The 10 Best Places to Own Real Estate in 2007

Secondary markets will have the best buys in the new year, analysts say.
Fortune: REALTOR® Magazine Online
The housing market looks particularly healthy in the Southeast, according to Fortune and Moody’s Economy.com.

The top market, McAllen, Texas, is predicted to rise 8.5 percent in 2007, and another 9.8 percent in 2008. In all, four of the magazine’s hottest U.S. home markets forecast for next year are in Texas.

Also on the list are two markets in upstate New York: Syracuse and Rochester.

Here’s the list of the 10 housing markets that are projected to rise the most in 2007 and 2008:

McAllen-Mission, Texas; El Paso, Texas; Albuquerque, N.M.; Salt Lake City; Syracuse, N.Y.; San Antonio, Texas; Rochester, N.Y.; Baton Rouge, La.; Fort Worth-Arlington, Texas; and Birmingham, Ala.
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2006 Was a Banner Year for Commercial

Commercial real estate represents 90 percent of the most-expensive deals of the year, the top eight of which are each more than $1 billion.
By: Maya Roney: REALTOR® Magazine Online
Half of the largest-ever, U.S. single-asset real estate deals in history were announced or closed during the past 12 months.

Commercial real estate represents 90 percent of the most-expensive deals of the year, the top eight of which are each more than $1 billion.

The largest deal of the year — and of all time — was the sale of MetLife’s Stuyvesant Town residential complex in Manhattan to Tishman Speyer for $5.4 billion.

Other colossal transactions include the pending $1.8 billion sale of the Mall of America in Minnesota, San Francisco’s $1.05 billion Bank of America Center, and the $880 million State Street Financial Center in Boston.

“We’re seeing a wave of capital that has entered or would like to enter the commercial real estate industry,” says Dan Fasulo, director of market analysis at Real Capital Analytics, a commercial real estate research firm. “And there are no signs of abatement anytime soon,” he adds.
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Consumer Confidence Soars in December

The Conference Board reports that consumers' confidence in the economy rose to an eight-month high, which could signal an end to the housing downturn.
By: Martin Crutsinger: REALTOR® Magazine Online
Consumer confidence rose to an eight-month high in December, which could signal the worst of the housing downturn is over.

The Conference Board reported Thursday that consumer confidence was at 109.0 in December. That is only slightly below last April’s 109.8, when confidence hit the highest point in four years. The slumping housing market and gas prices have been blamed for its more recent declines.

This rise reassured some analysts that a slowing housing market won’t cause people to stop spending, which could then possibly contribute to an outright recession — similar to the bursting of the stock market bubble in 2000 that helped trigger the 2001 downturn.

But others remain cautious. "Given the seesaw pattern in recent months, it is too soon to tell if this boost in confidence is a genuine signal that better times are ahead," says Lynn Franco, director of the Conference Board's consumer research center.
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Investors are looking for cash-flow potential from small commercial investment properties.
By: Ruth Simon: REALTOR® Magazine Online
Property investors obtained large mortgages during the most recent housing boom in the hopes of capitalizing on rapid home-price appreciation by quickly buying and reselling, or "flipping," single-family homes and condominiums. No more.

In the current market downturn, investors are focusing their attention on small rental apartment and commercial buildings, primarily in Texas and other markets where price gains are still anticipated.

Rather than flip these properties, investors are concentrating on cash flow and generating profits over the long term. Developers, especially those in Florida and Philadelphia, are responding to market changes with deals that promise five years' worth of rental income.

Investors accounted for only 8.4 percent of home sales from January through September, according to First American LoanPerformance-down from 9.5 percent during the corresponding period in 2005. In the third quarter, the company reports a 70-percent drop in mortgages to purchase investment homes from the previous July-through-September period. Deerfield, Fla.-based real estate consultant Jack McCabe says investors have largely fled southern Florida, Phoenix, Las Vegas, San Diego, and the District of Columbia-markets where high home prices and a slowdown in sales have made property investments less feasible.

Experts report that single-family homes and condos will experience minimal appreciation during the next five years, and investors who bought during the boom either can sell at a discount or take a moderate loss by holding onto their properties while waiting for the market to pick up.
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Existing-Home Sales Rise Again

Total existing-home sales rose 0.6 percent to a seasonally adjusted annual rate of 6.28 million units in November, up from 6.24 million the previous month.
REALTOR® Magazine Online
Existing-home sales continued to recover last month following a rise in October, with the level of sales activity suggesting a turn in the market, according to the NATIONAL ASSOCIATION OF REALTORS®.

Total existing-home sales — including single-family, townhomes, condominiums, and co-ops — rose 0.6 percent to a seasonally adjusted annual rate of 6.28 million units in November, up from 6.24 million the previous month. However, that is still 10.7 percent below the 7.03 million-unit pace in November 2005.

“As the housing market recovers from its correction, existing-home sales should be rising gradually during 2007," says David Lereah, NAR's chief economist. "It looks like we may have reached the low point for the current cycle in September. We’ve entered a more sustainable period of home sales now, and we expect greater support for prices over time as inventory levels are eventually drawn down.”

Total housing inventory levels fell 1 percent at the end of November to 3.82 million existing homes available for sale, which represents a 7.3-month supply at the current sales pace.

Window Opens for Buyers

The national median existing-home price for all housing types was $218,000 in November — which is 3.1 percent lower than November 2005 when the median price was $225,000. The median is a typical market price where half of the homes sold for more and half sold for less.

“For every 1 percent drop in home prices, we project an additional 50,000 buyers are drawn into the market,” Lereah says.

According to Freddie Mac, the national average commitment rate for a 30-year, fixed-rate mortgage was 6.24 percent in November, down from 6.36 percent in October; the rate was 6.33 percent in November 2005.

“Mortgage interest rates are the lowest they’ve been since January, and it’s the first time since August of 2005 that interest rates are lower than a year earlier,” says NAR President Pat Vredevoogd Combs, from Grand Rapids, Mich., and vice president of Coldwell Banker-AJS-Schmidt. “This is increasing buying power at the same time that sellers are showing a willingness to negotiate price and terms. Combined with a plentiful supply of homes on the market, there’s a window for buyers now with conditions that we haven’t seen prior to the beginning of the housing boom in 2001.”

Single-family home sales increased 0.2 percent to a seasonally adjusted annual rate of 5.52 million in November from a pace of 5.51 million in October, but were 10.2 percent lower than the 6.15 million-unit level in November 2005. The median existing single-family home price was $217,200 in November, which is 3.6 percent lower than a year ago.

Existing condominium and cooperative housing sales rose 3.1 percent to a seasonally adjusted annual rate of 757,000 units in November from a downwardly revised 734,000 in October, but were 13.6 percent below the 876,000-unit pace in November 2005. The median existing condo price was $224,600 in November, which is unchanged from a year ago.

What's Happening Regionally

NAR reports the following changes in regional markets:

    • Existing-home sales in the Northeast increased 6 percent to a level of 1.06
      million in November, but were 4.5 percent below November 2005. The median
      existing-home price in the Northeast was $269,000, down 2.2 percent from a
      year earlier.

    • Existing-home sales in the West rose 0.8 percent to an annual pace of 1.32
      million in November, but were 17.5 percent lower than a year earlier. The
      median price in the West was $351,000, down 0.8 percent from November 2005.

    • Existing-home sales in the Midwest were unchanged in November, holding at a
      level of 1.42 million, but 9.6 percent lower than November 2005. The median
      price in the Midwest was $165,000, which is 3.5 percent below a year ago.

    • Existing-home sales in the South fell 1.6 percent to an annual sales rate of
      2.47 million in November — 10.2 percent below a year ago. The median price in
      the South was $179,000, down 3.2 percent from November 2005.

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Homeowners insurers slash rates in California

Insurance commissioner says consumers will save $439 million annually
Inman News
Farmers Insurance - California's second-largest homeowners insurer - will lower its rates in the state by 18 percent, joining State Farm, Safeco, Hartford, USAA, Nationwide and Kemper in heeding Insurance Commissioner John Garamendi's call for lower rates.

Garamendi, who will be sworn in as California's lieutenant governor Jan. 7, said the rate reductions by all seven companies will save homeowners $439 million a year on their insurance policies.

Farmers' rate cuts apply to the company's Special Form, Protector Plus, Renters and Condominium Owners policies, and are likely to take effect in June, the Department of Insurance said in a statement.

Farmers will increase the dual auto-home discount from 12 percent to 15 percent and provide discounts for newer and newly renovated homes. Farmers is also introducing a claim forgiveness policy for customers who remain claims-free for six or more years before filing a claim.

After a study concluded that four of the state's insurers were paying less than 50 percent of each premium dollar on claims, Garamendi in June ordered Allstate, State Farm, Farmers and Safeco Insurance to justify their homeowner rates. The study, "Lower Claims, Higher Profits: Where Do Your Premium Dollars Go?" found auto and homeowners insurers experienced historically low loss ratios in 2004 and 2005.

The study found that in 2005, Allstate paid out 41 percent of collected premiums; Farmers paid 37.7 percent; and Safeco paid 26.3 percent. Some insurers have claimed that they need to keep a large percentage of premiums to build financial reserves and surplus, but Garamendi has argued the companies have strong financial reserves.

According to the study, State Farm paid out 104.9 percent of its collected premiums to settle claims in 2003, but still posted a profit from investment and other income. The next year State Farm kept 68 percent of collected premiums, and in 2005 kept 62.4 percent.
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Hispanic Home Ownership Skyrockets

The number of Latino home owners in this country increased 81 percent between 1995 and 2005, compared with a 19 percent gain among non-Hispanic buyers.
By: Rodney Tanaka: REALTOR® Magazine Online
The number of Latino home owners in this country vaulted a staggering 81 percent between 1995 and 2005, according to the National Association for Hispanic Real Estate Professionals Web site.

The site also reports the ownership rate among non-Hispanics buyers gained just 19 percent during the same 10-year period.

According to NAHREP, Latinos will account for 40 percent of all first-time home buyers during the next two decades. Hispanic surnames already account for eight of the top 10 home buyer surnames in California, based on 2005 research by the CALIFORNIA ASSOCIATION OF REALTORS®.
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The Weekend Guide! Best of 2006: Short and Sweet

Best of 2006!
Full Article:
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REITs Up 30 Percent, Enjoy Record-Setting 2006

Savvy investors are those that had their money in REITs this year.
By: Diya Gullapalli: REALTOR® Magazine Online
Real estate-focused mutual funds are turning out to be the best investment decision anyone could have made in 2006.

Real estate investment trusts (REITs) have risen more than 30 percent this year, compared with 13 percent for the Standard & Poor’s 500-stock index.

Even most of the worst real-estate funds have delivered twice as much as the average U.S. stock fund in the past year.

Real-estate watchers are generally predicting a favorable outlook for REITs in the next year. A Goldman Sachs Group Inc. report last month predicted a continued recovery of occupancy and rental rates.

And this fall, fund-researcher Morningstar Inc. noted plusses for REITs like high home prices forcing more people to rent, making it a landlord's market. At the same time, high prices for commodities needed to build new properties has kept the supply of new buildings low.
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Top 10 Trends That Shaped U.S. Cities in 2006

Growth of poorer households in the suburbs is among the big changes impacting cities, a study finds.
By: Camilla McLaughlin: REALTOR® Magazine Online
For 10 years, Brookings Institution’s Metropolitan Policy Program has charted trends and highlighted challenges facing America’s metro areas. This year’s big picture: Statistics might portray an economy on the rebound, but many parts of the country and many households don’t share in that success.

Ten noteworthy trends, according to Brookings, that standout for 2006:

1. For the first time, there are more poor residents in the suburbs than in central cities.

2. Six percent of the population in large U.S. metropolitan areas live in exurbs, communities on the fringe of urban centers. Exurb characteristics: 20 percent of workers commute to city jobs; low housing density; high population growth.

3. More than one-third of the nation's loss of manufacturing jobs between 2000 and 2005 occurred in seven Great Lakes states: Illinois, Indiana, Michigan, New York, Ohio, Pennsylvania, and Wisconsin.

4. America's older, inner-ring first suburbs, the earliest suburbs that sprang up around center cities before and during World War II, make up 20 percent of the nation's population and are more diverse and older than the nation as a whole.

5. The average U.S. household spends 19 percent of its budget on transportation, rendering household location a key component of housing affordability.

6. Nationwide, more than 4.2 million lower income home owners pay a higher than average APR for their mortgage. Lower income households, those earning less than $30,000, pay 6.9 percent compared with an average rate of 6.5 percent for those earning $30,000 to $60,000. Those with incomes above $120,000 paid a rate of approximately 5.5 percent.

7. The leading refugee destination metro areas have shifted away from traditional immigrant gateways, such as Los Angeles and New York, over the past two decades to newer gateways, such as Atlanta, Portland, Seattle.

8. The fastest-growing metropolitan areas for minority populations from 2000 to 2004 now closely parallel the fastest-growing areas in the nation. Las Vegas, Atlanta, Orlando, and Phoenix are now prominent centers of minority population growth.

9. Middle-income neighborhoods as a proportion of all metropolitan neighborhoods declined to 41 percent in 2000 from 58 percent in 1970, disappearing faster than the share of middle class households in these metro areas.

10. Of the $109 billion in federal appropriations dedicated to Gulf Coast funding in the first year after Hurricane Katrina, only about $35 billion went toward the long-term recovery of the region.
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Credit card debt brings bad news for widow

Spendthrift husband dies, but someone must pay for charges
By: Ilyce R. Glink: Inman News
Q: A friend of mine, who is a resident of Illinois and Louisiana, was widowed after her husband's recent death. She now has discovered that he had an enormous credit card debt. Most of the credit cards are in her dead husband's name. She had nothing to do with the acquiring of these cards, nor did she spend any money on them. Is there any way she can be exempt from paying off the debt? Her name is on only one of the credit cards and she didn't even ask to be on it. The only thing they own together is a car dealership in Illinois, which hasn't sold as of this date.

The house that she left in Illinois is being sold and the closing is scheduled for the next few days. She is now living here in Ruston, La., and is about to begin making payments on the home here.

If you could advise me on this matter I shall dance at your next wedding, possibly bake you a grand cake and a Cajun etouffee. The magic words of "she does not have to pay" would set my heart a flutter and save this 78-year-old woman from a possible stroke.

A: First, it sounds as if your friend and her husband had some considerable assets. His share of those assets would have to be used to pay off the credit card debt before your friend could get what is left. The executor of the estate will have to find out what kinds of debts your friend's husband incurred and make a good faith effort to get them paid out of the estate monies.

Now, let's talk about your friend. If your friend was a co-signer to the credit card accounts, whether or not she had a card, then she is liable for the charges.

If your friend was not a co-signer, then she is not responsible. If she has a card in her name, it may be that her husband simply gave her a card, but remained the sole authorized signer on the account.

She needs to call the credit card companies and ask them to show her the authorizing documents. If she personally signed and put down her Social Security number, she probably is liable.

But she may also be liable for some of the debt if she benefited from anything that he bought with the cards, including a car, clothing, food, vacations, jewelry, etc.

Your friend needs some serious legal advice, preferably from a good estate attorney.

Thanks for your letter. I wish you and your friend a happy holiday season.

Q: I'm a 66-year-old man and former IBM employee (I still own every share I ever bought). I retired last year on disability, and have no dependents or heirs except for my 92-year-old mother, who is in fine health. I have tons of equity in my home, and I also own an investment property that is currently rented in Huntsville, Ala. What would be the downside or risks to my getting a reverse mortgage? Where would I find out about the costs and fees?

A: My first thought, after reading your letter, is why would this guy want to get a reverse mortgage? It sounds as though you have plenty of cash to live on. And if you want more money, you can start to sell your stock.

In general, a reverse mortgage is something you consider if you have no other alternative and want to stay in your property. They tend to be expensive, relatively inflexible, and they will eat up most of the equity in your property.

But perhaps that's what you're trying to do. You have no heirs or responsibilities, other than your mother, of course. So perhaps you're trying to follow the advice of some of the best-selling personal finance authors and the book "Die Broke."

If you are going to get a reverse mortgage, I urge you to do a little research. Try www.reverse.org, which is a Web site run by Ken Scholen, who originally helped formulate reverse mortgages. He has written an excellent book on the subject and now works for AARP, known as the American Association of Retired Persons. There is helpful information up on the Web sites of www.homepath.com (Fannie Mae's Web site, search for "reverse mortgage") and at www.HUD.gov.

You may also want to contact lenders in your area and request that they give you an itemization of costs that would be associated with a reverse mortgage.
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Realtors give readings on local markets

Part 2: Word-On-The-Street market snapshots
By: Matt Carter: Inman News
Editor's note: No one knows the local real estate market better than Realtors. In this two-part series, Inman News sought out local insights on what's happening on the ground and what agents think is in store for 2007.


David Elya
Broker/owner
Realty Executives Group
Shelby Township, Mich.

How is your market?

"It's a great time to buy right now. There's ample inventory to choose from. A lot of buyers are moving up, finally getting the home that they wanted - a bigger, better home at a better price. It's just taking a little time sometimes to sell their own homes and get those priced fairly."

What's happening with prices?

"Prices for the most part, over the last year, have probably declined slightly as far as average sale price. It's all relative because the next home that people buy will be a good value as well, so it's really a good time right now to buy a home."

What do you anticipate the market will be like next year?

"Well, from what I hear about interest rates coming down, and the amount of inventory available, I think it's a good time for a lot of first-time home buyers to purchase their first home."

What industry issues are you following?

"There's a lot of issues that are coming down the pipeline. A lot of them have to do with the Internet, and how the Internet is used by today's consumers. There's regulatory issues especially now with the whole change in Congress, and the House; there are some things we're unsure of as far as … the Realtor-friendly policies and which way the wind is going to blow. On the state level there are a lot of issues especially when it comes down to jobs, and the lack of jobs, and how people can afford homes if they stay in the state of Michigan.

What's the biggest issue facing the industry next year?

"I would think affordability of homes, and the fact that a lot of sellers may not have the equity in their homes that they thought they had at one time, because the ample supply of homes tended to bring prices down a little bit. So they might not be able to sell for what they owe."

Do you plan to invest in new technology in 2007?

"Yeah, I'm kind of a techie guy. I'm always looking for different avenues. I just purchased a new camera at the show I'm going to play around with, and do some things, uploading some things on the Web. There's a lot of things Internet-wise that today's buyers are looking for and I feel like I'm on the cutting edge as far as helping the buyer, as well as assisting the seller get top dollar for their home.

"I have over 100 Web domains myself right now. I have a lot of Internet Web sites geared specifically for neighborhoods or even counties. Home searches - I have Web sites that help people look for condos versus look for homes, I have community-related ones, for cities, so that and when I do get a new listing, I have a URL for the homes, each one has an individual site. I have a way to host all my Web sites at relatively low cost. For the last 10 years I've been doing it, I feel I'm a little bit ahead of the curve, maybe."


Dani Gilchrist
Realtor
Windermere Real Estate/Tri Cities
President-elect, Tri-City Association of Realtors
Kennewick, Wash.

How is your market?

"My market is fantastic. It's a balanced market - we never had the highs, we never had the lows. We have an excellent economy and the market is just doing great. Inventory is a little higher than it had been, but we sold 10.3 houses a day last year; this year we're selling 9.9, so it's down slightly but not bad. "

What's happening with prices?

"Our median price is about $174,000, which is very affordable, and so the prices have not gone up or down - they pretty much stayed the same. Excellent market. We have buyers. We're in a desert, in eastern Washington, which has 300 days of sunshine a year and warm, hot weather like Las Vegas. A lot of California buyers are moving in because they can golf year round and buy a big house for a lot less than they could in California. We are seeing second homes. We have a phenomena in our market where you come to visit, whether it's a relative or a friend, and you come back and live there because the job market is so good. "

What do you anticipate the market will be like next year?

"I anticipate they will stay the same or be better. We are in a market where they are doing a government project that will last until the year 2026. So the market is very good in our area. (The project is) glassification, or vitrification, turning spent plutonium into glass cubes, glass tubes. We are where the Manhattan project was in the '40s. Yucca Mountain woke up, Las Vegas woke up, and they won't take it. We probably are going to end up storing it right there in our own backyard. It is a positive thing. There's 26 miles of the Columbia River that's never been touched, and with this project the government is actually going to turn it into a park. They're containing the radiation, and I think the outcome is going to be fantastic. We also have the second-largest wine industry in the U.S. and may take over Napa Valley."

What industry issues are you following?

"We don't have any. We hear so much doom and gloom in the national news, and we don't have that. So my job as president (of the Realtors Association) is to be sure - because the national news is telling the buyers and sellers that (the market is down), and they believe it. And we have to convince them that's not true in every market."

What's the biggest issue facing the industry next year?

"Obviously we'd like to keep banks out of the real estate industry, but outside of that, nothing specific. Hopefully the interest rates will stay down, and not continue to go up. I think that will help the industry a lot."

Do you plan to invest in new technology in 2007?

"We, our board, we have our own Web site. We are giving ZipForms to all our agents, free. The board bought them for them. I have my own Web site; my company has its own Web site. And you know what? Those buyers use those Web sites religiously, but when they get ready to buy they call an agent. "


Jhonson Napoleon
Broker/owner
Napoleon Real Estate Group
Miami, Fla.

How is your market?

It's kind of slow. Inventory is high - very, very high right now, actually. (I'm) Hoping pretty soon (it will) go down, because no hurricane came through this year."

What's happening with prices?

"Prices still the same, actually. Prices, the owners don't want to budge. I think we need more good press. The press doesn't help at all. You guys need to start talking much more good things."

What do you anticipate the market will be like next year?

"My anticipation would be back to 2004 levels. If it does it would be very, very good for us."

What industry issues are you following?

"Of course interest rates. If interest rates would go lower, of course buyers would want to buy. (The) job market is good, but in a fragmented market like Miami, foreign immigrants' income is not to par with housing prices. If those people can get papers to be legal to work, the market would go back again and they would work and make money."

Do you plan to invest in new technology in 2007?

"Not right now. Basically I have all there is available in the market. I've been using the Internet since 1992 in my practice so it's very heavy. Mass e-mail, Web sites, generating leads."


Kevin Goedker
Broker
C-21 Brainerd Realty
President, Greater Lakes Multiple Listing Service
Brainerd, Minn.

How is your market?

"Our real estate market is seeing some adjustment from the past few years, but it's still a good market. I've been involved in real estate myself for 13 years, and (my family was) involved in the market back in the '80s, so I'm familiar with all kinds of markets. There's still activity going on this time of year. In Minnesota, it usually slows down naturally because of the winter. So we're actually seeing typical activity right now during the winter. Again, it all depends on what price range and what type of property. There's some properties that we're selling in a matter of days, investment type of property, but then there's other properties that are sitting on the market a little longer because of so much more inventory. There's almost $2 billion worth of real estate on the market in my market right now. It's $1.7 billion worth of real estate right now.

What's happening with prices?

"I wouldn't say that anything's values are going down. I would say they have slowed from what they were. As an example, one particular area in the town I'm in has experienced a pretty regular 10 (percent) to 12 percent increase in values for the last five years. At this point, I would say it's probably half that. In some parts of that, the higher-end area, (there's) probably zero appreciation. But some of the lower values in that area are probably still experiencing 10, 15, 20 percent appreciation because of demand. It all comes back to supply and demand."

What do you anticipate the market will be like next year?

"There's buyers out there. Again, it depends on what kind of property but there's definitely a lot of buyers out there. I think some of them are hesitant, they're looking for that perfect place, and right now there's so much to choose from that I think in some ways that affects their making a decision as quick as they have in the past."

"Our economy where I’m at is very good. We have an area where people are moving to (in order) to retire. It's probably one of the fastest-growing areas in the state. It's central Minnesota. It's expected to almost double in size in the next 15 to 20 years. ... A lot of retirement people are moving to that area, a lot of people buying second homes in that area because we've got lake homes, and a lot of retirement things, medical facilities, so it's a nice place to not only have a second home but also retire at. So we still have people moving to that area, which means that there needs to be jobs of all ranges to address the influx of people.

"There's a base of people that live in Minnesota that maybe don't have a lot of money to retire to Florida or something like that. They're retiring to my particular area because there's hospitals there, there's growth there, that way they're able to be close to those facilities. Right now they might live in a more rural area. The city I'm in is only about 13,000, 14,000 people."

Do you plan to invest in new technology in 2007?

"That's one of the things I always look forward to at the (National Association of Realtors) convention - to get different ideas. And being an e-Pro, an Internet-certified Realtor, I understand that the Internet is very important. We're seeing a large push to move from paper advertising to more Internet advertising. I already do a lot of Internet advertising, but expect to be investing more in not only my Web site but in some other lead-generation tools on the Internet. Not only in site optimization, but lead-generation tools."
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Buying home for parents comes with risks

Finances, credit at mercy of cash-strapped relatives
By: Ilyce R. Glink: Inman News
Q: I have a question on behalf of my brother-in-law. His mother and stepfather have asked him to purchase a home for them in his name since they do not qualify. My brother-in-law has a good credit score and credit history. The reason he hasn't purchased a home himself is because he is in the military. He is constantly being transferred from base to base, if not to Iraq.

I advised him to purchase a home for himself and rent it out as an investment since he does have the resources. His mother and stepfather are looking to purchase a home for almost $500,000 dollars. They claim they will transfer the property to their name within two years, and get a mortgage at that time.

I want to know if it is possible for them to qualify to take over a mortgage of that amount in two years' time since they are not even close to qualifying right now. Also what would be the advantages and/or disadvantages for my brother-in-law if he purchased a home entirely under his name but then let someone else use it.

A: It takes more than good credit to purchase a $500,000 house. You also need to show that you can afford to make the payments on this property.

If your brother-in-law has good credit, is prepared to put down a substantial amount of cash on the property, and has the income to qualify for the loan, he may be able to buy the home for his mother and stepfather. It's a very different question, whether his mother and stepfather will develop the credit and income to qualify for the home if they can't qualify now.

A conventional lender would allow him to borrow three or maybe four times his gross annual income, and that's with a 20 percent down payment. He would need $100,000 in cash, and then be able to afford a monthly mortgage payment of $2,528 on a 30-year fixed-rate loan. If he did an interest-only loan, he'd pay around $2,100 per month.

That's fairly hefty mortgage for anyone to shoulder. Of course, if he has saved $200,000 or more in cash, it changes the equation.

Assuming he can afford to buy a home at this price point, let's talk about the advantages (of which there are few) and disadvantages (of which there are many) of this kind of arrangement. As far as I can see, the only advantage is the emotional quotient of the transaction. He may feel it's worth a lot to help them out in this situation. As for disadvantages, your brother-in-law is putting his credit and cash on the line for his parents. I assume they'll make the mortgage, taxes and insurance payments each month, plus do the required maintenance and upkeep of the property.

If not, your brother-in-law could find his good credit wiped out. That would prevent him from buying his own property when he is ready. His credit will be tied up with this $500,000 home for a long time to come. Leaving aside the issue of being compensated for his investment and trouble, it's important that he make sure he's not hurt in doing his relatives this big favor.

What else could he do? I think your advice is sound: If his in-laws are looking for a place to live, your brother-in-law should purchase something he can afford particularly if the home his mom and stepfather want may be beyond his reach and rent it to them. If, in time, they're able to make the payments, they can purchase the house from him down the road with a conventional mortgage.

Q: I signed a quitclaim when I purchased my first new home because I am partnered with a woman. I was told this was a way that she could have something to hold on to in case we were ever to break up. I just want to know if this means I no longer have ownership in our property. I know it's pretty late in the game to be asking this question but could you please help me understand if I still have ownership in our home? Thank you.

A: I'm not sure what you've done, so it's tough to give you advice. But, I'll make an educated guess. The quitclaim deed you signed, if executed correctly, would have given away some or all of your ownership interest in the property. You did not add your partner to the mortgage, however, which you are still obligated to pay in full.

How much did you give away? You might have given your partner some or all of the property. It's hard to know without seeing the actual document you signed. (You may have also violated your mortgage obligation to the lender if you gave away all of the property.)

What I'm unclear about is why you did this. You clearly wanted to protect your partner, but there are easier and smarter ways to do it. If you were worried about her surviving you after your death, you might have purchased an inexpensive term life insurance policy. For a few hundred dollars a year, you could have named her the beneficiary of a policy worth up to $500,000.

You could have also written a will naming her as owner of the property after your death. Once you're gone, she would have had ownership of the property and a tidy amount of cash to help her make the payments.

If you wanted to give her something in case you broke up, it would have been easier to retain full ownership of the property and simply sell the house down the line or take out a home equity loan and give her cash. By giving her some or all of the property, you've lost control. If you break up, she may be able to force you out of the home and you may still have to make the payments on the mortgage, or risk ruining your credit.

This is a lot of control you've handed over. What I'd like you to do now is gather up your documents and make an appointment with a very good estate attorney. You can get a referral to someone through your local bar association. The estate attorney might have other suggestions for your situation. The suggestions may include having wills and even a partnership agreement for the home and other joint interests the two of you may have.

You need to understand what you've done, what the potential ramifications of your actions are, and what you can do now to make the best of this situation. You may be able to help your partner and yourself out in different ways by structuring the ownership of your home by other ways.
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Flippers still profit in real estate slowdown

But selling too soon after renovation has tax, profit consequences
By: Robert J. Bruss: Inman News
Are you a real estate "flipper" or a "keeper"? Most home buyers are keepers, owning their houses and condos for five or more years. However, even as residential sales prices currently "stagnate" or "plateau" in most cities, according to the latest statistics from the National Association of Realtors and other sources, flippers continue to profit.

WHAT IS A REAL ESTATE FLIPPER? There is no official definition, but a real estate flipper is a buyer who acquires a property and holds title less than 12 months. Other names for property flippers are "quick turn specialists" and "speculators."

"Buy low, sell high" is the motto of flippers.

There's nothing wrong, illegal, immoral or fattening about that. However, buying low and selling high isn't always easy.

Real estate flippers usually must add value to earn profits. Not only do flippers buy 25 percent or more below the market value of equivalent property in good condition, but they increase the purchased property's desirability by improving it to increase the value more than the costs incurred.

The most profitable real estate example of adding more value than the improvement costs is fresh paint. Everybody has witnessed a shabby run-down house suddenly brought to life by exterior painting.

Although your results will vary, spending $1,000 on exterior paint of a house often produces $10,000 increased market value, sometimes more. Interior paint can produce similar profitable results.

SPECIAL TAX BREAK FOR OWNER-OCCUPANT FLIPPERS. If you enjoy tax-free income, consider becoming an owner-occupant flipper. That means you buy a house or condo, move in to make it your full-time principal residence for at least 24 months, and then profitably resell it after making valuable improvements that add more market value than they cost.

Thanks to Internal Revenue Code 121, your principal-residence sale profit is then tax-free up to $250,000 (up to $500,000 when both spouses meet the occupancy test and file a joint tax return in the year of sale).

WHO SHOULD BECOME A REAL ESTATE FLIPPER? Flipper properties are especially attractive to beginner real estate investors getting started. Having earned substantial profits from fast-flip properties, I am aware the profits don't always materialize as quickly as expected.

For this reason, especially for the first few properties, a "get rich slow" attitude is best. Later, after experience is gained, flipping properties becomes easier, perhaps even developing into a full-time profitable business.

Flippers are especially ideal for investors with a flare for spotting sound, well-located real estate in need of upgrading. When you see a run-down house and cry out "yuck," you are a potential property flipper.

SECRETS OF PROFITABLE PROPERTY FLIPPERS. Although any type of property can be flipped, most flippers specialize in houses because they offer the best potential and the largest market of prospective buyers. The secrets of profitable property flips include:

1. Find a motivated seller who wants to sell due to an urgent reason and is willing to sell below market value in return for a quick sale. Strong seller motivations include out-of-town job transfers, unemployment, divorce, financial problems, illness, death in the family, and moving to a better house.

2. Look for fix-up properties needing inexpensive cosmetic work. "El dumpo" houses often just need fresh paint, new light fixtures, cleaning and minor repairs, new carpets and flooring, and fresh landscaping.

Examples of unprofitable but necessary fix-up work to avoid include structural changes, new roof and foundation repairs, which are very expensive but add little or no market value.

3. Search sources of "fast flip" properties, including real estate agents, newspaper classified ads, foreclosure sales, probate sales, bankruptcies, expired MLS (multiple listing service) listings, vacant rental houses, absentee out-of-town owner lists, and properties with unpaid property taxes.

4. Drive around desirable neighborhoods looking for vacant, run-down or abandoned houses. Jot down the address, take a digital photo to remember the house, and then check the owner's mailing address at the tax collector's office to discover an owner who might be anxious to sell.

If you discover a house that has been owned for many years, often with a small or no mortgage and a large equity, that owner might be extremely eager to sell at a bargain price.

DISADVANTAGES OF FLIPPERS. But flipper properties, even when they produce large profits, are not without possible disadvantages such as:

1. Profits from the sale of investment properties held less than 12 months are taxed at ordinary income tax rates. However, when a flipper holds title more than 12 months, then the sales profits are taxed at the long-term capital gains tax rate, currently 15 percent or less, plus applicable state tax.

Of course, if you own and occupy the property as your principal residence more than 24 months within the last 60 months before selling, then your profit up to $250,000 (up to $500,000 for a qualified married couple) is completely tax-free. Home sellers who repeatedly sell their homes every 24 months are known as "serial home sellers."

2. Some flippers don't enjoy the work of fixing up property to add market value. Serious flippers quickly learn do-it-yourself work wastes time and money. The smartest flippers hire professional contractors. However, obtaining cost estimates and supervising workers can be time consuming.

The goal of every property flipper is to add at least $2 of market value for each $1 spent on cosmetic improvements. Wise management can often orchestrate improvements on a typical house to completion within 30 and 60 days.

3. Fast flippers who sell quickly after completing their added-value improvements forfeit long-term market-value appreciation, which has averaged about 5 percent annually, according to the National Association of Realtors. In recent years, this annual appreciation was even greater.

CONCLUSION: Flipping properties for resale profits is a great way to start investing in real estate. But flippers should be aware of the pros and cons of this profit opportunity, including the income tax aspects of long- and short-term profits. A valuable resource is an excellent new book, "Flipping Properties for Dummies," by Ralph Roberts, available in stock or by special order at local bookstores, public libraries, and www.Amazon.com.
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Former Playboy Building Sold

The former headquarters of Playboy Enterprises Inc. has been sold to Palo Alto-based Broadreach Capital Partners along with an adjoining shopping center for $100 million.
By: ALLEN P. ROBERTS Jr.: Los Angeles Business Journal Online
The Sunset Millennium complex, located in West Hollywood, was sold by New York-based Apollo Real Estate Advisors, and according to reports, Broadreach is planning to refine the existing retail center by adding upscale shopping and high-end restaurants.

Apollo renovated the 43-year-old building in 2001 and built the shopping center next door a year later with plans to further develop the area.

However, development has faced opposition by local groups saying further development to the west will increase traffic and pollution. However, a Los Angeles Superior Court judge ruled in favor of the project earlier this year, which includes plans for two hotels and a condo complex.
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Marriage easiest path to full real estate tax break

Only one spouse's name on title will qualify couple
By: Robert J. Bruss: Inman News
DEAR BOB: My partner has owned his house for 22 years. I have lived in the same house for 12 years. We plan to sell the house next year. Are we eligible for the $500,000 principal-residence-sale tax exemption? -Ronald S.

DEAR RONALD: If your name is not on the deed, for federal income tax purposes you are not a co-owner entitled to the $250,000 exemption that a principal-residence owner can claim thanks to Internal Revenue Code 121. Of course, that's presuming the owner has owned and occupied the principal residence at least 24 of the last 60 months before sale.

A qualified married couple filing a joint tax return in the year of home sale can qualify for up to $500,000 tax-free principal-residence sale profits, but only one spouse's name need be on the title. However, there is no similar exemption for partners who are not married unless both names are on the title. For full details, please consult your tax adviser.

IF LIFE TENANT DOESN'T PAY EXPENSES, SHE CAN BE REMOVED

DEAR BOB: My stepmother has a life estate in the house where she and my late father lived together. After his death, his will provided a life estate for her. When she passes on, I am to receive the house. But she is letting the house run down badly. Each year I have to remind her to pay the property taxes. Last year the taxes fell in arrears and the property was almost lost at a tax sale before she reluctantly paid. She has plenty of money but feels it is a waste to spend money on the house that I will receive when she dies. Do I have any recourse to end this nonsense that has been going on for years? -Ben S.

DEAR BEN: The terms of the life estate control your rights. You are the "remainderman." All you can do is be sure the life tenant pays the property taxes, insurance and mortgage interest so the property is not lost by default.

Your one legal ground to terminate the life estate other than for nonpayment of those expenses is to prove your stepmother is committing "waste." That means she is not maintaining the house.

However, proving "waste" is extremely difficult so don't expect a judge to order the life estate forfeited for waste unless the house becomes extremely run-down.

EVEN BELOW-MARKET RENT MUST BE REPORTED ON SCHEDULE E

DEAR BOB: I own a condo that I rent to a mentally retarded nephew at a very low rent. He receives disability income SSI checks and is able to live alone. But he is not able to hold a job. Because the rent is so low, I understand I cannot claim the normal rental property tax deductions such as depreciation. Do I still have to report the low rent I receive? -Laura R.

DEAR LAURA: Yes. Rental income must be reported on Schedule E of your income tax returns. When you file your income tax returns, you should list all the applicable expenses such as for repairs, insurance, mortgage interest, property taxes and depreciation.

However, because of the very low rent, you can't claim any loss deduction against your other ordinary taxable income. But the unused tax loss can be "suspended" for use in a future tax year. For details, please consult your tax adviser.

The new Robert Bruss special report, "How to Buy Fixer-Upper Houses with Little or No Cash for Fun and Fortune," is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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Best Buy Introducing Smart Home System

The consumer electronics retailer next month will begin selling a system that controls a high-definition TV, lights, the thermostat, and remote cameras.
By: Joshua Freed: REALTOR® Magazine Online
Next month, the smart home comes to Best Buy Co.

The consumer electronics retailer will begin selling a “ConnectedLife.Home” package that features a computer with software that will control a high-definition TV, lights, the thermostat, and remote cameras.

The components talk to one another via the home’s power lines and through a wireless network. The device will cost $15,000, including installation.

For another $19.95 a month, users can access the system through the Internet so they can check on the house from afar and adjust its thermostat.
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Smoking inside apartment a hot-button issue

Can landlord legally ban such activity?
By: Robert Griswold: Inman News
Question: My husband, 3-year-old daughter and I recently moved. My husband and I are smokers. The first night in our new apartment, the landlord said she wasn't aware that we were smokers, and asked that we not smoke in the front room, which is the living room. My husband and I agreed not to smoke in the living room. The landlord informed us that she couldn't smell the smoke, as long as we weren't smoking in the living room. After about a month the landlord informed us that she doesn't want smoking in the house period. My husband and I informed her that we would not smoke in the front room, but that we would smoke anywhere else in the house we wished to. Because we stood up for ourselves and said there's no law against smoking except in public places, we have been receiving letters from various lawyers saying we have two weeks to stop smoking. I feel this is discrimination, what are our rights?

Landlords' attorney McKinley replies:

Unless a written lease or rental contract specifically prohibits smoking in the rental premises, you have the right to smoke in the property. That said, being a smoker is not a "protected class" such as race, national origin, sex, sexual orientation, family status, etc., and landlords have the right to "discriminate" against smokers by refusing to allow smoking in rental property, or in the common areas. You did not say whether you rented the property under a fixed-term lease or on a month-to-month tenancy. If you are on a fixed-term lease, you don't have to worry about anything. You can smoke to your heart's content, at least until the lease expires. However, if you are on a month-to-month tenancy, under California law, your landlord has the right to change the terms of the tenancy by giving you 30 days written notice. In other words, your landlord could amend the terms of your rental contract, by prohibiting smoking in the premises, after giving you 30 days written notice.

Tenants' attorney Kellman replies:

Since places to smoke cigarettes are becoming more and more restricted, the last place of refuge for the smoker is in the home. But even there, the smoker is under attack. While smoking is a lawful activity, it still may be limited on private property by rules of the owner or on public property by a law or regulation. The right to breathe clean air is making great strides against the personal right to smoke. Landlords complain about property damage from cigarette smoke, the expense of cleaning up the litter and the fire hazard that smoking causes. Also, nonsmoking neighbor tenants do not want to smell or breathe the smoke or be subjected to the litter of smokers. Unfortunately for those who choose to smoke, there does not appear to be any reason that a landlord cannot limit smoking at the property if done correctly. As McKinley correctly points out, "smokers" are not a protected class of individuals (like race and religion) so the traditional discrimination rules do not generally apply. As a smoker, you still have some protections. For example, if there are no lease rules against smoking and you stand up for your right to smoke, then any eviction based on the lawful exercise of that right may be seen as retaliatory and illegal. Keep in mind that smoking that interferes with the other tenant's use of the property may be restricted regardless of the lease. If your landlord wanted to impose a specific lease rule about smoking, he/she would need to wait for a lease renewal, or the landlord could serve a 30-day notice imposing new smoking prohibition rules on month-to-month tenants. Of course, this will pose a challenging situation for those who find it difficult or impossible to quit smoking within 30 days.

Question: My friends and I have lived in the house we leased for one year. We'd been there for three months before the lady next door got sick of us and complained to the city about everything we did. Well, two to three days after receiving a warning by mail, our landlord served us with a legal notice to terminate our tenancy in a matter of days for creating a nuisance. That's exactly what we did -- we moved out and surrendered the property. Now he's telling us we owe him the rent until someone else moves in and that we don't get our deposit back. Is this legal, and if it is or isn't, what should I proceed to do?

Tenants' attorney Kellman replies:

This is an example of what is wrong with many legal notices, which do not mean what they appear to say. Your notice stated in what appeared to be clear language that you had a certain limited number of days to either move out and forfeit the lease or be sued for eviction. You chose to move out and forfeit the lease. Unfortunately, the forfeiture referred to in this notice did not mean that the lease is canceled. It really means you forfeit your rights of possession under the lease and whatever defenses you may have had in that case, but the landlord keeps all theirs. In other words, moving out only avoided the eviction case but by doing so, you admitted liability for the claim against you and damages including possibly the balance of rent owed on the lease. This problem also occurs in notices that demand you pay the rent or move out within three days. Same situation. If you do not pay and simply move, you again forfeit your defenses to the case and admit liability for what is claimed owed. The allegation of nuisance against you could have been disputed. If the neighbor could not prove significant nuisance behavior against you, you could have won the case and preserved your tenancy. Seek legal advice before taking action on any such legal notice.

This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of "Property Management for Dummies" and co-author of "Real Estate Investing for Dummies," and San Diego attorneys Steven R. Kellman, director of the Tenant's Legal Center, and James McKinley, member of the Moffitt & Associates law firm, which represents landlords.
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The Weekend Guide! New Year's Eve Countdown

The Weekend Guide for December 31, 2006.
Full Article:
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Consumers Confident in Housing Despite Media

Households say their decisions about buying are based on personal matters without much regard to market news.
By Camilla McLaughlin for REALTOR® Magazine Online
Although real estate is receiving more coverage than ever — often negative — a recent survey shows that real estate headlines actually influence only a small percentage of home owners.

Not only do Americans remain highly confident about the nation’s housing prospects, a majority also say their decisions regarding a purchase is based on factors such a price or personal motivations.

A survey of 2,000 homeowners conducted by the National Association of Homebuilders shows that more than four out of five home owners expect the value of their home to appreciate over the next five years and nearly seven out of 10 call a home their most valuable investment.

Only 13 percent felt their home would fall in value, while 4 percent expected no change. Fully 81 percent of home owners surveyed believe the value of their homes will rise over the next five years.

“Although the majority of the households we polled indicated that they found the media a reliable source of information on the housing market, what they read in the newspaper, saw on television, or heard on the radio was no substitute for actually shopping the market,” said Thomas Riehle, a partner in RT Strategies, which conducted the research for NAHB.

Marginal Influence

When asked about the influence of the news media on their decisions of when to buy a home, only 19 percent of the respondents said it played an important role; 23 percent indicated that it had some importance on their decision; and 7 percent said it played a minor role. A full 48 percent said it had no influence whatsoever.

Sixty-one percent of the survey participants rated the media as “sometimes trustworthy” as a source of information on the housing market; 5 percent said that it’s “always trustworthy.” Twenty percent said it’s “seldom trustworthy”; 8 percent said it’s "seldom trustworthy.”

Personal Motivations

Rather than media assessments of the market, personal considerations guide purchase decisions. "When people are actually thinking about buying a home, they’re driven by the details of how it’ll impact their family budget and lifestyle and contribute to their long-term wealth, and that gives them a much closer perspective on the market than what can be conveyed in news coverage," he says.

When asked to rate the importance of factors that might affect their decision to purchase a specific home, 80 percent said price was the most significant factor. Other considerations included:

    • Potential for the new home to appreciate in value, 71 percent
    • The prospect of selling their current home at a fair price, 70 percent
    • The level of mortgage interest rates, 69 percent
    • Personal life changes 60 percent

The NATIONAL ASSOCIATION OF REALTORS®, too, is touting historically low interest rates as a good reason to buy in an ad campaign it ran in November in The Wall Street Journal, USA Today, and The New York Times, among other major national newspapers.

“Right now may actually be one of the best times to buy a home,” says the campaign, which includes an extensive broadcast component.

Unlike in past periods of cooler sales, NAR says, the national economy is solid, interest rates remain historically low, jobs are being created, demographic trends point to continued strong housing demand, and there’s plenty of inventory for buyers to choose from.
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Home buyer resolutions for 2007

Time to get credit, finances, representation in order
By: Ilyce R. Glink: Inman News
As we get ready to say goodbye to 2006, it's worth looking back at the year that was for home buyers. With more than 8.5 million existing and new homes sold, and with 30-year mortgage interest rates still hovering at 6.5 percent, it's been a banner year for residential real estate.

In looking back on 2006, real estate observers say the winds changed this year. By the time the year is done, existing-home sales will have dropped 8.6 percent to just under 6.5 million, according to the National Association of Realtors (NAR).

New construction fared worse in 2006. Some builders announced that their new-home starts had dropped by nearly 50 percent - and watched their stocks tumble in the wake of the news. According to the National Association of Home Builders, new-home sales are continuing to trend downward, although levels are expected to stabilize next year. NAR believes that new-home sales will fall nearly another 10 percent to 957,000 next year.

While this news wasn't so great for developers and sellers, it is good for home buyers. Home prices began to moderate in 2006, with some sellers dropping their list price in order to make the sale.

What's coming up for 2007? Interest rates should continue at the current, historically low level although some mortgage industry observers are forecasting that the Federal Reserve Bank will lower the Federal Funds rate, and long-term interest rates will fall as well. There will be good deals on existing homes and perhaps even better deals on new construction.

In all, it should be a good year. If you're planning to buy a home in 2007, here's my annual list of New Year's resolutions you should consider making:

As a buyer, I resolve to:

Get my credit and finances in order.

Plenty of would-be buyers are paying off their credit cards, car loans, school loans and other forms of personal debt. While having personal debt doesn't mean you can't qualify for a loan, it can lower the amount of the mortgage a lender might be willing to give you.

If you keep one resolution this year, choose to clean up your credit. One of the best things you can do to prepare for buying a home is to make your monthly debt payments on time. Even if you have a lousy credit history, lenders will be more forgiving if they see you've gotten your act together in the last six to 12 months.

Federal law now requires each of the three main credit-reporting bureaus (Experian, Equifax and TransUnion) to give you a free copy of your credit history once a year.

To get yours, go to www.annualcreditreport.com. At the time, buy a copy of your credit score from Equifax. The cost is $6.95, which is still less than buying it through MyFico.com (that costs $14.95).

Get my credit in shape.

Put a lid on your spending, perform "plastic surgery" on your credit cards, and don't max out any one card or your credit score will suffer. If you're going to cancel an account, do it in writing, but you get bonus points on your credit score the longer you maintain a credit account. So a credit card account that you opened in 1984 is worth a lot more than one you opened last month.

Don't forget that good credit also means job stability. Most lenders require that you work for the same employer for at least a year, and maybe two, before they'll approve your home loan application. If you're self-employed, they'll want to see at least two years of tax returns before you'll qualify for a conventional loan. If you're offered a better job in your field, by all means take it. But if you want to buy a home, try not to jump from job to job within a relatively short period of time.

Know how much I can afford to spend before shopping for a home.

You have three options when it comes to figuring out how far your down payment and income will take you: You can guess; or you can pay a visit to your local lender, who will prequalify or preapprove you for a loan, or you can go online.

Your lender will look at your income, debt, assets and liabilities, and come up with the maximum amount you can spend on a home. Once you know how much you can afford to spend, you'll avoid making a common, heartbreaking, home buyer error: looking at homes you can't afford to buy.

Too busy to visit a lender? There are several Web sites that offer good mortgage information. Try Bankrate.com for a state-by-state look at current interest rates from lenders who work in your area, including online lenders. Every major mortgage lender has a Web site. And, don't forget to check the rates at your local credit union.

Know my neighborhood, and be comfortable with it, before I buy a home there.

Everyone wants to live on the best block in the best neighborhood. Unfortunately, that location may not be in your budget. You might be able to afford the smallest home on the best block, but that won't do you much good if you need four bedrooms and that home has only two. Balancing affordability with location means you may have to compromise. While you may be willing to compromise on how big a garden you have, you may not be willing to change your children's school districts.

Start looking at various neighborhoods and the amenities they offer. Is there a park? Shopping? Transportation? A house of worship? Do your friends and family live close by? Be careful not to limit your choice of neighborhoods too early on in the process. Explore new areas and the housing stock and amenities they offer.

Make sure you spend time during different parts of the day and night in the neighborhoods you like. Walk the streets, and go into local shops. Visit the neighborhood police department and local schools. Stop by the local park district offices and see what programs and classes are available. Drive the commute from prospective neighborhoods to your job during rush hour. Get to know the neighborhood and its residents inside and out before you buy.

Interview at least three brokers before hiring one.

There are traditional agents, buyer agents, exclusive buyer's agents (who never represent sellers) and discount agents. There are large brokerage firms and small neighborhood shops. You can even choose not to use a real estate agent, although as a buyer, you won't be out of pocket for the cost, so there's no reason not to use one.

Many buyers today opt to use buyer agents, or buyer brokers, who represent the interests of the buyer rather than the seller. One study showed that buyers using buyer agents or exclusive buyer's agents paid 5 percent less for their home than those who use traditional agents. That's $5,000 saved on every $100,000 spent.

Choosing which agent to use - or choosing not to use an agent - can be critical to your successful purchase. Look for an agent whose philosophy and mannerisms are compatible with yours. Look for someone you can trust, with whom you wouldn't mind spending a lot of time. Look for an agent who has ample experience, and who is knowledgeable about the neighborhoods you've selected for yourself.

Read and understand all documents before signing them.

So many folks don't even bother to read either their purchase contract or loan documents. That's unfortunate, given the enormous legal implications of a home purchase.

Take the time to read all documents thoroughly. Ask an attorney or broker to explain things that don't seem to make sense. It's important that you understand what promises have been made and what warranties have been granted, and what implications these documents have for your personal financial and emotional well-being.

If you don't understand the documents that you are being given and still don't understand them after the broker has explained them to you, seek help from someone you trust or hire an attorney to assist you in the process. If the broker explains something to you and seems to contradict the document, make sure the broker writes into the document what she told you.

Next week: If you're trading up, you've probably got a home to sell before you can buy. How can you sell in a slowing market? How can you compete against 10 other homes for sale in your neighborhood? Next week, we'll continue our look back on 2006 and I'll have your Home Seller Resolutions for the New Year.
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Full-price Financing of Homes Increases

Home buyers opt for loans that cover entire price
RISMedia
Fewer midstate Pennsylvania home buyers are carrying cash to the settlement table.

Instead, more and more people are opting for loans that cover the entire price of their new homes, according to local mortgage brokers.

The popularity of such loans stems from their wider availability and the low savings of many home buyers, brokers said. Buyers, particularly younger ones, also are less concerned about having equity at the start of their mortgages.

"It doesn't seem to be a real worry for them. They'd just rather pay a mortgage than rent," said Nevin Beyer, CEO of Velocity Financial Services Inc., a mortgage broker in New Cumberland.

Justin and Laura Maurice hope someone will be writing rent checks to them someday. The couple, in their mid-20s, used 100% financing to buy a condominium in North Middletown Twp. They plan to live in the two-bedroom condo for a few years and then rent it after they move somewhere else.

They had the money for a down payment, said Justin Maurice, 26. But they preferred to keep it in savings. "It made you feel a little more secure to know that we still had money to do things with," he said.

Sometimes, home buyers opt to put the money destined for a down payment toward furniture, lawn mowers or other items they need, said Jim Bulger, president of the Pennsylvania Association of Mortgage Brokers.

Some homeowners have even refinanced into 100 percent mortgages to pay off credit-card debt, said Bulger, a broker in western Pennsylvania. "I've been seeing a lot of that."

If possible, buyers would be better off keeping their money in savings, said Tami Noll Russo, a certified public accountant and financial planner in Lower Swatara Twp. She is chairwoman of the local financial planning committee for the Pennsylvania Institute of CPAs.

Money in the bank can come in handy during the periodic crises that afflict all homeowners, she said.

"What's going to happen when the hot-water heater breaks or the roof leaks or a power surge knocks out the fridge? It's nice to have the money in savings," she said.

A lack of equity is the main downside of 100 percent financing, said Jennifer Goldbach, president of Lancaster-based HomeSale Mortgage Services, which has four lenders in the Harrisburg area.

Equity is the portion of a home's value that exceeds what is owed on the property.
A borrower with little or no equity who sells a house that has declined in value could end up owing money after the sale, Goldbach said.

The risk is greatest in markets where home prices are falling. That hasn't happened in the midstate, Goldbach said. "We're in more of a plateau. It's not a decline at all," she said.

A 100 percent mortgage typically involves two loans: a 30-year first mortgage covering 80 percent of the price and a shorter-term second mortgage with a higher interest rate for the remaining 20 percent, Goldbach said. For example, a first mortgage with a 6.25 percent interest rate might be paired with a second mortgage at 9.375 percent.

A newer variation allows buyers to split the cost 75 percent and 25 percent, she said.

Lenders also can offer a single mortgage to finance 100 percent of the purchase, but the interest rate is typically higher than a regular first mortgage.

Personally, Goldbach would choose to buy a house the old-fashioned way.

"It's concerning to me as, basically, a banker when you think about the fact that people are going into homes with no equity at all," she said. "My belief, and I'm a conservative person, is always to put some equity into your home."
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Why Wait? High Number of Homes for Sale Slowly Dropping

Many say it's a buyer's market
RISMedia
For many months, Tracy resident Kevin Moser watched the slow housing market, with its high number of homes for sale, and concluded that now is a poor time to sell but a good time to buy.

So he kept his current Tracy home and recently bought a better Tracy home - almost twice as big - with a pool and a large, quarter-acre lot. He plans to rent out his first house and wait for the sales market to improve, as he expects it to.

"The timing right now is good for people to buy," he said. "I'm very confident in the market. I think it's going to go back up. And I got a very good deal on the house I got."
Natalie Shishido, owner of the Preferred Real Estate Group office in Tracy that handled Moser's purchase, said it's still very much a buyer's market these days. With low interest rates and flattening prices because of competition among the many sellers, more people are getting off the fence, she said.

"A lot of people were waiting to see, but I've noticed in my office that at end of last month and so far this month, we got sort of a surge," she said.

That hasn't manifested yet throughout San Joaquin County.

Pending sales slipped from 474 in October to 448 last month, according to figures from the latest Coldwell Banker Grupe-TrendGraphix monthly sales report, based on Multiple Listing Service data. Closed sales fell from 426 to 401 in the same span.

In one striking respect, though, the market environment is changing: Instead of the number of homes on the market rising by several hundred per month, the stock of houses for sale has been dropping by as much each month.

Much of the housing-market slowdown has been attributed to a spiraling of the number of homes for sale, pressuring sellers to lower prices to compete. For example, in February of last year, 777 houses were listed for sale throughout the county. That rose steadily, typically by several hundred new listings per month, to a high of 4,738 in August.

Since then, the number of homes for sale countywide has fallen by about 500. Many homeowners put their houses on the market thinking of the earlier big run-up in sales prices, she said.

"They missed the boat, so they wanted to catch the last of the rise," Shishido said.
Also, the median sales price in the county fell from $400,000 in October to $386,000 last month, the TrendGraphix report said. That's down from a high of $425,000 in July.
Meanwhile, in a new forecast by the National Association of Realtors, existing home sales are expected to rise gradually in 2007, with annual totals comparable to 2006, but new home sales are expected to fall.

About three-fourths of the country will experience a sluggish expansion in 2007, while other areas should continue to contract for at least part of the year, said David Lereah, the association's chief economist.

"Most of the correction in home prices is behind us, but general gains in value next year will be modest by historical standards," he said. "Buyers, especially first-time buyers, with the combined benefits of seller flexibility and an unexpected drop in mortgage interest rates, have a window of opportunity. These conditions will persist in many areas until early spring when inventory supplies are likely to become more balanced."

Existing-home sales for 2006 are projected to fall 8.6%, to 6.47 million units. Sales are expected to rise steadily next year to a total of 6.4 million, or 1% lower than this year's total.
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Your Mortgage: Pay Now, Or Hold Off to Invest?

The Cullens prepay their mortgage each month because they want the debt paid before their son heads off to college. But some people argue that the money would be better off placed elsewhere. Terri looks at when it does and doesn't make sense to prepay your mortgage.
By: Terri Cullen: The Wall Street Journal Online
Early next year my husband Gerry and I will reach two milestones in our finances: Our mortgage's outstanding balance will drop below $100,000 and, more significantly, more of our monthly payment will go toward principal than interest.

With the passing of both of these milestones, Gerry and I will be that much closer to paying off our 20-year fixed-rate mortgage, a process we're hastening by making additional principal payments of $195 a month. (Why the odd figure? I'll get to that later; the short story is that it is part of $395 a month in spare cash we debated over where to invest. ) Our goal is to have the loan paid off before our seven-year-old son Gerald enters college in 2017, leaving us with income available to meet any potential shortfall in our college savings.

Some people believe paying off a mortgage is a stupid move, and would advise us to forgo the mortgage prepayments and invest that $395 a month elsewhere. This school of thought holds that the wisest financial move you can make is to get mortgages with the lowest monthly payments possible - refinancing as rates decline - and never pay off the loans, a strategy that improves your cash-flow and lets you benefit from potential home-price appreciation.

Gerry and I don't agree - we feel paying off our mortgage as soon as possible is essential to our goal of getting Gerald through college and then retiring. Let me walk you through our thought process. When we purchased Gerry's home from his dad in December 2000, we took out a 20-year mortgage for $122,000. Our timing was good: We nabbed a historically low fixed rate of 5%, with a monthly payment of $805 (not including property taxes and homeowners insurance). We'd been paying $1,200 a month for the mortgage on our first home, so we had a decision to make: What to do with the $395 a month in income the new, lower-rate mortgage freed up?

Our son Gerald was a year old at the time, so saving for college was on my mind. By investing the entire $395 sum in a tax-deferred college-savings account, such as a 529 college-savings plan, we'd be able to sock away $155,822 by the time Gerald graduates high school (assuming we invested in mutual funds with a conservative annual investment return of 6%). That's more than enough to cover the $134,916 this College Board calculator estimates a four-year public university will cost in 2017.

Gerry liked the idea of saving for college, but he was pondering another substantial expense: home remodeling. Our worn-down home was in need of some substantial renovations, starting with the kitchen and a bathroom. We'd planned on tapping a home-equity line of credit to fund these projects, and that $395 a month would help us pay off the debt more quickly. In 2004 our kitchen remodel cost $45,000, and we paid for it with our 10-year, $100,000 home-equity line of credit. At 4.5%, our monthly payments on the remodel were $466.37. As this Bankrate.com home-equity calculator shows, that additional $395 a month would have reduced our payments by five years, saving $5,786 in interest.

What about retirement? By saving that $395 a month in a tax-deferred IRA, we'd save an additional $169,542 for retirement, according to WSJ.com's 401(k) planning tool. Logic ruled that we'd get the biggest benefit from funneling the cash into a retirement-savings account, but Gerry and I decided against that because we'd done our retirement planning and felt we were on target with our savings goals. (Whether we rue that decision as we near retirement age remains to be seen.)

Finally, Gerry thought, why not just keep making our old monthly mortgage payment? By tacking an extra $395 principal payment onto our $805 monthly mortgage nut, we'd shave six years off our 20-year loan term and save $16,535 in interest. Once the mortgage is paid off, another $1,200 a month, or $14,400 a year, would be available to help pay Gerald's college costs.

The more we talked about it, the more Gerry wanted to prepay the mortgage. That six-figure mortgage payment has loomed large over my husband since the night before he closed on his first home in 1992. That night he lay awake, terrified by the $134,000 debt he was about to shoulder. A mortgage that size was mind-boggling - up until that year he'd never borrowed from a lender in his life, and he hadn't even owned a credit card until his real-estate agent suggested he get one to start building a credit history.

What made him most upset was the way mortgages are structured, with the bulk of the monthly payment going to pay interest at the beginning of the loan term. Fast-forward eight years, when we refinanced our mortgage to buy the new home. That's when Gerry realized that of the $94,391 he'd paid out on his old mortgage over those years, just $12,035 had gone to paying down principal. His reaction? It was ugly.

Neither one of us liked the idea of our refinanced loan taking us back to the starting line in terms of paying principal and interest. Prepaying the loan would help get us closer to where our total principal payments were with the old mortgage.

Still, I knew if we put off thinking about college costs, years might slip away before we got serious about saving. And getting a head start on saving would mean we'd need to save less than if we waited a few years, thanks to the power of compounding interest.

In the end, we decided to split the difference: We'd take half of that $395 a month and save for college, and use the other half to prepay our mortgage. By paying an additional $195 a month (we chose the odd number because it took our $805 monthly mortgage payment to an easy-to-remember $1,000). By doing so we'll shave 47 payments off the term of our 20-year fixed-rate mortgage, saving $11,939 in interest. And in 2014, if things go as planned, Gerald and his high-school pals can join us at our mortgage-burning party.

Prepaying our mortgage works for us, and I see paying off your mortgage while you're still in the work force as a key to having a financially secure retirement: Should you get into a financial bind, you could either sell your home and downsize to a less-expensive one, or (if you qualify) take out a reverse mortgage that lets you tap your home's equity.

That said, there are a number of situations in which making prepayments isn't a good idea. Generally speaking, if you're planning on selling your home within five years, don't bother prepaying - you won't save enough in interest costs to make it worthwhile.

If you're saddled with a lot of high-interest credit card debt and are prepaying your mortgage, you're paying off the wrong lender: Use all of your disposable cash to pay off the credit cards, then go shopping for a card with a better rate.

If you've been slacking on saving for retirement - or haven't started saving at all - forget about prepayments. Figure out how much you'll need to save for retirement here and then use your spare cash to get there by saving through a tax-advantaged retirement account, such as a 401(k) or Roth IRA. Ideally you should aim to save 10% of your gross annual income - though my print colleague Jonathan Clements would argue that daunting figure is still too low.

Finally, if you're already in retirement and still paying off your mortgage - with no end in sight - don't even think about prepaying. Instead consider this radical idea: refinance to a 30-year fixed loan. You might be able to obtain a lower mortgage rate, which would boost your cash flow. And because you pay most of your interest upfront, you may pay less in taxes thanks to the mortgage-interest tax deduction.
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Winter has sellers rethinking price, Web exposure

Tables turn when listings languish on market
By: Ilyce R. Glink: Inman News
Fred recently took a job in northern Michigan. This weekend, he's coming back home to his suburban Chicago house to pack everything up and move. And, he's changing listing agents with the hopes that the new one will be more aggressive.

"We're really ready to sell," he said, as he contemplated driving through a blizzard to move the rest of his belongings to his new location.

The weather outside might be frightful, but if you're serious about selling, you won't find any better time to engage really serious buyers than during the winter holiday season.

According to the National Association of Realtors, sales now remain strong throughout the entire year. While spring and autumn see a little more sales activity (with spring remaining the strongest selling season), there's plenty of activity between Thanksgiving and Super Bowl Sunday (early February).

What changes are the numbers of people shopping for a home. While serious home buyers are still out in force, other folks who can wait often get sidetracked by the holidays, and wind up shopping for gifts rather than a home to buy.

But with homes languishing on the market in many areas of the country, there's an argument to be made about taking an aggressive approach to marketing your home during this time of the year.

You've got to cut through the noise of holiday merrymaking to make sure home buyers understand you're serious about selling. Here are some ways you can shout out:

1. Rethink your pricing strategy. If you want to sell your property, and you've had action but no offers at the current list price, consider lowering the price for the holiday.

But make a significant move. If your home is priced at $425,000, consider dropping the price to $389,000. While that seems like a steep drop, that kind of aggressive move will get the attention of local brokers and buyers.

You'll know soon enough whether the new price is right or not. Ideally, you'll get a number of serious offers from buyers, who may even bid up the price over the new list price.

If you don't get any offers at the new list price, it might be that your home may still be overpriced given local market conditions.

2. Increase awareness by making better use of the Internet. Buy an Internet address that has your home's address as the URL. (For example, the Web site name might be 123MapleStreet.com, if that's where you live.) Or go to the many Web sites where you can market your home for free, including Craigslist, Google and eBay.

As of last week, agents and homeowners can now plant a "for sale" sign at Zillow.com, and the company announced that it would allow agents and homeowners to upload and add an unlimited number of photos and information about a home that is for sale.

"We haven't started working on video, but soon you'll be able to do that too," said Rich Barton, president and CEO of Zillow.

Zillow offers its 3 million unique monthly visitors a free "Zestimate," which is essentially a guess as to how much a particular house is worth. In addition to allowing agents and homeowners to add information about a property that is for sale, Zillow is offering a "Make Me Move" price.

"For most people, either a house is "for sale" or its not," Barton said. "But we think in reality that's not really the case. We think there would be a lot of people who would move if they got the right price. We're trying to prove that and reach into the supply side to see what dream prices are. We think some of those will be very high, but others will not be that much higher than the Zestimates."

Either way, it's a useful tool for agents (who can upload their own photo and information for free) and home sellers.

3. Do what you can to add value to the property for a nominal amount of cash. If you haven't already touched up the paint, shampooed the carpet, and cleaned out the house, now is the time to do it.

But you might also consider taking a page from the current "staging" craze and fluff up the way your home looks. You might buy a couple of new matching pillows for the living room couch and chairs from Target, Kohl's or K-Mart. You might buy a new duvet and pillow cover set with matching shower accessories and towels from IKEA.

Inexpensive but matching placemats might dress up your dining room or living room table, while a few well-placed but tasteful holiday decorations can add some spice.

The idea is to freshen your space without taking a lot of time - or spending a lot of money.
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Investors Buying Commercial Properties at Record Pace

Outside of hotels, more than $236 billion in commercial transactions was recorded in the first 10 months of 2006, up from $231.9 billion a year earlier.
NAR: REALTOR® Magazine Online
The commercial real estate markets continue to grow with record investment, and individual sectors in many areas are seeing tighter vacancy rates and higher rents, according to the latest Commercial Real Estate Outlook from NATIONAL ASSOCIATION OF REALTORS®.

“The office and industrial markets continue to shine, supported by job growth and trade, while the rental apartment sector is seeing healthy rent increases,” says David Lereah, NAR’s chief economist. “The retail sector is essentially flat, but the hotel industry is doing better than at any time since 2001.”

James Marrelli, NAR vice president of commercial real estate, notes there is a record flow of capital into commercial real estate. “Institutional investors, pension funds, and foreign investors have focused on commercial-grade properties to diversify portfolio assets, with expectations of solid long-term gains.”

Outside of the hotel sector, more than $236 billion in commercial real estate transaction volume was recorded in the first 10 months of 2006, up from $231.9 billion in the same period of 2005. The totals do not include properties valued at less than $5 million.

The NAR forecast for five major commercial sectors includes analysis of quarterly data for various metro areas provided by Torto Wheaton Research and Real Capital Analytics.

Office Market

A reduction in speculative construction of new office space, along with growth in office jobs, means there are positive fundamentals for most market areas.

Office vacancy rates are projected to drop to an average of 12.1 percent in the fourth quarter of 2007, from an estimated 12.9 percent currently — the lowest since 2001; at the end of 2005 they were 13.6 percent. Annual rent growth in the office sector next year is expected to be 5.2 percent, after rising 4.3 percent in 2006.

Areas with the lowest office vacancies currently include New York City; Ventura County, Calif.; Miami; Orange County, Calif.; Honolulu; and Riverside, Calif., all with vacancy rates of 8.9 percent or less.

Net absorption of office space in 56 markets tracked, which includes the leasing of new space coming on the market as well as space in existing properties, is likely to be 71.7 million square feet in 2007, compared with 73.7 million this year.

Office building transaction volume in 2006 has been fueled by portfolio acquisitions, privatization of real estate investment trusts (REITs), and mergers within commercial real estate. Office buildings this year have accounted for 48 percent of the transaction volume in all commercial sectors, with more than $105 billion trading hands during the first 10 months of 2006, a 36 percent increase from the same period last year.

Industrial Market

Trade is continuing to drive warehouse space, creating a landlord’s market in many areas around the country. Available space is the tightest the market has seen since 2001.

Vacancy rates in the industrial sector are forecast to average 9 percent in the fourth quarter of 2007, down from 9.5 percent in the current quarter. Annual rent growth should be 3.8 percent by the end of next year, compared with a 1.7 percent annual increase in the current quarter.

Trade with China in particular is impacting demand on both coasts. Traffic in Southern California is so congested that ships are traveling through the Panama Canal to get their cargo to East Coast markets, notably in Florida.

The areas with the lowest industrial vacancies currently are West Palm Beach, Fla.; Los Angeles; Miami; Orange County, Calif.; Fort Lauderdale, Fla.; and Tampa, all with vacancy rates of 5.5 percent or less.

Net absorption of industrial space in 54 markets tracked will probably total 231.1 million square feet in 2007, up from 191.3 million this year.

Industrial transaction volume during the first 10 months of 2006 totaled $32 billion, placing 2006 on track to set a record. During the same period in 2005, transaction volume was $28 billion.

Retail Market

Vacancy rates in the retail sector should hold at 8.1 percent through 2007, which would be unchanged from the estimate for the current quarter. Average retail rent is projected to grow 1.2 percent next year, after contracting 0.4 percent in 2006.

Much of the lackluster performance is due to persisting vacancies in regional malls, impacted by the merger of Federated Department Stores and the May Co. Department Stores. Strip centers anchored by a grocery store seem to be enjoying the best demand from both a retail rental and investment perspective.

Retail markets with the lowest vacancies currently include Las Vegas; Orange County, Calif.; San Jose, Calif.; Oakland, Calif.; San Francisco; and Honolulu, all with vacancies of 4.2 percent or less.

Net absorption of retail space in 54 tracked markets is likely to total 18.1 million square feet next year, up from 6.8 million in 2006.

Private investors accounted for 64 percent of retail transaction volume during the first 10 months of 2006, with a total retail investment volume of $33.8 billion, down from $41.1 billion during the same period of last year.

Multifamily Market

The apartment rental market — multifamily housing — should see vacancy rates at an average of 5.4 percent in the fourth quarter of 2007, which would be unchanged from the current quarter and down from 6.2 percent at the end of 2005. Average rent is expected to rise 3.9 percent next year, following a 4.3 percent increase in 2006.

The slowdown in home sales this year has kept some people in the rental market, looking for signs of stabilization or waiting for the right time to purchase a home. At the same time, a growing population and household formation is supporting demand for rental housing.

Multifamily net absorption is forecast at 207,400 units in 59 tracked metro areas in 2007, down from 221,900 this year but up from 203,300 in 2005.

The areas with the lowest apartment vacancies include San Francisco, Northern New Jersey, Miami, Los Angeles, San Jose, and Salt Lake City, all with vacancy rates of 3 percent or less.

During the first 10 months of the year, transaction volume in the multifamily sector totaled $68 billion, down from $70.1 billion during the same period of 2005. The slowdown of conversion activity has reduced competition for apartment complexes, with converters accounting for only 12 percent of transaction volume so far in 2006, down from 35 percent during the first 10 months of 2005.

Hospitality Market

Hotel occupancies are expected to average 68.2 percent in 2007, up from 67.6 percent this year. Revenue per available room (RevPAR) is projected at $81.28 next year, up from $77.69 in 2006.

A record 29,200 hotel rooms are expected to be added to the inventory in 52 markets tracked in 2007, compared with 10,600 this year.

Markets with the highest RevPAR currently include New York; Honolulu; San Francisco; Miami; West Palm Beach, Fla.; and Boston, all with RevPAR in excess of $93.

Transaction activity during the first 10 months of this year includes 1,165 hotels with a combined value of $38.7 billion, well above the $30 billion recorded during the same period of 2005.
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