Commentary by J. Lennox Scott, chairman and CEO, John L. Scott Real Estate

RISMEDIA, August 12, 2008-Buying smart in today's market got a little easier recently following the signing of the Housing and Economic Recovery Act of 2008 by President Bush. There are significant benefits aimed at helping buyers, such as a repayable first-time home-buyer tax credit. First-time buyers are important to the health of the housing economy because their home purchases help to stimulate sales up the price points. Through the home-buyer tax credit, buyers who are purchasing for the first time or who haven't owned a property in the last three years can now qualify for a tax credit equal to 10% of their home purchase price, up to $7,500.

Further qualification requires that the home purchase be made between April 9, 2008 and July 1, 2009. The credit phases out if the buyer's income exceeds $75,000 for an individual or $150,000 for a couple filing jointly and it must be paid back over a 15 year period in equal installments. The credit can be claimed on the buyer's 2008 tax return even if the purchase is made in 2009 (it's important to note that this is a tax credit and not a tax deduction).

Another component of the housing bill includes much needed FHA modernization which aims to adjust loan limits so that they are more in sync with current home values. The bill allows Fannie Mae and Freddie Mac to serve more home-buyers by raising loan limits in high cost areas above the standard conforming limit to 115 percent of the median house prices and up to 150 percent of the conforming loan limit.

The Housing and Economic Recovery Act is expected to play a critical role in strengthening the housing market and overall economy. The last time Congress passed legislation like this in the 1970s, the housing market saw a significant increase in activity. Using history as a guide, Lawrence Yun, chief economist of the National Association of Realtors believes the Housing Act could represent a boost of 10% in the number of homes sold.

The passing of the Housing and Economic Recovery Act marks the beginning phase of the next ten-year housing cycle in which prices in the more affordable markets will only continue to appreciate (affordable refers to homes priced at or below a market's median housing price). Contributing to rising prices is population growth, the impact of Generation Y, inflation, and growth management. Homes in the more affordable price ranges in many markets have already adjusted and the new housing legislation will continue to boost this positive momentum. Increased sales in the more affordable markets will set a new foundation for housing, helping to stabilize the overall real estate economy.

Economist's Commentary: July 28, 2008

The Housing Stimulus Bill: $7,500 for Homebuyers

By Lawrence Yun, Chief Economist

The Housing Stimulus Bill passed in the Senate over the weekend. President Bush has said he will sign it into law. That means housing recovery is on its way.

There are many components in the bill, but the one that I am most excited about is the homebuyer tax credit. Up to $7,500 will be given to first-time purchasers as they file their income tax returns. The amount gets phased out above a certain income level and is to be no more than 10 percent of the home purchased price - though most people will qualify for the full amount. This is almost like a "credit," which means that the amount is equivalent to cash on tax returns. Example: you do your normal tax return and find that you owe $1,000 next year. You then apply the $7,500 credit and the government will send you a tax refund check for $6,500. This credit has a time window and will not be available from July 2, 2009 on.

It is not a full credit because you do have to pay back this amount over a 15 year time period from the second year. The payback provisions also have many conditions, which we are further researching. But in the worst case, you would need to pay back the $7,500 over a 15 year time span from 2010. So in your 2010 tax filing, you would need to pay $500.

Even in the worst case scenario of paying back the tax credit fully over a 15 year time span, the tax credit is still a huge benefit to homebuyers. First, money today is worth more than money tomorrow - far more than money 15 years from now. Money loses value over time due to inflation and from the interest income one would receive on that money before fully paying it back. A smart consumer could pay off a high-interest credit card debt with the tax credit money and that would be the best winning strategy.

I am excited about the tax credit because it will have the biggest impact in getting the housing market moving again and in lessening the foreclosure pressure. Homeowners across the country will benefit as home prices strengthen. The economy will also improve - with higher aggregate income for U.S. workers and a lower unemployment rate.

I am a big proponent of staging versus price reductions to sell homes. Here is why:

If you have house that you have taken good care of you can't compete with the thousands of foreclosures and short sales up for sale. They can easily be priced 10% - 20% lower than you could expect to sell your house for. Why play that price game? You are bound to lose.

Your option is to prepare your home to compete for the buyer that is willing and able to pay what your home is worth. Let me explain:

You have 3 types of buyers in the market today.

1. Foreclosure buyer: They want the biggest bang for their buck. Often foreclosure homes are in pitiful condition but the price is so low for the size and location that a buyer can rationalize the investment in carpet, paint, landscaping and appliances.
2. Short sale buyer: This buyer is looking for the same cheap price as a foreclosure but are willing to trade off the additional waiting time (4-6 months) for a home in better condition.
3. Resale home buyer: Many buyers lack the desire to fix up a foreclosure home. They also aren't willing to wait 4-6 months for a short sale home. Those buyers choose instead to pay more for a resale home in great condition because the convenience of being able to move right in is more important that saving a few buck. These are the buyers you want to attract.

The challenge in appealing to a resale buyer in today's market is that your home must competing with thousands of other homes in the same size and price range. To stand out your house has to be the best of the best.

How do you become the "best"? You clean it top to bottom. I mean you clean it like it has never been cleaned. Buyers are immediately turned off by messy, dirty and smelly.  Then it must show like a model. That is where staging comes in. A professional stager will come to your house and spend a few hours going room to room suggesting things to do to make your home most appealing from a buyer's perspective. They will tell you what to move and what to get rid of. In some cases you can rent additional accessories or plants to heighten your homes appeal.

If you have the ability to stage your home yourself, that is great. However, most people that I have met don't have the training or talent to do it correctly. That is why choosing to stage your home and compete for the buyer that is willing to pay a fair price for your house can be the smartest investment.

Here is an article in the Christian Science Monitor that reinforces my belief in staging: How staging a home helps to sell it for more | csmonitor.com

One of our favorite lenders, Luz Mady from CTX Mortgage, sends us Inside Lending report each week from the CTX main office. As expected the news is better than the media would have us believe. As a result of the following email I reviewed our inventory number in Phoenix. We are down to 52,841 active homes in the entire area. The peak was earlier in the year at almost 58,000 homes available. That is a significant improvement.

 You will enjoy this article if you, like me, aren't a doomsayer about real estate:

>> Home Base

INFO THAT HITS US WHERE WE LIVE  Coming back from the long holiday weekend, we were greeted by the New Home Sales report. New single-family homes sold in April at an annual rate of 526,000, nicely above the 520,000 rate expected. Sales declined in the South but INCREASED in the Northeast, Midwest and the West. Even better, at the current selling pace, the supply of unsold new homes fell to 10.6 months. Inventories sank to 454,000, down 20.4% from their peak in 2006. The median price of new homes was UP 1.5% over a year ago to $246,100. The average price for new homes did even better, UP 3.0% compared to last year, to $321,000.

No one is claiming the pain is over, but last week's New Home Sales report has some experts saying the correction in home building is starting to bring the market back to normal. April's drop in inventory is the eighth straight month total inventories have shrunk. A key factor behind future construction and price changes is the number of unsold completed new homes. It had peaked in January at 199,000 but is now down to 181,000. That decrease of 18,000 homes in just three months is the fastest decline on record.

>> Review of Last Week

WHAT RECESSION?... Recession fans had a terrible week, while we more positive-minded folks enjoyed the nice dip in oil prices, solid corporate earnings and encouraging economic indicators. These all showed the economy may be a bit weak, but it's clearly not in recession.

Oil for once was fun to watch. Many speculators decided to take their profits and get out, perhaps fearing demand may be waning with Americans altering their driving, as reported here last week. A barrel of crude closed the week at $127.35.

On the corporate front we had positive earnings from MasterCard, Costco, Big Lots and Tiffany. These indicated that the consumer who drives much of our economy is still functioning, thank you. A better than expected report from Dell showed business is also doing just fine in the tech sector.

Economic reports kept recessionistas quiet too. Durable goods orders rose 2.5%, excluding transportation, and first quarter GDP was revised UPWARD to 0.9%. Personal income rose 0.2% in April and 4.5% over the last year. The annual rate of personal spending in April was above the Q1 average, so experts expect Q2 real GDP will beat Q1. New Home Sales were up 3.3%. Inflation held at 2.1%, year-over-year, still below the Fed's forecasted range of 2.2%-2.4% for 2008.

The net result was that every major index gained over 1.0% for the week! The Dow was up 1.3%, to 12638.32. The S&P 500 rose 1.8%, to 1400.38. The NASDAQ shot up 3.2%, to 2522.66.

The short week went on a little too long for the bond markets where prices kept skidding. Even the positive news on inflation didn't help. The yield (which runs counter to price) on the benchmark 10-year Treasury actually broke through 4%, ending the week at 4.052%. For this mortgage benchmark, the yield at this level could indicate rates may rise. That's one more reason buyers should come in off the sidelines. 

>> This Week's Forecast

COME FRIDAY, ALL WILL BE REVEALED... The week begins with the May ISM Index, a key indicator of the national manufacturing situation. Not much is in store for the middle of the week, although Fed Chairman Ben Bernanke will give a couple of speeches, which could inspire market reactions. We'll have retailers' same-store sales on Thursday and then the biggie comes Friday. The May employment report will surely command the markets' attention.

>> The Week's Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of June 2 - June 6

>> Federal Reserve Watch    

Forecasting Federal Reserve policy changes in coming months. There is strong consensus that the Fed is through with rate cuts. Some experts are even beginning to talk about the  rate rising in October. 

Current Fed Funds Rate: 2.00%

Interesting article about how Fannie Mae withdraws "Declining Market Policy". The long and short of it is that you no longer have to put additional down payment on those loans because of the market decline. However, the writer is suggesting that (for now) the Mortgage Insurance Companies will still require the larger amount down. As you can tell there is still a good amount of turmoil in the mortgage market but the silver lining is that they are considering helpful changes.

 Here it is:

Fannie Mae just announced a withdrawal of their declining market policy! To quote from Announcement 08-10, "Lenders are no longer required to make a downward adjustment to the LTV, CLTV, or home equity CLTV (HCLTV) based on the location of the property." Yes, you are reading correctly; no more 5% declining market reduction, at least for Fannie Mae loans! But hold on, let's not get too excited yet. I'll explain in a second, but let me give you a brief summary of the Announcement first. Per Fannie Mae Announcement 08-10, dated May 16, 2008:

1. Fannie Mae withdraws their declining market policy effective 6-1-08;
2. Declining market policy is replaced by a "National Down Payment' policy which reduces maximum allowable LTVs for 1-unit primary residences;
3. 95% is the maximum LTV, CLTV, HCLTV for manually underwritten loans;
4. 97% is the maximum LTV, CLTV, HCLTV for DU underwritten loans, including MyCommunityMortgages® and Flex mortgages;
5. CLTV of 105% with Community Seconds® is still allowed;
6. Effective date is for applications taken on or after June 1, 2008.

Copyright - 2008 - MortgageCurrentcy.com

I received from a friend of a past client that asked about keeping her house as a rental. She didn't like living in the suburbs as much as she thought and wanted to get back "to where the action is". Many people think about this as an option to selling. Unfortunately, it rarely makes good financial sense but it could provide some short term emotional reassurance. Here is part of my response:

You never want to rent out something that would, even in today's market, get top dollar. That is because once you get a renter your home will never be worth as much (as if you were still living there). Basically you will have to own the house for 2-4 additional years just to make up the reduction in value that a renter brings. Even if they don't trash the house (which they could), their furniture won't fit, won't match, they won't want to show it if you decide to sell. They aren't motivated for your eventual sale or possible profit. If they aren't in the house you have to count the loss of money while the home is on the market and vacant.

Basically the question is "would you buy your house as a rental"? If you wanted an investment property, would you as a buyer choose your house? Your house is extremely nice. Buyers would be paying for the condition. Do you care about the great condition and upgrades if you were looking at it as a rental? Wouldn't you rather, for the same price, get a larger house that could rent for more?

My guess would be that, if you wanted a rental and we were looking for one, you would not choose your house. You can get top dollar now because of the condition. Evaluate why you are really considering this as an option. Is it to avoid a short term pain of some sort? Will that avoidance be a good long term answer for you.

Call me if you have any questions or other ideas you want to bounce off me.

Paul

You probably thought nothing-down mortgage loans disappeared in the wake of the American subprime lending crisis, which has ensnarled much of the world in a credit crunch.

They didn't. Even more surprising, many Americans can still buy homes with nothing down thanks in large part to the federal government and a legal loophole that lets builders and bankers ensure a steady stream of asset-challenged borrowers for taxpayer-insured loans.

With quietly expanded powers, the Federal Housing Administration is already offering the next-best thing to nothing down on a house: a payment of just 3.0 percent will get practically any American with a pulse and a job a mortgage of up to $729,000, at least until the end of this year.

But for those who lack the wherewithal to put even a little skin in the game, there's a workaround: a not-for-profit organization can give prospective buyers the teensy downpayment. The spigot is wide open. Of the 180,881 loans that the FHA insured in the first half of fiscal 2008, 36.7 percent, or 66,337, were seller-funded. With home builders and sellers desperate to make sales in a slowing real estate market, this percentage is likely to grow.

The FHA has traditionally allowed family and friends to gift a downpayment to homebuyers. In the last 10 years, homebuilders and sellers have gotten into the act by funneling their upfront consideration through down-payment assistance not-for-profits. Technically wiping out a conflict of interest, the charitable outfit collects the cash and hands it over to the mortgage lender taking a bit off the top for all its trouble.

According to a 2005 U.S. Government Accountability Office report, the sleight-of-hand results in higher home prices for FHA borrowers. The agency found that homes sold with nonprofit assistance were appraised and sold for prices about 2 to 3 percentage points higher than comparable homes without such assistance. The report said that appraisers interviewed had sometimes been pressured by lenders, real estate agents and sellers to increase home prices to "bring in the value."

Not only does this practice burden FHA borrowers with pricier homes, it also increases the odds that the new homeowners can't afford their monthly mortgage payments. Indeed, seller-financed, no-downpayment loans have default rates that are three times the FHA average.

The FHA tried and failed to unilaterally prohibit the seller-funded loans last year. After it issued a decree that the practice's end was nigh, Sacramento-based Nehemiah, a market leader in seller-backed financing, challenged the agency's ban and won. The judge ruled against the Department of Housing and Urban Development 's policy shift for failing to provide follow protocol in announcing the change.

No one needs to remind sellers that today's market is a challenging one. In fact, there are on average more than 11 months of inventory on the market at any given time.

So it is vitally important that you make sure all of your listings stand out above the others that are competing for the buyer's attention.

Here are some very basic pointers you can print out and share with home sellers to help get them headed in the right direction:

1. De-Clutter: This one is simple. De-clutter everywhere; inside and outside. If it's taking up space it is a potential candidate to be thrown out. The sellers need to make that all important mental conversion from "home to live in" to "house for sale." Personal things are a big distraction as you want the buyers to be able to visualize their own belonging in the house.

2. Repair: Buyers want everything working so don't disappoint them - dripping faucets, broken windows, leaking roofs, damaged walls and doors, etc, beg the question in the buyer's mind...What else is broken or doesn't work?

3. Lots of Light: The last thing home buyers want to see is a dark home with all of the doors and windows covered. Let the light in and open some windows to let in some fresh air. Room deodorizers leave the impression of covering something up as does a window that has the blinds drawn.

4. Clean Windows: Buyers want to know and see the view they will have from every room - don't make them look through dirty windows. If they do, the impression of a having great view is literally going "out the window."

5. Kitchen and Bathrooms: Two of the most important rooms in the house. They must be spotless and first class. Just cleaning up isn't going to be good enough - you need to "deep clean" all counters, floors, cabinets and all the fixtures in the bathrooms. In the bathrooms consider new fixtures or countertops and perhaps redoing the shower and tub enclosures. If new fixtures are not in the budget you may want to consider having them refinished. Think about having all the tile steam cleaned and make sure all grout is free from grease and dirt.

6. Odors: Absolute deal killers are cigarette or pet odors. If this is a problem - have the drapes, carpets and furniture professionally cleaned and please..."no smoking" in the house. Also, cooking odors are not a good thing. The best bet is to always for plan fresh air. Often a little lemon oil mixed with water in a spray bottle used lightly used will add just a bit of freshness without overpowering the house.

7. Paint: A fresh coat of paint on the outside or inside is an excellent way of freshening up your home. Be sure to use neutral colors and avoid accent painting. Don't try and guess what a potential buyer will like. In most cases they should use a professional painter because it's always a bigger job than most people think.

8. Yard Work: Deal with overgrown bushes, shrubs and trees. Everything in the yard needs to be trimmed, watered, manicured and "living." Remove everything lying around the yard including sports equipment, boats, trailers, toys, etc. You may also add some color by placing some annuals in planters in the back as well as in the front. Curb appeal makes that all important "first impression."

9. Furniture: The bottom line... less is best. If it's old, worn or dated, you should put it in storage. Remember that you are setting a stage and the actor needs to be the house - not their furniture.

10. Hardwood Floors: Hardwood floors can be a huge plus for buyers unless they look like a 20 year old basketball court. It may be a great investment to have them all refinished - but keep in mind that it's not a simple weekend project.

Changing "lived in homes" into "houses for sale" is what it's all about.

So if you are a real estate professional and what to become an expert in staging a home consider taking the Accredited Home-Staging Specialist (AHS) online course in the convenience of your own home.

Or you can learn more about home staging by visiting http://www.ahsdesignation.com/?sig=35 and downloading a complimentary report called the "7 Deadly Sins of Staging."

To a fantastically profitable Spring.

Jay Medley
Director of Marketing, RealtyU Group, Inc
949-600-7170

The Federal Reserve has been on a rate cutting spree once more. Many mortgage applicants are calling their mortgage representative and expecting a lower interest rate. Others who have been waiting to refinance are puzzled as to why mortgage rates have not moved lower during the recent six Fed rate cuts. This is difficult to explain to consumers who have watched a 3.0% reduction by the Fed with very little benefit in mortgage rates.

Is a Fed rate cut really good news for mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates.  A mortgage rate can be in effect for 30-years while a rate set by the Fed can change from one day to another.

It is often said history repeats itself. And if history is any teacher, we can learn from what happened to mortgage rates the last time the Federal Reserve was in a rate-cutting cycle.

The last time the Fed was in a lengthy rate cutting cycle was back in 2001 from January 3, 2001 to December 11, 2001. In the span of 11 months, they cut the Fed Funds rate 11 times with eight of those cuts by 50bp. This resulted in a total of 475bp or 4.75% in short-term interest rate cuts taking the Fed Funds Rate from 6.00% down to 1.75%. Now most uninformed people would naturally think because the Fed cut rates by so much during this time that mortgage rates would follow suit and trend lower as well. Not so.  Mortgage rates actually moved higher during this time of significant rate cuts because inflation, the arch enemy of bonds, gradually rose.

Now let's take a look at what happened with the Fed's most recent cutting cycle, the first since 2001. On September 18, 2007 the Fed cut the Fed Funds Rate by 50bp. The mortgage bond market briefly enjoyed a "knee-jerk" reaction to the Fed move by closing higher that day, but lost 140bp over the following two sessions. Then on October 31, 2007 the Fed lowered the Fed Funds rate by 25bp. The mortgage bond market responded by losing 78bp over the following five trading days. On December 11, 2007 the Fed once again lowered rates by 25bp and the mortgage bond market lost 88bp in the next three days. So far this year, the Fed delivered a surprise 75bp rate cut on January 22, 2008 and mortgage bonds lost a whopping 144bp in just 2 days. Eight days later and as widely expected, the Fed cut rates by 50bp. Within 13 days from that 50bp cut, mortgage bonds lost 269bp. On March 18, 2008 the Fed cut by 75bp and mortgage bonds lost 113bp in 6 days and 214bp in 22 days.

Please refer to the Table below.