Johnathan Smith

Should You Buy a Home in Today's Market?

Before we start, let us give you one reason to not buy a new home right now.

How long do you intend to live there?

A rule of thumb is that it rarely makes sense to buy if you expect to move within two years. That's because when you do sell, there are costs associated with selling. We're not just talking about sales commissions to the buying and selling real estate brokers. Most owners rely on home appreciation to pay those costs and to provide the down payment and closing costs when they buy their next home. So buying a home when you expect to move before too long is a risk, especially in an uncertain market.

However, most buyers live in their new home an average of seven years or more. If that fits you, it almost always makes sense to buy rather than rent, in practically any market.

Why? First, if you are thinking about delaying a purchase because you want to "time the market" to get the very best deal, that is almost impossible to do with precision. Even if you are in an area with declining market prices, the most knowledgeable experts cannot reliably anticipate the "bottom" of a real estate market. Afterwards, they can look back and say, "The market began to turn in 1997," like it did in some areas of California that had a tough market in the nineties. Before the turn, though, no one knows.

Second, if you aren't an owner, you're a renter. Renting is just throwing money away. You don't get to reduce your income taxes by itemizing deductions like property taxes and mortgage interest.

As a renter, you are limited on what changes you can make to your living quarters. As an owner, you can paint your living room chartreuse if you want or put in an avocado green carpet. You can change light fixtures, garden and landscape. You can do whatever you want that makes your home a comfortable place for you and your family. It's your home, not a temporary place to sleep and eat until you do buy a home.

Third, interest rates are very low right now. If you wait, interest rates could be higher. That means your monthly payment could be higher, too. No one can predict rates that far in the future, of course, but rates are very low right now.

Plus, the easiest way to accumulate wealth is through home ownership. Three out of four people have more equity in their home than assets in retirement plans, stocks, mutual funds, and savings. Though no one can guarantee your property will appreciate, over time it generally does. Over the long term, you can generally count on it. In the last five years, the median price of homes all across America has increased in value approximately 10% per year. Usually, it's not quite that high.

Admittedly, there are some areas that had more rapid appreciation in recent years. Those markets may suffer from lower price-growth than the rest of the nation or region over the next couple of years.

How do you minimize the possibility of lower appreciation for your home?

Determine your price range. Then choose a neighborhood where your target price is in the lower tier of prices in that neighborhood. That way, your home has less vulnerability on the down side and the higher-priced homes will help pull you up during hot markets.

Also, try to steer away from homes on busy streets or homes that back to busy streets. Buy a house as close to the center of the tract as possible. Don't buy houses across the street from a park or a school. Try to buy in a homogeneous area, where all the homes are similar to one another. For example, if you are buying a single family home, you do not want to buy next to an apartment or condominium complex.

Finally, talk to a real estate agent and ask for advice. Ask them what the market is like in your area.

Best of all, there are LOTS of sellers out there right now. Inventory is high. If you make an offer, ask for incentives to buy that particular home.

If you are putting ten percent down or more, you can ask for up to six percent of the purchase price in incentives. These incentives cannot be rebates of cash or help with down payment, but you can ask the seller to pay your closing costs. You can also ask the seller to pay for a temporary interest rate "buydown" that lowers your payment over the first one to three years and still gets you the security of a fixed rate mortgage -- and fixed rates are very low right now.

If you're putting down five percent or less, you can still ask for incentives. The amount you can ask for is limited to three percent of the purchase price. The reason there are limits is because you are going to finance the purchase with a mortgage and lenders have guidelines on how much sellers can provide in incentives. Those guidelines help them limit loan fraud.

Talk to a real estate agent. Have that agent recommend a lender who will talk to you about incentives and explain what you can request.

Good luck.

Field Guide to Buying vs. Renting

Rent-to-Own Deals: Smart Questions to Ask...

For Sellers:

Who will tend to the property and pay for routine maintenance?
Who pays for major repairs?
What are the costs of setting up and managing an escrow account for the portion of rent allotted to the down payment?
Will you manage the property yourself, or hire an agent?
What if the renters change their minds? Who keeps the money in the escrow account?
If the buyers change their minds, what will be required to put the property back on the market?

For Buyers:

How much of the rent is going to the down payment?
How locked in are you if you change your mind?
What will it cost you to get out of the deal?
How long will it take to accumulate enough of a down payment that you are likely to qualify for a mortgage?

Many consumers consider selling their home directly but eventually turn to REALTORS®. Smart home sellers realize they need the expertise in pricing their home, making connections with REALTORS® working with buyers, arranging and staffing open houses, and coordinating with other professionals in the sales process.

Only about half of all real estate agents are REALTORS® -- the top half, in our not-so-humble opinion. REALTORS® work independently, for small agencies, or for large brokerages. They help people buy and sell residential or commercial properties, vacation homes, and land; they conduct appraisals; they operate in the United States and in other countries; some specialize in auctions; and others are buyer's representatives.

REALTORS® Are Experts

The home price for sellers who use an agent is 16 percent higher than for those who don't, according to NAR's 2005 Profile of Home Buyers and Sellers, and nine out of 10 home buyers use a real estate agent in the search process.

Why Use a REALTOR®?

Real estate transactions involve one of the biggest financial investments most people experience in their lifetime. Here are 12 ways a REALTOR® will make your home buying or selling experience better.

REALTORS® Are Part of the Community

REALTORS® Work to End Housing Discrimination - during April, which is Fair Housing Month, and all year long. REALTORS® are active members of their communities.

REALTORS® Protect You

Only REALTORS® follow a Code of Ethics

To be a member of NAR and a REALTOR®, a real estate agent must abide by a set of professional principles and serve clients fairly.

Learn how the Code of Ethics affects everyday real estate practices

Specialty Mortgages: What Are the Risks and Advantages?

A growing number of home buyers are deciding to use one of several new types of specialty mortgages that let them "stretch" their income so they can qualify for a larger loan. Before you decide whether a specialty mortgage is for you, read this brochure.

Housing Opportunity: Real-Life Solutions

New York City
Affordable Housing Success Stories
An innovative program in New York City provides housing for nurses, police officers, and other moderate-income workers.

Affordable housing is often seen as an issue for the poor. But as housing prices soar in some markets, it's often no longer possible for a family making a median income to afford a median-priced home. In New York City, for example, the sixth most expensive housing market in the nation, the median sale price of a single-family house is $320,300, according to the National Association of REALTORS® . The area's median annual household income is $58,600. So using the NAR Affordability Index, the median household has only 80.2 percent of the income needed to purchase the median home. This 20 percent gap between income and home price has made it nearly impossible for teachers, police, and other workers with moderate incomes to live in the communities where they work.

"Ordinary working people don't make enough money to afford a house in New York City. That affects our ability to attract and retain quality employees," says George Armstrong, president of the New York City Housing Partnership.

"It's been hard for me to find an affordable house in New York City," says Margo Fisher-Gouveia, who works as a project manager for a Manhattan-based construction company.

But now an innovative program sponsored by the New York City Housing Partnership links local government and private developers to provide low-cost houses for people like Fisher-Gouveia. Through this program, she was able to purchase a house at Ocean Pointe at Bayswater, a new development in Queens built for workers with a moderate income. "The price of the house was within reach," she says.

New York City was among the first places to recognize the workforce housing crisis. In 1982, the New York City Housing Partnership was established when the city's business community saw that a housing crisis affected its ability to find quality employees. The Partnership acts as an intermediary between government and developers. New York City provides free land and necessary infrastructure improvements. The Partnership screens private developers before a final selection by the New York City Department of Development, then works with the selected companies to build moderately-priced houses. So far, the program has provided 20,000 new for-sale houses.

One of the program's most recent projects is Ocean Pointe at Bayswater. The development has 79 new one- and two-family houses in Far Rockaway, a section of Queens. The project is designed for families whose annual household income are less than about $79,000, or about 130 percent of the area's median household income. Home prices range from about $196,000 to $285,000. Two of the models-the Ashley and the Bedford- include a one-bedroom rental apartment, providing an income source that can further enhance affordability.

"These houses are meant for hospital workers, cops, teachers, and transit workers," says developer R. Randy Lee, president of the Staten Island-based Leewood Real Estate Group, which is overseeing the development. "Our goal is to keep moderate-income working families in the city and make them homeowners in order to create community stability."

Far Rockaway consists of 12 separate neighborhoods on a narrow 11-mile-long peninsula wedged between the Atlantic Ocean and Jamaica Bay. The area is still about a one-hour train ride from Midtown Manhattan where many local residents are employed. But it is part of New York, a critical consideration for city workers, such as police, who are required to live in the city.

Existing housing in Far Rockaway runs the gamut from expensive $1 million homes on the western edge to ramshackle bungalows at the center. The area includes a number of public housing projects, too.

The Ocean Pointe project is the first phase of an 800-home redevelopment in Far Rockaway's Edgemere neighborhood. Originally a beach community, the neighborhood began its decline in the 1960s and was eventually targeted for redevelopment in the 1990s. The new houses are being built on land that has stood vacant since the 1960s.

The new houses at Ocean Pointe are reminiscent of the beach houses once common to the area. The three-bedroom houses have Nantucket-style facades and front porches. House colors of pale yellow, sky blue and sandy brown help create a open, seaside look.

But like many workforce housing projects, Ocean Pointe would probably not have been possible without subsidies from government and private sources. The lots, which were owned by New York City and donated to the development, are valued at about $30,000 each. Contributions from state and local governments provide about $50,000 in additional construction subsidies for each house at Ocean Pointe. These subsidies are repaid by homeowners in the form of a second mortgage. Local lenders provide downpayment assistance for homebuyers, who can put down as little as $9,800.

Purchasers at Ocean Pointe will also benefit from reduced property taxes in the early years of ownership. Taxes for the first year of ownership are calculated as if the property were still a vacant lot. A new homeowner pays a tax of about $30 a month, which gradually increases to market rates over the next 20 years.

To help preserve the community structure around the new homes, current residents of Far Rockaway have priority for 50 percent of the houses. Police officers in New York City, who are required to live in the city, are also given preference in the lotteries used to chose purchasers.

So far, 62 homes there have been sold at Ocean Pointe. One of these new homeowners is Carolyn Bogle. A single mother with two children, Bogle works in the human resource department at J.P. Morgan Chase & Co. in Manhattan. She looked for a house she could afford for seven months without success. "Many of the houses were close to $400,000," she says. "At one point, I thought I would never be able to buy a house."

Bogle looks forward to the relative quiet of her duplex near the beach, a big contrast to the small apartment she currently rents in a busy section of Queens. "We'll have a front yard and a back yard. It's almost like the suburbs," she says.

REALTOR Adrienne Setbon, president Staten Island-based Own-A-Home Realty Corp., markets the houses at Ocean Pointe to buyers like Bogle. Last year, Setbon's company, which specializes in selling affordable homes, worked with developers to sell about 300 homes at several different affordable projects.

"Selling affordable houses is a wonderful niche," she says. "The homebuyers are so grateful for your help." A former teacher herself, Setbon recognizes the value of what she does. Still, she admits that a real estate sale associates could sell one expensive, custom home and make more than she makes on the sale 50 affordable ones.

Even so, Setbon prefers the dependability of the affordable market. Her customers tend to have steady jobs. They may not make $300,000 a year, but they are less likely to get fired when times get tough, she says. "This segment weathers the economic downs," she says.

To further service her niche, Setbon recently opened Own-A-Home Mortgage Corp. to finance the houses she sells. She also handles the resale of affordable homes, a process that can be tricky. Homeowners who sell a house purchased with assistance from the New York City Housing Partnership must go through a settlement process, which determines whether they have to repay some of the original subsidy they received. Every development is different. But generally, since the subsidy is gradually repaid as part of a monthly mortgage payment, the longer a homeowners live in a house, the less subsidy they'll have to repay. At Ocean Pointe, for instance, the subsidy period lasts 20 years. After that, the homeowner can sell the property without any subsidy repayments. Affordable housing programs are often designed this way to encourage homeowners to stay put, although homeowners at Ocean Pointe can sell their homes to anyone, not just those who would initially qualify for the program.

The complexity of the resale transaction makes the work challenging, says Setbon, but it's a plus for her because there's less competition from other salespeople to list and sell these homes.

Like others who work in the affordable segment, Setbon is encouraged about the future of workforce housing in New York City. She believes the program works; the best evidence is the fact that she now sells houses to the children of her original customers. She says: "It's wonderful to help people in ordinary circumstances who would not otherwise be able to buy a home."


The New Look of Affordable Housing

These new workforce housing homes at Ocean Pointe are reminiscent of the beach houses once common to the area. The three-bedroom houses have Nantucket-style facades and front porches. House colors of pale yellow, sky blue and sandy brown help create a open, seaside look





Workforce Housing: A National Problem

The inadequate supply of workforce housing isn't limited to New York City, experts note. Other cities such as Boston and San Francisco don't have enough affordable housing for workers. And exclusive resort towns such as Aspen, Colo., and Jackson Hole, Wyo., often lack adequate housing for local service workers who staff hotels and restaurants that cater to wealthy residents and visitors.

"This has only been recognized as a problem in the last three years," says Richard M. Haughey, director of multifamily development at the Urban Land Institute in Washington, D.C. "But the numbers of people who face this problem have risen dramatically."

Working families that spend more than half their income on housing have risen by 30 percent, according to a recent study by the Center for Housing Policy in Washington, D.C. In 1997, roughly 3 million low-to-moderate income working families had critical housing needs. By 2001 this number had risen to 4.8 million. The problem isn't confined to those who rent, the study found. In fact, working families with a housing problem were more likely to be homeowners than renters at 53 percent vs. 47 percent.

The shortage of affordable housing for workers has a far-reaching impact on the overall quality of life, experts say. To make housing more affordable, it's often built on cheap land, usually farther out from a city center. While this lowers costs, it leads to problems such as traffic congestion, crowding of mass transit, and the need to spend money on roads in outlying areas.

"Land always comes up as the deal breaker," says Haughey. He explains that developers don't build moderately-priced projects in places where land is expensive because they can't make a profit. "They have no choice."

Given the realities of the marketplace, housing experts don't expect the problem of insufficient workplace housing to go away any time soon. And as long as housing costs exceed median income, there will be the need for innovative programs such as the one at Ocean Point that create affordable housing opportunities for more Americans.

Existing-Home Sales Hit 5-Month High

Existing-home sales rose in July to the highest level in five months, although they continue to be well below the numbers from last year at this time, according to the NATIONAL ASSOCIATION OF REALTORS®.

Existing-home sales - including single-family, townhomes, condominiums and co-ops - increased 3.1 percent in July to a seasonally adjusted annual rate of 5 million units from a downwardly revised level of 4.85 million in June. Sales were 13.2 percent lower than the 5.76 million-unit pace in July 2007.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said the up-and-down pattern may break soon.

"We hope the new tools in the hands of home buyers from the recently enacted housing stimulus package will spark a sustained sales uptrend in the months ahead," he said. "Buyers who've been on the sidelines should take a closer look at what's available to them now in terms of financing and incentives. Given some of the inventory on the market, we also strongly encourage buyers to get a professional home inspection."

Median Price Down 7.1% from Year Ago

The national median existing-home price for all housing types was $212,400 in July, down 7.1 percent from a year ago when the median was $228,600.

Lawrence Yun, NAR chief economist, said home prices in some regions could soon increase.

"Sales have picked up significantly in several Florida and California markets. Home prices generally follow sales trends after a few months of lag time," he said. "Still, inventory remains high in many parts of the country and will require time to fully absorb. We expect more balanced conditions in 2009 and will eventually return to normal long-term appreciation patterns."

Analysis of NAR price data since 1968 shows home prices normally rise 1 to 2 percentage points above the overall rate of inflation, building wealth over the typical period of homeownership.

11-Month Supply of Homes for Sale

Total housing inventory at the end of July rose 3.9 percent to 4.67 million existing homes available for sale, which represents an 11.2.-month supply at the current sales pace, up from a 11.1-month supply in June. The rise in supply results from a sharp increase in condo inventory; the single family supply declined.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 6.43 percent in July from 6.32 percent in June; the rate was 6.70 percent in July 2007.

Single-family home sales rose 3.1 percent to a seasonally adjusted annual rate of 4.39 million in July from 4.26 million in June, but are 12.4 percent below the 5.01 million-unit level a year ago. The median existing single-family home price was $210,900 in July, down 7.7 percent from July 2007.

Existing condominium and co-op sales increased 3.4 percent to a seasonally adjusted annual rate of 610,000 units in July from 590,000 in June, but are 18.6 percent below the 749,000-unit pace in July 2007. The median existing condo price4 was $223,400 in July, which is 2.7 percent below a year ago.

In Detail: Regional Sales, Prices

West. Regionally, existing-home sales in the West jumped 9.7 percent in July to a level of 1.13 million and are 0.9 percent higher than July 2007. The median price in the West was $273,200, down 22.2 percent from a year ago.

Northeast. In the Northeast, existing-home sales rose 5.9 percent to an annual pace of 900,000 in July, but are 11.8 percent below a year ago. The median price in the Northeast was $278,700, which is 4.9 percent lower than July 2007.

Midwest. Existing-home sales in the Midwest increased 0.9 percent to an annual rate of 1.12 million in July, but are 17.0 percent lower than July 2007. The median price in the Midwest was $175,400, up 1.0 percent from a year ago.

South. In the South, existing-home sales slipped 0.5 percent to an annual pace of 1.85 million in July, and are 18.1 percent below a year ago. The median price in the South was $179,300, down 3.5 percent from June 2007