Lower Home Prices Entice Potential Buyers

"Given a positive economic backdrop and job creation, we expect sales activity to pick up early next year," says David Lereah, NAR's chief economist.
REALTOR® Magazine Online
Lower home prices are turning potential buyers into active lookers, and sellers are showing more willingness to negotiate, the NATIONAL ASSOCIATION OF REALTORS® reports. The trend is expected to inject life into slowing markets.

“Given a positive economic backdrop of lower interest rates and job creation, we expect sales activity to pick up early next year,” says David Lereah, NAR’s chief economist.

Existing-home sales are forecast to be fairly stable in the fourth quarter and sales for all of 2006 are expected to drop 8.9 percent to 6.45 million — the third strongest year after consecutive records in 2004 and 2005. New-home sales are expected to fall 17.3 percent this year to 1.06 million, the fourth highest year on record. Housing starts should be down 10.9 percent to 1.84 million in 2006.

2006 Prices to Increase Slightly

With a recent correction in the market, the national median existing-home price is likely to rise 1.6 percent to $223,000 for all of 2006; it’s anticipated prices will remain slightly below year-ago levels before gaining positive traction in the first quarter of 2007. The median new-home price is projected to decline 0.2 percent to $240,500 — largely the result of builder price cuts to move unsold inventory.

This presents a unique opportunity for buyers. “The supply of homes on the market is the highest we’ve seen in over 13 years, and mortgage interest rates are experiencing an unexpected decline,” says NAR President Thomas M. Stevens from Vienna, Va. “The 30-year fixed rate is hovering around 6.3 percent, and sellers in most of the country are now showing a willingness to negotiate.”

He says that the changing market makes it increasingly important for parties on both sides of the real estate transaction process to have professional representation.

Interest Rates to Rise Next Year

The 30-year fixed-rate mortgage will probably average 6.5 percent in the fourth quarter but will trend up modestly in 2007.

The unemployment rate should average 4.8 percent in the fourth quarter. Inflation, as measured by the Consumer Price Index, is expected to be 3.4 percent for all of 2006, while growth in the U.S. gross domestic product is forecast at 3.3 percent. Inflation-adjusted disposable personal income is likely to grow 3.4 percent for 2006.
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How to Tell Where Your Market's Headed

Is this a good time to sell my house? Is this a good time to buy? Columnist M. Anthony Carr gives some answers.
By: M. Anthony Carr: Realty Times
I've had several friends come up to me in the last few weeks and ask: "Is this a good time to sell my house?" or "Is this a good time to buy a house?" Let me preface my 700-word answer with this: If nobody panics, we'll all get out of this alive.

Many readers have accused me of being too optimistic on the real estate market. What they see as optimistic is actually an attitude steeped in the belief that you can make money in real estate in any market, you just have to know how to operate when the market's moving up, leveling off, or cooling down.

When prices are up - sell. When prices are leveling or dropping - buy (or sell). When rents are moving up, don't play Mr. Charity, raise your rents. When you enter this field of real estate as a wealth-building business investment, that's exactly how you have to treat it - like a business.

When the market shifts, that's okay if you're looking at the market as a way of making money and building wealth. So last week when I read some reports from federal agencies that appreciation had slowed, I didn't panic with many of the market prognosticators, I just shifted my business plan. Real estate investors and property owners can make money in any market, you just have to be wise on the market and be flexible on how much profit you want to make.

Consumers are definitely confused on whether they should buy a piece of property when many numbers are pointing at a housing market that is slipping in prices. Today's tip is to approach it from a non-emotional business perspective. Watch these segments of the economy in your local area to determine if you should buy in your market:

A - The local economy

What's happening? Are jobs growing? Are businesses opening? Are current businesses investing in themselves? What are the economists saying in your area? Research this data by a simple Google or Yahoo search of " economic report." Through that search, the astute investor will find out where economists are predicting growth in suburban business centers and where the jobs are coming and going.

Forget what you're hearing nationally and look for the growth on the local level - where you want to buy a house. Just like politics, real estate is local, which moves us to B.

B - The local real estate market

What's happening? Are prices booming, leveling or slipping? This has to be researched on various levels. Start on the state level, drill it down to your county and then get a granular look at the zip code and community level.

These numbers can easily be found through your local Realtor association. For a list from across the country, start at Realtor.com and click the links to local real estate associations at the bottom of the page. Most local associations (definitely state groups) keep a public area on their web pages with local statistics on the number of homes sold, sales prices and year-to-year appreciation.

Look up government information as well on job growth, economic plans and forecasts. If the state and county governments are playing their role appropriately, they're creating jobs AND allowing development of housing to house the workers who come along for those jobs.

If they haven't come up with the latter, then you might have a good investment opportunity on your hands. More jobs and fewer houses spell lower supply and high demand, meaning equity growth and high rents.

And don't forget the rental market. Is it growing? Are there a lot of vacancies? How much are the rents going up? Down? If rents are up, then you may be able to cover your monthly expenses. If they're dropping, it could be because the location is down economically or because housing is so affordable (but appreciating) that renters are getting out of the rent track and buying a house instead.

C - The financial market

This market is actually the only real estate component that is usually measured on a national basis. It's all about the cost of money and most interest rates are within a basis point or two from each other nationwide. Currently, they are still historically low (under 7 percent) which can be had for 1 or less points.

If you find that A is chugging along, B is still affordable and C is also affordable - then buy, buy, buy. A strong economy with a growing real estate market and strong rates, means you can buy a house for relatively little money down as an investor, put a renter in the house and obtain it with cheap money that the rent will pay for.

If you find you're in a positive A situation, but B is unaffordable and C is still affordable, then you may need to wait or jump in the flow before B gets even more unaffordable.

If A is great, B is leveling and C is still affordable, and A looks like it's going to keep growing - then buy while you can, because B is going to move up right after the break.

Finally, get a team together to help you analyze the data you've just researched. Are the prices trending upward? (And is that really a good thing right now?) Or are the prices dipping, meaning I should get in while I can because the jobs are coming? Work with your agent, lender and accountant to figure how the market can help you with your wealth-building goals.
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The Weekend Guide! October 12 - October 15, 2006

The Weekend Guide for October 12 - October 15, 2006.
Full Article:
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Real Estate Market Downturn Nearing End

When will the housing downturn hit bottom and start heading up again? Sooner than you might think, says consultant John Burns. How about next year? Lew Sichelman has the details.
By: Lew Sichelman: Realty Times
When will the housing market reverse gears and start moving upward again? That question is on everyone's mind, from nervous sellers to wary buyers, from anxious realty professionals to eager builders and developers.

No one knows for sure, of course. But Irvine, Calif., real estate consultant John Burns suggests the turnaround may come sooner rather than later, at least in some high-profile markets. In fact, the economist says some places could see a reversal of fortune by next year.

Burns sees a stable housing market as three-legged stool, he told his clients in a recent newsletter. One leg is demand, represented by the number of would-be buyers. Another is supply, or the number of active sellers. And the third is investment, which he defines as a mixture of affordability, consumer confidence and speculative activity.

Currently, he pointed out, the demand leg is the only one of the three that is on solid footing. Indeed, the underlying demographics "support healthy demand for many years to come," he wrote, explaining there is a real need for some two million new units alone each and every year for the next ten.

"Demand is our primary hope for avoiding a crash landing," Burns says.

While some naysayers argue that housing prices are free-falling towards a crash landing, Burns isn't in that camp. Prices may be falling, he points out, but at least most consumers aren't worried about losing their jobs. Indeed, the number of new jobs continues to rise every month, albeit at a slower pace, and the unemployment rate remains exceptionally low.

The supply leg, meanwhile, will probably take a while to correct itself, but certainly within the next 12 to 48 months, depending on the market, according to Burns.

Currently, the number of unsold homes under construction is at an all-time high, as is the number of unsold existing homes. And Burns says the situation will need time to correct itself over time - less time in submarkets close to job centers and more in outlying areas where most people commute long distances.

The increase in unsold listings was this cycle's early warning indicator, the economist points out. And a decline will be the sign that the market is rebalancing itself. "The supply problem will be resolved when the market returns to 2.5 months of supply in the resale market, and only a few standing units of inventory in a typical new home subdivision," he says.

As Burns sees it, the correction "could take years" in outlying areas. In built-out markets such as San Diego, over-supply is "likely to correct earlier" than in sprawling markets like Phoenix. But economic growth will "play a huge role as well," and help many markets recover sooner.

Burns also notes that home builders have already corrected for their share of the over-supply. During the boom years, builders overbuilt the market on a national basis by about 15 percent, he wrote. Last year's construction pace was at about 2.3 million units, but the rate has already slowed to 1.8 million, which is less than the 1.9 million to 2.1 million units a year that are needed to satisfy the demographics of the housing market.

The housing economist told his clients to worry more about the location and price of the oversupply than the overall number itself. The Nation's Capital is one example where location and price matter more. In the Washington metro area, a healthy ratio of 2.2 jobs were created for every new housing start. Unfortunately, most of the development is occurring outside the market's main employment centers.

And D.C. is not alone. In Phoenix, the largest number of resale houses on the market are on the outskirts of town, which is exactly where home builders are most active. And construction in Tampa, Orlando and Sacramento, to name just a few places, is most active far away from where the jobs are.

According to Burns, the investment leg of the stool is the wild card. Demand is strong, just not at current prices, he says. "Affordability is an issue in the major markets, but not everywhere."

On the other hand, consumer confidence is strong. In fact, it hasn't been an issue, at least not like it has been in previous down cycles, largely because most folks are secure in their jobs, the housing consultant says.

But speculators remain a bugaboo. At the height of the market, Burns says, "an unprecedented level of investors created 40 percent more sales activity" than should normally have been created. Now, we have to wait and see how they will react. Will they hold until the market turns more favorable, or will they panic and sell at any price just to be over and done with it?

As in politics, all housing markets are local. But if you are watching the national numbers, Burns concludes that 5.6 million total sales - both new and used - is indicative of a normal level of demand.

In June 2005, the annual rate reached 8.5 million. But it has already slowed to 7.3 million. Unfortunately, he believes the market will need to over-correct to below the 5.6 million benchmark because of affordability problems and the huge number of investors before it can right itself and begin heading north again.
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Winter Heating Costs May Ease On Drop in Natural-Gas Prices

This winter, consumers could see heating bills decrease by as much as 10% over last year, a consumer group says. However, homeowners shouldn't expect huge savings, experts say.
By: Stephanie I. Cohen: The Wall Street Journal Online
The recent drop seen in natural gas prices is likely to help soften consumer heating bills this winter, the American Gas Association said at a briefing.

The group said consumers may see a drop of as much as 10% compared with last year's bills, but officials also warned that consumers heating with natural gas shouldn't expect a sharp decrease in their utility bills.

Consumers have faced a steady increase in winter heating costs in the past five years. The Energy Department is slated to release its annual outlook for residential winter heating bills today.

The impact of natural-gas prices is felt by a large portion of U.S. residents - roughly 68 million American homes, or 52% of U.S. households, heat with natural gas.

Although wholesale natural-gas prices began to drop in September, the price of natural gas throughout the year, not just during the winter months, determines consumer bills, American Gas Association officials said. Utilities typically begin purchasing and stockpiling a significant portion of the natural gas they use to meet customer demand six to 18 months prior to the heating season, according to the group.

"Bills will be lower if the weather is the same as last year but weather is never the same," said Paul Wilkinson, vice president for policy analysis at the American Gas Association. "We've been on a price roller coaster for six years now," he said.

But officials for the group feel confident consumers won't see the sharp price increases of recent years thanks to natural-gas spot market prices in the first nine months of 2006 and the fact that natural gas in storage is at a record high.

During the first three months of this year spot prices were significantly higher than for the year-earlier period. But from April to June prices were about the same as the prior year and for the most recent three months prices have been significantly lower than the year-ago period, the group said.

While customers are also likely to benefit from the lack of hurricanes in the oil-producing regions of the U.S. this year, a cold snap during the winter that leads to higher demand is still the primary driver in determining winter heating bills during the heating season.

"This year, the industry has repaired much of the damage to its infrastructure and wholesale prices are lower, but the weather is a wild card," the American Gas Association said.

Natural-gas utilities don't make a penny more in profit if the price of natural gas rises but they can typically pass the increase in fuel prices along to consumers.
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Prices Coming Back to Earth, Economists Say

Nariman Behravesh, chief economist for Global Insight, an economic and financial information company, says home prices are “coming back to earth, coming down of their own weight.”
By: Camilla McLaughlin: REALTOR® Magazine Online
In a recent teleconference hosted by the National Association of Home Builders, he predicted that home prices could drop 5 percent nationally over the next year to a more regular level and that the housing slowdown's “spill over to the economy would be modest.”

That's similar to the recent outlook from David Lereah, chief economist for the NATIONAL ASSOCIATION OF REALTORS®.

“Unlike previous housing slowdowns, which have come on the heels of broader economic weakness accompanied by job losses and rising interest rates, today’s slowdown comes amid an economy that continues to chug along at a respectable pace," he said in his October 2006 column in REALTOR® Magazine. "Continuing solid spending by consumers and businesses, steady government spending, a recovering stock market, and strong corporate profits are behind the steady growth.”

Orderly Retreat in Home Sales

“The key issue is whether the correction is orderly or disorderly. What I see is orderly,” says Mike Moran, chief economist for Daiwa Securities America Inc. “The press tries to portray this as a catastrophe and I don’t think that is the case. Certainly prices are high and need to be corrected, but it isn’t a desperate situation.”

Using a historic perspective, Moran says that prices actually are in line with the rate of appreciation in that we saw in 2003, which at the time was a record year for housing. The effect of flattening prices or declines in some markets has been “to squeeze out the exuberance that was in place in 2004 and 2005,” he notes.

The rapid adjustment in prices and modifications that builders are making in production could be signs that the correction might proceed faster than expected and “things could bottom out faster than you see in the numbers,” suggests Jim Glassman, managing director for JP Morgan Chase.

Still, all three back NAHB Chief Economist David Seiders’ assessment that the correction would continue through 2007, hitting bottom in mid-year. Hardest hit will be metros in the Northeast, Florida, and California, where home prices are overvalued by an average of 30 percent to 35 percent, Behravesh says, referring to a survey of housing prices in 300 metro areas that his company and National City Bank conduct quarterly.

Safety Nets

For the economy overall, Behravesh anticipates the gross domestic product growing 3.4 percent for this year and 2.2 percent next year.

Still, strong global economies, record corporate profits, a healthy stock market, falling interest rates, and strong exports were described as “safety nets” during the period of adjustment.
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How To Get The Best Price In A Slowing Market

Can sellers be successful in a buyer's market? You bet - if they avoid five major traps. Columnist Peter G. Miller explains.
By: Peter G. Miller: Realty Times
Reports across the country suggest that real estate in most areas of the country is no longer appreciating at the rates seen in the past few years. In fact, the National Association of Realtors reports that nationwide August existing home prices were actually down 1.7 percent from a year earlier.

None of this is terrible or awful unless you bought last year and must now sell. Those who have owned for a few years are well ahead in most communities.

Consider that in 2000, according to the National Association of Realtors, the typical existing home sold for $111,800 versus $225,000 in August.

So, what's the best approach to selling in today's market? Consider these five core points.

    1. Buyers are scarce relative to home supply.

While sellers have called the shots for the past few years, that's no longer the case in most markets. No problem - adjust. Make your home the most attractive, best priced property in the neighborhood.

While pre-market prep could have been ignored in the recent past, today you have to paint, clean-up and repair before offering a home for sale. An MLS photo that shows a home with a lousy roof is evidence of a property that likely will not sell quickly or at full price.

    2. Remember that cash is still an issue.

While home prices may have slipped a touch, real estate continues to be hugely expensive for most buyers, especially first-timers who lack equity from a prior sale. Rather than reducing prices, offer to pay for buyer closing costs, thus lowering out-of-pocket purchaser cash requirements.

    3. Choose the right broker.

When comparing local brokers, look for such markers as recent success in your neighborhood, a high level of local activity and professional education.

In a slow market picking the right listing broker becomes especially important. Why? Because a broker with a strong local history is known and respected: If he or she offers a property at a given price that value is likely to be accepted as at least within the realm of reason.

As an example, last year we sold a property that was unlike virtually all nearby properties in terms of size (smaller house), lot (much bigger) and age (older than most). In other words, not an easy house to sell because there were no practical comparables. The broker - who had sold properties worth some $200 million in neighborhood real estate over the years - suggested a sale price which turned out to be exactly on target.

Alternatively, let's say we used a less experienced broker, someone who was not an authority figure. The property might have sold for less because another broker might have been less credible. In effect, one of the values of using an experienced listing broker is to readily establish believable prices and terms, an important matter in a buyer's market.

    4. Numbers Count.

Real estate sales are a by-product of exposure. If the odds of selling a home are 100 to one, if it takes 100 inquiries and visits to sell a property, then the quicker you get those inquires the better. No less important, if you can get more than 100 inquiries the odds of getting a top price and terms improve.

This means that when considering a listing broker you need to review the marketing plan with care. What, exactly is the broker going to do in terms of advertising, open houses, MLS placements, online marketing, broker relations, etc?

Remember that the marketing plan which works for one property may not work for another. Plans need to be specific to local markets, to particular homes and for current market conditions. The thinking that seemed so good last year may be inappropriate this year.

    5. It's a business deal.

With some frequency I see homes priced for reasons that won't work:

    • The property must sell for this price because I need $400,000 for the next
      home. The truth: Prices are established by the marketplace, not seller needs.



    • Similar homes in a different neighborhood command a particular price,
      therefore my house should sell at the same price. The truth: What happens
      elsewhere is irrelevant. What happens in the immediate neighborhood is what
      counts.



    • The Flombacks got $800,00 for their home so I should be getting at least that
      much. The truth: This is not about the Flombacks and should not be about
      seller ego. The real issue is about bricks and mortar. The Flombacks may have
      an objectively better house.



    • The buyer's offer requires that we leave the washer and dryer - it's an
      insult. The truth: Homes reflect our psychological identity, who we are, our
      social status, etc. But the marketplace reflects supply and demand. Leaving a
      washer and dryer may be a lot cheaper than not getting a sale for months on
      end.



    • This home would have sold for $500,000 last August and we will not accept a
      lower price. The truth: It's not last August. It's now and the marketplace
      reflects current supply and demand.

Sellers can be successful in any market so go forth and market - but do it right.
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Realogy Makes Bold Move to Counter Negative Media Spin

Says CEO Perriello: ‘Now is not the time to be quiet. Now is the time to be noisy.’
By: Maria Patterson: RISMedia
On October 5, Realogy took a strong stance against the barrage of negative press directed toward the real estate industry over the past several months. The Parsippany, New Jersey-based parent of such real estate brands as Century 21, Coldwell Banker, ERA and Sotheby’s, placed a full-page advertisement in USA Today to let consumers know that dropping mortgage rates and an increasing number of available properties make today the “perfect time” to purchase a home.

The Realogy ad ran in this past Friday’s main news section of USA Today, the section that receives the national newspaper’s highest readership.

The ad—whose headline read, “Opportunity is Knocking at Your Next Front Door”—was designed to let consumers know that rates for 30-year fixed mortgages have dropped in nine out of the last 10 weeks, potentially allowing home buyers to save more than $1,500 per year. Included in the ad were statistics from Realogy’s own home sales, including the fact that the company’s brands were involved in over 100,000 home sales in September—on average, one home sale every 30 seconds. The ad closed by encouraging consumers to contact a local real estate professional to learn more about “today’s home buying opportunities.”

Alex Perriello, president & CEO of the Realogy Franchise Group, directed an advance copy of the ad to the company’s franchise offices. In an accompanying letter, Perriello told Realogy brokers that, “Although the media has focused on the downside of the changing real estate market, there are also compelling messages about real estate that we need to reinforce to consumers,” such as the recent drop in mortgage rates.

In an exclusive interview with RISMedia Friday, Perriello explained that, “The unfortunate reality here is that good news seems to get buried in the newspapers and it's the negative headlines that get all the attention. What we're trying to do [with the ad] is motivate buyers with the facts. Mortgage interest rates have come down, there's an ample supply of inventory and homes are selling.”

“We wholeheartedly agree with the message of the Realogy ad,” says RISMedia CEO & Publisher John Featherston. “Today’s real estate market is full of opportunity for both consumers and real estate professionals, and it is our collective responsibility to disseminate the facts about the market in the face of negative media hype. We commend Realogy for taking a step that our entire industry will benefit from.”

According to Perriello, negative press surrounding the real estate industry is not a new occurrence. He recalls a “spirited debate” with Fortune magazine in 2002 whose October cover that year depicted a house on the edge of a cliff, accompanied by the headline “Are Real Estate Prices About to Fall?”

“When I look back four years later, if someone didn't buy a house in 2002, they missed out on four years of home price appreciation and what a sad commentary that is,” said Perriello. “The unfortunate reality is that bad news sells and that's what we're seeing right now.”

To combat negative press, Perriello believes that all real estate professionals need to take a very proactive position in the marketplace. “The industry needs to bridge the gap in every way possible,” he said. “Give consumers facts and figures in order to send them the message that houses are selling.”

Perriello also explained that it’s critical to infuse some historical perspective into the current marketplace. “When you look back and analyze the periods of time in the late ’70s and early ’80s, and then from 1990 to 1993 when there was a drop in housing, and you look at what precipitated all of that, the major contributing factors were high unemployment and interest rates that were 15% in the ’80s and over 10% in the early ’90s.”

Today, conversely, there is lots of good news, he says—including a dramatically growing population rate and still-low interest rates. As Perriello explained, “We just need to let buyers know.”

Perriello also emphasized the need for stepped-up communication with consumers. “You need to keep the seller informed right now,” he said. “There’s a disconnect between what a seller might think their house is worth and what the market is willing to pay. You have to give that seller continuous information. If you don’t have good news, sometimes you’re tempted not to call, but you need to keep people informed. This is the time you need to be out in front of consumers.”

“Now is not the time to be quiet,” Perriello added. “Now is the time to be noisy.”

In order to get positive information to consumers, Perriello expressed the need for brokers to become more involved as well. “Brokers need to share local market statistics with agents and make sure that the marketing and presentations agents are using are relevant in today’s market. This is the time when consumers need us the most.”

Perriello hopes that other real estate firms follow suit in Realogy’s efforts to counteract negative media coverage: “This is a multi-layered approach for us; we’re considering everything in the future from more ads to media interviews. We’re going to keep it going. And this is the one campaign that I hope all our competitors will pile on.”
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Stablizing Home Prices Fuel Hope Of Soft Landing

House prices still haven’t fallen, and that could be additional evidence to bolster the theory of a soft landing in the real estate market.
By: DANIEL MILLER: Los Angeles Business Journal Online
The expected drop in Los Angeles County home prices didn’t happen again in September, leading some observers to wonder if the housing market may experience a soft landing.

According to data released to the Business Journal, the number of existing homes sold in Los Angeles County in September dropped 30 percent – about the same as the previous month. But the median price of homes sold was $550,000 – exactly the same as the previous two months. What’s more, the price is up 4.2 percent from the same month last year.

When the number of home sales started dropping almost a year ago, many observers expected prices to head south eventually. However, the median price has been stuck at or near the $550,000 level for six straight months.

The result: the talk of price swoons and the housing “bubble” bursting has gotten quieter – at least for now.

“The indicators we are seeing are consistent with a soft landing,” said Delores Conway, director of the Casden Real Estate Economics Forecast at the USC Lusk Center for Real Estate. “The market is stabilizing to some degree. But we still need more time.”

Indeed, no one has a crystal ball, and prices may well drop, especially if predictions that lenders seeking to cash in on the real estate boom issued no doc loans – requiring minimal verification of income and assets – to overextended buyers are true.

That could lead to a rush of foreclosures as the interest rates on the loans adjust upward after their initial introductory period, when their rock bottom interest rates expire. A recession would certainly push prices well down.

However, several observers pointed out that the regionally strong economy and historically low unemployment don’t appear to set up the Los Angeles area for a steep price plunge.

In fact, so far this year the median home price in the county has risen from $519,000 in January, according to data provided to the Business Journal by HomeData Corp., a Melville, N.Y. company that tracks housing prices nationwide. Still, the soft sales and flattened prices feel like a downturn, compared to the torrid sales of recent years.

“When you come off of an extreme sellers market it looks like doom and gloom,” said Steve White, president of the Southland Regional Association of Realtors. “And the fact that the year-to-year median price has increased moderately would show you we are in a relatively strong market.”

Homes Sitting
To be sure, even though median prices have not gone down yet, sales are definitely slower.

Cory Weiss, a broker in Prudential Real Estate’s Beverly Hills office, said homes that are realistically priced are selling, albeit at a slower pace.

“Buyers are being cautious. They are taking their time. Deals are taking longer as far as negotiation,” said Weiss, who has clients in Beverly Hills, Brentwood and the Palisades area.

Weiss’ experience is in line with data released by the California Association of Realtors.
The California Association of Realtors estimates that as of August, homes in Los Angeles County were staying on the market a median 51.9 days, compared to 29.2 days a year ago. That translates into a build up of county inventory levels to 6.8 months in August, compared to 2.6 months a year earlier. That means at the current pace of sales, it would take 6.8 months to sell everything that’s on the market now.

“Where homes were moving in a week with multiple offers, it seems to be between 30 and 60 days or perhaps longer now,” said Fran Butler, president-elect of the California Escrow Association.

According to Leslie Appleton-Young, chief economist with CAR, a six-month supply of homes creates a balanced market for buyers and sellers.

Appleton-Young said that since 1988, the average unsold inventory level for homes in the county is 6.9 months.

White said that the current county home market is balanced, though it is hard to recognize that after the price gains the region experienced from 2003 to 2005.

“Last year was just complete insanity in many ways, so it was difficult to use 2005 as a benchmark or 2004 or 2003 for that matter,” White said. “Those years were so far away from normal.”

Bob Edelstein, professor of business administration at the University of California Berkeley Haas School of Business, said that while it is not clear whether the market has “found its level” he does not anticipate a regional recession, which would severely impact the housing market.

“The business sector is fairly healthy,” Conway said. “If that changes we could see more of a bumpy landing.”

Buyers Taking Time
Weiss said that in the high-end market, properties do still sometimes receive multiple offers from prospective buyers, though buyers are no longer consistently making offers at or above asking prices.

He said that homes that have sat on the market are “seeing reductions in price as buyers are being more particular.”

In the Santa Monica 90405 ZIP code, September sales dropped 32 percent to 13 homes sold, with the median price down 12 percent to $1.1 million. In the Brentwood 90049 ZIP code, September sales dropped 55 percent to 10 homes sold, with the median price down 14 percent to $1.4 million.

“I still have a ton of active buyers in the upper-end market but they are holding out and want to feel like they are getting a good value,” Weiss said.

Edelstein said that countywide slowdown is part of a typical correction before the market turns around.
“People don’t give up on their house-price dream, but the idea that there are fewer sales means that less people are getting their dreams,” said Edelstein, co-chair of the Fisher Center for Real Estate and Urban Economics at UC Berkeley.

As the market continues to correct, there are fewer high-end homes selling. In September, 610 $1 million-plus homes were sold, down from 899 $1 million-plus homes sold in August.

Also, there were just 31 $1 million-plus ZIP codes in September, down from 38 such ZIP codes in August.

“I feel that a lot of people wanted things to pick up after Labor Day but when we see things close, sale prices aren’t as close to the asking or over the asking prices as they used to be,” Weiss said.

The county condo market also experienced a 30 percent decline in sales volume to 1,463 condos sold. The median condo price in the county rose 0.5 percent from a year ago to $410,000.

Conway said that seasonal factors will likely lead to a further decrease in the number of transactions during the late fall and winter months. This sort of seasonal reduction in volume is an annual occurrence for the housing market.

Conway said that in the summer months, families relocate and prepare for the school year, generally making that period a strong time for the market.

“Typically we have a decline from August to December,” Appleton-Young said. “I would expect that pattern to hold.”

Despite this expected decline, many real estate professionals said the market appears to be functioning normally. “There is nothing in the Southern California economy that will portend doom,” White said.
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Caught off balance

Home prices dropping here, rising there and sluggish appreciation. Squeamish owners fear a sudden tumble. Experts predict a long slowdown.
By: Diane Wedner: Los Angeles Times
WHETHER at the dinner table, Starbucks or just standing around the office water cooler, Question No. 1 for most property owners these days is this: Is my home's value tanking yet, and if not, when?

The short answer is that home-price appreciation has slowed to single-digit levels in most Los Angeles County neighborhoods, homes are worth less than they were last summer in a few communities and values are falling faster than most experts anticipated.

The decline is not as rapid as that of the 1990s, said Raphael Bostic, associate professor at USC's School of Policy, Planning and Development, who described what's happening as "a long, grinding slowdown, not a drop off a cliff." In the scenario of a decade and a half ago, prices sank 17% in six years.

Homes in a dozen ZIP Codes in L.A. County already are worth less now than they were a year ago, but there is no distinguishable pattern to the locations, said John Karevoll, chief analyst at La Jolla-based research firm DataQuick Information Systems, other than in some cases, prices skyrocketed too quickly.

"They overshot their mark," Karevoll said.

Those areas won't be alone for long, he predicts. Karevoll expects other communities to show a decline a month from now, and others after that. "Prices don't settle in perfect unison," he said.

The 12 areas where the median price per square foot showed the steepest decline this summer, compared with June, July and August a year ago, were led by Eagle Rock, which slipped 6.7% from $488.22 per square foot to $455.63, according to DataQuick figures for ZIP Codes with 50 or more home sales during the three-month period. Next was the 90808 Plaza section of Long Beach, which saw a 3.9% drop to $439, and Valencia's 91355 ZIP Code, which fell 3% to $336.

Prices per square foot in San Gabriel's 91775, La Crescenta and Cerritos dropped 2.5%, 2.1% and 1.8%, respectively. Declines in Pacific Palisades, Agoura Hills, Palos Verdes Peninsula's 90274, Westchester, Rowland Heights and Long Beach's 90815 Los Altos community ranged from 0.5% to 1.6%.

Not all doom and gloom

Industry watchers expect the rest of the region to follow suit, but timelines and the extent of the fall are uncertain, they say. San Diego — considered a bellwether for the rest of the region because it was one of the first U.S. real estate markets to see prices rise and subsequently fall — posted its first price decreases this summer after increasing at a single-digit rate for more than a year before that, according to DataQuick.

Not all is doom and gloom, however. While values were dropping in some areas of Los Angeles County, others continued to gain, year over year. The areas with the greatest price increases per square foot were mostly in the less-expensive neighborhoods of Los Angeles, as well as in Valley Village, considered relatively affordable for upscale homes, compared with nearby Sherman Oaks, Studio City and Toluca Lake. The median price per square foot for a home in Valley Village appreciated 20.9% from last summer to $522 this summer.

The tide is turning there too, however. Sellers have begun lowering prices, realizing that the market has shifted, said Ken Marker, a Coldwell Banker agent in Studio City. He reports that his buyers now have a multitude of houses from which to choose in their price range instead of the few available just months ago.

Jonathan Hopp bought a Valley Village home in 2004 for $610,000, hoping to reap a big return after remodeling it. The interior designer spent $590,000 expanding the home from 1,100 square feet to 2,800, adding two bedrooms and two bathrooms. The house features a high-end kitchen and other upscale amenities.

Hopp listed the home for sale in May at $1.6 million, high for the neighborhood, said Therese Hyde, his Coldwell Banker agent. The first offer was a disappointing $1.2 million. At Hyde's urging, Hopp lowered his asking price twice more and finally settled for $1.42 million in August.

"I set a wishful price, hoping someone would appreciate the quality of the home and pay more than what other houses in the neighborhood were going for," Hopp said. "But no one made those offers, because they were worried about the market and refused to go higher."

Unlike previous downturns, when the highest-priced homes were the first to flood the market, the greatest numbers of homes selling today are in the middle range, where more panic is setting in, according to DataQuick. Wealthier owners are choosing to stay put.

Expectations too dire

The fact that interest rates remain relatively low — they fell to a six-month low this week — and unemployment is stable could shorten the duration of this decline, said Michael Carney, an economist with the Real Estate Research Council at Cal Poly Pomona.

"Potential buyers simply are in a waiting mode," Carney said. Their expectations of a tanking market are worse than actual economic conditions.

In other words, the tail may be wagging the dog. Buyers hear prices are falling, so they expect them to. And they wait.

Keith Rascoe, an investment banker, and his wife, Tammy Johnson, sold their three-bedroom Lakewood home about three months ago, when price appreciation started slowing. They had paid $349,000 two years earlier, and they sold it for $554,000. Their hope was to make a lateral move, in terms of house size and amenities, but to a better neighborhood.

Prices started to drop suddenly, so the couple decided to rent — in the Los Altos area of Long Beach, which saw a dip this summer — until prices moved down even further.

"We figure we're winning right now, even if we sit on our hands," Rascoe said. "We've already made a profit, and now there's much more out there to look at."

Rascoe's right. A year ago, there were 393 homes listed for sale in Long Beach, compared with 1,216 as of mid-August, said Long Beach Re/Max agent Mark Armendariz.

"Sellers are looking at last year's prices, and buyers are looking toward 2007 prices, anticipating a fall," Armendariz said. Checkmate.

So how will it all end up? That's the $64,000 question. Most experts say that now is not the time to buy with the intent to flip the property and make a profit, because prices are expected to level off across the board year over year or decline by year's end.

But then again, most buyers and sellers — about 95% — are doing transactions for the same reasons they always have: a job change, someone has died, others have divorced or are having children. And that, they say, won't change any time soon.
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Improving Your Retirement: How Two New Tax Laws Will Affect Your Bottom Line

If you've seen any accountants jumping for joy recently, it's probably because two major laws have been passed this year that shake up the rules for all kinds of personal finance planning
RISMedia
If you've seen any accountants (or financial planners) jumping for joy recently, it's probably because two major laws have been passed this year that shake up the rules for all kinds of personal finance planning.

-The Tax Increase Prevention and Reconciliation Act of 2005

Passed in May 2006, this new law establishes a higher AMT exemption, extends the 15 percent capital gains and dividend rate (5 percent if you're in the lower tax brackets), allows anyone to convert to a Roth IRA in 2010 and beyond, and raises the age limit for "kiddie tax" to 18.

Now let's figure out what that really means.

-AMT

Alternative minimum tax (AMT) is a thorn in many people's sides. Although initially enacted to make sure the rich paid their fair share of taxes, these days AMT hits a lot of middle-class taxpayers, too.

The new law will raise the exemption amount to $62,550 for married filing jointly (up from $58,000) and $42,500 for single taxpayers (up from $40,250).
But only for 2006.

You read that right. This AMT increased exemption amount is for one year only. These increases are small and will have minimal impact on most planning. No real solutions here.

-Capital Gains and Dividends

The lower capital gains tax and tax on certain qualified dividends were scheduled to expire at the end of 2008. The new law will extend that through 2010. That means that if you're in the 10 percent or 15 percent ordinary income tax bracket, you'll pay 5 percent on capital gains from now until 2008 and 0 percent from 2008-10. For those people in ordinary income tax brackets above 15 percent, the capital gains tax rate will stay at 15 percent until 2011.

That will present some interesting planning opportunities for transferring wealth to individuals in lower tax brackets. Parents may be able to gift appreciated stocks to their children or grandchildren who will then be able to sell the securities and pay a much lower capital gains tax. This also reduces parents' or grandparents' overall estate, which may be beneficial from an estate tax standpoint.

At this point, it looks like these rates will go back to 20 percent for capital gains and as high as 39.1 percent on dividends in 2011. If you're doing future planning, you'll want to make sure you keep these higher rates in mind. If you think that taxes will increase in the future, you may want to sell securities sooner rather than later to take advantage of the fairly benign capital gains rates now. (Of course, there are bound to be more tax law changes between now and 2011.)

-Roth IRA Conversions

A number of my clients have been using Roth IRA conversions as a way to reduce their minimum distribution requirement when they turn age 70 1/2. One of the barriers we run into is that you can't convert unless your adjusted gross income (AGI) is $100,000 or less. The new tax law will eliminate that income threshold so that anyone can do a Roth conversion.

But not until 2010. At that point in time, you'll be able to recognize the conversion income either in 2010 or average it over two years.

This is big.

If ordinary income tax rates do go up in 2011 as scheduled, a lot of people will want to take advantage of converting in 2010. Even if your income is over $100,000 now, you can make nondeductible contributions to a traditional IRA and then convert the entire balance in 2010.

-Kiddie Tax

"Kiddie tax" refers to the tax that is owed on unearned income (like interest and dividends) of a minor child. Currently, if a child is under age 14, the first $850 is tax exempt, the next $850 is taxed at the child's rate, and anything above $1,700 is taxed at the parents' rate. Under the old law, once children were 14 and older, they paid income tax at their own lower rates.

The new tax law pushes up the age to 18. So net unearned income above $1,700 will stay taxable at the parents' rate until the child is 18.

This will affect a lot of you who are saving for your children's college education. (But keep in mind that it affects you only if your child's portfolio is kicking off more than $1,700 in income per year.) Typically you shift stock types of investments to fixed income the closer the child gets to starting college. You do that so your college nest egg is more secure. But fixed-income types of investments will usually generate more income that will now be taxed at a higher rate.

-The Pension Protection Act of 2006

The latest tax law was passed in August and covers 529 plans, charitable contributions, and--you might have guessed it--pensions. Actually more than just pensions; it also covers all kinds of retirement-related issues.

-529 Plans

The tax benefits of 529 plans are no longer scheduled to disappear after 2010. So if the "sunset" issue was preventing you from using a 529 plan to save for your child's or grandchild's college education, cross that off the list.

-Charitable Donations

The pension-reform bill contains a couple of interesting new provisions that affect charitable giving. First, if you don't have written documentation for any cash gift, you can't claim a deduction. So for you church-goers, gone are the days you can throw $20 in the offering plate and claim it on your taxes. You'll need to use your offering envelopes (or whatever your house of worship uses to document offerings), or you can't write it off.
And there's good news for you seniors over age 70 1/2. You can give up to $100,000 in 2006 and 2007 directly from your IRA to a qualified charity. (You can do this with your required minimum distribution.) That money will not be counted as taxable income.
There are a few caveats with this last charitable strategy:

Nobody under the age of 70 1/2 can take advantage of these new IRA giving rules.
While the law permits you to give to charity directly from your IRA, it doesn't require IRA administrators to accommodate your request. You may see some IRA providers balking at making millions of $10 and $20 gifts.

Because the gift isn't counted as income, it won't matter if you itemize deductions on your tax return.

Gifts must be from traditional or Roth IRAs--not 401(k)s, 403(b)s, or other types of defined contribution plans, and not SEP or SIMPLE plans. You can, however, roll part or all of your 401(k) plan (or other company retirement plan) into a traditional IRA and then do your gifting. (See below for new rules on transferring money directly from your 401(k) or company retirement plan directly to Roth IRAs.)

The money must come out of the IRA directly to the charity or you have to declare it as ordinary income. Don't write a check to yourself and then gift the money.

The charity must be a public charity or private foundation. This won't work with donor-advised funds.

Qualifying IRA contributions to charity will affect only pretax contributions. If you've made nondeductible contributions, your cost basis will remain intact.

-IRA Contributions from Tax Refunds

If you find yourself with a tax refund, you'll now be able to direct the IRS to deposit up to $4,000 ($5,000 if you're over age 50) directly into your IRA account.

-Rolling to an IRA

The Pension Protection Act makes two important changes to rollover rules. For the first time ever, in 2007 and beyond, a nonspouse beneficiary will be able to directly roll over a deceased benefactor's retirement plan, like a 401(k), into an inherited IRA. This inherited IRA will need to be opened in the name of the deceased and payable to the beneficiary.
This is good news for any beneficiary who inherited a retirement plan which would allow for distributions only over a five-year period. With the new law, required minimum distributions for the beneficiary can stretch over the beneficiary's lifetime-extending the tax-deferral advantage.

Just keep in mind that the direct rollover starts only in 2007. So if you are a beneficiary, try to defer taking a distribution until next year.

A second major change to the rollover rules is that effective in 2008, you will be able to roll over your company retirement plan (like a 401(k)) directly to a Roth IRA. Right now you have to roll your company retirement plan proceeds into a traditional IRA and then convert. This new law skips that middle step and allows you to go directly to a Roth.
One caveat: You still must have AGI (adjusted gross income) of less than $100,000 to convert to a Roth until the year 2010.

-Company Retirement Plans

There are several new twists and turns that apply to your company retirement plans. Let's start by separating these plans into two groups: defined-contribution and defined-benefit plans.

Defined-contribution plans include 401(k)s, 403(b)s, 457s, and other like plans. You, as the participant, make contributions into these accounts and basically you're on your own to make sure you save enough for your "golden years." Here's what changes under the new tax law:

Plans can "auto-enroll" you in the company retirement plan without your initial consent. Instead of choosing to participate, you'll choose to opt out if you don't want to participate. The company will choose a default investment that you may be automatically invested in unless you say something.

Plans can offer computerized investment advice to participants. This law makes it much easier for plan providers to give participants advice. The law also has provisions to make sure the advisors offering the investment options can't make more money selling one fund over another.

Plans have to offer more financial education to make sure plan participants know the tax ramifications of taking money from their plans.

Military and some public service people may be able to take distributions from their company retirement plans without incurring a penalty. This applies to those active military reservists from Sept. 11, 2001, to Dec. 31, 2007. The law gives them two years after the end of their active duty to repay distributions and avoid taxes and penalties. Certain retired public safety officers can withdraw retirement funds without penalty for health or long-term care premiums up to $3,000 a year.

Lots of retirement contribution amounts are now permanent and won't change after 2010. This includes 401(k)s (and similar plans), IRAs, SIMPLEs, and catch-up contributions for each type of plan.

The Roth 401(k) plan is now permanent. That means more employers may start offering them.

The other type of retirement plan, a defined-benefit plan, also changes under the new tax law. A defined-benefit plan is one in which the employer puts money into a plan to pay you a pension at retirement. Pensions are typically based on years of service and final average salary. Here are some of the relevant portions of the new tax law that affect these plans:

There will be tighter controls to make sure that pension plans fund these accounts so that less plans will declare bankruptcy and force the Pension Benefit Guaranty Corporation (PBGC) to clean up the mess.

Most companies are given the next seven years to comply with the new law, but the airline industry and defense contractors are given special breaks.

The new law requires that companies meet 100 percent of their pension funding requirements each year-up from 90 percent. There's a 10 percent excise tax for funding deficiencies.

For those plans that have met 60 percent or less of their funding requirement, all lump-sum payments and nonqualified plan payouts may be suspended.

Companies will have to pay higher premiums to the PBGC to help offset the cost of bailing out failed plans.

This is the most comprehensive pension reform we've seen in over 30 years. You can bet we'll be writing a lot more about these changes as we have a chance to think through all the financial-planning ramifications.

** Please Consult your Tax Advisor **
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Most Americans Believe Houses Continue to Gain Value

A survey by RBC Capital Markets last month shows that homeowners are expecting their houses to appreciate 5 percent a year in value.
By: Al Heavens: Realty Times
I've spent the last few Sundays visiting open houses, and have come to the conclusion - reinforced by conversations with real estate agents - that most sellers remain unconvinced that this is buyer's market now.

I saw a lot of house listed at last year's prices. While I don't believe that there is a bubble, despite one month's decline in the national median sales price of existing homes reported for August by the National Association of Realtors, I do believe that sellers need to get real about what people are willing to pay for a house that's just one of four on sale in every block or on every street in many areas.

My observation and those of real estate agents has been reinforced by a recent survey by RBC Capital Markets, which found that about half of all homeowners still expect at least 5 percent annual increases in their home values over the next few years.

The survey of 1,003 people, conduct nationwide in September and announced at meeting in Orlando, also found that 25 percent of homeowners have already paid off their mortgage - twice the number of people with risky variable and interest-only mortgages (13 percent).

"While it's true that it may be easier to pay off a mortgage in Selinsgrove, Pa., than it is in New York City, we were still very surprised that the number was so high," said Scot Ciccarelli, managing director and equity research analysts for RBC Capital Markets.

"This goes against the general belief that most Americans are leveraged to the hilt," he said.

More than 80 percent of all homeowners surveyed have at least $50,000 of equity built up in their homes and almost 60 percent believe they have at least $100,000 of equity in their homes.

Those who entered the end of the housing cycle with variable rate and interest-only mortgages are, however, clearly at risk once their mortgages renew. Nearly 40 percent of those with variable rate and interest-only mortgages are concerned with their ability to meet higher payments, while 13 percent haven't even considered the ramifications. While this is a fairly small segment of the overall survey (about 6 percent), it suggests material risk to this segment of the population.

Ciccarelli said that many of those surveyed in this category didn't seem well prepared for the higher monthly payments these mortgages will eventually bring.

"While real estate expectations are lower than they were last year, consumers still seem optimistic despite what we are seeing in the marketplace," said Ciccarelli. "Declining real estate values could eventually impact consumer spending as people don't feel as wealthy as they used to and become less likely to borrow against the equity they have built up in their homes."

Other findings:

"Getting exactly the right product" is far more important to consumers than traditional shopping attributes like brand, convenience and service.

More than half indicated that price remained their single biggest focus when they are shopping, but 35 percent indicated that "getting the right product" was most important to them.

Those with the highest incomes favored "getting the right product" over everything else, including price (47 percent versus 33 percent). In addition, those that favored "getting the right product" were also the most avid users of e-commerce. About 38 percent of this group indicated that they use the Internet more for shopping than they once did, compared with 20 percent of the price-driven consumers.

"People usually know what they want and the Internet is great for targeted purchases", said Ciccarelli. "It also seems to play less of a role in searching for the best price for something than we would have thought. These findings underscore the importance for companies to have a strong multi-channel distribution strategy."

Those making more than $100,000 were three times as likely to save money regularly as those earning less than $50,000. In addition, almost half of those in the lower income bracket indicated that they were living paycheck to paycheck or were forced to dip into savings to make ends meet.

Half indicated that they didn't expect to change their spending habits over the next year. However, for those who do expect to change, the spending for most categories is expected to decrease rather than increase, with two notable exceptions - home improvement and automobiles.

While consumers' worry list is large, geopolitical tensions and terrorism (28 percent) trumped headline topics such as gas prices (20 percent), rising medical bills (20 percent), employment concerns (13 percent) and interest rates (9 percent).
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Best ways to cash in on a buyer's market

When sellers outnumber buyers, be careful about overpaying
By: Robert J. Bruss: Inman News
October of 2006 promises to be one of the best months in many years to be a home buyer. Unlike the past few years where there were more qualified home buyers than sellers (called a "seller's market"), the current "buyer's market" is just the opposite with more homes for sale than there are qualified buyers in the market place.

If you have been considering a home purchase, there are at least five key reasons for buyers to take advantage of the current home "buyer's market" in most cities.

They include (1) a record number of brand-new and resale houses and condos on the market for sale; (2) competition among sellers is keen for the available buyers; (3) new and resale home prices have stopped escalating and are "plateauing" or even dropping slightly in most communities; (4) mortgage interest rates are still very affordable; and (5) motivated sellers are eager to negotiate on price and terms.

Of course, the smartest home buyers, even in a buyer's market, consider only sound, well-located homes in good-quality school districts to enhance the probability of future resale profits.

HOW TO BE A SAVVY HOME BUYER. Although a few home sellers are in panic mode because they see so many homes coming on the market for sale in their vicinity, the truth is the current home-sale market is merely a "normalization," or return, to a traditional buyer's market for homes.

The sellers who are most worried are the homeowners who bought in the last year or two at the peak of the market, and who have to sell now for valid reasons, such as a job transfer, unemployment, pending foreclosure, illness, death or birth in the family, and divorce. These are known as "motivated sellers" who are especially anxious to sell.

However, just because the seller is motivated doesn't mean a home buyer will be able to negotiate a "good deal." The reason is if the seller bought at the peak of the market and is not willing to sell at that price or below, the buyer probably would be overpaying.

To determine if a motivated home seller can offer a fair sales price, savvy home buyers ask their buyer's agents to find out (a) how many years ago the home was purchased, (b) what price the seller paid, and (c) what is the total of the existing mortgages and liens secured by the house.

The answers will reveal if the owner, even a motivated seller, has home equity negotiation room. If not, savvy buyers move on to the next home.

BRAND-NEW HOUSES AND CONDOS CAN BE GREAT BARGAINS. Many builders of houses and condos have unexpectedly found themselves in local buyer's markets, which rapidly changed within the last six months. The result is an oversupply of new houses and condos, which are competing with reasonably priced resale houses and condos.

To cut their inventories, many home builders are offering amazing bargains, both in prices and included features or upgrades. For example, it is not uncommon to find builders advertising no down payments, no payments for six months, landscaping upgrades, upgraded appliances and carpets, easy mortgage qualifying, no closing costs, and other sales incentives.

But smart buyers of new homes should understand that builders are very reluctant to cut their asking prices. The reason is that appraisal and mortgage finance problems arise when builders sell below what they sold the same model for a few months ago; the builder can avoid such problems by instead including more features at no additional cost.

As house subdivisions and condo complexes gradually sell out their inventories, smart buyers realize the builders and developers become more anxious. The reason is their major profit is in the sale of the last few units.

For example, if you see a builder's newspaper ad saying "85 of 100 homes already sold" that really means the builder is highly motivated to sell those last few units, which represent nearly 100 percent of the profit from that project.

HOME BUYER'S MARKETS VARY BY LOCATION AND PRICE. A little-known secret is home buyer's markets can vary by ZIP code areas and price ranges within that area. Being within the boundaries of a top school district can also determine if a house or condo is in a high-demand seller's market or a lower-demand buyer's market.

There are two criteria to determine if an area is in a buyer's or seller's market. Smart buyers and sellers understand the local situation is constantly in flux.

The first criterion is to look at the number of houses and condominiums listed for sale in the local market and their average number of days on the market before sale. The local MLS (multiple listing service) has this number for resale houses and condos listed with the MLS. However, MLS statistics usually do not include brand-new houses and condos because most builders do not list with the MLS.

As a general rule, if the average number of days on the local market is 60 days or less, that is a house and condo "seller's market." The result is home sellers feel confident their realistically priced house or condo should sell within 60 days in a seller's market.

The second criterion to tell if you are in a local buyer's or seller's market for homes is to look at the number of months' supply of residences for sale at the current sales pace. To get this number, simply divide the number of home sales closed during the last 30 days reported to the local MLS by the number of homes listed for sale.

If the result is six months or longer, that means there is a local buyer's market with an oversupply of residences listed for sale. However, if this number is three months or less, then it is a local "seller's market" where sellers can hold firm on their price and terms with reasonable confidence a fairly priced home will sell within 90 days, usually less.

A third but less scientific method is to look at the volume of local newspaper display ads by home builders and real estate brokers. In a buyer's market, these firms will greatly increase their newspaper ad volume and sizes. But in a seller's market, they don't have to advertise very much.

HOW TO AVOID OVERPAYING IN A BUYER'S MARKET. After determining if houses or condos within the location and price range where you want to buy are in a local "buyer's market," after finding a suitable residence to purchase, it's time to make a written purchase offer. However, there are several key steps to avoid overpaying:

(1) Just as smart home sellers insist their listing agents prepare CMAs (competitive market analysis) showing (a) recent sales prices of comparable nearby homes, (b) asking prices of competitive neighborhood residences now listed for sale, and (c) asking prices of recently expired similar listings (usually overpriced), smart home buyers also insist on a CMA before making a purchase offer.

(2) Home buyers, with the help of their buyer's agents, then discuss the pros and cons of the homes shown on the CMA to arrive at a fair purchase-offer price for the home under consideration. This key step is necessary to avoid overpaying.

As smart home buyers know, you can always raise your purchase offer but you can never lower it after the seller accepts. Buyers can be sure their buyer's agent will show the CMA as justification to the seller when the purchase offer is presented.

(3) Every house or condo purchase offer should contain two key contingency clauses: (a) one for the buyer obtaining a mortgage based on a satisfactory appraisal of the property confirming the sales price and (b) another for the buyer's approval of a professional inspector's report on the house or condo to be obtained at the buyer's expense within five business days.

SUMMARY: Local home sales market conditions vary widely but it's a great time to be a purchaser when a buyer's market exists in your price range and location. Savvy home buyers then take advantage of favorable conditions to purchase their home at a reasonable price and terms after first becoming well informed.
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Sellers Sitting on Large Sums of Equity Dollars

Many sellers in today's market are bemoaning the fact that prices have stabilized or are falling in their communities. While year-over-year numbers regionally and nationwide have demonstrated strong appreciation, the latest month-to-month declines in some markets have made headlines and struck fear in the hearts of homeowners everywhere.
By: M. Anthony Carr: Realty Times
Despite very robust long-term housing appreciation, many observers of the market and prognosticators write scary reports about how appreciation has slowed, prices have dipped, etc.

Stories from the field go something like this: The seller won't accept a $150,000 lower offer on his $1.2 million listing because he's already dropped it $200,000 from his original asking price. When asked how much he bought the house for 15 years earlier, he answers, "That has no bearing on my situation now."

The real answer is that the seller actually bought the house for around $400,000 15 years ago and believes the roughly $600,000 gain on the property is not enough - since last year the same type home sold for $1.4 million.

My dear sellers, sell in the market you're in, not the one you wish it could be. This particular seller's story (and stubborn attitude) could be blocking a great opportunity for him to take advantage of the current market instead of the market taking advantage of him.

The mindset goes something like this: "I've already lost $200,000, why would I give up another $150,000 to sell my house?" If we're going to talk about how much has been lost (on paper) and how much as been gained (once you sell the house), then let's look at the real cash gain on the above property. In just a moment you'll see how many homeowners are sitting on more than 1,000 percent gain in their homes - they just haven't realized it yet (nor will they) until the house is sold.

Let's use the above example. The homeowner bought the house for $400,000 and is standing in front of a $1,050,000 offer that could net him more than $600,000 if he signs the bottom line. So what's his gain?

At an initial glance, it looks like his house has grown in value by 162 percent, thus he's gained a 162 percent return on investment, right? Actually, while the asset has grown by 162 percent, his return on the investment of his actual dollars is much higher.

Here are the assumptions:

    Purchase price: $400,000
    Down payment: $40,000
    Mortgage amount: $360,000
    Sales price: $1,050,000
    Cost of sale: 8 percent (commission, closing costs, seller subsidy, etc.)
    Net gain: $606,000

With the above numbers, his $40,000 investment several years ago has resulted in a net gain of 1,515 percent. That's right - one thousand-five hundred-fifteen percent.

My question to the seller is: "How much is enough?"

According to the Office of Federal Enterprise Housing Oversight reports that the average quarter over quarter appreciation (for 2Q 2006) for housing was more than 10 percent over the same period a year ago. Of course, the report itself and the media jumped on the statement of, "The quarterly rate reflects a sharp decline of more than one percentage point from the previous quarter and is the lowest rate of appreciation since the fourth quarter of 1999."

Now, that sells newspapers and gets the "email this article" link a hefty workout. What wasn't reported everywhere is that the average appreciation nationally has been 298.85 percent since 1980. In the last five years, the nationwide average has been 56.49 percent in appreciation. Where it really comes down to a level of importance is what has happened in your state or community. For instance, in my home state of Virginia, the 26-year appreciation has been 360.29 percent; the 5-year appreciation has been 83.38 percent.

Now let's look at the latest appreciation/depreciation in my marketplace - down about 1 percent compared to the same month a year ago. Ouch. That smarts. (I will point out though, that also in my market area, sellers have been overpricing to the tune of 13 percent higher than their counterparts from last year, while they are selling at 5 percent less than asking price. It's not so much a loss in "value" as it has been an overpricing of the inventory.)

Regardless of price, the basic investment strategies still apply here - buy low, sell high. It's just all relative. If the seller thinks he's "losing" tens of thousands of dollars because 1) that's what the houses were selling for last year; and/or 2) that's how much he's had to reduce the asking price, then he has a long emotional row to hoe.

On the other hand, the seller could look at the numbers calculated above and start dancing all the way to the bank with his ROI of 1,515 percent. So, again I ask, "How much is enough?"

The biggest challenge a seller has to face in today's market isn't the market, it's actually the person he's looking at in the mirror.
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