Study: U.S. Prices Return to Normal

After years of overvalued markets, a new study shows buying a home is getting more affordable and prices are adjusting back to normal levels.
By: Camilla McLaughlin: REALTOR® Magazine Online
“A market returning to normal” is the way Global Insight, a privately held global information company, describes the current housing market, based on the most recent U.S. Housing Valuation Analysis.

The Housing Valuation Analysis — a joint effort by Global Insight and National City Corp. — examines the top 317 U.S. real estate markets using data from the Office of Federal Housing Enterprise Oversight. Taking into consideration differences in population density, household incomes, and interest rates, the analysis determines what home prices should be and how much current prices deviate from that norm.

A Closer Look

“Nearly all markets posted a decline in the level of overvaluation, which signals that the overall housing market is beginning to trend back to more normal price growth,” says Jeannine Cataldi, senior economist and manager of Global Insights Real Estate Service.

The number of markets identified as overvalued decreased to 57 from 60 metro markets in the fourth quarter of 2006. Texas had the highest concentration of undervalued markets with Dallas and College Station-Bryan tying for lowest in the nation.

Although the greatest incidence of overvaluation remains in pockets along the Atlantic and Pacific coasts, corrections are under way in some markets as prices and appreciation rates decline. Approximately 15 percent of the nation’s single-family housing stock experienced price declines in the fourth quarter.

The report finds that New England no longer appears to be “significantly overvalued,” while Orange County, Calif., Tucson, Ariz., Reno and Carson City, N.V., and Kingston, N.Y., fell below the “threshold denoting extreme overvaluation.” Even though these markets are still considered “significantly overvalued,” the report points out that slowing rates of appreciation reflect “a gradual movement toward historical price trends.”

Nationally, according to OFHEO data, prices advanced by 1.8 percent — metrics the report says are more upbeat than those reported by the Commerce Department, which showed an increase of 1.6 percent in median transaction prices. It's also more than the NATIONAL ASSOCIATION OF REALTORS®, which showed a decrease in median prices of 2.8 percent. "Median transaction prices tend to overstate price strength during buoyant markets and understate price strength during soft markets,” according to the OFHEO.
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34% of Homeowners Don’t Know the Type of Mortgage They Have

Bankrate, Inc. released a new Bankrate.com poll which found that more than three in 10 homeowners (34%) do not know what type of mortgage they own.
RISMedia
Furthermore, 28% of those surveyed worry about how they will afford their payments. The national poll reveals the confusion and anxiety that homeowners are experiencing today.

Another notable finding is that 34% of homeowners with adjustable rate mortgages (ARM) do not know what they will do when their loan readjusts. Given that homeowners could be looking at an increase of several hundred dollars each month, this is a staggering statistic.

"Clearly, many homeowners are uninformed about their mortgages," said Greg McBride, senior financial analyst at Bankrate.com. "With interest rates stabilizing, it's a very good time to assess whether they should refinance or not. Now may be the time to lock into a mortgage with a fixed rate which remains near historic lows," Mr. McBride added.

Other key findings of the poll include:

Homeowners

* 36 % who now have an Adjustable Rate Mortgage (ARM), plan to refinance
to a fixed-rate loan when their ARM changes.

* 28% of those surveyed worry either regularly or sometimes about how they
will afford their payments next year.

* 57% of homeowners polled have a fixed-rate mortgage

Renters

* 40% consider affordability the biggest obstacle in buying a house

* Just under 12% are concerned their credit rating is not high enough to
purchase a home

* 38% would avoid taking out an ARM when they are ready to purchase a home

The study was conducted by the polling firm GfK Roper via telephone among a nationally representative sample of 1,004 adults, aged 18 or older. The sample was collected March 16-18, 2007, using a Random Digit Dialing Methodology. The data is weighted by age, sex, education, rate and geographic region. The study has a 95% confidence level and a plus or minus 3% margin of error.
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State Housing Agencies Introduce Subprime Bailout Plans

Strapped borrowers could find relief thanks to affordable refi options.
REALTOR® Magazine Online
Several states are looking at ways to bail out subprime borrowers.

The Ohio Housing Finance Agency plans to issue $100 million in taxable bonds on April 2 to refinance about 1,000 loans averaging $100,000 each at a fixed rate of about 6.75 percent.

Maryland, Rhode Island, Massachusetts, and Virginia also have begun to underwrite bailout loans.

Colorado, California, Washington and Wisconsin are considering similar programs, according to Garth Rieman, director of housing advocacy at the National Council of State Housing Agencies.
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Existing-Home Sales Post 'Surprising' Gains

Existing-home sales rose strongly in February reaching the highest level since last April, and follows a healthy gain from January, according to the NATIONAL ASSOCIATION OF REALTORS®.
REALTOR® Magazine Online
Total existing-home sales — including single-family, townhomes, condominiums, and co-ops — rose 3.9 percent to a seasonally adjusted annual rate of 6.69 million units in February from a downwardly revised level of 6.44 million in January. Still, the numbers are 3.6 percent below the 6.94 million-unit pace in February 2006.

Nevertheless, last month’s increase was the biggest monthly rise in three years — sales last rose 3.9 percent in March 2004.

David Lereah, NAR’s chief economist, says the strong gain is a bit of a surprise.

“Some of the rise in home sales may be from mild weather that brought out shoppers in December, but fundamentals have improved in the housing market and buyers see a window now with historically-low mortgage interest rates and competitive pricing by sellers,” he says. “Even so, winter storms last month discouraged shopping, and buyers were chilled with the third coldest February on record. These unusual weather patterns mean home sales that close in March may decline before rebounding later this spring.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.16 percent in the last week, down from an average of 6.29 percent in February. The 30-year fixed rate was 6.22 percent in January, and 6.25 percent in February 2006.

NAR President: Median Home Price Distorted

The national median existing-home price for all housing types was $212,800 in February, down 1.3 percent from February 2006 when the median was $215,700. The median is a typical market price where half of the homes sold for more and half sold for less.

NAR President Pat Vredevoogd Combs says the median home price currently is distorted. “Over the last year, we’ve seen declining sales in many high-cost areas but rising activity in lower cost markets,” she says. “This change in the geographic composition of sales means we aren’t getting apples-to-apples comparisons in median home prices from a year ago.”

Other indices examining sales of the same properties over time, such as the OFHEO House Price Index, have been showing price gains; however, the OFHEO index is limited to conventional financing.

“What’s really happening is probably somewhere in between the different measures, but home prices are soft — a year ago we were still seeing bidding pressures and double-digit price growth,” Combs says. “Overall, home prices should rise slowly this year, and many buyers have an opportunity now that was only a dream during the five-year boom.”

A Closer Peek at Sales

Some other key findings from NAR's latest housing report:

    • Total housing inventory levels rose 5.9 percent at the end of February to 3.75
      million existing homes available for sale. That represents a 6.7-month supply
      at the current sales pace compared with a 6.6-month supply in January. Raw
      inventories peaked last July at 3.86 million, and supplies topped at 7.4
      months in October.

    • Single-family home sales increased 3.7 percent to a seasonally adjusted annual
      rate of 5.88 million in February, from 5.67 million in January. But those
      sales numbers are 3.4 percent below the 6.09 million-unit pace in February
      2006. The median existing single-family home price was $211,100 in February,
      down 1.5 percent from a year ago.

    • Existing condominium and co-op sales jumped 5.3 percent to a seasonally
      adjusted annual rate of 810,000 units in February, from a level of 769,000 in
      January. February sales are 5.2 percent below the 854,000-unit pace in
      February 2006. The median existing condo price was $225,400 in February, up
      0.5 percent from a year earlier.

Regional Snapshot

Here's a closer look by region of existing-home sales in February:

    • Northeast: existing-home sales surged 14.2 percent to a level of 1.21 million
      in February, and are 3.4 percent higher than February 2006. The median
      existing-home price in the Northeast was $265,900, down 1.4 percent from a
      year earlier.

    • Midwest: existing-home sales rose 3.9 percent in February to a level of 1.58
      million, but are 1.9 percent below a year ago. The median price in the Midwest
      was $157,000, down 1.3 percent from February 2006.

    • South: existing-home sales increased 1.6 percent to an annual sales rate of
      2.58 million in February, but are 4.4 percent below February 2006. The median
      price in the South was $175,900, down 2.9 percent from a year ago.

    • West: existing-home sales went unchanged in February, holding at an annual
      pace of 1.32 million. Sales are 9.6 percent lower than a year ago. The median
      price in the West was $337,100, up 2.2 percent from February 2006.

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Fed Opens the Door to Future Rate Cuts

The Federal Reserve formally dropped its stated bias to raise interest rates, giving itself flexibility to cut interest rates in coming months if economic growth decelerates further.
RISMedia
As expected, the central bank left its target for the federal funds rate, charged on overnight loans between banks, at 5.25%, where it has stood since June. The Fed also continued to cite concerns about inflation.

In discussing its inclination on where to move interest rates next, the Fed said, "Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth," a more neutral description than prior months' reference to the possible "additional firming," or higher rates. The Fed also called inflation its "predominant" concern, implicitly recognizing it had other concerns about growth.

"This statement is clearly a move toward neutral but, if one takes [Fed policy makers] at their word, not quite neutral," J.P. Morgan Chase Economist Michael Feroli said in a note to clients.

Indicators on economic growth "have been mixed," the Fed said, less optimistic than its reference at its last meeting, in January, to signs of "firmer economic growth." Inflation, it said, has been "somewhat elevated," compared with January's reference to modest improvement. But it reiterated its expectation that growth would remain moderate and inflation would move lower.

Markets immediately concluded that chances had increased for a rate cut in coming months. Futures markets raised the odds of a quarter-point rate cut by midyear to 44%, from 24% before the meeting. Bond prices rose, and yields, which move in the opposite direction, fell. Stocks soared, as the Dow Jones Industrial Average rose 159.42 points, or 1.3%.

Ten of the Fed's 11 sitting policy makers voted in favor of keeping rates on hold. Governor Susan Bies, who is stepping down soon, didn't attend. One of the 12 seats is vacant.

The Fed's change in stance came as a surprise; economists had generally expected the Fed to tweak its description of the economy while leaving its interest-rate bias unchanged. Some were puzzled by the move.

"We see the change as reflecting a 'cleaning up' of the risk-assessment language that carries little policy significance," David Greenlaw, an economist at Morgan Stanley, said in a note to clients. But he wondered why the Fed would do that, since it must have known markets would see it as a deliberate signal on future rate moves.

Some observers said Fed Chairman Ben Bernanke is coming to the rescue of the markets, in this case the subprime-mortgage market, much as his predecessor, Alan Greenspan, did when stocks plunged in 1987 and 1998. "The Federal Reserve 'put'…has now passed into the hands of Chairman Bernanke," Neal Soss, chief economist at Credit Suisse, said in a note to clients. A "put" option gives the holder protection against the decline in value of an underlying asset.

Since last fall, markets have been consistently less optimistic than the Fed about economic growth and more optimistic about inflation. As a consequence, markets had priced in as much as three quarter-point rate cuts by the end of 2007, even as Fed officials professed a continued concern about inflation.

In recent months, however, the divergence has begun to close. Repeated Fed concerns on inflation coupled with low unemployment readings dissuaded investors from expecting immediate rate cuts. But at the same time, economic growth has slowed, to a little over 2% at an annual rate, in the past year, much as the Fed expected. That slowdown has been led by a retreat in housing construction, much as the Fed expected. But in recent months, officials have been surprised by the sluggishness of business investment. Business spending has been expected to take some of the slack left by declining home building.

While core inflation, which excludes food and energy prices, crept higher in January and February, Fed officials still expect it to recede this year.

They cite several reasons: the fading, indirect impact of energy prices and the flattening out of home-ownership costs as rent rises slowly.

Because the Fed tries to set interest rates with a view to where growth and inflation will be in six to 18 months, decreased confidence in growth and increased confidence in lower inflation may have raised a desire to open the door to rate cuts in coming months.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said it is normal for inflation to ease when an economic expansion is decelerating — and for the Fed to show "equivocation." When the Fed's expectation of "moderate" growth fails to materialize, he said, "expect rapid easing" with the first cut by August.
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Subprime Mortgage Woes Spread; Forecasts for Home Prices Cut

Economists said the turmoil surrounding these risky loans is likely to spread to the broader mortgage market, a WSJ.com survey finds. The extent of any spillover to the housing market remains unclear.
By: Phil Izzo: The Wall Street Journal Online
Most economic forecasters in a new WSJ.com survey believe recent turmoil in the subprime mortgage market is likely to spread to the broader mortgage market and they expect a widely followed index of home prices to fall this year. But they still think the U.S. will avoid a recession and even a significant rise in unemployment.

"The markets may have over-reacted," said John Lonski of Moody's Investors Service. "Only businesses significantly exposed to subprime will be hurt. Mortgage repayment problems aren't as widespread as we are led to believe. If most people were having trouble paying the mortgage, it would lead to declining consumer confidence and we haven't seen that."

Of the 60 economists surveyed, 32 said it is either "very" or "somewhat" likely that the intense and speedy unraveling of the market for subprime mortgages - home loans made to people with poor credit histories - will spill over to the rest of the mortgage market.

But 26 said that's not likely. Two didn't respond.

The woes of the subprime mortgage market are the latest chapter in deterioration of the housing market. Concerns about the sector and the ripple effects on the economy have been blamed for gyrations in the stock market the past week, including a 2% drop in the Dow Jones Industrial Average Tuesday.

But just 22% said difficulties in the subprime market have caused them to downgrade their economic forecasts and, by a 4-to-1 margin, they agreed with the statement that "the worst of the housing bust is behind us."

The economists slightly reduced their forecasts for the economy this quarter but still expect moderate growth all year, at around a 2.3% rate this quarter, increasing to 3% by year-end - with unemployment rising just a bit. They put the odds of recession in the next 12 months at about 25%, slightly less than former Federal Reserve Chairman Alan Greenspan's odds of about 33%. The survey was conducted March 9-13.

The economists are markedly more optimistic - both about the U.S. economy and about the stock market - than the public is, as measured in a recent WSJ/NBC News poll.

But, as is often the case, there is disagreement among the economists about the risks that the subprime market poses to the overall U.S. economy.

"Mortgage credit-quality problems go well beyond the subprime sector," wrote Jan Hatzius, chief U.S. economist at Goldman Sachs in New York, in a research note. "The underlying problem is not the subprime market per se, but the reset of large quantities of adjustable-rate debt -- some of which is classified as subprime some as prime - to higher interest rates in an environment of flat or falling house prices in most of the United States."

Mr. Hatzius notes that the so-called teaser rate, or low initial rate on adjustable-rate mortgages, expires sooner for subprime mortgages. This implies that mortgage-holders with prime ARMs may come to experience the same woes currently making waves in the subprime sector.

The extent of any spillover from subprime to the broader housing market remains unclear. "You can tell a lot of scary stories," said Richard DeKaser of National City Corp., "but they're not broadly accurate. We're still talking about a small segment of the nation's homes that are affected." According to the American Housing Survey for 2005, the most recent date for which data are available, 33% of all homes are owned outright and 57% have traditional mortgages, leaving just 10% potentially affected by ARM woes.

The subprime concerns are also likely to weigh on prices, according to Mr. Lonski. "Home sellers will be forced to accept lower prices in the spring. The subprime issue reinforces that home prices would be subject to price recession, creating an expectation of lower prices among buyers."

Economists' expectations for home prices dropped from the previous survey. On average, they see a 0.77% decline in prices, measured by the government's Office of Federal Housing Enterprise Oversight index, in 2007, compared with their forecast in a survey last month for a 0.44% decline. Of the 55 economists who answered the question, 34 predicted prices will be flat or will decline. The index, which tracks price changes in repeat sales or refinancings on the same properties, has never posted a year-to-year decline.

The economists were split on whether regulators should have acted sooner in the subprime mortgage market. Twenty-eight of the respondents said "yes," while 24 said "no." Robert DiClemente of Citigroup contended that the problem wasn't centered on regulated institutions.

But some economists put part of the blame on the Federal Reserve. "Was it necessary to cut the fed funds rate to 1%, supercharging the housing recovery?" said Mr. Lonski. The June 2003 move, which ended a three-year cycle of rate cuts, was aimed at fostering economic growth and contributed to continued low mortgage rates.

Three-quarters of the economists - 40 of 54 who responded - said they believe interest rates would be at the same level today if Mr. Greenspan were still chairman of the Fed instead of Ben Bernanke. Nine said rates would be lower now, while five said rates would be higher now.

Mr. Greenspan has roiled the markets this month with his prediction that slowing growth in corporate profit margins means that the risk of recession is greater than many believe. Amid the stir Mr. Greenspan caused, about a quarter of the economists said he should refrain from making public comments about the economy, while the rest said he should speak his mind. "I'd prefer more Greenspan commentary, not less," said Bruce Kasman at JP Morgan Chase. The economists were about evenly split on his assessment of profit margins.

Among other findings in the survey:

• Just under half of the economists said they expect the economy to get better over the next 12 months, while 27% expect it to get worse and 22% think it will stay the same. In the latest WSJ/NBC poll, 49% of Americans said they expect the economy to remain the same, while 31% said they expected things to get worse and just 16% said they expect improvement. The economists are also more optimistic about the stock market. Three-quarters of the economists expect stocks to rise. Less than half of Americans feel the same way.

• Just 17 of the 60 economists surveyed expect the Federal Reserve to move the fed-funds rate from the current level of 5.25% by June. On average, the economists expect a quarter-point cut by December.

• Inflation forecasts were moved slightly higher, with consumer prices expected to rise, on average, 1.8% in May and 2.5% in November compared with earlier forecasts of a 1.6% and 2.4% increase, respectively. A possible contributor may be oil prices, which are now expected, on average, to be $59.26 a barrel in June compared to a forecast of $57.98 in the February survey and $59.37 in December, up from $58.72 in the February survey.
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Practical Tips for Newbie Landlords

The National Association of Residential Property Managers has seen membership grow by 20 percent in the past year. Here are tips for those just getting started.
By: Jeff D. Opdyke: REALTOR® Magazine Online
With the subprime lending crisis making it harder to get a mortgage, rental demand is increasing.

That has spurred many people to explore the financial benefits of being a landlord. Membership in the National Association of Residential Property Managers in Virginia Beach, Va., has increased by more than 20 percent in the past year.

Some new landlords have entered the business because they couldn't sell their homes and needed to find a tenant, while others are deliberately acquiring properties at below previous market prices.

Here are some important tips for newbie landlords:

    • Don’t overpay for a property or expect to get back everything you’ve invested.
      A house will attract only so much rent. If you overpay, you can raise the rent
      only so much before your property starts sitting vacant.

    • Hiring a property manager who can help you navigate local ordinances, price
      properly and find reliable tenants is often worth the 10 to 15 percent of the
      rent they charge.

    • Run a credit check on potential renters and insist on references from previous
      tenants.

    • Don’t under-budget for repairs. Keeping the property in good condition helps
      attract quality tenants.

    • Skimping on insurance can put a landlord in an expensive pickle.

    • Aim for an annual return of 10 percent to 12 percent. Finding a good
      accountant who understands the dizzying array of tax breaks, deductions and
      write-offs is often critical to achieving this margin.

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From rental to primary home: Uncle Sam takes his cut

Depreciation recapture costs 25%
By: Robert J. Bruss: Inman News
DEAR BOB: Is it necessary to make an Internal Revenue Code 1031 tax-deferred exchange before converting a rental house to my personal residence? Is there some way I can avoid that dreaded 25 percent depreciation recapture tax when I sell it? If I want to claim the $250,000 principal-residence-sale tax exemption, must I occupy it for 24 months and own it for 60 months? -Robert B.

DEAR ROBERT: If I understand your question correctly, you already own a rental house that you want to convert into your principal residence. Presuming it was not acquired in an IRC 1031 tax-deferred exchange, you can make it your personal residence at any time by kicking the tenants out (subject to their lease terms, of course) and moving in.

To qualify for the Internal Revenue Code 121 principal-residence-sale exemption up to $250,000 (up to $500,000 for a qualified married couple), you must then occupy it at least 24 out of the last 60 months before its sale. There is no need to own the property 60 months unless it was acquired in an IRC 1031 exchange.

However, when you sell the property converted from a rental into your personal residence, the amount of depreciation you deducted after May 1997 will be taxed at the special 25 percent federal depreciation recapture tax rate. For full details, please consult your tax adviser.

CAN IRA FUNDS BE USED TO INVEST IN REAL ESTATE?

DEAR BOB: Can I invest the funds in my Individual Retirement Account (IRA) in real estate? -Tim H.

DEAR TIM: Yes. You can acquire investment real estate with funds in your IRA. However, you cannot use such funds to acquire your personal residence. To do this, you must have a self-directed IRA. For full details, please consult your tax adviser and your IRA trustee.

WHAT IS BASIS FOR INHERITED LAND?

DEAR BOB: I own farm acreage in South Carolina, and it is presently in coastal Bermuda grass. I obtained this property from my parents' estate. If I sell it for $10,000 per acre for the 15 acres, what will be my capital gains tax? -Rau D.

DEAR RAU: Your adjusted cost basis is the fair market value of the property on the date you inherited the property. If you don't know this vital valuation, hire a professional appraiser to establish your "stepped-up basis" of market value on the date of the death.

Your taxable capital gain will be the difference between your stepped-up basis and your adjusted sales price (gross sales price minus sales costs). The capital gains tax will be the current maximum federal capital gains tax of 15 percent, plus applicable state tax. For full details, please consult your tax adviser.

The new Robert Bruss special report, "2007 Realty Tax Tips: Eight Chapters of Tax Savings for Homeowners and Realty Investors," is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 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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L.A. housing market holds its ground

Never mind a sales slump and now sub-prime uncertainty, prices are on the rise.
By: Diane Wedner: latimes.com
Whom do you believe? Last week came the gloomy news that the number of U.S. homes entering foreclosure is rising, and with it, more experts are predicting a meltdown of the sub-prime lending market.

But that stares in the face of median home prices in Southern California still climbing the first two months of 2007, compared with 2006. In L.A. County, the median rose 8.2% in the two-month period, to $525,000. Yes, fewer houses were sold, but the number remains well above the mid-'90s slump.

Conventional wisdom late last year was that a downturn would stretch across the board by now — and most segments have seen appreciation declines and sales drop-offs — but the high-priced market, usually the first to head south, still is "doing just fine," said John Karevoll, chief analyst at La Jolla-based DataQuick Information Systems, a research firm. The low- and mid-ranges, he added, are performing satisfactorily.

Experts are not sure why the L.A. market is doing better than expected. One explanation is that sellers have been pricing their homes more realistically, and buyers get that sellers aren't giving away their homes in a fire sale, said Leslie Appleton-Young, chief economist for the California Assn. of Realtors. As a result, the sales dropoff has slowed, giving everyone a breather.

"The year 2006 was a steep learning curve for buyers and sellers, but we didn't plunge into the abyss," Appleton-Young said. "Buyers who were on the sideline in 2006 are back in."

In the six counties of Southern California, the median price of a home — the point at which half the homes sell for more and half for less — was $489,500 in January and February combined, up 5.5% from the same period a year ago, according to DataQuick. San Diego County reported the steepest decline: 5.9%, to $475,000.

"Prices are still cooking," Karevoll said. They hit a record for L.A. County in February, rising to $528,000, up 7.8% from a year ago. Orange County's median price, however, dipped 0.4%, to $620,000.

Sales continued to fall the first two months of this year, but at a less torrid pace than in mid-2006. Sales in the Southland's six counties fell 18% from a year ago. The Inland Empire posted the steepest decline, at 33.1%.

Some housing experts believe the market may be nearing the bottom. This spring and the next six months will be "very informative," said Delores Conway, director of the Casden Real Estate Economics Forecast at USC.

"Much depends on how much the supply of existing homes go up, which could push prices down," Conway said. "If there are sufficient buyers out there, though, that won't happen."

All of this is small comfort to the borrowers with bad credit who jumped at the chance for easy money and signed up for mortgages much larger than they could handle. They figured their homes would appreciate and D-day (due day) wouldn't come. Well, it did.

The big question swirling around the water cooler today is how big an effect the sub-prime lending industry's burgeoning meltdown will have on home buying and Wall Street. First-time buyers, especially, will have difficulty pulling together the 20% down payment required for conventional loans, experts say.

The percentage of U.S. mortgages entering foreclosure during the fourth quarter last year rose to 0.54%, according to the Mortgage Bankers Assn., the highest since the group began issuing reports in 1972. Of California's 5.6 million mortgages, 0.15% entered foreclosure and 3.25% were delinquent.

Among California's 806,022 sub-prime home loans, nearly 11% were delinquent, compared with 13% nationally. To put this into perspective, a small percentage of homeowners who are late with their payments end up in foreclosure. The majority refinance or sell.

Not all experts are worried.

"The fact is, the vast majority of those who buy homes do it with straightforward mortgages," Karevoll said. "Sub-prime lending is a sub-category of a sub-category. There is a ton of mortgage money out there."

Fears prompted by the rising numbers of homeowners entering the foreclosure process — a glut of such homes could spark price declines — also are overblown, Conway said. Although there are more today than during the 2004-05 boom, she said, delinquencies are at historically normal levels.

The bottom line, experts say, is that no one can predict exactly which way the market will go this spring, traditionally the top season for buying and selling.

"There's a lot of uncertainty floating out there," DataQuick analyst Andrew LePage said. "It's hard to be bullish or bearish at this point."
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More Americans Become Landlords as Rents Rise

With home prices retreating from fever-pitch highs, a new breed of real-estate investor is eclipsing the speculator: the landlord. To survive the experience, the first step is to find a good tenant.
By: Jeff D. Opdyke: The Wall Street Journal Online
With home prices retreating from fever-pitch highs, a new breed of real-estate investor is eclipsing the speculator: the landlord.

More Americans are hanging out "for rent" signs. Some were forced into the business after buying investment houses or condos at top dollar during boom times that they now can't sell. But many are discovering their inner landlord on purpose, often buying properties well below prices from a year or two ago.

It can be lucrative. For the first time in several years, rents are rising in many places, in part because the subprime-lending crisis is making it harder for people with marginal credit records to secure mortgages, increasing rental demand.

Shantay Wakefield and Gerald Taggart, a couple in Fairview Heights, Ill., have bought two rental properties in the past two years. The two 30-year-olds figured they would be income-generating investments, though they didn't foresee the pitfalls.

"You find out quickly that this is not easy," says Ms. Wakefield, a high-school teacher. They expected repairs to one of their rentals to take four weeks; they took seven months, and costs piled up.

Nevertheless, she says, "The sense of accomplishment, that's what we've enjoyed."

At the National Association of Residential Property Managers in Virginia Beach, Va., membership in the past year has increased by more than 20%. In Nashville, Tenn., Wilson Group Real Estate's property-management-services arm has nearly doubled to 250 clients in the past year, thanks to the landlord boom.

Getting into real estate remains relatively easy. Despite the difficulties in the loan market for higher-risk, subprime borrowers, there are lots of financing options available for investment real estate, assuming your credit is good.

But that doesn't mean it is a good idea for you. Think of it like operating a small business, even if it is just a single condo. Tricky tax laws, obscure local ordinances and other imponderables can turn what looked like a no-brainer rental into a money pit.

College Landlord U

Read a special report on investing in college towns.
Keep in mind that "you're buying an income stream, not a pretty house," says Paul Howard of the Florida Landlord Network, which provides services to landlords in the Sunshine State. A house will attract only so much rent. If you overpay, you can raise the rent only so much before your property starts sitting vacant.

Mr. Howard says he recently took a call from an engineer in Maryland who had just bought a waterfront Florida home and was looking for help finding a renter. "I ran the numbers," and "even if this guy got top dollar for rent, he was still underwater by $800 a month," Mr. Howard says. "He overpaid, and now he's got problems."

The first step is to assemble a small team of pros, especially a real-estate agent knowledgeable about local rental rates and other issues that will impact your bottom line. Consider retaining a local property manager who can help you navigate ordinances, set a fair rent, find tenants, arrange lawn services and handle worst-case scenarios, like evictions.

The downside: Managers tend to charge a month's rent upfront and about 10% of the rent thereafter.

Tenant Complaints

Ms. Wakefield and Mr. Taggart manage such duties themselves. One of their two properties has been smooth sailing. The other's tenant is "calling every day with a new complaint," Ms. Wakefield says. "Right now she wants us to put in a water line because she bought a new refrigerator with a water dispenser."

Property managers are listed in phone books or online. You will want one that has been in the business full time for years. To track rental finances, many landlords use Quicken Rental Property Manager or similar software.

Running a credit check "is a must," says George Heim, a retired policeman in Wall Township, N.J., who, along with his wife, inherited a home that is now a profitable rental unit. Landlords can sign up for services from providers such as Fidelity Information Corp. (gofic.com) to get these reports for small fees.

Key Questions

Insist on references from previous landlords. Key questions to ask: Did the tenant pay on time? How much damage was done to the property?

A typical mistake is to underbudget for repairs. Keeping the home in good condition helps attract quality tenants. "It's just so silly to scrimp on maintenance," says the Florida Landlord Network's Mr. Howard. "When you're a landlord, you're in the retail business, not real estate. You don't want to lose your good customers."

Insurance is another concern. An injury to your tenants or their guests on your property could mean a lawsuit. A good insurance agent and lawyer can help determine how best to structure your business to limit your personal liability.

Where's My Accountant?

Rental real estate also comes with a dizzying array of tax breaks, deductions and write-offs, perhaps more so than just about any other investment. You have deductions for interest, insurance, repairs, even for the mileage accumulated driving to the bank to deposit the rent checks. It is worth the expense to hire an accountant with rental-income expertise.

Overall, aim for an annual return of at least 10% to 12%. Remember, you can earn 5% in risk-free U.S. Treasury bonds, so you should make more to compensate for the headaches of being a landlord, such as the Christmas Eve phone call informing you of a broken toilet.

That happened to John Hayes, president of HomeVestors of America Inc., a national chain based in Dallas that buys and sells homes in need of repair. "This kind of stuff is a hassle," says Mr. Hayes, who is also a landlord. Fortunately, he had a plumber on 24-hour call - another good idea.
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Fed Keeps Rate at 5.25%, Abandons Tightening Bias

The Federal Reserve kept the benchmark U.S. interest rate at 5.25 percent and unexpectedly abandoned its tilt toward higher borrowing costs.
By: Craig Torres: Bloomberg.com
``Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth,'' the Federal Open Market Committee said today in Washington. While inflation is the ``predominant'' concern, the statement dropped a reference to ``additional firming,'' language used since June.

Policy makers said recent economic indicators have been ``mixed'' and the ``adjustment'' in the housing industry is continuing. Nevertheless, ``the economy seems likely to continue to expand at a moderate pace over coming quarters.''

The shift suggests officials see a growing risk that the economy, already weakened by a recession in residential real estate, will slow further. Some traders read the change as a signal that the Fed will consider cutting rates by the June policy meeting. Treasury notes and stocks rallied, while the dollar fell.

``It does not appear the committee is prepared to consider easing; rather, they are ruling out tightening,'' said Chris Low, chief economist at FTN Financial in New York. ``The FOMC concedes a decidedly gloomier economic picture in March than in January, but continues to worry'' about inflation.

Uneven Picture

Fed officials are trying to sort through uneven economic data that show continuing strength in employment and persistent inflation pressures alongside a slump in investment spending and rising mortgage delinquencies.

Government reports this month showed unemployment fell to 4.5 percent in February, industrial production gained 1 percent from January and consumer prices rose 2.4 percent from a year ago. Mortgage Bankers Association data show delinquencies on all mortgages at a 3 1/2-year high last quarter.

Today's change in the interest-rate policy tilt likely indicates a downward revision to the Fed's internal forecasts, which are only made public after a five-year lag.

The housing downturn will be ``a major factor in the outlook,'' said David M. Jones, president of DMJ Advisors in Denver, said before the meeting. ``As real growth falls below their forecast toward the end of the year, eventually we will see the Fed leaning toward rate cuts.''

Fed Chairman Ben S. Bernanke is also taking a risk by switching the rate outlook. The labor market is robust, factory output appears to be picking up and inflation is elevated.

The Fed's preferred inflation benchmark -- the personal consumption expenditures price index, minus food and energy -- has been at or above the top of the 1 percent to 2 percent comfort zone of at least six policy makers for about three years. The measure rose 2.3 percent in the 12 months to January.

Watching Housing

Bernanke now needs the data to confirm the softening his staff and other policy makers may be concerned about. Just how far weakness delinquencies in the mortgage markets spread will be one area they will watch.

Housing has subtracted from economic growth for the past five quarters, and lenders could cut back credit as mortgage distress rises.

Mortgage delinquencies rose to a 3 1/2-year high last quarter, the Mortgage Bankers Association said last week. Delinquency rates on subprime mortgages rose to 13.3 percent, the highest since September 2002. Foreclosure rates on all mortgages rose to highest level since the first quarter of 2004.

Uncertainty in economic forecasts is increasing because it's difficult to tell ``how the whole mortgage market is going to turn out,'' David Seiders, chief economist in Washington at the National Association of Homebuilders, said before the meeting.

Company Investment

Business spending in the fourth quarter was also weak. Corporate purchases of equipment and software declined at a 3.2 percent annual rate last quarter, the most since the final three months of 2002. Shipments in January of non-defense capital goods excluding aircraft, a proxy for future investment, slumped 2.7 percent, the most since September 2001.

``The investment side is the most puzzling and the biggest challenge to my optimism,'' James Glassman, senior economist at J.P. Morgan Securities Inc. in New York, said before the announcement. ``The risks have been shifting to the downside.''
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Real Estate: The Long-term Investment

How brokers and consumers manage finances with property.
By: Eugene L. Meyer: RISMedia
It's a bad time for flippers looking to make a quick buck, and their departure from a demand-driven market has certainly contributed to a drop in home prices. But for investors who view real estate as the keystone of a long-range financial plan, there may be no time like the present to buy-and hold.

A New Approach to Sales

For brokers confronting large, lingering inventories of unsold properties a buyer's market could actually be good for business. Just ask Greg Rand, a Hudson River Valley, New York broker who has found a niche that transcends the cyclical ups and downs in housing.

Rand's 725 agents in 21 offices service owner-occupants, both buyers and sellers. But they also seek out buyers who aren't looking for a primary residence but rather for a long-term investment. He calls it the "get rich slow" program. "It's a different sales campaign," he says. "You're contacting somebody who may not want to move but may want to make an investment. You are realizing a transaction out of thin air.

"This is a great differentiator," says Rand, managing partner of Prudential Rand Realty, whose business is mostly in the suburban home owner market. But as Rand sees it, the firm's investor services set it apart from others. "We happen to occupy a niche where we have real substance behind the claim."

The substance, Rand says, is "My Property Portfolio," an online way to track the value of a real estate portfolio, with access to all comparable sales in a neighborhood and to detailed local market statistics "customized to your real estate portfolio."

Rand developed the program, which includes training for agents and clients in the fundamentals, based on his own experience with a financial planner. "I bought a $200,000 condo five years ago when my daughter was born," he says/ He put $20,000 down for the property. The condo isn't producing rental income above expenses but Rand says he is breaking even and counting on rising equity from long-term appreciation and from paying down his loan.

"I'm not doing this for income but for the objective of easily financing college in 12 years," he explains. "I'm extremely confident I'll have the dollars I'll need, $500,000 when she goes away, based on my initial investment. It will be very, very largely paid down. I'll either sell or refinance it."

Rand has taken this philosophy to the bank, and for inspiration he credits financial planner James Giangrande, who worked with him to create a long-range plan. "My thing was: here's a condo for college and a share of a multi-family building for retirement and a piece of commercial property, also for retirement," Rand says. "It helped me to design our program."

Rand's initial thought had been to invest $20,000 in a Section 529 college savings plan, but Giangrande had another idea. He noted that after 15 years, Rand could wind up with $146,000 from a 529, all of which must go to education, leaving nothing left over.

Or Rand could buy a $200,000 property with $20,000 down and a 15-year mortgage. At the end of the day, assuming rent covers only expenses and no profit, the mortgage is paid off and Rand has at least $200,000 in equity. If the property has appreciated 5% a year, its worth rises to $415,000. The property could then be sold, or refinanced to use some of the equity for college.

"You're using other people's money to build your wealth," Giangrande explains. "It's not for everybody. There'll be times when you have no tenants or damages and you have to put money into the property, but it could be viable in the right situation for the right person with the right temperament and the right stomach for it."

Those who get hurt, he adds, are people who use equity lines for down payments or finance 100% of the sales price or don't have cash reserves, in case the house sits empty or requires repairs. And, Giangrade adds, it's important for investors to make a "holistic" financial plan that takes into account all their goals, not merely one.

Financial Planning is Key

Rand says his blended service, combining financial planning and real estate investment, are tailor-made to the current market. "The world was full of investors when the market was hot," Rand says. "As the market has changed, people who still wish to invest in real estate need advice. The follow the herd mentality got a lot of people stung, and the slowdown has caused people to become more conservative."

When rising interest rates restrict the pool of buyers, rental properties become more attractive, according to financial planner Jim Ludwick, of Odenton, Maryland. Many would-be buyers will remain renters, "which will give landlords the opportunity to raise rents more rapidly than in the last few years as some of their best tenants left to purchase a home. This would be a good time to be in the rental business."

Ludwick suggests another variation on the buying-for-college strategy: "Parents buy a small house or condo in a college community, have the child manage it in a tax-advantaged way so they pay him a salary, rent it out to other students with the child also staying in the house. Then, after college, sell it to another parent. I have heard whispers of parents trying to find other parents to buy their property."

A former commercial real estate broker, Ludwick says his clients "appreciate a financial advisor who has an interest and experience in real estate." The converse-Rand's business model-might also be true.

In attempting to make investor sales a core part of his business, Rand appears to be offering a product that is hard to find in the marketplace-though others have at least dabbled in it.

Nashville real estate agent Hal Wilson has a sub-specialty in real estate investment. On his own, he searches for derelict properties to buy, fix up, rent and eventually sell. He currently owns 70 units he manages himself. "When my kids were young, I started buying property way under market," he says.

While his daughter handles "the retail side" of the business, Wilson represents 40 or 50 "investor clients. I have a young man of 40 with two little children. I got him on my program about ten years ago. He has 15 properties, five paid off, bringing in $1,000 a month in rental income. His net worth is now more than $1 million."

Target the Right Clients

Jerry McMahan, principal broker for Coldwell Banker McMahan, in Lexington, Kentucky, has helped a few doctor friends buy and sell rental properties.

"One doctor took as little as $25,000 of his cash, and we were able to secure him five homes the first year," McMahan says. "It got to the point where he had $550,560 of equity built up from that original $25,000. He held them for 12 to 15 years and right now he's gone ahead and cashed all of them out. That's where his retirement income is coming from."

McMahan said he approached the doctor and helped him develop an investment plan. Eventually, a few other doctors decided to work with McMahan to build real estate portfolios. They wound up with 25 or 30 rental homes they kept for eight to ten years.

As part of the deal, McMahan's company managed the properties for free in return for the investors selling as well as buying the properties through him, thus assuring sales commissions at both ends. "That's the program we set up because we felt we were being well enough compensated" through the transactions, McMahan said.

"It's not our main business," he said, "but I think if we had somebody who worked directly with the medical profession, it's something to be capitalized on. They are so busy that they don't have time to keep up with their investment. I think it could work for other professions, too."

While McMahan hasn't expanded the program, he has encouraged his top agents to build up their own portfolios. "They're out in the market every day, seeing what's going on," he says. "Maybe they see a property's not selling" and buy it.

Property foreclosures, looming larger in some overheated parts of the country, can also be a window of opportunity, he said. Before a property goes to foreclosure, an investor could take over the note and pay some back taxes to get clear title. "Especially with the market we're in right now, a buyer's market, it's a good time for that type of investor to step forward.

"It's not something you'd want to flip right away but hold onto for a long-term investment, knock the principal down, and one day wake up with some good equity," said McMahan, who at one time had 12 to 15 rental homes in his own portfolio. Now that his firm has grown to 11 offices and 300 agents, he's been otherwise occupied and owns only two rental properties.

"I think there's a good market for it," he said. "It's a time management deal. I think too many of us get involved in day to day stuff and some aspects like this pass us by; and we're supposed to be experts in the industry."

Why haven't many other brokers jumped on the Rand-wagon? "In my experience, this is not an industry that is famous for innovation, breaking the mold," Greg Rand says. "My sense is that it's a whole different discipline than owner-occupant real estate and brokers just haven't developed the expertise."

Eugene L. Meyer is a former Washington Post reporter and editor who freelances from Silver Spring, Maryland.
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Fed Expected to Leave Interest Rates Alone

If rates are left unchanged this week, it will be the six-consecutive meeting in which the Federal Reserve endorsed the status quo.
By: Barbara Hagenbaugh: REALTOR® Magazine Online
The Federal Reserve is widely expected to leave interest rates unchanged when it meets this week. If that happens, it will be the six-consecutive meeting in which the Fed endorsed the status quo.

Several economists believe the Fed will leave rates unchanged throughout 2007, making this year the first with no rate changes since 1993. That would be a big change from recent years; the Fed raised rates 17 times from June 2004 to June 2006.

Some economists acknowledge that concern over subprime mortgages and their effect on the economy could move the Fed to action, but most observers don’t believe that will happen. "It's not a trivial problem, but it's a self-contained problem," says Don Ratajczak, consulting economist at Morgan Keegan.
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Upside in L.A. housing market

Condo sales downtown, where prices start in the mid-$300,000 range, are still relatively strong.
By Annette Haddad: latimes.com
Erica Helphand and Sawnia House are the types of buyers making downtown Los Angeles one of the region's strongest residential markets, for a simple reason: It's in their price range.

"If we could afford a Craftsman in Venice, hands down we would move there, but that's not an option," said Helphand, a 35-year-old professional events producer who lives with House in a rental in Culver City. They toured more than a dozen condo and loft projects last weekend and liked what they saw.

Even as most of Southern California is in the throes of a slowdown that has curtailed sales and tamped down price growth, downtown L.A. appears to be one of the few bright spots. And that helped Los Angeles County stay strong in February, with a median home price that was up 7.8% from February 2006, according to figures released Monday by DataQuick Information Systems, a La Jolla-based real estate research firm.

It was the biggest year-over-year percentage gain since July.

Sales of units in the seven ZIP Codes that comprise downtown nearly doubled from a year ago to 148 closed transactions in the three-month period that ended in February, according to DataQuick. These transactions don't take into account deposits made by would-be buyers staking claims on units still under construction. In the three months, more new units were available for sale compared with the year-earlier period but the number of deposits taken has been hard to pin down.

Still, the doubling in transactions is "pretty significant because it shows that demand exists," said Jim Perabo, a downtown broker. "The total number of units on the market for that period increased and sales didn't slow."

With some new units starting as low as the mid-$300,000s, downtown is attracting middle-class salaried workers like Helphand and House, as well as suburban homeowners rich with equity looking for a weekend getaway or a first home for their college-age children.

That wasn't necessarily the case just nine months ago. In mid-2006, downtown sales were declining as inventory of new and existing units inundated the market.

Since then, a combination of sales incentives, price reductions and a deliberate slowdown in the number of new units being released by developers has curtailed the downtown inventory problem and goosed demand.

More important, downtown's image as a livable place probably had its best year in decades. The Grand Avenue project — a major retail, housing and entertainment development that some hope will rival New York's Times Square — won city approval. The five-star Ritz-Carlton and four-star JW Marriott hotels announced plans to serve as Convention Center anchors at L.A. Live, another entertainment site in development. Meanwhile, a host of restaurants, bars and boutiques have sprung up to serve the budding residential population. The first downtown supermarket, set to open this summer, has generated nonstop buzz.

Not everyone is sold on downtown. Christina Yu and Christopher Camargo, renters in Long Beach, visited about a dozen condo and loft projects to learn firsthand what downtown has to offer and were not entirely impressed.

"It wasn't that long ago that the alleys were filled with derelicts and drug addicts," said Camargo, who was eating lunch Saturday at Royal Claytons, a new restaurant adjacent to a private gym that caters to two new loft-style complexes in the trendy Arts District that abuts the concrete channel of the Los Angeles River. But "if I'm going to pay $700,000 for a place, I think it should have a view of the ocean, not someone else's living room."

In general, Los Angeles County's housing market has shown slightly more resilience than other regions thanks to its status as the biggest county. In February, the county's median home price rose to $528,000, according to DataQuick.

At the same time, countywide home sales fell 11% to 6,300, the fewest transactions for a February since 1997, DataQuick said. The rate of decline picked up from January, when sales fell 6.9% from a year ago, but was an improvement over mid-2006, when sales were falling at a 25% year-over-year pace. L.A. County's median price — the point at which half of all homes sold for more, half for less — had been virtually flat since June, when the median was $520,000.

"We still see L.A. as a market in transition and it's important not to read too much into a modest price pop early in the year," said Andrew LePage, a DataQuick analyst.

January and February are typically the slowest months for real estate transactions. Analysts are more interested in seeing how well the next three months perform before drawing conclusions about the health of the Southland housing market.

The outlook nonetheless seems hazy. Tighter lending standards and slower appreciation will keep many would-be buyers on the sidelines, even if interest rates remain steady and the economy continues to produce jobs.

Downtown broker Perabo says he's busier than ever answering queries from potential homeowners. But he also is more worried because fewer first-time buyers will be able to qualify now.

"The days of 100% financing are over," he said, adding that about 20% to 30% of the first-time buyers he meets with would be unable to buy without improving their credit standing and coming up with a down payment.

Helphand and House have been saving for a house and are hoping to qualify this week for a conventional mortgage to help them buy a home in the mid-$400,000s. And after raising their bottom-line price slightly in order to increase their options, the couple has narrowed their home search to four places, in the Fashion District and the historic core near the Civic Center.

"We're ready to bite the bullet and purchase our first home," Helphand said. "But there's also a gut instinct about this being the right thing at the right time."

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(INFOBOX BELOW)

Home sales

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Median price and number of homes sold in L.A. County

Sale prices Year-over-year
Feb. '06 Feb. '07 Change
Resale houses $524,000 $550,000 +5.0%
Resale condos $410,000 $432,000 +5.4%
New homes $433,500 $528,500 +21.9%
All combined $490,000 $528,000 +7.8%


Number of sales Year-over-year
Feb. '06 Feb. '07 Change
Resale houses $4,860 $4,392 -9.6%
Resale condos $1,215 $1,125 -7.4%
New homes $1,014 $783 -22.8%
All combined $7,089 $6,300 -11.1%
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On Second Thought…Five Ways to Ease Buyer’s Remorse

Most people have experienced buyer's remorse in some form, whether it's feeling guilty over the price paid for a new pair of shoes or a jab of regret after splurging on some unneeded tech gizmo.
By: Amy Hoak: RISMedia
But when it comes to one of the most expensive purchases in a consumer's life, a home, feelings of remorse can be a lot more intense, easily rattling otherwise confident home buyers and causing them to second-guess what they liked about a house in the first place.

Luckily, many local real estate markets today are buyer's markets; there's lots of inventory to look at and often ample time to negotiate on price, said Eric Cunliffe, senior vice president of RealEstate.com. Those factors greatly decrease the chances of buyers completely changing their minds-and wishing they'd gone for a different house-after the fact.

"In 2005, people felt desperate to get out there and get there first and make their offer," added Nancy Riley, president of the Florida Association of Realtors. "Now they do have the luxury of being able to negotiate."

That said, buyer's remorse often pops up regardless of what the real-estate market is like, especially for first-time buyers. Unless someone is "particularly unemotional" or has gone through the process of buying a home many times, it's very normal to second guess a home-purchase decision, Cunliffe said.

In fact, a buyer's market can introduce additional feelings of remorse when an interested buyer shops extensively, finds a home of interest but waits too long to make an offer, said psychologist David W. Stewart, a professor of marketing at the University of Southern California. Stewart's area of focus is consumer psychology.

"You might think that buyer's remorse could be prevented if people spent more time shopping … but there's also a nonbuyer's remorse as well," he said.

A client of real estate agent Kristy Ryan understands that concept well. The prospective buyer wouldn't budge on his offering price, fearing he would overpay, and another buyer scooped the place up, said the Realtor with Re/Max Fine Properties in Scottsdale, Arizona.

"Now, we can't find him anything remotely as good … and (the prices) are substantially higher," she said.

Also playing in the background of a home buyer's mind is the news they hear about the health of local housing markets. When they hear that prices are falling and there's an oversupply, "that tends to paralyze some people," Stewart said. The news could also cause them to second-guess their recent purchase, fearing that they could have bought for less.

But there are ways to beat buyer's remorse before it sets in, as well as knock down those pangs of regret if they do happen to invade a buyer's psyche. Here are five of them:

1. Do all the homework
It's essential for buyers to know what they want — both in terms of housing needs and the neighborhood, Cunliffe said. That means being satisfied with such factors as the distance from work and the quality of the schools before settling on a home.

"The more work they do on that up front, the less likely they are to make a mistake," he said.

The more buyers shop around, the more educated they will be on a particular market, Ryan added, so look around and learn about how far a real estate dollar will stretch in the area. Prospective buyers often pay attention to news stories about the real estate market, but it's important to also be aware of the longer-term trends in the local area, she added.

"I think a lot of buyers in times like this, when markets are soft … they absolutely sit on the sidelines and wait or they keep shopping until they find a screaming deal," Ryan said. She reminds people that the Phoenix market, which she serves, is a growth market that is "not going to stay in the doldrums forever."

2. Get preapproved for a mortgage
Getting preapproved for a mortgage before house hunting will remove another fear that buyers commonly have before or after committing to a particular property — that they won't be able to afford the monthly payments, Cunliffe said.

In fact, Ryan won't take a client to showings without a preapproval. Once a professional lender has "done the math," buyers can be more confident in what they can afford, she said.

3. Call for reinforcements
If fears start to creep up after the paperwork is finalized, enlist the ears of friends, parents or peers who can reinforce the decision to buy, Stewart said. A realty agent can also help out by reminding a client of why the home was originally a favorite or reassuring the buyer that a good price was secured for the property.

One of Ryan's clients bought a home and witnessed a nicer home on the same block sell for less several months later. Her advice: Sit tight, wait until the market gets better and enjoy the house without worrying about the neighbors.

"I especially tell people 'This is not the market we flip in. You need to sit tight for three years, maybe even four,'" she said.

4. Personalize your new space
To feel more connected to the new home, make it your own, Ryan said. Paint the walls or change the carpets. Decorate the walls. The changes don't have to be expensive, but if it reflects you and your attitudes, the home will start to feel more like your own.

The process of individualizing the home will help create a sense of ownership, Stewart said. "You're less likely to feel remorse because it's yours," he said.

5. Don't dwell on it
Finally, those who fear they've bought the wrong home need to remember that they made an educated, thoughtful decision when they signed the paperwork. There's also not much they can legally do to get out of it if they change their mind after the contract is finalized.

"People really need to remind themselves of what they knew at the time they made the decision," Stewart said. "It's not productive for people to dwell on what might have been."

Remember, when many markets were peaking, it may have made sense for buyers to worry they were paying too much, Cunliffe said. Now, that concern has lessened in many places as prices have come down and have begun to stabilize. At any time, however, "trying to time the market doesn't really make a lot of sense," added Stewart.

Regret may also dissipate somewhat when an unhappy buyer realizes the alternative — buying and selling all over again, Stewart said.
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Three Ways to Flip Houses in a Down Market

My team and I flip houses in Michigan, where the housing market is currently experiencing a significant slump.
By: Ralph Roberts: RISMedia
Wherever these dips in the market occur, they often discourage investors, particularly novice investors, from flipping, but you don't need to get discouraged. With the right adjustments, you can flip houses profitably in a depressed market.

I suggest three strategies for successfully flipping houses in a down market:

- Focus on foreclosures.
- Look for deeper discounts.
- Buy and hold.

Focusing on foreclosures

When the housing bubble in a particular area bursts or rapidly deflates, neighborhoods are often littered with homes that have had all the equity stripped out of them. While declining property values erode the equity in the property from one end, homeowners borrow against the equity from the other end, until nothing is left. The market now has a glut of properties with little or no equity.

In such cases, finding a potentially profitable property is more challenging. You may find yourself having to deal directly with banks and REO departments instead of buying properties at sheriff sales, auctions, and "fire" sales. When buying REO properties from banks, the trick is to have your financing in place and be able to act quickly to solve the bank's problem. You see, banks don't like to own properties. They like to own mortgages. So, if you can lessen the bank's loss and stop the bleeding, you may be able to snag a profitable property for yourself.

Negotiating with banks can be tricky, but the more homes they end up with in foreclosure, the more they need investors to step in and buy them. I discuss some of the techniques for buying REO properties in my upcoming book, Foreclosure Investing For Dummies, which is due to be released in June.

Buying at deeper discounts

When I flip houses in a rising or steady market, my goal is to earn at least a 20% return on my total investment. To determine how much I can invest in a property, I start with the price I think I can sell the property for after fixing it up and I divide by 1.2. For example, if I think I can sell a house for $200,000 after repairs and renovations, I divide $200,000 by 1.2 and come up with something in the range of $167,000. I then subtract what I expect to pay in repairs and renovations, agent commissions (to sell the house), and holding costs (utilities, taxes, and insurance for the duration of the project). This gives me a ballpark idea of how much I can pay for the house to earn a 20% profit. If I add up all my estimated costs and come up with $30,000, for example, I could then afford to pay up to $137,000 for this house I plan to sell for $200,000.

In a declining market, I might start by dividing what I think I can sell the house for by 1.3 instead of 1.2. In the example of a $200,000 house, then, I would give myself only about $154,000 to invest, so I would have $13,000 less to invest in the project to be fairly certain of earning a 20% profit. In other words, I would be looking to buy the houses for 10% less than I would normally pay. In our example, I would be able to pay $124,000 for the house I plan to sell for $200,000, because I probably wouldn't be able to sell it for $200,000 a month or two after fixing it up.

Buying and holding-the long-term approach

Some real estate investors adhere to the long-term, buy-and-hold approach as their core strategy. They buy real estate and lease it out for a steady cash flow. The tenants pay down the mortgage principal while the property increases in value, and when the investor is ready to sell, they can typically cash out a huge amount of equity that's built up in the property over the years. In addition, the property offers some nice tax write-offs.

Flippers, by definition, are not buy-and-holders, but when the market takes a dive, and you can't immediately sell a property for a profit, a temporary shift to the buy-and-hold strategy can help you ride out the slump. If you can lease the property for enough money to cover your monthly mortgage payments, utilities, insurance, taxes, and maintenance costs, you can hold onto the property without having to sell it at a loss. You can then wait until the market recovers to sell. If your not landlord material, this isn't for you, but if you can wait out the market on someone else's dime…now you're talking.

Another option is to live in the house yourself for a while, do the renovations over the period of time it takes for the market to rebound, and then flip it. This strategy requires a little more of a commitment on your part and usually is only an option for singles or for adventurous couples and families, but when you're facing the prospect of selling the house at a loss or taking on a little discomfort and inconvenience, discomfort and inconvenience may not seem so bad. If you already have a house, consider putting both houses on the market. If your current residence sells first, move into the investment property!

Regardless of which method you chose, the flipping process is basically still the same-you're simply stretching it out over a longer period of time. Although flipping is usually an "in- the-moment" investment designed for those who desire quick profits and instant gratification, you may need to adjust your strategy to accommodate shifts in the housing market. To rephrase something I heard recently about the state of Michigan, house flippers who are working in a declining market have two options: change or die. For you evolutionists out there, you can either evolve as a new species of house flipper or you can go extinct. No doubt, some will go extinct, but it doesn't have to be you. Adapt, survive, and thrive.

For additional tips on flipping in a slow market and other guidance on buying, renovating, and selling houses for a profit, check out Ralph Roberts' recent book Flipping Real Estate For Dummies (John Wiley & Sons).
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Young With Money: Your Prime Prospects

Keep an eye on 18-to-35-year-olds with household incomes of $100,000 or more.
By: Camilla McLaughlin: REALTOR® Magazine Online
Keep an eye on the young-with-money set — 18-to-35-year-olds with household incomes of $100,000 or more. They’ll be good prospects, particularly for upscale homes, says Bob Jordan, president of International Demographics.

The demographic represents 26.6 percent (6.2 million) of the 23.2 million adults with household incomes over $100,000 in the 87 metros regularly surveyed by The Media Audit, part of International Demographics.

The number of young with money also eclipses the age 55 and over bracket. “There are more — by both percent and actual number — adults with six-figure incomes under the age of 35 than there are over the age of 54,” says Jordan.

An analysis of Federal Reserve data by the National Association of Home builders bears this out: Median income for 55-plus households is somewhat lower than it is for younger households.

Better Educated Women, Wealthier Men

Fifty-six percent of the women in the young-with-money group have one or more degrees, compared with 46 percent of the men. Although younger women tend to have more degrees, more younger men, 60.9 percent, have six-figure incomes compared with 39.1 percent of women. And men get to the $100,000 income level more quickly, with 19.4 percent of 18- to 20-year-old men at or above this income compared with 15.6 percent of women.

Still, education level is key to wealth for this group, and Jordan anticipates that young adults with money, particularly those with an education, will continue to be a growing part of the marketplace.

Homeownership Trends

Younger women aren’t only more likely to buy a house, but they’re also more likely to own a larger or more expensive home compared with men in the same demographic.

    • 46.5 percent of women age 18 to 35 have homes valued at $300,000 or more.
    • 42.2 percent of men have homes valued at $300,000 or more.
    • 80.7 percent of women in this group own their home, compared with 74.3 percent
      of men.

Other Young-With-Money Stats

    • 63.2 percent of the "young with money" are 25-34
    • 58.3 percent are Caucasian
    • 9.7 percent are African-American
    • 15.3 percent are Hispanic
    • 12.7 percent are Asian

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Housing Stays Hot for World's Hot Shots

The uber wealthy are driving prices in the world's desirable neighborhoods.
By: Joseph Contreras and Emily Flynn Vencat: REALTOR® Magazine Online
Prices of high-end property in the world’s most attractive cities continue to rise, impervious to the real estate slowdown in the United States.

The buyers are a bevy of high-flying cosmocrats who work in all of the world’s most glamorous cities from New York and San Francisco to Moscow and Shanghai.

About 50 percent of these super-prime property owners are expatriates, according to the global property research firm Jones Lang LaSalle.

They float on a cushion of international capital, largely immune to regional concerns, and are flush with cash, observers say. This year has been particularly good for bankers and traders who got huge bonuses in February.

With so much money floating about, the demand for luxury housing in the most-sought-after cities has outstripped available supply, driving up prices to eye-popping levels.

"It's quite an interesting irony that these buyers are globally footloose," says Sue Foxley, head of residential-property research at Jones Lang LaSalle, "because there are probably only 100 streets around the world on their shopping lists."
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What to Expect in the 2007 Housing Market

Unusual weather patterns and problems in the subprime lending marketplace are creating challenges in assessing housing market conditions, but a recovery is likely this year, according to the latest forecast by the NATIONAL ASSOCIATION OF REALTORS®.
REALTOR® Magazine Online
David Lereah, NAR’s chief economist, says there’s some ambiguity about the current housing market.

“Our goal each month is to fine-tune the forecast based on the latest housing data and a variety of economic indicators, but extraordinary weather variations are skewing home sales and clouding the picture,” he says. “Underlying trends point to a housing recovery in 2007, but it will take a couple months for us to get a better handle on it. Existing-home sales are expected to slowly improve from what appears to be the cyclical low last fall, but we think there will be some additional pain in the new home market, which hopefully will start to rise later in the year.”

2007 Housing Projections

Here are some of NAR’s predictions for the coming months in housing:

Existing-home sales are projected at 6.42 million this year and 6.66 million in 2008, compared to 6.48 million last year. The national median existing-home price is projected to rise 1.2 percent to $224,500 this year, following a 1 percent gain in 2006. “Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next,” Lereah says. “However, total sales this year will be fairly close to 2006 because last year started high and ended low.”
Lending problems in the subprime marketplace, which continue to grow, will also play a role in housings' recovery. “[This] could inhibit future housing activity and further dampen our forecast,” Lereah says. “Even so, these problems are likely to be contained and not spill over into the prime mortgage market.”
The 30-year fixed-rate mortgage is expected to rise to 6.7 percent by the end of the year. Last week, Freddie Mac reported the 30-year fixed rate dropped to 6.14 percent. “Over the last few years, mortgage interest rates have moved in surprising directions — the unexpected dip we’re seeing now and a rise in mortgage applications are positive signs,” Lereah says. “With soft home prices and lower interest rates, affordability has improved for home buyers and that is encouraging them to get into the market.”
New-home sales are forecast at 950,000 in 2007 and 981,000 next year, down from 1.06 million in 2006. The median new-home price should grow 1.7 percent to $249,600 in 2007, following a 1.9 percent increase last year. Housing starts will probably total 1.50 million this year and 1.56 million in 2008, in contrast with 1.80 million units last year.
Overall, stronger gains are probable in 2008, with new-home prices growing 3 percent and existing-home prices rising 3.1 percent.

Weather Cools the Market

For critics who don’t understand the weather impact on seasonally-adjusted sales, Lereah says they'll likely be reminded about the consequences throughout this spring.

Here’s what’s happened and how it’s likely to play out: In December, unusually mild weather brought out shoppers and January existing-home sales rose, Lereah explains. “However, a sudden chill in January slowed shopping activity relative to December and pending sales, based on contracts, fell," he says.

The biggest weather impact from February has yet to be seen. “February’s winter storms brought markets to a halt in much of the country, and it was the coldest February since 1979 — that should drag sales down in March,” Lereah says. “This means we may not see an upturn in closed transactions before May 25 when we report sales for April.”

Meanwhile, the following are some other factors to watch that can affect the market:

    • The unemployment rate will probably average 4.7 percent this year; it was 4.6
      percent in 2006.

    • Inflation, as measured by the Consumer Price Index, is forecast at 2.1 percent
      in 2007, down from 3.2 percent last year, while growth in the U.S. gross
      domestic product is seen at 2.5 percent this year, compared with 3.3 percent
      in 2006.

    • Inflation-adjusted disposable personal income is expected to rise 3.1 percent
      in 2007, up from a gain of 2.6 percent last year.

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Condos Still a Popular Option for Buyers

With lifestyle and affordability driving demand, more than half of all condo buyers say they didn’t consider any other style of housing, according to a recent National Association of Home Builders' survey of condo buyers.
By: Camilla McLaughlin: REALTOR Magazine Online
Continued demand by both young, well-paid professionals (singles or couples), who want to own their first home close to urban amenities, and older households, who want to remain in the suburbs but shed the maintenance burden of a house, is expected to stabilize the condo market.

Even though market conditions are below levels of a year ago, condo builder confidence is on the rise, according to NAHB’s quarterly survey of multifamily builders and developers. About half — the highest number since the end of 2005 — say they’re optimistic about market conditions over the next six months. Additionally, the number of prospective buyers looking at condos was up from the previous quarter.

Of condo buyers, more than one-half, 54 percent, have never owned a home, with the greatest proportion of first-time buyers, 86 percent, among those under 35. Preferences ranged equally among all condo types — low rise, mid rise, high rise, and town house — for all groups except previous condo owners who gravitate toward mid- and high-rise buildings.

Most-Desired Condo Locations

Respondents to NAHB's survey identified these locations as their preferred places to buy a condo:

    • Close-in suburbs: 46%
    • Outer suburbs: 28%
    • Inner city: 19%
    • Rural areas: 5%

Motivations for Buying a Condo
Why go condo? It depends. Respondents say these are the reasons why they opted for a condo over a traditional single-family home or other housing style:

    • Price and location: 70%
    • Design and size of the unit: 66%
    • Desirability of a particular neighborhood: 64%
    • Good investment: 57%

Fewer than half mentioned low condo fees, parking, pool, and tennis courts, the proximity of public transportation, porches, and valet services as important motivations.

Common Condo Amenities

Just under half of the buildings offered swimming pools and cable/satellite TV. About one-quarter offered each of the following: a fitness room, Internet access, a BBQ area, and a dog walking area.

Amenities used most often by respondents included: cable/satellite TV, 88 percent; Internet, 82 percent; swimming pool, 72 percent; and fitness room, 64 percent. Even though fewer than 20 percent of properties offer concierge services, such services are highly used, with 71 percent of owners saying they use them.
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