Florida’s existing home, condo sales up in August

Existing-home sales move up in August, says NAR

ORLANDO, Fla. – Sept. 23, 2010 – Sales of existing homes in Florida rose 1 percent in August, with a total of 13,997 homes sold statewide compared to 13,908 homes sold in August 2009, according to the latest housing data released by Florida Realtors®. Statewide existing home sales in August increased 3 percent over statewide sales activity in July.

Ten of Florida’s metropolitan statistical areas (MSAs) reported higher existing home sales last month, while 13 MSAs posted increased existing condo sales. Florida’s median sales price for existing homes last month was $134,000; a year ago, it was $146,500 for a decrease of 9 percent. The median is the midpoint; half the homes sold for more, half for less.

The national median sales price for existing single-family homes in July 2010 was $183,400, up 0.9 percent from a year earlier, according to the National Association of Realtors® (NAR). In Massachusetts, the statewide median resales price was $333,000 in May; in California, it was $314,850; in Maryland, it was $267,489; and in New York, it was $227,000.

In Florida’s year-to-year comparison for condos, 5,706 units sold statewide last month compared to 4,662 units in August 2009 for an increase of 22 percent. Statewide existing condo sales last month increased almost 2.7 percent over July’s condo sales. The statewide existing condo median sales price in August was $81,600; in August 2009 it was $107,200 for a 24 percent decrease. The national median existing condo price was $176,800 in July, according to NAR.

The housing sector faces a long recovery process, due in part to slow job growth and the still-fragile economy, according to NAR’s latest industry outlook. “Home sales will remain soft in the months ahead, but improved affordability conditions should help with a recovery,” said NAR Chief Economist Lawrence Yun. The pace of sales has slowed since May, following the expiration of the federal homebuyer tax credit, Yun said, who predicted this “pause period” likely will last through September.

“However, given rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs,” he said.

The interest rate for a 30-year fixed-rate mortgage averaged 4.43 percent in August, down from the 5.19 percent averaged in August 2009, according to Freddie Mac. Florida Realtors’ sales figures reflect closings, which typically occur 30 to 90 days after sales contracts are written.

© 2010 Florida Realtors®

Tips to help owners spot foreclosure scams

WASHINGTON – Sept. 15, 2010 – Last year, the U.S. Federal Trade Commission identified 71 companies running suspicious foreclosure rescue ads. This year, the Better Business Bureau named foreclosure rescue rip-offs among its top 10 scams.

Here are just two common scams identified in the September “Foreclosure Resource Guide” now available at the National Association of Realtors® (NAR) Realtor Content Resource:

• A representative of a so-called foreclosure rescue company promises to negotiate a deal with your lender, instructing you not to contact your lender, lawyer or credit counselor during the supposed negotiations. After you pay an up-front fee or a few months of mortgage payments, the scam artist disappears.

• A scam artist promises to fend off foreclosure in exchange for an up-front fee. Instead of getting you legitimate relief, the fraudster pockets the fee and secretly files a bankruptcy case in your name.

Also covered in the “Foreclosure Resource Guide” are free tips on what to do immediately if you’re facing foreclosure, five foreclosure pros you need on your team, what foreclosure counselors can and can’t do, and website resources for foreclosure help.

NAR’s Realtor Content Resource is an exclusive member benefit that entitles Realtors to download free homeownership content from HouseLogic to your consumer website, blog, or e-newsletter. HouseLogic is NAR’s consumer website geared to helping homeowners make smart decisions to enhance, maintain and protect the value of their home.

For more information, go to the Realtor® Content Resource at: http://www.houselogic.com/members/?nicmp=RCRIM&nichn=editorial&niseg=RMONews1_20100905

© 2010 Florida Realtors®

Refinancing mortgage might have its drawbacks

MINNEAPOLIS – Sept. 13, 2010 – Mark your calendars. The Van Ripers have moved up the date of their mortgage-burning party. When the couple purchased their St. Paul, Minn., home in 2005, they locked in a 6 percent interest rate for 30 years. But with mortgage rates at jaw-dropping lows, they were able to refinance into a 4.125 percent, 15-year mortgage that will save them more than $100,000 in interest and allow them to pay off the mortgage by the time their 3-year-old son is in college. All this for a $100 increase in their monthly mortgage payment.

Shorter-term mortgages are deliciously low. Last week, the average rate for a 15-year fixed-rate mortgage was 3.83 percent with an average 0.6 point (a point equals 1 percent of the loan value), according to Freddie Mac. The rate on a 30-year, fixed-rate mortgage wasn’t much higher, weighing in at an average 4.35 percent with an average 0.7 points paid.

Refinancing to a shorter-term mortgage if you can afford the payment seems like an obvious smart-money move. You’ll pay far less in interest, get rid of the monthly fixed expense earlier, and have freer cash flow in retirement. Plus there’s the high that homeowners feel when they imagine making their last mortgage payment.

“It’s just nice to think it’s going to be done,” said 33-year-old David Van Riper.

But there’s a camp out there that believes locking into a shorter-term mortgage is unwise, especially when rates are so low on 30-year mortgages and economic uncertainty so high.

When Kevin McKinley, a Wisconsin financial planner and co-host of Wisconsin Public Radio’s “On Your Money,” learned I refinanced into a 15-year loan, he e-mailed me a list of reasons why I shouldn’t have. His primary concern? That I’ve locked myself into higher payments at a time when the job market is shaky and home equity is tougher to access. “It’s about having the cash right now and being able to do what you wish instead of being at the mercy of the bank, or the real estate market if you have to sell, or your own job,” he said.

McKinley would have refinanced into a 30-year loan and stashed any money freed up by the lower payment in a savings account or CD.

I could also have taken the excess and put that money to work in the stock market or even in bonds. Considering my mortgage interest rate after the tax deduction is in the 3 percent territory, it wouldn’t be hard to beat that in the market. But that’s not a sure thing.

“Given the recent variations in the stock market and whatnot and the low interest rate in savings, it just seemed to make sense to put it into the house,” Van Riper said.

Alex Stenback, a mortgage banker with Residential Mortgage Group in Minnetonka, Minn., said this difficult economic stretch has brought out the conservative side in most of us.

“When savings rates go up, when people start talking about 15-year mortgages or paying their mortgages off ahead of schedule, that’s really just a form of self-insurance. They’re no longer as comfortable with the fact that the sky’s the limit and the ladder goes up for them economically,” he said.

Anticipating your financial future is hard, but that’s exactly what Bill Schwietz, president of the Minnesota Mortgage Association, tries to get clients to do when choosing between loans. He’s seen several friends who started with 30-year mortgages, then refinanced to 15-year loans with a big promotion and then refinanced into a 30-year loan again when their children’s hockey fees and private school tuition became too much.

Problem is, if you lengthen your loan and roll in closing costs with each refinancing, you’ll never pay down the principal.

Kate Wilson, branch manager for Fairway Independent Mortgage in Bloomington, Minn., said 15-year loans can certainly make sense. But she always reminds her clients that there’s no law against paying off a 30-year mortgage on a 15-year schedule. You’ll still save a boatload, even if your rate on a 30-year mortgage is half a percentage point higher than a 15-year would have been.

Here’s the example she calculated: On a $200,000, 30-year mortgage at 4.5 percent, you’ll pay $164,813 in interest with a monthly payment of $1,013.37. Pay down that loan in 15 years (by making prepayments of about $517 per month on the mortgage balance) and your monthly payment would be $1,529.98 and you’d pay $75,396 in interest. If you went with a 15-year mortgage at 4 percent instead, you’d pay $66,286 in interest and have a payment of $1,479.37.

So ask yourself if you’d be willing to pay a few thousand dollars more in interest for the flexibility of having an extra $500 a month to cover life’s expenses without tapping home equity. Also assess whether you’re disciplined enough to actually prepay the loan. If the answer is no, then a shorter-term mortgage is a good fit, provided you can truly afford it.

Most mortgage bankers, including Wilson, have calculators on their websites. The financial calculator site dinkytown.net has several calculators to choose from, including a 15-year vs. 30-year mortgage calculator.

Of course, there’s that little problem of declining home values that’s making it hard for people who put little money down or bought at the peak to refinance. But having little equity doesn’t slam the door. Borrowers with an FHA loan can reduce their rate without an appraisal using the FHA streamline refinance option if they meet the requirements, which include paying the mortgage on time, having income and meeting the minimum credit score requirements set by their lender (generally around 640 these days, Stenback said).

There’s also the government’s Home Affordable Refinance Program as well as the recently launched short refinance program for non-FHA borrowers who are underwater. Learn more about both options at http://www.hud.gov/.

Even if your current circumstances lock you out of a refi, there’s nothing stopping you from prepaying a longer-term mortgage. Make an extra payment on your 30-year loan each year and you’ll retire it approximately seven years earlier.

“That’s a huge pile of money,” Wilson said.

Copyright © 2010, Star Tribune

4 things to consider before remodeling

CHICAGO – Sept. 9, 2010 – Home remodeling is on the rise. And no wonder. Owners having trouble selling their homes in this sluggish real estate market want to give them as much buyer appeal as they can afford.

Others are deciding that if they can’t move, they might as well make the most of the house they may be calling home for a long time.

After a year of decline in home remodeling, the number of homeowners saying they plan to remodel in the next 12 months increased from last year, according to RemodelOrMove.com, a website that provides homeowners remodeling options and has conducted semiannual surveys of owners since 2005.

Carol and Mark Durgin have owned a Cape Cod home in Marshfield, Mass., for about 15 years. Even though their son is grown and no longer lives with them, they thought the home was too small. Rather than try to sell it and buy a larger home, they decided to add a full basement.

They didn’t do much research before they launched into the project in June 2009.

“My husband just said he wanted to do it, and I said that I was on board,” says Carol, who owns a beauty salon in Quincy.

The new basement, which is nearly finished, has a second bathroom, a laundry room and a family room with a pool table. Mark, who works for the local laborers’ union, did much of the interior work.

It took longer and cost more than they expected. They had to fix up their yard after the construction turned it into a mud pit. But they are happy with the results. “It’s wonderful,” Carol says.

In tough economic times, it’s important to make smart decisions. Here’s what to consider before you pick up a hammer:

1 – The biggest bang for your buck

Before you even come up with a plan, consider how long you will live in the home. If you only plan to stay for several years, you may not be able to earn back the cost of a major renovation. Short-term owners should consider simple cosmetics, such as refinishing floors, painting and updating fixtures and lighting. “They are little things that don’t cost much but can really update a room,” says David Lupberger, home-improvement expert with ServiceMagic.com, a website that connects homeowners to prescreened contractors.

If you plan to stay in the home for five years or longer, then a kitchen or bathroom renovation provides the best return on your investment.

“Owners can enjoy a nice modern kitchen and bathroom,” says Elizabeth Blakeslee, associate broker at Coldwell Banker Residential Brokerage in Washington, D.C. “Down the road if they want to sell the home, they’re in good shape, because it’s kitchens and bathrooms that sell homes.”

One of the biggest mistakes that people make is to install a new pool in parts of the country where the weather is colder, she says. In general, renovating should bring a property up to the value of the comparable houses nearby.

“But you don’t want to over-improve it and have the most expensive home on the block,” says Ben Woolsey, director of marketing and consumer research at CreditCards.com. “A good rule of thumb is that you shouldn’t try to improve the value of your home more than 25 percent of its current value.”

2 – Financing the project

Before you start renovating, estimate the cost and decide how you will pay for it.

The Durgins are happy with their lender’s advice. When they applied for a home-equity line of credit, he suggested a higher limit than they asked for. They wouldn’t have to use all of it, but they’d have a cushion if they’d underestimated their cost.

They originally thought they would need about $40,000. But they decided to ask for a $75,000 line of credit, and they ended up using $62,000.

Borrowing is not the only way to finance a remodeling job.

If your project is inexpensive and you have adequate savings, tapping them is the easiest way to go. Many use their credit cards for projects under a few thousand dollars.

Owners can finance a kitchen or bath renovation or add a deck that way. If you hire a contractor for a bigger project, the costs can balloon. Then you may be better off with a personal loan, a home-equity loan or line of credit.

Sharp declines in home values mean many owners have no equity to tap. For those who do, financing home improvements with a home-equity loan makes sense because the interest is tax-deductible, Woolsey says.

3 – Are you covered?

Before you start a project, make sure the contractor and subcontractors have adequate insurance coverage. Ask if the contractor has workers’ compensation, which covers lost wages and pays for medical and rehabilitation expenses if workers are injured. If not, an injured worker can sue you, says the Insurance Information Institute.

If you are adding an extra room, you will need to increase your home insurance coverage. Don’t wait until the renovation is completed to contact your insurance agent. If the addition is damaged or destroyed before insurance coverage has been increased, you may be responsible for the cost of repairing or rebuilding it, says Loretta Worters, vice president of the Insurance Information Institute.

Homeowners also should visit DisasterSafety.org, where the Institute for Business & Home Safety provides info about each state’s building codes and standards. It’s where homeowners can find out how to be sure contractors make their homes hurricane- or wildfire-resistant.

And during the renovation keep all of the receipts for items purchased, such as furniture and electronics, because you will want to make sure you have the right amount of coverage for personal possessions.

4 – Ways to save money

Kitchens and bathrooms are the most popular renovation projects. But don’t overlook less-visible improvements that may cut the costs of owning a house.

Updating old plumbing and electrical wiring and disaster proofing your roof may lower your insurance premiums.

Owners of older homes can reduce their energy bills by adding insulation and installing new windows. Federal and state tax credits for certain improvements – such as energy-efficient central air conditioning, heating or water heaters – can lower your costs even more.

In the end, a renovation project’s payoff may be measured best by how much satisfaction it gives the homeowners.

Newlyweds Keith and Julianne Knapp encountered many difficulties buying their house, a fixer-upper in the Cincinnati area that they eventually landed when it was sold in foreclosure for $168,000. Keith moved in before the wedding in July and started replacing ceilings and painting rooms. They have since added new fixtures and appliances, new carpeting and landscaping.

“Our neighbors tell us that they can’t believe that it’s the same house,” Keith says.

Their cost: about $10,000, paid out of savings, wedding-gift cash and a personal line of credit.

Now it’s the home where they plan to start a family. Says Keith, “We had a house-hunting nightmare with a storybook ending.”

© Copyright 2010 USA TODAY

To rent or buy? How to weigh it out

WEST PALM BEACH, Fla. – Sept. 9, 2010 – West Palm Beach resident and Realtor Laura Pearlman is selling her historic, Spanish-style home, and – gasp – considering renting.

It may go against every instinct for a Realtor to tout the benefits of renting over buying, but from about 2005 until just recently, it’s made more financial sense in many markets to rent as housing prices skyrocketed.

Now, following the epic housing crash and with interest rates at record lows, economists and financial planners say it might be time to rip up that annual rental lease for a more long-term, at least eight-year, commitment to buy.

But the decision often has as much to do with personal circumstance as real estate’s financial ups and downs, and individuals have many issues to weigh when considering the benefits of buying over renting.

Of course, it’s also all predicated on whether a potential buyer can even get financing from banks still struggling with bad boom-time loans.

In Pearlman’s case, the rigors of keeping up an 84-year-old home have become a burden, and she and her husband eventually want to move west to Wellington where they hope to find a larger piece of land.

An unsure market, however, is also a driving force in making the couple renters again.

Pearlman said the argument against renting is always “you’re throwing money away” while earning no equity, but she figures there’s no harm in renting for a year to see where the market settles out.

“My husband wants to rent because he just doesn’t want to take a chance right now,” Pearlman said. “Look, you can get a nice house for $1,250 a month, no homeowners association payment, no property taxes, no lawn care, no responsibility.”

Doing the math

Andres Carbacho-Burgos, a Moody’s economist, said there’s little doubt that renting in South Florida was a better bet during the peak years of 2005 and 2006.

“What has happened since then is the housing prices have come down by a lot more than the costs to rent an apartment,” he said.

To illustrate that, Carbacho-Burgos looks to a price-rent ratio that considers the buy-versus-rent question in a more mathematical way. The ratio is calculated by taking the median cost to buy a home and dividing it by the annual cost to rent.

A price-rent ratio less than 20 is generally considered a sign that it is better to buy.

For example, if the annual rent on a three-bedroom, one bathroom home is $15,000, and a similar home is selling for $200,000, the rent ratio is 13, favoring buying as the better option.

According to Moody’s, the average price-rent ratio using apartment rents in 2006 in Palm Beach County peaked at 31 but was down to 18 in the first quarter of this year.

But that number isn’t perfect. Theoretically, the calculation should use home rental rates, which aren’t easily available in a uniform format for specific areas.

Also, the 18 ratio is based on using median home prices from the National Association of Realtors, which can be fickle and quick to change depending on the volatility of the market.

Carbacho-Burgos said if the S&P/Case-Shiller home price index is used, Palm Beach County’s price-rent ratio today is about 15. The S&P/Case-Shiller index calculates prices monthly using a three-month moving average. It also uses data on properties that have sold at least twice in order to capture the true appreciated value of each home.

“I can’t answer the question in absolute terms, but the ratio is much closer to the norm now than at the peak of the housing market bubble,” Carbacho-Burgos said.

A more complex evaluation of whether it’s better to rent or buy in today’s market can be completed using one of many online calculators. Most of these calculators consider mortgage rates, down payments, tax breaks and closing costs when figuring the ratio. Some go as far as calculating annual maintenance on a home, monthly rental insurance and your personal rate of savings.

At Lendingtree.com, the calculation favors buying a $200,000 home as opposed to renting at $1,100 a month under the following circumstances: the buyer puts 20 percent down on a 30-year loan with a fixed 4 percent interest rate, and plans to stay in the home for at least five years.

Thinking long term

While the total cost to own the home in the first year far exceeds the rental payments, after five years the net cost to own is about $51,000 compared with paying $66,900 to rent.

“You should look at a house as something you want to live in, not a get rich quick thing,” said Barry Rabinowitz, a certified financial planner and principal of BER Financial Group, LLC in Plantation.

Rabinowitz recommends buying a home now if a person plans to stay in it for five to eight years.

“The days of houses going up in value 25 to 30 percent is not realistic, but neither is the other extreme of them going down that much either,” he said.

In July, Palm Beach County’s median sale price for a single-family home was $226,000, an 8 percent decrease from July last year, but down 42 percent compared with the price in 2006 of $390,100.

Rabinowitz’s recommendation is also based on itemizing deductions on a tax return, which allows a homeowner to claim mortgage interest and property taxes.

The mortgage-interest tax deduction doesn’t eliminate the cost of borrowing money, but it does reduce it.

“When you rent a house, nothing is deductible,” Rabinowitz said.

How much can be deducted depends on the mortgage interest paid each year. It is also important to consider what your standard deduction is for the year depending on age, marital status and income bracket. For example, the standard deduction for married couples in the 25 percent tax bracket and filing a joint return is $11,400 for 2010. If your mortgage interest was $11,520, for example, you get a slightly higher deduction, but you have to pay $11,520 in interest to receive it. The standard deduction for single filers for 2010 is $5,700.

House vs. condo

Answers to the rent vs. buy question also vary dramatically depending on whether it is a condominium or single-family home.

Peter Zalewski, a principal with Miami research and brokerage firm Condo Vultures, said you can buy an average condominium today in Palm Beach County for about as much as it would cost to rent it.

Single-family homes in neighborhoods on the upswing, however, are going to be more expensive in the first several years.

“If a buyer is looking at a five- to eight-year hold and understands different neighborhoods, buy today,” Zalewski said. “The likelihood is that single-family homes will recover quicker than a condo.”

And contrary to what conventional wisdom might say, Zalewski and Pearlman agreed that owners are not so desperate that they are offering rock-bottom rates on rental properties.

Renters should expect rates to go up between 3 percent and 5 percent each year, something that doesn’t happen with a fixed interest rate mortgage.

“If a tenant squeezes a landlord when the market is down, when it recovers, that landlord is going to squeeze back,” Zalewski said.

Copyright © 2010 The Palm Beach Post