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(Reuters) – Pending sales of previously owned U.S. homes rebounded unexpectedly in July and new claims for jobless benefits fell last week, hopeful signs for the sputtering economic recovery.
The data on Thursday, including sturdy retailers sales last month, followed a report on Wednesday showing surprising strength in the manufacturing sector and suggested that investors’ fears of a double-dip recession may have been over done.
“These are further signs the economy is not slipping into a recession albeit growth still looks quite slow,” Zach Pandl, an economist at Nomura Securities International in New York.
The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in July, increased 5.2 percent to 79.4 from June. Financial markets had expected the index, which leads existing home sales by a month or two, falling 1.0 percent.
Home sales have fallen sharply following the end in April of a popular tax credit for home buyers and the surprise gain in July raised hope the decline was close to a bottom.
A report from the Labor Department showed initial claims for state unemployment benefits dropped for a second straight week, slipping 6,000 to 472,000, below market expectations for 475,000.
Stocks on Wall Street rose on the data, building on a big jump on Wednesday. U.S. government debt yields rose and the dollar was slightly weaker against major currencies.
Sentiment was also lifted as U.S. retailers posted better-than-expected sales in August as consumers sought out bargains during the key back-to-school selling season.
More homeowners turn to shorter loan terms
A growing number of homeowners are choosing to pay down their mortgages at a faster rate — even if it means a substantial jump in their monthly payments.
From January through June, 26% of homeowners who refinanced chose a 15-year fixed-rate mortgage, according to data from CoreLogic, a provider of financial, property and consumer information. During all of 2009, 18.5% of borrowers who refinanced opted for a 15-year term. About 9.4% did so in 2007.
What’s prompting the shift to shorter loans? Historically low interest rates for fixed-rate mortgages.
Homeowners are doing the math and realizing that rates have fallen enough so the increase in payment between a new 15-year mortgage and their current loan is no longer unbearable for their budgets, said Bob Walters, chief economist at online lender Quicken Loans.
The average rate on a 15-year fixed-rate mortgage was 3.86% for the week ending Aug. 26, according to Freddie Mac’s weekly survey of conforming mortgage rates.
A Change in Thinking
The financial situation of the people capable of refinancing today is a factor in the shift, Walters said. These people typically are homeowners with the best credit and the most equity — and, therefore, most suited for a shorter-term loan.
But there might be some psychology at work. “We’re seeing a different view on debt than maybe we’ve seen in the past,” he said. Today, homeowners are saying, “I really want to pay this off. I’m going to bite the bullet and take the payment and work toward paying this down.”
Also, the average rate on a 15-year fixed-rate mortgage is below 4% right now, and having a mortgage rate that starts with a “3″ is attractive for people who can afford it, said Leif Thomsen, chief executive of Mortgage Master, a privately owned lender.
It also acts as somewhat of a forced savings account for homeowners, he said, given that the higher payments help pay down the principal at a quicker clip.
This is a huge shift in borrower thinking. “There was a drive a couple of years ago to take out the biggest mortgage that you could and use all of the money you would have otherwise had in the house and put it into stocks and bonds — to think of your house and mortgage as part of your entire investment portfolio,” said Amy Crews Cutts, deputy chief economist for Freddie Mac.
“That worked for people who do investment finance for a living and are good at managing accounts,” she said. “But for the average person, debt is a drag on their psyche as well as their overall budget.”
Many Americans have reverted to the goal of paying off their house and getting rid of their mortgage, Cutts said.
Doing the Math
Refinancing into a shorter-term mortgage isn’t a strategy for everyone, however.
Choosing a shorter term usually means you’ll get a better rate — and you’ll pay much less interest over the life of the loan — but a shorter timeframe ramps up monthly mortgage payments.
For example, with a 4.5% interest rate on a 30-year fixed-rate mortgage of $200,000, you would have a monthly payment of $1,015, including principal and interest, Cutts said. The monthly payment jumps to about $1,480 with a 4% interest rate on a 15-year fixed-rate loan.
Of course, if the refinancing borrower’s current 30-year loan has a higher rate, the difference between the monthly payments could be less. Still, you should count on some increase in monthly payments.
In general, Walters said, those who choose 15-year fixed-rate mortgages are older and have more equity and less debt than other folks. They also earn higher incomes and don’t have some of the added expenses that younger homeowners typically do.
“People who are taking these loans are financially stable and can afford the payments, but at the same time are planning on staying in their home for an extended period of time,” Thomsen said.
Walters said homeowners shouldn’t take on a 15-year fixed-rate mortgage unless they have substantial savings, including at least a year’s worth of living expenses in liquid accounts.
Also, he recommends having a debt-to-income ratio below 35%. So if you have a gross salary of $5,700 per month, for instance, your monthly debt — including any mortgage payments, taxes, insurance, homeowners-association dues as well as auto and student loans and credit-card debt — would have to be a max of $1,995 to get a 35% ratio.
Make That Extra Payment
Borrowers who don’t meet those standards, or are worried about future loss of income, might be better served taking a longer-term mortgage but making extra payments to the principal to pay off the loan faster, Walters said.
For instance, if you refinance a $200,000 mortgage into a 30-year loan with a 4.5% rate, and then apply $100 of the savings to the principal payment each month, you’d save $31,700 in interest over the life of the loan, Cutts said. And you would pay off the mortgage in 25 years, instead of 30, she said.
What’s more, you would have the flexibility of not paying that $100 in months when money gets tight. “Maybe today you’re feeling flush with money. Maybe you’re worried in the future that income might change,” Cutts said. With a 30-year mortgage, you have more flexibility. “Shortening to 15 years is a pretty big bump in payment.”
http://finance.yahoo.com/loans/article/110512/a-15-year-mortgage-isnt-for-everyone?mod=loans-home
(Money Magazine) — Shelved plans for that $50,000 kitchen remodeling until the economic recovery actually starts to feel like a recovery?
Make the waiting less painful by breaking out your toolbox. A few cheap fixes — painting cabinets, swapping out old knobs and pulls, and replacing your ceiling lights — can make a huge difference.
Update your backsplash
It’s a quick way to dress up an old kitchen, not to mention protect your walls from stains and even fires. If you’re not eager to mess with mastic and grout, consider Aspect Tile’s new peel-and-stick metal tiles.
Available in copper and stainless steel, they’ll give the room a clean, updated feel. And though the metal finish can look fairly modern, these tiles come in a traditional three-by-six-inch subway-tile format, which fits in with a variety of décors.
How to Do It: The tiles, available at Lowe’s or aspectideas.com, go up as easily as address labels but stick tenaciously to the existing backsplash. Bonus: Your contractor can reuse them (with some added glue) when the kitchen gets redone later.
Cost: $500 to $600, typically
Time: One day
Dress up old appliances
Buying new appliances may not make sense at this stage because you don’t know what your eventual remodeling will require. But a fresh coat of white, black, or silver paint on old refrigerators and dishwashers (not ranges, which get too hot) will give them — and your kitchen — a cleaner, newer look.
How to Do It: Lightly sand the surfaces so the paint will adhere. Cover handles and hinges with masking tape. Then spray on two coats of Krylon’s Epoxy Appliance Paint or Stainless Steel Paint (available at Home Depot or thepaintstore.com).
Cost: $20 to $30 for three to four cans (enough to cover the fridge)
Time: One to two days
Make your own concrete countertops
Worn-out Formica, tile, or butcher block make your kitchen look dilapidated. But spending $6,000 or more for granite or even $2,500 for new laminate makes no sense if you’ll be reconfiguring the kitchen in a few years.
A solution: polished, colored concrete. It has all the burn and scuff resistance — and visual appeal — of granite but is pricey if it’s professionally installed.
How to Do It: Buy a DIY kit at concreteexchange.com. You’ll get everything you need to cast, polish, and install your own counters, including a customizable mold and detailed instructions.
Still none too sure you can pull it off? Attend one of the how-to seminars the company runs around the country.
Cost: $750 to $1,000
Time: Two weekends 
http://money.cnn.com/2010/08/06/real_estate/kitchen_remodel.moneymag/index.htm
I am in this mode right now. Had been ready to pull the trigger on a kitchen remodel but after the recession, and soaring college costs, have put it on hold….stay tuned to my updates on how I make out…My plans are to paint my cabinets, change out hardware, install a new tile backsplash, and I would love to attempt a concrete counter top!
Is it welcome news to the many slowly recovering housing markets? Real estate is waiting on a marked recovery from the recession, and some of the latest regional housing start figures seem to show it could be happening.
According to the U.S. Commerce Department, “Housing starts increased 1.7 percent, consistent with privatesector expectations of a 2.0 percent increase.”
“Today’s data show that new housing activity appears to be stabilizing in the wake of the expiration of the home buyer tax credit,” Commerce Secretary Gary Locke said. “However, a healthy economy requires not only a robust housing sector but strong employment and incomes, and President Obama remains committed to developing policies that encourage job creation and broad economic growth.”
“Builders are very reluctant to build more homes in view of the current state of the economy and weak buyer demand,” noted Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich.
What does a recovering housing start market, in general, mean for homeowners? As your own local market begins to sprout up new homes, this in turn can increase jobs for the area. It also could indicate builders are confident enough in the local market to even start building. And if builders are confident, then you, as a homeowner could start to see your home value increase, as well as renewed buyers interest.
“Right now the housing market is essentially in a holding pattern,” acknowledged NAHB Chief Economist David Crowe. “As our latest member surveys have indicated, builders are seeing greater hesitancy among potential home buyers who are uncertain about what’s in store for the economy and jobs going forward. That said, favorable home buying conditions including historically low mortgage rates and low house prices should help spur additional demand as the job market gradually improves later this year.”
The two regions with improving housing starts were the Northeast and Midwest, each posting dramatic gains. The Northeast saw an incredible 30.5 percent increase in July, while the Midwest saw an equally impressive 10.7 percent rise.
The Western region of the U.S. saw no change in housing starts, while the South, noted by the NAHB as “the country’s largest housing market,” posted a 6.3 percent decline in July.
But these figures may be deceiving, as the NAHB reports that in reality, “single-family housing production declined 4.2 percent to a seasonally adjusted annual rate of 432,000 units, its lowest mark since May of 2009.” Why are the figures indicating a rise then? This rise in housing production could easily be due to a rise on the multi-family side of housing.
Either way, a rise is a rise, and that is a welcome sign in an ailing economy.
The real estate industry and especially the mortgage industry have been overwhelmed with changes, regulations and consolidations recently. In the last couple of months, many transactions nationally have experienced delayed closings or worse as a result of the application of new guidelines affecting APR, Good Faith Estimates (GFE), Truth in Lending (TILA) and condo project approvals to name a few.
There is one more issue that is critical for real estate agents, loan officers, and anyone else who deals with consumers purchasing a home or obtaining a refinance. Effective with applications on or after June 1, 2010, Fannie Mae has issued new lender mandates (FNMA LL-2010-03 Loan Quality Initiative) on a national basis that, if not understood properly, could have devastating consequences for many buyers and sellers. We want to be certain that everyone understands the implications of the new rules and ensure that all interested parties know what they need to know to minimize negative repercussions.
The intent of this initiative is to assure that all applicant information is disclosed and is honest and accurate as of the moment of closing. Lenders will now be required to re-pull credit report information just prior to closing, re-verify employment, validate Social Security numbers, verify intent to occupy and verify that all parties to the transaction have been checked against the national “excluded party” list, which is managed by HUD and by the General Services Administration. Changes in any of these factors are likely to result in a re-underwrite, the need for additional documentation, or suspension of loan closing.
The most onerous of these is the credit re-pull. It is important that this is done as a “soft pull” so it does not show as an inquiry, which could potentially change the borrower’s credit score. Firms will, however, have to match the outstanding debts and inquiries with the report used to approve the loan. Additional credit or increased balances that change the debt-to-income ratio more than 2% (or less if it now exceeds guidelines) will require the loan to be suspended and re-submitted to underwriting.
Any additional delinquencies will result in a new, full credit re-pull and re-underwriting, utilizing the new credit. Any and all inquiries from other lenders or credit suppliers must be verified by the credit bureau and certified that new debt did not occur. If new credit has been extended, the new debt must be included in the borrower’s debt-to-income ratio and the loan must be re-underwritten.
Other considerations are W-2 employees that may own more than 25% of a business, mandating business returns and cash flow analysis and full disclosure of child support and alimony. Changes could render the applicant unqualified or could delay the closing. As a result of TILA, GFE and risk-based pricing changes, additional debt could result in re-pricing the loan due to a change in credit score, which even if approvable, would delay the closing three business days as re-disclosure would be required.
So How Do We Manage the New Process?
Real estate agents and lenders must impress upon the applicants the need for full and honest disclosure at the time of application, during the loan process and at closing. Buyers must be cautioned against applying for new credit during the process, changing jobs (30-day pay stub requirements are being enforced), and charging to their credit cards. It is imperative that they notify the lender if anything changes from application to closing.
We must all be aware that an applicant that signs an erroneous initial or final closing application could be committing fraud. Lenders choosing to approve loans without the proper loan quality processes and documentation are only endangering the buyer. Any lender or real estate agent that encourages someone to falsify information could be equally responsible. It is noteworthy to mention that many loans go through an immediate quality control audit post closing, so this could affect highly qualified applicants as well. Identified fraud of this nature could be investigated by the FBI.
While this new policy was implemented first by Fannie Mae, it is already a mandate of all national lenders and, based on experience, will soon be required on every loan. It is important to keep this in mind on every deal, not just ones that may involve Fannie Mae.
California realtor Carrie Benuska was ready to close on a house when the buyer pulled out during escrow. The reason for the last-minute turnaround: a bonus room her clients added to the back of their home years earlier.
“This bonus room was not bonus at all,” Benuska told MainStreet. “The room spoiled the flow, was built in a sub-standard way, and required the buyers to rip the whole thing off, then rebuild or patch the back of the house where it was added.” The buyer’s unwillingness to fix someone else’s home “improvement” illustrates the catch that comes with some home renovations.
You may be in love with your upgrade, but as with any investment, there’s risk involved — namely not getting your money back when you decide to sell your house. Some home improvements drive up your homeowner’s insurance, require you to pay out of pocket for larger repairs, or even put your family’s safety in jeopardy.
With many homeowners hoping to add value to their homes that lost value in the recession, here’s a guide to the “upgrades” that just simply aren’t worth it.
Pool/Hot Tub
Earlier this year, consumer review website Angie’s List polled more than 500 remodelers, real estate agents and contractors to determine what types of home improvement projects netted the highest return investment by increasing the value of a house. The project netting the lowest investment return, surprisingly, was a pool installation.
In-ground pools cost between $20,000 and $60,000 to install, but a homeowner wouldn’t even recoup half of that. You won’t get much more on smaller pools, hot tubs, or whirlpool baths, either. Moreoever, if the homeowners were ever looking to move, their home may take longer to sell. “Some buyers do not want a pool due to the maintenance, cost and liability,” Anne Millians-Roche, president of Owens Realty Network in Florida, explains.
Additionally, fish-out-of-water families may want to purchase their pool after they’ve secured a homeowner’s insurance policy, since a cement pond can drive up monthly premiums.
Putting in a Home Office … or Monster Garage
What are other costly remodeling projects that might not be worth the expense? Installing a home office or a monster garage, which only recoup about a 60% investment return, according to Angie’s List. Both will impact your ability to relocate significantly.
Why? Doing unique and costly remodels essentially puts your home in a niche market. A home office won’t appeal to large families needing to covert it into a third bedroom. And the giant cave holding your car, meanwhile, might alienate those not devouring Car and Driver.
“The more unique the improvement, the narrower the market, and the harder the property is to sell, which eventually impacts sales price,” Brian Coester, CEO of Coester Appraisal Group, explains. “If a homeowner’s upgrades produces unique results, those improvements could end up costing the borrowers thousands of dollars in lost time on market or even equity.”
Over-Decorating the Interior
If you’re really sold on the idea of a home office, your best bet is to keep it simple. Don’t paint the walls red, hang ornate chandeliers from the ceiling or weld the desk to the floor. Similarly, refrain from selecting orange countertops or patterned wallpaper for your kitchen. And definitely refrain from installing wood paneling.
“Paneling was great back in the ’60s, ’70s, or even ’80s. Now, people are into clean exteriors,” Reggie Marston, president of Residential Equity Management Home Inspections, says. He points out that you would probably have to undo all of the personal touches you added before putting your home up for sale, which could be costly and time-consuming.
“Homes for sale should look fairly neutral so the buyer can picture his or her family living there,” Millians-Roche says. “If a seller redecorates to his/her taste and it is ‘bold’ or unique, it will definitely take away from the house.”
Illegal Repairs
Even those intent on living in their home forever need to make sure their upgrades are installed legally. Many major renovations require permits from your state due to the safety risks involved. Marston recommends contacting your local Building Inspections Department before completing any major renovations to ensure proper permits are obtained and you understand the safety codes thoroughly.
“Chances are illegal improvements will be flagged by a buyer’s home inspector or appraiser,” Cleaver says. “Then you not only pay municipal fines to get after-the-fact permits and inspections, but you’ve destroyed the trust your buyer has in the house — and in anything you say about the house.”
DIY Structural or Electrical Repairs
Similarly, if a project requires a professional, get a professional. And this is not only because you’ll have to fix substandard work if your house ever goes on sale. Marston cites instances where shoddy do-it-yourself decks have fallen off of houses, resulting in injury or sometimes even death. Faulty electrical wiring or poor structural repairs can be just as deadly.
“Poor construction can harm the homeowner and their neighbors if, for example, a house was to catch fire,” Florida contractor Kia Ricchi says. “Construction should be done by licensed and insured professionals.”
Fiddling with the Floor Plan
Generally speaking, walls that are up should stay there. Railroad-style rooms you have to walk through to get to another room as well as long extended additions are prime examples of poor layout planning, says Benuska.
In line with this mode of thinking, don’t add walls where there currently are none. Don’t attempt to change a one-bedroom into two with a divider, either. Homebuyers will be turned off by a bedroom that’s more like a crawl space.
“Original architects and builders usually had a good sense of how a floor plan should work,” Benuska says. “Trying to make a house into something it was never meant to be can be a problem. Additions should be appropriate to the overall scale of the house.”
Forgetting the Amenities
California real estate broker Susan Anderson once asked a client to remodel his condo prior to placing it on the market. He put in a lovely gallery-style kitchen, but there was one minor flaw: He didn’t install an oven. Instead, the client opted for a small convection microwave that would meet his unique dining needs. In the oven’s place, he added custom cabinets for show. But if buyers fixed the problem, they would have had to renovate the kitchen entirely. And of course, this condo never could sell. The moral? “When remodeling, make sure you include the minimum standards the average person would expect to find,” Anderson says.
Granite Countertops
Granite countertops aren’t the problem. It’s just most of your neighbors probably don’t have them. You could shell out thousands of dollars only to never see any return.
“If you took a home you purchased for $300,000 and added $150,000 in improvements, you would like to make back what you paid for the home plus improvements ($450,000), but the market in your area may only be around $350,00 for the same size home,” Patrick Liska, owner of KBM Remodeling Consultants, explains.
If marble floors haven’t caught on in your neighborhood, you might want to refrain from installing those as well.
Muddling
Home improvements should be in tune with your neighborhood, but they also need to fit the style of your own abode as well. For example, if you own a ranch house, don’t install an ornate iron doorway trimmed with gold leafing. Combining two discordant styles is what Marston calls “muddling,” and it may make prospective buyers pass on your listing.
“Never make upgrades just for bragging rights,” Cleaver says, referring to those coveted granite countertops. “If [they] make the rest of the kitchen look tired and shabby, better spend the money on new appliances that add flash and functionality.”
Better Bets
So what type of renovations are actually worth your money? Angie’s List recommends a proper remodel of a kitchen or a bathroom, which costs around $20,000. It will net you an 85% and 84% return on the investment, respectively, thereby increasing the value of your home.
Beyond that, decks are favorably received projects that recoup about 80% of the money you spent. And you can never go wrong with adding safety features, such as new, energy efficient windows or upgraded exterior siding, to your home. Those projects also have, on average, an 80% investment return.
More developers favor ‘smart growth’ in cities, not suburban sprawl
ROCKVILLE, Md. — This suburb of Washington, D.C., inspired R.E.M.’s 1984 song about the soul-sucking blandness of a suburban adolescence that has been a staple of rock and roll. “(Don’t Go Back to) Rockville” described a town of empty houses, “where nobody says hello.”
But some experts in the real estate business believe that in the future, more and more of us will be going back to places like the revamped Rockville — quite happily, in fact.
“They had a point at the time,” Sally Sternbach, the head of Rockville’s economic development arm, says of R.E.M.’s quiet anthem. “We got it wrong. We built a mall that never found its anchors. It languished for 40 years. It was like the biblical 40 years in the desert.”
Then, 15 years ago, Rockville convened hearings and forums to discuss its lackluster downtown, deciding in the end to replace it with a town square lined with shops, restaurants and apartments, all steps away from a subway station — in other words, more of an urban experience.
The citizenry wanted vibrant street life both for the fun of it, and to attract business. So far, it’s worked. Teenagers use Facebook to signal spur-of-the-moment breakdance sessions on the town square’s bandstand because, as Dominique Estrera, 17, explained, it’s really the only place they can “hang out and break.”
Adults like to socialize there, too. “I love the Town Square because I can’t walk more than a couple feet without seeing someone I know from doing business,” said Robin Wiener, president of Get Real Consulting, a firm that helps healthcare providers put their records online.
Rockville’s renaissance over the past four years shows how the shift toward urban-style living has reached the suburbs. And urban planners insist the trend has legs.
Dubbed “smart growth,” the movement favors the development of a mix of housing and businesses in and near existing cities. At the same time, it discourages the Topsy-like growth of peripheral suburbs, known disparagingly as “sprawl.”
The unexpected revival of a number of cities, from Rockville to Sacramento, stands in contrast to plunging home prices in the suburbs. “America is catching on to this trend,” said Peter Calthorpe, who co-founded the Congress for the New Urbanism in 1993 to create alternatives to the conventional suburb.
He says the previous model was based on the assumption that the United States could prop up the single-family home in a distant location by keeping the cost of oil and mortgages low. But that era is over. “The true cost of transportation and housing is going to start to surface,” he warns.
Living for the city
If the trend persists, as many expect, it would be a sharp rejection of the preferences and policies that have shaped U.S. housing since World War II.
The suburb as we know it today — open, low-slung, car-dependent — was born with the post-war baby boom. All of a sudden, there was a desperate need for housing. By 1950, single-family housing starts had soared from around 286,000 a year in 1945 to 1.6 million, according to Census Bureau data. And as the car became more widely available, and roads spread, so did the suburbs.
During the most recent housing boom, homebuilders started 6.3 million detached single-family homes between 2003 and 2006. By 2007, single-family homes accounted for 63 percent of U.S. housing units.
The baby boomers whose arrival kicked off the postwar housing frenzy fed this latest expansion, too. This time, they sought space for their own families, said James Chung, president of Reach Advisors near Albany, New York, whose clients include developers. “Suburban developers did a fantastic job riding that wave,” he said.
But today, aging boomers are growing out of the suburbs and their children have not yet grown into them — and may never do so to the extent their parents did. This demographic shift, more than anything else, is driving consumer demand for compact, walkable neighborhoods, Chung said.
Born between 1946 and 1964, baby boomers represent about a third of the U.S. adult population, and will do so through the next decade, said demographer Dowell Myers of the University of Southern California.
Boomers are eager to liberate themselves from the maintenance of house, lawn and car now that their children have skipped the nest, said Mollie Carmichael of John Burns Real Estate Consulting, an Irvine, California-based firm that advises homebuilders. They want necessities within walking distance because they know they will not be able to drive forever.
After a divorce, real estate agent Kim Merrell, 51, found her ideal community in Sacramento. It has a grocer and neighbors who go “porching” to drop in on each other and chat. A local lounge, Mix Downtown, caters to people like her by waiving cover charges for the 40 and older crowd until 10:30 p.m..
In Sacramento, the 55-74 age bracket will expand by 50 percent by 2020, according to the Sacramento Area Council of Governments, which created a plan to reduce congestion and expand housing choices to accommodate that growth. The group aged 35 to 54, which is when people tend to buy single family homes, will shrink slightly.
Of course, not everyone can afford urban life and its pleasures, especially during this period of fitful recovery from the worst recession in nearly eight decades. Building costs in the urban core are double that of the suburbs, said Mark Friedman, president of Fulcrum Property, a developer in Sacramento’s midtown.
Developers pass those costs onto buyers. Meanwhile, the housing bust has cut the cost of Sacramento region homes 46 percent from their peak, so suburbia is still a draw for many.
For others, it’s the only option, said Henry Cisneros, the former Secretary of Housing and Urban Development who now runs CityView, a developer of housing within the range of average families. “Cities need to understand that a great city needs a mix of housing. It creates dysfunction when workers are required to live at great distances,” he said.
But developers will make the most money building for those who can pay a kind of virtue premium, they say. The gas-sipping Toyota Prius set the precedent: people buy it despite a price tag that is at a minimum $3,000 more than a comparable conventional car.
“It’s looking for the prettiest buyer, a person who is going to pay more for their car because it is important enough to express their values about the environment,” Friedman said.
That lucrative market explains why he and others believe the potential reward in urban development is well worth the risk. “You have to be very careful not to wind up with an obsolete business model in rapidly changing times,” said Eneas Kane, chief executive of DMB Associates, an Arizona-based developer of upscale neighborhoods.
The firm is shifting its focus toward smart growth, including a 1,433-acre Silicon Valley-style industrial salt site with a variety of homes, open space and streetcars.
All politics is local
Until very recently, a real estate agent like Merrell might have been the last person to trade the suburbs for the city. After all, her profession had bought and sold the notion that homebuyers should stretch to invest in the biggest and most expensive they could afford because prices could only go up.
The housing crash changed all that. Size and value were decoupled as prices fell farthest fastest in the far-flung suburbs, said Stan Humphries, chief economist at real estate website Zillow.com.
Now citizens with real estate savvy are honing in on the cities. Unlike the suburbs, and despite the downturn, homes closer to downtowns tended to retain their value, according to a 2008 Zillow report which analyzed the change in value for 1.65 million homes between the first quarter of 2007 and the first quarter of 2008.
In 15 of 20 major housing markets, such as New York City but also Milwaukee, Wisconsin and Durham, North Carolina, higher home prices correlated with proximity to the city center and its restaurants, parks and libraries.
More specifically, walking distance to those amenities generates a home price premium in the range of $4,000 to $34,000, according to a 2009 study of 90,000 homes conducted by CEOs for Cities, an urban advocacy organization.
Americans are willing to invest in that lifestyle just as they were willing to pour money into their homes during the boom. Residents of communities like Sacramento and Rockville are ponying up for the urban privilege of public transportation in their own backyards.
“In one of the worst economies in a generation, people have actively chosen to raise their own taxes to support public transportation,” said Jason Jordan, the director of the Center for Transportation Excellence, which supports ballot initiatives that fund transportation.
In general, 35 percent of ballot initiatives pass. But in 2008 and 2009, 76 percent of ballot initiatives raising taxes to fund transportation did, Jordan said.
People are increasingly pushing for policy that supports an urban lifestyle, and leaders from the White House to town halls are listening, said Alexander von Hoffman of Harvard University’s Joint Center for Housing Studies.
This year, President Barack Obama created the Office of Sustainable Housing and Communities to coordinate federal housing and transportation funding with local development. He designated $2.1 billion in grant money for projects like streetcars in Tucson, Arizona and bike trails in Philadelphia. And the House of Representative’s version of the Surface Transportation Act would nearly double funding for public transportation.
The president “is helping to coordinate and reinforce a movement that was already gaining momentum. He’s helping those local and state leaders,” von Hoffman said.
In California, for example, Governor Arnold Schwarzenegger signed Senate Bill 375 in 2008, requiring each region to adopt a “sustainable communities strategy” to reduce greenhouse gases and give transportation projects top priority for funding.
“It was the coalition of the impossible,” said Darrell Steinberg, president pro tempore of the California State Senate. “The builders, the local governments, the environmental community and the affordable housing advocates had been at odds for decades on these issues.”
Of course, some critics oppose government’s role in “engineering” neighborhoods in cities. During debate over the California bill, conservatives mocked government’s promotion of urban development. “Hasn’t everyone always longed to live in a dense, crime-ridden urban neighborhood, right next to the nearest railroad hub?” said one Internet ad, of Steinberg’s bill.
If anything signals smart growth’s newly mainstream status, it’s the embrace of Salt Lake City, Utah, said Christopher Leinberger, a developer and Brookings Institution fellow. “It’s a Republican state. It’s a Mormon state. It’s fallen in love with blueprint planning,” Leinberger said.
Two-thirds of the residents in the two-county region surrounding Salt Lake City voted to raise $2.5 billion for more miles of commuter and light rail track by hiking their sales tax, said Chamber of Commerce spokesman Marty Carpenter. “70 miles in 70 years!” is the rallying cry.
Salt Lake City itself will receive another $5 billion. A la Rockville, the Mormon Church is replacing two indoor malls with a walkable housing and retail complex.
Atlanta, Georgia; Boise, Idaho; Minneapolis, Minnesota and others have invited Salt Lake City officials to speak, said Natalie Gochnour, the chamber’s chief economist. “They want to know how in a conservative environment like Utah you pass ballot initiatives,” she said.
Utah got buy-in from business, Gochnour said. “It goes back to commute times, and the cost of doing business when you’re congested,” she said.
http://www.msnbc.msn.com/id/38535943/ns/business-real_estate/
Earlier this year 27 students at Old Dominion University pressed their foreheads into a padded frame and peered ahead, much like patients at an eye doctor. They scrolled through pictures of 10 on-the-market homes on a computer screen as an ocular tracking program recorded their eye movements. In some of the homes, for some of the students, the living rooms were painted pink.
The question: Would a pink room-a problem you could fix for the price of a few cans of paint-make the students less likely to purchase the homes? The answer, based on preliminary results, is yes.
The study is part of a growing body of research that is putting real estate under the microscope. Scientists are finding that psychology-everything from how a buyer perceives his agent to how a seller prices her home-plays an unexpectedly large role. “When the market was going up, these questions were mildly interesting,” says Michael Seiler, a professor of real estate at Old Dominion University and the coauthor of numerous studies in the field (including the one about the pink room). Today, with the market wobbly, “they’re much more relevant,” and the results of such research, he and other academics say, can offer useful insights to buyers and sellers alike.
Here’s a roundup of some pertinent findings.
Choose Your Words Carefully
For a seller, advertising that you’ve recently painted your house seems like a no-brainer. But in a study that looked at nearly 60,000 residential real estate transactions in Texas, listings that mentioned new paint, new carpet and/or roof work sold, on average, for slightly less than those that did not.
Thomas A. Thomson, the study’s coauthor and the director of the Real Estate Finance and Development Program at the University of Texas at San Antonio, says that buyers aren’t going to be fooled by a problem house simply because it has a fresh coat of paint. “It’s kind of like putting lipstick on a pig,” he says. But even if there’s nothing wrong with the house, an advertisement that touts new features could set off alarm bells. If a seller says everything is new, a buyer might wonder why everything needed to be replaced-and whether there are other defects lurking.
Thomson recommends sellers take the simpler route: Let potential buyers be surprised by the quality of the home instead of disappointed by how average it is compared with its description.
Looks Do Count
Do buyers pay more when sellers’ real estate agents are attractive? Apparently so: Preliminary results of a study from Old Dominion University suggest that, put bluntly, the more attractive a male finds his female agent, the higher the price he’ll probably be willing to pay. Women also seem to be susceptible to attractive female agents, although not to the degree that men are. (Neither women nor men seem to respond much to attractive males.) “I’d like to think I wouldn’t fall prey to it,” says Seiler. “But I think that the people who were in our study would have said the exact same thing.”
Welcome, Out-of-Towners!
Out-of-state buyers tend to pay more than locals for properties of equal value, particularly when they come from states with higher real estate prices, according to a study from Brigham Young University. Researchers looked at apartment sales in the Phoenix metropolitan area-2,854 transactions from 1990 to 2002-and found that, on average, out-of-state buyers paid more than 5 percent more than their in-state counterparts.
BYU’s Grant McQueen says it often makes economic sense for out-of-state buyers to find homes fast, even if it means shelling out more money than if they shopped more or negotiated longer. Otherwise, they can end up paying more in travel costs than they save on the price of the home. The other reason, though, is less rational: In what’s known as “anchoring,” buyers tend to pay more for a home when they’re used to paying a higher price elsewhere.
The Downside of Upbeat
A big part of any decision to sell a house is where a homeowner thinks prices are heading. So how do owners feel after the brutal market of the past few years? Surprisingly-perhaps naively-optimistic. A recent survey of 479 homeowners in 20 U.S. metropolitan areas found that people were about five times more likely to say their own homes would see their prices increase in the next 12 months than they were to say their neighbors’ homes would do better.
Robert Shiller, a professor at Yale University, and Karl Case, a professor at Wellesley College, survey homeowners every year to gauge how confident they are that their homes will increase in value. Only once, when the housing market was at its worst in the recent crash, did the poll results slide into the negative. In general, the average respondent figured his home was bound to jump in value in the near future. “People don’t change their opinions that quickly,” says Shiller.
Whether they’ll regret those opinions later, only time will tell. If his expectations are out of whack with reality, an overoptimistic seller could wind up waiting for a higher price that will never arrive. But pessimists should tread just as carefully: An overly downbeat seller could wind up dumping a house at a price far below what it could fetch a year or two later.
http://realestate.yahoo.com/promo/the-psychology-of-real-estate.html
RISMEDIA, July 22, 2010—Single-family housing starts were virtually unchanged from the previous month at a seasonally adjusted annual rate of 454,000 units in June 2010, according to newly-released figures by the U.S. Commerce Department. Meanwhile, a 21.5% decline on the more volatile multifamily side weighed down the overall housing production number, which fell 5% to a 549,000-unit rate.
“As our most recent member surveys have indicated, builders remain very cautious in light of the sluggish pace of the economic recovery and the hesitancy they are seeing among potential home buyers,” noted Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich. “However, today’s report is actually somewhat encouraging, because it indicates that single-family production is stabilizing following an expected lull that occurred with the end of the home buyer tax credit program.”
“The government’s figures suggest that single-family housing production may be finding a bottom following the tax credits,” agreed NAHB Vice President and Senior Economist Bernard Markstein. “Over the next several months, we expect to see some improvement in both housing starts and sales activity as buyers come forward to take advantage of the very attractive home prices, historically low mortgage rates and excellent selection that characterize today’s new-home marketplace. However, builders continue to confront significant challenges in obtaining financing for viable new projects, and this problem remains a formidable obstacle to economic growth.”
Nearly all of the 5% decline in housing production was on the multifamily side this June, which fell 21.5% to a seasonally adjusted annual rate of 95,000 units. Meanwhile, single-family starts hardly budged, with a 0.7% decline to 454,000 units. All four regions posted declines in overall housing production, with an 11.3% reduction in the Northeast, a 6.9% decline in the Midwest, a 2.4% decline in the South and a 5.9% decline in the West.
Meanwhile, nationwide permit issuance, an indicator of future building activity, rose 2.1% to a seasonally adjusted annual rate of 586,000 units in June. While single-family permits fell 3.4% to 421,000 units for the month, that decline was due entirely to a drop-off in the South, with every other region holding steady or better on the single-family side. Multifamily permits rose 19.6% to a seasonally adjusted annual rate of 165,000 units in June. Combined single- and multifamily permit issuance was up 32.3% in the Northeast, down 10.8% in the Midwest, down 3.1% in the South and up 9.7% in the West in June.
http://rismedia.com/2010-07-21/single-family-housing-starts-virtually-unchanged-in-june-2010/print/
Did you happen to catch the Timothy Geithner interview on the PBS NewsHour this week? The United States Treasury secretary must have used the word “confidence” a dozen times.
And no wonder. Boosting the confidence of Americans in the US economy right now is critical to fend off a stalled recovery or even a double dip into another recession.
Consumer confidence is wilting under scorching headlines about slow job growth, debt jitters, and a lackluster stock market. After rising for three months, consumer confidence fell sharply in June.
Businesses are wary, too. They don’t like new health-care and financial requirements. They’re not sure what’s going to happen to energy legislation and energy costs. They wonder what tax increases and/or spending cuts might lie ahead. Meanwhile, Washington has suddenly put a brake on more stimulus.
The country’s spirits need lifting. But how do you do that?
One way is for Americans to balance bad news with encouraging signs. For instance, the International Monetary Fund (IMF) now forecasts that the world economy will grow faster than expected. This week it raised its 2010 global growth estimate to 4.6 percent. Emerging markets – China, India, Latin America, and even Africa – look strong.
Notice, too, that world financial markets have stopped hyperventilating over the Greek debt crisis. That’s because European countries are taking action to (a) strengthen their currency, and (b) reduce deficits and debt.
And let’s step back from the day-to-day headlines for a minute: The US economy has been growing for a year now (the IMF forecasts a 2010 growth rate of 3.35 percent). Jobs have increased for six months. Incomes are rising. And housing prices have been more or less stable for a long time.
One of the problems with confidence-building is “the waiting game.” Consumers wait for better job numbers before spending; businesses wait for more consumer spending before hiring.
But it’s quite possible to break the habit of waiting for someone else to act. If businesses are discouraged by weak consumer spending by Americans, they can reorient themselves to export markets – and create US jobs in the process. President Obama could help here by aggressively pushing Congress to pass free-trade deals with South Korea, Colombia, and Panama.
If companies are discouraged by mismatched skills of workers, they can invest more of their profits in job training and community colleges (businesses are sitting on about $1.8 trillion in cash as they wait for consumers to spend more).
Americans, meanwhile, can do their own reorienting by moving to areas with better job prospects and by learning new skills. They can also look again at the skills they do have and sell them more creatively – on the Internet, for instance, or on a contract or freelance basis.
And even while “government” waits for this year’s elections, politicians at the state and federal level can do what the country longs for: pledge to work across party lines to tackle long-term debt that is fueled by health-care and retirement costs.
It may look to many like a scary and risky time for the country. But it’s actually full of opportunity. Mortgage rates are at a historic low, perfect for refinancing and improving a household’s cash flow, or for buying a first home.
The stock market got you down? Remember that automatic 401k deductions are purchasing more shares at these lower prices – and investors looking to buy companies will find them more affordable.
Economic value originates in ideas, and America has no shortage of those. Now is the time to act on them.
