Life in the 1500’s

The next time you are washing your hands and complain because the water temperature isn’t just how you like it, think about how things used to be.

The floor was dirt. Only the wealthy had something other than dirt. Hence the saying, “Dirt poor.” The wealthy had slate floors that would get slippery in the winter when wet, so they spread thresh (straw) on the floor to help keep their footing. As the winter wore on, they added more thresh until, when you opened the door, it would all start slipping outside. A piece of wood was placed in the entranceway. Hence the saying, “A thresh hold.”

Improvements

Lower-cost home improvements, such as exterior paint and updated or new windows, may provide a higher return on investment in a cool market than an expensive new kitchen or bathroom, according to a recent “Remodeling” magazine survey of real estate professionals. Nationally, major home projects today return 70 cents on the dollar, down from as high as 90 cents during the housing boom and from 80 cents in 1994. That year, a kitchen remodel fetched a 93 percent return; today, the same remodel would cost about $6,000 more and return only about 83 percent of that cost. New windows, updated energy systems and landscaping are seen as more practical upgrades in the current real estate market and also help a home show better.

Can You Afford That House?

Before you start searching for your dream home, you first need to determine a price range you can afford. According to the Federal Housing Administration (FHA), depending on the consumer’s current debt ratio, most people can typically afford to pay 31 percent of their gross monthly income for mortgage payments. For example, if you earn $50,000 annually, then your monthly income is about $4,167. Thirty-one percent of that is $1,292.

There are several online tools to calculate a monthly mortgage you can afford using factors such as your current monthly expenses, down payment and the interest rate. You can also work with a lender to get pre-qualified for a loan. This estimate will help you gauge how much money you may be able to borrow and the monthly mortgage payments.

However, the amount you are able to afford for a home loan should not be your only consideration for determining your price range. With homeownership come other housing expenses.

Utilities

The most obvious of additional housing expenses are utilities—gas, electricity and water. But don’t forget about telephone, trash collection, and cable or satellite bills.

Taxes

As a property owner, you are responsible for property taxes. The rate will vary from city to city. In our community, the tax rate is (insert %) percent. That means for a home with a market value of $200,000, yearly taxes will run (insert dollar amount). To get a general idea on how much the tax bill will be for a property, ask the seller for a copy of the previous year’s tax assessment. Your real estate professional can help you refine these figures.

Association Dues

Another cost you may incur is homeowner association (HOA) dues. Most condominiums and some (residential developments/subdivisions/neighborhoods) have HOAs, which are legal entities, created to maintain common areas and enforce deed restrictions. As a property owner, you are required to pay the established monthly or annual homeowner association dues. Be sure you factor this cost into your budget.

Maintenance

You also need to consider the upkeep of your home. You should budget for seasonal maintenance such as lawn care, pest inspections and carpet cleaning, as well as unexpected repairs. The amount you budget will depend on the age of the home, as older homes tend to require more repairs such as installing a new roof, painting and replacing older appliances.

Insurance

Depending on the type of coverage and your area, the costs for homeowners insurance each year can be anywhere from a few hundred to thousands of dollars. And, if you live in an area that has high risks for flooding, earthquakes, hurricanes, etc., you may need supplemental insurance.

Remodeling/Upgrades

Unless the home you purchase is picture perfect, you’ll more than likely be adding your personal touch. Therefore, you need add to your housing budget the costs for remodeling and upgrades. According to “Remodeling Magazine’s” 2007 Cost vs. Value Report, the national average for a midrange minor kitchen remodel is $21,185; a bathroom remodel averages $15,789.

Even minor cosmetic fix-ups such as light fixtures, window treatments, carpeting and decorative cabinet knobs can begin to add up.

By determining all the costs associated with homeownership, you can go into your home search with a reasonable price range that will allow you stay within your budget.

Median Sales Price – April ’08

Here are the median sales prices recorded in April for single-family homes, condos and new construction in the following communities:

$450,000
$845,000
$485,000
$335,000
$620,000
$605,000
$473,500
$366,500
$395,000
$447,000
$567,250
$424,500
$1,150,000

$667,000
Agoura Hills
Calabasas
Camarillo
Fillmore
Moorpark
Newbury Park
Oak Park
Oxnard
Santa Paula
Simi Valley
Thousand Oaks
Ventura
Westlake Village
Woodland Hills

Real Estate Owned

Real Estate Owned, REO, is a term banks and lenders use to describe a property that has been foreclosed upon. Once the lender or bank forecloses a property the title reverts to their possession and they have the right to sell it as they see fit. Hence the term Real Estate Owned or Bank-Owned.

This is good news for first-time buyers, investors and even those that aren’t investors but would like to invest in a property for the future.

Because the lenders and banks have an abundance of bank-owned properties, they need to competitive with prices. You will see some very good deals!

This is the time to buy! Even if you own a home and are content with your living conditions. Why not purchase a bank-owned property, hold on to it for a few years, maybe even rent it out to re-coop some costs and sell it when the market is right?

The people who buy bank-owned properties now, will make an excellent profit in the future.

DID YOU KNOW?

“Smart Money is getting prepared to buy in the upcoming months. Prospective buyers should be doing everything possible to put themselves in a favorable financial position.” – J. Paul Getty

And, from Donald Trump – “Now’s the time to buy Real Estate!”

Housing Affordability On The Rise

The percentage of households that could afford to buy an entry-level home in California rose to 44 percent in the first quarter of 2008, up dramatically from only 26 percent in the same quarter a year ago and 33 percent in the final quarter of 2007, according to the CALIFORNIA ASSOCIATION OF REALTORS®’ First-time Buyer Housing Affordability Index. Households needed an income of $67,830 to purchase a home costing $356,350, which is 85 percent of the statewide median home price. The income requirement was 30 percent lower than a year ago and is closer to the state’s median income of $50,700 – good news for first-time and other homebuyers considering a home purchase. Sacramento and the High Desert regions topped the list of most affordable regions at 64 percent, with Monterey and San Francisco the least affordable at 29 and 30 percent, respectively.

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Home sales are up in April

Home sales shot up in April to the highest level since August…

Click on the link to read the full article at Ventura County Star News Online…

http://www.venturacountystar.com/news/2008/may/20/home-sales-are-up-in-april/

DID YOU KNOW?

“The only way to know when the market has hit bottom is when it passes you by on the way back up. Then it is too late because sellers are aware of the same facts as buyers, and negotiating room is diminished.” –Brian Buffini

Smart Money?… more to come!

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The Housing Crisis Is Over

By CYRIL MOULLE-BERTEAUX – Wall Street Journal

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets’ perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets’ perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.

Article can be found here: http://online.wsj.com/article/SB121003604494869449.html?mod=opinion_main_commentaries

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