Area's November sales reflective of national economic mood

Anyway you cut it, November was a tough month all around. Along with the stock market, housing numbers took some sharp turns. Finding the bright spots was challenging at best if you are or were trying to sell into this market. Buyers, on the other hand, had their pick of the litter.

In the Cincinnati area, the level of inventory vs. sales was up steeply to 12.2 months in November, while the number of residential sales fell to levels not seen in quite some time. (See the monthly absorption rate and residential sales charts for a detailed snapshot.) The area's performance was in line with national statistics published by the National Association of Realtors.

December seems to be regaining some footing with the significant drop in mortgage rates causing some folks that were sitting on the sidelines to begin looking. Foreclosures and distressed sales are still carrying the day though, accounting for more than a third of sales nationwide. We should see that trend continue for some time until inventory levels are more balanced.

Anectdotal evidence from talking to other agents and clients suggests we will see some a more stabilized market when December's numbers are tallied. Additionally, if mortgage rates stay low through the next couple of months, we ought to see some price stabilization as well given the impact on overall housing affordability. I'm encouraged that many folks are beginning to see homes have reached "bargain value" levels and want to see what's available. The coming spring market should prove interesting.

Assessing impacts of falling mortgage rates

Since Treasury announced a $600 Billion effort to buy Fannie and Freddie mortgage-backed securities and the Federal Reserve dropped the federal funds target rate, mortgage rates have dropped like a stone to levels not seen since the 1960’s. This past week saw occasions where conventional mortgage rates were below 5% and FHA rates were in the low 5’s. Refinancing spiked on the news as many lenders and title companies I’ve talked to indicate a definite uptick in activity.

If you are thinking of refinancing a mortgage or even buying a home, here are some things to consider:

• Forget the “rules of thumb” that say it’s time to refinance when rates are 1 or 2 points below your current rate.

The fact is it takes a little calculating to determine if refinancing makes sense for you. Check with two or three lenders to see what they can offer you for a monthly payment and expected closing costs. If the amount you save per month will pay for the closing costs within the time you anticipate living in the home, then you may want to consider refinancing.

Another perspective on refinancing – can you shorten the term of your mortgage and keep your payments the same?

• Not everyone will get to benefit.

The rates being touted in news and advertising are typically for conventional loans with 20% equity and a credit score of 720. FHA rates are quite good and don’t have the same stringent criteria, but you still need a solid score for the best rates (also, FHA cash out refis are available up to 95% of the home’s current value). Additionally, rates on Jumbo mortgages (those above $417,500) have not fallen like conventional rates.

If you are looking for an investment property loan? Good luck. That is one area where the credit spigot seems close to being shut off. While it is still possible to get an investment property loan, the restrictions are pretty onerous. Some of the issues you might encounter include: no more than 75% of the property value, no cash out refinancing, no more than 4 investment property mortgages, and no financing of properties less than $125,000. Different lenders may have different restrictions, but expect to meet resistance in one form or another.

• Don’t postpone simply because you think rates will go lower.

This is like trying to time the bottom in the stock market. The people who get in at the absolute bottom usually do so with a certain amount of luck. Those who wait usually just end up missing it. Some have seen news reports that the government will try to push rates to 4.5%, but keep in mind that this is not a given AND the fine print is that this will likely be only for new owner-occupied purchases.

• Lower rates increase affordability

Aside from high inventory levels, home prices fell in large part because affordability had risen to unsustainable levels. Mortgage rates at these lower levels mean more people can qualify to purchase a home (or more than they originally thought they could afford). This is undoubtedly one of the effects the government is seeking to help stabilize home prices. Although the Cincinnati area hasn’t been impacted by falling prices to the extent that other areas have seen, you could reasonably expect to see increased competition for the best of available properties on the market.

Bottom line –

This is a time of unprecedented opportunity if you are in a position to take advantage of lower rates and the large inventory of homes in the market. Take the time to do your due diligence to determine if refinancing or purchasing a new home makes sense for you now.

If you’d like additional information on lender resources, market conditions in your neighborhood, or other real estate questions, feel free to contact me via e-mail or phone.

LEDs: the next wave in efficient home lighting?

Many folks have discovered the energy and safety benefits of LED (light-emitting diode) Christmas lights this season, but what about their use for other home lighting purposes? With more LED lighting products entering the market, maybe it’s time to evaluate whether they make sense for your use around the house.

First, consider that compact fluorescent lightbulbs (CFLs) have made significant improvements the past few years and now come in a variety of shapes and sizes with a cost that’s acceptable to most buyers. (I’ve personally seen 6-packs under the $10 mark.) The time to earn back the extra cost over a conventional bulb through energy savings makes them very nearly a no-brainer. They are likely to be around for quite some time.

On the other hand, while LEDs are still very expensive and their application is mostly limited, the benefits are substantial. A typical LED bulb will last on the order of 30,000 hours (that’s over 3 years at 24 hours per day) and use about 1/3rd the wattage of a comparable CFL or 1/30th of an incandescent bulb. Given the low wattage, they also don’t produce the waste heat of a conventional bulb. They’ve already proven useful for recessed lighting, task lights, and accent or decorative lighting (such as Christmas lights and under cabinet lighting). You can also gain some dramatic effects through the ability to change the color of installed lights.

Widespread use of LEDs has some significant hurdles to overcome though. Much like CFLs in their early adoption period, the cost of an LED bulb can be hard to swallow. A single 2 watt bulb that you might use as a porch light could run about $30 compared to $1.50 for a 13-watt CFL. At 12 cents a kilowatt (close to the going Duke rate in Cincinnati), it would take a bit under 3 years burning at 24 hours a day to make up the cost difference. Bulbs that can replace a conventional 60-watt bulb are still very new and are likely to cost over $100. I don’t know about you, but I don’t know too many people that are willing to plunk down that much for a light bulb in their home.

If LEDs don’t yet make economical sense for home use, they are being adopted in commercial buildings where lighting is a significant business expense and replacing lights can practically be a full time job (think large shopping malls and grocery stores). As their use in commercial buildings becomes more common, it’s not unrealistic to see them driving the cost down quickly and making them a viable option in the average home.

To find out more about lighting with LEDs and available products, visit
C.CRANE company,
Best Home LED lighting, or
Commercial LED lighting

October stats continue to show buyers have upper hand

After a few months of inventory making headway towards a more balanced market, October showed a bit of backsliding on that trend. Along with troubles in the financial market, we were also hit with a windstorm that effectively sidelined activity for a week. Inventory for October increased to 10.4 months. That is, at current sales rates, it would take 10.4 months to clear out all inventory on the market.

The rate was an increase of .6 months from September 2008 and a .6 month year over year increase from October 2007. Since a balanced market is typically 5 - 6 months of inventory, buyers still clearly have the advantage and are being cautious .

See the Cincinnati MLS inventory volume rate chart

See Cincinnati inventory and sales rates for 2008 through October

For a summary of the national sales trends, see the National Association of Realtors press release.

The good news? As of the end of November, mortgage rates dropped to 5.5% (and even lower in some circumstances) due to the latest Treasury moves to purchase mortgage backed securities. If you have been considering a move, the combination of rates, inventory, and pricing creates significant opportunities. If your are still in an Adjustable Rate Mortgage, you should strongly consider refinancing into a fixed rate loan now.

And one other bright spot to report. Green building is the one area of the real estate market that appears resistant to the downturn. See the Wall Street Journal blog report for more.

Build your own Economic Stimulus Plan

Energy Improvement Mortgages can reduce the cost of ownership when you purchase a home, but what if you don’t plan on moving anytime soon? This month I take a look at some options for making home improvements that can increase the value of your current home while also increasing your monthly cash flow. (To learn more about energy efficiency mortgages, visit the EEM Homeowner Guide website)

Below are some possible options for financing improvements through “good debt.” For those of you unfamiliar with the concept of “good debt,” the rule of thumb is that debt is advantageous when it can increase cash flow and capital value. For example, a mortgage for a rental property would be considered good debt if the rent received covers the cost of the mortgage and maintenance costs.

What makes this ideal in our current economy is efficiency updates enable the creation of more green collar jobs. Ohio is aiming to be a leader in creating new energy related jobs and the incoming administration has made energy independence a stated goal within the next 10 years. So let’s get on the path to making this a reality!

Cash-out refinancing

• For those with sufficient equity in their home to cover the cost of improvements this may be the best approach. When refinancing, check to make sure that the time to recover any related costs will occur within the time you expect to live in the home.
• Energy Improvement Mortgages are also available for refinancing and use an energy audit to identify improvements that are cost-effective for the term of the loan.

Equity loans

• In today’s current financing climate, cash-out refinancing is often the preferred approach. However, in some situations a line of credit or fixed home equity loan could be a good alternative. The downside on equity loans in this case is that the term is usually much shorter than a standard mortgage (e.g., 10 years vs. 30 years), and may limit the ability to make higher cost improvements that have a longer payback period.

Government and Institutional programs

• If you live in Hamilton County, you may be able to take advantage of a couple of programs. The first is the Hamilton County Home Improvement Program (HIP) which provides for discounted loans over a 5-year term (knocking 3 percentage points of the standard loan rate). If making improvements that add value to the home, you should also determine if you can obtain a tax abatement for the increased value. More information about HIP can be found on the Hamilton county website.
  
• The Home Weatherization Assistance Program is intended for individuals and families at or below 150% of the federal poverty guidelines. This program uses energy audits and other means to reduce utility costs. Visit the HWAP website for more details.
• Other incentives may be available as tax credits or rebates. Particularly if you are implementing any renewable energy products (e.g., solar, wind, or geothermal). Check the database of state incentives at www.dsireusa.org.

Unsecured credit (i.e., personal loan or credit card)

• Payment terms and interest on credit cards or unsecured loans don’t usually make for the best improvement financing. However, if you have the opportunity for a low interest, FIXED rate until the balance is paid (not an introductory rate that will adjust), then this could be a viable option.

Vendor financing

• Some contractors and retail improvement stores may offer terms for the purchase and installation of improvements. Like the unsecured credit option above, if the vendor’s payments are less than you what you would save on your utilities, then it may make sense. Be sure to check that you aren’t paying a higher annual interest rate than what you can get through other financing though.

Cash from savings

• For those with the financial resources, efficiency improvements may be a better investment alternative than stocks or bonds. See my August article “Where are you investing now?” for a discussion on the potential returns on energy updates.

As with any financial decision, it is always best to consult your financial advisor or tax professional to evaluate your particular situation. For more resources and information, contact me directly or visit my website at www.EcofficientLiving.com under the “Be Energy Smart” link. To learn about Energy Improvement Mortgages and other creative financing solutions that you may qualify for, Peter Underhill with Life Mortgage Group may be able to help. You can contact Peter directly at 513-771-5700 x305 or check my “References” page for additional resources.

Incentives in play - does geothermal make sense for you?

The Emergency Economic Stabilization Act of 2008 (perhaps better known as the “bailout” bill) included several provisions for energy efficiency and conservation tax credits. Among these is a tax credit of up to 30% for use of renewable energy systems in homes including wind turbines and geothermal heat pumps. (See a summary of the enacted bill.)

While geothermal heat pumps have been around since the 1940’s, it’s seen considerable growth in the past few years (about 20% growth per year according to the Geothermal Heat Pump Consortium). Factoring into the increased use are higher oil and natural gas prices along with a greater desire for clean energy technologies. Some Cincinnati area builders are now including geothermal as a standard feature in the home, or at least making it available as an option. Though the installation costs have been a roadblock to broad usage in the past, we could see costs come down as more homeowners opt for this approach.

How it works:

Operation of a geothermal heat pump is similar to a standard air heat pump, except that it is based on relatively stable ground temperatures rather than air. Installation of underground piping is used to transfer heat to and from the home via a water/antifreeze mixture and heat exchanger. Electricity is used to drive components of the system, but the efficiency rating can reach between 300-600% (in essence using the earth’s heat energy to compound the electricity input).

Some factors to consider:

Pros

• Highly efficient, better at heating and cooling than a standard air heat pump.
• Can be used to supplement hot water needs in addition to home heating and cooling.
• Long life span, low maintenance

Cons

• Higher up front expense for equipment and drilling.
• Requires land area that will support “ground loop”. Price may increase if vertical loop installation is necessary vs. a horizontal loop.

While it may not be the best option for every situation, it should at least be given consideration. Anyone looking at new construction should assess how much they can reduce their total monthly costs by including the price of installation in their mortgage. The same goes for anyone buying a home that has an inefficient furnace which can be replaced using an Energy Improvement Mortgage. Beyond those situations, the time to recoup your initial investment could be anywhere from 2 – 10 years with 5 - 7 years a likely average. It’s not unreasonable to expect that an installed system would also add value at resale.

To learn more, see the Department of Energy’s geothermal guide.

Fannie, Freddie, and OHFA. Oh my...

Can anyone buy a house anymore? You’d think not with the indication that credit markets are frozen and the media suggesting that “main street” can’t get loans. Just in the past few days, the Ohio Housing Finance Agency (OHFA), an agency that focuses on helping first time homebuyers around the state, temporarily suspended its down payment assistance program. The reason given was that the agency could not sell bonds on the open market to cover the grants (see the OHFA website for more information). While this is very likely a short-term issue, it nonetheless illustrates how everything related to housing is being looked at with disdain.

We’ve all heard about the trials and tribulations with Fannie Mae and Freddie Mac, but the basic concern is what’s the impact to those looking for a new home and how long will the situation last. The primary impact is that the riskier loans that were bought or guaranteed by these two entities will no longer get backing, which effectively eliminates them from the public at large. I would not expect that to change in the foreseeable future (but, as the saying goes, never say never).

That said, there are still plenty of lenders providing funds to would-be buyers. While Fannie and Freddie are still conducting business, the guidelines for purchasing or guaranteeing mortgages have tightened considerably. 100% loans and stated-income loans are now a thing of the past. We are returning to the days of having 10 - 20% down, good credit, and stable income. Many have suggested we should have never have abandoned that approach in the first place.

Investors may be a bit more impacted by the Fannie / Freddie debacle. Lenders are beginning to restrict the number of properties that a single investor can hold for mortgages. At least one bank in the area is requiring investment property mortgages to be more than $125,000 to qualify for financing.

Federal Housing Adminstration (FHA) loans are being used in many cases where buyers have limited funds for down payments, but even there things have changed a bit. Privately funded down payment assistance programs through entities such as Ameridream and Nehemiah have gone by the wayside as of September 30, 2008. Additionally, the amount required by the buyer as a down payment will increase from 3% to 3.5% effective Jan 1, 2009.

Bottom line: there are many good deals in the current housing market and those individuals that are well capitalized and good savers are in position to take advantage. For others, there’s no free lunch anymore and the goal of owning a home has returned to being an aspiration, not a right.

Winter '08 - prepare your home now

Duke Energy has a request for a 6% increase in utility rates and the Energy Information Administration is predicting 15% average increases in “space heating fuels” this winter (UPDATE: as of Oct. 27th, agreements were reached setting a 2% increase in Duke electricity generation rates from 2009 - 20011.)

Unless you heat with wood or solar energy, you are likely to be impacted to some extent by cost increases. If you’ve seen a recent Lowe’s or Home Depot flyer, you can see they are trying to tap this concern by promoting energy fix ups to your home before heating season begins. While I recommend a whole house energy audit to identify the most cost-effective improvements, here’s some basic things to check before the cold gets here:

• Have your furnace inspected and cleaned. Furnace filters should be cleaned or replaced each month.
• Check for gaps around windows, doors, pipes, etc. around your home. Seal with caulk, foam, and weatherstripping as appropriate. You may need to cover drafty windows with plastic sheeting.
• Determine if there are good opportunities for adding insulation. According to Energy Star research, you could potentially save up 20% on your heating and cooling bills by fixing air leaks and adding insulation. See more in the insulation Do-it-yourself guide. Unfinished basements with no insulation can be a significant source of heat loss and are good candidates for energy savings, but there’s some debate on the proper method of installation. Check the Department of Energy’s consumer guide for more information.
• Swap out your window screens with glass replacements if you have them.
• Prepare for emergency power outages. The standard litany of items is always good to have on hand: matches, candles, bottled water, non-perishable foods, etc. An open masonry fireplace generally isn’t an efficient heating source, but could fill in during an outage.

If your windows are in good shape, take advantage of heat from the sun by opening shades on south-facing windows during the day and closing them in the evening. A side note, there are now products available to put in your windows that will act as a heat trap in winter / reflector in summer. I’ll discuss these in a future article.

For more energy saving tips, check out www.Energysavers.gov

Cincinnati housing follows national trends in August

August real estate activity for the Cincinnati area looked very tough if you were on the sell side of things. Market activity was down across the board relative to August of '07 and the previous month. Notably, August usually sees a bit of an uptick from July. The fact that we didn't see that suggests consumers overall are very nervous about the economy. However, when you compare the number of homes sold to historical trends, you can see in the following charts that sales activity is similar to "pre-bubble" levels.The catch is the inventory levels remain high and several months above a "balanced" market. At least the trend on inventory is moving down.

I'm often asked what is selling now. Well, there are two kinds of properties that seem to be moving in this market: 1) "showcase homes," or those are well updated and look immaculate, and 2) those that are priced as "bargains."

One thing I've seen with regular occurrence is prospective buyers that are seemingly surprised at the price of homes. Listening to the media makes some think that every house for sale is bargain priced. Not true! Prices in Cincinnati have come off their peak, but we are not seeing huge drops in most cases. The sale price of area homes has averaged approximately 94% of the final list price. Granted, many homes are priced too high when they are first listed and will see some reductions, but if the sellers are realistic about what they can get, then their homes will eventually sell. The lesson here is that if you don't have to sell right now, then you should probably stay off the market.

Homes that are truly bargain priced are actually getting multiple bids and selling quickly. I've seen foreclosures that are in good shape and priced low sell in a matter of days. Cash buyers and investors are picking off the best of the bunch. The downside? A lot of homes have been left in very poor shape and you may have to go through quite a few before finding that diamond in the rough.

10 Ideas To Be Energy Smart

1. Know the difference - Efficiency vs. Conservation. Two sides of the same coin, but definitely different approaches to saving on energy costs. Efficiency is based on improving the way we use our resources such as replacing incandescent lights with compact fluorescents. Conservation, on the other hand, requires behavioral changes in the way we use our resources such as ensuring that you turn off lights when not in use. Consider both when trying to reduce your energy use.
2. Think outside the box. Your home, that is. There’s a tendency to think that home energy use is just about things inside such as heating, cooling, and lighting. Consider things outside the home that impact your energy use: commuting, landscaping, even how your home is oriented to take advantage of passive solar energy. Your current home may not have many of these items going for it, but that doesn’t mean you can’t improve. A shade tree to give your home a break from summer heat is just one of many small improvements you can make.
3. Get a professional Energy Audit. A full evaluation of your home will pay for itself. You can get a free audit, but they are usually worth about what you paid. Once you get the audit findings, spend the money on those items that have a payback less than the time you expect to live there – it’s one of the best investments you will make.
4. Use an Energy Improvement Mortgage. If you are getting ready to buy or refinance a home, then see if you can use this method of financing to pay for energy improvements to your home. It’s a great way to reduce your monthly expenses.
5. Know your resource alternatives. Oil, clean coal, renewable biofuels. It can seem like the list expands daily. Every resource has pluses and minuses and no one agrees on one being the best. Generally, those that have the least environmental impact are also the ones that have the highest cost, but that isn’t always the case. My recommendation - If you have the opportunity and financial means to opt for using a renewable resource in your home, auto, business, etc., I encourage you to do so.
6. Know your appliance alternatives. Gas furnace, hybrid, or geothermal heat pump? Tank or tankless water heater? Gas, electric, or solar? The “cheapest” option when installing or replacing a system or appliance in your home may not really be the most inexpensive. You must consider the true total cost that includes the cost of the item itself, installation, and most importantly –operational cost.
7. Be vigilant. The technology for energy is changing rapidly, with promising improvements every day. Today, CFL bulbs are cost-effective and widely available in many forms. Yet, LEDs are quickly dropping in price and may soon be the option of choice in your home. Solar panels will continue to fall in price. Energy efficiency is not a one-time “makeover,” but requires us to take advantage of changes when they arise.
8. Be opportunistic! Take advantage of the incentives available for being energy efficient. Replacing your furnace? Check the local utility for rebates. Installing solar panels? Look for tax credits. There are more opportunities for reducing the upfront investment than you might imagine.
9. Be involved. What could be better than helping friends and family have an improved quality of life and saving them money in the bargain? Share your experiences and what you learn with them so that we can all benefit.
10. Go beyond energy. Once you’ve started applying the savings and efficiency concepts to energy use, think about applying the same principles to other resources. Think about the effects of “reduce, reuse, recycle” in other areas of your home and business. You might find it easier and more financially beneficial than you think!

Why would I invest in my home now?

With the stock market seemingly schizophrenic, it’s fair to ask – where are you investing these days?If you knew you could make at least 10% return on your investment, would you do it? What about 20%? Higher? Most of us are overlooking the easiest return on investment we can make – in our homes. And no, I’m not talking about updating your kitchen – but in the most basic place imaginable – our energy bills.

Let’s take one small example: my utility bills average $280 a month. Based on an energy audit I had done, I could spend approximately $400 to close some of the gaps in my home and save in the neighborhood of $100 a year. So in 4 years time, I’ve made my investment back and in 8 years, I’ve doubled my money. Annualized, that’s a return of 9% a year. If I did the work myself, I’d probably double my money in half the time and achieve an 18% return or more. Even better is the fact that this rate of return increases the longer I live in the home and that’s before accounting for any rise in utility costs!

My audit identified even bigger savings with a bigger investment. This is on top of the fact that I’ve already made a number of energy improvements to my home and it had a high efficiency rating. If you are an investor in stocks, wouldn’t you be happy seeing this kind of performance in your portfolio? I know I would lately.

Many people will spend 100 times this much on a kitchen makeover that will never get them their money back. But it will look fabulous – for about 10 years. (Pick up a home trends magazine though, and they will crow about how homeowners will recoup nearly 85% of the cost of a kitchen or bath makeover in 3 years. That’s, uhmm, 85% recouped.)

I don’t mean to belittle nice kitchen makeovers and other design updates we do, I am merely questioning the priorities where we put our money first. Truth be told, it is difficult at best to sell a home that looks dated or worn out. And we all want a home where you enjoy the look and feel of the surroundings. My thinking is that if I save myself money by reducing my utility costs, I might actually be able to afford those updates when I want to down the road.

I’ve really become intrigued as to why we are overlooking this simple means of making money. I think part of it may be that most people believe we have to change our habits and be more conservation conscious to make a significant dent in our utility bills (not true by the way). Maybe an investment like the example above doesn’t cause enough “wow” to feel like it’s worth the time when I might otherwise hit the next Google stock. Maybe it’s because we don’t get the immediate gratification like we do from seeing those new appliances.

So, let me hear from you. What are the roadblocks to making even simple energy improvements in our homes?

July sales begin to show silver linings

While homes sales remain at a slower pace than the past few years, the media seems to finally be finding some silver linings in the storm clouds. The most positive factor that was identified in the past couple of weeks was that July homes sales were up 3.1% from June nationally. Yes - this was down 13.2% from last year, but sometimes you find your good news where you can. Cincinnati remains quite stable relative to the rest of the nation.

An interesting analysis of area sales found that 2007 is at about the same level as 1998 - prior to the heights of the "bubble" periods with dot-coms and housing. In my opinion, sales in '98 reflected a fairly balanced level between the down cycle in 1990 - 91 and the heights of the boom in '06. I wouldn't be surprised to see sales off a little bit more, but we seem to be reaching a level of stabilization.

The following information was released by the Cincinnati Area Board of Realtors:

1,854 Homes Sold in July;
More Than 11,000 Sold First 7 Months

Local Realtors sold 1,854 homes in July, and 11,371 the first seven months of the year.

July sales represented the second best month of the year, relative to last year sales. Sales were off only 12.26% from 12 months ago. That’s an improvement over June’s 20.25% sales drop.

Nationwide, July home sales seasonally adjusted were up 3.1% from June, but off 13.2% from a year ago.

With the new $7,500 housing tax credit in place for first-time buyers, that should stimulate sales during the remainder of the year.

Inventory of homes for sales locally stands at 16,689, which represents 9 months of inventory. That’s down from last July’s 17,880, which is improving news for sellers. A balanced market – equally good for buyers and sellers – is 5-6 months.

The average selling price in Greater Cincinnati last month – at $181,259 – dipped 3.84% from a year ago.

Mortgage rates remain favorable locally, as they have all year. A conventional, fixed rate loan in July averaged 6.60%. That compares to 6.56% the same period one year earlier. It’s now 6.68%

“While sales are off somewhat in the area, it’s a whole lot better than some parts of the nation,” said Karen Schlosser, president of the Cincinnati Area Board of Realtors. “For the year, we’re off 16.9%. Sales in parts of Florida, Nevada and California are off over 30%.”

Schlosser said the current housing market is excellent for buyers, due to a good inventory of homes to choose from, favorable prices, and attractive mortgage rates.

Summary of Single Family and Condominium Sales
Multiple Listing Service of Greater Cincinnati
Cincinnati Area Board of REALTORS®

July Monthly Home Sales

	Closings	Gross Volume	Average Price
July 2008	1,854	$336,054,362	$181,259
July 2007	2,113	$398,289,853	$188,495
Variance	-12.26%	-15.63%	-3.84%

Year-to-Date Home Sales

	Closings	Gross Volume	Average Price
Jan-July 2008	11,371	$1,911,468,374	$168,100
Jan-July 2007	13,682	$2,420,812,756	$176,934
Variance	-16.89%	-21.04%	-4.99%

Impacts of the Housing Recovery Act

While the first-time buyers tax credit was a significant part of the recently passed housing recovery act, the bill included several other elements that shouldn't be overlooked.

One that I believe is key is that it gives a boost to Energy Efficient Mortgages. While no changes are imminent, the act requires the Secretary of Housing and Urban Development (HUD) to develop recommendations to eliminate the barriers for using EEMs. One of the key concerns being the low usage of EEMs from underexposure and lack of awareness regarding the energy rating system.

Recommendations are due to Congress within six months of the signing of the bill. (You can view the full context here.)

Other provisions of this bill that could affect you include:

• Addition of a property tax deduction for homeowners who do not itemize their returns.
• A permanent change in FHA loan caps
• An increase of the down payment requirement to 3.5% of the purchase price
• Elimination of seller-funded down payment assistance on FHA loans.Help for refinancing problematic subprime loans into a fixed rate FHA loans
• Creation of municipal funding to purchase and rehab foreclosures

This is even beyond the potential funding for Fannie Mae and Freddie Mac that has its stockholders - and indeed the entire stock market - in turmoil. Whether this is ultimately good or bad remains to be seen, but it will nevertheless surely have an impact on mortgage interest rates and the general availability of mortgages in the near term.

For a fuller description of the housing act provisions, see the National Association of Realtors summary.

Energy Tech Focus - Tankless Water Heaters

Most of you have probably heard about "tankless" or on-demand water heaters by now. So are they worth the extra money? (If you aren't familiar with them - check out the Department of Energy guide)

Our water heater began the death spiral a few months ago and we decided to spend the extra cost to install a tankless heater. I can confidently say that I have no qualms about the decision. We considered a number of pros and cons including:

Pros:

• Efficiency: Considerably less natural gas required to heat our water. Would potentially reduce our water use along with the gas bill.
  
• Always on. You won't run out of hot water when taking a shower after someone else.
  
• No worries about a tank rusting and leaking, or remembering to turn the heat down while on vacation.

Cons:

• Cost. 2 - 3+ times more than replacing with a standard water heater. Would we have the house long enough to recoup the expense?
  
• Flow rate. Would it produce enough hot water for our needs?
• Effectiveness. Is this the best product available at the price?
  

Cost is no small issue. The "payback period" - or how long it will take to recoup the extra cost - is probably between 5 and 7 years at current utility rates. In my case, I felt the extra cost would add value to the home even if we don't live in the house the necessary payback time.

In terms of flow, the heaters available now produce more than sufficient water for even large homes and multiple uses at the same time. In fact, we probably oversized ours, but we made the choice to use a larger unit with the expectation that a larger family would be the most likely buyer of our home in the future.

Finally, effectiveness. There are several choices today that might be a little "greener", including solar water heating and geothermal. However, in existing construction, these options can be very expensive. That's on top of assuming that your property site could even support these alternate methods. Our site was OK, but the cost made it prohibitive. (One note - if we replace our furnace in the future with a geothermal system, this can coupled with the water heater for more savings.)

Ultimately, the tankless heater seemed to be the best approach in our situation. That doesn't mean it will work for everyone - but at minimum it should be worth your consideration.

First-time buyers - Is it time to strike while the iron's hot?

1. Biggest buyers market in a generation
2. Mortgage rates still at historic lows
3. Housing stimulus bill provides up to $7500 tax credit
4. FHA loans readily available with 3% down (3.5% after Jan. 1, 2009) and increased ceilings
   

These are just some of the incentives that first-time buyers have to buy a home now. Not to mention the fact that with the number of foreclosures on the market, that many homes can be bought at less than replacement costs.

So the question becomes - if not now, when?

Media pundits and many economists are saying we aren't at bottom yet and aren't likely to see it until 2009, but like the stock market, you don't really know until after the fact. Rather than trying to time the market, buyers should evaluate a decision to purchase based on their existing situation and whether it makes economic sense.

A fair concern of any buyer would be - "if I buy now, might the value of my new home decrease?" Well, like usual, it depends. Cincinnati has already been cited as one of the most stable markets in the U.S., but even within our metro area there are pockets where home prices have both decreased and increased. If you are planning for the long-term and making common sense financial decisions, then the risk of declining prices is a marginal concern.

If you have been thinking about buying a home, you need to talk to your real estate professional and see if you can take advantage of the current market. Each individual's situation is different and a knowledgeable professional will help evaluate what makes sense for you.

For more information, see the RE/MAX Unlimited site on first-time buyer programs.

August Market Watch

Builder survival in a buyers market

The buyers market has many builders taking it on the chin as new home sales (annualized) dropped to 530,000 in June from a high of 1.2 million in 2007. Surprising, perhaps, is that few builders have gone into bankruptcy during this time. So, how have they managed to do it?

Many have gone through significant cutbacks in operations and staff. Some of the larger builders have sold significant land holdings at "fire sale" prices to eliminate carrying costs. Still others are selling what homes they do have at cost or with very slim margins.

If you are considering the purchase of a new home, many builders are willing to bargain. Finished basements and other upgrades are common.

If you are sitting on the fence wondering when the bottom will arrive, here are some additional numbers to consider:

• Vacancy Rate: 18.6 million homes were empty in the 2nd quarter. This is the highest rate ever recorded while new home construction has dropped to its lowest rate since the early '90s. Notably, the rate of vacant homes for sale dropped from 2.9% to 2.8% (a portion of those vacant are rentals or seasonal/vacation homes).
  
• June Inventory of all homes at current sales rates: Nationally - 11.2 months; Cinci - 8.5 months (both were slightly higher from the May rates).
  
• Inventory of new homes are at their lowest level since 2004.

According to National Association of Realtors Chief Economist, Lawrence Yun, "builders will need to continue to cut back production in order to work down not only new home inventory but also existing home inventory. I anticipate further declines in new construction and new home sales deep into 2009. Existing homes, meanwhile, will likely rise in upcoming months due to the first-time homebuyer tax credit that will go into effect very soon."

More of the latest national housing statistics can be found at:
National Association of Realtors Housing and Economic Indicators

August Finance Corner

Understanding "Total Cost of Ownership"

Did you buy a home without realizing how much utilities, Homeowners Association fees, maintenance, insurance, and other costs added to your monthly housing budget? Many homebuyers look only at the price and later realize that "charming" older home will cost them $400 a month in the winter to heat.

It's easy to get caught up in the excitement of a new home search when you are ready to move, but don't trip on these sometimes hidden costs. Most are readily available if you know where to look:

• Contact the local utilities to see what the budget billing was for the last owner. For most homeowners, this is the single largest expense after the mortgage. An energy audit may also help in determining expected usage.
  
• Check the monthly HOA costs (and what's included in that cost!). You should also determine from the seller if there any upcoming assessments that could be added to the normal dues.
  
• Check current tax assessments with the county auditor.
  
• Check online resources or work with a contractor to estimate updates and maintenance costs. Your real estate agent may be able to assist in finding resources.
• Talk to your insurance agent on what you are likely to pay for homeowners coverage.
• Discuss the potential for mortgage interest deductions with your accountant or tax advisor.
  

The next time you move, work with your financial and real estate professionals to help you evaluate all the costs and tax benefits so you find the home that matches your desires with your budget.

August Energy Smart Tip

Creating an "Energy Budget"

Do you know what you are spending on utilities each month? While gas prices are in the headlines everyday, you might not know that natural gas prices are expected to increase approximately 60% on an average basis between 2007 and 2008 (see the EIA Short Term Outlook). Even if you have a budget to manage your bills, your budget could easily be blown by energy cost inflation.

Following are a few recommendations for establishing an energy budget and controlling costs:

• Have your utilities switched to "budget billing" that sets your monthly bill based on an average of the previous year or quarter's usage. (Duke makes this very easy on their website.)
• Track your average usage from the previous 12 months and make a serious effort to reduce it in some way each month.
• Set aside a specific amount each month for efficiency improvements, then set out a plan to upgrade as your budget allows. An energy audit can help identify what will save you the most on your utility bills.
  
• Moving soon? Make your new home as efficient as possible before you move in. If you can include the cost for energy efficiency into the mortgage, you could actually save money each month and earn dividends over the long haul.

In coming months, I will discuss options for financing improvements and understanding "payback" periods.

For more ways to save, see the Alliance to Save Energy website.