Flagstaff Top Producers Real Estate Update: May 2008

Don't break out the champagne glasses quite yet, but there are more economic signs this week that the worst is over for the three year real estate correction cycle.

One of the country's most prestigious groups of market forecasters, the National Association of Business Economists, says housing and consumer credit conditions will stabilize and begin improving as the year moves on. Equally important, said Ellen Hughes-Cromwick, chief economist at Ford Motor and president of the association: The entire U.S. economy will "slowly return to health" this year.

The housing market offered some immediate hints of that recovery with new home starts up by 8.2 percent last month and building permits up by 5 percent. Even in hard-hit southern California, home sales in April were up 22 percent compared to March, according to DataQuick Information Systems.

The mortgage sector continued to cooperate: Rates fell again for the third straight week. Thirty year fixed rate conventional mortgages averaged 5.8 percent, down from 5.8 percent the week before, according to the Mortgage Bankers Association of America. Fifteen year rates also dropped, averaging 5.5 percent.

Any time we're quoting mortgage rates in the fives, that's GOT to be positive news for home buyers with reasonably good credit.

Why the continuing decline in rates? One reason is that inflation is not a major worry for capital markets investors at the moment -- even if gas and food prices are over the top for most of us. The latest Consumer Price Index report -- that's the federal government's measure of inflation -- came in at just zero point two percent (0.2%) for April, which is very low. Year over year, inflation is still only around 2.3 percent.

Despite these positive signs, the fact is that consumers are still worried about the overall direction of the U.S. economy. The University of Michigan's bellwether Consumer Sentiment Index registered a 3.1 percent decline last month, continuing a steady downward trend.
That's not helpful for home sales for sure -- and that negative mindset will certainly keep some buyers on the sidelines in the months ahead.

Which is a shame if you look at conditions in most markets objectively. Most of the current numbers add up to an excellent buying opportunity.

Prices are more affordable they've been in several years. There's a bumper crop of houses to choose from. And mortgage money is cheap and getting cheaper.

Maybe the message is just taking a little time to get out there.

Borrowed by our friends at http://realtytimes.com/rtpages/20080522_realestateoutlook.htm

By Gerri Willis
WHETHER YOU’RE A BUYER OR SELLER, you need a competitive edge to get ahead in real estate today. Here are some solid strategies to help you get the most out of the market.

IF YOU WANT TO BUY
Be an attractive risk. Your credit score determines the interest rate a bank will give you on a mortgage. The difference between decent and terrific credit can ass tens of thousands dollars over the life of the loan. To improve your rating, pay down your credit card bills. Lenders want to see that your debt doesn’t exceed 30% of your available credit. But don’t close an account once you’ve paid it off- doing so will actually hurt your score.

Buy only what you can afford. Most banks now require a down payment of 20%, but if you’re an attractive borrower, 10% may suffice. Still, the less you put down, the more you’ll pay in fees and interest. Spend no more than a third of your total pre-tax income on housing costs: mortgage, maintenance and property tax. Figure maintenance to be about 1% of the value of your house each year.

Chose your loan carefully. Many homeowners are in trouble because they took out adjustable mortgages with low interest rates that later spiked. A 30 year, fixed-rate mortgage is your best bet- adjustable mortgages don’t offer the rate breaks they did during the boom. Use the internet to do your research. You’ll find articles, statistics and general resources that will help you determine which banks offer the best rates in your area and around the country.

Lowball’em. Bidding wars over a house are uncommon in today’s climate. Sellers anticipate having to drop their asking price. Bid low and see if the seller will come down.

IF YOU WANT TO SELL
Think twice before you sell. This is a bad time to expect big returns. If you don’t have to sell now, don’t. Make inexpensive improvements and wait until market factors are more in your favor.

Find the best broker. A year ago, you could have asked agents to cut their commissions because houses sold themselves. Now you’re better off paying the full 6% to ensure you’ll get the best service. Local agents are the best. They know the selling points of your community-and your house- and can be present to show it to buyers at a moment’s notice. If they worked in the business before the boom, they’ll do more than just weigh the best offers.

Make sure the price is right. A good agent will know what numbers get the best response from consumers. Studies show that buyers react to break points, or psychological limits. For example, a buyer with a budget of $250,000 may be willing to pay $249,000 but not $251,000. If your home is valued at $310,000, consider listing it at $300,000 or even $299,000 to maximize its sales potential.

Know which way the wind it blowing. Pricing in a free falling market is dicey. Brad Inman, publisher of a real estate trade publication, recently helped his parents sell their condo in Las Vegas. Pricing it at a market value of $185,000 to $195,000, he says, would have been a disaster. “We had to anticipate how much prices would fall in the time it would take to closes [30 to 60 days].” So they listed the condo at $179,000 and accepted an offer of $175,000 while owners cut prices by 10,000 to 20,000. “You want to avoid time on the market to stay ahead of the falling knife,” says Inman.

By Claes Bell • Bankrate.com

Are you a first-time homebuyer eager to get into the market? Here are steps to take to help you decide whether you're ready to take the plunge.

1. Check the selling prices of comparable homes in your area. Web sites like Zillow and Homegain can give you a general idea of what you should expect to pay. You can also do a quick search of actual MLS listings in your area on a number of Web sites, including the National Association of Realtors.

2. Use Bankrate's mortgage calculator to get an idea of what your monthly mortgage payments would be if you bought today.

3. Find out what your total monthly housing cost would be, including taxes and homeowners insurance. In some areas, what you'll pay for your taxes and insurance escrow can almost double your mortgage payment. According to the Insurance Information Institute, the average yearly premium can range from $477 a year in Utah to $1,372 a year for unlucky Texans.
To get an idea of what you'll pay in insurance, pick a property in the area where you want to live and make a call to a local insurance agent for an estimate. You won't be obligated to get the insurance, but you'll have a good idea of what you'll pay if you do buy. For an idea of what you'll pay in taxes, Zillow publishes property-tax information for homes all over the country. Just remember that exemptions and the intricacies of local tax law (like Florida's Save Our Homes value cap) can create differences between what a homeowner is currently paying and what you can expect to pay as a new homeowner.

4. Find out how much you'll likely pay in closing costs. The upfront cost of settling on your home shouldn't be overlooked. Closing costs include origination fees charged by the lender, title and settlement fees, taxes and prepaid items like homeowners insurance or homeowners' association fees. You can see what closing costs average in your state by looking at Bankrate.com's annual closing cost survey.

5. Look at your budget and determine how a house fits into it. Fannie Mae recommends that buyers spend no more than 28 percent of their income on housing costs. Go much past 30 percent and you risk becoming house poor.

6. Talk to a reputable Realtor in your area about the real estate climate. Do they believe prices will continue falling or do they think your area has hit bottom or will rise soon?

7. Remember to look at the big picture. While a buying a house is a great way to build wealth, maintaining your investment can be labor-intensive and expensive. When unexpected costs for new appliances, roof repairs and plumbing problems crop up, there's no landlord to turn to, and these costs and can quickly drain your bank account.

So consider whether you're ready for the expense and effort of homeownership before pulling the trigger.

By Claes Bell • Bankrate.com


During the run-up in real estate prices over the last decade, many millennials were either in college or in entry-level jobs, watching helplessly as they were priced out of the market while aging boomers gleefully cashed in their newfound equity and used excess money for real estate speculation, driving prices even higher.

But now, as the real estate bubble deflates, is this a good time for frustrated millennials to finally buy a home? The answer, unfortunately, may be no.

"But why not?" prospective homebuyers may ask, probably with gritted teeth. Well, you may have heard the words "credit crunch" circulating around the water cooler lately, and for good reason. In the aftermath of the subprime mortgage mess, mortgage brokers and banks have sworn to tighten lending standards. Gone are the days when a 5 percent -- or less -- down payment was commonplace and banks glossed over problems in employment history, credit history or proof of income. Now, new homebuyers are likely to need at least 10 percent down and can expect lenders to scrutinize every aspect of their financial pictures.

"First-time homebuyers would be better off renting and accumulating a larger down payment rather than jumping into a soft housing market," says Dr. Anthony B. Sanders, professor of finance and real estate at Arizona State University.

What this means for first-time homebuyers is a steeper price of admission in the form of a higher down payment, and likely some difficulty getting financing at all for those with sketchy credit or high debt-to-income ratios, which includes the many millennials who come out of college with stratospheric credit card bills and tattered credit histories.

You can buy, but should you?But even if you can afford to buy a home under these conditions -- and with many distressed homeowners and builders desperate to sell, chances are you can -- the real question is, should you?

Again, the answers here will probably be frustrating for homebuying hopefuls. While falling prices may seem like a blessing for young homebuyers, they also create an element of risk. According to the National Association of Realtors, or NAR, the median existing-home price fell 3.3 percent nationally in 2007, and as much as 10 percent to 12 percent in troubled markets like Florida and California. A probable wave of foreclosures resulting from rate resets on adjustable-rate mortgages signed in 2005 and 2006 threatens to drop prices even further in 2008.

Don't get upside down in first homeWith no one quite sure when real estate prices will stop sliding, young homebuyers who can put down only between 5 percent and 10 percent of the price of their homes may see what little equity they have eroded by their homes' falling values. This can leave them "upside down," or owing more on their mortgages than their homes are worth.

"Certainly, there is a chance that the housing market has hit the bottom, but this is not a bet that first-time buyers should be taking," Sanders says.