Existing-Home Sales Show Surprising Gain

Existing-home sales rose unexpectedly while inventory declined, led by a surge of sales in the West, according to the National Association of Realtors®.
NAR: REALTOR®Magazine
Existing-home sales – including single-family, townhomes, condominiums and co-ops – jumped 6.5 percent to a seasonally adjusted annual rate of 4.74 million units in December. The number compares to a downwardly revised pace of 4.45 million units in November, but 3.5 percent below the 4.91 million-unit pace in December 2007.

For all of 2008, there were about 4.9 million existing-home sales - 13.1 percent below the 5.65 million transactions recorded in 2007. This is the lowest volume since 1997 when there were 4,371,000 sales.

Lawrence Yun, NAR chief economist, said home prices continue to fall significantly.

“It appears some buyers are taking advantage of much lower home prices,” he said. “The higher monthly sales gain and falling inventory are steps in the right direction, but the market is still far from normal balanced conditions. Buyers will continue to have an edge over sellers for the foreseeable future.”

Total housing inventory at the end of December fell 11.7 percent to 3.68 million existing homes available for sale, which represents a 9.3-month supply at the current sales pace, down from a 11.2-month supply in November.

Yun said the market is underperforming and hurting the broader economy.

“We’ve added 25 million people to our population over the past decade and housing affordability conditions are the best we’ve seen since 1973, but household formation is much lower than expected,” he said. “Consequently, there is a pent-up demand which could be unleashed with the right stimulus, including a non-repayable home buyer tax credit. The Obama administration and Congress need to move fast to stimulate a spring sales upturn which will help to stabilize home prices and set the foundation for a sustainable economic recovery.”

Housing Stats

National median existing-home price: (for all housing types) was $175,400 in December, which is 15.3 percent below December 2007 when the median was $207,000. There remains a significant downward distortion in the current median from a large number of distress sales at discounted prices, currently 45 percent of transactions; the median is where half of the homes sold for more and half sold for less. For all of 2008, the median price was $198,600, down 9.3 percent from $219,000 in 2007.

Single-family home sales: rose 7 percent to a seasonally adjusted annual rate of 4.26 million in December from a level of 3.98 million in November, but are 1.4 percent below a 4.32 million-unit pace in December 2007. For all of 2008, single-family sales fell 11.9 percent to 4,349,000.

Median existing single-family home price: dropped to $174,700 in December, down 14.8 percent from a year ago. For all of 2008, the single-family median was $197,100, which is 9.5 percent below 2007.

Existing condominium and co-op sales: increased 2.1 percent to a seasonally adjusted annual rate of 480,000 units in December from 470,000 in November, but are 18.4 percent below the 588,000-unit level a year ago. For all of 2008, condo sales dropped 21.0 percent to 563,000 units.

Median existing condo price: slipped to $181,400 in December, down 18.3 percent from December 2007. For all of 2008, the median condo price was $210,000, which is 7.2 percent below 2007.

Existing-Home Sales By Region

    · Northeast: slipped 1.4 percent to an annual pace of 720,000 in December, and
      are 14.3 percent below December 2007. The median price in the Northeast was
      $235,000, which is 7.8 percent lower than a year ago.
    · Midwest: increased 4.0 percent in December to a level of 1.04 million but
      are 10.3 percent below a year ago. The median price in the Midwest was $140,800
      , down 11.4 percent from December 2007.
    · South: rose 7.4 percent to an annual pace of 1.74 million in December, but are
      11.2 percent lower than December 2007. The median price in the South was
      $158,600, which is down 8 percent from a year ago.
    · West: jumped 13.6 percent to an annual rate of 1.25 million in December and
      are 31.6 percent higher than a year ago. The median price in the West was
      $213,100, down 31.5 percent from December 2007.

A Good Time to Buy

NAR President Charles McMillan said it’s an excellent time for first-time home buyers with good jobs.

“The typical buyer plans to stay in their home for 10 years, which is the correct approach in today’s market,” he said. “With historically low mortgage interest rates, flexible sellers, a large inventory, and homes that are selling for less than replacement construction costs in much of the country, buyers who’ve been on the fence should take a closer look at today’s market.”

McMillan added that first-time buyers may want to consider an FHA loan, which offers downpayments of 3.5 percent on a safe 30-year fixed-rate mortgage.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 5.29 percent in December from 6.09 percent in November; the rate was 6.10 percent in December 2007. Last week, Freddie Mac reported the 30-year rate was 5.12 percent.

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Home Resales Rise as Prices Tumble

Existing-home sales rose in December as buyers took advantage of discounted prices in distressed housing markets.
By: JEFF BATER: WSJ.com
Home resales rose to a 4.74 million annual rate, a 6.5% increase from November's revised 4.45 million annual pace, the National Association of Realtors said Monday. November originally was seen down by 8.6% to 4.49 million.

NAR economist Lawrence Yun said sales in distressed markets were very high amid foreclosures; of all sales in December, about 45% were distress sales at discounted prices.

The median home price was $175,400 in December, down 15.3% from $207,000 in December 2007. The median price in November this year was $180,300. The 15.3% drop was the largest on record, the NAR said.

"It appears some buyers are taking advantage of much lower home prices," Mr. Yun said, adding the market is far from balanced as buyers hold an edge over sellers.

The December resales level of 4.74 million reported Monday by NAR was above Wall Street expectations of a 4.40 million sales rate for previously owned homes.

For all of 2008, sales totaled 4.91 million, down 13.1% from 5.65 million in 2007.

The average 30-year mortgage rate was 5.29% in December, down from 6.09% in November, according to Freddie Mac.

While a drop in mortgage rates is an incentive for demand, the housing industry is floundering as big challenges lurk. The labor market, for one thing, is shrinking - 2.6 million jobs were lost last year. People are afraid to make major purchases, like homes. Also, home prices are falling, discouraging buying by those waiting for a better deal. And mortgage financing is harder to secure than during housing's boom years.

U.S. sales of new homes dropped in November by 2.9% to 407,000, the latest government data showed. Year over year, sales were down 35%. High inventories of unsold homes virtually guarantee lower prices and sales down the road. Data on December will be released this week.

Monday's data on the existing-home market showed inventories fell 11.7% at the end of December to 3.68 million available for sale, which represented a 9.3-month supply at the current sales pace. There was a 11.2-month supply at the end of November.

Regionally, sales rose 4.0% in the Midwest, 7.4% in the South, and 13.6% in the West. Sales fell 1.4% in the Northeast.

Leading Indicators Edge Up
Separately, the composite index of leading indicators rose 0.3% in December, to 99.5, according to preliminary estimates released Monday by The Conference Board.

The December figure reversed a 0.4% decline in November and a 1.0% decline in October. Over the six months ended December, the index has fallen 2.5%.

In December, four out of the 10 indicators rose. The largest positive contributors to the index were real money supply, the interest rate spread, manufacturers new orders for consumer goods and materials and manufacturers' new orders for nondefense capital goods. The most significant negative contributors were building permits and average weekly manufacturing prices.

The index was equal to 100 in 1996.

"As we move into the new year, the big question is whether conditions will worsen further," said Ken Goldstein, labor economist at The Conference Board. "The Conference Board's Indicators suggest we'll still be in an intense recession through the spring. Expect declines in output and employment over the next several quarters, with unemployment possibly rising to 9%."

The Board reported that the coincident index fell in December, by 0.5% to 104.1. It was driven by contraction in industrial production and employees on nonagricultural payrolls. Over the six months ended in December, the index decreased 2.2%.

The lagging index fell 0.4% in December to 113.3. Based on revised data, the index remained unchanged in November and increased 0.1% in October.

The leading and coincident economic indicators have been falling for more than a year now, and the breadth of their deterioration has been notably widespread.

The Conference Board is a non-profit research and business membership group that computes the composite indexes from the U.S. Department of Commerce.

—Matthew Cowley contributed to this article.
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Economy: Supply and Demand Solutions Needed

Lower interest rates will get more buyers into the market. That's a solution within reach of the federal government.
By: Lawrence Yun: REALTOR®Magazine
In mid-November, NAR President Charles McMillan met with senior officials at the U.S. Treasury to discuss an NAR proposal that the federal government establish an interest-rate buydown program to lower mortgage costs and encourage home sales.

Both parties agreed that since even a 1 percent drop in mortgage rates can increase home sales, a temporary buydown in interest rates could lead to a significant turnaround in homeownership demand. Increasing demand is a necessary first step to soak up excess inventory, stabilize prices, and turn the corner on foreclosures.

NAR doesn’t take a position on how low interest rates should go, but for every 1 percent buydown in interest rates, we would see a half-million additional home sales over a one-year period, according to an internal projection. Increasing sales by this amount would shrink the number of homes for sale to a 7.5 month supply, down significantly from the 10 month supply toward the end of 2008. Historically, economists consider a supply of between 5.5 months and 7 months to be a balanced market.

Lowering interest rates isn’t the only action the federal government can take. A late 2008 decision by the Federal Reserve to buy mortgage-backed securities on the secondary market should provide a significant boost to lending.

Stimulating demand through an interest-rate buydown isn’t the only path to a housing market recovery. Reducing supply—especially those homes coming onto the market because of foreclosures—is another approach.

Sheila Bair, chair of the Federal Deposit Insurance Corp., has rightly received high marks from Congress and in the media for her call to use a portion of the Wall Street rescue funds to help financially troubled borrowers work out their mortgages. It is critical that Congress to do everything in its power to help these struggling home owners and prevent more foreclosed homes, an outcome that will only soften prices further.

It’s true that a program of large-scale loan modifications does raise the issue of moral hazard. All the help goes to troubled borrowers, while home owners working hard to stay current on their mortgages get nothing. That may not seem fair. But given the boost a rebounding housing sector could bring to the U.S. economy, every possible solution must be tried.

The interest-rate buydown deserves special attention, however, because it promises to have the largest immediate impact on increasing sales and stabilizing prices. To clear the way for this critical program, NAR has been talking with members of Congress to clarify what needs to be done to make things happen quickly.

While the details are still under discussion, what’s clear from President McMillan’s initial meeting is that the Treasury agrees with NAR that we need to spark housing demand. Now, we need action to go with good intentions.
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Overcoming Buyer Reluctance

Your sales expertise can help buyers feel comfortable jumping into a shifting market. Don't miss this exclusive excerpt from Gary Keller's new book, "Shift: How Top Real Estate Agents Tackle Tough Times" (McGraw-Hill, 2009).
By: Gary Keller and Dave Jenks: REALTOR®Magazine
Excerpted and abridged from Shift: How Top Real Estate Agents Tackle Tough Times, by Gary Keller with Dave Jenks and Jay Papasan. Copyright 2009. The McGraw-Hill Companies Inc.

A buyers' market should be just that—a buyers' market. It's not a fence-sitting, waiting, loitering, delaying, dawdling, postponing, vacillating, hesitating, wavering, faltering, pausing, foot-shuffling market. It's a buyers' market. By its very name it means buyers should be doing one thing and one thing only—buying. So where are the buyers, and why aren't they buying?

The great irony of a buyers' market is that even though the opportunity to buy is high, buyer urgency tends to hit an all-time low. The media becomes the excited purveyor of negative news and uninformed advice, and buyers buy it all. Actually, it feels like the only thing they're buying.

Their reluctance is ironic since not so long ago buyers were incredibly excited about buying—and it was a sellers' market. Prices were escalating and it was perhaps one of the most difficult times to buy value and yet people were buying like there was no tomorrow. Buyers were afraid of losing out by not buying, even though the advantage was all to the seller.

Now a shift has occurred. Fear is still in the driver's seat but the tables are turned—the fear of paying too much seems to stop most in their tracks and immobilizes them. When they should have been afraid of paying too much they weren't, and now that they shouldn't be afraid of paying too much they are.

It's one of the great paradoxical moments of any market and the herd instinct at its most pure. Reluctance in the face of great opportunity becomes an agonizingly defining characteristic of a shift.

The Myth That Fuels Reluctance

There are two types of buyers—those who believe they can time the market and those who are always in the market and believe timing will find them. History supports the latter—it says that if you're always actively paying attention, although you may never sell at the peak or buy at the bottom, you can buy right and always do well over time.

Logic says that you can't predictably time the market to be able to buy at the absolute bottom and sell at the absolute top.

A simple technique to prove to potential buyers, or even sellers, that they can't perfectly time the market is to do this easy demonstration: Take out a blank sheet of paper and pen. Now, starting at the top of the paper, draw a line going down and at the same time ask the buyers to stop you when the market has bottomed out.

As long as your line keeps going straight down they won't be able to. The moment you start back up, they'll say "there!" but of course they missed the bottom. Now, keep drawing your line up while asking them to tell you when the market has peaked. Again, they won't be able to tell you until you've rounded the top and started back down. Then they'll say "there!" and once again they'll be behind the peak.

This should be a moment of truth for them. Buyers cannot perfectly time a market—no one can. The smartest people know this. They play in the safe zone. The safe zone is where smart people plan to buy and sell. Anyone who buys at the top of a market is just unlucky and anyone who buys at the bottom of a market is just lucky.

People who buy in a buyers' market are the smart ones. They aren't looking for a killing because they know that's a matter of luck, not planning. They're looking for a sound decision with a predictable result and, therefore, ask the question: "Has the market dropped enough now to make a sensible purchase?" More often than not, when they're asking this question, they're already in the safe zone and the answer is yes.

Target the Able, Ready, and Willing

Understanding buyer urgency—its root cause and how to respond to a lack of it—is imperative in a shift. When buyers are more reluctant than ever to make offers and more than willing to walk away from signed contracts, you must be prepared. You must help buyers rediscover a sense of urgency.

Only buyers who are able, ready, and willing to buy a home ever actually buy one. Able, ready, and "waiting" may or may not. As a result, when you first meet potential buyers, the three fundamental things you want to understand are their ability, readiness, and willingness to buy now.

· Ability always comes first and is tied to factual answers to some basic questions:
  Do they qualify for an appropriate loan or pay cash? Do they have money for the
  down payment and closing costs or can they get it? These are show-stoppers for
  you. If buyers aren't already prequalified, your first job is to put them in the
  capable hands of a loan officer.

Tightened lending standards or higher interest rates can act like a blast of arctic air on the real estate market. At the beginning of my career, interest rates soared so high that buyers had to ask sellers to buy down interest rates by paying as many as sixteen discount points! Can you imagine? Even ready and willing buyers were often rebuffed by sellers in that market.

Due to the cost of money, creative financing became the only way to give buyers the ability to buy. Though not the same, after the subprime, free-lending ways of the early- to mid-2000s, mortgage lenders created another "ability" crisis for buyers. Knowledge and a great loan officer are the keys [to overcoming ability challenges]. By teaming up with a loan officer immediately, you'll not only serve the best interests of buyers but also increase the number of people you can help.

· Readiness is about buyers' wants and needs—their personal reasons for buying a
  home. These are the things you discover in the course of qualifying them and doing
  your buyer consultation. Readiness always underpins buyers' motivation. In fact,
  it is their motivation. It is the "why" that leads them to buy.

Buyers' personal reasons for moving, buying up, or owning instead of renting are possibly the most powerful determinants of their readiness to buy. Think of [readiness] as a spectrum. On one end you have "maybe someday" and on the other you have "right now, today!" Personal reasons tend to be the most "shift-proof." Real buyers have real wants and needs. Their wants drive them and their needs compel them.

When I was in the fourth grade my parents sold our first home and bought a larger one that was closer to our schools. Three months later we had to move again because dad took a new job that required we live in the school district where he would be working. Personal wants are powerful in their own right, but needs are the most powerful. No matter the exact reason, personal needs create buyers no matter the market.

Make your buyer prequalification and consultation time count. If you don't have a firm grasp of buyers' personal reasons for moving you've missed out on one of the most powerful resources for reducing reluctance and reinforcing urgency. Once you understand their motives, you can help them overcome any doubts or reluctance by reminding them of what they are going to gain by buying now.

· Willingness is simply about action. It's about buyers mentally and emotionally
  making a choice about when they'll buy. Buyers can be able and ready, but if
  they're not willing then they're just waiting.

In a sellers' market buyers usually fear missing out on accelerating home values. Once a market starts to shift, however, they fear overpaying. This is troublesome since the fear of overpaying can not only make buyers reluctant to make offers but also lead to buyer remorse. Buyer reluctance leads to fewer contracts and buyer remorse leads to more cancellations. Some days it can truly feel like you're running up a descending escalator, exerting a lot of energy and effort with little progress to show for it.

Willingness not only has to be there at the start of the buying process, but it has to be checked on regularly to make sure it remains intact. Just as an unwilling buyer can become willing, a willing buyer can become unwilling. This means you must be on your toes from start to finish or you could be in for a surprise.

All of these—buyer ability, readiness, and willingness—add up to one key decision for you: Are they worth investing your time, money, and effort when all those resources are already stretched? Either they are able, ready, and willing or they aren't. There are no shades of gray. Buyers who are willing have a sense of urgency. Buyers who aren't willing are reluctant. If you can't help buyers overcome their reluctance today, it may be better to drop them into your cultivation program and check back with them another day. Your focus must be on the motivated.

Creating Urgency

While it's true you can't motivate a buyer, you can "motive-aid" them. There are proven ways you can educate buyers on the market, support their tapping into their personal reasons for moving, and help them overcome their fears in order to rally them to become buyers now. Three ways to energize buyer urgency:

1. Become the local economist of choice.

I once heard someone laughingly say, "Some of my best thinking was done by other people." I don't know about the "best" part of this, but, unfortunately, when it comes to buying real estate in a shift, I do believe that most buyers are letting others do too much of their thinking for them. These other people might include family, friends, and the media. On one hand, a lot of good information can come from these sources. On the other hand, if these are the only real estate information sources people are using, then they're not getting the entire story.

So what's missing? Expert advice. Buyers need professional advice in a shift more than ever. The challenge is that most don't realize it. They've read the newspapers and magazines, listened to the news, talked to some friends and family members, and formed an opinion. So far so good. The problem is that more than likely, they've not gotten the entire story about the market or how to approach it. They believe they are fully informed, but they're not. The media rarely tell the whole story, and most people have limited experience. As a result, buyers are either half informed or misinformed. Both lead to decisions that are poorly formed. So what can you do? Become the professional voice they listen to. Become their economist of choice.

Find every way possible to overcome the media-driven real estate malaise. Be the one with the facts. Educate them that real estate is a cyclical business. All of this has happened before, and it will happen again. What goes up must come down. More important, what goes down has always come back up. Home values will most certainly continue their long-standing trend of appreciation over time. At the very least inflation will see to that. And equity buildup through mortgage debt paydown still remains a proven path to financial wealth. You will have to constantly educate and remind buyers of these economic certainties.

The extreme mobility of buyers today has led to some unrealistic expectations that surface in a shift. It is a case of people wanting to bend market reality to reflect their mobile lifestyle. Somehow, people have been led to believe that they can buy and sell every three to five years and make a killing on both ends. This economic idea is quite unrealistic. Any successful real estate investor will tell you that real wealth comes from the combination of any appreciation plus debt paydown. And for home buyers this can be further enhanced by any available tax advantages for homeownership. While it is often possible to buy good value (or "make your money going in"), not every home sale results in a windfall. When my parents sold their first home they lost money. They did it anyway. Why? They wanted another home.

As an expert, you can teach buyers about realistic economic expectations. They can't sell high and buy low at the same time. If they sell and then buy during a sellers' market, they will get more when they sell and then pay more when they buy. When they sell and then buy in a buyers' market, they will get less from their sale but be able to make it up with greater savings when they buy. In the end, homeownership is best viewed as a long-term investment, just like the stock market or any other sound investment.

Give a historical perspective as well as a current one. Offset a national perspective with a local one. Show buyers the local market information—your area's job growth, population growth, household income increases, and the factual decline in area home values. Share current interest rates and financing options. In a buyers' market, the presentation of these facts generally adds up to a powerful argument to buy now.

The key here is to not appear to be self-serving or simply offering up your own opinions. Cite independent sources and quote experts. Often the same articles that create a gloomy outlook for sellers prove it is an opportune time for buyers. If the local real estate section interprets a decline in a local prices as creating risk, you can use those same stats to make your case that it is a great time to buy value or trade up.

Finally, share the success stories of people who recently made the decision to buy and are very happy that they followed through with their purchase. I can't overstate the importance of collecting and sharing these authentic personal stories. By sharing them, you will give buyers reassurance both that it's okay to buy and that others are in fact doing it.

2. Tap into their why.

At the end of the day, nothing trumps buyers' personal motivations for moving. People move because . . . now you finish the sentence.

What did you choose? A new job, a new baby, a new marriage, retirement, being closer to family or certain places, a divorce, a death, a bright vision of a new life elsewhere? Tapping into someone's list of reasons is getting them in touch with their heart as well as their head. Invariably, a factual reason for buying has an emotional string attached to it. Whatever the reason, I've learned that these internal motivations are among the most powerful of all. So, especially in a shift, you must tap into their reasons for moving.

The best way to get to understand a client's motivation is to ask personal questions. Why are you thinking about buying? Really, tell me more. Now, what will that do for you? What will that mean for your family? When you have their answer, you must keep it on the tip of your tongue and at the top of their mind. It is the central topic that defines all of your conversations.

Talking about personal wants and needs is not manipulation. It's simply reminding people what they want to buy and why. I actually consider it my fiduciary duty. I've learned that in life it's much better to be able to say "I'm glad I did" rather than "I wish I had." I believe it. In fact, I know it's a lesson to live by and it has guided me well in advising my customers. And I've had countless notes, letters, calls, and conversations (sometimes many years later) with buyers who thanked me for reminding them why they were looking—for helping them overcome their doubts.

3. Overcome buyer reluctance.

When people have a good reason to buy, they do just that—except in a shift. When the market changes it can throw people off balance. They're going along with their lives, and then the market tosses a wrench into the engine driving their decisions. All of a sudden they are not sure of themselves and are hesitant to move forward. They want and may even need to buy, but yet they hold back. It's frustrating for you and it's frustrating for them. They need someone to intervene and help them overcome their reluctance.

Ask them the question: "Do you think that prices have dropped?" They'll answer, "Yes." Next ask, "Do you think they'll ever go back up?" Again, they'll say, "Yes, eventually." Then ask, "So, aren't you then saying that it's actually okay to be out buying again?" They're caught and may or may not answer. That's okay. Go ahead and ask them one last question: "Given how you feel, if we found the home today that met all your needs and your most important wants, is there any reason you wouldn't make an offer to purchase that home today?"

Once the market settles or shows any sign of improvement, opportunities start slipping away. The very moment sellers no longer have to make concessions, they won't. And, since there is almost always group think at play with all of the waiting buyers, the pent-up demand will show back up and buyers may be faced with mounting competition for the best homes available.

This is the time to put your sales skills to work. A buyers' market is a skill-based market, and you are best served to practice your scripts, find a coach, engage in regular role play with a partner, and get familiar with the proven best practices for helping your buyers make good decisions. Take a look (right) at four classic strategies for helping buyers overcome their reluctance. Just as your consultation is designed to identify and assess a buyer's ability and readiness to buy, careful consultation can also help initiate a buyer's willingness to buy.

Four Strategies: Help Buyers See the Light and Make the Offer

1. Why wait? The hazard of timing the market.

Buyers who choose to wait until prices come down more are also gambling that interest rates will hold steady or drop. What is not widely understood is the impact interest rates can have on the real monthly costs of homeownership. Even a 10 percent drop in home prices is immediately nullified by a mere 1 percentage point increase in interest rates on a 30-year mortgage loan.

2. Trade up-the opportunity of a down market.

If buyers are planning on trading up, you will need to highlight how saving on the larger home purchase will offset any loss on the sale their current house.

A Buyers’ Market Is a Trading Up Market

Falling home prices are a great opportunity for move up buyers. Even though your home sale price may be lower, the smaller loss at sale can be compensated by greater savings at purchase. If home prices dropped by 5 percent, here’s what it could look like if you decided to trade up:

Old home price = $200,000

Sell at $190,000 = $10,000 less

New home price = $400,000

Buy at $380,000 = $20,000 savings

3. Less is more—narrowing the field.

One of the challenges for buyers in a shift is simply that there are too many choices. Barry Schwartz, psychologist and author of The Paradox of Choice: Why More is Less (Ecco, 2003), states, “There’s a point where all of this choice starts to be not only unproductive, but counterproductive—a source of pain, regret, worry about missed opportunities, and unrealistically high expectations.”

So what does this mean to you? Your job is to help your buyers narrow the field. This is hands-on, personal consultation time. If their search criteria are yielding dozens, even hundreds, of potential homes, science tells us they are likely to be overwhelmed, shut down or, worse, make a poor “first good choice” kind of decision. You must either presort their choices or sit with them and patiently help them sort the stack. The goal is a handful of great choices.

Take the discards and physically tear them up. Drop them in the trash can. Make the point that those homes are no longer under consideration. There should never be more than five or so homes that are under consideration at any one time. The best agents understand the benefit of this step-by-step selection process. They know it helps the customer decide, it speeds up the home search, and it makes their work with buyers more efficient. They make this their standard practice and, in a shift, so must you.

4. Find a best buy—get while the gettin’s good.

One aspect of the “less is more” theme that can help you overcome buyer reluctance is a “Best Buy List.” This is a list you have compiled of the current best buys in the market. It will be based on your consistent tracking of new listings, price reductions, and pre-foreclosure or foreclosed properties. It will be one of the most useful outcomes of your daily previewing of homes. This becomes a great opportunity to continually pull buyers into the homebuying process, plus it might actually help you stand out from the competition. A Best Buy List actually becomes your unique intellectual property and a powerful magnet for people to work with you.

Another great benefit of a Best Buy List is that it can create additional buyer urgency. “Hi, Tom—a home just hit my Best Buy List that could be exactly what you and Sarah are looking for. I’m not sure if it is even still available, but if it is could we set a time as soon as possible to go see it?”

Here’s the point: You can’t create urgency if there isn’t a good reason for it, and you certainly can’t fake it. You must find real, honest, and compelling ways to help buyers feel optimistic about the market and comfortable with you as their expert guide.

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Free Shift podcasts, now on iTunes! Listen as coauthors Gary Keller and Dave Jenks discuss the 12 tactics and provide a strategic vision for success in any market. At the iTunes store, search for “Gary Keller” under the podcast tab in the business category.
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Taking Credit for First-time Home Purchase

Last summer, the federal government threw first-time home buyers a big bone-an income-tax credit for buying a place to live.
By: Mary Umberger: RISMEDIA
This isn’t like a tax deduction: A tax credit can have even more impact on your finances than a deduction because it allows you to directly reduce the amount you owe Uncle Sam-in this case, up to $7,500.

But like all tax rules, it’s slightly complicated-for one thing, you must pay it back. And for another, it’s temporary-you’ll have to close on your home purchase by July to take advantage of it.

We talked with Robert Dietz, tax economist for the National Association of Home Builders in Washington, who said many first-time buyers seem to be aware of the credit, but they’re skittish about the repayment feature.

“We’re trying to get the fence-sitters into the market,” he said. “But the impact of (the credit) so far, at least in terms of sales data, has been disappointing.”

Here are five things to know about the credit:

1. Congress created it because it perceived that incentives to make first-time buyers enter the market are critical to priming the housing pump. First-timers are less-encumbered buyers than those who don’t have an existing home to sell-and once they buy, it usually sets off a chain of other move-up purchases.

2. To get the credit, you must be a first-time home buyer, but the government defines that somewhat generously: You cannot have owned a home in the past three years. The home must be your principal residence (no vacation homes) and have been purchased-that is, closed on-between April 9, 2008 and July 1, 2009.

3. Although it’s been promoted widely as “a $7,500 tax credit,” it’s not as cut-and-dried as that. The credit is equal to 10% of the purchase price of the house, up to $7,500-and given the price of real estate, most purchases will more than qualify. But there are income limits: Single taxpayers with modified adjusted gross income (MAGI), which is income that’s been adjusted for various tax considerations) up to $75,000 and couples with MAGI up to $150,000 will qualify for the full credit. If your MAGI is higher, you still may be entitled to partial credit; if it’s above $95,000 for singles and $170,000 for couples, you can’t claim the credit at all.

If the amount of tax you owe is less than the amount of the credit, you will get to keep the difference, in the form of a refund from the IRS.

4. Are you still with us after all that? Probably the most important aspect of the tax credit is that it really isn’t a “credit” at all-it’s more like a loan. You’ll have to pay the feds back.

But before you say, aw, shucks, keep in mind that it’s essentially an interest-free loan. You’ll have to start repaying it in two years, in increments of about $500 over a 15-year period if you’ve received the full credit.

If you sell the home before the credit is repaid, the balance will be due immediately-and theoretically, you’ll sell the house for a profit, so that repayment should be straightforward. But given the times we live in, if the house is sold for a loss, the outstanding balance is forgiven.

The NAHB’s Dietz said, though, that getting the financial incentive after the closing “creates a chicken-and-egg problem for buyers who are having difficulty accumulating a down payment.”

The National Association of Realtors has advised potential buyers that they might get some benefit from the tax credit up-front if, as they begin their house-hunt, they adjust the amount withheld from their salaries for taxes, bank it, and apply it toward the down payment, with the presumption that the tax credit will create a favorable financial swap.

“Adjusting your withholding is an option, but you’d have to be very, very careful about it,” Dietz said. “I wouldn’t recommend it necessarily. People would have to talk to a tax professional about that.”

5. You will claim the credit on a new IRS form, 5405. In addition to all the whys and wherefores mentioned here, there are other exclusions and tax minutiae-so, as these articles always say, consult a tax professional. But in the meantime, detailed information is available from federalhousingcredit.com, a Q&A site managed by the NAHB.

The federal government, too, has information, though it’s harder to retrieve, and the specific Web address is about a mile long. One way to access it is to go to IRS.gov and click on Newsroom at the bottom of the home page; then click on News Releases, then News Release Archive (from September), where you’ll come to a governmental summary of the law.

You were expecting the IRS to make it simple?
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Housing Push for Hispanics Spawns Wave of Foreclosures

Why Hispanics Face Wave of Foreclosures
A push to increase homeownership among Latinos resulted in an increase in nonprime lending. Now, many Hispanics are mired in the housing mess.
By SUSAN SCHMIDT and MAURICE TAMMAN: The Wall Street Journal Online
California Rep. Joe Baca has long pushed legislation he said would "open the doors to the American Dream" for first-time home buyers in his largely Hispanic district. For many of them, those doors have slammed shut, quickly and painfully.

Mortgage lenders flooded Mr. Baca's San Bernardino, Calif., district with loans that often didn't require down payments, solid credit ratings or documentation of employment. Now, many of the Hispanics who became homeowners find themselves mired in the national housing mess. Nearly 9,200 families in his district have lost their homes to foreclosure.

Foreclosure Crisis Hits Hispanics
Congressional districts with large Hispanic populations often feature heavy nonprime lending. See how different districts break down in terms of prime and nonprime home loans.

For years, immigrants to the U.S. have viewed buying a home as the ultimate benchmark of success. Between 2000 and 2007, as the Hispanic population increased, Hispanic homeownership grew even faster, increasing by 47%, to 6.1 million from 4.1 million, according to the U.S. Census Bureau. Over that same period, homeownership nationally grew by 8%. In 2005 alone, mortgages to Hispanics jumped by 29%, with expensive nonprime mortgages soaring 169%, according to the Federal Financial Institutions Examination Council.

An examination of that borrowing spree by The Wall Street Journal reveals that it wasn't simply the mortgage market at work. It was fueled by a campaign by low-income housing groups, Hispanic lawmakers, a congressional Hispanic housing initiative, mortgage lenders and brokers, who all were pushing to increase homeownership among Latinos.

The network included Mr. Baca, chairman of the Congressional Hispanic Caucus, whose district is 58% Hispanic and ranks No. 5 among all congressional districts in percentage of home loans not tailored for prime borrowers. The caucus launched a housing initiative called Hogar -- Spanish for home -- to work with industry and community groups to increase mortgage lending to Latinos. Mortgage companies provided funding to that group, and to the National Association of Hispanic Real Estate Professionals, which fielded an army to make the loans.

In years past, minority borrowers seeking loans were often stopped cold by a practice called red-lining, in which lenders were reluctant to lend within particular geographical areas, often, it appeared, on the basis of race. But combined efforts to open the mortgage pipeline to Latinos proved successful.

"We saw what we refer to in the advocacy community as reverse red-lining," says Aracely Panameno, director of Latino affairs for the Center for Responsible Lending, an advocacy group. "Lenders were seeking out those borrowers and charging them through the roof," she says.

Ms. Panameno says that during the height of the housing boom she sought to present the Hispanic Caucus with data showing how many Latinos were being steered into risky and expensive subprime loans. Hogar declined her requests, she says.

When the national housing market began unraveling, so did the fortunes of many of the new homeowners. National foreclosure statistics don't break out data by ethnicity or race. But there is evidence that Hispanic borrowers have been hard hit. In part, that's because of large Hispanic populations in areas where the housing bubble was pronounced, such as Southern California, Nevada and Florida.

In U.S. counties where Hispanics account for more than 25% of the population, banks have taken back 6.7 homes per 1,000 residents since Jan. 1, 2006, compared with 4.6 per 1,000 residents in all counties, according to a Journal analysis of U.S. Census and RealtyTrac data.

Hispanic lawmakers and community groups have blamed subprime lenders, who specialize in making loans to customers with spotty credit histories. They complain that even solid borrowers were steered to those loans, which carry higher interest rates.

In a written statement, Mr. Baca blamed the foreclosure crisis among Hispanics on borrowers' lack of "financial literacy" and on "lenders and brokers eager to make a bigger profit." He declined to be interviewed for this story.

Easy Credit
But a close look at the network of organizations pushing for increased mortgage lending reveals a more complicated picture. Subprime-industry executives were advisers to the Hogar housing initiative, and bankrolled more than $2 million of its research. Lawmakers and advocacy groups pushed hard for the easy credit that fueled the subprime phenomenon among Latinos. Members of the Congressional Hispanic Caucus, who received donations from the lending industry and saw their constituents moving into new homes, pushed for eased lending standards, which led to problems.

Mortgage lenders appear to have regarded Latinos as a largely untapped demographic. Many were first or second-generation U.S. residents who didn't own homes. Many Hispanic families had multiple wage earners working multiple cash jobs, but had no savings or established credit history to allow them to qualify for traditional loans.

The Congressional Hispanic Caucus created Hogar in 2003 to work with industry and community groups to increase mortgage lending to Latinos. At that time, the national Latino homeownership rate was 47%, compared with 68% for the overall population. Hogar called the figure "alarming," and said a concerted effort was required to ensure that "by the end of the decade Latinos will share equally in the American Dream of homeownership."

Hogar's backers included many companies that ran into trouble in mortgage markets: Fannie Mae and Freddie Mac, both now under federal control; Countrywide Financial Corp., sold last year to Bank of America Corp.; Washington Mutual Inc., taken over by the government and sold to J.P. Morgan Chase & Co.; and New Century Financial Corp. and Ameriquest Mortgage Corp., both now defunct.

Hogar's ties to the subprime industry were substantial. A Washington Mutual vice president served as chairman of its advisory committee. Companies that donated $150,000 a year got the right to place a research fellow who would conduct Hogar's studies, which were used by industry lobbyists. For donations of $100,000 a year, Hogar offered to provide news releases from the Hispanic Caucus promoting a lender's commercial products for the Latino market, according to the group's literature.

Hogar worked with Freddie Mac on a two-year examination of Latino homeownership in 63 congressional districts. The study found Hispanic ownership on the rise thanks to "new flexible mortgage loan products" that the industry was adopting. It recommended further easing of down-payment and underwriting standards.

Representatives for Hogar declined repeated requests for comment.

The National Association of Hispanic Real Estate Professionals, one of Hogar's sponsors, advised the group, shared research data and built a large membership to market loans to Latinos. By 2005, its ranks had grown to 16,000 agents and mortgage brokers.

The association, called Nahrep, received funding from some of the same players that funded Hogar. Some 22 corporate sponsors, including Countrywide and Washington Mutual, together paid the association $2 million a year to attend conferences and forums where lenders could pitch their loan products to loan brokers.

While home prices were rising, the lending risk seemed minimal, says Tim Sandos, Narhep's president. "We would say, 'Is he breathing? OK, we'll give him a mortgage,' " he recalls.

Nahrep's 2006 convention in Las Vegas was called "Place Your Bets on Home Ownership." Countrywide Chairman Angelo Mozilo spoke, as did former Housing and Urban Development Secretary Henry Cisneros, a force in Latino housing developments in the West.

Lenders' Contributions
Countrywide and other sponsors contracted with Nahrep to set up regional events where they could present loan products to loan brokers and their customers. Mr. Sandos says his organization doesn't get paid to promote particular lenders.

At the height of the subprime lending boom, in 2005, banking and finance companies gave at least $2.3 million in campaign contributions to members of the Hispanic Caucus, according to data from the Center for Responsive Politics.

In October 2008, a charitable foundation set up by Mr. Baca received $25,000 from AmeriDream Inc., a nonprofit housing company and Hogar sponsor. Mr. Baca has long backed AmeriDream's controversial seller-financed down-payment assistance program. AmeriDream provided down-payment money to buyers, a cost that was covered by home builders in the form of donations to the nonprofit.

New housing legislation last fall outlawed the program. Mr. Baca is cosponsoring a bill that would allow AmeriDream and similar nonprofits to resume arranging seller-financed down-payment assistance to low-income Federal Housing Administration borrowers.

Such seller-financed loans comprise one-third of the loans backed by the FHA, and have defaulted at nearly triple the rate of other FHA-insured loans, according to agency spokesman William Glavin.

In a news release, AmeriDream said the donation to Mr. Baca's foundation was intended to fund the purchase of gear for firefighters in his district. Local news reports say the foundation gave away $36,000 in scholarships this year.

Internal Revenue Service records indicate that Mr. Baca's son, Joe Baca Jr., has an annual salary of $51,800 as executive director of the Joe Baca Foundation, which is run out of the congressman's home. Joe Baca Jr. says he currently is taking only about half that listed salary.

Mr. Baca's office declined to comment on the AmeriDream contribution.

Mr. Baca remains opposed to strict lending rules. "We need to keep credit easily accessible to our minority communities," he said in a statement released by his office.

Mortgage lending to Hispanics took off between 2004 and 2007, powered by nonprime loans. The biggest jump occurred in 2005. The 169% increase in nonprime mortgages to Hispanics that year outpaced a 122% gain for blacks, and a 110% increase for whites, according to a Journal analysis of mortgage-industry and federal-housing data. Nonprime mortgages carry high interest rates and are tailored to borrowers with low credit scores or few assets.

Between 2004 and 2007, black borrowers were offered nonprime loans at a slightly higher rate than Hispanics, but the overall number of Hispanic borrowers was much larger. From 2004 to 2005, total nonprime home loans to Hispanics more than tripled to $69 billion from $19 billion, and peaked in 2006 at $73 billion.

Tricks of the Trade
Mortgage brokers became a key portion of the lending pipeline. Phi Nguygn, a former broker, worked at two suburban Washington-area firms that employed hundreds of loan originators, most of them Latino. Countrywide and other subprime lenders sent account representatives to brokerage offices frequently, he says. Countrywide didn't respond to calls requesting comment.

Representatives of subprime lenders passed on "little tricks of the trade" to get borrowers qualified, he says, such as adding a borrower's name to a relative's bank account, an illegal maneuver. Mr. Nguygn says he's now volunteering time to help borrowers facing foreclosure negotiate with banks.

Many loans to Hispanic borrowers were based not on actual income histories but on a borrower's "stated income." These so-called no-doc loans yielded higher commissions and involved less paperwork.

Another problem was so-called NINA -- no income, no assets -- loans. They were originally intended for self-employed people of means. But Freddie Mac executives worried about abuse, according to documents obtained by Congress. The program "appears to target borrowers who would have trouble qualifying for a mortgage if their financial position were adequately disclosed," said a staff memo to Freddie Mac Chairman Richard Syron. "It appears they are disproportionately targeted toward Hispanics."

Freddie Mac says it tightened down-payment requirements in 2004 and stopped buying NINA loans altogether in 2007.

"It's very hard to get in front of a train loaded with highly profitable activities and stop it," says Ronald Rosenfeld, chairman of the Federal Housing Finance Board, a government agency that regulates home loan banks.

Regions of the country where the housing bubble grew biggest, such as California, Nevada and Florida, are heavily populated by Latinos, many of whom worked in the construction industry during the housing boom. When these markets began to weaken, bad loans depressed the value of neighboring properties, creating a downward spiral. Neighborhoods are now dotted with vacant homes.

By late 2008, one in every nine households in San Joaquin County, Calif., was in default or foreclosure -- 24,049 of them, according to Federal Reserve data. Banks have already taken back 55 of every 1,000 homes. In Riverside, Calif., 66,838 houses are owned by banks or were headed in that direction as of October. In Prince William County, Va., a Washington suburb, 11,685 homes, or one in 11, was in default or foreclosure.

Gerardo Cadima, a Bolivian immigrant who works as an electrician, bought a home in suburban Virginia for $330,000, with no money down. "I said this is too good to be true," he recalls. "I'm 23 years old, with a family, buying my own house."

When work slowed last year, Mr. Cadima ran into trouble on his adjustable-rate mortgage. "The payments were increasing, and the price of the house was starting to drop," he says. "I started to think, is this really worth it?" He stopped making payments and his home was sold at auction for $180,000.

In the wake of the housing slump, some participants in the Hispanic lending network are expressing second thoughts about the push. Mr. Sandos, head of Nahrep, says that some of his group's past members, lured by big commissions, steered borrowers into expensive loans that they couldn't afford.

Nahrep has filed complaints with state regulators against some of those brokers, he says. Their actions go against Nahrep's mission of building "sustainable" Latino home ownership.

These days, James Scruggs of Northern Virginia Legal Services is swamped with Latino borrowers facing foreclosure. "We see loan applications that are complete fabrications," he says. Typically, he says, everything was marketed to borrowers in Spanish, right up until the closing, which was conducted in English.

"We are not talking about people working for the World Bank or the IMF," he says. "We are talking about day laborers, janitors, people who work in restaurants, people who do babysitting."

Two such borrowers work in Mr. Scrugg's office. Sandra Cardoza, a $28,000-a-year office manager, is now $30,000 in arrears on loans totaling $370,000. "Her loan documents say she makes more than me," says Mr. Scruggs.

Nahrep agents are networking on how to negotiate "short sales" to banks, where Hispanic homeowners sell their homes at a loss in order to escape onerous mortgages. The association has a new how-to guide: "The American Nightmare: Strategies for Preventing, Surviving and Overcoming Foreclosure."

—Louise Radnofsky contributed to this article.
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Selling Your Home in a Declining Market

Selling a home in a declining market starts with a proper attitude and finding the right Realtor® who is optimistic and knows the right sales techniques in this tough market.
By: Richard Daskam: Realty Times®
Even though most people and economists are down on the housing market (feel it is depressed, that the economic recovery isn't going to happen in the next few months, and consumer confidence is down), it doesn't mean that you can't sell your home.

The truth of the matter is many people will sell their homes between now and this summer. While many sellers and real estate agents take a reactive approach to market conditions, those sellers who take a more proactive and realistic approach to the market will be the ones who sell their homes. These are the sellers who take advantage of this market and move up to their dream home! First, be honest about appraising the condition of your home.

The key to successful selling in a 'declining market' is pricing your home at today's market value, having your home in tip-top condition and being able to work with a prospective buyer on financing needs and terms. Don't let your ego or pride get in the way when determining a price for your home. Put yourself in the buyer's shoes and walk across the street. Curb appeal to a new buyer is a very important and is many-times overlooked.

Secondly, take a leisurely walk through your home jotting down the little things you might do to spruce it up. New carpeting, a fresh coat of paint, new light fixtures, mirrors, etc., are items that will give your home more emotional appeal and does not cost too much. Put away the clutter throughout the home. Rooms free of clutter will appear bigger and the new buyer can visually 'move into' your home much easier. Remember, new buyers are not buying your furniture.

Finally, be patient. The real estate market has changed considerably since the last run-up where homes sold in hours or days. We are now experiencing a more "normal market" where homes take 90-120 days to sell. Remember, inventories are at an all-time high right now. Bank foreclosures are all around you and many buyers will have difficulty qualifying for a new loan. Lenders also have very strict guidelines now and consumer confidence is very low. Allowing for a normal marketing period will do a lot to alleviate your impatience when you have few showings of your home or a lack of offers to review.

A good Realtor® will keep you abreast of market changes, activity on your home and others in the neighborhood, while maintaining a "teamwork" concept that is paramount for a successful sale. Properties need ample time to be exposed to the public and finding the right buyer requires a good understanding of the market as well as sales values. In all honesty, there are no easy answers but one thing is for certain, even in the worst markets, there are people selling homes and taking their equity!
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Amid Rate Drops, Mortgage Applications Soar

With interest rates approaching reaching historic lows,
REALTOR®Magazine
the application volume for mortgages jumped a seasonally adjusted 48 percent last week compared with the previous
week, according to the Mortgage Bankers Association's weekly survey.

Application activity for the week ending December 19th was 124.6 percent over the same period a year ago,
the Washington, D.C-based MBA said. The spike in applications coincided with another drop in mortgage rates,
as the government's efforts to unfreeze the residential-mortgage market show further signs of having the desired effect.

Applications to refinance existing mortgages increased 62.6 percent on a week-to-week basis, while applications filed
for mortgages to buy homes increased a seasonally adjusted 10.6 percent.

Refinancings made up 83.2 percent of all applications filed last week, up from 76.9 percent the previous week.

According to the MBA survey, interest rates fell across the board:

·  Rates on 30-year fixed-rate mortgages averaged
  5.04 percent last week, their lowest level in more than five years.
  This was down from 5.18 percent the previous week.

· Fifteen-year fixed-rate mortgages averaged 4.91 percent, down from 4.93 percent
  the week before.

· One-year ARMs averaged 6.36 percent, down from 6.63 percent.

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Is Now a Good Time to Refinance?

Refinancing now sounds appealing, but for lots of people, it isn’t all that easy.
REALTOR®Magazine
Applications for refinances tripled earlier this month after the Federal Reserve promised to buy up $600 billion of mortgage debt.
And rates for 30-year fixed mortgages are falling below 5 percent – the lowest in 50 years – but many home owners will have trouble doing the deal.

Having at least 20 percent equity in a home is important. A credit score of at least 720 and a debt ratio that is less than 43 percent are both essential.

Jumbo mortgages are still expensive. A 5/1 adjustable-rate with an initial interest rate for five years and an annual reset is averaging 6.6 percent. Traditional 30-year fixed are at 7.49 percent. Home owners in this situation may have to just ride it out.
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U.S. property recovery to start by spring: Zell

Sam Zell Predicts Spring 2009 Housing Recovery.
By: Ori Lewis: Reuters.com
A revival in the U.S. real estate market, key to a recovery in the world economy, should begin by next spring, property mogul Sam Zell told an Israeli business conference on Sunday.

"I believe that in a country that continues to grow and where the population continues to grow, we will see the first signs of equilibrium in the housing market in the spring of 2009 and I will expect by spring 2010 the housing market in the U.S. will look a lot better," Zell said.

Zell is the owner of Tribune Co, publisher of the Chicago Tribune and the Los Angeles Times, which filed for Chapter 11 bankruptcy protection last week.

He declined to comment on his plans to sell the Chicago Cubs baseball team and its Wrigley Field stadium.

Zell said that with the U.S. population continuing to grow and with fewer than 600,000 building starts in 2008, over a million fewer than in each of the past 10 years, demand for houses would soon rise.

He added that after the U.S. housing market begins to stabilize over the next 12 months growth would return to other markets, as the balance of supply and demand evened out "and the staggering amount of fiscal stimulation that has been enacted around the world will have its impact."

Zell said he currently saw four global areas with a chance for investments because demand was continuing -- Brazil, China, the Middle East, and parts of eastern Europe.

"The have growth, they have political stability, they have natural resources ... and a relatively low cost of entry today," he said.

He added that the crisis was also in part due to hasty decisions being taken in the marketplace.

"We are living through our first Blackberry recession where, literally, information is instantly disseminated around the world and people, in effect, respond to it, perhaps, often without any particular caution or attention."
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Obama Team Backs Paulson Plan to Spur Homebuying Through New Securities

Obama Team Interest Encourages Treasury Mortgage Plan (Update1)
By: Robert Schmidt and Craig Torres: Bloomberg.com
President-elect Barack Obama’s economic team is expressing interest in a U.S. Treasury plan to spur homebuying through new securities aimed at driving down mortgage rates.

Incoming White House economic chief Lawrence Summers is seeking details of the proposal from Columbia Business School Dean Glenn Hubbard, who put together the plan’s foundation with Columbia’s Christopher Mayer. Mayer has briefed Federal Reserve Bank of New York staff. Timothy Geithner, head of the New York Fed, is Obama’s Treasury-secretary designate.

Obama’s encouragement is important for the program to proceed because the Treasury doesn’t want to start projects that could be abandoned after January, a Bush administration official said. The proposal, now on a fast track at the Treasury, would be the most comprehensive government effort yet to stimulate the housing market. It would accelerate the decline in mortgage rates already sparked by a Fed commitment to buy $600 billion of debt linked to home loans.

“This proposal is all about putting out the fire,” said Mayer, real-estate professor at Columbia in New York who is a visiting scholar at the New York Fed. “There is nothing else on the table that even has the possibility of preventing a large, further decline in house prices.”

4.5% Goal

The program Treasury Secretary Henry Paulson and his aides are considering would use Fannie Mae and Freddie Mac, the federally chartered mortgage financers seized by the government in September, to reduce 30-year fixed home-loan rates to around 4.5 percent, from an average of about 5.54 percent currently.

Fannie and Freddie, already the biggest sources of funding for U.S. housing, would buy mortgages at the lower rate from lenders. The government would then purchase securities issued by Fannie and Freddie that were backed by the loans.

Transition spokeswoman Stephanie Cutter said “we’re looking at a range of options targeted at foreclosure relief in the housing area.” Obama takes office Jan. 20.

While Paulson’s team is only exploring an initiative for new purchases, the incoming administration wants to go beyond that and address the record surge of foreclosures. Some industry lobbyists have urged the inclusion of refinancing for existing homeowners, up to one-fifth of whose loans are bigger than the value of their properties, estimates show.

“We’ve got to start helping homeowners in a serious way, prevent foreclosures,” Obama said in a Dec. 3 press conference in Chicago. “The deteriorating assets in the financial markets are rooted in the deterioration of people being able to pay their mortgages and stay in their homes.”

BlackRock Lobbying

BlackRock Inc. Chief Executive Officer Laurence Fink said yesterday he’s proposing to Obama that the Treasury buy new mortgages issued by Fannie and Freddie, with rates ranging from 4 percent to 4.5 percent. New York-based Blackrock was among the companies seeking to manage assets under a previous Paulson plan to purchase toxic debt, mainly linked to mortgages, under the $700 billion financial-bailout fund.

The Treasury’s new plan would be outside that fund, known as the Troubled Asset Relief Program. The department has authority to buy mortgage-backed securities, and the Fed last month pledged to purchase as much as $600 billion of debt issued or backed by government-chartered housing-finance companies.

Some analysts said that expanding the Paulson proposal to include refinancing existing mortgages would be too great a cost for the aid it would offer the housing market.

Community Activists

“It’s a much more efficient use of the government’s balance sheet to do this as a purchase program” only, said Nicholas Strand, a mortgage analyst at Barclays Capital Inc. in New York. He estimated the cost of a plan to buy 4.5 percent loans for new purchases at about $300 to $400 billion. Adding the refinance option could cost up to $3 trillion, he said.

Community activists argue that the government must step up aid for Americans at risk of losing their homes to halt the cycle of defaults and depreciating property values.

House prices nationwide began falling in the third quarter of 2006, and have continued dropping since, according to figures from S&P/Case-Shiller. Through September 2008, values were down 21 percent from the peak. One in 10 U.S. home loans was past-due on payment or in foreclosure in the third quarter, Mortgage Bankers Association figures show.

Those numbers could worsen as joblessness climbs. The unemployment rate may reach 8.2 percent next year, from 6.7 percent in November, a monthly Bloomberg News survey of economists shows.

House Prices

“The problem I’m having is, so what,” said John Taylor, president of the National Community Reinvestment Coalition in Washington. “In other words, what does this have to do with the foreclosure crisis?”

Mayer, who used to work at the Boston Fed, countered that “there is no evidence whatsoever that reducing foreclosures will help house prices.” Mayer and Hubbard say that if the government was able to lower mortgage rates by 1 percentage point it would raise housing demand by about 10 to 17 percent, “blunting” projected declines in property values.

Other government proposals have aimed at adjusting current mortgages to head off foreclosures. Federal Deposit Insurance Corp. Chairman Sheila Bair has pushed to use TARP funds for such a modification plan.

“Policy makers are coming around to the idea that these modification proposals aren’t going to have much of an effect on home prices,” said Andrew Laperriere, managing director at International Strategy & Investment Group in Washington. “So then, you look at the demand side.”
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Maybe It’s Time to Buy That First House

Time to buy a first home?
Now could be the right time to buy a first home.
By: RON LIEBER: yahoo.com newyorktimes.com
With house prices and mortgage rates down, the time may be right to buy a first home.
Five or 10 years from now, when the financial crisis has ended and housing prices are up smartly once more, we will look in the rearview mirror and realize that we missed a golden age for first-time home buyers.

Then, everyone who sat on their down payment savings accounts for a few years too long will kick themselves for not taking advantage of what may turn out to be the buying opportunity of a lifetime for those who can qualify for a mortgage.

Unfortunately, we do not know when this golden age will begin, because we will be able to identify a bottom to the housing market only with the benefit of hindsight. But as it does with the stock market, the moment will probably arrive when everyone is feeling the most pessimistic.

That moment is certainly getting closer. Housing prices have fallen drastically from their peak levels in many areas of the country. Rates on 30-year fixed-rate mortgages are already close to 5.5 percent, and this week there were suggestions that the federal government might try to drive them down to 4.5 percent, a truly incredible figure to be able to lock in for three decades.

Meanwhile, first-time home buyers have the same advantage they have always had, which is that they do not have to sell their old place before buying a new one. That is an added advantage in areas where many available houses simply are not moving, because the people trying to sell them will not be bidding against you.

If you’re hoping for a recovery in the housing market, you ought to be cheering on the first-time home buyers. When they purchase homes, their sellers are free to move on or move up, stimulating further sales.

But if you are a potential first-time buyer yourself, or lending or giving the down payment to one, you are probably as frightened as you are tempted by all the “For Sale” signs that have become “On Sale” signs. So let’s quickly review some of the still-grim pricing data in certain areas — and consider the reasoning offered up by first-time buyers who have forged ahead anyhow.

As is always the case with real estate, much depends on location. One study, “The Changing Prospects for Building Home Equity,” tries to predict where today’s first-time buyers in the 100 biggest metropolitan areas may actually have less home equity by 2012 as a result of continued price declines. The verdict was that buyers in 33 of the markets could see a decline by 2012, including potential six-figure drops on an average home in the New York City, Los Angeles, San Francisco and Seattle metropolitan areas.

This is obviously scary. (I’ve linked to the study, a joint effort of the Center for Economic and Policy Research and the National Low Income Housing Coalition, from the version of this article at nytimes.com/yourmoney.) It’s worth noting, however, that these predictions came before the government made its most recent move to reduce borrowing costs.

Also, the price projections in the study are based, in part, on the fact that the ratio of purchase prices to annual rents is still higher in many areas than the historical average, which is roughly 15 times rents. While past figures may well have some predictive value, I have never been convinced that first-time buyers compare a home that they could own and one that they would rent in purely or even primarily economic terms.

When Jaime and Michael Proman moved this fall to Minneapolis, his hometown, from New York City, they craved a different sort of life after two years together in a 450-square-foot studio apartment. “We didn’t want a sterile apartment feel,” said Mr. Proman, who is 28 (his wife is 26). “We wanted something that was permanent and very much a reflection of us.”

The fact is, in many parts of the country there are few if any attractive rentals for people looking to put down roots and enjoy the sort of amenities they may spot on cable television home improvement shows. Comparing a rental with a place that you may own seems almost pointless in these situations, especially for those who are now grown up enough to want to make their own decisions about décor without consulting the landlord.

Still, for anyone feeling the urge to buy, a number of practical considerations have changed in the last year or two. The basics are back, like spending no more than 28 percent of your pretax income on mortgage payments, taxes and insurance. Even if a lender does not hold you to this when you go in for preapproval, you should hold yourself to it.

You will also want to start now on any project to improve your credit score because it may take several months to get it above the 720 level that qualifies you for many of the best mortgage rates.

John Ulzheimer, president of consumer education for credit.com, a consumer credit information and application site, suggests starting to pay down and put away credit cards months before you apply for a loan. That is because the credit scoring system could penalize you if you use a lot of credit each month, even if you always pay in full. Also, check your three credit reports (it’s free) at annualcreditreport.com and dispute errors.

While no one can easily predict the likelihood of losing a job, Friday’s startling unemployment figures suggest the need for caution if you think you might be vulnerable. A. C. Panella, who teaches communications at Pasadena City College in California, waited until she had a tenure-track job before buying a home in the Highland Park section of Los Angeles with her partner, Amy Goldman, a lawyer for a nonprofit organization. “We could afford the mortgage payment on one salary, were something to come up,” Ms. Panella, 31, said. “It’s really about being able to stay within our means.”

For many first-time home buyers, that philosophy stretches to the down payment, too. Ms. Panella and her partner put down 20 percent when they bought their home in September, as did the Promans when they bought their home in the Lowry Hill neighborhood of Minneapolis.

Alison Nowak, 29, put just 3 percent down on a Federal Housing Administration-backed loan last month when she and her partner, Lacey Mamak, bought a $149,900, 800-square-foot home several miles south of where the Promans live. “Anything that is an opportunity also has a bit of risk,” she said. Her house was in foreclosure before a plumber bought it and fixed it up. “One way we mitigated it was that we bought a really tiny house in a very good neighborhood.”

One other strategy might be to buy new instead of used. Ian Shepherdson, chief United States economist for the research firm High Frequency Economics, says he believes that a steep drop-off in inventory of new homes is coming soon, thanks to a rapid decrease in home builder activity.

Since prices generally soften in the winter, it may make sense to start looking seriously once the mercury bottoms out. “If you look at new developments next spring, you may not have the choice you thought you would have or be in the bargaining position you thought you would be,” Mr. Shepherdson said. Also, if you wait after June 30, you will miss out on a $7,500 federal tax credit for income-eligible first-time home buyers that works like an interest-free loan.

Finally, allow yourself to consider how it would feel if you bought and then prices dropped another 10 or 15 percent. It might not bother you if you plan to stick around. Plenty of people seem to be making a longer commitment to their homes. According to a survey that the National Association of Realtors released last month, typical first-time buyers plan to stay in their home 10 years, up from 7 last year.

Perhaps people are more aware that they will not be able to build equity as rapidly as others did in the real estate boom. Or they simply have more confidence in hard, hometown assets now than in other markets.

“We wouldn’t let another decline bother us,” said Michael Proman. “You can never time a bottom. This is a long-term investment for us, and it truly is the best investment we have in our portfolio right now.”
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Bernanke urges action to halt foreclosures

Federal Reserve Chairman Ben Bernanke on Thursday urged more aggressive steps to halt home foreclosures and said government-funded programs could help strapped homeowners.
By: Mark Felsenthal: Reuters.com
"Despite good-faith efforts by both the private and public sectors, the foreclosure rate remains too high, with adverse consequences for both those directly involved and for the broader economy," he said at a Fed conference on housing and mortgage markets. "More needs to be done."

Bernanke said evidence that homeowner equity is an important determinant of default rates points to a need to write down loan principal to help people stay in their homes.

"Principal write-downs may need to be part of the toolkit that servicers use to achieve sustainable mortgage modifications," he said.

The U.S. economy has been in recession since December 2007, experts determined this week, with little hope for a speedy recovery as losses and defaults continue to roil housing and financial markets.

Bernanke painted a grim picture of strains for homeowners. As many as 20 percent of borrowers owe more than their homes are worth, he said. Lenders appear to be on track for 2.25 million foreclosures in 2008, compared with an annual pace of 1.0 million before the crisis, he added.

Government rescue efforts to date have emphasized stabilizing financial markets with capital infusions aimed at restoring bank health. But those measures have failed to stimulate any significant rebound in lending, and momentum is growing for relief for strapped homeowners.

Bernanke said that steps that stabilize the housing market will help stabilize the broader economy.

The Fed chairman said a number of proposals, all using public funds, hold promise for slowing foreclosure rates.

These include a Federal Deposit Insurance Corp plan that would reward participating lenders by sharing the cost of defaults on restructured loans. The FDIC, the bank regulatory agency that manages the fund that insures bank deposits, says the plan would prevent 1.5 million foreclosures.

The plan has the merits of standardizing the loan restructuring process and of keeping the restructured loans in the hands of the company collecting payments, meaning the government would only be involved only when a re-default occurs, he said.

Bernanke also said a program aimed at putting delinquent borrowers into new home loans insured by the Department of Housing and Urban Development's Federal Housing Administration might attract more participants if the Treasury Department bought securities issued by Ginnie Mae.

Those purchases could bring down the interest rate for those loans, currently around the relative high rate of about 8.0 percent, but would require Congress to raise the federal debt ceiling, he said.

Other proposals that have potential include having the government share the cost of reducing monthly payments for borrowers or buy delinquent or at-risk mortgages in bulk and refinance them through the FHA, Bernanke said.

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U.S. Eyes Plan to Lift Home Sales

Treasury Considers Encouraging Banks to Offer Mortgages at Rates as Low as 4.5%
By: DEBORAH SOLOMON and DAMIAN PALETTA: wsj.com
The Treasury Department is considering a plan to revitalize the U.S. home market that would push down interest rates for loans to purchase a home, according to people familiar with the matter.

The plan, which is in the development stage, would temporarily use the clout of mortgage giants Fannie Mae and Freddie Mac to encourage banks to lend at rates as low as 4.5%, more than a full point lower than prevailing rates for standard 30-year fixed-rate mortgages.

Government officials are under pressure to address falling home prices and mounting foreclosures, which underpin the financial crisis. The Treasury has struggled for months to come up with a plan that would ease the strains on borrowers without appearing to bail out homeowners and lenders.

The plan remains in discussion and may not be made final before the Bush administration's term ends in January. President-elect Barack Obama has said repeatedly that his administration would do more than the current one to help struggling homeowners but he has not offered specifics.

Treasury views this plan as potentially halting the slide in home prices by enabling borrowers to afford bigger loans, thus increasing demand and pushing up home values. The lower interest rates would be available only to borrowers who are buying a home, not those refinancing a mortgage.

Borrowers would have to qualify for a mortgage guaranteed by Fannie, Freddie or the Federal Housing Administration. Those guarantees apply to loans where borrowers can document their income and afford their monthly payments, steering the government away from backing loans considered risky.

The Treasury and the Federal Reserve are already working to bring mortgage rates down through a program announced last week in which the Fed will buy up to $600 billion of debt issued or backed by Fannie and Freddie, along with Ginnie Mae and the Federal Home Loan Banks. That move helped push down rates on 30-year mortgages, and applications to refinance have jumped, the Mortgage Bankers Association said Wednesday.

Benefit To Stocks
In this climate, stocks of banks and home builders drew more investor attention Wednesday, helping the Dow Jones Industrial Average rise 172.60 points, or 2.05%, to 8591.69, despite continued bleak economic news in the Fed's "beige book" survey of regional conditions.

The plan the Treasury is considering would encourage banks to issue new mortgages at lower rates by offering to purchase securities underpinning the loans at a price equivalent to the 4.5% rate.

The Treasury would fund the purchases by issuing Treasury debt at 3%, suggesting the government could make a profit on the difference.

The average rate on 30-year fixed-rate mortgages conforming to Fannie's and Freddie's standards was about 5.75% Wednesday, according to HSH Associates, a financial publisher. That's up from about 5.5% Monday but down from more than 6% before last week's announcement.

The plan is very similar to an idea floated in October by R. Glenn Hubbard and Christopher Mayer, academics at Columbia University's Business School. "I think a program to substantially bring down rates for homebuyers would be an incredibly valuable program, and I think it captures a real part of solving what has been an incredibly challenging dislocation in the credit markets," Mr. Mayer said in an interview. He estimated the idea under consideration could quickly help 1.5 million to 2.5 million people buy homes, giving a major boost to the housing market and broader economy.

The plan also could be good news for banks hit hard by the housing slowdown. In addition to having the government play the role of guaranteed buyer, financial institutions could pocket fees for making loans to buyers able to afford homes at the lower rates. That, in turn, could boost the economy and improve the weak outlook for other consumer loans, such as credit cards, that also are weighing heavily on the banking industry's profitability.

Normally, the rates lenders charge consumers, including home buyers, are determined by the secondary market, in which investors buy mortgages or mortgage-backed securities. But Treasury Secretary Henry Paulson views lowering mortgage rates as key to fixing the housing crisis; hence the mortgage-security-buying program announced last week.

"The most important thing we can do to mitigate foreclosures and progress through the housing correction," Mr. Paulson said in a speech Monday, "is to reduce the cost of mortgage finance, so more families can afford to buy a home and so homeowners can refinance into more affordable mortgages."

Fannie, Freddie, their regulator and the Department of Housing and Urban Development - which oversees the FHA - all declined to comment. "The Secretary has said repeatedly that we are looking at a number of options to help homeowners," said Treasury Spokeswoman Jennifer Zuccarelli.

The Refinancing Picture
On the refinancing front, the Mortgage Bankers Association said its index of refinance applications had tripled from the previous week, the largest increase since it began tracking such data in 1990. Applications to buy homes, which tend to be less sensitive to interest-rate movements, also increased, by a smaller amount.

Application volume remains lower than it was as recently as March. Last week's numbers are adjusted for a shortened holiday week, which can make comparisons more difficult.

The Treasury plan is similar to ideas previously floated by the National Association of Realtors and the lobby group for home builders, but has skeptics. "I don't think it's the answer to the foreclosure problem because that problem is a combination of negative equity with unemployment," said Mark Zandi, chief economist of Moody's Economy.com.

Mr. Paulson has been wrestling for months with ways to stem foreclosures. The Bush administration has supported mostly voluntary efforts to get the mortgage industry to help borrowers in danger of losing their homes and has resisted calls to use taxpayer money to bail out homeowners. Those voluntary efforts have had only a limited impact as home prices continue to fall and foreclosures to rise.

The administration has been split about its approach, with Federal Deposit Insurance Corp. Chairman Sheila Bair floating a proposal to use $24 billion from the government's $700 billion financial rescue fund to provide a federal guarantee on roughly two million modified mortgages.

Her plan was a hit with Democrats and some Republicans on Capitol Hill but fell flat with the White House, where some speculated the FDIC plan could cost $70 billion to $80 billion. Mr. Paulson has expressed reservations about the plan on the ground that it would spend taxpayer money, instead of investing it, and that it could encourage banks to foreclose and borrowers to halt payments. Treasury staff have been working on a plan to improve Ms. Bair's model, but Mr. Paulson has so far resisted implementing it over concerns that it costs too much and might not be all that effective.

Resolving the crisis is likely to fall to Mr. Obama. He reiterated his position on Wednesday, saying, "We've got to start helping homeowners in a serious way, prevent foreclosures." Some Treasury officials are frustrated that the Obama team has not provided more specifics about what it would like the Treasury to do to help homeowners.

—Robin Sidel, Ruth Simon and James R. Hagerty contributed to this article.
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