Sales of existing homes fell for the fourth straight month in June, but prices defied the gravitational pull not only in

California, but the nation. The National Association of Realtors reported that the sales of existing homes dropped 3.8 percent in June, the slowest pace in four and a half years. Down from an annual rate of 5.98 million units set in May 2007, the June rate pulled annually adjusted sales down to 5.75 million units.

 It sounds worse when you compare year-over-year. Sales dropped 11.4 percent in June from June 2006.

In California, where one in nine

U.S. residents lives, home sales decreased 24.7 percent in June compared with June 2006.

Yet, the median price of an existing home rose nationally by a meager 0.3 percent in June. Considering sales were slower in May, that’s a 3.3 percent jump in price in one month and the first upswing over same-month prices in a year. And in

California, the median price of an existing home rose 3.2 percent. That’s in a market with a supply of about 10 months of inventory on hand. Six months on hand is considered well balanced for buyers and sellers.

That’s why rising prices don’t make sense when sales are slowing and inventories are building. With more to choose from, buyers tend to negotiate harder.

Nationally, the supply of unsold homes on hand in June dropped 4.2 percent to an 8.8-month supply. That’s still high, but down from the 15-year high set In May.

Economists speculate that one reason that home prices haven’t come down is because market fundamentals such as growing job bases are supporting home prices and that some sellers have pulled their homes from the market to wait for better offers. Others, such as the NAR’s senior economist Lawrence Yun that “it appears that some buyers are looking for more signs of stability before they have enough confidence to make an offer.”

This suggests a classic standoff, and which way it goes is anybody’s guess, but here’s what could happen.  

Both buyers and sellers may begin to look at opportunity costs as well as their actual costs:

· Money’s not going to get better. Currently, mortgage interest rates are lower than they were this time last year, but economists are bullish that rates will go up, due to higher competitive rates being offered by foreign banks such as China and

England. That means that American banks will have to compete to attract foreign investment. If lending rates go up, mortgage rates will too.

· Selection’s not going to get better. If that doesn’t move buyers along, another reason might — home sales are declining and anticipated to decline further, but sellers are proving to be both stubborn and resilient. Unless something induces a panic and more sellers pour into the market, absorption will pick up, inventories will come down, and buyers will find they are paying higher prices for inferior properties.

· Advantage isn’t going to get better. Now’s the time to trade up, while inventories are saturated. When absorption starts, the best properties are picked off first. Buyer competition’s not going to get better. Now is the best opportunity for buyers to find and negotiate for a home while other buyers are still wondering what to do. When they decide to jump in and buy, the competition for homes will get worse. Even so, the NAR forecasts that sales of existing homes will fall by 5.6 percent this year with prices dropping by 1.4 percent. That would mark the first annual price decline on record.

But only if buyers win the standoff.

 

Realty Times

This week the minimum wage increased for the first time in over 10 years, but there are some good reasons why having more money won’t make much difference to homebuyers. The Fair Minimum Wage Act of 2007 raises the minimum wage to $5.85 an hour from $5.15 an hour. Congress plans to phase in more increases every summer until the minimum wage reaches $7.25 an hour in the next two years. According to estimates, about 1.7 million workers earned $5.15 an hour or less in 2006, so by the time wage increases are completed, about 13 million workers will be favorably impacted. Some economists predict that employers will respond by trying to cut personnel, but others say that the minimum wage increase is long overdue. One estimate noted that the minimum wage was at a 52-year low when adjusted for inflation. That’s a lot of time and money to make up, and the new federal wage guidelines do neither. If you are a minimum wage earner and want to buy your first home, you could be looking at paying about $180,500, the median priced home for first-time homebuyers. With a 10 percent downpayment and a fixed-rate loan of 6.67 percent counting private mortgage insurance, your monthly payment would be about $1,045. To qualify for a home in that price range, you’d have to be making an annual income of $50,160. As a minimum wage earner today, you’ll bring home about $12,168. By summer 2009, you’ll earn $15,080. You’ll still need another income or a co-signer, or you’ll need to buy a far less expensive home than the first-time buyer is able to. Other reasons why the wage increase won’t impact housing is that some states have already raised their minimum wage much higher than federal standards. In

Washington, the lowest wage is $7.93. In California, it’s $7.50, and in

Vermont, it’s $7.53.

So, the workers most impacted will be those who live in states that follow the federal wage guidelines. That means housing affordability is still going to be a problem for many low-wage earners, and that keeps the pressure on first-time homebuyers and move-up homebuyers. 

Realty Times July 25th, 2007

A new report projects home-price declines for the next two years. The riskiest markets are in Florida, California, Nevada and

Arizona. Here’s how to ride out the hard times.  

As if the housing market isn’t bleak enough. The Standard & Poors’ Case-Shiller Home Price Index reported in late June that home prices dropped more in the first quarter of this year than at any other quarter in the last 17 years. Now, a report from PMI Mortgage Insurance says home values could decline across much of the country for at least two more years. There’s a 34.6% chance on average that home prices will drop in the nation’s top 50 markets in the next couple of years, according to PMI Mortgage Insurance’s new U.S. Market Risk Index, which heavily factors in recent price volatility.How far and how fast prices actually fall remains to be seen. But the report underscores the fact that today’s market is decidedly different from that of recent years, when homeowners could bank on rapid home-value appreciation.  Headed for decline Not surprisingly, the riskiest markets identified by the index are located in areas that saw rapid price appreciation, a reduction in affordability followed by a rapid decrease in the rate of price appreciation. Of the 15 biggest cities with the greatest risk for price decline — with more than a 50% chance of lower home values by mid-2009 — five were in California and four were in

Florida.

At the highest end of the spectrum, the following major markets all have a greater than 60% chance of declines, according to PMI:

• Riverside-San Bernardino-Ontario, Calif. (65.2%);

• Phoenix-Mesa-Scottsdale, Ariz. (64.6%);

• Las Vegas-Paradise, Nev. (61.4%);

• West Palm Beach-Boca Raton-Boynton Beach, Fla. (60.7%).

 “There’s no question that our housing prices are declining here,” says Jay Thompson, an agent with Century 21 Aware near

Phoenix. “Our appreciation rate was 54% average at one point in mid-2005-2006, so it is no surprise to anybody here … that prices were going to go down.”

The inventory numbers tell the story: In January 2005, Thompson’s multiple listing service showed 3,500 homes for sale. Today: about 54,000.Also at risk for dropping valuesThe next-riskiest top 50 metro areas on the PMI index, with a 50% or greater chance of dropping values in two years, are:

• Los Angeles-Long Beach- Glendale, Calif. (58.6%);

• Santa Ana-Anaheim-Irvine, Calif. (57.7%);

• Oakland-Fremont-Hayward, Calif. (57.2%);

• Orlando-Kissimmee, Fla. (56.3%);

• Sacramento-Arden-Arcade-Roseville, Calif. (56.0%);

• San Diego-Carlsbad-San Marcos, Calif. (55.5%);

• Fort Lauderdale-Pompano Beach-Deerfield Beach, Fla. (54.2%);

• Miami-Miami Beach-Kendall, Fla. (52.4%);

• Tampa-St. Petersburg-Clearwater, Fla. (50.6%);

• Boston-Quincy, Mass. (50.1%);\

• Washington, D.C.-Arlington-Alexandria, Va.-W.Va. (50%).

 Even where PMI found relatively low risk for dropping prices, sales have slowed way down. In

Everett, Wash., in the Seattle-Bellevue-Everett region with a 34.3% risk of lower prices in two years, homes are sitting on the market an average of 59 days before selling, says Susan Funk, agent with Keller Williams Realty. “Last year, you knew you were overpriced if you did not have offers within the first 10 to 14 days,” Funk says.

Rust belt less riskyYou might expect the list of high-risk regions to include Midwestern industrial cities like

Detroit, where prices fell 9.3% in the last year and foreclosures rose 140% between May 2006 and May 2007, according to RealtyTrac. But

Detroit hasn’t had much volatility, just steadily falling prices and a huge backlog of properties for sale. There’s less risk there because prices already have fallen a good deal, says Mark Milner, chief risk officer at PMI Mortgage Insurance. “Simply put, prices can’t fall forever,” PMI’s report says. “The more volatile it is, the more likely it will be volatile in the future,” says Milner, explaining how risk is calculated.

Phoenix, the second-riskiest city, saw a precipitous drop in the rate of home appreciation — from 37.3% in the first quarter of 2006 to 4.52% in the first quarter of 2007. Affordability — how much of your income is eaten up by housing — is another component of the risk scores. To arrive at risk scores, the PMI economists use a formula that includes data on house sales (including prices, volatility, acceleration and deceleration), affordability (including per-capita income, appreciation and mortgage rates) and employment.One encouraging note: In most markets where price reductions are predicted there are strong local economies and low unemployment. Nationally, “on average, employment is very strong,” says LaVaughn Henry, PMI’s director of economic analysis.The least-risky areasThe major metros with the least risk of price decline by 2009 were in Texas and the

Midwest, stable markets largely untouched by the real estate boom:

• Cincinnati-Middletown, Ohio- Ky. (9.7%);

• Columbus, Ohio (9.3%);

• Indianapolis-Carmel, Ind. (8.4%);

• Houston-Sugar Land-Baytown, Texas (7.9%);

• Dallas-Plano-Irvington, Texas (7.5%);

• Fort Worth-Arlington, Texas (7.4%);

• Pittsburgh (6.4%).

Lessons from a changed marketWhat does all this mean to buyers and sellers? In short, says one agent, forget what you thought you knew about real estate.For buyers

• Consider whether and where to leap. For buyers, the changing market may mean it’s time to think about buying if homeownership previously was too costly. “Yes, there are affordability problems in California, the Southwest and Florida,” says PMI’s Milner. “But there are also huge swaths of the country where housing is still very affordable, and in some cases more affordable (in percentage of income spent on housing) than it was 10 years ago.” The most affordable regions are the South and
  Midwest. Just be certain you can weather the storm if home values drop after you buy.

• Realize it’s a home, not a cash machine. Think of your home as a place to live, not as a way to make quick money. “Instead of a stock, which is just a piece of paper, you get to consume shelter,” says Milner. Your home probably will appreciate, but slowly. Historically, homes appreciate at a rate of about 4% to 6% a year, on average, over any given 10-year period, he says.

• Choose a mortgage by interest rate, not payment amount. Proceed cautiously when shopping for a mortgage. Consider a traditional fixed-rate loan so you’ll know exactly what your payment will be for the entire life of the loan. You may find adjustable-rate mortgages (ARM) with lower payments that later adjust up, but don’t gamble that you can make a higher payment when the introductory period is over or when interest rates rise, as they are likely to do.

• Don’t bet on house appreciation. Don’t make financial plans or take on debts that bank on the near-term rising value of real estate. In the post-bubble world, the risk to your financial stability is just too great. A number of the 176,137 foreclosures filed in May — a 90% increase from last year at this time, according to RealtyTrac — were by borrowers who’d gambled they could refinance a risky mortgage once their home had appreciated. Buyers “are going to need to be very prudent because they are not going to be bailed out by an appreciating home,” says Milner.

 For sellers

• Sweeten a sale by helping a buyer with closing costs. Potential buyers may be sitting on the sidelines because, although they can make monthly payments, they haven’t got a down payment saved up, says Steven Schafer, an agent with Boca Executive Realty in Boca Raton, Fla., one of the riskiest markets identified by the PMI study. Consider contributing up to 3% of closing costs. (Just be aware that states and lenders often limit seller contributions.)

• Exploit the Internet. Open houses, while still an important sales tool, are being eclipsed by the Internet. Buyers now use Web research to learn what’s for sale locally before stepping a foot out of their homes. With scads of homes on the market, you must figure out how to distinguish your home from others like it on the Internet. Schafer and Thompson, the Phoenix-area agents, create a Web site for each house they represent, usually using the home’s address as the site address. If your agent can’t register the link for you, do it yourself. You can also set up a Web page yourself with a modicum of computer skills or pay a Web site creation company to do it for around $30, says Schafer.

• Load your listing with pictures. Schafer advises “visually communicating” with buyers by choosing an agent with an outstanding Web site and contributing plenty of great photos of the house.

• Use a “virtual” tour. Sophisticated real-estate sites use panoramic photo features or streaming video so buyers can get a 360-degree view of the property from a single vantage. With virtual tours, buyers in other states and other countries can get a good feel for your home without actually stepping foot inside.

By Marilyn Lewis

It’s not just the cost, it’s the upkeep. That old saw holds true in homebuying and maintenance. Repair and replacement costs mount each decade of a home’s life, and each generation of homes has its own frailties. Understanding home life cycles is key to making informed buying and remodeling decisions. Census data put the median age of

U.S. homes at 32 years. Wood decks, garage doors, faucets and some appliances start showing their age at 10 to 15 years or even earlier. Other parts of a home — such as wood floors, some kinds of doors, insulation, fiberglass and toilets — can last more than 35 years or the life of a house, according to a National Association of Home Builders study. These are only averages, however. To find out how a particular home is aging, and whether its diet and exercise regimen (repair and maintenance plan) is working, homebuyers can turn to experts. An experienced home inspector can alert them to looming repair needs and a timeline for ongoing maintenance. Learn What You Have A general inspection of the entire home should be the first order of business for buyers, says Max Curtis, a home inspector working in the

East San Francisco Bay area. “We’re kind of the general practitioner,” he said. “If we see problems, we may send them to a specialist.” Waterworks woes might warrant calling in a plumbing inspector, for example. Costs for comprehensive inspections vary around the country. Curtis says he charges $200 to $250 for what’s typically a three- or four-hour visit. He advises buyers to get an inspection even if the house is new or almost new. It’s important because shoddy construction or installation issues can cause unexpected problems down the road. The expected issues are enough to cope with. Here’s a rundown on how long home components last: Eight to 10 years: Some appliances age rapidly, the NAHB study found. Trash compactors have the shortest average life span at just six years. Small refrigerators and humidifiers also have a relatively short life span at eight years on average, followed by dishwashers and microwave ovens at nine years. Out in the real world, remodeling contractors and inspectors say they see problems with thermal pane windows, sometimes in a home’s first decade. Fogging between the panes is the most common issue, Curtis says. “It’s almost routine,” he said, and “hard to pick up because they change hourly.” Eleven to 20 years: In this age group, homeowners can expect to replace some appliances and they’ll want to look closely at the roof and any wood decks or balconies, paint and siding. Also, lighting and electrical panels should be evaluated. Even buyers of younger homes are adding home theaters, spa tubs and smart-home features (lighting, heat and other controls), and these usually require updating the electrical system, says Greg Johnson, co-owner of remodeling firm Lee Kimball in

Winchester, Mass. Twenty to 35 years-plus: At 20 years and older, the roof needs a thorough inspection and probably some work, if not replacement. Whole house systems — plumbing (including faucets), electrical, heating and venting — need to be inspected and maybe updated. The furnace could need replacement, and some flooring (carpets, vinyl, wood floors) likewise. Homes built in the 1950s usually need wiring and plumbing updates, says Scott Gregor, president of Master Plan Remodeling in

Portland, Ore. One electrical panel used in the 1950s and ’60s, Federal Pacific Brand, was faulty; John Fryer, a home inspector in

Berkeley, Calif., says to replace it when found in a home. Exterior Insulation Finish Systems’ (EIFS) stucco is a synthetic stucco that leaks if not properly sealed and installed, says Fryer. Curtis says synthetic shake roofs need to be looked at closely — failures of these roofs have led to many lawsuits. Also, in the mid-1980s some plumbers used defective ABS pipe, Curtis says. Root Of Big Problems One very costly issue with homes 15 years and older is trouble with sewer lateral lines, which connect homes to the public sewer system. In Northern California, problems have been so prevalent that nine cities now require a sewer pipe certification when homes 15 to 25 years and older are sold, says Pamela Vivion-Brooks, co-owner of Pipe Cams in

Livermore, Calif. She says even newer sewer lines in areas with many trees should get inspections. In Arizona, older homes have cast-iron sewer lines now needing replacement, says Rocky Dunn, owner of Greenwood Contracting in

Phoenix.

Some problems are due to pipe degradation. In

California, older pipes of clay and Orangeburg (wood fiber with pitch) are the troublemakers. But overall, 59% of problems are tree-root related, says Vivion-Brooks. Trees can start messing with pipes after just a few years, especially with newer ABS pipe that hasn’t been properly glued.

Kathleen Doler

This morning the U.S. Census Bureau and the Department of Housing and Urban Development announced that for the month of June, privately owned housing starts increased 2.3 percent from May’s levels, to a seasonally adjusted annual rate of 1.467 million.

Quicken Loans Chief Economist, Bob Walters, says that while builders may be starting to bet on the housing sector, it is far too early to call it a comeback.

“With long-term interest rates remaining at favorable levels, today’s report shows that builders are again starting to put their faith in the housing market,” said Walters. “However, it is important to keep in mind that the summer months are historically a strong period for housing starts, so it would be unwise to read too much into this report. I would wait for a long run of positive news before deeming this a comeback.”

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