agree to the action unanimously. Federal Reserve Bank of Richmond president Jeffrey Lacker dissented, favoring instead another quarter-point increase.

The statement said, as it did after the last meeting in June, "Some inflation risks remain. The extent and timing of any additional (increases) ... to address these risks will depend on the evolution of the outlook for both inflation and economic growth."

The retention of that sentence in effect reflects a continued bias, but not a presumption, to raise rates in the future. In effect, the Fed gave itself some breathing room to assess the impact of the preceding 17 quarter-point rate increases before deciding whether to hike again. Mr. Bernanke has been suggesting since April that he was seeking more flexibility.

"A pause does not mean a stop," said Stephen Stanley, chief economist at RBS Greenwich Capital Markets. "And there's certainly ample evidence the economy has been on a slowing trajectory over the last couple months. There's enough evidence there for them to take six weeks off."

Signs of slowing growth and rising inflation have aroused deep disagreements among economists on what the Fed should do. Some economists think the Fed has already raised rates too far and is courting recession; some think it must raise them further to stop inflation from accelerating. Some say both things are true.

"You can't fight inflation without risking overkill on the economy," said Ethan Harris, chief U.S. economist at Lehman Brothers, who thinks the Fed shouldn't have paused and predicts it will eventually raise the rate to 5.75%. "That is a risk, and it's a risk they should take." He added: "It's not fair to Bernanke that he steps into his job just as the economy is set to decelerate and inflation takes off."

The Fed's view has been that inflation recently topped the informal "comfort zone" of 1% to 2% , excluding food and energy, primarily because firms have passed higher energy costs on to consumers. If growth does not exceed "potential" -- the rate at which the economy can grow without straining the available work force and capital stock -- and energy prices stabilize, the Fed figures inflation should drop back. Meanwhile, it believes that as the housing market cools and consumer spending slows, business investment and exports will pick up the slack.

But recent data have not been supportive of that view. Economic growth slowed to 2.5% annual rate in the second quarter in part because of a surprise drop in business equipment investment. Macroeconomic Advisers, a forecasting firm, predicts it will grow at about the same moderate rate in the current quarter. Payroll growth was sluggish and the unemployment rate rose in July.

But at the same time, inflation has ticked higher, and new data on productivity, growth and labor costs suggest that inflation pressures have been bubbling longer than previously realized. The Labor Department said nonfarm business productivity grew at a 1.1% annual rate in the second quarter, a sharp decline from the 4.3% growth rate of the first quarter, and was up 2.4% from a year earlier. At the same time, labor costs per unit of output climbed 4.2% in the second quarter, and were up 3.2% from a year earlier. Labor costs were actually declining in 2004, but have steadily accelerated since, and now are rising fast enough to eat into profit margins -- which could encourage firms to try harder to raise prices. Importantly, Tuesday's Fed statement did not repeat a reference from June's that "ongoing productivity gains have held down the rise in unit labor costs."

Revisions to economic data from 2003 to 2005 also show the economy grew less quickly and inflation was a bit higher than previously thought. That, economists say, suggests the economy's "potential" growth rate is lower than previously realized, and the economy may already be straining capacity.

None of this means the Fed is making a mistake now. Indeed, inflation and labor costs were both rising in 2000 when it last stopped raising rates after a cycle of increases. In retrospect, however, the downturn in tech stocks and subsequent decline in tech investment had already set in motion a slide into recession the following year and a big drop in inflation. There are concerns that an accelerating downturn in the housing market today could similarly undermine the overall economy now.

"There was a strong case for pausing at 4.5%," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "There was already plenty of evidence the previous hikes had begun to soften growth." He predicts the Fed will start to cut rates by next April.

Nouriel Roubini, an economist at New York University and author of a popular economics blog, says it's already too late to prevent a recession. "The Fed should have tightened earlier to avoid a festering of the housing bubble early on. The Fed is facing a nightmare now: the recession will come and easing will not prevent it."

Lakshman Achuthan, managing director at the New York-based Economic Cycle Research Institute, said the economy is not now headed into recession but it is slowing and thus more vulnerable to some kind of shock that tips it into one. At the same time, he said, inflation shows no sign of turning down soon. So, "The Fed may have to stay in the game even though there are elements slowing the economy that still have to play out."
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NAR: Home Sales to Hold Stable for Balance of Year

The housing market is in a process of stabilizing with little change in overall sales volume expected over the balance of the year, according to NAR.
NAR: REALTOR® Magazine Online
The housing market is in a process of stabilizing with little change in overall sales volume expected over the balance of the year, according to the NATIONAL ASSOCIATION OF REALTORS®.

David Lereah, NAR’s chief economist, said the indicators already are leveling-off. “We’ve seen a minor easing in closed transactions of existing-home sales, and a slight increase in the leading indicator of pending sales based on contracts,” he said. “New-home sales and housing starts have been fluctuating, so the overall market is stabilizing.”

“On one hand is the rise in mortgage interest rates that has slowed sales in many higher-cost markets, and on the other is 3.8 million new jobs over the last two years,” Lereah said. “This means many potential home buyers could enter the market in the foreseeable future, especially in moderately priced areas where affordability conditions remain favorable. In fact, this is already occurring.”

Although sales will be fairly steady over the balance of the year, declines since last fall mean annual totals will be lower. Existing-home sales are forecast to fall 6.5 percent to 6.61 million this year, the third highest on record after 2005 and 2004. New-home sales are projected to drop 12.8 percent in 2006 to 1.12 million, also the third best on record. Housing starts should be down 9.1 percent to 1.88 million this year.

The 30-year fixed-rate mortgage is running nearly a percentage point higher than a year ago but is likely to rise very slowly in the months ahead, reaching 6.9 percent in the fourth quarter.

NAR President Thomas M. Stevens from Vienna, Va., said current market conditions are favorable for buyers. “The rise in housing supply is the biggest change in the market over the last year,” said Stevens, senior vice president of NRT Inc. “Clearly, this has taken pressure off of home prices and has significantly widened choices for buyers. At the same time, sellers are getting excellent returns – but in this competitive environment they need real estate professionals more than any time since the 1990s to market their homes and maximize value.”
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Existing-home sales expected to fall 6.5%

Forecast calls for third-highest total in annual sales
Inman News
Existing-home sales are forecast to fall 6.5 percent this year to 6.61 million, which is the third-highest year on record after 2005 and 2004, the National Association of Realtors reported today in its latest annual forecast.

New-home sales are projected to drop 12.8 percent in 2006 to 1.12 million, also the third best on record. Housing starts are expected to drop 9.1 percent this year to 1.88 million.

The national median existing-home price for all housing types is forecast to grow 4.3 percent this year to $229,000, while the median new-home price is expected to rise 0.5 percent to $242,100 as builders offer incentives to clear unsold inventory, according to the trade group's forecast.

David Lereah, NAR's chief economist, said in a statement, "We've seen a minor easing in closed transactions of existing-home sales, and a slight increase in the leading indicator of pending sales based on contracts. New-home sales and housing starts have been fluctuating, so the overall market is stabilizing.

"On one hand is the rise in mortgage interest rates that has slowed sales in many higher-cost markets, and on the other is 3.8 million new jobs over the last two years," he also said. "This means many potential home buyers could enter the market in the foreseeable future, especially in moderately priced areas where affordability conditions remain favorable. In fact, this is already occurring."

The forecast calls for fairly steady sales for the remainder of the year, though declines since last fall mean annual totals will be lower.

The 30-year fixed-rate mortgage is running nearly a percentage point higher than a year ago and is expected to reach 6.9 percent in the fourth quarter.

Thomas M. Stevens, NAR president and senior vice president for NRT Inc., said in a statement, "The rise in housing supply is the biggest change in the market over the last year. Clearly, this has taken pressure off of home prices and has significantly widened choices for buyers."

The unemployment rate is expected to average 4.7 percent for the balance of the year. Inflation, as measured by the Consumer Price Index, is likely to be 3.5 percent for 2006, while growth in the U.S. gross domestic product is projected at 3.5 percent. Inflation-adjusted disposable personal income is expected to grow 3 percent this year.

Existing-home sales for July will be released Aug. 23; the Pending Home Sales Index is scheduled for Sept. 1 and the next forecast will be released Sept. 7.
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Real estate ownership doesn't guarantee tax break

Absentee co-owner learns hard lesson
By: Robert J. Bruss: Inman News
DEAR BOB: About nine years ago, my parents helped me buy my first home, a condominium. All three of us took title as joint tenants with right of survivorship. Due to a superb location and great management, it turned out to be an outstanding investment. I got married about five years ago and moved into a house with my bride. My parents moved into the condo. Mom died in 2002. Dad still lives there. He and I have decided to sell the condo to pay for his care in an assisted-living residence. The net profit will be around $400,000. Because he owned and occupied the condo 24 of the 60 months before its sale, he qualifies for the $250,000 principal residence sale tax exemption. However, my tax adviser says I can't qualify because I don't meet the occupancy test. Do you agree or disagree? -Troy W.

DEAR TROY: Your tax adviser is correct. Internal Revenue Code 121 says that to qualify for the principal residence sale tax exemption up to $250,000 per owner, you must own and occupy it at least 24 of the 60 months before its sale. For a married couple, only one spouse need be on the title, but both spouses must meet the occupancy tax and file a joint tax return to qualify.

Although your dad qualifies for up to $250,000 tax-free profits, you can't qualify because you don't meet the 24 out of last 60 months occupancy test. Therefore, about $150,000 of that capital gain will be taxable.

PROPERTY RECORDS ARE NOT A PRIVATE MATTER

DEAR BOB: At age 73, I recently refinanced my reverse mortgage. Since then I am being bombarded with letters from insurance companies wanting to sell me disability insurance. I am infuriated by these companies invading my privacy. Also, the appraiser came from an area a considerable distance away. How can he know property values in my town? The reverse mortgage lender didn't use one local company, except the termite inspector. The lender's title insurance came from out of state. What can be done about this invasion of my privacy? -Marilyn G.

DEAR MARILYN: Most recorded documents are public information. The reason is many people, such as mortgage lenders and title insurers, need to know what liens and other recorded documents affect your property.

There are nationwide companies that make "big bucks" obtaining recent public records, such as your reverse mortgage recording, and selling that information to insurance companies and other users. Because public records are not private, there is nothing you can do but throw away the junk mail you don't want.

MOTIVATED HOME SELLER RAISED COMMISSION TO SELL HOME

DEAR BOB: Thanks for that item a few weeks ago from a Realtor who got her seller to raise the sales commission to 7 percent and then sold the house that had languished on the market. As my home is listed for sale, I showed that article to my Realtor. I think he is doing a great job, but the local "buyer's market" is saturated with too many homes in my price range. My listing has about 40 days remaining so I said "Let's raise the commission to 7 percent with 4 percent to the buyer's agent." He thought I was crazy, but I convinced him I really need to sell my house. So he and his broker heavily promoted my house to the local MLS (multiple listing service) agents with a re-tour, deli-lunch (Realtors love free food), weekend open houses, newspaper ads, etc. Within 10 days, I received two good purchase offers. I accepted the best one and kept the other as a back up. Just thought you should know raising the commission really works -Cindy R.

DEAR CINDY: That item a few weeks ago resulted in many positive letters from realty agents. But there were a few negative letters from penny-pincher cheapskate home sellers who said "Why didn't the Realtor work as hard when the house had a 6 percent commission?"

They didn't understand the purpose of raising the sales commission is to attract the attention of buyer's agents to get them to show your home rather than another one to their prospects. In the current buyer's market, the success key is getting your home seen by as many buyer's agents and their prospects as possible.

REMAINDERMAN HAS NO DUTY TO MAINTAIN HOME

DEAR BOB: I am perplexed at your answer to stepchildren whose stepmother holds a life estate in their late father's property. If the stepchildren will inherit the house after the stepmother dies, shouldn't they help pay for its upkeep? Most widows live on fixed incomes and often can't afford to maintain the property. I think you need to think this through from the perspective of the second wife who probably took care of the ill father. Why should she spend her money for her stepchildren's inheritance? -Muriel O.

DEAR MURIEL: You make a lot of sense. However, the law of every state with which I am familiar says a life tenant must pay the property taxes, mortgage payments (if any), and the maintenance.

The remainderman has no legal duty to help pay for maintenance. If the life tenant allows the property to go to "waste," the remainderman can have the life estate terminated.

But there is no reason why the terms of the life estate could not require contributions by the remainderman to help maintain the home while the life tenant lives in it. Such a document should be carefully drawn to prevent administrative problems.

THIS SOUNDS LIKE A FAMILY SCAM

DEAR BOB: My niece wants to buy my house without getting a mortgage. She wants me to sign the house over to her. Then she will get it refinanced and pay me my asking price. I will continue living in the house while this plan is pending and I will get my money in three months if all goes well. If not, she will deed the house back to me. Is this risky or just plain dumb? I am a widow and the house is too much for me to keep up -Valerie J.

DEAR VALERIE: This could be a family scam. If your niece can qualify for a mortgage, she should do so without you first deeding the house to her.

You could agree, for example, to sell the house to her with an 80 percent lender mortgage and you can carry back a second mortgage for the balance of the sales price.

There's no advantage for you to deed your house to your niece without receiving cash or at least a first mortgage from her for your security. Please consult a local real estate attorney to get everything in writing. Somehow, I just don't trust that niece.

COSTLY DISADVANTAGES OF A GIFT DEED

DEAR BOB: Why don't you warn people about the dangers of gift deeds? My mother was diagnosed with terminal cancer. I am her only offspring. She wanted to gift deed her house and two rental properties to me to avoid probate after her death. Her attorney prepared the gift deeds and I recorded them. Little did I know how costly that would be. A few months later I received notices from the county tax assessor that the properties would be reassessed. At the very least, this will result in several thousand dollars higher annual property tax. But the bigger surprise is the cancer diagnosis was wrong. My mother has another disease (the name is too hard for me to remember) but it now looks like she will live for many years. Even if I deed the properties back to her, the tax assessor says he will still reassess them -Todd W.

DEAR TODD: You left out a much greater disadvantage of a lifetime gift deed. Because you received those properties as lifetime gifts, you took over your mother's low adjusted cost basis. If you had instead inherited those properties, you would have received a new "stepped-up basis" to market value on the date your mother passes on.

When you eventually sell those properties you will have a large taxable capital gain most of which could have been avoided by instead inheriting those properties.

Your mother meant well to avoid probate, but she could have kept ownership, given you a stepped-up basis, and avoided probate by use of a living trust. Details are in my special report "24 Key Questions: Living Trust Secrets Reveal How to Avoid Probate Costs and Delays" 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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Overnight real estate rates dive

30-year fixed rate at 6.08%; 10-year Treasury yield at 4.9%
Inman News
Long-term mortgage interest rates were down Friday, and the benchmark 10-year Treasury bond yield fell to 4.9 percent.

The 30-year fixed-rate average sank to 6.08 percent, and the 15-year fixed-rate dipped to 5.79 percent. The 1-year adjustable held at 5.4 percent.

The 30-year Treasury bond yield decreased to 4.99 percent.

Rates are current as of 7:15 p.m. Eastern Standard Time.

Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.

In other economic news, the Dow Jones Industrial Average lost 2.24 points, or 0.02 percent, finishing at 11,240.35. The Nasdaq was down 7.28 points, or 0.35 percent, closing at 2,085.05.

Stock and bond figures are current as of 7:30 p.m. Eastern Standard Time.
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Keep Your Financial Footing at 22 So You Can Buy That House at 32

Upon graduation, twentysomethings are presented with a laundry list of financial goals. Jonathan Clements's advice: Don't worry just yet about buying a home or saving for retirement - strive to stay out of debt instead.
By: Jonathan Clements: The Wall Street Journal Online
First, do no harm.

As soon as you graduate and land a job, you are supposed to move quickly to build up an emergency reserve, buy a house, fund your employer's 401(k) plan and open an individual retirement account. Worthy goals? Certainly. Realistic? I don't think so.

My advice: If you're just out of school, don't worry too much about saving for retirement and buying a house - and instead strive mightily to stay out of debt.

Piling up trouble. I am not saying all debt is bad, and I am not arguing that folks in their 20s, if they have the money, shouldn't purchase homes and fund 401(k)s.

But it strikes me that, for most of us, our initial working years are about learning to live within our means, pay the bills on time and stay out of financial trouble. How do you know you are succeeding? If you aren't piling up credit-card debt and taking on big auto loans, you're probably on the right track.

Make no mistake: Debt is a big issue for folks in their 20s. According to the College Board, an association of schools, colleges and universities, 73% of graduates from four-year nonprofit private colleges had student loans outstanding, with $19,400 typically owed.

Once kids get into the work force, this debt can cause a heap of financial stress. New York's AllianceBernstein Investments recently surveyed college graduates between ages 21 and 35. Among those who graduated with debt, 42% said they were now living paycheck to paycheck, versus 24% of those who graduated debt-free.

And the problem isn't just caused by student loans. Almost a quarter of undergraduates have credit-card balances of $3,000 or more, according to a study by Nellie Mae, the college lender in Braintree, Mass. After graduation, those credit-card balances can easily balloon, as kids struggle to get by on skimpy paychecks. Tack on a car loan or lease and you could be looking at big trouble.

To be sure, adults under age 35 are carrying less debt than folks in their 40s and 50s. But they also have smaller paychecks, so meeting their monthly obligations can be tough.

Consider some data from the Federal Reserve's 2004 Survey of Consumer Finances. The Fed asked families with debt whether they had been at least 60 days behind on any of their payments over the prior year. The answer was "yes" for 13.7% of households headed by someone under age 35, up from 8.7% in 1995. Older adults, by contrast, were less likely to report difficulty making their debt payments.

Staying in shape. With any luck, your post-college financial struggles will ease as you approach age 30 and start getting some decent salary increases.

Indeed, this is when you should be looking to buy your first home and start seriously saving for retirement. And, no, you won't be late to the party.

The typical first-time home buyer is age 32, according to the National Association of Realtors, based in Chicago. Similarly, surveys by the Investment Company Institute in Washington suggest people typically start investing in mutual funds in their late 20s or early 30s, with their first investments often made through 401(k) or similar employer-sponsored retirement plans.

But if you're going to buy the house and start funding the 401(k) in your late 20s or early 30s, you've got to reach that age in reasonable financial shape. What does it take? Here are five tips.

      Don't expect to live like your parents. It took them 25 or 30 years in the
      work force to achieve their current standard of living. If you're eating out
      as often as they do or taking equally extravagant vacations, you're probably
      spending too much.

      By leasing or borrowing, you could likely drive a car that's almost as fancy
      as your parents'. Moreover, the tab might seem pretty manageable, with a 48-
      month $20,000 auto loan costing maybe $480 a month.

      Problem is, you will be setting yourself up for big insurance bills and you
      will be lavishing all this money on a depreciating asset. A better strategy:
      Buy the clunker - and put the $480 a month toward a house down payment.


      Handle credit cards with care. I aim to put everything on my debit card,
      partly because I get cash back on my purchases. Using a debit card also makes
      me a more careful spender, because I know the money is coming straight out of
      my checking account.

      What if you prefer to use a credit card because you earn, say, frequent-flier
      miles? Try this trick: Every time you use your card, subtract the sum from
      your checking-account balance. That way, when the monthly credit-card bill
      arrives, you know you will have enough to pay off the entire bill.

      While carrying a credit-card balance is foolish, don't necessarily rush to pay
      off student loans. The interest rate may not be that steep, and the interest
      should be tax-deductible. Instead, if you have spare cash, put enough in your
      employer's retirement plan to get the full matching contribution and then
      earmark the rest for a house down payment.

      Mooch off Mom and Dad. Moving home for a few years after college may crimp
      your lifestyle, but it should also bolster your bank balance.

      In fact, make sure your parents know just how thrifty you are. Maybe that will
      elicit some parental admiration - and maybe also a little help with the down
      payment on your future abode.

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Seven Money-Stretching Tips For Sellers in a Cooling Market

After a prolonged housing boom, homeowners are discovering that getting a good price for their residence is harder. Tactics to help you make the most out of the sale of your property.
By Lauren Baier Kim: The Wall Street Journal Online
A drop-off in buyer demand and rising home inventories has made putting a house on the market trickier for homeowners whose properties appreciated during the boom and who hope to retain their gains.

House hunters can now afford to be choosy. "Not everyone can set a price and figure buyers will come," says Rob Gross, a senior vice president with Prudential Douglas Elliman in Manhattan. "It's a transitional market."

Sellers are lowering their price expectations. Take one South Kohala, Hawaii, homeowner, whom real-estate agent Ric Rocker of Kamuela, Hawaii, says he convinced to chop off $10 million from his asking price. The owner, who is asking for $35 million, lowered his price in part to speed the sale, Mr. Rocker says. "He wants to send the message that he wants a fair deal," Mr. Rocker says. He adds, "We're not in a market that buyers will pay what sellers want."

Attracting a shrinking pool of buyers without losing too much financial ground can be tough. To make the most of your real-estate dollars, follow these tips:

1. Size up the playing field. Study your local market and investigate other homes for sale, local asking prices and what buyers are paying. "Be savvy to market trends and know what things are worth," Mr. Gross says. Use Web sites like Realtor.com, or look up listings in your local paper or real-estate publication. Ask your realtor to show you area selling prices, or find them with RealEstateJournal.com's Comparable Sales Tool, or Zillow.com.

Kayser Dixon, a real-estate agent with Coldwell Banker Hunt Kennedy in New York, suggests visiting area open houses to evaluate your competition. "If you look at a [price] on a piece of paper, it doesn't do anything for you," he says.

2. Price competitively. In recent years, sellers were able to set a price and wait for the bidding wars. No more. "If a home is overpriced, a buyer will dismiss it and move on to the next one," Mr. Dixon says. Because of the growing number of properties on the market, buyers have a greater number of homes from which to choose, he explains.

Mr. Gross suggests pricing a residence just below what the market will bear. For instance, for a $1 million home in Manhattan, he would ask for $995,000 to "get traffic," he says. "You want to be perceived as a real seller," he explains.

Homeowners mistakenly think they can get housing-boom prices, Phyllis MacBeth of Main Street Realtors in Long Beach, Calif., says. "I have to work hard to convince people - without offending them - that their house isn't better than the one that just sold for $1 million," she says. Again, check with your real-estate agent or go online to research local selling prices, and set your asking price accordingly.

3. Do legwork. Instead of letting his agent do everything, home seller William Casper, who recently put his Pikeville, Tenn., house up for sale, is using the Internet and some networking to locate a buyer. He has been emailing a property brochure to real-estate investment groups, he says, and encouraging friends and relatives to talk up his house to anyone interested in purchasing a vacation residence in the Smoky Mountains. According to the deal he worked out with his agent, he will pay a 3% commission (instead of a more typical 6%) if he finds a buyer on his own, Mr. Casper says. He used a similar deal four and a half years ago when he sold his former home in Port Washington, Wis., he says, paying his agent 3% on a $176,000 sale.

4. Don't snooze. Time is money. The longer your house takes to sell, the more money you lose, Ms. MacBeth says. "I was talking to an agent whose client turned down an offer when her house first came on the market," she says. "That amount is what the homeowner has lowered her price to now, two months later, and the house isn't selling." Don't be too quick to turn down an offer, she suggests, because making a deal now, instead of later, can save you money in the end, especially if the housing market maintains its downward trend.

5. Negotiate. Offer concessions to potential buyers, such as making minor fixes, Ms. MacBeth says. These gestures will repay you and may earn you more money in the long run, she says. "People have to weigh the cost of doing minor repairs," she says. "All those little things, especially now that there is more inventory, are things that make a house more appealing. People forget that." Small expenditures, by possibly speeding a sale, can go a long way in preserving the substantial home-price gains that property owners experienced during the housing boom, she says. For example, in her area, she explains, some homes have appreciated a few hundred thousand dollars in recent years.

Strike a deal with your agent. Even if he can't find a buyer himself, Mr. Casper won't pay a 6% commission, he says. He has negotiated to pay 5% if his agent brings in a buyer, he says. "Homeowners don't want to spend the 6% - it is a lot of equity," he says. You might also want to consider using a discount broker to sell your home - these providers typically offer fewer services than traditional real-estate agents do, but in exchange, charge a reduced commission.

6. Play up assets. Now that there are more properties on the market, sellers must impress buyers, Manhattan homeowner Jim Savio of New York says. He says he hopes to sell his residence for $1.2 million. In anticipation of putting his property on the market, the fiction writer and professor has repainted the interior and has pared down the artwork on the walls. "The strategy is to allow a new owner to imagine himself in the place," he says.

Ms. MacBeth encourages removing clutter. "Clean out the closets and the garage," she says. "Send it to storage, donate it to charity or have a garage sale. You want to enhance your home's appearance and make it look bigger."

To attract buyers, determine what the popular "look" for houses is in your area is and mimic it, Mr. Rocker suggests. "I go to the most expensive model homes because they use interior decorators," he says. "I ask for the actual code of the paint they used and steal their colors. I put them in the exact same rooms they did."

Pay for landscaping, Ms. MacBeth says, but not too much. "Use the cheapest thing you can find," she recommends. For her own home, she opted for flowers at $15 a flat instead of ones at $30 a flat, she says. "Cost is an issue," she says.

7. Take the money and run. If local sales are sliding, you might want to get out while you can, Mr. Rocker says. "People don't know when it's time to take a loss and move on," he says. "They will keep their prices up for two years, and at the end of the day, lose 35%." If a cooling market translates into a smaller gain than you expected upon the sale of your home, consider relocating to an area with cheaper housing prices to make your money go further. "In California, people are driving an hour, two hours, to work so they can have more house for their dollar," Ms. MacBeth says.
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Beware. Some Contractors Thrive on Scams: Tip-offs to a rip-off

A 'drive-by' contractor offers you a deal. He's in a hurry, but you shouldn't be.
By: John Morell: Los Angeles Times
GARY KIERNAN says he wasn't asking for anything fancy. The kitchen of his Culver City condo needed remodeling — new cabinets, a floor and some plastering work on the ceilings and walls.

Last summer, when an acquaintance told the 75-year-old retired Pan Am employee about a contractor who could do the job for a reasonable price, Kiernan was happy to get started. "The condo was built in the early 1970s and the cabinets and flooring were falling apart," he said.

After being paid $2,500, the contractor hastily plastered parts of the ceiling, disconnected a radiant heating system, removed one wall but failed to finish the new one and never touched the deteriorating floor. And then he left. After repeated calls, the contractor told Kiernan he'd finish the job after he was done with a big construction project, but he never returned.

His remodeling funds depleted, Kiernan has tried to do what he can himself.

"I sand the plaster a little at a time each day, but I can't get too much done," he said. "I wish I'd never started this. It's been a nightmare."

Such stories are common in the home-improvement industry, experts say. Although Southern California is home to many skilled and honest contractors and tradespeople, there are some who thrive by being dishonest and others who are simply incompetent.

"For almost as long as there have been homes, there have been bad or crooked contractors," said Pamela Mares, a spokeswoman for the California Contractors State License Board. State law requires anyone hired to do a home building or repair project with a value of more than $500 to have a contractor's license.

The board receives an annual average of 20,000 consumer complaints about contractors. Last year, the board suspended, cited or revoked the licenses of 1,672 contractors. It also gave citations to 1,774 contractors operating without a license and referred more than 1,300 of those cases to local prosecutors.

Victims can be found in all communities and own homes in all price ranges. And although having money doesn't exempt someone from being cheated by a contractor or scam artist, the elderly and immigrants tend to be frequent targets, consumer watchdogs say.

"These crooked contractors try to find people who will trust them and give them fast cash without a lot of questions," said Gary Almond of the Better Business Bureau of the Southland. "They thrive on the uninformed consumer."

"There are many horror stories," said Armando Abrego, a manager with the Culver City Senior Center. "Even my own mother got ripped off, spending $500 for a guy to spread some worthless paint on her driveway.

"We try to help our seniors the best we can," he said, "making calls for them, checking on licenses."

Bad contractors fall into two camps, according to Mares: those who may have some knowledge of their craft but for whatever reason are trying to fly under the radar and earn a living without getting a license, and those who just want to rip off people. "In either situation," Mares said, "the consumer is getting a bad deal."

Although he doesn't consider himself uninformed, Kiernan neglected to check the contractor's license status and felt that, because the contractor had been recommended by an acquaintance, he already had a reference. It turned out that the license had been expired for years.

And Kiernan trusted him enough not to require a written contract, which would have made it easier to sue for doing inferior and incomplete work. Calls to the contractor for this story were not returned. Kiernan did not report the contractor.

Many people don't know where to turn when something like this happens.

In addition to incompetent contractors, there are those who use the pretense of a legitimate business to steal.

"The technical term for them is 'transient criminals,' and they have honed their skills at ripping people off," Mares said. Also known as "travelers," these groups target homeowners, churches and small businesses with handyman and contracting schemes.

"The asphalt scam they pull has always been around, and it will never go away," said Roger Hays, a fraud investigator with the state contractors board. "It's very profitable."

Basically, the scam artists roll up to a home or establishment with an asphalt driveway that's in marginal condition and offer to resurface it for a great price. "They'll tell you they just finished a project a few streets over and have extra asphalt, so they'll resurface your driveway," Hays said.

Although the finished job looks nice, it doesn't last.

"They'll spread out a thin coat, just half an inch thick instead of 2 inches, which is standard," he said. "Or they'll simply spray it with used motor oil to make it look newer."

The West Valley Christian Center in Chatsworth was nearly victimized last year by a group that showed up and offered to repave the church parking lot. The Rev. Kenneth Walters thought the price, $6,000, sounded good and asked for the contractor's license number so he could check it.

"We looked him up online and he was a licensed paving contractor in good standing, so we assumed he was OK," Walters said.

Before the work was complete, however, the state board received a tip that a paving-scam ring was working in the area. Police and investigators moved in quickly and made several arrests, including the ringleader, who had made the deal with the church, for allegedly contracting without a license. "We felt we had done our due diligence checking on his license, but we still nearly got burned," Walters said. "In our case, the contractor was using the license of a relative who had the same name."

Homeowners also should be wary of roofers who press a wet sponge to an eave during the rainy season, to make it appear that water is getting past the shingles, and tell you about the repairs you need. Investigators also warn of another scam: painters who are "just finishing a job up the street and want to keep their crews working."

Such come-ons are sometimes a front for burglars.

"A couple of them will show up at your house offering some kind of deal, and while one walks around the outside of your house with you, the other sneaks in and grabs whatever valuables he can find," Hays said.

A variation is the "collateral" trick. "A guy shows up at your door with a good price to do some work on your house and says first he needs a few hundred dollars for supplies that he'll go get in his truck," he said. "To ensure his return, he jokingly tells you he'll leave his kids with you, and one or two children will sit on your step waiting for their father to return."

After a little while, though, the kids wander off, eventually meeting up with the adult down the block, never to return.

Catching such scam artists isn't easy.

"They move around frequently and quickly," Mares said, "and they work fast."

If they're caught in a sting, "you can charge them with felony grand theft," Hays said. "But these crimes aren't usually high on a prosecutor's list. They often end up paying a fine, then changing their name and moving. It's a very lucrative business."

The first line of defense is to check a contractor's license through the state board either online at http://www.cslb.ca.gov or by phone, (800) 321-2752. However, as Walters found out, that's not always foolproof.

One common trait among contractor scam artists is that they add a time element to the job. They're between projects and can do yours right away for an incredible price, but if you want to wait until the next day or ask to check up on their references, they won't have time. According to Mares, "Unless it's an emergency project like a plumbing problem or a hole in the roof, waiting to check on their references is never a bad choice."

Travelers often use new trucks and equipment, Hays added, so don't be taken in by appearances. Check for out-of-state license plates. "They drive where the business is," Mares said, "showing up in Southern California around the spring and then moving around from there."

If you suspect you've been scammed or are suspicious of the contractor at your job site, the board suggests either calling the police or the board's Statewide Investigative Fraud Team (SWIFT) at (800) 321-2752 to check it out. "SWIFT teams are able to move in quickly and investigate a situation to see if there's been a violation," Hays said.

And to guard against incompetent contractors and help educate the public, new state guidelines went into effect Jan. 1 that call for clearly written and understandable contracts for home improvement contractors.

Overall, it pays to be vigilant when dealing with an unfamiliar contractor or handyman. But even then, that may not be enough.

"You could say we were lucky not to have paid out a lot of money for a bad job," Walters said. "I also like to think it was a divine intervention."
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Credit Score Checkup Can Make a Big Difference

Lenders will check your credit score before finalizing your loan application. Is your score the best it can be?
By: Lew Sichelman: REALTOR® Magazine Online
It’s most lenders’ standard practice to run a credit score check immediately before a borrower closes on a mortgage.

Borrowers who have taken on more debt, failed to pay bills or done anything else that change their credit score for the worse since applying may find themselves facing not only a higher rate, but also being asked to come up with a larger down payment.

Borrowers whose credit scores are on the edge should ask their lenders about two computer programs that can help.

ScoreWizard is a powerful simulator that allows would-be borrowers to scan credit files for opportunities to raise scores. Another possibility is ScoreRight, which uses common assumptions to pose ways to increase a score. Both are only available through loan officers or mortgage brokers.

These credit-advisory programs can prove valuable to anyone searching for the best rate possible. The difference between a 720 score and 580 could be as much as 3 points, according to the booklet "Your Credit Score." It was prepared by the Consumer Federation of America and Fair Isaac, the company that developed the scoring programs used by each of the three major credit repositories-Equifax, TransUnion and Experian.

On a $200,000, 30-year loan, the difference between 6.5 percent and 9.5 percent is $418 per month, $5,016 a year and $150,480 over the loan's 30-year life.
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The Weekend Guide! August 3 - August 6, 2006

The Weekend Guide for August 3 - August 6, 2006.
Full Article:
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The Benefits of Buying a Home In a Cooling Real-Estate Market

A house is still a good investment, if you plan on staying a while. Four reasons why now might be the time to make that purchase.
By: Amy Hoak: The Wall Street Journal Online
Residential real estate, a shining star of the national economy that seemed unflappable over the past couple of years, has hit a speed bump.

Nationally, home price appreciation is slowing down from the rapid pace experienced by many markets over the past few years. Mortgage interest rates are on their way up. Is this any time to be thinking about investing in a home? Of course it is - if you're buying it for a place to live, not as a speculative investment, and can afford to take the leap.

"Owning a home is still financially not a bad deal, as long as you have the income to support the cost of homeownership," said Jim Gaines, research economist for the Real Estate Center at Texas A&M University. Another caveat: "You better figure on living there five or six years to make any kind of profit on the thing."

Investors who hope to profit quickly on home sales, known as property flippers, for the most part have come and gone from the market, said Raymond Sierka Jr., vice president and regional sales manager with Harris Private Bank.

At the height of the real estate boom, people would buy houses before they were built at preconstruction rates only to sell the homes for a profit a short time later, often before construction was even complete. Speculators in some markets could often sell the property for a 20% to 30% yield, he said.

A normalized real estate landscape boots out those speculators, said Anthony Hsieh, president of online lender LendingTree.com. "It's just too risky to speculate now," he said.

People now are "buying for the right reasons," said Diana Bull, a Realtor in Santa Barbara, Calif., and a regional vice president for the National Association of Realtors. Sellers no longer hold all the cards, she said, which is creating a more balanced market.

Below are several benefits of home shopping in a cooling real estate market - the silver lining to news predicting the residential real estate party is over.

More selection

In a growing number of local markets, buyers have more time to think about a home before they make a decision on whether to purchase it. Last year, that often wasn't a likely luxury.

"Once you as a potential buyer found a house that met your needs, you had to jump on it right away," said Frank Nothaft, chief economist for Freddie Mac. "One thing that we're seeing nowadays - compared to six or 12 months ago - is many markets where homes are staying on the market longer."

Home sales are expected to decline in 2006, yet the year should finish as the third strongest on record, according to a midyear report given by Nothaft earlier this month. With fewer sales, more housing inventory is sitting on the market.

It's a change of pace for agents who not long ago didn't have many properties to show their clients, said David Drinkwater a Realtor in Scituate, Mass., and regional vice president for the National Association of Realtors.

"Two or three years ago, there was a great deal of reacting in the marketplace because we had a smaller inventory pool to work with," Drinkwater said. That's not to say that a well-priced property won't move quickly in this environment, he said, but buyers need to educate themselves so they can recognize a housing gem when they see it.

More room to negotiate

Current conditions in many markets also afford consumers a better opportunity to negotiate.

"This market is forcing everybody to slow down and take their time," Bull said. In that time, buyers have more of a say at the bargaining table.

In fact, getting a fair deal is even more of a priority for homeowners who can no longer bank on high appreciation rates to save them if they pay too much, Drinkwater said. If you slightly overpaid in a bidding war at the height of the real estate boom, high appreciation rates helped correct the error, he said. In many markets there is now no such safety net.

Average home value appreciation nationwide should be around 7% for the year, and is predicted to slow even further to 6.2% in 2007, according to Freddie Mac. Local markets vary, however, and even as some markets are cooling, others are still on an upward climb.

Even if you, as a buyer, have the benefit of being more of a haggler than you could have been last year, still remember to look for a place that meets your needs and your budget, Nothaft said. Do the calculations and lay the groundwork before your house hunt ever begins.

Interest rates are still relatively low

It's easy to get caught up in the upward scooting of mortgage interest rates. But take the northward movement with a grain of salt.

Some people act like "Chicken Little" and feel as if the sky is falling when interest rates go up a quarter of a point, said Gaines of the Real Estate Center in Texas. Instead, keep it in perspective.

Interest rates are still way below what they were five or six years ago, Gaines said. Even if the 30-year hits 7% by the end of the year, investors should keep in mind the double-digit rates of yesteryear.

The annual average for a 30-year fixed-rate mortgage was 16.63% in 1981, and worked its way down to 9.25% in 1991, according to Freddie Mac records. Homeowners may not get rates quite as low as what they could secure in 2004, when the annual average for the 30-year fixed was 5.84%. But relatively speaking, it's still a deal.

A home is still a good investment

If you're in it for the long haul - that is, buying a home with the intention to live in it for years - a home is still a decent investment.

Consider this piece of information from the National Association of Realtors: Since record keeping began in 1968, the national median home price has risen every year. In a balanced market, home values typically rise at the general rate of inflation plus 1.5 percentage points. That's to say nothing of the tax benefits that come with owning your own home.

A look at the volatility of the stock market also proves the benefits of real estate as an investment, said Sierka, of Harris. "The downside of real estate is better than the downside on just about anything else," he said.
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