Mortgages Falling to 4% Become Bernanke Housing Focus

Grace and John Pitts got a 4 percent interest rate on a 30-year fixed mortgage when they bought their Cape Cod-style home in Quincy, Massachusetts, in 1951.

That was about the lowest rate anybody got in the next 60 years.

Those days may be returning as history provides Federal Reserve Chairman Ben S. Bernanke lessons on how to rescue the U.S. from the housing slump. Home loans may go as low as 4 percent if the economy worsens, said Robert Edelstein, a professor at the Haas School of Business at the University of California, Berkeley. Record foreclosures, falling home prices and an economy that has lost 5.1 million jobs since December 2007 will pressure Bernanke to further reduce borrowing costs.

“The Fed will have to do whatever it takes,” Edelstein said. “People will buy cheaper houses at very low interest rates.”

Conventional mortgages averaged 4.61 percent in 1951, 4 percent when backed by the Veterans Administration, and 4.25 percent by the Federal Housing Administration, according to “The Postwar Residential Mortgage Market,” a 1961 book written by Saul Klaman and published by Princeton University Press. Rates during the 1930s were as high as 7 percent.

Bernanke, a Harvard-educated student of the Great Depression who spent his 20-year academic career writing and teaching about the 1930s, is using his knowledge of that era to avoid the missteps policy makers made then. He’s bringing down mortgage rates, supporting the banking system, and buying back government debt and mortgage-backed securities to relieve the scarcity of credit.

Gold Standard

“In the Depression, the Fed was very, very slow to react,” said Mark Gertler, a New York University economist and co-author of at least nine papers with Bernanke. “He was determined to not have the central bank stand by.”

The Fed was focused on backing the gold standard during the 1930s and it didn’t take a “bigger picture perspective” because the economy was more regional then, said Robert Eisenbeis, chief monetary economist for Vineland, New Jersey- based Cumberland Advisors Inc., and former research director at the Federal Reserve Bank of Atlanta.

“There really wasn’t a coordinated group sitting in Washington deciding what monetary policy was,” Eisenbeis said of the Depression-era Fed. “There weren’t people setting policy in the sense that we think of it now.”

Depression Rates

Bernanke, 55, pointed to that weakness in a 2004 speech at Washington and Lee University in Lexington, Virginia.

“By allowing persistent declines in the money supply and in the price level, the Federal Reserve of the late 1920s and 1930s greatly destabilized the U.S. economy and, through the workings of the gold standard, the economies of many other nations as well,” Bernanke said.

The Fed tightened credit at the start of the Great Depression. Average mortgage rates from savings and loans in the 1930s ranged from 6 percent to 7 percent, according to “Urban Mortgage Lending: Comparative Markets and Experience,” a 1956 book by J.E. Morton that drew on data from the National Bureau of Economic Research.

“To the extent that the home mortgage market did function in the years immediately following 1933, it was largely due to the direct involvement of the federal government,” Bernanke wrote in a 1983 paper when he was an associate professor of economics at Stanford University’s Graduate School of Business in Stanford, California.

Mortgages of 1940s

Mortgages were cheaper through most of the 1940s, ranging from about 4 percent to 5.7 percent, depending on whether the lender was a life insurer, a commercial bank or a savings and loan. In that era, most loans were for 14 years and less.

During the five-year U.S. housing boom that ended in 2005, mortgage rates averaged 6.21 percent. As Bernanke pushed the Fed to ease credit, the average has dropped to 5.02 percent this year.

The central bank has purchased more than $300 billion of mortgage-backed securities in 2009 through the week ended April 8, helping to cut home-loan rates to 4.82 percent last week from 5.1 percent at the start of the year, according to Freddie Mac data. The rate was 4.78 percent in the week ended April 2, the lowest since Freddie Mac started keeping records in 1971.

In a sign that banks were more willing to lend, the London interbank offered rate, or Libor, for three-month dollar loans dropped to 1.12 percent on April 14 from 1.32 percent a month ago. It was as high as 4.82 percent on Oct. 10.

‘Under Stress’

The difference between 30-year mortgage rates and 10-year Treasury yields has narrowed to about 2.2 percent from 3.1 percent in December, which was the widest since 1986. The spread remains almost 0.7 percentage point above the average of the past decade, data compiled by Bloomberg show. Rates for 15-year mortgages are about 1.8 percent above 10-year Treasury yields, compared with an average 1.4 percent since 1999.

In 1931, the disparity between Treasury bonds and the average rate for a mortgage was 3.26 percentage points.

When Bernanke “saw credit spreads increasing at various times over the crisis, that was a sign to him, as happened in the Great Depression, that the markets were under stress,” said Gertler of New York University.

Cut to Zero

The spread between average mortgage rates and the Fed’s discount rate was about 1 percent at the start of the Depression. In January 1930, the Federal Reserve Bank of New York’s discount rate was 4.5 percent. It fell to 1.5 percent by February 1934 and to 1 percent by August 1937, according to a Fed publication of banking and monetary statistics from 1914 to 1941 on the Web site for the Federal Reserve Bank of St. Louis.

The Fed, led by Bernanke, cut the rate to as low as zero four months ago for the first time.

Bernanke, the first Fed chairman born after the 1929 stock market crash, was appointed head of the central bank in 2006.

“I’m a Great Depression buff the way some people are Civil War buffs, and it’s because the issues raised by the Great Depression and its lessons are still relevant today,” Bernanke said in the introduction to a school curriculum on the 1930s financial crisis designed by the St. Louis Fed.

Job Losses

Lower rates alone may not help Bernanke or the housing market. Fed Bank of Dallas President Richard Fisher said April 14 the jobless rate may exceed 10 percent this year, crimping chances of a recovery. The unemployment rate was 8.5 percent at the end of March, data compiled by the Labor Department show.

“It’s going to be a long grind,” said Dan Gertner, an analyst at New York-based Grant’s Interest Rate Observer who estimated the 30-year rate may drop to 4.5 percent. “Bernanke has a very difficult task in front of him, and I’m not sure if simply lowering mortgage rates from 4.8 percent to 4.5 percent to 4.25 percent will increase the number of people who want to buy houses.”

The two-year recession has cut consumer confidence and pushed the jobless rate to the highest level since 1983. The number of people who said they plan to buy a home in the next six months fell to a 26-year low in March, according to a Conference Board survey released on March 31.

Economists at San Francisco-based Wells Fargo & Co., the second-biggest U.S. bank by market value, doubt rates will fall to that level. They forecast 30-year mortgages may decline to 4.67 percent in June before rising the rest of the year as the yield on the 10-year Treasury yield increases.

Long-term mortgage rates falling to 4 percent would help boost the housing market, said Scott Anderson, senior economist at Wells Fargo in Minneapolis.

‘Solid Floor’

That would “put a solid floor under home sales and starts, and allow activity to really pick up,” Anderson said. “You could see home prices bottom out sooner.”

“The initial shock of the policy moves seems to have faded,” said Donald Rissmiller, chief economist at Strategas Research Partners in New York. “The further you see rates rise the more they’re going to be interested in countering that.”

Jay Brinkmann, chief economist for the Mortgage Bankers Association, agrees rates may not go much lower.

“We expect an average at about 4.8 or 4.9 percent for the balance of the year,” said Brinkmann. Late this year or early next year, borrowing costs may rise, he said.

1950s Boom

When Grace and John Pitts bought their home in 1951 for $8,500, most people got mortgages from their local savings and loan, said Dave Mason, an assistant professor at Georgia Gwinnett College in Lawrenceville, Georgia, who also Wrote “From Buildings and Loans to Bail-Outs, A History of the American Savings and Loan Industry, 1831-1995.”

The low borrowing costs and unemployment that followed World War II sparked a housing boom that pushed home ownership to 62 percent by 1960 from 44 percent in 1940, data compiled by the Census Bureau show.

The frenetic building pace of the 1950s was driven by veterans taking advantage of the GI Bill’s VA-insured loans. There were 1.26 million VA-guaranteed first mortgages in 1950 and 1.33 million FHA-insured first mortgages, the Census Bureau reported.

The most famous suburb was Levittown, developed by William Levitt on a former tract of farmland about 30 miles east of New York City. The community had more than 17,000 homes built on 60- foot-by-100-foot lots and each cost about $6,990. The project landed Levitt on Time magazine’s cover in July 1950.

Levittown Project

World War II veteran Frederick Johs, 86, bought his first home in 1954, a Cape Cod-style, gray two-bedroom house in Levittown. Johs, a former Army corpsman in France and England, got a VA-insured 30-year mortgage at 2 percent. He paid $8,400 for the house, including a $1,000 down payment, and his monthly mortgage was $60.

“I thought it was a good deal at the time only because we were capable of paying that mortgage,” Johs said. “Today, it’s rough. I feel for the people today.”

Now with prices declining and the domestic economy in the worst recession since 1982, buyers are on the sidelines. Home prices have declined 28 percent since 2006, the Chicago-based National Association of Realtors reported.

Freddie Mac, the McLean, Virginia-based mortgage buyer, forecast last week total U.S. home sales will decline 4.4 percent in 2009 to 4.61 million. House prices may fall another 10 percent before bottoming next year, said Mark Kiesel, global head of Pacific Investment Management Co.’s corporate bond fund management group in Newport Beach, California.

Fannie Forecast

Fannie Mae, the Washington-based mortgage buyer, said last month that prices may drop by 9.4 percent in the second quarter from a year ago and decline by another 8.7 percent in the third quarter.

“Home sales won’t rebound significantly until the job market stabilizes in early 2010,” Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania, said in an e-mail. Zandi forecasts the 30-year rate will fall to about 4.5 percent by June. House prices may decrease another 10 percent in 2009, while sales are close to bottoming, he said.

Beyond joblessness, another barrier for buyers is affordability. U.S. median house prices are about three times the average household income. In 1950, they were double.

When Harry Truman was president and the baby boom was under way in 1950, the median home price was $7,354, about $67,000 in today’s dollars. The median income was $3,319, or $30,000 adjusted for inflation, according to the Census Bureau.

Home Affordability

The median house price was $164,600 in February and the median household income was $59,726, data compiled by the National Association of Realtors show.

“It’s harder for younger first-time homebuyers,” said John McIlwain, senior resident fellow for housing at the Urban Land Institute in Washington. “The buying is restricted to a somewhat wealthier group.

Margaret Dietzel, an administrative assistant for the Girl Scouts of Eastern Massachusetts, thought lower prices and mortgage rates meant she could afford her first home. Dietzel and her husband Edward, who works on a Boston loading dock, said they’re still priced out of the market.

The Dietzels were willing to spend $150,000 to $180,000 for a three-to four-bedroom house. Homes in the neighborhood they want to live in cost $225,000 to $400,000.

“I know the housing slump has been tough for a lot of people, but I thought it was going to be good for us because we could finally get a home,” said the 28-year-old mother of three, who works a second job as a school crossing guard. “We looked around and found we still can’t afford to buy, even with me working two jobs.”

Frozen Out

While first-time home buyers had 97 percent of the income needed to purchase a home in February, a record high in the National Association of Realtors’ first-time homebuyer affordability index, the second year of the recession is crimping spending.

Lenders are tightening standards and requiring more buyers who don’t have a 20 percent down payment to purchase mortgage insurance. On a $300,000 loan, such insurance adds $125 to $225 to the monthly mortgage payment.

Fewer buyers can also rely on relatives for help now that the stock market decline has decimated the value of retirement, accounts, said McIlwain.

No ‘Mommy Money’

“Traditionally what they’ve turned to is mommy money,” McIlwain said.

Many banks also will no longer allow lenders to use “piggyback loans,” or second mortgages, instead of down payments. Some home-loan insurers have become so strict they’ve ruled out entire states and refuse to issue policies for loans obtained through independent brokers.

PMI Group Inc. of Walnut Creek, California, has stopped issuing policies for buyers who put down less than 10 percent or have a credit score under 720 in all of California, Florida, Rhode Island, Arizona and Nevada, and also in parts of states, including Massachusetts, Connecticut and New Jersey.

Buyers who overcome those obstacles are faced with falling home prices, especially in states like California.

“Nobody is really sure what’s going on,” said Leslie Appleton-Young, chief economist of the California Association of Realtors. “We have a bipolar market with short sales and foreclosures on the one hand, and a higher-end market that’s doing relatively well.”

Some buyers are concerned a wave of defaults on adjustable- rate Alt-A loans, due to reset in 2010 and 2011, may push prices even lower, Appleton-Young said. The Los Angeles-based association forecasts California home sales will rise 8 percent this year, while prices will decline, she said.

Friedman’s Theory

When Grace Pitts thinks about what it’s like for homebuyers today, she becomes wistful for the time she moved into her first home in Quincy, with her one-year-old daughter and her husband, a World War II veteran who served in the South Pacific. She knows homeownership is beyond the grasp of many today.

“I don’t know how young families can afford a home today, even with the lower mortgage rates,” said Pitts, 84. “It was hard enough when we did it, and homes today are so expensive.”

Bernanke is an advocate of the Great Depression theory proposed by economist Milton Friedman that it wasn’t the stock market crash of October 1929 that created the Great Depression. The crisis was caused by central bank blunderings as it attempted to burst the stock market speculative bubble.

“Regarding the Great Depression: You’re right, we did it,” Bernanke, then a Fed governor, said at Friedman’s 90th birthday celebration in 2002. “We’re very sorry. But thanks to you, we won’t do it again.”

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Home Sales Fell 3%, Layoffs Rose in March

Homes sales continued their slide and companies kept shedding jobs in March, underscoring the economy's weakness in the first quarter.

Still, the pace of economic decline has slowed since the steep drops at the end of last year and beginning of this year. Home sales and jobs data have exhibited an up-and-down pattern that has given some economists hope of a bottom to come.

WSJ eonomics reporter Kelly Evans and Phil Izzo discuss the latest jobless claims and a report showing existing-home sales slowed despite declining prices.

"It wasn't necessarily more bad news, but it certainly wasn't better news either," said Adam York, an economist at Wachovia.

Sales of existing homes declined 3% in March, to a seasonally adjusted annual rate of 4.57 million units, and the prior months' sales were revised downward, according to the National Association of Realtors.

Housing inventory remains high, and the market is still being driven by distressed sales, such as foreclosures, representing about half the existing-home sales in March. Both high inventories and distressed sales push down prices. The median existing home price was $175,200, down 12.4% from March 2008.

There were some signs that falling prices and low mortgage rates are drawing first-time home buyers into the market: The NAR said that first-time buyers accounted for roughly half of the existing-home sales in March. Still, some economists stressed that with a 10-month supply of unsold homes and such a high volume of foreclosure sales, the real-estate market will remain stressed through this year and into the next.

"If buyers are tentatively walking back into the marketplace, it's certainly a positive sign," said Wachovia's Mr. York. "But the market remains under extreme stress."
[Home Sales Fell 3%, Layoffs Rose in March]

Separately, two indicators showed that employers continue to shed jobs, and that people without jobs are having a difficult time finding work. Claims for unemployment insurance rose last week, and there were more layoffs of 50 or more workers in March than in February.

Initial claims for unemployment insurance rose by 27,000 to 640,000 last week, returning much of the improvement in the week-earlier period, according to the Labor Department. The number of people drawing unemployment insurance rose to about 6.1 million in the week ended April 11, from six million the previous week.

Data on unemployment insurance are volatile by nature, so economists tend to track the averages -- and there were some mildly positive signs on that front. The four-week moving average of initial claims for unemployment insurance fell to 647,000 from 651,000. "A definite improvement but not enough to feel confident that claims have peaked," said economists from Goldman Sachs Group Inc. in a note to clients.

The Labor Department also reported that in March employers had 2,933 mass layoffs -- defined as a single employer letting go at least 50 workers -- costing about 300,000 workers their jobs. The bulk of layoffs were in the manufacturing sector, and the seasonally adjusted data represented an increase of 164 mass layoffs over the previous month's total.

Understand the true cost of owning a house

I was talking to a friend recently about homeownership. He has never owned a home and because of what has happened in the real estate market he was thinking it is time to buy. As we were discussing the pros and cons of homeownership, I realized that people have many misconceptions about homeownership.
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The first misconception is it provides great tax benefits. Although, there are tax benefits to owning a house, the benefits are not as great as people make them out to be. Typically, when you purchase a house, you're allowed to deduct the interest on your mortgage and your property taxes. However, it is not a dollar-for-dollar reduction. For example, if over one year you've paid $5,000 in interest and property taxes and you are in the 15 percent tax bracket, your total savings is $750. That means that $4,250 is net out of your pocket. Of course, the higher the tax bracket the greater the savings. However, keep in mind that for high income taxpayers that may be in the 28 percent tax bracket or above, it comes a point where you actually start losing your deductions for interest and property taxes.

The bottom line is no one should buy a house just for the tax benefits. We have no idea what tax laws will be in the future.

Another misconception is that since housing prices in southeast Michigan are at dramatic lows — compared to where they were a few years ago — prices have to increase in the future.

Although I believe housing prices will rise in the future, that does not mean that they will increase more than the increased cost of living. At best, I believe houses will keep up with the increased cost of living. What has happened to housing prices over the last 10 years was the aberration. Because of many things, including the easy availability of mortgages, there was an artificial bubble surrounding home prices. I do not believe we will see that same bubble anytime in the near future. After all, the requirements to obtain mortgages have changed, and justifiably so.
(2 of 2)

In the last decade or so, it seems that anyone and everyone could obtain a mortgage no matter what their credit or financial situation. That has changed dramatically and now people with poor credit or who have overextended themselves are not going to be able to obtain a mortgage. In addition is the unfortunate situation in which many have decided to relocate. Let's also not forget that many college graduates from Michigan universities are choosing to pursue their career outside of southeast Michigan. There is no doubt that these facts will be a damper on future housing prices.
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Nevertheless, with all the foreclosures and short sales, there is no doubt that this is an excellent time to buy a home. However, the key is to make sure you buy a home with your eyes wide open. That means factoring into the equation the true cost of owning a home, including all the repairs and maintenance associated with home ownership. In addition, there are other expenses to consider. For example, saving for retirement or a child's college education. You must make sure that you factor these items into the equation when you determine how much of a house you can afford.

There are some incredible deals on the market and for many people they are very enticing. However, don't make the mistake of buying the most expensive home that you can afford.

Do the homework ahead of time and make sure you know what you're getting involved in before you sign on the dotted line.

Rick Bloom is a fee-only financial adviser. Observer & Eccentric readers can submit questions at moneymatters@hometownlife.com. For more information, visit Rick's Web site at www.bloomassetmanagement.com.

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U.S. Home Prices Gain 0.7% in February

U.S. home prices rose a seasonally-adjusted 0.7% from January to February, the Federal Housing Finance Agency (FHFA) announced Wednesday in its monthly House Price Index. February’s rate of increase slowed slightly from January’s downwardly revised 1% increase. For the 12 months ending in February, U.S. home prices fell 6.5%, plunging the U.S. index 9.5% below its April 2007 peak.

The Pacific census division — spanning Hawaii, Alaska, Washington, Oregon and California — posted the strongest geographic gain in home purchase price, rising 3.8% over January’s data. The New England census division — covering Maine, New Hampshire, Vermont, Massachusetts, Rhode Island and Connecticut — saw the second-largest gain of 2.2% over January’s purchase prices. One of only three census divisions to post a month-over-month decline, the East North Central region — including Michigan, Wisconsin, Illinois, Indiana and Ohio — saw the worst slip of -1.2% in February’s home purchase prices.

U.S. houses sold in February at roughly the same average price as April 2005, FHFA found in its calculation of the index, using purchase prices of houses backing mortgages sold to or guaranteed by Fannie Mae (FNM: 0.80 0.00%) or Freddie Mac (FRE: 0.80 -2.44%).

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Fixed Mortgage Rates in U.S. Drop, Freddie Mac Says

Fixed mortgage rates in the U.S. fell for a second consecutive week as the Federal Reserve plan to buy mortgage-backed securities helped drive rates lower.

The rate for a 30-year fixed home loan declined to 4.80 percent from 4.82 percent a week earlier, Freddie Mac, the McLean, Virginia-based mortgage buyer, said today. The 15-year fixed rate was unchanged at 4.48 percent.

The Fed said on March 18 it would purchase as much as $750 billion of additional mortgage-backed securities from Fannie Mae, Freddie Mac and Ginnie Mae. The program helped lower rates earlier this month to 4.78 percent, a record low in Freddie Mac data going back to 1971.

“The policy is working,” said Celia Chen, senior director at Moody’s Economy.com in West Chester, Pennsylvania. “Mortgage interest rates are falling to a record low. That will stimulate some buying of homes.”

Sales of previously owned U.S. homes fell in March after jumping a month earlier by the most in more than five years. Purchases decreased 3 percent to an annual rate of 4.57 million, lower than forecast, from 4.71 million in February, the National Association of Realtors said today in Washington. The median price slumped 12 percent from a year ago and distressed properties accounted for about 50 percent of all sales.

The central bank is trying to lower rates by cutting the supply of outstanding mortgage bonds, boosting their price and lowering yields. That would allow banks to reduce the rates on new mortgages and still sell mortgage securities at a profit.

Fed Plan

The Fed announced a program in November to purchase $500 billion of securities backed buy home loans guaranteed by U.S. mortgage-buying agencies. It’s also buying up to $300 billion in Treasuries to lower interest rates.

U.S. home prices fell 6.5 percent in February from a year earlier, the second-smallest drop in six months and a sign that low mortgage rates may be spurring demand. Prices in February rose 0.7 percent from the prior month, the Federal Housing Finance Agency in Washington said yesterday. The FHFA’s monthly house price index is down 9.5 percent from its April 2007 peak.

The number of mortgage applications in the U.S. rose last week, boosted by an increase in refinancing applications.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan increased 5.3 percent to 1,172.2 in the week ended April 17, from 1,113.2 the week before. The group’s purchase index dropped 4.2 percent and the refinancing gauge rose 7.7 percent.

Home sales up, but values sink

Home sales in the Orlando market jumped nearly 48 percent, but values fell by nearly 40 percent, according to the March report from the Orlando Regional Realtor Association.

Association members reported 1,653 existing home sales in March, compared with 1,120 in the same month a year prior. Realtors also put 2,956 homes under contract last month, a far cry from March 2008’s 1,679.


The median price of all Orlando homes resales fell 37.7 percent from $217,000 in March 2008 to $137,000 last month. The area’s average interest rate fell to a record low 4.67 percent.

Association members also reported 4,906 pending sales — considered a leading indicator of future sales — in March, more than double March 2009’s 2,398.

March home resales in the Orlando area — Lake, Orange, Osceola and Seminole counties — jumped nearly 58 percent, from 1,354 homes last year to 2,139 homes this year.

Osceola County saw the biggest increase in sales at 112 percent, from 466 homes sold in March 2008 to 989 sold last month. Orange County saw the next largest jump at nearly 61 percent, from 1,667 last year to 2,681 this year, followed by Lake County’s 21.5 percent increase, from 657 last year to 798 this year, and Seminole’s nearly 5 percent jump, from 679 to 713.

The association reported that 49 percent of the homes that were sold being bank-owned or distressed homes. There were 700 bank-owned home sales last month with a median price of $95,000, along with 111 distressed home resales with a median price of $143,500.

The good news was that the area’s affordability index continues to climb, with 192.17 percent recorded in March. That means that those earning the state-reported median income of $52,250 can qualify to purchase homes priced up to $263,270 .

The area’s first-time homebuyer affordability index reached 136.65 percent, which means buyers earning a median income of $26,000 can qualify to buy homes priced up to $159,132.

Homes of all types spent an average of 104 days on the market before being sold last month, down from an average of 128 days in March 2008. The average home sold for nearly 92.6 percent of its listing price in March 2009, slightly down from the 93.1 percent posted in the same month last year.

March inventory of homes available through the local Multiple Listing Service was 21,448, down 720 homes from February 2009, which means that 720 more homes left the market than entered the market. That reflects a nearly 13-month supply at the sales pace, down from the nearly 17-month supply recorded in February 2009.

Orlando-area condo sales saw a huge increase 228 percent last month — from 90 in 2008 to 295 this year. Orlando buyers also purchased 119 duplexes, townhomes and villas in March 2009, 8 percent more than March 2008’s 110 sales.

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Homes: Rent Now, Look To Buy

Some rental markets are attractive, but if you want to buy a home in the next 18 months, start looking now before bargains dissapear.

Forbes: Gentlemen, we talked last time about some very early signs that the real estate collapse is abating. But let's face it, there's more bad news than good. Here's some very new, very bad news: falling rents.

Dallas-based Axiometrics' latest survey of 13,000 rental-property managers was unsettling: Rental "revenue per available key" fell 4.1% in the first quarter. Rents in the top 20 U.S. cities are now down 5.7% from a year ago. Phoenix, Atlanta, Las Vegas, New York City and Charlotte all experienced declines greater than 8% from a year ago. Houston and Washington, D.C., were the only cities that showed stable or rising rents. (Helped, no doubt, by booming employment in the energy industry and government.)

UBS analyst Michelle Ko scrubbed the Axiometrics data, which puts a cloud over some apartment REITs. And reading Ko's report, I believe the falloff in rents looks to be every bit as severe as the slump that hit rental homes in 2002 and 2003, when the home-ownership craze started. Wasn't the end of the housing boom supposed to help owners of rental homes? What gives?


Don, you've often said to us: "Rent is the new buy." Let me ask you all to muse on this. Suppose a Forbes reader came to you and said he or she was living in a rental apartment now. Say she was capable of making house payments in the $5,000 to $15,000 range but couldn't decide whether to buy or keep renting. How would you advise her? Would you tell her to look at "cap rates"? Recent trends in rents and purchase prices? Or is measuring rents vs. purchase prices a waste of time?

Pat Lashinsky, ZipRealty: If someone has the capability to buy, and the time to be choosey, I would absolutely tell them that they should be buying. They will be able to negotiate a good deal from the seller, they will get the tax benefits of owning, and when the market returns to a more normal period, they will get the upside of those mortgage payments, all of which will be lost in rent. The investment in rent is that you can place those dollars other places and do well, but many people fall into the "spend more" trap and never end up investing those dollars.

Forbes: Even if cap rates were 1%? You'd tell her to buy even if the $1 million condos she was looking at were available on the rental market for $1,000 or $1,200 a month?


Lashinsky: Depends on how long they want to live there. If living there for six or 12 months is long enough, go ahead and rent, but if they want to live in that location for a longer period of time, buy. A $1 million condo renting for $1,200 would be a great first deal, but you know that it will be back up to $5,000 a month or more in a relatively short period of time. Then prices may not be where they then can buy in the area they want to live in.

Peter Slatin, Real Capital Analytics: Pat's right. Frankly, I'd tell her not to be such a worry-wart if she can afford rents at either end of that spectrum. Further, I'd tell her to focus on the real issue for housing, especially for those who can afford it. This is a factor that gets lost far too often in the quest for returns and investment advice, and I can't stress it enough: This is about where you want to live!

Yes, you can squeeze the last nickel out of mortgage interest deductions (for now), or find a great rate, OR you can get a really good value on a rental. But the driving force has to be, will that home make you feel at home? What's that feeling worth? A lot. Don't forget it, and factor it in--or better yet, lead with it.

Spencer Rascoff, Zillow: I'd tell a Forbes reader considering paying between $5,000 and $15,000 per month for housing that they should dual track their search. Look at rentals and for-sale listings, and in fact look at for-sale listings that they can offer to rent. The buyer and/or renter is in the driver's seat right now. Don't feel guilty about offering to rent a $3 million for-sale home for $5,000 per month--you'll find that some sellers just want to be able to cover their mortgage and live to fight another day. They'll try to sell it again in a few years when the market is stronger.

Donald Trump Jr., Trump Organization: Measuring rents vs. purchase price is not a waste of time but has to be contextual. While I am generally still for my axiom, I couldn't credibly say that in all cases today it's one way or the other anymore, and as we hopefully near a bottom, it becomes more difficult. Being able to find a good deal to buy is getting easier by the day. Because we typically rent for at least a year if we feel the bottom will occur in that time, it's harder to make a call to lock in for a year or more. If you can go month to month while you do that appropriate analysis of comp units in your market.

Michael Feder, Radar Logic: There's no totally satisfying formulaic answer to Stephane's question. The bubble in housing has burst and that there are many more "affordable" homes on the market than there have been. At the same time, there are uncertainties about housing prices, employment and even real estate taxes, as municipalities are likely to be besieged by reductions in assessments. If a reader has found a home to buy, which they can afford and they cannot rent it (or a comparable home) for, say 3% to 4% of the "purchase price" (on an annual basis), they should buy. If they can rent it in that range, they may do well to wait a little longer.

Forbes: Sounds like a decent rule of thumb at least, Michael.

Just for the benefit of all our readers, let me review what we mean by cap rate, which is a real estate equivalent of a bond yield or stock earnings yield.

Say you've just agreed to pay $1 million for a condo and your realty agent says he's confident that you could instead rent this same condo (or one just like it) for $1,000 a month. You can use those two numbers to arrive at an investment yield called a cap rate. The $12,000 a year in gross annual rent will probably work out to about $8,000 in net rental income, given that property taxes will run around 1.3% of your purchase price and other expenses will probably run another 2% to 3% of the purchase price. The $8,000 in annual net rent is like the yield on a bond. Divide it by the $1 million purchase price, and your capitalization rate is 0.8%.

Obviously, that's not only a poor yield but an unrealistic one. I've recently looked at cap rates in housing markets around the country. They range from 1.5% (in some West Coast markets) to 6% (here in Chicago). I happen to think buying in markets with very low cap rates is not wise.

Feder: If you know of a $1 million condo that I can rent for $1,000 a month, please let me know.

Slatin: Me first!

Forbes: In my beloved old hometown of Venice, Calif., it was possible in 2005 to pay less than $2,000 a month to rent a bungalow that would have cost $1 million to buy.

Rascoff: In Seattle, there are homes for sale in the $1.5 million range now that can be rented for about $3,000 per month, and I've seen homes in the $2 million range rentable at $4,000 per month.

Forbes: That works out to cap rates of 1.5% to 2%. Not a friendly number if you're on the owning/buying/selling side of the equation, particularly if rents are going down. Axiometrics reports that rents in Seattle are off 6.6% from a year ago.

Slatin: Either way, you're missing the mark. Buyers/investors do have to make these calculations, and at this point in the market there are deals on both sides of the buy/rent aisle. It's an individual case, but time horizon--both when or if someone has to move and how long they intend to stay in their new home become additional factors. Prices will continue to fall through the year, though probably not as much, so timing the market for committed penny-savers remains a factor too. But renters should also think about just how rapidly prices could rise again in some areas if the speculators or mass buyers come in and clean up and thus hold a key to pricing.

Lashinsky: I agree with Peter. For most people, not all, housing is about what they will live. Being comfortable and happy is the most important for that decision, for investors, more analytics can and should be done.

Trump: True but the question has to be apples to apples. You have to be able to rent or buy a comp to make the question work. If you could only buy in the place where you want to live, great. But I have to assume to be able to answer that there is also a rental comp in this utopia.

Rascoff: I agree with Pat in one sense that a prospective buyer who's sitting on the fence waiting to time the market bottom perfectly is going to be disappointed. If you're going to buy anytime in the next 12 to 18 months, now is definitely the time to start looking. Even if prices fall further (which, overall, I believe they will), what really matters is the specific situation of a home in question. The asking price on many individual homes for sale aren't going to fall any further, although the average home price will. So if you find a home that you love, and you're going to live in it for at least three years, and you can get financing, this is a good time to start looking to buy. You can and should be picky and take your time to find the right home at the right price.

The biggest piece of advice I'd give is that timing the bottom is as impossible as timing the top, and it doesn't even really matter anyway since what people buy is an individual house not an average of many houses, or a security representing house prices.

Lashinsky: By the way, we are looking at March data, and in all of the markets we cover, median prices were either flat or up compared to February. Trying to hit the bottom is very difficult.

Rascoff: Let me return to the very low rents in Seattle. I'm coming across sellers that have bought a new home and are carrying two mortgages, and are considering switching from selling their old home to renting it out just to cover their debt service. Having already carried two mortgages for a few months, and with little hope of selling it at their desired price, their primary motivation is just to get rental income ASAP, which covers them. They'll try to sell it again in a few years.

If you're a prospective buyer or renter, it's sometimes tricky to get this message to the seller/landlord though, because the listing agent isn't highly motivated to have their listing switched to a rental.

Trump: That may work for people with a very low basis that bought several years ago, but unless someone is willing to subsidize a substantial monthly loss on a modern say 80/20 mortgage it wouldn't make sense to own then lease it out. For those who bought at great prices and have owned for lowing periods of time it may work.

I was thinking about that 1% to 1.5% cap rate, too. You definitely don't want to buy at that kind of cap rate nor be the owner who's leasing it out at this attributed value. That's so end-of-2006.

Rascoff: Yes, you're right--this works best if the prospective landlord/seller has a lot of equity in the home and therefore has low mortgage payments. At Zillow, we find that buyers frequently look at the prior sale price and date to gauge how much equity the seller has in the home. What the seller paid for their house is a great data point when thinking about what they might expect from it in the sale.

Feder: It seems to me that there are probably rent-per-square-foot figures and buy-per-square-foot figures, though I have never seen them. I would expect Don may have them historically. There are different motivations and risks, and as a casual observer, I have sensed that there is a lag between purchase prices and rents, with rents following. Again, as an investor, it's about what kind of return can you get and that's a function of purchase price, cost of ownership (funding, taxes, etc.) and income. For a buyer, the questions of time frame, where I want to live and affordability are key. There do seem to be a lot more people buying now that there were a year ago, so that says something.

Forbes: I'd like to ask a new question about something entirely different. Was last year's 19% drop in housing prices a mirage? Did foreclosure sales data skew the indexes--and cause an unnecessary panic?

We've got two data mavens on board, Spencer at Zillow and Michael at Radar. Earlier this month, one of Spencer's colleagues, Zillow number-cruncher Stan Humphries, explained why he doesn't count foreclosure sales in the firm's home price index. Stan said that indexes like the S&P/Case-Shiller housing index misrepresent the real market. (Michael, Stan didn't single out Radar, but I think his criticism would apply to your index.) Zillow's home-price indexes differ with Radar's and Case-Shiller's by as much as 14 percentage points in some cities.

Stan's logic strikes me as compelling. After all, most stock-market indexes are weighted or deliberately formulated to ignore what's happening to collapsing shares on the margins, so they're not much affected when penny stock companies go bankrupt. Why do we give so much weight to foreclosed home sales in down markets? Did the value of my Chicago home fall something like 19% in value over the past year, as Radar reported in its most recent report for January 2009 (see latest report here.)? Or did it fall just 10%, as Zillow's home- price index suggests?

Trump: In regards to the 19% drop, it's hard for me to logically not include foreclosures at all in my view of the general market. They are a reality that a seller will likely have to contend with, albeit more in some markets than others. Stephane, it may not affect your individual apartment to the tune of the 19% but is certainly something to compete with especially in markets where there are a lot of foreclosed properties. To a logical buyer buying a unit out of foreclosure vs. buying a comp from an existing owner shouldn't matter and the only factor that would come into consideration would be price. If there are a lot of foreclosures in the market where I have my home I do not think I would convince a buyer that could buy a comp at 19% off market that he is getting a deal at 10% off. So it becomes a market saturation question, i.e., how many comparable units are out there relative to what I have. The more comps in foreclosure in a given market the closer to 19% we get.

Feder: First, to each their own. We look at data with and without various components. Our view is that to do what Radar Logic does, the sale of a home in foreclosure is in fact a sale. Those prices (at closing) should be included in a spot rate. If not, it's like tracking the Dow Jones without the financial stocks and then trying to trade the Dow Jones. As to whether this was a panic, sure. Many homes came on the market and many at very distressed prices. All the makings of a panic. But as we said in our last research piece, the buyers seem to be returning in many parts of the country, in part attracted to these lower prices. If these prices are bringing in buyers, aren't they then real?

Forbes: Compelling, Michael. I must admit here that an apartment down the street from my own with similar square footage, beds and baths went in a foreclosure sale for 40% of what I paid roughly a year earlier. Try telling the guy who bought that foreclosed apartment down the street from me that the market was only down 10% or even 19% for that matter. He's likely to disagree.

Trump: My point exactly. The reality is that you have to contend with the problem either way. Try convincing someone looking to buy your apartment that it's worth only 10% less when he sees that a comp went for 45% off. Stephane, you are pretty good, but I don't even think I could make that sale! Either way you have to deal with the lowest common denomination.

Feder: And to add some numbers, in January, 33% of the transactions observed by Radar Logic were likely out of foreclosure at an average discount (to the non-foreclosures) of 34%. Seems to be important enough to include ...

Slatin: That's pretty stunning--who got those great deals? Do you know? Was it individual buyers?

Feder: As you know Peter, we track individual closings, so for the most part, yes. I cannot say whether there were "investors" among them, but the chances are that some were.

Lashinsky: We are seeing that the best deals (deepest discounts) are going to investors who buy a group of properties without caring about the condition and with the knowledge that they can refurbish them efficiently. The deepest discounts are going to bulk buyers, just the same as with Costco.

While I think the 19% is accurate, it's not appropriate for sellers to think that their homes have necessarily come down by 19%. That figure is driven by distressed properties which includes rundown places, places with upset previous homeowners, and no disclosures on the house at all. These all lower the value. A home that's been owned by a traditional seller who has kept their house up, has it in good condition and is making the disclosures to reduce buyer concern? The drops in those properties are much less. In fact last month, offers on traditional homes were higher as percent of asking than they have been in over six months.

Forbes: You got any numbers or anecdotes to back up that last part, Pat?

Lashinsky: Yes, when we look at the offers that clients are making on currently for-sale homes, we can track and see that even compared to December offers are closer to asking by more than 4% in March as compared to the discount that was being offered in December. And in some markets ... we are even starting to see full price offers again as buyers have become frustrated with foreclosures and short sales and want and need to move.

Slatin: This is a very important point. Foreclosures in many markets are certainly not a marginal presence, and that is even more on point for submarkets and neighborhoods. What all of this points up is the real challenge--or conflict--between the appraisal community, the lending community and the buying community. If appraisers and lenders seemed to be in collusion on the way up, will buyers and appraisers have the upper hand now? Comps should be just one tool in the price-setting kit.

Forbes: Spencer, what do you think?

Rascoff: You have two things going on which skew the headline numbers and make things look worse than they actually are.

The first is "mix shift"--a larger percentage of homes that are selling are lower end than has been true historically. When the media reports on "home prices," they are usually reporting on median sale price, which drifts down when the mix shifts, regardless of whether home prices are actually declining or not.

The second is that foreclosure sales are like putting a square peg in a round hole. I agree that from a buyer's perspective they're definitely part of the market, so the buyer considers them like a normal listing (albeit more complicated to purchase). But when you're trying to assess what's happening in the market overall, including foreclosures is tricky. Banks are motivated to move inventory ASAP, and are less interested in getting full value for the home.

Lashinsky: And when it comes to the Zillow tool, I think it makes sense not to use the foreclosure data. Stan knows the purpose of their data, and is keeping it consistent. That is as important as anything in really figuring out what is happening.

Spencer: Great point, Pat. I agree.

When the media reports on "home-value declines," they're typically talking about the median sale price of all the homes that sold in the given period. They're not talking about what has happened to the median home in the area. The two are quite different.

Because Zillow values every home and not just those that sell, our Zillow Home Value Index represents the median value of all the homes in the area regardless of whether or not they've sold. This is a much more accurate way to answer the typical homeowner's question of what has happened to their home value.

Feder: That's fine Spencer, and it's different from RPX, which is Radar Logic's index. RPX is a surrogate for the "spot market," which requires that it be based on those homes that sell and close ...

Forbes: Gentlemen, that's it for this week. Let's reconvene in roughly two weeks for another lively debate.

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No better time to buy! Monday,

While headlines about the economy continue to fuel the fire for conservative spending, local Realtor Joan Imperato argues this is a good time to purchase a home.

�This is a challenging market and many people are afraid,� said Imperato, �but if you look at the facts, there are many factors that make this a great time to buy a house. With the right information, today�s home buyer can make the best decision on what is likely to be the most important purchase of their life.�

Imperato disagrees with the media�s portrayal of the housing market. She said the real estate market in the Houston area, specifically in Kingwood and Humble, is not bad. According to Imperato, some homes are selling in a few days and for top dollar, while others take a bit longer.

�The key factors are condition and pricing, as has always been the case,� she said. �As long as a buyer and seller understand this, they can each make a decision as to what is the best approach when buying or selling a home.�

As an agent, Imperato said the market is challenging, which only means she has to work harder to provide the most up-to-date information for her clients.

�There is a healthy supply of beautiful and well-priced homes on the market and interest rates are outstanding,� she said.

Imperato said lenders require good credit, consistent employment, at least 3.5 percent down on an FHA loan and a 5 percent down payment for conventional financing.

�Rates are under 5 percent and it is a great time for first-time home buyers benefiting from the $8,000 First Time Home Buyer Tax Credit,� said Imperato, who emphasizes the importance of attention to detail and of educating oneself.

Her own commitment to education and attention to detail, have helped her rise to the top. Imperato said she is consistently recognized by the Houston Business Journal as one of the top two agents in Houston and is ranked as the top agent for Northeast Houston. According to the Houston Association of Realtors, she has been ranked as the top seller for Kingwood for some time.

Imperato has experienced market fluctuations and trends through the years and has earned a GRI (Graduate Realtor Institute), CRS (Certified Residential Specialist) and her brokers license. This year, Imperato was awarded RE/MAX�s highest award, the Circle of Legends. She is the first woman to hold that distinction.

RE/MAX has honored her as the No. 1 seller in Kingwood since 1987. She is also consistently among the top 10 sellers in the Houston area and top 20 in the state.

In 1982, her husband received a job transfer from New York to Kingwood. She, her husband and her three children have called Kingwood home ever since.

In 1985, a neighbor who was in real estate encouraged her to get involved in the business. He said she would be particularly suited to real estate because of her communication skills, work ethic and background in education. She started her career with a large national company and when brokers Sara and Ed Nowak opened RE/MAX Associates in 1986, she was there with six other agents for the launch.

�In 2002, RE/MAX Associates and RE/MAX Northeast merged to become the strongest real estate agency in the Northeast,� she said.

Imperato said she believes in giving back to the community. She is involved in Mothers Against Cancer, the FamilyTime Foundation, the Village Learning & Achievement Center and the Donne Di Domani Organization.

Recently, through her volunteer efforts with the Donne, Imperato helped raise $10,000 for the Village Learning & Achievement Center. The money was raised by selling the organization�s homemade marinara sauce at the Nutcracker Market, where customers gladly wait in line for an hour or more for this Market favorite.

With a successful business and an active community service life, Imperato still finds time for family.

�I am grateful for my family. I consider it to be first and foremost in my life,� said Imperato. My husband has been my heart, soul and support. My two sons, Ted and Jon, and my daughter, Alison Brookby, who is also a Realtor, my eight grandchildren, and my assistants, Jo-Anne Jee and J.R. Klug are my inspiration and a tremendous support system,� said Imperato.

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With Affordability Up, Home Buyers are Starting to Return to the Market

Thanks to record low mortgage rates and declining home prices, 55 million families – or half of all U.S. households -- can afford today’s $200,000 median-priced new home, according to figures released by the National Association of Home Builders (NAHB).

“That’s an increase of 17 million households from conditions just two years ago and the best housing affordability number we have seen in years,” said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla. “We are now seeing the first signs that buyers are returning to the marketplace.”

Based on data from the U.S. Census Bureau comparing home prices, mortgage rates and minimum income needed to purchase a median-priced home in February 2007 and February 2009, a typical family today can purchase a house with $20,000 less in household income and save nearly $500 per month on their principal, interest, taxes and insurance. The number of households that can afford to purchase a home today is 55.4 million, compared with 38.4 million two years ago, according to figures compiled by NAHB.

“With affordability up dramatically, reports from our builders in the field indicate that foot traffic in new homes is on the rise and consumer interest is increasing with each passing day. These are encouraging signs that the housing market may be finally reaching a bottom,” said Robson.

Entering the crucial spring home buying season, there are other signs that buyers are starting to return to the market.

Single-family permits were up 11 percent in February, new and existing home sales also posted gains and the huge inventory backlog is being slowly whittled down. In a survey for Century 21 Real Estate last month among prospective first-time home buyers who indicated they were likely to purchase a home in the next two years, a majority – 78 percent – said that now is a good time to buy a home. Of those responding to the online poll, 68 percent said that now is a better time to buy than six months ago.

Another sign that consumers are considering jumping back into the housing market is the growing interest in the $8,000 first-time home buyer tax credit included in the recently enacted economic stimulus package. During February and March, 1.5 million visitors logged on to NAHB’s consumer Web site, www.federalhousingtaxcredit.com, to learn more about the tax credit. Further, a new survey commissioned by Move, Inc. found that nearly 20 percent of those who plan to purchase a home this year are doing so to take advantage of the tax credit, which expires at the end of November.

“With home values in many markets at the lowest level since 2003, an $8,000 tax credit available to first-time home buyers, fixed-rate mortgages under 5 percent, and an outstanding selection of homes to choose from, buyers are starting to recognize that this has the makings for a one-time opportunity to break into the market,” said Robson.

Housing is a critical component of the U.S. economy, accounting for about 15 cents of every dollar spent in this country, so any upturn in the housing market should be viewed as good news for the overall economy, said Robson.

Construction of an additional 500,000 single-family homes – the difference between today’s anemic construction rate and one that would move closer to meeting the underlying demand for housing – would generate 734,000 jobs and $35 billion in wages in the construction industry and another 790,000 jobs and $37.7 billion wages in manufacturing, trade, and service sector jobs, he noted.

Additionally, another half-million housing starts would bolster the tax base for government, generating $45 billion in federal, state and local tax revenues. And the benefits go well beyond the completion of each home. Within the first year after buying a home, those half million households will spend about $2.5 billion more on appliances, furnishings and property alterations.

How To Buy A Home With No Money Down Even In Today's Market

The shocking and horrifying news about buying a home continues to keep potential homeowners on the fence. While its true that it is a bad time to sell a home, the opposite could NOT be further from the truth about buying a home. Bank owned properties, often called REO's (Real Estate Owned) are often bought at tremendous discounts from these banks thus reducing the market values of suburbia, USA. These values then become the prevailing market value and sets the next trend for agents, investors, and retail buyers in which they decide what price to pay for a property.

All this means is that if you want to buy a home today, you are going to get a really good, super duper, extraordinary price no matter the type of property or even the look of the property. For example, if you want to buy a home in Fort Washington, MD, which is a sought after neighborhood, chances are you are going to get a great deal. Fort Washington, MD is home of the new National Harbor and many Investors are looking to purchase investment property as they know depressed values will not prevail over the long run. Even consumers who want to live in a property for their own use will find single family detached residences IN Fort Washington, MD.

For the buyers that qualify you can even buy property with no money out of your pocket. Even though certain criteria must be met, you can still achieve the dream of home ownership. The great thing about it is that it is easier than you think. When trying to obtain financing, it most likely will benefit you to go with (the resurgence) an FHA loan. FHA loans pay up to 97% of the homes value or sales price, whichever is lower.

Here is how it would work for you if you qualified. Lets say that the purchase price is $200,000. FHA will loan up to $194,000 (97%). That leaves us with $6,000 to come up with. PLUS all, or most, of the closing costs. Most FHA programs allow the seller to pay up to 3% closing help, so we would get the seller to lend the 3% and we would receive a "gift" from someone else. A gift is an asset given to someone as a pure kind gesture. If those work hand in hand, you will come to closing with absolutely nothing.

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First Bank Takes Steps To Help Home Buyers

In response to Washington's call for banks to improve lending using the Treasury's Capital Purchase Program (CPP) funds, First Bank is introducing a new builder finance program to assist local builders and home buyers in making ends meet through the economic crisis.

"When we decided to participate in the Treasury's Capital Purchase Program, we saw an opportunity to help our customers weather this economic storm," said First Bank President and CEO Jerry Ochletree. "Our new builder finance program will help in that effort."

"These mortgages, offered through builders that bank with First Bank, offer much better rates than the secondary market and remain fixed for the next decade," said Teresa Nixon, First Bank executive vice president and chief lending officer. "We look forward to working with customers that can benefit from more secure and reliable lending options."

As a healthy bank, First Bank was eligible to participate in CPP in order to improve the flow of credit in the regional financial system. From that capital infusion, First Bank has been able to extend credit to customers with programs like builder financing.

"Many people may think that banks that accept Treasury funds are part of the problem, and we want to assure people that is not the case for First Bank," Ochletree said. "We see participation in this program as a vote of confidence and we're privileged to have the opportunity to make a difference in the lives of our customers."

Last fall, the bank received national recognition as one of the top performing small-cap banks in the country by investment firm Sandler O'Neill & Partners. The firm's analysis focused on growth, profitability, credit quality, and capital strength.

"First Bank is in very good financial standing," Ocheltree said. "By making the decision to work with the Treasury, we are more capable in a volatile market to meet the needs of our customers and our community."

First Bancorp, the parent company of First Bank, announced its participation in the Treasury's Capital Purchase Program late last year and completed the sale of $65 million in preferred stock this January.

SOurce

RentPurchase.com's Rent to Own Solution Works for Home Buyers and Sellers in Charlotte, NC

RentPurchase.com helps home buyers who are having trouble obtaining financing and sellers who are having trouble selling their homes.

These economic times have created changes in lending policies that have made it harder for customers to obtain loans. FHA has mandated that the credit score go up to 620 and the government has restricted down payment assistance programs. These conditions plus the existing challenges of selling one's personal homes has created substantial stress on families and individuals to upgrade their lifestyle and invest in a plan for their future.

Sellers are having incredible trouble selling their homes and there is an increase of inventory in the market place. Sellers are reacting by lowering their sales prices because they do not have any solutions in place. Investors who have purchased multiple homes are now encountering high vacancy rates in their investments.

RentPurchase.com is the answer for all these real estate conditions. We have created a unique program solution for the "Rent to Own," "Lease Purchase" and "Owner Financing" business. Our system qualifies our candidates through reputable banks so our Sellers have trust in who will be occupying their homes. We manage the process while the buyer is earning down payment credit and fixing any issues that may be an obstacle to obtaining a mortgage on their own. By having your home occupied Sellers can make the choice to Purchase another home if they choose.

Sellers can join our marketing program directly or if they have their house listed with a real estate professional we encourage them to have their real estate firm call us to join forces to help sell your home.

RentPurchase.com has put over 250 families or individuals over the last 5 years in rent to own homes in Charlotte NC. RentPurchase.com currently serves the greater Charlotte-Rock Hill-Gastonia-Concord areas in North and South Carolina.

Tips for making second-home purchase

Contemplating a second home? Regardless of its size, here are some tips from experts:

1. Consult your accountant or financial adviser before signing on the dotted line. Tax rules can work for or against you if you don't know the latest updates.

2. Take into account extra expenses for security, maintenance, travel, etc. It all adds up.

3. Meet the neighbors, or at least visit the property at different times of the day and night.

4. Check with the local municipality for pending zone changes or subdivision applications that might affect the property.

5. Keep a set of clothing, toiletries and nonperishable food in the second home to avoid packing each time you go.

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For many, now is the time to buy a home

The economy is faltering, businesses are closing and unemployment is rising. Anybody want to buy a home?
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For many, now may be the perfect time to invest in a piece of property. Even though money is tight, the cost of real estate is going down by the day. And local Realtors say that means the dream of home ownership is within grasp for many first-time buyers.

Jill Spinnenweber, a first-time buyer, is searching for a home in southeastern Sussex County.

"I've been thinking about this for about three years and watching the market," she said. "This is the best time for someone to buy, just as long as you can get financing."

According to Marie Cahill, a Realtor with Connor Jacobsen Realty in Bethany Beach, first-time buyers have already made their presence known as they search for deals.

"It's definitely a good time to buy with interest rates the way they are, especially the Federal Housing Administration rates; they're so low," she said.

Marjie Eckerd, also a Realtor with Connor Jacobsen, has been selling real estate in Delaware since 1982 and said this is not the first time the economy has taken a dive.

"I've been through two such downturns," she said. "I've seen bad times before."

In spite of the hurting economy, Eckerd said the waters have never been more inviting for first-time buyers.

"If you're a first-time homebuyer, with all of the packages that are out there, it's a very good time to purchase," she said. "There are packages available from Fannie Mae and the FHA that make this an excellent time to buy."

Spinnenweber has an advantage over some buyers --she's a licensed Realtor herself. But that doesn't mean she's not facing the same obstacles as other buyers, she said.

The market for homes in Sussex County has been difficult over the past several years, but she's still anxious to live close to the beach and her office, she said. Some locals may even now be able to afford property in an area where the cost of living has traditionally outweighed the average income.

"In the past, everyone has wanted to buy, but nothing has been affordable," she said. "I think at this point, if you're able to get a mortgage, you should be able to get something affordable, especially in this area where it's difficult to get someone who wants to be a first-time homebuyer and have it be their primary home instead of just a vacation home."

Cahill says there are certain things potential buyers can do to ensure they are making an informed purchase.

"The first thing I would tell someone to do is go to a mortgage officer and find out what they can realistically afford," she said. "They need to know so they're not overspending."

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Why 2009 is the right year to buy a home

The “first time homebuyers tax credit” is a major bonus for 2009. A first time homebuyer or any person who has not owned a home for 3 years will want to check into this tax credit. They can apply for this tax credit if they purchase a primary residence before Dec. 1st 2009.

The tax credit is 10% of the home purchase with up to no more than an $8000 tax credit and $4000 for a married couple filing separately. Call your tax accountant for details on the criteria and information on the first time home buyers tax credit for the year 2009. This credit is going to help a lot of people have a chance to own a home. You can also go to the website at www.irs.gov for information.

Interest rates are lower than they have been in a long time. I spoke to a lender on March 17th, and 100% financing USDA and VA loans were at a low of 5% for a 30 year fixed. On March 18th, conventional loans were at 4.75% for a 30 year fixed. Over the life of the loan buyers will save a lot of money with interest rates this low. Interest rates tend to fluctuate often so check with your lender for rates.

The first step a homebuyer will want to do before shopping for a home is to have a lender pre-approve them for a loan. There are a lot of lenders to choose from. It is best for home buyers to make sure they qualify for a loan and to know the amount they are approved for. If a person does not qualify for a loan when they apply, they should not get discouraged. Lenders can let you know the steps you need to take to build up your credit score. Lenders are helpful resources of knowledge and can put you in the right program to purchase a home. Stop by and talk to a couple lenders and see what they have to offer. They are there to help you thru the process of purchasing a home.

The second step is to find a real estate agent you feel comfortable working with. There are many real estate offices to choose from. Stop by a local office and meet some of the
real estate agents ready and waiting to help you find the perfect home. All you need to do is give them the criteria of what you desire in a home and property and they will do all the research to find the home of your dreams. They will walk you thru the transaction from start to finish. It can be a nervous time for first time homebuyers but once they start working with an agent they will help you be at ease during the process of buying your first home.

The real estate market is a buyer’s market at this time. Buyers have a large variety of homes all shapes, sizes and prices to choose from. A major news station reported recently that 2009 was going to have some of the best prices on real estate in years.

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Real Estate: 'Perfect Storm' for first-time home buyers

It's a true story of the fishing boat Andrea Gail sailing into the confluence of two big storms and a hurricane. Sadly, all hands were lost at sea.

Since the 1997 publication of the book on which the 2000 movie is based, the words "perfect storm" have been used to describe those unique situations — both bad and good — that come along once in a lifetime. If you are a first-time home buyer, the perfect storm has arrived.

Last month, President Obama signed into legislation a $789 billion economic stimulus package that included something very important: an $8,000 tax credit for first-time home buyers.

This credit is a far cry from the one passed last summer.

Last summer Congress passed a $7,500 tax credit for first-time home buyers that sounded good at first glance. However, a closer look at the details revealed that buyers actually had to pay the tax credit back. It really was just a zero interest loan.

Just 111 people in the whole country applied for the program.

But this new program is making it a real deal to purchase a first home. The tax credit does not have to be repaid and is for 10 percent (up to $8,000) of the price of the home.

A "first-time home buyer" is anyone who has not owned a principal residence for the last three years. Even if you've owned a vacation home, but not a principal residence, within the last three years you can still qualify for the credit. So if the last date you owned a home was three years ago from today, you could buy a home and qualify.

An important part of the program that everyone needs to understand is that to qualify, you have to buy the home before Dec 1, 2009. It's retroactive to Jan. 1, so if you bought your first home any time after the first of the year you can still qualify.

There are income limits, though. Single people who buy their first home cannot make more than $75,000 to qualify for a full credit. And if you are married, you cannot have a household adjusted gross income of more than $150,000. If you make more than that, you may still be eligible for reduced credits.

There is a requirement that buyers must live in the new home for at least three years. If it is sold within three years the credit must be returned to the government. Exceptions will be made in certain cases such as death or divorce.

Consider how powerful home ownership is compared to renting. If you are renting an apartment for $500 per month with rent increases of only 10 percent a year, at the end of 10 years you will have paid $95,624. When you move out, you have nothing to show for it.

But what if you buy a home for $100,000, put $3,500 down through the FHA program, get a 5.25 percent interest rate — it is actually 5.125 percent as I write this — and live in it for 10 years?

Your monthly mortgage payment will be just $532 per month and after 10 years you'll have paid only $67,422 (plus property taxes). Of course, you will be able to deduct the interest on the loan and your taxes as well. Depending on your tax rate, you get a lot back.

Let's say you then sell the home for $122,000. After paying off your note and closing costs you pocket more than $19,000. You've spent $28,000 less and come away with $19,000 more. That's an improvement of $47,000 vs. renting. Which sounds better to you?

So, how does someone take advantage of the $8,000 tax credit? If you buy a new home between Jan 1 and Dec 1, 2009, you claim the credit when you file your 2008 taxes (before April 15) or when you file your 2009 taxes early next year.

Here is the confluence of the "perfect storm" of opportunity: An $8,000 tax credit coupled with the lowest interest rates in 30 years, joined by an unusually large inventory of homes from which to choose, offered by sellers who have lowered their prices well below what they were worth just two years ago.

This perfect storm won't last long; the buyers market window will be closing before the end of 2009. It's time to sail.

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Realtor home buyer survey: Blinded by blizzard of stats

The latest survey by Move.com and Realtor.com peppers you with so many countervailing statistics it's hard to figure out what exactly's going on. Maybe that's the point.

See if you can make sense out of these three inconsistent sentences pulled from a press release. I pretty much gave up:

* While 5.8% plan to purchase a home in the next 12 months, 12.8% of Americans say they plan to buy a home in the next two years and 11% plan to purchase a home in two to five years.
* 23% of Americans plan to buy a home in the next five years
* 18.1% of adults plan to buy a home this year in order to take advantage of the $8,000 tax credit recently passed by Congress in the administration’s economic stimulus package.

If I read this correctly, the first sentence says 29.6 percent of Americans plan to buy in the next five years. I got that by adding the three numbers. The second sentence says that number is 23 percent. The third sentence contradicts the first sentence by providing triple the number of prospective home purchasers in 2009 (or in the next 12 months).

The survey of 1,005 adults was conducted March 6-8. I know Realtor.com is essentially part of a trade/lobbying group representing hundreds of thousands of real estate agents. It's paid to spin. But at least they could coordinate the spin so that the facts aren't smacking into each other like in that 1970s Battling Tops game.

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A Trojan Horse for Green Cards

The recent housing price report by the Office of Federal Housing Enterprise Oversight that home prices increased significantly between December and January may portend that the market will return to normal on its own. Just in case it cannot, Richard S. Lefrak and A. Gary Shilling proposed last week in The Wall Street Journal that housing prices could be increased by giving green cards to foreigners who buy a home in the United States. At its best, the proposal is a Trojan horse for opening the gates to immigration.

Edward Glaeser has effectively argued that, thanks to a housing “bubble,” we have too much housing and are better off by adjusting to that reality rather than introducing a subsidy or trying schemes to temporarily and artificially bolster housing demand. On these terms, it might seem that the cards-with-houses proposal is another attempt to avoid taking needed medicine.

However, the flip side of “too much housing” is too few people to live in the houses. From some perspectives, America has had, and continues to have, too few people. Skilled immigrants add much to our economy and society. They are often leaders, for example, in patenting and starting businesses. Yet we still severely restrict their entry into the United States.

A perennial concern is that our neighborhoods might not be able to absorb many immigrants without some turmoil. But these are not normal times. Many neighborhoods have homes that are in need of occupants, so if there were ever a good time to distribute more green cards, this may be it.

However, the cards-with-houses proposal is not just about cards, and therein lie its weaknesses: It proposes to tie the green card to a housing purchase. As a result, the proposal is excessively interventionist and, compared with the simpler alternative of just distributing more green cards, would not achieve its desired effect (raise housing prices).

If green cards were sold without housing-purchase conditions, that would bolster housing demand and (in the short run, before additional housing might be built to accommodate the extra demand) therefore prices. The reason is that foreigners working in the United States (that’s the purpose of the green card — to make it easier to work here) need to live somewhere in the United States.

Adding a housing purchase condition to green card distribution, and wiping out the old means for obtaining green cards, would not bolster housing demand. It would only reduce the willingness of skilled immigrants to seek a green card. With the extra condition, immigrants would have to either buy a house that they would have purchased anyway (see above), or turn around and rent or sell the housing in the case that they do not really want to own one. Either way, housing demand would be unaffected.

As with many well-intentioned policy proposals, the cards-with-houses policy quickly degenerates into government micro-management. The authors of the proposal recognize the resale problem, and think they can “solve” it by having government authorities watch for several years to make sure that the immigrants still own, and do not rent out, the houses they have purchased. But as everyone in New York knows from witnessing (or partaking in) rent control cheating, it is quite difficult to police who lives in which house.

The simpler and more efficient alternative is to drop the house-purchase requirement — just distribute more green cards to skilled foreigners — and trust that immigrants have to live somewhere and will thereby bolster housing demand.

Cards-for-houses might be politically more feasible because it more explicitly leverages the housing crisis to increase immigration — an increase that would make sense (but lack political support) even without a housing crisis. I cheer for the Greeks in the Iliad, but are Trojan horses a necessary part of our democracy? Acting as if our political system is so dishonest that worthwhile goals can be achieved only by poorly executing ill-advised surrogate ones is not a good way to start someone’s time in the United States.

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