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Ingrid Miles, CBR, REALTOR®

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5 reasons real estate hasn't recovered

by Ingrid Miles, CBR, REALTOR®

5 reasons real estate hasn't recovered

What's happening with jobs, shadow inventory?

The housing bubble of 2006 burst in large part due to lax lending practices that led up to the housing recession. The collateral damage from these practices hammered personal fortunes through foreclosures and investment losses.

The devaluation of mortgage-backed securities tied to nonperforming mortgages kick-started the falling dominoes in this global financial crisis.

Now the mortgage lending industry is making up for their slipshod business practices by tightening credit standards to an extreme level. This has partly to do with regulations recently put in place that make one wonder if anyone consulted real estate professionals and economists before they were enacted.

It's commonly agreed that the easy-money lending practices that were in vogue before the downturn in 2006-07 should be left behind. Then, buyers didn't need to qualify to get a stated-income mortgage. Unrealistic teaser-rate mortgages were popular, and 100 percent and 110 percent financing was available.

Buyers had little at risk except their good credit, which for many went up in smoke when home prices stopped rising and they were left upside down in their house because the price they could sell for had dropped lower than the balance owed on their mortgage.

Not only were they precluded from borrowing more, but many who lost jobs fell behind on their mortgage payments and lost their homes in foreclosure.

It's a good practice for lenders to actually qualify buyers before giving them a mortgage. Buyers should make a cash down payment. However, many lenders want down payments equal to 20 percent or 25 percent of the purchase price.

Proposed risk-retention rules that would require lenders have more "skin in the game" when offering loans with less than a 20 percent down payment has met opposition from real estate industry and consumer groups. Regulations should be implemented that protect lenders, buyers and investors while fueling a sustainable recovery in the housing market.

Lenders also need to streamline their underwriting procedures. Underwriting criteria have tightened in the last six months. Buyers are told their loan has been formally approved; based on that, they remove their financing contingency.

Then, it's not uncommon for the lender to ask the buyers for more documentation. This leads to delays in closings. Some deals fall apart and put the buyers' deposit at risk.

HOUSE HUNTING TIP: Slow job growth is holding the housing market back in many areas. On the national level, only 25 percent of the jobs lost in the great recession have been replaced. The recovery has been plagued with joblessness and underemployment. The national unemployment rate currently hovers around 9 percent.

Because the home-sale market is a localized business, the housing recovery will be uneven. Some areas, such as Texas; Washington, D.C.; and the Silicon Valley in the San Francisco Bay Area, have strong local economies and are generating sufficient jobs to actually produce a pickup in local housing markets.

To illustrate how important the local factor is, Silicon Valley has strong job growth even though the unemployment rate in California is about 11 percent.

The additional major factor that's keeping housing down is the backlog of foreclosures. Lenders are in some cases holding houses they've foreclosed on off of the market. This is sometimes referred to as the "shadow inventory."

Lenders have tried to keep from flooding an already challenged real estate market with more inventory, which could cause prices to decline further.

THE CLOSING: However, for a sustainable recovery, these properties need to be sold.

Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide."

Pending Home Sales Slip in July but up Strongly from One Year Ago

by Ingrid Miles, CBR, REALTOR®

Pending Home Sales Slip in July but up Strongly from One Year Ago

Pending home sales declined in July but remain well above year-ago levels, according to the National Association of REALTOES®. All regions show monthly declines except for the West, which continues to show the highest level of sales contract activity.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, slipped 1.3 percent to 89.7 in July from 90.9 in June but is 14.4 percent above the 78.4 index in July 2010. The data reflects contracts but not closings.

Lawrence Yun, NAR chief economist, says sales activity is underperforming. “The market can easily move into a healthy expansion if mortgage underwriting standards return to normalcy,” he says. “We also need to be mindful that not all sales contracts are leading to closed existing-home sales. Other market frictions need to be addressed, such as assuring that proper comparables are used in appraisal valuations, and streamlining the short sales process.”

The PHSI in the Northeast declined 2.0 percent to 67.5 in July but is 9.7 percent above July 2010. In the Midwest the index slipped 0.8 percent to 79.1 in July but is 18.8 percent above a year ago. Pending home sales in the South fell 4.8 percent to an index of 94.4 but are 9.5 percent higher than July 2010. In the West the index rose 3.6 percent to 110.8 in July and is 20.6 percent above a year ago.

“Looking at pending home sales over a longer span, contract activity over the past three months is fairly comparable to the first three months of the year, and well above the low seen in April,” Yun says. “The underlying factors for improving sales are developing, such as rising rents, record high affordability conditions and investors buying real estate as a future inflation hedge. It is now a question of lending standards and consumers having the necessary confidence to enter the market.”

The National Association of REALTORS®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

RISMedia 

IRS's top 10 tax tips for home sellers

by Ingrid Miles, CBR, REALTOR®

IRS's top 10 tax tips for home sellers

Real Estate Tax Talk

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From time to time the IRS releases tips designed to help people with their taxes. Some of these are quite useful.

Last week the agency released "Ten Tax Tips for Individuals Selling Their Home," (IRS Summertime Tax Tip 2011-15).

As a real estate agent or broker, it is not your job to give home sellers tax advice. Indeed, it is advisable not to, since you could end up getting sued if you give wrong advice.

Instead, refer sellers to this list of IRS tips. It's a good starting place for them to begin to understand this often complex area of tax law. You could even print it out and hand it to anyone who asks you about these issues.

Here are the IRS's top 10 tax tips for home sellers:

1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.

2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).

3. You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.

4. If you can exclude all of the gain, you do not need to report the sale on your tax return.

5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.

6. You cannot deduct a loss from the sale of your main home.

7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.

8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.

9. If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year's tax return.

10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

These tips can be found on the IRS website at http://www.irs.gov/newsroom/content/0,,id=104608,00.html.

Stephen Fishman is a tax expert, attorney and author who has published 18 books, including "Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants," "Deduct It," "Working as an Independent Contractor," and "Working with Independent Contractors."

Debt Ceiling Catastrophe?

by Ingrid Miles, CBR, REALTOR®

Debt Ceiling Catastrophe?

August 2, 2011 is the date given by when the federal government will run out of money to pay all its obligations – including social security checks, government employee salaries, interest on borrowed money, etc.  The message has been that without the ability to borrow more to pay the obligations by raising the debt ceiling, catastrophe awaits.  Foreign countries holding  U.S. government bonds have been wagging their finger at the U.S. to not default or else.

If a borrower is about to default, no one in their right mind would want to lend to such a scammer.  Greece, which will inevitably default for sure either this year or next, is able to tap money by offering a 16 percent interest rate (which in my view is a sucker bet since Greece will not pay what is promised).  As for the U.S., the government borrowing rate is still very low.  The U.S. can borrow at a 0.35 percent interest rate on a 2 year loan and 2.9 percent on a 10 year.  These rates are at near-historic lows.  However, given all the talks of impending doom and with Washington politics not getting any closer to a budget deal, are investors continuing to be unconcerned about a U.S. default?

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Perhaps the investors, including the Chinese — one of the biggest purchasers — only talk the talk but are not willing to walk the walk.  That is to say, global bond purchasers are very content to lend at low interest rates to the U.S. government and are not a bit apprehensive about not getting the money back and with the specified interest.

Let’s take a look at what might happen.  If August 2nd comes around and the government defaults, will the Chinese investors panic?  Or would they trust that the U.S. will eventually honor the obligation at even if the payment deadline is delayed a bit?  Based on the current appetite for U.S. bonds, global investors are saying that they are perfectly fine with delayed payments, provided the principal and any accrued interest are paid at some point in the future even if the date is unspecified.  After all, most global bond purchasers have been simply recycling money back into the Treasury once the maturity date arrives.

My guess, therefore, is that come August 2nd there will be no panic or economic chaos.  Standard and Poor’s and rating agencies will squawk about downgrading the U.S. to a lower rating, but who is listening to them anymore after they gave top, AAA ratings on just about every subprime mortgage collateralized debt obligation that went bust?

However, if the debt default was to continue on for two to four months and truly raise uncertainty in the global investors about when they will get their money back, then a major economic headache is possible.

In other words, don’t panic in August.  But do start to worry in October.

July 15, 2011 by Lawrence Yun, Chief Economist & Senior Vice President

What Do Home Buyers Want?

by Ingrid Miles, CBR, REALTOR®

What do homebuyers want?

Recently they told us! Trulia Staff sat down with a user group and had a discussion on what they look for when hiring a real estate agent. Here’s what they had to say (in order of importance):

1. Honesty and Credibility

Win them over with the truth!
When these buyers talked about honesty and credibility, it often came with stories about past negative experiences with agents. The stories were about agents trying to push them towards a more expensive purchase and a strong dislike for the false sense of urgency they feel agents create when it comes to placing an offer on a house. Buyers have expressed how hard it is to trust anyone in today’s real estate market so it’s even more important for agents to help them feel comfortable.

2. Area Familiarity

Do your neighborhood homework!
These buyers place a high importance on finding an agent who not only sells homes in a specific neighborhood, but also knows that neighborhood well. They want an agent who knows all about the schools, local parks, safety, restaurants and even the secret gems the neighborhood has to offer.

3. Good Follow Through

You say it, you do it.
During the conversation our buyers constantly verbalized their frustration with agents who didn’t do what they said. Email me, call me and send me the things you say you will. It seems like such a small thing to ask for. Do what you say, combine it with some honesty, and you’ll be an agent buyers feel comfortable working with.

4. Organization

Keep it in order.
</p> <p>Your browser does not support iframes.</p> <p>You’re honest, you know the area like the back of your hand, and you try your hardest to follow through but it’s just so hard to keep track of your to-do lists and return every phone call. Buyers are expecting agents to be organized and put together. There are a ton of tools out there to help with this. (We love Evernote!)

5. Good Listener

Everyone is unique. Treat them like it!
Users want an agent to listen to them with a blank mind. I heard phrases such as “pigeon hole”, “judge”, “they aren’t listening”, “tell me what I want”…etc. come up in our discussion. Users don’t want an agent to assume they need A just because they hear B. They want an agent who listens to what they want and will ask as many questions as required to really understand who they are and what they are looking for.

Make sure you get those references too- recommendations and testimonials followed closely in the 6th position.

These characteristics come straight from prospective home buyers searching on Trulia. We hope these tips help you communicate what matters most to homebuyers to further your relationships and connect with more prospects.

Cassy Rowe, Lead Mobile Interaction Designer at Trulia.com

Signs of economic weakness relieve pressure on mortgage rates!

by Ingrid Miles, CBR, REALTOR®

Signs of economic weakness relieve pressure on mortgage rates!

Purchase loan demand falls as FHA raises premiums!

Mortgage rates fell for a second consecutive week on signs of weakness in the economy, Freddie Mac said in releasing the results of its latest Primary Mortgage Market Survey.

Rates on 30-year fixed-rate mortgages averaged 4.78 percent with an average 0.7 point for the week ending April 28, down from 4.8 percent last week and 5.06 percent a year ago.

The 30-year fixed-rate mortgage, which hit an all-time low in Freddie Mac records dating to 1971 of 4.17 percent during the week ending Nov. 11, 2010, this year has ranged from 4.71 percent in early January to a high of 5.05 percent in February.

Rates on 15-year fixed-rate mortgages averaged 3.97 percent with an average 0.7 point, down from 4.02 percent last week and 4.39 percent a year ago. The 15-year fixed-rate mortgage hit a low in records dating back to 1991 of 3.57 percent in November.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loan averaged 3.51 percent with an average 0.6 point, down from 3.61 percent last week and 4 percent a year ago. The 5-year ARM hit a low in records dating to 2005 of 3.25 percent in November.

Rates on 1-year Treasury-indexed ARM loans averaged 3.15 percent with an average 0.6 point, down from 3.16 percent last week and 4.25 percent a year ago.

"Mortgage rates followed Treasury bond yields lower this week amid weak local economic data reports on business conditions and house prices," said Frank Nothaft, Freddie Mac chief economist, in a statement.

"Regional Federal Reserve Banks reported that business and manufacturing activities declined in Philadelphia, Dallas and Richmond in April," Nothaft said. "In addition, the Standard & Poor's/Case-Shiller 20-city composite home price index recorded year-over-year declines through February in 19 of the 20 markets."

Looking back a week, a separate survey by the Mortgage Bankers Association showed demand for purchase loans falling a seasonally-adjusted 13.6 percent during the week ending April 22 compared to the week before.

The decline was driven by a 26.6 percent decrease in applications for government-backed loans, as premium increases on FHA loans announced Feb. 14 went into effect. Buyers trying to beat the deadline were probably responsible for a 20 percent increase in government purchase loan applications during the preceding four weeks, said Michael Fratantoni, MBA's chief economist.

Demand for purchase loans slipped to its lowest level since Feb. 25, and was down 28.8 percent from the same week a year ago.

In an April 14 forecast, MBA economists said they expect rates on 30-year fixed-rate loans will average 5.1 percent during April, May and June, and climb to an average of 5.6 percent during the final three months of the year.

MBA economists expect a more gradual rise in rates on 30-year fixed-rate loans next year, to an average of 6 percent in the final three months of 2012.

By Inman News

How to Manage Unexpected Home Expenses!

by Ingrid Miles, CBR, REALTOR®

Homes are more affordable these days, the selection is abundant, and interest rates are still fairly low. For some people, it could well be a great time to buy.

But as too many struggling borrowers now realize, the cost of owning a home is hardly limited to paying the mortgage. There are a host of other checkbook-sapping details—both recognizable and unexpected—that can get overlooked in the excitement of buying a house, especially if it’s your first.

Ultimately, those things might mean the difference between home sweet home and foreclosure.

“It is extremely important to explain to all buyers, but especially first-time buyers, that there are additional expenses other than their monthly mortgage payment,” said Philadelphia-area real estate agent John Duffy.

Just because a lender has qualified you for a certain size mortgage doesn’t mean you have to spend that much on a house, Duffy said his agents caution buyers. “There will be additional, unforeseen costs, such as repairs, decorating, improvements, utilities and the like,” Duffy said. “We like to tell them that we want them to enjoy their new home and not be house-poor.”

Through the loan-qualifying process, some buyers, especially first-timers, become aware of the concept of spending only a certain percentage of their income on what is called PITI—principal, interest, taxes and insurance—”maybe 33 percent of income,” said Jerome Scarpello of Leo Mortgage in Ambler, P.A. The reason that percentage isn’t higher is that other expenses will be incurred with homeownership, he said.

“Of course, there are some folks who really need to be taught this,” Scarpello said, recounting a story he heard of borrowers who brought their electric bill to the bank when paying their mortgage. “They were surprised to learn,” he said, “the mortgage did not include electric, as their rental payment had.”

The “T” in PITI—taxes—can be extraordinarily expensive, depending on where you live. If you buy into a condo complex or a new-home development, you will have to factor in monthly homeowners association fees, as well. PITI and association fees are fixed costs, for the most part, although homeowners insurance rates and taxes can rise. Mortgage interest can change, too, if you don’t have a fixed-rate loan.

“I generally estimate high,” said Jeff Block of Prudential Fox & Roach in Philadelphia, “because I feel it is really important for buyers to have a conservative estimate and a detailed understanding of what their costs will be.”

Bruce Hahn, president of the grass-roots American Homeowners Association in Arlington, V.A., said home listings typically include historic costs for utilities, condo fees and taxes, “so it should not be hard for buyers to anticipate how much extra cash flow they’ll need to cover them.” If that information isn’t provided, Hahn said, buyers should use all other possible means to determine or estimate them in advance. He urged buyers to set aside a “rainy-day fund” for unanticipated major expenses, such as a broken heat pump or air conditioner or a roof leak. “Homeowners’ insurance plans often have lots of gaps, so there are many things they don’t cover.”

For example, Hahn said, he was glad his homeowners’ insurance included flood coverage “when our basement stairwell drain was clogged with leaves and water backed up in our basement.” However, “our insurance agent explained that flooding is what happens when the river rises, but what we had was ‘seepage,’” which the homeowners policy did not cover.

As Hahn cautioned, you need to be intimately familiar with deductibles as well as coverage limits, so your annual premium will likely be much higher than the state average when you finish crafting your policy.

You certainly can shop around for the best rates, and, in many cases, save money on the premium with a policy that covers your automobiles as well as your house.

But you should also allow for simultaneous unanticipated expenses, such as a car transmission failure and a fridge on the fritz. If you are living on the economic edge, enough of these disasters can push you over it.

“We believe that $10,000 in liquid savings (a money-market account or the like) that can be turned into cash anytime with very little risk of capital loss is not too much,” Hahn said, adding that $5,000 was the recommended minimum. Hahn’s group doesn’t advise using credit cards to meet emergency expenses, because their interest rates are high compared to what savings accounts pay today. “It is better,” he said, “to liquidate a savings account that is only paying 1 percent to pay for emergency costs than put them on a credit card and pay 15 percent.”

Among expenses to factor into a home-buying decision:
-Utilities: Heat, electricity, water and sewer, telephone, cable television, Internet and cell phones. You also may have to pay a fee for trash collection and recycling.
-Food/entertainment: Dining in and out, movies, hobbies.
-Children: Day care, tuition, lunch money, supplies, clothing, sports gear.
-Health costs: Braces, eyeglasses, medicine.
-Debt: Credit-card payments, car/student loans.
-Maintenance/repairs/decor: Furnishings and appliances, landscaping, snow removal.
-Job expenses: Transportation (gasoline or transit costs), auto maintenance.

(c) 2011, The Philadelphia Inquirer.  Distributed by McClatchy-Tribune Information Services.

30-Year Fixed-Rate Mortgage Up Slightly for Second Week

by Ingrid Miles, CBR, REALTOR®

McLEAN, Va. -- Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), which shows interest rates increasing slightly with the 30-year fixed sitting at 4.86 percent, up five basis points from the previous week.

30-year fixed-rate mortgage (FRM) averaged 4.86 percent with an average 0.7 point for the week ending March 31, 2011, up from last week when it averaged 4.81 percent. Last year at this time, the 30-year FRM averaged 5.08 percent.  

15-year FRM this week averaged 4.09 percent with an average 0.7 point, up from last week when it averaged 4.04 percent. A year ago at this time, the 15-year FRM averaged 4.39 percent.  

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.70 percent this week, with an average 0.7 point, up from last week when it averaged 3.62 percent. A year ago, the 5-year ARM averaged 4.10 percent.

1-year Treasury-indexed ARM averaged 3.26 percent this week with an average 0.6 point, up from last week when it averaged 3.21 percent. At this time last year, the 1-year ARM averaged 4.05 percent.  

Frank Nothaft, vice president and chief economist at Freddie Mac, reports, "Fixed mortgage rates rose slightly for a second week in a row, but continue to remain quite low.  Low rates have benefited from relatively benign inflation reports. Inflation as measured by the 12-month growth in the core price index for consumer spending, a metric preferred by the Federal Reserve, is hovering near the lowest pace since 1960 when this data series began."

"Sales of distressed properties continue to place downward pressure on house prices. In January, these homes accounted for 37 percent of existing home sales and rose to 39 percent in February, based on figures from the National Association of Realtors®. House prices were down 3.1 percent in January from the same month last year according to the S&P/Case-Shiller® Home Price Indices."

Provided byRealty Times

Existing-Home Sales Rise Again in January

by Ingrid Miles, CBR, REALTOR®

The uptrend in existing-home sales continues, with January sales rising for the third consecutive month with a pace that is now above year-ago levels, according to the National Association of REALTORS®.

Existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 2.7 percent to a seasonally adjusted annual rate of 5.36 million in January from a downwardly revised 5.22 million in December, and are 5.3 percent above the 5.09 million level in January 2010. This is the first time in seven months that sales activity was higher than a year earlier.

Lawrence Yun, NAR chief economist, said the improvement is good but could be better. “The uptrend in home sales is consistent with improvements in the economy and jobs, which are helping boost consumer confidence,” Yun said. “The extremely favorable housing affordability conditions are a big factor, but buyers have been constrained by unnecessarily tight credit. As a result, there are abnormally high levels of all-cash purchases, along with rising investor activity.”

A parallel NAR practitioner survey2 shows first-time buyers purchased 29 percent of homes in January, down from 33 percent in December and 40 percent in January 2010 when an extended tax credit was in place.

Investors accounted for 23 percent of purchases in January, up from 20 percent in December and 17 percent in January 2010; the balance of sales were to repeat buyers. All-cash sales rose to 32 percent in January from 29 percent in December and 26 percent in January 2010.

“Increases in all-cash transactions, the investor market share and distressed home sales all go hand-in-hand. With tight credit standards, it’s not surprising to see so much activity where cash is king and investors are taking advantage of conditions to purchase undervalued homes,” Yun said.

All-cash purchases are at the highest level since NAR started measuring these purchases monthly in October 2008, when they accounted for 15 percent of the market. The average of all-cash deals was 20 percent in 2009, rising to 28 percent last year.

The national median existing-home price3 for all housing types was $158,800 in January, down 3.7 percent from January 2010. Distressed homes edged up to a 37 percent market share in January from 36 percent in December; it was 38 percent in January 2010.

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said the median price is being dampened by unusual market factors. “Unprecedented levels of all-cash purchases, primarily of distressed homes sold at deep discounts, undoubtedly pulls the median price downward,” Phipps said. “Given the levels of inventory we see today, we believe that traditional homes in good condition have held their value.”

Total housing inventory at the end of January fell 5.1 percent to 3.38 million existing homes available for sale, which represents a 7.6-month supply4 at the current sales pace, down from an 8.2-month supply in December. The inventory supply is at the lowest level since December 2009 when there was a 7.3-month supply.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.76 percent in January from 4.71 percent in December; the rate was 5.03 percent in January 2010.

Single-family home sales rose 2.4 percent to a seasonally adjusted annual rate of 4.69 million in January from 4.58 million in December, and are 4.9 percent higher than the 4.47 million level in January 2010. The median existing single-family home price was $159,400 in January, down 2.7 percent from a year ago.

Existing condominium and co-op sales increased 4.7 percent to a seasonally adjusted annual rate of 670,000 in January from 640,000 in December, and are 7.9 percent above the 621,000-unit pace one year ago. The median existing condo price5 was $154,900 in January, which is 10.2 percent below January 2010.

Regionally, existing-home sales in the Northeast fell 4.6 percent to an annual pace of 830,000 in January from a spike in December and are 1.2 percent below January 2010. The median price in the Northeast was $236,500, which is 4.0 percent below a year ago.

Existing-home sales in the Midwest rose 1.8 percent in January to a level of 1.14 million and are 3.6 percent above a year ago. The median price in the Midwest was $126,300, which is 3.2 percent below January 2010.

In the South, existing-home sales increased 3.6 percent to an annual pace of 2.02 million in January and are 8.0 percent higher than January 2010. The median price in the South was $136,600, down 2.1 percent from a year ago.

Existing-home sales in the West rose 7.9 percent to an annual level of 1.37 million in January and are 7.0 percent above January 2010. The median price in the West was $193,200, down 5.7 percent from a year ago.

The National Association of REALTORS®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

# # #

NOTE: NAR also tracks monthly comparisons of existing single-family home sales and median prices for select metropolitan statistical areas, which is posted with other tables at: www.realtor.org/research/research/ehsdata. For information on areas not included in the report, please contact the local association of REALTORS®.

1Existing-home sales, which include single-family, townhomes, condominiums and co-ops, are based on transaction closings. This differs from the U.S. Census Bureau’s series on new single-family home sales, which are based on contracts or the acceptance of a deposit. Because of these differences, it is not uncommon for each series to move in different directions in the same month. In addition, existing-home sales, which generally account for 85 to 90 percent of total home sales, are based on a much larger sample – more than 40 percent of multiple listing service data each month – and typically are not subject to large prior-month revisions.
The annual rate for a particular month represents what the total number of actual sales for a year would be if the relative pace for that month were maintained for 12 consecutive months. Seasonally adjusted annual rates are used in reporting monthly data to factor out seasonal variations in resale activity. For example, home sales volume is normally higher in the summer than in the winter, primarily because of differences in the weather and family buying patterns. However, seasonal factors cannot compensate for abnormal weather patterns.
Single-family data collection began monthly in 1968, while condo data collection began quarterly in 1981; the series were combined in 1999 when monthly collection of condo data began. Prior to this period, single-family homes accounted for more than nine out of 10 purchases. Historic comparisons for total home sales prior to 1999 are based on monthly single-family sales, combined with the corresponding quarterly sales rate for condos.

Also released today are historic data revisions. Each February, NAR Research incorporates a normal review of seasonal activity factors and fine-tunes historic data for the past three years based on the most recent findings. Revisions have been made to monthly seasonally adjusted annual sales rates for 2008 through 2010, as well as the inventory month's supply data; most revisions are minor with little or no impact on previous characterizations of the overall market. There are no revisions to monthly home prices or raw inventory data (beyond normal prior-month revisions).

Note on Benchmark Revisions: All major statistical data series go through periodic reviews and revisions to ensure that sampling and methodology keep up with changes in the market, such as population changes in sampled areas, to ensure accuracy; we have been examining the existing-home sales data for any issues since late 2010. NAR began its normal process for benchmarking sales earlier this year; there will be no change to median prices. In the past we’ve benchmarked to the decennial Census, most recently to the 2000 Census, because it included home sales data. However, the data are no longer included in the Census, so we’re looking at more frequent benchmarking using a new approach with independent sources to improve our process and modeling. As always, we are consulting with various outside housing economists, government agencies and academic experts for a consensus on the methodology; NAR is committed to providing accurate, reliable data. Publication of the revisions is expected this summer.

2Distressed sales, first-time buyers, investors, all-cash transactions and data for contract cancellations, etc., are from a survey for the REALTORS® Confidence Index, scheduled to be posted March 14.

3The only valid comparisons for median prices are with the same period a year earlier due to the seasonality in buying patterns. Month-to-month comparisons do not compensate for seasonal changes, especially for the timing of family buying patterns. Changes in the composition of sales can distort median price data. Year-ago median and mean prices sometimes are revised in an automated process if more data is received than was originally reported.

4Total inventory and month’s supply data are available back through 1999, while single-family inventory and month's supply are available back to 1982 (prior to 1999, condos were measured quarterly while single-family sales accounted for more than 90 percent of transactions).

5Because there is a concentration of condos in high-cost metro areas, the national median condo price generally is higher than the median single-family price. In a given market area, condos typically cost less than single-family homes.

Existing-home sales for February will be released March 21, the Pending Home Sales Index for February is scheduled for March 28, and the 2010 Vacation and Investment Home study will be published March 30; release times are 10:00 a.m. EDT.

Information about NAR is available at www.realtor.org. This and other news releases are posted in the News Media section. Statistical data in this release, other tables and surveys also may be found by clicking on Research.


Walter Molony; Washington, DC, February 23, 2011

Avoid a prepay penalty in real estate refi

by Ingrid Miles, CBR, REALTOR®

Avoid a prepay penalty in real estate refi

Must-knows when paying off or refinancing home loan

February 03, 2011

Refinancing continues to be a hot topic. Many homeowners who are planning to stay in their homes for the long term are trying to find ways to lock in record-low interest rates.

Some borrowers are running into qualification issues for the first time in their lives. They are discovering they do not have enough income to refinance the home they have occupied for the past several years -- even though the new loan comes with a lower interest rate than their current loan.

Loan representatives are reporting that their biggest challenge in the past 15 months has been explaining to existing customers that they "can't even qualify for a mortgage under 5 percent."

Others are upset because they are facing prepayment penalties on existing mortgages even though they have a flawless payment history and a terrific credit score.

A different wrinkle surfaced recently when a reader brought up an issue that we have not explored for years. She had purchased a home with the proceeds from her previous home plus a small balance that was financed by the owner.

She had planned to pay the small balance off within three years and save some interest money but was shocked to discover the loan structure -- "the rule of 78s" -- did not allow any savings.

Lenders frequently used the rule of 78s for personal loans and auto loans because it's quick and simple to apply to a prepaid loan. The rule of 78s is only a problem for someone who decides to pay off a loan before the agreed-upon term of the loan. In this case, the owner of the home was a retired car dealer and opted to employ the loan method on the woman's loan.

When lenders use the rule of 78s, they distribute the total finance charge over all payments but charge more interest early in the loan term and less later compared to other methods, such as simple interest. Mortgage interest is also front-loaded, but a prepayment penalty is not automatically built into the payment system like it is with the rule of 78s.

The rule of 78s, also called the sum-of-the-digits method, gets its name because the sum of digits 1 through 12, the months in a one-year loan, is 78.

Here's how the rule of 78s works for a 12-month loan: You pay 12/78 of the total finance charge the first month, 11/78 the second month, 10/78 the third month, and so on. The rule of 78s applies the same way for long-term loans.

For example, a 24-month loan -- where the sum of the digits for months one through 24 is 300 -- would have a first month's interest of 24/300, second month's interest of 23/300, and 22/300 for the third month. Interest on a 36-month loan would be broken into 666 parts.

In contrast, credit unions traditionally charge simple interest on a declining balance. This method assesses interest only for the period that you use the money. With both loan calculation methods, each monthly payment is part principal and part interest. The rule of 78s assigns more interest to early payments than does the simple-interest approach.

Why should you care? It can cost you if you're thinking about paying off or refinancing a rule of 78s loan before it matures. The rule of 78s is a method for refunding unearned interest when an installment loan is paid off before maturity.

In the end, if the loan is not prepaid and held for the full term, there is no loss to the borrower whether the loan is set up for the rule of 78s or simple interest.

The borrower gets snagged with the rule of 78s because it accelerates the interest recognition by assuming you will pay the total contracted interest, which favors the lender if you prepay. Therefore, it's a hidden prepayment penalty.

Not sure if your loan uses the rule of 78s? Look at your Truth in Lending disclosure. If you see a phrase like "you will not be entitled to any rebate of part of the finance charge if you prepay," ask the lender if it computes interest using the rule of 78s.

A private party probably will not supply you with a Truth in Lending sheet. While there's only a remote chance you cannot prepay the balance without a penalty, always ask and require the party to discuss the prepayment possibilities.

By Tom Kelly of Inman News™

Displaying blog entries 41-50 of 66

Contact Information

Photo of Ingrid Miles, CBR, SRES, Lead REALTOR, Stephen Mil Real Estate
Ingrid Miles, CBR, SRES, Lead REALTOR, Stephen Mil
Keller Williams Realty
11 South Main St & 1 Merrimac St
Topsfield & Newburyport MA 01983 & 01950
Direct: 978-471-9750
978.861.4218
Fax: 978-861-4218

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