New Incentives Make 'Going Green' Easier

Thanks to new tax credits that kicked in this year and increasingly competitive prices on energy-efficient appliances, a homeowner can take advantage of breaks that may help trim utility bills.
By: Kelli B. Grant: The Wall Street Journal Online
It's getting easier - and cheaper - to be green.

Thanks to new tax credits that kicked in this year and increasingly competitive prices on energy-efficient appliances, it's easier than ever to boost your home's energy efficiency without going broke. Under the Energy Policy Act, in 2006 and 2007 consumers can receive federal tax credits for making energy-efficiency upgrades to their homes.

"Energy efficiency is a good deal unto itself, but these tax credits are offering some special opportunities to get a financial boost," says Bill Prindle, deputy director of the American Council for an Energy-Efficient Economy, or ACEEE, a Washington, D.C.-based nonprofit that advocates energy efficiency.

The credits don't apply to just any energy-efficient upgrade, however. And there are requirements and limits that must be met.

What's Covered

You can get a one-time tax credit of up to $500 for projects that involve the home's shell - insulation, windows, sealing - or its home heating and cooling equipment.

Eligible projects include new windows (10% of the cost, up to a credit of $200), central air conditioners (up to $300 of the full purchase price), hot-water boilers (up to $150 of the full purchase price) and pigmented metal roofs (10% of the cost, up to $500).

You also can get a one-time tax credit for the cost of installing an alternative energy system. For installing a photovoltaic system (which produces electricity) or a solar water heating system, you'll receive a credit for 30% the cost of the system, with a maximum of $2,000.

All of these projects must meet specific criteria. And they must be put in place during 2006 or 2007.

Get Some Money Back

Most appliances - including dishwashers, dryers and refrigerators - aren't eligible for the federal tax credits. But you still may be able to save, given that many states, cities, utility companies and even appliance makers offer rebates and coupons for energy-efficient products.

In Montana, for instance, the Bonneville Power Administration offers $6 coupons that can be redeemed for energy-efficient compact fluorescent light bulbs.

The WARMAdvantage program of New Jersey Natural Gas offers customers rebates for buying high-efficiency equipment: $300 for a furnace or boiler, and $50 for a water heater. Other states have programs for free online energy audits and for weatherization for homes of low-income residents.

You can view rebates and other programs at the Web sites of Energy Star (www.energystar.gov), a government-backed program dedicated to improving energy efficiency; the ACEEE (www.aceee.org); and Consumer Reports' Greener Choices (www.greenerchoices.org), a consumers' guide that focuses on environmentally friendly products.

Price Drop

Making it even more enticing to buy energy-efficient products is the fact that they are no longer a much more costly alternative to their energy-loving counterparts.

Significant strides have been made over the past 10 years, says Carolyn Forte, home-care director for the Good Housekeeping Institute. The cost of many energy-efficient products is comparable to those that aren't energy efficient. Often, the pricier models simply have fancy bells and whistles.

When shopping for an energy-efficient model, look for the Energy Star label, which tells you the appliance meets set energy-efficiency standards, says the ACEEE's Mr. Prindle. The tag is currently found on more than 40 products, from refrigerators and washers to TV sets and computers.

Even if you're not in the market for a new appliance, there's plenty you can do to increase energy efficiency without spending much money, says Urvashi Rangan, a senior scientist and policy analyst at Greener Choices. To boost your existing heating system, she advises replacing any analog thermostats with programmable ones.

Other options: Caulk windows. And buy an inexpensive jacket to insulate an old hot-water heater to prevent energy from escaping.
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Homes Get Bigger as U.S. Family Sizes Shrink

Average home size in 2005 up 63 square feet from 2004.
RISMedia
Just like burgers and big-screen TVs, Americans are super-sizing their homes.

The average house built in the United States last year was a record 2,412 square feet. That's up 63 square feet from 2004 - about the size of a walk-in closet.

"Why do home sizes rise when, during the same period, the average family size has declined?" Gopal Ahluwalia, head of research for the National Association of Home Builders, said. "There's really no answer."

The most likely reason is that homebuyers just want more room and can afford it, Ahluwalia said.

"Why do people buy a $75,000 Mercedes Benz when the same function can be performed by a $35,000 car?" he said.

Since the 1970s, the average single-family house built in America has grown by about 50 percent, according to a report released at the National Association of Home Builders' meeting this week in Orlando. During the same time, average family size has fallen from more than three people to about 2.5 residents per home.

Houses get bigger to contain all the features most buyers want. Almost 40 percent of new houses now have four or more bedrooms, compared with less than a quarter of such homes in 1973.

And 24 percent of houses built in 2005 had three or more bathrooms - double the rate in the early 1970s.

More than half of just-built houses have two or more floors. In 1973, almost 70 percent of new homes were single-level.

Nine-foot ceilings are now standard in most houses, but builders are getting rid of interior walls.

"There will be not many walls in the average home - it will be totally open," Ahluwalia predicts for the years ahead. "Kitchens will still stay the focal point, along with the bathrooms."

Some buyers may rationalize bigger and more opulent homes as a smart purchase.

"At least the house appreciates," Ahluwalia said. "In every decade it has turned out to be an excellent investment."

While buyers want bigger houses, they don't care so much about the size of the yard.
"Already the average lot size is about 9,000 square feet," he said. "It will decline to 7,000 or 8,000 square feet."

The home buyers themselves are also changing. Aging buyers account for a larger piece of the market along with a diversity of ethnic groups.

"There is a growing population of Asians, Hispanics and African Americans," Ahluwalia said. "In year 2000, 69 percent of the homes were bought by whites. That will substantially decline by 2015."
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Most Home signs deal with Windermere

Tech company to provide Web response services to 8,000 agents
Inman News
Most Home Technologies and Windermere Real Estate have signed a two-year agreement for Most Home's Internet response services to be provided for the 280 offices and 8,000 associates throughout the Western United States.

As part of the agreement, Most Home Technologies will provide Windermere Real Estate with a lead management program that tracks sales prospects from initial inquiry to completion, a contact center staffed with real estate professionals and a comprehensive online campaign for generating and managing personalized client and prospect communications consistent with Windermere's brand.

Windermere will launch Most Home's lead response service over the next three months.

Want a recap of key takeaways at Real Estate Connect NYC? Become a member of Inman News today and get 24/7 access to all the industry-breaking updates!

Windermere has offices in Arizona, California, Idaho, Montana, Nevada, Oregon, Utah, Washington, Wyoming and British Columbia.

Vancouver, B.C.-based Most Home Technologies is a subsidiary of Most Home Corp., a technology and services company specializing in Internet products and services for the real estate industry.
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Is It Time To Unload Your Investment Properties?

If you're one of the many American investors who snatched up homes in the booming real-estate market, now might be the time to sell, according to Jim Keene, co-author of 'Retire on the House.'
By: Andrea Coombes: The Wall Street Journal Online
If you're one of the many Americans who snatched up homes as investment properties in the booming real estate market, now might be the time to sell, according to Jim Keene, co-author of "Retire on the House."

"I'd say sell some of those excess properties, particularly in some of these more volatile up-and-down markets," Keene said in an interview with MarketWatch.

Keene, a chartered financial analyst, is also a regional manager with Wells Fargo's private client services, in Walnut Creek, Calif.

Of course, any real-estate discussion requires a nod to locale: Where you're buying a home makes a difference. But it also matters which part of the market you're looking at, the upper bracket or the low side.

Higher-end homes are likelier to see prices easing while lower-priced homes in less-volatile areas may still enjoy some gains, Keene said.

"I take a look at the market in two segments. The pricing point for the segment depends on where you are in the country," Keene said.

"In the lower-price market, definitely you'll still see some [home-price] increases, 5%, 6%, 7%, 8%, maybe even 10%, 11% in places like Sacramento," he said.

"But in San Diego, Los Angeles, Boston [price gains] might be more like 2%, 3%," he said.

Meanwhile, "the higher-priced market, say above $1 million in a place like Washington, D.C., you'll start to see some drops in some prices."

The more volatile markets include both coasts, Keene said, from Florida to Boston, and San Francisco to Los Angeles and San Diego.

"If you're in those markets and you have multiple homes, sell some of the excess homes. You don't need the risk particularly and the outlook is not as good," he said.

"You have costs to carry the home, and so you're relying on appreciation for your return. That's going to moderate, at best, going forward, if not, in some specific situations, go down a little bit," he said.

Keene's outlook for the housing market mirrors the predictions of other industry experts: The double-digit home price gains enjoyed by homeowners and investors in recent years are likely to ease this year.

Fannie Mae, the mortgage agency, predicts home sales will drop 5% to 10%, while the National Association of Home Builders points to an average 6.5% home-price gain this year, down from a double-digit gain of about 11% in 2005.

Reconsider real-estate investing

Meanwhile, those who are interested in getting into real estate as an investment may want to reconsider, he said.

"If you're going to buy a single family home as an investment property in which you have mortgage payments, property taxes, insurance and maintenance, in most places in the country your rental income will not overcome the costs," Keene said.

"You're relying on the appreciation and it's not necessarily a good time to invest. Take a look at some other types of investments to invest some of your excess equity," he said.

Plus, don't forget that selling a real estate investment is no free lunch: The cost of selling a home is significant, Keene said.

"I'm closing on a home in Oakland on Friday. Closing costs will be 7.5% to 8% of the actual purchase price for the seller ... that's significant," he said.

Investment, or home?

Buying investment property is not the same as purchasing a home in which you intend to live long-term. Keene's own impending purchase is driven largely by a desire to live in the home, he said.

"I happen to want a bigger home to live in [and] my dream home ... came up," he said. "I will live there long-term."

As well as staying there long-term, Keene noted that the home's sale price is right. "I don't feel like it's a very high-end home. It's a medium-price-plus-some for my area [and] it's in a part of the market that will still say reasonable in terms of increases over the next few years, so I didn't feel there was a huge downside risk" in buying now.

For those who won't need to sell in the next couple of years, buying investment property may still prove worthwhile, even now.

"If you're looking at a seven-year time frame, then go buy away," Keene said.
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What You Need To Know About Real-Estate Investing

Wall Street Journal editor Dave Kansas details the tax deductions available to owners of primary and second homes, as well as how to buy a profitable rental property.
By: Dave Kansas: The Wall Street Journal Online
The new book, "The Wall Street Journal Complete Money & Investing Guidebook," by Journal editor Dave Kansas, offers personal finance strategies, including investing in real estate. Below is selection on primary homes, vacation houses and income properties.

Investing in real estate is a key part of any investor's financial planning. For most of us, our homes are a big part of our net worth. And as we grow older, we build equity in our homes that can help fund our children's college or our own retirement. Here, we'll take a look at investing in our private residences, in vacation houses and in income or rental properties.

Our Homes

Owning a home comes with tax advantages. For instance, interest paid on mortgage is tax-deductible. And in some cases, home improvements can provide tax advantages. Selling a home also has some tax advantages. If you are single and have lived in your primary residence for two years, the first $250,000 of profits from the sale of the house are tax-free. If you're married, the exemption is $500,000. And you can take that tax advantage once every five years.

Second Homes

Investors have some options about optimizing the purchase of a second home. They can use the residence as a personal property, in which case the interest payments are tax deductible. Under the tax code, taxpayers itemizing deductions can claim mortgage interest payment deductions on the first $1 million of debt incurred for the purchase of a first or second home. To qualify as a second home, an owner must use the residence for more than 14 days per year.

The other option is to rent the property when you're not using it. If you rent for fewer than 14 days, you can still qualify for the personal home deduction. If you rent for more than 14 days, the tax treatments change, because now your second home is considered an investment property. Expenses such as mortgage interest and maintenance are divided between personal and investment use, proportional to the number of days of rental use and actual use. The expenses counted as investment are deductible; the portion allocated for personal use, including mortgage interest, is not deductible, because an investment property is not considered a personal second home.

Income Properties

Investing in income property is riskier than buying a second home, because rather than having a place to visit on the weekends, an income property is purchased to deliver, well, income. A two-family home, called a "duplex" in some parts of the country, may sound easy to rent and maintain. But if one unit is empty, 50% of your rental income isn't coming in that month. And that rental income is usually aimed at paying off a mortgage used to purchase the income property. Having a 100-unit building makes it less likely that you'll face a 50% vacancy rate, but even a 10% vacancy rate means you are trying to rent out 10 units, which can take a lot of time. Investing in income property sounds glamorous, especially when you run the numbers with full vacancy rates and no turnover. But pipes break, people move out and the roof sometimes needs replacing. The landlord of an income property has to deal with all these headaches. Landlords who have a lot of money can hire other people to handle these things, but most of us investing in real estate don't start with such full pockets.

Valuing an income property is more complex than valuing a residence. When you buy a residence, you are calculating your ability to pay a mortgage out of your own earnings. When you buy an income property, you're calculating how the income (rents) will help pay the mortgage.

So how to value an income property? An income property has an annual net operating income, or NOI. This is a figure of rental income less anticipated vacancies, maintenance and other expenses, not including interest payments or other debt related to the property. Most investors divide the NOI by something called the "cap rate" to come up with the proper value for one apartment in a complex. The cap rate relates to the expected annual rate of return on the property, and most income property buyers recommend using a cap rate of 9% (0.09) or 10% (0.10) when evaluating a property. So a property with an NOI of $100,000 and a cap rate of 9% would have a value of $1.1 million. This kind of simple calculation isn't perfect, but in a real-estate market that is increasingly frantic, doing even simple math can help you understand if you're overpaying for a property. Like investing in stocks, investing in real estate works best when you don't overpay. Cap rates vary depending on all kinds of local variants, such as the proximity of good schools, safety and local economic growth.

- Adapted from "The Wall Street Journal Complete Money & Investing Guidebook" by Dave Kansas. Copyright 2005 by Dow Jones & Co. Published by Three Rivers Press, an imprint of the Crown Publishing Group, a division of Random House Inc. For more information, please visit http://wsjbooks.com.
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How can I start investing in real estate?

Beginners should beware of 'paralysis of analysis'
By: Robert J. Bruss: Inman News
Where and how do I start investing in real estate? That is probably your key question now. Depending on your real estate interests, there are many ways to begin, such as buying fixer-upper houses, investing with little or no cash, nothing down, lease-options, probates and bankruptcy properties, managing rental properties, and buying properties right to earn your first profit at the time of purchase.

If you feel you still need more information, there are many excellent recent investment books, such as Robert Griswold and Eric Tyson's "Real Estate Investing for Dummies," Jay P. DeCima's "Start Small, Profit Big in Real Estate and Investing in Fixer-Uppers," Steve Berge's "Complete Guide to Investing in Undervalued Properties," and Thomas Lucier's "The Pre-Foreclosure Property Investor's Kit."

But please don't develop "the paralysis of analysis." That disease afflicts many beginning real estate investors who over-study but delay buying their first property. If you wait for optimum conditions, such as low mortgage interest rates, abundant supply of properties for sale with "profit potential," low purchase prices and rapid market-value appreciation rates, that will never happen.

After you buy that first investment property, such as your home, you will discover you either love or hate this real estate investment business. Until you purchase your first investment property, you'll never know for sure if you are cut out to earn big real estate investment profits.

EXAMPLE: When my dad began his dental practice in Minneapolis many years ago, he bought a small building; however, he had constant problems with the tenants not paying their rent on time, unexpected repair costs, and vacancies. He soon discovered he didn't like being a landlord and preferred concentrating on his very successful dental practice so he wisely sold that property before its management overwhelmed him. However, until he and mom owned that investment property, they never knew for sure if they could profit from real estate. Interestingly, in later years, mom and dad were only too happy to invest in my property acquisitions if I would take care of the property management while they got the tax deductions with no work! I never charged them any property management fee, in case you were wondering.

When I used to speak to local real estate investment clubs (which I highly recommend you join as a new investor), I would see the same attendees time after time. That's great! However, when I asked them if they bought their first property yet, they always said they were still checking out the opportunities. That's nonsense! As Mike Littman often says, "You don't have to get it right; just get it going!" Buy your first investment property, even it takes six months to get a purchase offer accepted by a seller. Learn by doing.

Just as no home you ever buy will be your perfect "dream home" (although you might come close!), no investment property is ever perfect. Even brand-new houses have their flaws. Every day, thousands of real estate investors are earning big profits - now it's your turn!
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Must home seller disclose noisy neighbors?

Possible price reduction causes hesitation
By: Robert J. Bruss: Inman News
DEAR BOB: One of the reasons I am selling my house is the noisy neighbors next door. They are a "hippie couple" who are normally quiet during the weekdays. But on some weekends, their loud motorcycle gang friends come to visit to drink and do drugs. I had to call the police on several occasions. The results have always been warnings with no arrests or further legal action. However, every time I phone the police, the neighbors become quiet until their next party. Now that my home is listed for sale, do I have to disclose to my buyers that I live next door to hippies who have motorcycle friends who drink and do drugs? These folks are renters but the owner is a relative, if that makes any difference -Ellen H.

DEAR ELLEN: You ask an extremely difficult question to which there is no right or wrong answer. Many real estate agents and attorneys would say, "If in doubt, disclose."

Also, the fact you called the police on several occasions indicates this is a serious problem. I notice your letter comes from a state that requires written disclosures of home defects.

If I were in your situation I would carefully disclose the situation such as "Neighbors occasionally become noisy," which is the truth. Ask your real estate attorney for further details.

LACK OF RENTERS IS A BIG PROBLEM

DEAR BOB: We recently bought the house next door to our residence when it became available in a probate sale. Our goal was to control who lives next door to us. However, we are having trouble finding renters with decent credit and references. We have run newspaper ads, Internet ads on craigslist.org, and even notices on nearby supermarket bulletin boards. We set the rent at just enough to cover our mortgage payment, property taxes and insurance. So far, the only serious applicants are welfare tenants who want us to accept Section 8 government subsidies. In reading the newspaper classified ads, it appears there is an oversupply of rentals in our middle-class area. What should we do? -Marvin S.

DEAR MARVIN: Perhaps your rent is too high. In many communities, there is an oversupply of residence rentals and an undersupply of qualified tenants. The result is declining rents.

Just because you set the rent at the total of your monthly expenses doesn't mean the rental value of that house equals that total.

However, if the local Section 8 housing authority is willing to pay the rent you seek, don't make an outright rejection. Check out the subsidized tenant as you would any other applicant. Personally, my very best and very worst tenants were on Section 8.

NO AUTOMATIC RIGHT TO EASEMENT OVER NEIGHBOR'S LAND

DEAR BOB: We recently bought a rural six-acre parcel with a house. At the time of purchase, we didn't realize how difficult the access is. Only after we moved in did we realize if we could drive over a neighbor's land for about 500 feet we would have easy access to the rural road. When we politely asked our neighbor, he said "Absolutely not." But then I recently read in your article about an "easement by necessity." Can we get such an easement over the neighbor's land? -Marvina E.

DEAR MARVINA: An easement by necessity is only available for a landlocked parcel with no road access. It is not obtainable for a parcel that has access to a public road, although that access might be inconvenient.

Unless your deed refers to an easement over your neighbor's land, since you already have access, although it is inconvenient, you have no legal right to an easement by necessity. For full details, please consult a local real estate attorney.

The new Robert Bruss special report, "Foreclosure and Distress Property Profit Secrets," is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.
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Freddie Mac predicts 'soft landing' for housing market

Economic outlook basically positive
Inman News
Citing growth in the gross domestic product, low price inflation and low unemployment, mortgage giant Freddie Mac Thursday predicted a soft landing for the U.S. housing market in 2006.

"Without question America's joy ride in the housing market is coming to an end," Freddie Mac said in its January 2006 Economic Outlook statement. "However, … conditions are favorable for a soft landing, perhaps with a little turbulence on the approach."

The "turbulence" could be caused by a couple of factors, one of them being an inverted yield curve, the mortgage giant said. This is when short-term interest rates are lower than long-term rates, which became the case in the U.S. in December. Normally, long-term interest rates are higher than short-term rates because it's hard to predict what will happen far out in the future.

Higher short-term rates may lead to a bumpy descent for homeowners who used adjustable rate mortgages to buy their homes, Freddie Mac warned, because the interest rate savings on them are now smaller.

Despite these concerns, overall the government-sponsored enterprise was optimistic for the housing market in 2006.

Factors influencing the optimism included growth in the gross domestic product, which is the total value of goods and services produced by a nation. Third-quarter economic growth came in at 4.1 percent, Freddie Mac said, describing this as a "healthy number." Freddie Mac's chief economist expects "strong" economic growth for 2006.

Freddie also expects inflation to be low, at 2.5 percent, throughout 2006, another good sign. Also, the unemployment rate is expected to stay between 4.9 and 5 percent in 2006.

Mortgage rates, a critically important factor for the housing market, will average 6.4 percent over the year, according to Freddie Mac. This could be good news for the market.

"At 6 and 7 percent we still see upward movement or, at worst, sideways-moving price projections," Michael Sklarz, chief valuation officer for Fidelity National Financial, said in an Inman News interview in December 2005. Other experts have seconded this opinion.

Adjustable-rate mortgages will lose some of their appeal in 2006, Freddie Mac predicted, falling from the 31 percent share of applications in 2005 to around 27 percent.

Housing starts will fall as much as 9 percent, Freddie Mac warned, to 1.90 million units. Homes sales are predicted to slow to 7.10 million units, a 5 percent drop, but still the third best level ever.

Freddie Mac believes homes will continue to appreciate, with a growth rate around 7 percent.
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The Weekend Guide! January 12 - January 15, 2006

The Weekend Guide for January 12 - January 15, 2006.
Full Article:
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Real estate purchases rebound

Mortgage rates down for fifth week
Inman News
Overall mortgage applications climbed 9.9 percent last week on a seasonally adjusted basis from the week before, the Mortgage Bankers Association reported today.

The seasonally adjusted purchase index increased by 9.3 percent to 457.4 from 418.3 the previous week whereas the refinance index increased by 9.9 percent to 1,497.5 from 1,363.2 one week earlier.

The refinance share of mortgage activity decreased to 42.2 percent of total applications from 42.7 percent the previous week. The adjustable-rate-mortgage share of activity decreased to 28.1 percent of total applications from 28.8 percent the previous week.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.08 percent from 6.15 percent one week earlier. Points including the origination fee decreased to 1.23 from 1.32 for 80 percent loan-to-value ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.66 percent from 5.74 percent. Points including the origination fee decreased to 1.17 from 1.25 for 80 percent loan-to-value ratio loans.

The average contract interest rate for one-year adjustable-rate mortgages increased to 5.42 percent from 5.41 percent one week earlier. Points including the origination fee remained at 0.92 for 80 percent loan-to-value ratio loans.

Washington, D.C.-based Mortgage Bankers Association is a national association representing the real estate finance industry. The survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
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REITs Gave 8.3% Total Return in 2005

By: Lizette Wilson: REALTOR® Magazine Online
Real estate investment trusts (REITs) posted a total return of 8.3 percent in 2005, topping other market benchmarks for the sixth straight year.

Among the strongest performers was Equity Office Properties Trust, whose stock was up 10 percent for the year. In 2005, the Chicago-based REIT sold 16.9 million square feet of commercial space totaling $2.6 billion. As a result, an estimated 85 percent of the company's new operating income now comes from just 10 major markets, including San Francisco.

Other success stories included Alexandria Real Estate Equities, which rose 12.2 percent in 2005; AvalonBay Communities, a multifamily REIT that was up a whopping 25 percent for the year; and Boston Properties, which was up 19 percent.

Alexandria, in particular, is looking to maintain its momentum in the new year with a massive construction binge. The REIT focuses on the life-science space sector. Until this past year, it only focused on acquiring existing properties, not building them.
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Housing Market to 'Normalize' in 2006

NAR: REALTOR® Magazine Online
The key word for the housing market in 2006 is balance, with a return to a more normal rate of price growth, according to the NATIONAL ASSOCIATION OF REALTORS®.

David Lereah, NAR’s chief economist, says current trends in the housing sector are healthy. “We don’t need to break a record every year for the housing market to be good—in fact, cooling sales are necessary for the long-term health of this vital sector,” Lereah says. “A modest slowdown in home sales, coupled with improvements in housing inventory, means the market is in the process of normalization. That will help to bring balance between home buyers and sellers, yet sales will remain historically strong.”

After setting a fifth consecutive annual record, projected to be 7.10 million units for 2005, existing-home sales are forecast to ease by 4.4 percent to 6.79 million this year, which would be the second highest on record. New-home sales, which should be a record 1.29 million for 2005, are expected to decline 6.0 percent to 1.21 million in 2006—that also would be the second best year in history. Total housing starts for 2005 are seen at 2.07 million units—the highest since setting a record 1972—with a 6.6 percent slowing to 1.94 million this year.

“A lot of demand has been met over the last five years, and a modest rise in mortgage interest rates is causing some market cooling. Along with regulatory tightening on nontraditional mortgages, there will be fewer investors in the market this year,” Lereah says. The 30-year fixed-rate mortgage is likely to increase gradually to 6.7 percent during the second half of the year. “This will preserve generally favorable affordability conditions and keep the housing market at a more sustainable sales pace.”

NAR President Thomas M. Stevens from Vienna, Va., says price appreciation should be at more normal levels across most of the country. “Buyers are no longer competing for a tight supply,” says Stevens, senior vice president of NRT Inc. “That means home prices generally will rise much closer to long-term norms, which is the overall rate of inflation plus one or two percentage points. Lower price appreciation will keep the door open to first-time buyers while preserving the investment advantages of home ownership for sellers.”

The national median existing-home price for all housing types, projected to jump 12.9 percent to $209,100 for 2005, is forecast to rise 5.1 percent to $219,700 this year. The median new-home price, which should be up 4.6 percent to $231,300 for 2005, is expected to increase 6.0 percent this year to $245,200.

Inflation as measured by the Consumer Price Index is projected to rise 3.4 percent for 2005 and 3.0 percent in 2006. Inflation-adjusted disposable personal income is forecast to increase 1.3 percent for 2005 and 4.6 percent this year.

Growth in the U.S. gross domestic product is likely to be 3.6 percent for 2005, with GDP seen at 4.0 percent this year. The unemployment rate is expected to drop to 4.8 percent by the end of the year.
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2006 will bring cooling sales in real estate

Housing market to achieve 'balance,' says Realtor group
Inman News
In its forecast for 2006, the National Association of Realtors trade group states that the "key word for the housing market…is balance, with a return to a more normal rate of price growth."

David Lereah, NAR's chief economist, said in a statement that "cooling sales are necessary for the long-term health of this vital sector," and a "modest slowdown in home sales, coupled with improvements in housing inventory, means the market is in the process of normalization. That will help to bring balance between home buyers and sellers, yet sales will remain historically strong."

After setting a fifth consecutive annual record, projected at 7.1 million units for 2005, existing-home sales are forecast to ease by 4.4 percent to 6.79 million this year, which would be the second highest on record, the association reported.

New-home sales, which should be a record 1.29 million for 2005, are expected to decline 6 percent to 1.21 million in 2006 – that also would be the second best year in history. The association expects total housing starts for 2005 to reach 2.07 million units – the highest since setting a record 1972 – with a 6.6 percent slowing to 1.94 million this year.

"A lot of demand has been met over the last five years, and a modest rise in mortgage interest rates is causing some market cooling. Along with regulatory tightening on nontraditional mortgages, there will be fewer investors in the market this year," Lereah said.

The 30-year fixed-rate mortgage is likely to trend up gradually to 6.7 percent during the second half of the year. "This will preserve generally favorable affordability conditions and keep the housing market at a more sustainable sales pace," he stated.

NAR President Thomas M. Stevens, senior vice president of NRT Inc., said in a statement that price appreciation should be at more normal levels across most of the country this year. "Buyers are no longer competing for a tight supply. That means home prices generally will rise much closer to long-term norms, which is the overall rate of inflation plus one or two percentage points. Lower price appreciation will keep the door open to first-time buyers while preserving the investment advantages of home ownership for sellers.

The national median existing-home price for all housing types, projected to jump 12.9 percent to $209,100 for 2005, is forecast to rise 5.1 percent to $219,700 this year. The median new-home price, which should be up 4.6 percent to $231,300 for 2005, is expected to increase 6 percent this year to $245,200.

Inflation as measured by the Consumer Price Index is projected to rise 3.4 percent for 2005 and 3 percent in 2006. Inflation-adjusted disposable personal income is forecast to increase 1.3 percent for 2005 and 4.6 percent this year, the association reported.

Growth in the U.S. gross domestic product is likely to be 3.6 percent for 2005, with GDP seen at 4 percent this year. The unemployment rate is expected to drop to 4.8 percent by the end of the year.
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Housing Affordability Shows Long-Term Gains

REALTOR® Magazine Online
Housing affordability has shown a pattern of improvement since the 1980s, according to data from the U.S. Census Bureau, Economy.com, and The New York Times.

Although U.S. residential prices have registered major gains, the country's home ownership rate has not suffered. As of last year's third quarter, 68.7 percent of Americans owned their homes—up from about 65 percent in 1980 and not far off the 40-year high of 69.4 percent documented in the second quarter of 2004.

Moreover, income levels are higher; while borrowing costs are lower. As a result, the share of pretax median income required to qualify for financing on a median-priced home is down from 25 years ago.

Borrowers in 2005 needed just 23.7 percent of their pretax earnings, compared to about 30 percent in 1980.

Some major metro areas are bucking the trend toward better affordability, however. Housing affordability has dipped to 12.5 percent in Detroit from 12.9 percent in 1985, for instance, while sinking to 14.6 percent from 29 percent in Dallas.
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