Real Estate News: March/April 2006

• 4-17-06 Long-term mortgage rates highest in nearly four years
• 4-3-06 Legislators want home tax cap reform
• 3-27-06 Buying a home can make you rich slowly
• 3-20-06 Economists predict housing market to bounce back in 2007
• 3-20-06 Florida's existing home sales ease in February
• 3-19-06 St. Petersburg 2008 from the St. Petersburg Times
• 3-20-06 Slowing home market to ripple through many layers of jobs
• 3-7-06 Florida residents take drastic measures to avoid increased insurance rates
• 3-6-06 Decline in pending home sales eases

TALLAHASSEE, Fla. -- April 3, 2006 -- As Floridians clamor for relief from escalating property taxes, a key lawmaker on Friday pushed a dramatic new solution to the problems created under today's Save Our Homes tax cap: Start phasing out some of its benefits. The plan unveiled by Rep. Fred Brummer, R-Apopka, would ask voters in November to consider imposing future limits of $100,000 to the valuation break they receive under Save Our Homes. In exchange, he would double the current homestead property exemption to $50,000.

"I see this as an opportunity to move forward with something that's absolutely imperative for the state of Florida, and that is property tax reform," said Brummer. He said he is open to further debate and points out that the Senate has yet to embrace anything like his idea.

Under Save Our Homes, market values can rise fast, but the assessed value -- the baseline for taxes -- can only go up as fast as inflation, or three percent, whichever is lower. That causes wide gaps between market value and the portion of a home's value that's taxable.

If approved, here's what it means for the typical homeowner in Pinellas and Hillsborough counties, who has about $50,000 shielded from taxes by Save Our Homes. After Jan. 1, 2007, that homeowner could shield a maximum of $150,000 -- whatever the homeowner had in tax savings before the law change, plus $100,000.When the homeowner's market value rises high enough so that the difference between the market value and the assessed value reached $150,000, the tax breaks would stop. After that, a 20 percent increase in market value would mean a 20 percent increase in assessed value -- and the tax bill would go up 20 percent. If an owner wanted to move, Brummer would allow him or her to carry up to $100,000 in taxable value breaks to a home of equal or greater value in the same county.

The proposal from Brummer, the House's point-person on property tax reform, marks a shift in the Legislature's debate this year. For weeks, lawmakers have discussed ways to allow homeowners to transfer the existing property tax benefit if they buy a new home. That would help existing homeowners. It does little for newcomers, but over the years Brummer sees his proposal as a way to restore fairness to the tax structure.

As a deal sweetener, the homestead exemption would double from $25,000 to $50,000 over the next decade. From then on, the homestead exemption would increase with inflation.

It amounts to an overhaul of the Save Our Homes system that voters created in 1992. While promoted as a way to keep the elderly from being taxed out of their homes, it has created wide disparities in tax bills paid among neighbors. After the market's recent value increases, it effectively has trapped many in their homes, since their taxes would soar upon moving.

"Before Save Our Homes, we lived in a world where they paid on fair market value," said Bob McKee, a lobbyist for the Florida Association of Counties. "This would put some people back in that world."

Still, Florida's counties are concerned about the fiscal impact of the proposal, particularly outside of the larger urban areas, where doubling the homestead exemption would cut deeply into the tax base.

Gov. Jeb Bush is reserving judgment until the full financial picture is known. "Given the extraordinary increases in assessments over the last three of four years, this is worth looking at," Bush said. "The question of the impacts on local government would have to be analyzed."

Right now, no one in the Senate is proposing a plan similar to that unveiled in the House. Senate President Tom Lee, R-Valrico, acknowledges that Save Our Homes has created some unfairness in today's tax structure. But he's not committing to a rapid fix.

"I think a bill this year is going to be a very, very difficult thing to build compromise around," Lee said. Even in the House, Brummer's plan remains controversial. The Finance and Tax Committee approved it on Friday on a 5-3 vote, with supporters stressing that debate is just starting. Rep. Carl Domino, R-Jupiter, is sponsoring a competing proposal that would allow homeowners to carry to a new home unlimited Save Our Homes benefits. Brummer, the committee chairman, considers the Domino legislation a gift for the wealthy and remains unwilling to consider it. But Brummer would discuss tweaks to the $100,000 cap on future benefits, perhaps by raising the figure or adjusting it for inflation costs over time.

Statewide, the vast majority of homeowners are under the proposed $100,000 cap. In Pinellas and Hillsborough, for example, 75 percent get a valuation break of $68,000 or less.

NEW YORK -- March 27, 2006 -- To say that David Bach's latest book, The Automatic Millionaire Homeowner, eighth in his FinishRich Series, is a quick read is an understatement. He means for it to be read in just an hour or two, so you can get cracking.Yes, the ubiquitous best-selling author is back with his cheery, can-do message. This time he is talking directly to home buyers.

Buying a home is the smartest investment you can make during your lifetime, according to Bach. "According to the National Association of Realtors, the median home price in America hit $220,000 in August 2005 -- a more than 55 percent increase in less than five years," he writes. And while experts warn that the real estate market might be overheated, he dismisses naysayers. It doesn't matter if prices are up or down right now. Over time, they will likely go up steadily, he says.

U.S. real estate values have been going up steadily for nearly four decades -- an average of 6.3 percent a year since 1968, according to the National Association of Realtors. But let's be clear: There's nothing "automatic" about becoming a millionaire by purchasing a home. Bach does not fantasize about getting rich overnight in real estate. Neither should you.

This is about investing in real estate over the long haul. In Bach's scenario, you live in the house or rent it out for a period of time, possibly years. You're not buying a house just to flip it and make a quick buck. "Being an Automatic Millionaire homeowner isn't about timing the market. It's about time in the market," he writes. "It's when you're NOT trying to get rich quick that you get rich slowly."

Investing in real estate has been Bach's mantra. In Start Late, Finish Rich, he said one-third of your assets should be in real estate, one-third in stocks and one-third in bonds. In his newest book, his formulaic, action-oriented approach cuts through the intimidating challenge of buying a house for the first-timer.

He covers all the bases, including the tax advantages of homeownership, ways to save for a down payment, figuring out what type of house to buy, finding a real estate agent and a mortgage broker, shopping for a mortgage, understanding and negotiating closing fees and costs. For those who have gone through the Byzantine process of buying a home, much of Bach's guidance is old hat, but for a newcomer, it's fundamental reading, albeit generic.

You'll find sources for additional information on where to get your credit report, government lending programs, websites for mortgage shopping and sites that allow you to compare what properties are selling for in your local market, such as HomeSmartReports, which charges $25. Bach is adamant about paying down the principal of your mortgage as quickly as possible. He advises making automatic payments, adding 10 percent to your regular mortgage check each month applied to principal, or making one extra payment at the end of the year, again applied to principal.

But his true love is the biweekly mortgage, when you pay off your mortgage years early and save tens of thousands of dollars in interest. Here's what might be a little confusing for readers. In the beginning, Bach explains the Philosophy Behind the Automatic Millionaire Homeowner: You can't get rich renting; you don't need a lot of money for a down payment on a home; you don't need good credit to buy a home; you should buy a home even if you have credit card debt; you can build a fortune by buying just a few homes over the course of a lifetime.

That opening message might get potential homeowners hepped up about buying, even if they think they don't have a chance in the world of ever having enough for a down payment, or being able to qualify for a mortgage. He gleefully explains all the ways in which lenders are willing to lend money to risky borrowers these days and urges readers to take advantage of that opportunity.

But later, he seems to backpedal. He devotes a chapter to discussing the downside of real estate and the danger of downturns in the market for those who buy above their means. To protect yourself from a real estate meltdown: "Make sure you can afford your mortgage," he writes.

Other tips to "bubble-proof" your real estate plan include locking into a fixed-rate mortgage for 30 or 15 years, tapping into home equity only for home improvements and other housing-related investments and not to pay down credit card bills, pay for a vacation or buy a new car.

"Be realistic about your situation," Bach advises. "Don't pretend you're in better shape than you really are. Don't borrow more than you can handle." After all, if your financial situation takes a turn for the worse and/or your local real estate market takes a dive, you might not be able to afford your home if you put nothing down or took out an interest-only mortgage.

The Automatic Millionaire Homeowner
By David Bach
Broadway Books; 254 pages, $19.95

ORLANDO, Fla. -- March 23, 2006 -- Rising inventory levels and still-low mortgage rates continued to affect Florida's housing market, which is adjusting to a better balance between buyers and sellers following a five-year run of record-pace sales. Statewide, sales of single-family existing homes totaled 13,539 in February compared to 16,916 homes a year ago, for a 20 percent decrease, according to the Florida Association of Realtors® (FAR).

Realtors from across the state report that the supply of homes available for sale in their markets is improving, offering buyers more housing opportunities.

The statewide median price for single-family existing homes last month was $244,200, up 24 percent from the February 2005 statewide median of $197,700. In February 2001, the statewide median sales price was $118,200, which shows an increase of about 106 percent over the five-year period, according to FAR records. The median is a typical market price where half the homes sold for more, half for less. ]

In California, the statewide median resales price in January 2006 was $551,300; in New York, it was $319,000; in Maryland, it was $290,776; and in North Carolina, the average resales price was $206,788. Nationally, the median sales price for existing single-family homes in January was $210,500, up 13.1 percent from January 2005.

Sales of existing condominiums in Florida also decreased last month, with a total of 4,342 condos sold statewide compared to 5,643 in February 2005 for a 23 percent decline, according to FAR. The statewide median sales price for condos rose 11 percent to $218,700 last month; a year ago, it was $197,000.

The national median existing condo price was $216,900 in January 2006. Along with the University of Florida Real Estate Research Center, the Florida Association of Realtors began compiling data on closed condo sales for comparison purposes in 2005; the condo data series began in January 2006. Favorable mortgage rates continued to spark buyers' interest in markets across the state. Last month, interest rates for a 30-year fixed-rate mortgage averaged 6.25 percent, up from the 5.63 percent average rate in February 2005. FAR’s sales figures reflect closings, which typically occur 30 to 90 days after sales contracts are written.

Among the state’s larger markets, the Jacksonville Metropolitan Statistical Area (MSA) reported a total of 1,200 single-family existing homes sold in the area in February compared to 1,218 homes a year ago for a 1 percent decrease. The median sales price rose 14 percent to $196,200; a year ago, it was $171,800.

Kay Seitzinger, president of the Northeast Florida Association of Realtors and assistant manager with Watson Realty Corp. in Ponte Vedra, says a convenient location, employment opportunities and appealing lifestyle attract people to the Jacksonville area. "The continued strong market we are having here in Northeast Florida is considerably influenced by our area's stable economy," she says. "With our diverse business base and positive job outlook, people continue to relocate to the greater Jacksonville area. Add to that our great quality of life -- with so many arts and leisure activities, who wouldn't want to live here?"

As for smaller markets in Florida, the Tallahassee MSA, reported strong resales activity last month with a total of 330 single-family homes changing hands compared to 298 homes a year ago for an increase of 11 percent. The area's median sales price rose 15 percent to $185,800; a year ago, it was $161,300. Kenny Ayers, president of the Tallahassee Board of Realtors and new-home specialist with Heritage Homes Realty of Tallahassee representing Turner Heritage Homes, notes that the area's changing seasons and friendly community appeal to many homebuyers.

"As the state capital, we have a lot of job opportunities with the government and state offices, plus three big universities and colleges," he says. "The Tallahassee area is convenient to the coast and offers a nice mix of art and cultural activities along with a laid-back, friendly lifestyle."

From the St. Petersburg Times, March 19, 2006 -- An article with graphic showing the future skyline of downtown St. Petersburg.

NEW YORK -- March 20, 2006 -- With the allure of easy money, thousands of Americans flocked to jobs in the real estate industry during the boom years. "You saw it -- there were dollar signs in their eyes," recalls Nick Vayonis, a former real estate agent in Los Angeles, where median home prices rose 145 percent in four years. He left the business a year ago, just in time, he says. Home sales have declined nationwide for the past five months, and sales in Southern California fell to their lowest level in five years in February, DataQuick reported Tuesday.

"I could see the ebb and flow. It wasn't going to be like that forever," says Vayonis, 40, who just opened a coffee shop in Canton, Ga., near Atlanta with his wife Anne-Marie, also a former agent. Housing helped drive the economy out of the last recession. Almost four out of every 10 jobs created in the past four years were in housing-related fields. At the end of last year, a record 9.8 percent of U.S. workers were employed in the real estate industry, up from 8.2 percent a decade ago, according to Moody's Economy.com. Only the health care industry added more jobs.

"Job growth is the main engine for consumer spending," says Scott Anderson, senior economist at Wells Fargo in Minneapolis. "If we don't get the job creation that we need to sustain spending, the economy could be in trouble as we get into '07," he says. "If we don't get any help from these other (non-housing) sectors, longer-term the implications are slower job growth, which means slower consumer spending, which would eventually discourage businesses from spending. You'd have this downward spiral in growth."

Belt-tightening starts

While it's too early to tell how deeply the housing industry will contract, many companies are already seeing some business evaporate. Last month, Washington Mutual said it would close 10 mortgage processing centers and fire 2,500 employees. In November, mortgage company Ameriquest handed out 1,500 pink slips. The housing industry is braced for more belt-tightening.

"At best, people should prepare for no pay increase and no bonus, something they have been getting a lot of. At worst, they should be thinking they may need to change occupations," says Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pa.

While it's painful for those involved, Zandi calls the slowing in housing "a necessary adjustment." The economy had gotten so dependent on housing that it needed to come down a bit to make the economy more evenly balanced. "Housing has been flying high, and it's now coming back down to earth," he says.

Existing home sales fell in January for the fifth month in a row, and home builders Toll Bros. and KB Home say more buyers are canceling their orders. In all, home sales are expected to fall 8 percent from last year's record, according to a group of economists surveyed by USA TODAY in January.

That's going to make it harder, for example, for the nation's 2.6 million real estate agents to make a living. In a "normal" real estate market, the median income for an agent in business for two years or less is $12,852, according to the National Association of Realtors. (However, it picks up rapidly after that, with agents making about $47,187, after three to five years.)

Your income "is very unpredictable," says Janice Hofferber, who left her job as a Wall Street stock analyst in 2003 and tried her hand as an agent in Bay Head, N.J. She quit last September and became an investment adviser for Smith Barney. "You're not really building a business, you're building a reputation," explains Hofferber, 41.

It was no easier in the mortgage loan business, says Toney Goucher, who closed his restaurant in Arkansas and became a mortgage broker in 2002. When he joined Leader One Financial in Kansas, home sales were hot, interest rates were low, and anyone who wasn't buying was refinancing. Last summer, the market started drying up.

"It seemed like every month, we had another interest rate hike, and it got harder and harder to find clients," recalls Goucher, 55. "I joined organizations and networking groups to find more business. I called on Realtors every day -- cold calling -- I just didn't enjoy what I was doing anymore."

Goucher threw in the towel and put on an apron. After traveling to St. Louis for a conference, he opened Fat Toney's barbecue restaurant there in January.

Picking up the slack

So far, the economic impact of the downturn in housing has been soft. Other sectors of the economy are adding jobs. In February, employers added workers in a broad number of industries, such as retail, health care, restaurants and bars and state and local government. If that continues, those jobs will help take up some slack if people in housing-related fields find themselves out of work. Plus, many economists expect housing to slow, but not to slide dramatically.

"We don't expect housing to completely collapse," says Anthony Chan, chief economist at JPMorgan Private Client Services, adding that the housing market might regain some momentum in 2007.

There are also a few trends that could reduce the blow to the economy:

Construction. Although residential construction is weakening, commercial building is picking up, thanks to demand for new roads, government office buildings and retail shops. More than 768,000 people had jobs in the non-residential construction industry in February, the most in more than three years.

"The commercial market now seems to be on a pretty good upswing, and if housing loses ground, which I think is very likely, we will see some of those workers move into the non-residential side," says Dave Seiders, chief economist for the National Association of Home Builders.Many of the skills used in home construction are transferable to commercial building. "A carpenter can just as easily work in a non-residential building as ... a residential building," says Michael Montgomery, an economist at Global Insight in Lexington, Mass.

Hurricanes. Hurricanes last year damaged or destroyed 700,000 homes on the Gulf Coast, according to the Federal Emergency Management Agency, based on the number of families receiving federal housing aid. Although it's unclear how many of those homes will be rebuilt, the process of rebuilding homes, businesses, roads and other infrastructure will likely create jobs for years to come.

Refinancing. About 25 percent of outstanding mortgages in the fourth quarter were adjustable-rate mortgages, according to the Mortgage Bankers Association.

For those who got into the mortgage brokerage business, that's good news. Many homeowners will likely want to refinance their mortgages in the months and years ahead to lock in a fixed rate as interest rates are expected to rise, but not by a lot.

"That will kind of prop things (up) for awhile in terms of activity," Montgomery says And plenty of people who got into the real estate market are determined to ride out any downturn.

One of them is Steve Wydler, 37, who left his job as a lawyer at AOL's headquarters in Virginia in December 2002 to join his brother, Hans, an entrepreneur with a Harvard MBA who is a real estate agent.

The two are getting their brokers' licenses in Virginia and Maryland so they can operate throughout the Washington, D.C., area. They now employ three people and work with four other agents as a team. He makes more money now than he did at AOL.

"Personally, I'm not scared," he says. "We're not in it for the next sale. We're in it for the long haul." But back in St. Louis, at Fat Toney's, Goucher says he has already gotten a couple of calls from mortgage brokers he knew in Kansas asking about possible franchise opportunities for his barbecue restaurant. "They say, 'You're lucky you got out.'"

SOUTH FLORIDA -- March 7, 2006 -- Joyce Stutz worries she may have to sell the Oakland Park home she bought a year before Hurricane Andrew swept through South Florida. Steve Homrich is wondering whether he can scrap hurricane insurance on his Boynton Beach home. And Rosemary Morrissey might relocate to Georgia to avoid yet another hurricane season.

They are drastic measures in the face of the most dramatic rate hike in the history of Citizens Property Insurance Corp., the state-backed insurer of last resort and the second-largest home insurer in Florida. Already required by law to charge the highest rates of any company and under pressure from some legislators to raise them even more, Citizens started hiking premiums for many customers this week. Another increase may be just around the corner.

Nowhere will it be felt more than for those living east of Interstate 95, considered a "high-risk" area for insurance purposes, and where Stutz, Homrich and Morrissey all call home. Some parts of Broward County will see rates rise as much as 67 percent. In Palm Beach County, it will top 51 percent.

A South Florida Sun-Sentinel analysis shows that some of Broward and Palm Beach counties' poorest neighborhoods will face some of the highest hikes. Many like Stutz, who works part-time at a local sub shop and cares for her disabled husband, struggle to get by.

"You go without food, or whatever, because you have to have a roof," said Stutz, who, combined with her income and her husband's Social Security checks, makes too much to qualify for most federal assistance.

Others like Morrissey, an IBM retiree, live on fixed incomes. And even residents like Homrich, who owns a plant nursery, find it hard to fathom bigger insurance premiums.

Citizens' insurance rates matters for two key reasons: The company serves as a barometer for private insurance firms in determining rate hikes. And if it runs a deficit, as it's expected to this year, all Floridians get assessed to make up the difference.

Some homeowners and even some lawmakers outside South Florida view Citizens as the insurance company for the coastal castles of the well-to-do. That's not the case for thousands who live east of I-95 in Broward and Palm Beach counties, where often only Citizens will insure homeowners.

For people like Stutz, the hikes are remarkably steep. Stutz's hurricane premium is now $1,833. Citizens will hike her premium by 13.9 percent, which means an extra $255 come renewal time. The second, proposed increase of 48.2 percent would raise Stutz's windstorm insurance costs to $3,094.

Stutz's house happens to fall in a Citizens zone in Broward County where more than one-quarter of the households are below the federal poverty level, according to information from Claritas and a Sun-Sentinel analysis.

Other South Florida neighborhoods are in similar straits. Inone Riviera Beach neighborhood north of 45th Street and east of I-95, the median household income is around $10,400, making it the second-poorest neighborhood in the county. And it's in a zone due for a 40.8 percent increase, on top of an 8.3 percent increase that the company will start collecting this month.

State legislators are promising to make insurance affordability a priority when they convene Tuesday, but residents shouldn't expect the Legislature to impose requirements limiting the amount companies can increase premiums.

On Friday, Gov. Jeb Bush told reporters that he thinks insurance rates need to rise, and offered to be the "bad guy" on premium hikes.

"You can't sugarcoat this," Bush said. "The price of insurance is going to have to go up, plain and simple. When you have losses that far exceed the amount of premium dollars that you take in on a consistent basis, that's not a viable business model.

Instead, politicians are looking for ways to offer homeowners no-interest loans and grants to retrofit their homes to make them more able to withstand hurricanes. They also want to boost competition in the homeowner insurance market. Both are measures they say could help lower insurance premiums. And everyone can use that help.

Tim O'Brien of Fort Lauderdale said the cost of insuring his dream home is giving him nightmares. O'Brien, 42, had paid about $2,800 for hurricane insurance on the home that he spent nearly two years remodeling. When he got his renewal this year from Citizens, his premium nearly doubled. He now pays $5,400. And it could rise even more, if Citizens gets to raise premiums in his neighborhood by 67.2 percent. That means he could pay another $3,628 for windstorm insurance, bringing his total to more than $9,000 just for hurricane coverage -- which doesn't include what he'll pay for flood, fire and theft protection.

The rapid rise of his insurance bill has Homrich, the nursery owner from Boynton Beach, wondering whether he even wants insurance at all. His house is paid for, so insurance isn't required.

Homrich said he's never had a claim on his house east of Federal Highway and feels like he's paying a higher price for those with hurricane damage from the past two storm seasons. "There's no reward for the homeowner who doesn't claim his fence or his tree or the things you hear people claiming," Homrich said.

His neighborhood is due for an 8.2 percent increase, followed by a 51.6 percent hike, which has Homrich thinking he'd rather save his money to pay for future damages and go without hurricane insurance.

Others, like Morrissey, wonder whether it's worth staying in South Florida. Morrissey, who has been living in her Boca Raton home since 1983, is weighing a move to Athens, Ga. She's written to state officials, questioning how they believe people will be able to afford insurance. Morrissey paid $1,823 last year for windstorm coverage. With Citizens' first increase of 8.3 percent, her rates will go up another $151 to $1,974. The second increase of 40.8 percent will raise her premium another $806, to a total of $2,780.

"Let's face it, everything is going up except my income," Morrissey said. "There are a lot of us in my age range who are in the same boat."

(March 6, 2006) -- A slide in pending home sales is beginning to level out, an indication of a more sustainable level of home sales in the months ahead, according to the NATIONAL ASSOCIATION OF REALTORS®.

The Pending Home Sales Index, based on contracts signed in January, slipped 1.1 percent to a level of 116.3 from an upwardly revised index of 117.6 in December, and is 4.8 percent below January 2005. After hitting a record of 128.2 last August, the index declined at a more rapid pace through December, averaging nearly 3 percentage points per month.

The index is derived from pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed; pending home sales typically are finalized within one or two months of signing.

An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined, and was the first of five consecutive record years for existing-home sales.
David Lereah, NAR’s chief economist, had foreseen a flattening in the index. “This looks like we’re touching down for the soft landing we’ve been expecting,” he said. “We are at a much more sustainable level of home sales now – a welcome cooling from the super-heated conditions that were driving exceptional price gains. This will give people the time to be more thoughtful about a process that is the biggest single investment most of us make in our lifetime.”

“Home sales at this level are historically strong and provide a solid foundation for the overall economy,” he said. “Business spending will lead economic growth this year, and housing wealth will help to support consumer spending.”

Regionally, the PHSI in the Midwest rose 6.0 percent in January to 114.3 but was 1.0 percent below January 2005. In the Northeast, the index increased 0.4 percent to 94.8 but was 12.0 percent below a year ago. The index in the West declined 1.9 percent to 115.8 in January and was 13.6 percent lower than January 2005. The index in the South dropped 5.1 percent to a level of 128.6 in January but was 2.0 higher than a year ago.