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.