May 2009 - Local market in flux?

Those looking to sell in the current market are hopeful for any signs of a turnaround, but May's numbers are showing it could be a slow slog before inventory and pricing change in their favor. Continuing the trend from April, the market does show signs of at least beginning to flatten out with a mixed bag of positives and negatives. Nobody's expecting a sellers market anytime soon, but we could at least be moving to some semblance of a balanced market in the not too distant future.

Some highlights from May:

• inventory to sales dropped to 8.5 months, about the same as last year at this time but on lower sales volume
  
• distressed property sales were about 40% of the market, a bit of a drop from prior months
• inventory continues to drop below 2006 figures, aided by more leasing and lease/option arrangements (see this month's column on "owner financing")
• Nationally, month over month sales increased 2.4% for the second month in a row, but was down 3.6% from May of last year.
  

For a full snapshot of May statistics, see the following charts:

• Local inventory vs. sales (absorption rates) & average sales price chart
  
• Local sales and inventory volume charts
• National existing home sales
  

How efficient is my window

If your thinking of taking advantage of the current energy tax credits to replace your windows, you might want to consider just how much bang for the buck you will get.

Getting an energy efficient window may be one of the most complex and least understood improvements that can be made to a home. For example, what does it mean to have a low-E window? What about gas-filled, double-pane windows? How much will you save by replacing your old single-pane window if it's still in good shape? Unfortunately, your window vendor may not be familiar with what works best in your situation and how much you stand to save.

Before laying out big bucks, here's some factors you should be aware of and discuss with your contractor:

Ratings:

You should see the following factors included on the "NFRC label" (National Fenestration Rating Council) included with a particular window. You'll want one rated appropriately for the local area.

• U-factor: this is a measure of heat transfer or insulation value. The Energy Star recommendation for the Cincinnati area is < .40 for windows and doors. If you are closer to Dayton, the suggested rating is < .35.
• Solar Heat Gain Coefficient (SHGC): identifies how much solar heat passes through the window. The suggested rating can vary based on the U-factor, but in Cincinnati you'll probably want a rating < .40. Further north, the rating becomes something of a non-issue as long as you get the right U-factor (although a higher heat gain further north can be a plus for longer winters)
• Visual Transmittance (VT) is a rating from 0 to 1 indicating how much light passes through (the closer to 1, the more light comes through).
  
• Air Leakage (AL): Measures air passage per minute. The lower here, the better. The baseline standard is <= .3
• Condensation Resistance (CR): Rated from 0 to 100 on how much condensation will build up on the window. This is another rating where the higher, the better.
  

Technology:

When evaluating the type of window you want to use, here are construction factors to consider.

• Low-E coating: a mettalic coating placed on the window surface that allows light to pass through, but is useful in reducing the U-factor of a window.
  
• Gas fill: A typical double-pane window will use Argon or Krypton gas between panes to increase the insulating value.
  
• Frames: Perhaps the most commonly marketed windows are either insulated vinyl or wood. Many prefer the look of wood, but from a maintenance and efficiency perspective the insulated vinyl may be a better bet. Other frame types exist including aluminum and wood clad.
  
• Spacers: used to hold the window panes at a certain distance apart, manufacturers have made improvements in the type of spacer used to further increase the insulation value
  

Savings:

Most homeowners automatically assume that replacing windows will translate into big savings, especially if they use an Energy Star rated window. However, the Energy Star office study shows that savings in our area equate to about $377 per year in a typical 2000 sq. ft. home when replacing single pane windows. As an energy auditor often tells me, this is one of the least efficient paybacks for a home. If you just laid out $10,000 for new windows, it could take over 25 years for the savings to pay for those windows - just about time to think about replacing them again.

The bottom line here is if you are replacing your windows in a typical home (and not for special applications like passive solar heating), it's good to consider the energy efficiency of the window, but be sure you are doing it for the right reasons. Replacing rotten or deteriorating windows and increasing the attractiveness of the home may be stronger considerations than the few dollars you'll save on energy bills.

Other resources:

You can find more detailed information about window technologies, ratings, and other energy saving tips at the following sites:

• Efficient Windows Collaborative
• Department of Energy's window tips

The Return of Owner Financing

When banks were handing out money with 100% financing and going light on credit checks, owner financing (aka "rent to own") fell out of fashion. As credit and the need for down payments has tightened, demand for owner financed lease arrangements has increased sharply.

There is a risk element involved with leasing of a home, so good tenant screening and some form of landlord insurance is important. That said, homeowners who want/need to move and have enough equity in their home may be able to take advantage of this demand and weather this buyer's market a bit better than most. Following is a brief overview of common lease arrangements and some of the pros and cons (as always, you should seek professional legal and tax advice to evaluate your personal situation).

• Lease/option - this is what most think of as a "rent to own" arrangement. The buyer/tenant pays for the right to purchase the home within an established time (e.g., within 1 year) at an agreed to price. If the buyer chooses not to purchase the home within that period, then they usually forfeit the "option fee" to the seller. Depending on how agreements are setup, the option fee, and possibly even a portion of the rent, may be applied to the down payment at time of purchase. A common element in a lease/option agreement is that the seller is relieved of the property maintenance since it is assumed the buyer will exercise the option.
  
• Lease/purchase - a step above a lease/option, this arrangement requires the buyer to write a purchase contract that must be executed within a set period of time. This is probably the most preferred method by sellers since the buyers would perform any inspections and complete negotiations on the sales contract up front. As with the lease option, a deposit is usually setup as part of the down payment, but is forfeit if the buyer defaults on the agreement.
  
• Land contracts - this is owner financing in its purest form. Essentially, the seller is acting as the bank and holds a note for buyer, charging a set interest rate for a certain period of time. In Ohio, the buyer gains equity in the property while the seller holds the deed. Notably, this form of financing can be a bit more complex from an accounting and tax perspective, but may also hold advantages for both the buyer and seller.
  
• Renting/leasing your home - For those who have the opportunity to use their current home as investment property, this option can provide a nice income for those who are relatively handy and can handle routine maintenance calls and tenant screening (or are able to pay a property manager to handle these actions). This option may have an added advantage that owners can rent their home until such time that market demand and home prices stabilize.
  

One point to note is that most lenders will accept lease payments as income when trying to qualify for another loan. However, in the current lending environment, the restrictions may be tighter and require the lease to be "seasoned," i.e., already in place for 6 months to 1 year, before they use it as part of your qualifications.

While owner financing receives mixed reviews from real estate agents (mostly due to the fact that sales commissions are delayed at best, and lost through default of the buyer at worst), they nonetheless have become a factor in the current housing market. Anyone looking at selling a home in this market may want to consider this approach in the marketing of their home.