EXISTING HOME SALES TO TREND UP in 2008!!

WASHINGTON, December 10, 2007

Existing-home sales are projected to trend up in 2008, with pending home sales showing a slight near-term rise, according to the latest forecast by the National Association of Realtors®. However, a recovery for new-home sales is unlikely before 2009.

Lawrence Yun, NAR chief economist, said the worst part of the credit crunch has already worked its way through the data. “The unusual mortgage disruptions that peaked in August were clearly seen in lower home sales that were finalized in September and October, so the market was underperforming,” he said. “Now that mortgage conditions have improved, some postponed activity should turn up in existing-home sales over the next couple of months, and I expect sales at fairly stable to slightly higher levels.”

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in October, increased 0.6 percent to an index of 87.2 from an upwardly revised reading of 86.7 in September. It was the second consecutive monthly gain, but remained 18.4 percent below the October 2006 index of 106.8. “The broad trend over the coming year will be a gradual rise in existing-home sales, but because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007,” Yun said.

The PHSI in the Northeast jumped 16.0 percent in October to 80.6 but is 11.1 percent below a year ago. In the West, the index rose 8.4 percent to 87.3 but is 16.9 percent lower than October 2006. The index in the Midwest slipped 1.4 percent in October to 85.5 and is 11.7 percent below a year ago. In the South, the index dropped 7.8 percent in October to 91.6 and is 25.3 percent below October 2006.

“The improvement in the Northeast reaffirms a trend apparent for some months now that shows signs of recovery, noteworthy because that was the first region to slump, and the gain in the West indicates some easing of interest rates for jumbo loans,” Yun said. “Lawmakers need to understand that raising the loan limits on FHA and GSE-backed conventional loans will markedly improve mortgage availability.”
Existing-home sales are likely to total 5.67 million this year, the fifth highest on record, rising to 5.70 million in 2008, in contrast with 6.48 million in 2006. Existing-home prices should be down 1.9 percent to a median of $217,600 for all of 2007, and then rise 0.3 percent to $218,300 in 2008.

“Home price growth in the vast affordable midsection of America will help raise the national median existing-home price slightly in 2008. I then expect price appreciation to return to more normal patterns in 2009, perhaps rising one or two percentage points above the rate of inflation,” Yun said.

“Even with a modest decline in the national aggregate price this year, it’s important to keep in mind that nearly two-thirds of the metro areas in the U.S. are showing price increases,” he said. “The apparent disparity results from fewer sales in high-cost markets, so a change in the mix of sales is dragging down the national median home price.”

Areas showing healthy price gains include disparate markets such as Gary-Hammond, Ind.; Binghamton, N.Y.; Corpus Christi, Texas; and Spokane, Wash. “We can’t emphasis enough how much local conditions vary, even within a given area, so it’s important for consumers to make decisions based on local market conditions.”

New-home sales are forecast at 788,000 this year and 693,000 in 2008, down from 1.05 million 2006; no sustained improvement is seen for new homes until 2009. Because builders have correctly adjusted production, housing starts, including multifamily units, will probably total 1.36 million this year and 1.16 million in 2008, down from 1.80 million last year. The median new-home price is projected to drop 3.0 percent to $239,100 for 2007, and then decline another 0.2 percent to $236,600 in 2008.

The 30-year fixed-rate mortgage is estimated to rise slowly to the 6.4 percent range by the end of 2008, with additional cuts in the Fed funds rate lowering short-term interest rates.
Growth in the U.S. gross domestic product (GDP) should be 2.1 percent in 2007, down from a 2.9 percent growth rate last year; GDP growth is forecast to improve to 2.4 percent in 2008.
The unemployment rate is likely to average 4.6 percent for 2007, unchanged from last year, but rise to 5.0 percent in 2008. Inflation, as measured by the Consumer Price Index, will probably be 2.8 percent this year and 2.7 percent in 2008, down from 3.2 percent in 2006. Inflation-adjusted disposable personal income is estimated to grow 3.1 percent this year, the same as in 2006, and then grow 2.2 percent next year.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.

Bigger IS Better!

Oversized Garages

a Must-Have for Many Homebuyers

Oversized garages with two or more parking spaces are a must-have feature for many homebuyers, even during times of elevated gasoline prices, according to a report released by the National Association of REALTORS.

According to the "Profile of Buyers' Home Feature Preferences," 57 percent of recent buyers considered a large garage very important to a home - that's 16 percentage points higher than the last time the question was posed in the 2004 survey.

Of the buyers who purchased homes without an oversized garage, 56 percent of them said they would have paid more for the feature. Only six percent said the same in 2004.
And while homes are getting bigger, they have fewer bedrooms, the study found. The size of the typical home purchased in 2006 increased by about 100 square feet, compared with 2004, but the median number of bedrooms dropped from four to three.

Other features considered "very important" by many homebuyers included:

* Air conditioning (ranked "very important" by three out of four buyers)
* A walk-in master bedroom closet (53% of buyers)
* Hardwood floors (28% of buyers)
* Granite countertops (23% of buyers)
* Cable or satellite TV-ready (46% of buyers)

The Next Economic Power Source

By Oscar Gonzales
RISMEDIA, August 7, 2007–We frequently hear about the shifting generational differences that are taking place among today’s home buyers; how aging Baby Boomers are becoming a lucrative customer niche and how aging brokers and agents are not keeping up with the highly technical and wired 30-somethings.
Still, as the population grows and changes, the brokering of property continues to be practiced relatively unchanged and broker profitability continues to decline year after year. What is fundamentally being overlooked is a home-buying segment that possesses $2.1 trillion of buying power and is expected to grow to almost $3 trillion in the next four years. That overlooked economic power source is emanating from the multicultural consumer.
This is not another opinion or comment on social advocacy that instantly fills your head when you hear the words “multicultural” or “diversity.” It is about the economics and emotional intelligence required to capture those dollars.

The Family Evolution
In the Hispanic market, there is a complex dynamic underway, given the different levels of acculturation and language proficiencies living in one household. For example, traditional family roles have changed where the Hispanic woman is now contributing to the overall household income, while the immigrant children may serve as the go-to person for translating and explaining the U.S. culture. The home-buying process is a multigenerational process in which each member of the family has input.Among African-American families, there is a higher number of female head of households, which facilitates liberal attitudes about gender roles. There is also an increasing number of African-American women choosing to remain unmarried.

Evolution of Trust
One characteristic of the multicultural consumer is the placement of family as the trusted advisor above anyone else. This cultural value is demonstrated more in the immigrant population and is partly due to the lack of trust in business and government in their respective countries. By engaging multicultural consumers and creating a culturally friendly environment, trust among this consumerbase will broaden for an organization.

Multicultural Challenges
Multicultural home buyers want to be addressed in a manner that culturally connects with them. As organizations seek to develop cultural connectivity, understanding the importance of one-on-one relationships is equally important when examining the approach utilized with each multicultural group.

BIG BLING

THE HEIGHT OF LUXURY

As the rest of the housing market struggles, the very high end is thriving.

The Dallas-based Institute for Luxury Home Marketing estimates that home sales at the $5 million-plus price range rose 11 percent in 2006, compared to a 8.4 percent decline in overall housing market sales. Between 1999 and 2005, the institute says, sales of homes for more than $1 million skyrocketed over 500 percent. Today, there are seven homes on the market priced at $100 million or more. In 2005, there was just one.

Granted, it is easy to have those stats with such few numbers, but it is an obvious change...

Housing Report From Harvard...Hold On Tight

Harvard releases the 2007 State of the Nation's Housing report

The U.S. housing market continues to struggle

under a cloud of sharp drops in housing demand and an oversupply of stock, according to this year's State of the Nation's Housing report from the Joint Center for Housing Studies at Harvard University. After years of setting records, housing starts and sales fell in 2006 and are on track to end this year lower. Homebuyers on the margin of qualifying for mortgage loans finally pulled out of the market, despite the availability of creative mortgage products. As buyers left, home sales fell and house price appreciation slowed in some areas and fell in others. Higher home prices and interest rates finally tempered demand, explained Nicolas P. Retsinas, director of the Joint Center for Housing Studies. Many buyers are now waiting on the sidelines hoping prices will fall.

The problems in the housing market put a downward pull to the big lift that housing had given the economy since the 2001 recession. In the latter half of 2006, the drop in home building was so drastic that it shaved more than a full percentage point off national economic growth. Though builders cut back on housing starts, the numbers of vacant homes for sale rose by more than 500,000 from the fourth quarter of 2005 to the fourth quarter of 2006 and continued to rise in the first quarter of 2007.

Still, the nation's largest housing challenge remains housing affordability. "In just one year the number of households spending more than half their income on housing increased a startling 1.2 million to 17 million in 2005," notes Rachel Drew, research analyst. "Even if prices or rents soften for a period of time, the nature of U.S. labor markets, the regulatory restrictions imposed on residential development and the fiscal limits of government assistance to cost-burdened households will make affordability a long-term challenge." Some Americans try to escape these cost burdens by taking longer commutes and incurring higher travel costs, while others double up or live in substandard housing or undesirable neighborhoods. The prospects for a substantial easing of these problems are slim in the near future.

Younger Buyers Purchasing Retirement Homes

Buying Trends

Retirement-home sales are growing...among buyers still decades away from retiring. From New York's Catskill Mountains to Oregon's rocky coast, younger couples who might otherwise be focused on building a nest egg instead are buying a lakefront house or country cabin that they hope to one day use in retirement.
For these younger buyers, this isn't an extension of the real estate investment bug that bit a few years ago and is now fading as home prices flag in many markets. And they're not throwing financial caution to the wind just because they want a second home. Instead, they're crunching the numbers and making hard decisions about their personal finances. In some cases, they're receiving an inheritance or a stock grant and are choosing to invest in their future real estate needs rather than the stock market. In other cases, they're altering their expectations about how long they'll work and the kind of returns they'll earn on their nest egg in order to pursue an emotional investment.
No one knows how many younger buyers are out snapping up their retirement homes. But real estate agents and financial planners around the country say they're increasingly assisting younger buyers spending $100,000 to $500,000 for a house to call home in retirement. Partially at play is a cultural shift planners say they see among younger savers who aren't content to just accumulate assets to use in retirement. Instead, this younger generation wants to put some of its nest egg to work today as an investment in family. (Jeff Opdyke, The Wall Street Journal Online)

MORE HOME-BUYING TRENDS

Vacation-Home Sales Rise, Investment Sales Drop

Second-home sales were mixed in 2006, with the combined total of vacation- and investment-home sales accounting for 36 percent of all existing and new residential transactions - down from 40 percent of sales in 2005, according to the National Association of REALTORS.
NAR's annual Investment and Vacation Home Buyers Survey shows vacation-home sales rose 4.7 percent to a record 1.07 million in 2006 from 1.02 million in 2005, while investment-home sales fell sharply, down 28.9 percent to 1.65 million in 2006 from a record 2.32 million in 2005. By contrast, primary residence sales fell 4.1 percent to 4.82 million in 2006 from 5.02 million in 2005.
Twenty-two percent of all homes purchased last year were for investment, down from a 28 percent market share in 2005, while another 14 percent were vacation homes, up from a 12 percent share in 2005.
The report pegged typical vacation-home buyers as 44 years old, with median household incomes of $102,200. About 42 percent purchased vacation properties closer than 100 miles from their primary residence and 32 percent were 500 miles or more away. Some 79 percent said the primary reason for their vacation-home purchase was to use the home for vacations or as a family retreat. Other factors that influenced the buy include: 34 percent to diversify investments, 28 percent to use as a future home, 25 percent for the tax benefits, 22 percent for use by a family member or friend, 21 percent because they had extra money to spend and 18 percent to rent to others.
In terms of location, 29 percent of vacation homes were purchased in rural areas, 24 percent in resorts, 22 percent in a suburb and 10 percent in an urban area or central city. Sixty-seven percent were detached single-family homes, 21 percent condos, eight percent townhouses or rowhouses and four percent other.

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Don't Worry, Buy Houses...

Bernanke not worried subprime woes will affect economy

Federal Reserve Chairman Ben Bernanke told Congress this week he doesn't believe the economy will slip into a recession and rejected the notion raised by his predecessor, Alan Greenspan, that the economic expansion, which started in late 2001, could be running out of steam.

Regarding the issue of subprime mortgages, Bernanke said the growing troubles in the market for risky mortgages thus far don't appear to be spreading to the overall economy. "At this juncture ... the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained," he said.

It marked Bernanke's most extensive discussion yet of the mounting problems in the risky mortgage market. Those troubles raise "some additional questions about the housing sector," which has been mired in a deep slump for more than a year, Bernanke said.
"Although the turmoil in the subprime mortgage market has created financial problems for many individuals and families, the implications of these developments for the housing market as a whole are less clear," Bernanke said.

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WORD!

Researchers Say Certain Descriptions Help Sell Houses, While Others Hurt
San Antonio Express-News (TX) (03/01/07)
Hiller, Jennifer

Real estate experts say word selection and phrasing plays a large role in how long a home stays on the market. Ronald Rutherford, a professor of finance and real estate at the University of Texas at San Antonio, says people who want to sell their home must paint an appealing portrait, and that requires using the right combination of words.

Words such as "updated," "golf" and "lake" are sure to grab the attention of home buyers. Conversely, the wrong words can hurt a listing. Such words and phrases include "new/fresh paint," "new carpet" and "foreclosure" imply something is wrong with the house. Rutherford's research found that home listings that used the word "breathtaking" sold for 7 percent more, while listings that included "landscaping" sold 20 percent faster.

While embellishment is fine, Paul Anglin, real estate and housing trends professor at the University of Guelph in Ontario, says it is equally important that sellers avoid over-doing it. He cautions, "If you mislead people at the first stage, then bargaining will be harder or buyers will just walk away."

I'm Checking My Listing Remarks Pronto! Chris

SECOND HOME TAX BENEFITS!

Buying a Second Home
January 2007-Kiplingers.com

Believe it or not, a change in the tax law gets a lot of credit for a recent boom in the number of Americans buying second homes. The change allows most home sellers to take up to $500,000 of profit tax free. Before 1997, sellers generally had to buy a more expensive home to avoid being taxed on profit from a sale. Now you can trade down to a less expensive house and use profit from the sale of the big place as a down payment on a second home.

A recent study found that more than one in five second-home buyers were using equity from the sale of a primary residence to finance their purchase. There's no doubt that many baby boomers are in their peak-earning years and therefore more able to afford a second home. And, rapid price appreciation of homes in many areas has certainly stoked demand for second homes as terrific investments. Here's a quick look at the tax rules for second homes.

Mortgage interest. If you use the place as a second home -- rather than renting it out as a business property -- interest on the mortgage is deductible just as interest on the mortgage on your first home is. You can write off 100% of the interest you pay on up to $1 million of debt secured by your first and second homes and used to acquire or improve the properties. (That's a total of $1 million of debt, not $1 million on each home.) The rules that apply if you rent the place out are discussed later.

Property taxes. You can deduct property taxes on your second home, too. In fact, unlike the mortgage interest rule, you can deduct property taxes paid on any number of homes you own.

If you rent the home. Lots of second-home buyers rent their property part of the year to get others to help pay the bills. Very different tax rules apply depending on the breakdown between personal and rental use. If you rent the place out for 14 or fewer days during the year, you can pocket the cash tax-free. Even if you're charging $5,000 a week, the IRS doesn't want to hear about it. The house is considered a personal residence, so you deduct mortgage interest and property taxes just as you do for your principal home.
Rent for more than 14 days, though, and you must report all rental income. You also get to deduct rental expenses, and that gets complicated because you need to allocate costs between the time the property is used for personal purposes and the time it is rented. If you and your family use a beach house for 30 days during the year and it's rented for 120 days, 80% (120 divided by 150) of your mortgage interest and property taxes, insurance premiums, utilities and other costs would be rental expenses. The entire amount you pay a property manager would be deductible, too. And you could claim depreciation deductions based on 80% of the value of the house. If a house is worth $200,000 (not counting the value of the land) and you're depreciating 80%, a full year's depreciation deduction would be $5,800.
You can always deduct expenses up to the level of rental income you report. But what if costs exceed what you take in? Whether a loss can shelter other income depends on two things: how much you use the property yourself and how high your income is.
If you use the place more than 14 days, or more than 10% of the number of days it is rented -- whichever is more -- it is considered a personal residence and the loss can't be deducted. (But because it is a personal residence, the interest that doesn't count as a rental expense -- 20% in our example -- can be deducted as a personal expense.)
If you limit personal use to 14 days or 10%, the vacation home is considered a business and up to $25,000 in losses might be deductible each year. That's why lots of vacation homeowners hold down leisure use and spend lots of time "maintaining" the property. Fix-up days don't count as personal use. The tax savings from the loss (up to $7,000 a year if you're in the 28% tax bracket) help pay for the vacation home. Unfortunately, holding down personal use means forfeiting the write-off for the portion of mortgage interest that fails to qualify as either a rental or personal-residence expense.

We say such losses might be deductible because real estate losses are considered "passive losses" by the tax law. And, passive losses are generally not deductible. But, there's an exception that might protect you. If your adjusted gross income (AGI) is less than $100,000, up to $25,000 of such losses can be deducted each year to offset income such as your salary. (AGI is basically income before subtracting your exemptions and deductions.) As income rises between $100,000 and $150,000, however, that $25,000 allowance disappears. Passive losses you can't deduct can be stored up and used to offset taxable profit when you ultimately sell the vacation house.

Tax-free profit. Although the rule that allows home owners to take up to $500,000 of profit tax free applies only to your principal residence, there is a way to extend the break to your second home: Make it you principal residence before you sell. That's not as wacky as it might sound. Some retirees, for example, are selling the big family home and moving full time into what had been their vacation home. Once you live in that home for two years, up to $500,000 of profit can be tax free. (Any profit attributable to depreciation while you rented the place, though, would be taxable. Depreciation reduces your tax basis in the property and therefore increase profit dollar for dollar.)

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Greenspan: Recession Still Possible

By: Associated Press

HONG KONG -- Former U.S. Federal Reserve Chairman Alan Greenspan warned Monday that the American economy might slip into recession by year's end. He said that the U.S. economy has been expanding since 2001 and that there are signs the current economic cycle is coming to an end.

"When you get this far away from a recession, invariably forces build up for the next recession, and indeed we are beginning to see that sign," Greenspan said via satellite link to a business conference in Hong Kong. "For example, in the U.S., profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle.

"While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 ... with some slowdown," he said.Greenspan said that while it would be "very precarious" to try to forecast that far into the future, he could not rule out the possibility of a recession late this year.The U.S. economy grew at a surprisingly strong 3.5 percent rate in the fourth quarter of 2006, up from a 2 percent rate in the third quarter.

A survey released Monday by the National Association for Business Economics showed that experts predict economic growth of 2.7 percent this year, the slowest rate since a 1.6 percent rise in 2002.Greenspan also warned that the U.S. budget deficit, which for 2006 fell to $247.7 billion, the lowest in four years, remains a concern."The American budget deficit is clearly a very significant concern for all of us that are trying to evaluate both the American economy's immediate future and that of the rest of the world," he said via satellite at the VeryGC Global Business Insights 2007 Conference.Greenspan also said he has seen no economic spillover effects from the slowdown in the U.S. housing market."We are now well into the contraction period, and so far, we have not had any major, significant spillover effects on the American economy from the contraction in housing," he said.

WHEN WILL THE CRUNCH BE OVER?

Most agree the housing crunch isn't over yet.

Housing is proving to be one of the biggest wild cards in the economy in 2007 as analysts are deeply divided about whether the worst in the downturn is over or there is much more pain to go. Only nine percent of economists say the housing decline ended in 2006, according to a USA TODAY survey of 55 economists taken Jan. 18-24. Another 42 percent said the downturn will end in the first half of the year, and 45 percent said housing will bottom out in the second half.

When housing bottoms out is key for the economy. Thus far, the fallout has been small. The economy grew at a faster pace in 2006 than in 2005 even though sales of previously owned homes fell 8.2 percent, the biggest drop in 17 years, the National Association of Realtors says. But the economy may not be able to shrug off further declines, A.G. Edwards & Sons Chief Economist Gary Thayer says. Lower energy prices and a strong job market have thus far helped consumers weather the housing downturn. But going forward, those two factors may not be big enough to offset further weakening, Thayer says.

Economist Tucker Hart Adams says the housing market won't stabilize in 2007. The combination of resetting adjustable-rate mortgages, homeowners unable to keep up with payments on so-called exotic mortgages such as interest-only loans, and other debt will lead to higher foreclosure rates and more homes on the market, she says. "It's really optimistic to think that it just took a little adjustment and everything is fine," she says. "It's one time I would like to be wrong." (USA TODAY)

Study Shows Market for Luxury Homes Remains Strong

The results of a study on luxury real estate trends conducted by Sotheby’s International Realty and Architectural Digest suggests that the market for luxury homes remains strong. The survey finds that a significant percentage of luxury homebuyers are seeking to purchase an additional home within the next two years.

Specifically:

* One in three Architectural Digest subscribers (36 percent) is planning to acquire a secondary/additional home within the next two years.

* Of those who already own three or more homes, 49 percent plan to acquire an additional home within two years.

* Of those who already own a second home, 35 percent plan to acquire a third home within two years.

* In an indication that young affluent consumers are in the market for second homes, 44 percent of those under age 45 stated that they may acquire a second home in the near future.

The study, “Seeking a Luxury Lifestyle,” found that waterfront property (75%) is the most sought after amenity when buying a secondary residence. Additional amenities studied by the survey indicated the following preferences: on/near golf courses (48%); near aquatic activities (45%); in-home fitness center (34%); media room/home theater (32%); on/near ski slopes (28%); wine cellar (18%); gourmet/large kitchen (10%); large backyard (5%); and pool (5%).

UP UP UP!

Gradual Rise Predicted

After bottoming in the fourth quarter of 2006, existing-home sales are forecast to gradually rise through 2007 and into 2008, while new-home sales should turn around by summer, according to the latest forecast by the National Association of Realtors. David Lereah, NAR’s chief economist, said annual totals for existing-home sales will be fairly comparable between 2006 and 2007. “We have to keep in mind that we were still in boom conditions during the first quarter of 2006 with a high sales volume and double-digit price, it’ll be pretty much of a wash in terms of annual totals. The good news is that the steady improvement in sales will support price appreciation moving forward.”

Existing-home sales for 2006 are expected to come in at 6.50 million, the third highest on record, with a total of 6.42 million seen in 2007. New-home sales in 2006 should tally 1.06 million, the fourth highest on record, with 957,000 projected this year. Total housing starts for 2006 are likely to be 1.81 million units, with 1.51 million forecast in 2007, which would be the lowest level in a decade. Builders are pulling back on new construction to support prices of remaining inventory.

The national median existing-home price for all of 2006 is expected to rise 1.1 percent to $222,100, and then gain 1.5 percent this year to $225,300. The median new-home price, after rising only 0.3 percent to $241,600 in 2006, is projected to grow 3.0 percent in 2007 to $248,900.

Real Estate is STILL the Best Investment.