The Real Estate industry is an ever-evolving entity in our time. Keeping up with it's fluctuations can be intimidating. Let's keep ourselves informed!

Monday, February 27, 2006

Affordable Housing

HUD announces $24.8 million ˜sweat equity" grants

WASHINGTON -- Feb. 27, 2006 -- More than 1,500 families could soon own a home as a result of $24.8 million in grants announced by the Department of Housing and Urban Development (HUD) through its Self-Help Homeownership Opportunity Program (SHOP). The money will go to four national and regional organizations.

"This funding not only helps families to purchase their first home, but taps into their own sweat equity to make them feel more invested in their new neighborhood," says Assistant Secretary Pamela Patenaude. "With a little investment and elbow grease, great things can happen and our SHOP program is proof of that."

Nonprofit organizations awarded SHOP grants include:

ACORN Housing Corporation, $572,000
Community Frameworks, $4,500,000
Housing Assistance Council, $9,000,000
Habitat for Humanity International, $10,773,000


SHOP grants are provided to national and regional nonprofit organizations that have experience in providing self-help housing. These non-profit organizations, in turn, distribute SHOP funds to several hundred local affiliates that acquire land, select homebuyers, coordinate the homebuyer and volunteer efforts for sweat equity, and assist in financings. Cash outlays cannot exceed an average investment of $15,000 per dwelling.

Homebuyers contribute a minimum of 100 hours of sweat equity on the construction of their homes and/or the homes of other homebuyers participating in the local self-help housing program. Labor contributed by volunteers also helps buyers unable to perform their sweat equity tasks due to disabilities or other reasons. Frequently, homebuyers with disabilities may substitute tasks by performing administrative assignments. The sweat equity and labor contributions by the homebuyers and volunteers significantly reduce the cost of the housing.

Sellers be patient; buyer's market returns

If you think you're seeing a lot more "Open House" signs springing up on street corners these days, you're not mistaken. The open house, which seemed so unnecessary in South Florida just a few months ago, is making a comeback. READ MORE

Sunday, February 26, 2006

Priced out of the "American Dream".

The boom is a bust for many in South Florida whose vision of homeownership is blurred by the soaring cost of housing. READ MORE

Thursday, February 23, 2006

State legislators debate ways to ease housing crunch

DESTIN, Fla. -- Amber Leto is a single mother of two making around $40,000 a year in a resort community where real estate prices have spiraled upward. Not a good situation for someone who dreams of owning a home. READ MORE

Wednesday, February 22, 2006

Fort Lauderdale to provide housing aid for families making up to $70,000 a year

FORT LAUDERDALE -- People making moderate incomes -- up to $69,720 a year -- might soon join the ranks of the city's poor in being eligible for housing welfare. READ MORE

Why you’ll pay more in rent this year

Rents were up last year and they're expected to continue rising. Who or what to blame depends on where you live. The culprits include rising home prices, condominium conversions -- even Hurricane Katrina. READ MORE

Tuesday, February 21, 2006

Selling prices starting to come down as S. Florida real estate market slows

"They can't compare their home to a home that sold a year ago or even six or eight months ago," she said. "And homes have to be properly marketed. The days of just putting it in the [Multiple Listing Service] or putting a sign in the front yard are over." READ MORE

Monday, February 20, 2006

Trapped homeowners might get an escape valve

Published February 19, 2006

The real-estate boom has made plenty of South Florida homeowners rich on paper, but many also have become prisoners to their good fortune.

"I hear it all the time," said Christine Hansen, president-elect of the Realtor Association of Greater Fort Lauderdale. "People say they're trapped in their current homes.

"That's because a move within the area would trigger huge tax hikes for those now protected by homestead exemptions and the Save Our Homes amendment, which limits the rise in taxable value to 3 percent a year. READ MORE

Sunday, February 19, 2006

The wealth machine

South Florida's housing boom fueled an explosion of jobs and personal fortunes. Will a slowdown matter? READ MORE

Saturday, February 18, 2006

Look out first time homebuyer!

First-time home-buyers face an unfamiliar road and risk purchasing the wrong place at the wrong time. Here's a guide to the potholes.

Buying your first home is an exercise in faith. You don't really know what you're getting into, you're awash in unfamiliar terminology and everyone you meet seems to have strong (and utterly contradictory) ideas about which way the housing market is headed.

You may not be able to avoid every home-purchase mistake, but you can keep your regrets to a minimum by avoiding the following traps:

A good home inspection can keep you from buying a money pit. You can ask your agent for a recommendation, but get referrals from other recent buyers and try to interview at least three potential candidates before making your choice.

Few states regulate home inspectors closely, so choose someone who belongs to the American Society of Home Inspectors, which requires its members to complete at least 250 inspections (or 750 if they don't have other licenses and experience). Ask about fees (which typically range from $300 to $700) and whether the inspector is licensed, bonded and insured.

" Make sure you get a detailed, written report and, if at all possible, accompany the inspector so you can discuss the findings while they're still fresh.

Taking advice about what you can afford

Your agent, your broker and your lender don't know what you can afford. At best, they know the underwriting guidelines for various loans, which are designed to minimize the lenders' losses, not ensure that you'll maintain your financial health.

Lenders know that you'll do whatever it takes to pay your mortgage, even if that means shortchanging your retirement, forgoing vacations and piling on credit card debt. You need to be the one to set limits on how much you want to borrow and how you borrow it. In general, limiting your housing costs -- including mortgage, property taxes and homeowner's insurance -- to 25% of your gross income will ensure you have enough money left over to cover other goals, like retirement savings.

Getting a ‘temporary’ loan

This can be potentially dangerous advice more often now that so many markets are spiraling out of the reach of first-time home-buyers: Get a mortgage with a low payment now, then refinance in a few years when your income is higher. This is the way some brokers and lenders are hawking adjustable-rate mortgages as well as their more exotic cousins, interest-only and flexible-payment loans.

There are a couple of problems with this advice. The first and most obvious is that no one can predict where interest rates will be five years from now. If they're substantially higher, you will have just passed up the opportunity to lock in rates when they were near generational lows. If your payment has been rising with those rates, you may not be able to afford your home even if your income is higher.

The other problem if you opt for one of the exotic mortgages is that you may not be building any equity in your home. If prices drop, you may owe more on your house than it's worth, which is going to make refinancing pretty tough unless you can come up with a ton of extra cash.

More experienced homeowners who are disciplined about money might be able to handle a trickier mortgage.

The better advice for first-time home-buyers may be to opt for a loan that will remain fixed at least as long as you plan to be in the home. If you plan to move after five years, for example, a good choice might be hybrid loan that remains fixed for five years before becoming an adjustable-rate mortgage. If you'll be in the home for a decade or more, or aren't sure how long you'll be there, you might want to opt for the security of a 30-year fixed-rate loan and lock inng in your housing costs for the next 30 years.

If interest rates go up, your payment stays the same, and if they go down, you can refinance.


Before you decide on a mortgage, spend some time with one of our mortgage specialists at Home Financing Center and educate yourself about the options.

Opening or closing credit accounts Both can hurt your all-important credit score, the three-digit number lenders use to help gauge your credit-worthiness. That can result in your getting stuck with a higher interest rate or losing the loan you want all together.

Failing to investigate the neighborhood

One common mistake is not looking at the property and the neighborhood at various times during the day, the late afternoon when kids tend to cluster, at night and on both weekdays and weekends.

This ongoing inspection can reveal good news, bad news or both. You may find your home is on a popular shortcut for commuters or near the gathering place for local kids, but only for a few hours a day.

Something which you construe as a problem might only happen one day a week or at a certain time of the day.

Quiz a few neighbors about what they like and don't like, and about which direction the neighborhood seems to be going.

Find out if there are any 'crazies' on the block. If there is empty space nearby, ascertain what the zoning is for that empty space. Is the next block over ... zoned commercial? Do you want a McDonald’s as a neighbor?

Buying when you're not ready

Buying a home is a great way for the average person to build wealth over the long run, but it's not for everyone in all circumstances.

If your finances are uncertain or your job prospects are up in the air, you might want to wait. Renting is also a better option if you're planning to move in a year or two.

And if the primary reason you're buying a home is for the tax break, or because real estate is a better investment than the stock market, or because you're tired of "throwing away money on rent," you might want to first read "3 worst reasons for buying a home."

Not buying when you are ready

All that said, you shouldn't let fear or uncertainty keedon't put off a purchase if you're able to stay put for several years -- long enough to ride out any downswings.

In five or 10 years, prices will be higher than they are today putting you on the sidelines if you're otherwise ready to buy a home.


Thursday, February 16, 2006

The art of the lowball offer

As housing sales slow, home buyers are in a better position to offer substantially less than the seller's asking. Here are 8 bargain-hunting tips.

By Joanna Glasner, Bankrate.com


After five years of sizzling growth, U.S. home price appreciation is showing signs of cooling.

Pending home sales -- a leading market indicator -- are down from a year ago, according to the National Association of Realtors. In many of the nation's hottest markets, brokers also are reporting a growing gap between sellers' asking prices and what purchasers are willing to pay.

For prospective home buyers, the market shift provides a chance to remaster an old negotiating tactic: the art of the lowball offer. Strategies for securing a below-market price vary by locality. In any region, however, experts say bargain-hunting buyers can close favorable deals by applying a few basic principles.

Shop in the off-seasonThe best time to buy a house is the week between Christmas and New Year's Day, says Robert Irwin, a real estate author and investor. Why? No one is looking.
"The only ones out there are people who desperately need a home or investors looking for a bargain," says Irwin.

By the same logic, early spring ranks among the worst times to make a deeply discounted offer. It's a popular time for sellers to put homes on the market, taking advantage of pleasant weather, longer daylight hours and heightened interest among buyers.

That seasonal pattern applies to most of the country. But warm climates might be the exception. Florida, Arizona and other locales popular with sun-seekers are likely to see high levels of home-buying activity in winter.

Accept imperfectionsLots of buyers are looking for spacious, well-maintained homes in upscale neighborhoods. Few will find bargains meeting that description.

To secure a low price on a home, buyers ought to accept a few shortcomings, says Ilyce Glink, a real estate writer and talk show host. This might mean a property that needs repairs or faces a busy street. It could also be a home in a more run-down neighborhood that appears to be improving.

Just don't be reckless. Buyers might be tempted by the price of a local "handyman's special." Such homes can be quite profitable for do-it-yourselfers or investors with experience in renovations. But if you're not handy and don't know any reliable building contractors, it's probably wise to pass, says Curt Darragh, president of the Mid-Hudson Valley Real Estate Investment Club. If you do pursue the purchase, Darragh recommends getting a professional estimate for the cost of repairs and upgrades.

Rejection is healthyUnless it's truly the house of your dreams, don't be upset if a seller turns down your initial offers. Rejection is a normal part of the negotiating process. Some would even call it essential.

"Never make an offer you think they will accept," says Thomas Early, president of the National Association of Exclusive Buyer Agents, who lists rejection as his first rule of savvy home buying.
His second rule? More rejection.

"Make the seller say 'no' at least twice. It's too easy to say no the first time."

Granted, that strategy doesn't work everywhere. Early wouldn't recommend it for competitive real estate markets like San Francisco or Boston, where it's been common in recent years for sellers to get multiple offers above the asking price. But for Early's practice in Columbus, Ohio, where homes sell for an average of 94% of listing price, he finds the method works well.

Make many offersBargain-oriented buyers should also plan to make offers on several homes, says Irwin. An investor who makes lowball offers on 10 houses is more likely to find a willing seller than one who pursues only one or two properties.

That said, Irwin doesn't see much point in making wildly underpriced offers. They're rarely accepted.

Find a guideWhen you see a great-looking house in a real estate circular, you might be tempted to call the agent listed by the photo. That could be a mistake.

"A lot of buyers think that 'If I call the listing agent, I'll get a better deal.' That's not true," said Bob Wilson, an agent with the Guiltinan Group in San Diego County. Because listing agents have a duty to get the best possible price for the seller, they're not suitable advisers for crafting a lowball offer.

Buyers need someone to represent their interests. Typically, that person is a buyer's agent, who researches listings exclusively for a home seeker. When a purchase closes, the buyer's agent normally splits the sales commission with the seller's Realtor. In most states, the buyer's agent is required to deal with the seller honestly but, unlike the listing agent, is under no obligation to get the highest possible price for the seller.

A good buyer's agent earns much more than the 2%-to-3% commission, says Glink. That's because buyers don't have the deep knowledge of neighborhoods, comparable homes and current prices of an experienced agent.

"Your agent is more than just someone who drives you around," says Glink. "Your agent is supposed to be your eyes and your ears, helping you sift through what information is valuable or not when constructing an offer."

Look for motivated sellersThe more desperate homeowners are to sell, the more likely they are to accept discounted offers. Therefore, bargain hunters should be on the lookout for homeowners anxious to unload their properties.

One strategy that broker Chris Edwards of Raleigh, N.C., recommends is to look for listings that have been on the market longer than normal. In Edwards' market, a well-kept home in a good neighborhood typically sells within a month. Sellers with homes on the market two months or more are probably more receptive to lower offers.

Another tactic Wilson suggests is to keep watch for announcements of large-scale company layoffs, closures or relocations. In the months to follow, large numbers of affected employees are likely to be selling their homes. This could provide a buying opportunity.

Offer incentivesThis strategy works best for people with some experience in real-estate investing. The basic premise: If you offer a lower price than sellers expect, you need to give them a reason to take your offer.

Darragh's favorite incentives include offering to close quickly, to pay in cash and to attach few contingencies to completing the deal. Such offers, he says, are particularly attractive to homeowners under duress, who might be facing foreclosure, a forced relocation or are struggling
with debt.

Don't fixate on list priceThe true value of a home might not be reflected in its listed price. A property's listed price simply reflects what a seller hopes to get, usually based at least in part on selling prices of similar homes.

Glink cautions buyers against taking too much glee in getting a property substantially below list. In some cases, initial list prices are so inflated that even a buyer who negotiates a substantial discount still overpays.

"It's no indication of what you should pay," says Irwin. "You have to do your own analysis."

Wednesday, February 15, 2006

Experts say South Florida housing market cooling off

Surging price increases unsustainable, experts say

By Paul Owers
South Florida Sun-Sentinel

Even the rosiest real estate analysts concede that South Florida's housing frenzy is fading after five years. The culprit?"

Its own success," said Lewis Goodkin, an industry consultant in Miami.

Goodkin and other experts say the market was destined to soften because price appreciations of 25 percent or more aren't sustainable. Prices will increase in 2006, but not at the double-digit rate of the past few years, they say.

Goodkin estimates South Florida's home sales pace will fall by 20 percent, compared to recent years, while the overbuilt condominium markets in West Palm Beach and Miami will face "dramatic" slowdowns by the summer.

He said the housing forecast for South Florida is typical of what's happening in many growing cities, such as Las Vegas and San Diego.

"We're really coming back to a more normal market," Goodkin said.

Here are five key indicators:

1. Sales are down. Whether you're comparing December to the same period in 2004 or looking at the past six months of 2005, the number of home sales across South Florida has dropped by roughly 40 percent, according to the Florida Association of Realtors.

The Orlando-based trade group tracks single-family home sales but not condominiums, townhouses or co-ops.

Certainly, Hurricane Wilma had something to do with the decline in the latter part of 2005, but agents and industry experts say the storm isn't the only reason for the slowdown. Insurance and property-tax increases are driving up monthly mortgage payments, making many people reluctant to buy.

"Prices just got to be too high," said Marilynn Obrig, a broker-associate with Intercoastal Realty Inc. in Fort Lauderdale. "There comes a point where buyers say, `I can't do it. I have to sit back and think about it.' "

2. Listings are up. It's not just your imagination: You are seeing more for-sale signs in front yards. The number of homes and condos on the market more than doubled in Broward County from July through December, according to The Keyes Co. and multiple listing services. Listings rose more than 81 percent in Palm Beach County and more than 64 percent in Miami-Dade.

Speculators helped fuel the housing boom, which drove up prices to record levels, but that's changing as many speculators are leaving real estate. With fewer buyers, houses don't sell as quickly and inventory builds up.

There's virtually no sense of urgency, and buyers can take their time considering multiple properties, said Richard Barkett, chief executive of the Realtor Association of Greater Fort Lauderdale.

"Most Realtors want to be listing agents, but you have to be out looking for buyers now," said Boynton Beach agent Bob Melzer. "With 20 homes for sale in the same community, [buyers] say, `What's my rush?' "

3. Prices have flattened. As demand wanes, sellers are losing leverage, and some are cutting their asking prices.Median prices across South Florida rose by more than 20 percent in December compared to the same period a year ago, according to the Florida Realtors group. But from July through December, the median increased less than 5 percent to $408,200 in Palm Beach and to $377,700 in Miami-Dade while decreasing 4.3 percent to $369,000 in Broward.

"A stabilization in prices has occurred," said David Dabby, a Coral Gables real estate analyst. "That doesn't mean that appreciation has stopped in all areas. It hasn't. You're just going to see more modest increases, at best."

4. Incentives for buyers and real estate agents are increasing. Some builders are offering free upgrades on appliances, countertops and cabinets, as well as offering to pay points and closing costs worth thousands of dollars that the new-home buyer normally would pay.

Developers also are trying to lure real estate agents. At the Legacy Place condominiums in Palm Beach Gardens, for instance, agents who referred buyers received 4 percent commissions rather than the standard 2 or 3 percent.

"There hasn't been the necessity to do that before," said Jack McCabe, a Deerfield Beach analyst who is betting on a market slowdown and organizing investors to buy properties at reduced rates. "The environment is going to get highly competitive this year."

5. Interest rates are rising and credit requirements tightening. Thirty-year fixed mortgage rates are near 6 percent, and analysts predict they could inch closer to 7 percent in 2006. While still reasonable, that's enough to keep some people from qualifying for mortgages.

And as interest rates increase, homeowners with adjustable-rate notes will see their monthly payments rise. That'll mean more foreclosures and distressed sales, experts say.

In addition, federal regulators are forcing lenders to become more selective this year. Mortgage applicants will need higher credit scores and more proof of income, while banks are expected to scale back on risky interest-only loans.

"The direction of the market is clear," said Manuel Iraola, chief executive of Homekeys, a Miami-based online real estate service. "What's open for debate is the magnitude of the adjustment the market will go through."

Tuesday, February 14, 2006

Signs pointing to a slower market

South Florida is one of the nation's hottest housing markets but its five-year run of soaring home prices is ending. Still, don't expect to find bargains anytime soon.

BY MATTHEW HAGGMAN, LISA ARTHUR AND TIM HENDERSON

The story of 801 Majorca Ave. is the story of South Florida's housing boom.

801 Majorca is a three-bedroom, Spanish-style home on a quiet street in Coral Gables. In 2002, it sold for $413,000. A year later, it sold for $505,000. And in November it went on the market, billed as a ''mini Vizcaya,'' for an asking price of $799,000.

But this time it didn't sell. In late November, owners Janina Deppie and Jaime Einstein lowered the price to $769,000. Still nothing. December came and went and the ''For Sale'' sign stayed.
''There were some brokers who came in and looked at the house and said it will sell in a week,'' Deppie observed. ``But that was the old standard.''

Over the past five years, South Florida has gone through the most explosive housing boom in its history. The land rush has transformed just about every corner and corridor of the region, sending prices skyward since 2000 -- more than 150 percent in Pompano Beach, more than 200 percent in Hallandale Beach and Sunny Isles Beach, and 250 percent in North Bay Village, according to an analysis by The Miami Herald of home sales over the past five years.

Housing mania has reshaped the economy along with the skyline and shoreline, creating billions in homeowner equity and feeding an entire ecosystem of jobs, from cement maker to mortgage broker. But it also has propelled South Florida into the ranks of the nation's least affordable places to live: A mid-priced home now costs nearly eight times median income, up from four in 2000.

Now the big question is: Is the wild ride over?

Yes, experts say. South Florida's five-year run of annual price jumps of anywhere from 12 percent to more than 20 percent is ending, they predict.

The signs are already there. Prices have wobbled in recent months, with sellers such as Deppie and Einstein lowering their expectations. The number of homes for sale in Miami-Dade County has nearly doubled since April. Houses are sitting longer on the market -- the average time needed to sell a single-family home in Broward County has jumped from 34 days six months ago to 53 days. And potential home buyers are now more cautious.

Last year, when Jeff and Stephanie Carson contemplated moving from Mississippi to South Florida, they played a version of real estate bluff. The couple went to online real estate sites to guess how high prices had climbed -- only to find them higher than they had ever dreamed.
In August, they moved into a rental apartment in Coral Gables.

''You can imagine the sticker shock,'' said Jeff Carson, 32, a lawyer. 'Some of the uncertainty about prices and how long we're going to stay led us to say, `Let's sign a one-year lease.' ''
SHIFT IN GEARS

For single-family homes, many say, the market is shifting from overdrive into third gear.
Experts predict prices will still go up by 5 percent to 10 percent this year. Demand remains strong because land is scarce and South Floridians still dream of a house with a yard.

But homes in the western parts of each county are more vulnerable, said Bradley Hunter, an analyst with real estate consulting firm MetroStudy. ''That is because so much more stuff has recently been sold in the west and much has been bought by investors and speculators,'' Hunter said.

The area most in danger of falling prices: condos, which now make up more than half of housing sales in South Florida.

Experts predict condo prices will slow, flatten or even fall this year, especially at the high end, because the boom churned out too many units too fast.

There are, for instance, 15,080 units under construction in the city of Miami alone, compared with 11,241 built in the entire past 10 years. And that doesn't even count the more than 28,000 units approved to go up in Miami.

Condo fever already has cooled from the time when buyers camped out all night at sales centers. In 2004, it took developer Jorge Perez of the Related Group of Florida about a week to sell out The Plaza, a 1,000-unit Brickell Avenue project.

Perez's more recent project, the 1,750-unit ICON Brickell, just a few blocks away, went on the market in April. But after more than eight months, it's still not sold out.

To summarize the market, developer Henry Harper scooped up the milky froth on his cappuccino at a Miami restaurant with his spoon. ''This is now gone,'' he said.

While rising construction costs may buffer the market by choking off proposed projects, some market watchers say so many buyers are speculators that prices will drop.

''There is severe overbuilding of condos,'' economist Hank Fishkind said in January at an Urban Land Institute conference in Hollywood. He gloomily predicted, ``People will get hurt, banks will go bankrupt.''

Deerfield Beach investor Jack McCabe is betting on it. He has started several so-called vulture funds to swoop in on distressed properties at bargain prices after a market fall. He says he has more than $10 million in pledges already.

''I think it will happen in 2006,'' he said. ``The writing is on the wall.''

HOW IT AFFECTS YOU

What does all this mean? If you're hunting for a home this year, you'll likely be in more of a buyers' market, with prices leveling. But prices are still coming off a red-hot high, so plan to pay up. And don't expect a return to the days when you could get a house in paradise for under $200,000.

If you're selling, you may have to be more patient this year. But chances are in many cases you'll still do fine, just not as well as you might have before. And of course, if major hurricanes hit South Florida, all bets are off.

To understand the forecasts, look at how the factors that sparked the housing boom in the first place are likely to play out.

House hysteria nationwide arose from a perfect storm of events. And in South Florida, it was more like a hurricane.

First, new buyers rushed in. Second-home buyers -- including baby boomers hitting their peak earning years -- now account for about a third of all home purchases. And roughly 15 percent of buyers are from another country, a Florida Association of Realtors study found last year -- probably even more in Miami-Dade. Residential real estate broker Philip Spiegelman took to calling leftist Venezuelan leader Hugo Chávez his ''salesman of the year'' because so much money from Latin America has come north.

While boomer and foreigner funds won't fade anytime soon, there's more concern around another growing group of buyers: investors and speculators.

At the height of the boom in South Florida, investors bought one in five single-family homes sold and at least 60 percent of new condos, real estate analyst Lew Goodkin estimates. Asking prices became the stock quotes of the day.

South Beach attorney Matthew Krieger and his friends once pooled money to invest in the stock market. In the last three years, they've sunk about $10 million to $15 million into South Florida real estate instead.

They're not done. But Krieger has ruled out investing in condos in areas such as downtown Miami, Biscayne Boulevard and Brickell Avenue. He says anecdotal evidence points to a glut of investors and speculators there, who could flood the market with resales and send prices down.
Instead, Krieger is buying office condos, single-family homes and waterfront condos in areas with an already established market. For instance, he is buying on South Beach.

''2006, in the right place, remains very strong,'' said Krieger, 32.

``But you have to be smart about it.''

MORTGAGE CHANGES

Another shift playing out is in how people buy houses.

In the past five years, mortgage rates plunged to record lows along with interest rates, and more people could afford homes. Some who couldn't afford homes bought them anyway, helped by new kinds of loans and mortgages that required buyers to pay only interest at first, for example.

In 2005, 30 percent of sales above about $360,000 in the Miami area were with interest-only loans, slightly more than the national average. And 15 percent came with mortgages where full interest payments were optional at first, according to Freddie Mac, the federal corporation that backs home loans.

Now mortgage rates are creeping up and could hit close to 7 percent by the end of the year, blowing cold air on the market. Federal regulators are warning that lenders are offering too many risky loans and mortgages to both builders and buyers.

Some banks have already backed off. BankAtlantic stopped financing the construction of high-rise condominiums a year and a half ago.

But what grounds real estate in South Florida is land, and there's a limited supply of it. As development spreads, the price of land -- and of the houses on it -- goes up.

''Generally, we only have about 18 to 20 miles of dry land from the beach to the Everglades,'' said Ronald A. Shuffield, president of real estate brokerage Esslinger Wooten Maxwell. ``We are bumping up against the edges in each county.''

At the same time, there are more and more people who want to live here. More than 150 people move to South Florida every day, according to Florida's Office of Economic and Demographic Research.

And they're projected to keep coming, lured by sun, surf and South Florida's spruced-up reputation. Plagued for years by the drug trade, public corruption and a seedy image, South Florida is now seen as an international destination for leisure and business. Its economy is robust, with unemployment at its lowest point in 15 years.

Put all the pieces together, experts say, and you have a cooling but not a collapsing market.
That may help in at least one way -- it may make homes a little more affordable, or less unaffordable. A U.S. Census study last year showed that Miami-Dade ranked second in the country -- behind Brooklyn in New York City -- in residents who spend more than 30 percent of their income on mortgage payments.

And that may be one of the biggest reasons the market has to slow down -- prices have reached the ceiling of what many buyers can pay.

''I personally consider it to be almost a good thing because it will bring back some reasonableness to the market,'' said Alan Levan, chief executive of home builder Levitt and BankAtlantic. Levan predicts home prices will go up by less than 10 percent in 2006.

801 Majorca Ave. went into contract at the end of January, nearly three months after it hit the market. The would-be buyers offered a little less than the already-marked-down listing price of $769,000. The deal is set to close March 15.

Monday, February 13, 2006

Home, the mother of all tax shelters

Owning a house gives you huge tax advantages. And now the IRS has made claiming even more tax breaks easy.

By Jeff Schnepper

You’ve heard me talk about how owning a home is the world’s greatest tax shelter. You can deduct mortgage interest and property taxes. And almost always, you can keep the gains when you sell your home.

In the last few years, Congress and the Internal Revenue Service have made your home potentially an even greater tax shelter than it has ever been -- especially if you use your home for your business.

How long these breaks stay in place is a question market. Many experts believe the tax breaks Congress gave home owners is a big reason why home prices have shot up so much in many markets. And President Bush's Advisory Panel on Tax Reform thinks we should limit some of the goodies.

But changes may take a few years to become law. So enjoy. Here are all the deductions and benefits you get when you pay homage to the mortgage gods and go into more debt than your parents earned in their lifetimes. We’ll start with the bread-and-butter breaks and then hit the new wrinkles.

Taxes

First, you get to deduct all the real property taxes you pay. That includes all state or local taxes for the general welfare. It doesn’t count any trash or garbage collection fees or homeowner association charges specifically stated and billed.

If you’re escrowing for the taxes, you get the deduction when your bank makes the payment.

Even if you’re a tenant shareholder in a co-op apartment building, you get to deduct your share of any property taxes paid.

There’s no limit on the number of properties on which you can deduct taxes paid. If you have 10 homes, you can deduct the taxes on all 10. (But watch out: If your deductions are too great, you could be required to use the Alternative Minimum Tax. The AMT is designed to ensure that everyone pays some tax and does so by forcing you to take fewer deductions.)

Interest

Uncle Sam wants to put you in a home. Sorry, that doesn’t sound right. How about: Uncle Sam wants to put you in a house? In any case, our government wants to subsidize your home purchase. It does that by making your interest payments deductible.

Interest paid on the purchase of your principal residence is deductible. You can even finance additional land, adjacent to your home, and deduct the interest as qualified residence interest. You can also deduct the interest you pay to buy a second residence or vacation home.

The personal-interest deduction is limited to the first $1 million of debt. If you plan to spend more than $1 million for your house, call your accountants.

You can also deduct the interest on as much as $100,000 worth of home-equity debt. As long as the house has the equity and the debt is secured by that equity, the IRS doesn’t care what you do with the borrowed money. You can use it for whatever you want, including a vacation or a party to celebrate your newfound deductions.

If you’re in the 25% bracket, $100 in interest paid only takes $75 out of your pocket. Uncle Sam pays the other $25 in income taxes forgone.

Watch this one. The President's Tax Panel thinks the interest deduction should be limited. Congress has not yet weighed in on the topic.

Gain exclusion

Here’s where, a few years ago, the Congress and the IRS gave up the farm.

In the good old days (i.e., before 2002), you had to worry about having to roll over your gain into a new home. Or work to qualify for the $125,000 gain exclusion if you’re age 55 or older.

The current rule is good no matter how old you are.

If the property was your principal residence for any two of the five years prior to sale, you can exclude from taxes $250,000 in gain (or $500,000 on a joint return). If you qualify under the 2-out-of-5 rule, you normally sign an affidavit at settlement. If the house sold for less than $250,000/$500,000, the sales amount isn’t even reported to the IRS because you have no tax liability on that sale.

This is no one-time exclusion. You don’t have to buy a new house. You can even rent, and you can get another full exclusion every two years -- or whenever you qualify. But, if you have a $250,000/$500,000 gain every two years, I want to meet your real-estate agent and get in on the gold mine.

You can even get a partial exclusion based on the time of use and ownership. But you only get the partial exclusion if the sale is because of:

A change in place of employment, or

Health reasons, or

Unforeseen circumstances.

The partial exclusion is based on the maximum exclusion, not on the basis of your actual realized profit. So, say you bought a home for $250,000 and sold it, because of a job change, for a $25,000 profit after only one year.

Because the sale was covered by a change in employment, you get a partial exclusion. It was your principal residence for one year out of two, so 50% of the maximum exclusion, up to $125,000 in total gain, is excluded. Since that’s more than the $25,000 gain you actually realized, no tax is due on the sale. That’s because you exclude half the maximum allowed, not the gain itself. It’s a major tax break. Not many properties are going to appreciate more than $125,000/$250,000 in one year.

The key is to qualify for the partial exclusion if possible. “Change in employment” covers anyone who lives in the household. The person doesn’t even have to be an owner of the property. The “change in employment” must be the primary reason for the move. There’s a “safe harbor” that assumes that it was the primary reason if your new job is at least 50 miles farther from the residence sold than where you used to work.

But if you don’t meet the “safe harbor,” all is not lost. You’ll just have to prove (if you’re audited) that it was the primary reason for the move based on the facts and circumstances of your case.

Health reasons include advanced-age-related infirmities, the need to move to care for a family member, or to obtain or provide medical or personal care for a qualified individual suffering from a disease, illness or injury.

Unforeseen circumstances are where the IRS really became consumer-friendly. Safe harbors here include divorce, death, multiple births from the same pregnancy and even a change in employment or self-employment status that results in your inability to pay the costs and living expenses of your household. So, if your income goes down, or even if your spouse or other co-owner’s income goes down, you can qualify for a partial or even a full exclusion.

Even if you don’t qualify for one of these “safe harbors,” you might still qualify on the basis of your specific facts and circumstances.

Home offices

Here’s where, in my opinion, the IRS actually crossed the line. But it was in favor of the taxpayer. So I’m not going to complain.

Let’s say you use 20% of your house as a home office, and you deduct depreciation and expenses for working in that part of the house.

In the past, when you sold your house, 20% of the gain wouldn’t qualify for the exclusion because that 20% wasn’t used as a “residence.” It was used exclusively as your office. And check IRS Publication 587 on home office deductions.

The IRS doesn’t care even if you used your home 90% for business as a home office. You can now exclude as much as 100% of your gain, up to the $250,000/$500,000 limit.

You’re only going to be subject to tax on the gain to the extent of depreciation taken on the building since May 7, 1997. But that’s taxed only at 25%.

Wow! That means, if you qualify, there’s no reason not to claim a home office. And I know there are any numbers of people who work out of their homes who don’t claim home offices now.

Dorothy was right: “There’s no place like home.” At least for now.

Friday, February 10, 2006

Want to know the value of your home? An estimate is just a click away

By Paul Owers South Florida Sun-Sentinel

Zillow.com launched Wednesday as the latest rage in residential real estate. Consumers clogged the free Web site with more than 300,000 page views from 3.a.m. to 10 a.m., temporarily disabling it.

The site allows people to find estimates of home values almost anywhere in the nation. They also can compare fluctuations with nearby properties and chart value changes over 30 days or one, five or 10 years.

The Seattle-based start-up, which has information on more than 60 million homes, bases its estimates on local public records, sales histories and prices of comparable homes.

Other free Web sites, such as Homevalues.com, require users to register before receiving information, but Zillow users don't have to reveal anything about themselves.

The site was started by Rich Barton, whose Expedia.com ended the careers of many a travel agent. Should real estate agents also be worried?

The folks at Zillow say no.

"It's really designed to give you a starting point," said spokeswoman Amanda Hoffman, who compared Zillow to WebMD.com. "If you're not feeling well, you can enter in your symptoms and see what you may have. It's not designed to take the place of going to the doctor.

"Zillow, which plans to make money by selling advertising, lets home buyers educate themselves before contacting an agent, Hoffman said.

"It may take a little while to get used to it, but most real estate agents will embrace this," she said. "They won't have to spend as much time hand-holding.

"South Florida agents agree, saying a Web site can't replace their local knowledge and expertise at negotiating a deal.

"Real estate is still a contact sport, " said Chappy Adams, president of Illustrated Properties in Palm Beach Gardens.

Adams said it could be a problem if Zillow generates leads and then tries to sell them to agents, but Hoffman said that won't happen.

"If it's simply an educational site, then I don't see it as a huge threat," Adams said.

"I take pride in putting together contracts and providing a full range of services," added Robert Goldstein, president of the Realtors Association of Palm Beach County. "I tell all my members, `Distinguish yourself with services.' I'm not worried about it at all.

"Deerfield Beach agent Kiku Martinson called Zillow a "cute gimmick," but said it can't possibly give accurate enough information on local markets."It's not specific enough," she said. "It could cause people to sell their properties too low or too high because of what's on there.

"Zillow said its median rate of error is 7.2 percent, meaning 62 percent of homes sold came within 10 percent of its estimate.Zillow users can't buy and sell homes online, and while the Web site has aerial views of homes, it does not have individual photos.

Information available at the Zillow site has traditionally been available from the property appraiser, but Zillow's Hoffman said the site makes it easier to obtain.

The site does not include information on some states, such as Louisiana, North Dakota and New Hampshire.

Thursday, February 09, 2006

How to spot a shabby remodel

On a 10-minute tour, it's easy to be blinded by new cabinets, floors and appliances. Real-estate pros offer tips on spotting shoddy work.

Liz Pulliam Weston

The Victorian looked fabulous.The owner had poured thousands of dollars into refinishing the hardwood floors, replastering the walls and updating the kitchen.What she hadn't done was fix the home's foundation, floor joists or beams."As I entered the dining room, a hutch that was 20 feet away was shaking," said home inspector Rick Jarrett of First Home Inspections of Belmont, Ohio. Once he peered into the nearly inaccessible crawl space, Jarrett spotted the problem.

"There was no understructure. It was all rotted from decay or termite damage."Jarrett's inspection saved his client, a potential buyer, from having to spend tens of thousands of dollars excavating the foundation and repairing the damage.If you're looking for a house, you've probably seen your share of ill-conceived rehabs: additions that stick out like sore thumbs, for example, or once-trendy materials that quickly became dated.

Harder to spot are the remodels that look great on the surface, but ignore or deliberately try to hide serious flaws. An incompetent, clueless or greedy remodeler can leave you with a house that's not only expensive to fix, but potentially dangerous for you and your family.You’ll encounter lots more shabby remodeling if:

"Flippers" have descended on your market. Investors who buy homes in hopes of reselling them quickly may cut corners on rehabs to boost their potential profits.

Expert construction help is costly. The more expensive it is to hire skilled tradespeople, the more tempted homeowners may be to try to do it themselves -- even if they have no idea what they're doing.

Building code or licensing enforcement is lax. Substandard construction and incompetent contractors can flourish in areas where no one is checking up on remodelers.

An experienced home inspector can help you avoid trouble. But at $300 and up, inspections can get expensive. Here's what to look for so you can avoid the biggest money pits and winnow down your candidates before you hire an inspector.

Fundamentally unsoundUnless you have X-ray vision, you can't peer inside the walls, floors and ceilings to see if a home is fundamentally sound. You can look, however, at the home's surfaces for some real clues about what's going on underneath. Such as:

Big cracks in the walls, ceiling, floors or foundation. Any foundation crack should be cause for concern. Wide cracks elsewhere, or cracks radiating from the corners or windows and doors, may also be a sign of trouble. They can indicate foundation problems, or ongoing movement that could be expensive to fix. If everything looks good, Jarrett said, check the closets. Remodelers may patch everything else -- but forget about what's hidden there.

Sloping, bouncy or "spongy" floors. All homes settle over time, so a slight slope (or even a rather noticeable one on a very old home) shouldn't panic you. But sloping that's accompanied by significant, recent wall and ceiling cracking should be a concern. If the new ceramic tiles in the bathroom are already cracking, for example, you have good evidence of serious trouble. So, too, is any floor that feels less than solid under your feet.

Doors and windows that don't open freely. This could be due to settling, foundation problems or poor construction. In any case, it may indicate costly repairs are needed.

Wide open spaces. Remodelers often like to combine smaller rooms into larger spaces, but doing so can undermine the stability of an entire house if the remodeler unwittingly removes a structural or load-bearing wall. Sagging rooflines, ceilings or beams should be big red flags. Any time an older house has been updated this way, however, investigate further. At the very least, ask for copies of the permits and for the name and license number of the contractor who did the work. If the work is unpermitted or the contractor unlicensed, consider steering clear.Shocking developmentsHome inspector Jim Gibbs checks out a lot of homes for real-estate investors in the Dallas-Ft. Worth area, and he's seen plenty of truly shocking remodels.

"The biggest problem I see is in the electrical," Gibbs said. The remodelers are "not doing anything near code."Some of the most common problems:

Failing to update wiring when adding rooms or circuits
Making dangerous connections
Failing to add enough circuits to cope with today's households
It's not uncommon for kitchen remodelers to spend a fortune on, say, countertops and appliances while skimping on the electrical, Gibbs said. Instead of having five, six or more circuits to run all the microwaves and refrigerated wine cabinets, they have one or two.


You can see if there's a problem by simply turning on a bunch of appliances at once and see what blows. Or you can take a look at the electrical panel."If they've had a major remodel and you look at the circuit breaker panel and it doesn't look new," said Gibbs, whose Gibbs Residential Inspections is based in Plano, Texas, "you need to be suspicious."Even a new box isn't a guarantee, however, since popping in a new panel is relatively cheap. You might also want to stick your head up into the attic to try to gauge the age of the wiring you see. If you have any doubts, you'll probably want a certified home inspector to give you a report.

Jarrett has seen do-it-yourself electrical jobs where the remodeler tapped into power directly from the street, running it into a garage or other room without benefit of fuses or circuits. Not only is such a stunt potentially lethal to the do-it-yourselfer, but the unregulated power could easily result in shocks or fire.

"It's a wonder they're walking around, that they haven't been electrocuted," Jarrett marvels.
The big cover-upMost states require sellers to disclose serious defects in their homes, but some still try to cover up serious water, fire or other damage with a coat of paint. Jarrett's become so accustomed to this particular dodge that he gets suspicious if he smells a fresh coat of paint in an area that's vulnerable to water problems, such as a basement. (You should also be wary if you find an area painted that normally isn't, such as an unfinished attic.)

One way to spot fire or insect damage is by pushing on the wood to see if it's spongy, or scraping up some of the paint (in an inconspicuous place) to see what's underneath.

Water damage may take a little more detective work:

Can you see water marks or efflorescence on the foundation? Efflorescence is a white chalky substance left behind by water on the outside of the cement or brick.

Does the ground slope toward the house? That can cause water to pool near the foundation or under the house, leading to rot, mold and infestations.

Does it smell or feel damp under the house? Any moisture can be a problem. The wetter or more persistent, the worse the potential damage.

Is the roof in lousy shape? Curling, damaged or missing shingles or flashing are signs that the roof's leaking, even if the interior damage has been repaired.

Always call in a proWhat if your prospective home passes all these tests? You might be tempted to save money by forgoing a professional inspection, particularly in a white-hot market where other bidders are waiving this step.Resist that impulse. There are still plenty of less obvious signs, visible only to professional eyes, that a home has trouble. Think of it as cheap insurance: A few hundred dollars spent now could save you a fortune later.

Wednesday, February 08, 2006

Home warranties: Good or good-for-nothing?

NORTH PALM BEACH COUNTY, Fla. -- Feb. 8, 2006 -- What's your home warranty really worth? That depends on the language in the contract and who is standing behind it.
There are two basic types of home warranties. With a new home, many builders will offer a warranty on the home, usually for about 10 years, to cover the structure. Some builders provide their own warranties; others contract with third-party companies. In either case, the warranty spells out what is covered and outlines a procedure for requesting repairs if something goes wrong.

On an existing home, a buyer or seller can purchase a one-year warranty that works almost like an extended service contract. The warranty usually costs $350 to $600 and covers just the electrical and mechanical components of the house, such as the furnace, appliances and air conditioning. If something isn't working, the homeowner calls the warranty company, which dispatches a local contractor. The homeowner pays a minimal fee. If the repair falls under the scope of the warranty, that's the only cost the homeowner has to pay.

Ron Phipps, broker with Phipps Realty in Warwick, R.I., sees one-year warranties as a good value for both buyers and sellers. "The reality is that almost all houses have issues that come up after closing," he says. "For a $35 to $50 service call, it's most advantageous to the buyer to know that someone's taking care of it."

If he wasn't already sold, one incident last year would have convinced him. Two months after one closing, the home's heating system, dishwasher and hot-water heater all broke down. Since the seller had purchased a one-year home warranty contract, the buyer was covered.

"What was nice was that the seller didn't even hear about it," says Phipps.

A warranty is not necessarily blanket protection. And what is actually covered and what a homeowner believes is covered could be very different things.

For instance, a one-year warranty on an existing home may cover problems with the hot-water heater. But it may not cover anything caused by rust or poor maintenance. So if the water heater gives out and the repairman finds rust, you might have to pay the bill yourself.

The key: Read the contract to know exactly what it covers and for how long, what you have to do to make a claim, and what deadlines, if any, you'll face.

New home warranties

With a new home, "The warranty is only as good as the builder," says Janet Ahmad, president of HomeOwners for Better Building, an organization that promotes good home building and consumer-friendly legislation. "There are some good builders who stand behind what they build."

"It's extended protection," says David Crump, director of legal research for the National Association of Home Builders and co-author of "Warranties for Builders and Remodelers."

"A good warranty provides peace of mind. It provides a means of correcting any flaws or defects in construction that otherwise would be the purchaser's sole responsibility."

The most important thing you can do with a home warranty is read it. Before the closing, take a close look at the contract. What does it cover? What does it exclude? How long will the home be covered? What is the procedure if you have a repair problem? What is the timetable for making repairs? What rights, if any, do you give up by signing on the dotted line?

Buyers should "look at the claims procedure and make sure it's something they understand," says Crump. "They should read this and understand how it works -- it's the basis of making their claim."

"They should read the extent of their coverage so they know what is covered and what is not," he says. "A warranty is not necessarily going to provide them with a perfect product. A warranty is going to provide them with product that is acceptable under certain professional construction industry standards or guidelines," he says.

Get a copy in advance of your closing and go through it step by step. If there is anything you don't understand, call your attorney or the closing attorney and get a thorough explanation.
Questions to ask: Will you deal directly with the builder or do you now have to go through a third party? Do you retain the right to sue if there are significant problems or are you giving up that right in favor of binding arbitration? Does the contract limit the builder's liability if there is a problem?

Too many times, buyers don't see the warranty until closing and have no idea what's in it, says Nancy Seats, president of Homeowners Against Deficient Dwellings, a grassroots consumer advocacy group. And many of the contracts are "written in legalese," she says.

Her advice: "Read the exclusions very carefully and really think about the implications of those exclusions."

A mandatory binding arbitration clause is included in many warranty contracts and is an important point to consider.

Builders say it's a great way to limit court time and costs. "It's a better way of getting matters resolved," says Crump. "It cuts to the chase and does so less expensively and more expeditiously."

But some consumer advocates believe the arbitration process favors the builders, especially if the builder regularly uses the same arbitration service and names a specific arbitration company in the contract.

"You do not want an arbitration service that gets repeat business from your adversary," says Calvin "Kelly" Vance, a Spokane, Wash.-based lawyer who specializes in construction defect and real estate cases.

Other points to note are appliance replacement clauses and liability-limitation clauses that limit the amount you can collect if there's a problem.

Many appliance replacement clauses state that if the appliance cannot be repaired the company will replace it at little or no cost to the homeowner. The problem there comes in an interpretation of what "unrepairable" means. Is your washing machine considered repairable if an obsolete part from Taiwan is needed and it may take six months to come in? It can be costly to leave this open-ended. Ask the company to explain in writing the criteria for determining if something cannot be repaired before you sign.

If you see stipulations in the warranty that bother you, like mandatory binding arbitration or a liability limitation clause, alter the contract, says Ahmad. "Strike them out. Say, 'Do you have a problem with that? Why do we need a limiting warranty that limits the builder liability?'"
The bottom line, says Ahmad, if a warranty seems restrictive or unfair, don't sign it. "I think consumers need to say, 'No, I'm not accepting your warranty.'"

Resale home warranties

As with a new home warranty, you want to read the policy on a one-year warranty and understand what's covered and what may be excluded. Usually, one-year warranties cover the "moving parts" of a home, like appliances, heaters and air conditioners, and do not include conditions caused by poor construction or bad maintenance.

"It's really just a service contract," says Jim Hood, editor in chief of ConsumerAffairs.com, a news and advocacy site.

Hood says he sees a number of complaints on one-year warranties. Some of the most common: long response times and claims by repair people that the fixes aren't covered under the contract. As a result, he says, "The homeowner ends up spending a lot of time and trouble calling, trying to get someone to do something."

But others see value in the service, especially for buyers who've already sunk every spare dollar into the house.

"I think they are very important to have, as long as it's a reliable company," says Ahmad.
Phipps says he's noticed that his agency spends a lot less time following up with minor repairs than before they started recommending the warranties to sellers. "Now with the program, it's delightful," he says.

"And if the seller doesn't pay for it, I recommend the buyer get it," Phipps says.
If you're considering one, first research the warranty company. How will they select the people they send to your home? And what's their track record? Check out the company with other homeowners, the state and any local or national consumer groups.

Are there complaints or pending actions? What are current and past customers saying about the company? If you have doubts, consider taking out a service contract for your heating or air conditioning with a local company that will actually perform the service, says Hood. Another alternative: Put some cash aside specifically for home repairs.

A little self-reliance

If there's a home in your future, and it comes with a warranty, do your own research before you sign. What, if anything, can you find out about the warranty company or the builder when it comes to being responsive to repairs? A quick Internet search can let you know if the warranty company or builder is dogged by complaints or if customers are satisfied. If the company has other customers in your immediate neighborhood -- such as in a condo or town-house complex -- see if they would buy or renew a contract with that firm.

With a new home, talk to other homeowners in the subdivision about the builder's warranty. If you're buying an existing home, get a few references from the warranty company or your real estate agent.

What you want to know: Are owners satisfied with the warranty or have they had problems with it? Is the home holding up well and does the builder, or the warranty company, stand behind the product? Is it fairly easy to get repairs completed? Are repairs done well, and is there a fairly quick response time? Are most things covered or are there a lot of out-of-pocket costs? Did the homeowner have to jump through any hoops to prove that the item was protected under the warranty?

In addition, "Many builders offer a warranty on their own, not as part of a commercial warranty process," says Crump. "The builder will replace or repair defective components in a stated period of time. There are lots of good reasons to do that, and buyers can also look for that."

Tuesday, February 07, 2006

Report: Home prices blunt area's edge

The housing boom is pricing middle-income professionals out of Miami, says an economic development group, which suggests a regional summit on the issue.

BY NIALA BOODHOO

The lack of affordable housing for middle-income professionals is a serious challenge to Miami-Dade's business competitive edge, the Beacon Council said in a report that calls for a regional summit between the business community and local government leaders to tackle the issue.
It's clear that the local residential development boom is ''pricing valuable talent out of our market,'' said the report, which is to be released today.

The Beacon Council's Jaap Donath, one of the researchers for the report, said that housing affordability was one of the top challenges for the economic development group. Businesses already here are facing the issue when recruiting, and the cost of housing is a major concern to new businesses that want to relocate to South Florida, he said.

''We need the business community and local governments to get together to understand what are the things that need to be done,'' said Donath, the council's vice president of research and strategic planning.

The report looks at 2004 and 2005 household wage data in the Miami metropolitan area in comparison to average housing costs for single-family homes that same year. It assumed that people could afford a single-family house that costs 2 ½ times their household salary.
By that measure, not only would essential workers like firefighters, nurses and public school teachers need two-income households to afford to buy a house, but so would accountants, medical scientists and aerospace engineers.

The report tried to provide a picture of what the Miami-Dade housing market would be beyond the monthly average home prices, said Donath.

''We wanted to see if that tells the whole story. Are there are any pockets that are affordable?'' he said. The report highlights several ZIP Codes, such as Hialeah, Sweetwater and Carol City, as areas with homes still listed below that average price.

He said that in addition to looking at neighborhoods such as these, professionals should also look more to living in town homes and condominiums, like people do in Manhattan.

Donath pointed out that Miami-Dade is still a cheaper option compared to such cities as New York, Chicago and Los Angeles. But this is an issue that we need to address, he said.

``It's time to use this report to focus on this and move forward to possible solutions.''

Monday, February 06, 2006

Willing to Wait?

Trying to buy or sell a hurricane-damaged home? Be patient, flexible and prepared.

Buying and selling a home is stressful under normal circumstances. In this type of environment, it's almost unbearable for some people.

Hundreds of deals across South Florida were postponed as Hurricane Wilma damaged roofs and knocked down screen enclosures.

As a result, buyers insisted on reinspections, and sellers had to pay for the repairs or make other arrangements before the deals could close.

Most lenders required the roofs to be fixed before they signed off on the loans but were less concerned about screen enclosures.

Buyers and sellers and the brokers involved really need to be on top of the situation because each situation can be a little bit different.

In some cases, sellers didn't fix the damage but put money in escrow for the buyers, who then could pay contractors after the sales closed.

A licensed contractor, generally paid for by the buyer, can inspect the property and help determine how much money should be put into escrow.

The seller has to realize if they want to sell the home, they have few choices in the matter.

Sellers also have to negotiate assessments for damage to condos. A motivated seller should offer to pay at least part of the bill. The amount of the assessment, in many cases, is minor compared to the price of the house.

As frustrating as it might be, sellers of damaged homes should consider lowering their asking prices.

One homeowner listed her home for $450,000, but it drew little interest because it needed a new roof and other repairs.

The seller agreed to make some repairs, but buyers are looking at the home like it was falling to peices. The seller would need to be convinced to reduce the asking price of the home so that buyers can come.

Another homeowner who wanted to sell her hurricane-damaged North Lauderdale home for $295,000 but couldn't reach an agreement with the buyer.

At the last minute, the seller agreed to fix the roof and make other structural repairs while the buyer took care of cosmetic issues, such as landscaping. They closed the deal two weeks after Wilma for roughly the same price and without having to set aside any money in escrow.

Realtors want to see happy endings. It takes a buyer and a seller and a sales agent to make a deal. Nobody does it alone.

Sunday, February 05, 2006

Homeownership Benefits

One of the best justifications for owning a home, at least for financial reasons, is the tax savings that result from deducting mortgage interest and real estate property taxes. Under the current tax code, mortgage interest on first and second homes is generally deductible as long as these loans total less than $1.1 million.

To deduct property taxes and the interest paid on your mortgage, you must itemize deductions rather than take the standard deduction. For many homeowners, the combined deductions for mortgage interest and property taxes easily exceed the standard deduction.

As a home buyer, you may also be able to deduct fees charged by the lender and closing costs. Contact a tax advisor for details on how you can take advantage of homeownership tax savings.

Other advantages to buying a home include:

Freedom to live the way you want to. You can customize your home without having to worry about the landlord’s rules.

You can accumulate home equity. You can borrow against the equity built up in your home to finance necessities such as a college education, vacation, new car, etc. Since the interest on a mortgage is usually low, borrowing money against your home can be very sound. The interest on home equity loans is usually tax deductible, too.

Stable monthly payments rather than rent payments which typically increase each year. The principal and interest portion of most mortgage payments remains unchanged for the entire repayment period so you know exactly what you’ll need in the way of finances.

Home improvements that may increase the value of your home. And your home improvement costs may be used to reduce your capital gains tax when you sell.
Houses typically increase in value over time.

Saturday, February 04, 2006

Real Estate Fraud Booms

Mortgage scams thrive amid soaring home prices, little regulation and, in some cases, complicit borrowers. Higher rates result.
By David Streitfeld
Times Staff Writer

Real estate fraud is surging, fueled by a booming housing market, feverish refinancing activity and lax regulation, authorities say.

In the last two years, according to the FBI, reports of mortgage fraud nationally have tripled to 21,994, while the dollar value of the alleged crimes quadrupled to $1.01 billion.

The dramatic run-up in the housing market during the last four years was a boom with few equals. Abnormally low interest rates spurred refinancings, construction and speculation, while the industry developed loan products for every income and attitude.

Swindlers have lots of room to hide in an industry so flush, so busy and so much more complex than it used to be.Mortgage fraud can be as simple as a loan applicant lying about income and as complicated as a ring of conspirators using identity theft, fake appraisals and straw buyers to steal properties from unsuspecting owners.

Much of the industry is not required to report fraud to regulators, so it doesn't.The amount of deceit is undoubtedly much greater than the reports indicate, FBI officials say. Fraud increases the price of mortgages for all buyers as lenders pass on their higher costs.

Consumers will take out $2.8 trillion in mortgages this year, but regulation is a hazy patchwork of local and national agencies that have minimal communication with each other.

This is especially true in regard to mortgage brokers, who barely existed 30 years ago but now are key players in the loan process. Two-thirds of home buyers turn to brokers to find financing for the biggest purchase of their lives, industry associations say.

Yet in California the agencies that monitor these middlemen say they don't know the most basic facts about them, including how many brokers are operating in the state or how often there are complaints.

Regulation of brokers "has sort of fallen through the cracks," FBI Assistant Director Chris Swecker said.Some brokers think this neglect opens the door to trouble."We've got to do something to better protect the consumer," said John Marcell Jr., an Upland, Calif., broker who is president of the California Assn. of Mortgage Brokers. "We need better education, and better policing.

"But policing requires a regulatory agency with teeth. Real estate has no equivalent to the U.S. financial industry's overseer, the Securities and Exchange Commission. The number of fraud cases investigated by the FBI is not keeping pace with the rise in reports. The bureau's conviction rate is falling, from a national total of 256 in 2003 to 170 this year.

Policing also requires victims to come forward. In a boom, they can be hard to find."It's not like you have a bunch of bullet casings on the ground and a victim in the hospital," said Bill Denny, a deputy district attorney in Alameda County who prosecutes criminal real estate fraud.

FBI arrested two people who operated real estate and escrow agencies in Downey and Seal Beach. Martha Rodriguez and Edward Seung Ok were charged with 10 counts of mail fraud in an alleged scheme that preyed on 70 homeowners facing foreclosure.

According to the FBI, the pair would promise to clean up the homeowners' credit by having a third party cosign the refinancing papers. But the homeowners ended up losing title to their houses while Rodriguez and Ok netted $8 million, the FBI said.

Ok's lawyer, Roger J. Rosen, said his client "didn't do anything illegal. He helped these folks out." Rodriguez's lawyer didn't return a call for comment.

In another, more wide-ranging scheme that has only partially come to light, homeowners were not victims but eager participants. This hustle, which allegedly was orchestrated by a California broker, is said to have involved hundreds of people. It illustrates just how easy it is to break the mortgage rules on a large scale, and how minimal the punishment can be if you do.

The scheme worked like this, according to the lender that issued the broker's loans: The broker put his clients in loans in which they paid a higher-than-normal interest rate in return for negligible closing costs. These loans generate so much money for lenders that they pay brokers a big finder's fee for them.

To keep the homeowners quiet, the broker split the loot with them. Many of the participating homeowners liked the deal so much they allowed the broker to keep refinancing their loans every few months. Each time, the broker received a new finder's fee and the homeowners earned enough cash to pay their mortgages for a month or two.

The scheme violated California regulations against deception by brokers. But here's what happened when the broker's deceit was finally discovered: nothing. In fact, California regulators say they never heard of the case.

The broker's first victim was Cleveland-based National City Mortgage, one of the country's biggest lenders. National City gave $300 million in loans to the broker's clients under the mistaken impression that they would have a shelf life longer than milk.

Lenders rely on the assurances of the borrower and broker that the borrower needs the mortgage and will use it in a normal manner. If, in fact, the borrower is taking the loan only for a few months because he can get paid for doing so, then the lender is going to pay excessive fees for something that is worthless.

Most lenders sell their mortgages. National City sold the California loans to Freddie Mac, which repackaged them as mortgage-backed securities for sale to investors.

The only public acknowledgment of the scheme came last April when Freddie Mac alerted buyers of 48 of its investment pools that they were, in essence, tainted.

Because some of the loans in the pools were being refinanced almost immediately, the buyers of the securities weren't getting the returns they expected.Freddie Mac's announcement "raised an eyebrow," said Gary Greenberg, a mortgage specialist at Los Angeles investment firm Payden & Rygel. "This was the first time I had heard of something like this happening."Despite getting burned, neither National City nor Freddie Mac complained about the broker to California regulators.

That's in keeping with the industry's inclination to sweep its problems under the rug, according to some in the mortgage business as well as observers of the industry.

"National City wanted to let this incident die a natural death," said Marcell, the broker association's president. "They don't want their counterparts to know they're so stupid as to allow this to happen.

"National City said it cut off the broker, which it declined to identify, and disciplined the salesmen who worked with him."No laws were broken," said John Gellhausen, executive vice president of National City's consumer finance unit.

If not, said Eric Von der Porten, a Silicon Valley money manager who closely follows the housing industry, that's evidence that oversight of brokers is extremely casual.

"Is it suddenly OK to hoodwink national banks and government-sponsored mortgage companies?" he asked.Freddie Mac said it referred the scheme to its regulator, the Office of Federal Housing Enterprise Oversight. A spokeswoman for the agency said the regulator didn't have authority over either National City or the broker.

Both Freddie Mac and its regulator declined to identify the broker.

Jack Guttentag, who runs a mortgage-advice website at mtgprofessor.com, said about a dozen readers have asked him whether it would be permissible to collude with their brokers to refinance at a high interest rate to get a large premium.

"For every one person that's asked me, there must be at least a hundred who just went ahead and did it," said Guttentag, a professor of finance emeritus at the Wharton School of the University of Pennsylvania.

Such schemes are so common, Guttentag said, that they victimize anyone who had the income to obtain a monthly mortgage but not the cash to pay settlement costs.

These are the people who legitimately need high-interest mortgages, which wrap the closing fees into the loan rate.

Experts say there is so much misrepresentation and outright fraud at this end of the mortgage market that lenders build the cost of fraud into the loan rates, much the way retailers raise the price of items that frequently are shoplifted.

Paying slightly more for your mortgage because of the unethical schemes of others might not have been much of a problem when houses were appreciating 25% a year. But they're likely to become more of an issue as the market cools.

A slowing market might fuel further abuses. A slack market with rising interest rates would cut down on refinancings. That would create more incentive for a few brokers to churn the market by refinancing the same customers over and over, just like the broker in the National City case.

Brokers in California come under the supervision of two agencies. The Department of Real Estate says there are 127,000 people in the state who hold advanced real estate licenses. All of them can act as brokers. License revocations have doubled in the last two years, the department says, but it had no data on how many of the cases involved brokers.

The California Department of Corporations has issued 3,705 licenses to firms that can then act as brokerages. The firms are not required to report how many employees they have. The department received 386 written complaints about its brokers in the first 11 months of this year, a number that has held steady for the last three years.

Two firms have had their licenses revoked in the last year, a spokeswoman said, while another two have been told to refrain from certain activities.

If mortgage brokers are so lightly regulated, that's partly because the industry has changed so much so quickly.

Thirty years ago, people obtained their mortgages directly from the local savings and loan, often from a person they already knew socially. Now, most buyers use a broker to scout out the best deal and never even talk to their actual lender unless they refinance.

Brokers will earn an estimated $33 billion in commissions this year. They don't get paid until the customer gets a loan, which gives them a major incentive to make the deal happen. But they're paid by the lender, and the higher the rate on the loan above normal, or par, the more they get paid.

This bounty is known as a yield spread premium. It's what National City was paying the California broker involved in the questionable loans.

Yield spread premiums are controversial because the mortgage seeker rarely realizes what they are. The biggest study on premiums, done with data from the late 1990s, found that nearly all the brokers surveyed were putting their clients into more expensive loans so they could get bounties averaging nearly $2,000.

Although the homeowners paid lower closing costs on these mortgages, "they still weren't a good deal," said the author of the study, Harvard Law School professor Howell E. Jackson.

"People should ask their broker how much they're making, including both yield spread premiums and direct fees, and if it's over $2,000 they should question why," said Jackson. "No one says the broker has to make a certain amount. It's negotiable."