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The growing number of freezes on home foreclosures is likely to shake up the struggling U.S. housing market. Experts say home prices could rise in the short term, but the eventual glut of foreclosure sales could hurt the market in the long run.
The move by some major lenders such as Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Ally Financial to put some of their foreclosures on hold could help temporarily lift prices, by removing the inventory of bargain-basement foreclosed properties from the market.
"Home prices are likely to be firmer than otherwise would be the case in the fourth quarter and into early next year," said Mark Zandi, chief economist at Moody's Analytics.
While that's good news for the economy, the effects might be short lived. That's because the foreclosure freezes are also likely to delay sales of the huge inventory of foreclosed properties, which would hinder a long-term recovery in prices.
"It'll probably push out the distressed sales into 2011 and 2012," said Zandi.
Questions about the validity of some of the lenders' affidavits in foreclosure cases has caused the banks to announce moratoriums over the last two weeks.
Friday, Bank of America expanded its freeze on home foreclosures to all 50 states from the 23 states where foreclosures must be approved by the courts. Some of the states that were added are among those with the highest rates of foreclosure sales, including California, Nevada and Arizona.
If freezes spread to other home lenders, or if other lenders follow Bank of America and expand their moratoriums, it could greatly increase the impact on the market.
Distressed sales through foreclosures or short sales now make up nearly a third of the residential real estate market, according to an estimate from home sales research firm RealtyTrac, which estimates they are depressing home prices by about 26%.
Any short-term rise in overall home sales is likely to be misleading, said Rick Sharga, RealtyTrac senior vice president, as the numbers might be skewed by the loss of rock-bottom foreclosure sale prices from the market.
"You might get a false positive read on fourth quarter home prices because you'll be eliminating a lot of sales at the bottom of the market," he said. "There are so many factors distorting the market, it's tough to get an accurate read."He thinks the freezes could cause lenders to move toward more short sales, in which the bank agrees to a sale for less than the balance of the mortgage. That could lead to a more substantial impact on market prices.
"It might stimulate a little more short sale activity, as lenders and servicers look for ways to more efficiently move the property outside the foreclosure," said Sharga. "Typically your discount on short sales is only 15%, compared to 35% for a [foreclosure sale]."
Just the level of uncertainty about the halt in foreclosures has the potential to depress home sales as buyers wait to see what foreclosed homes might be coming on the market in the future.
A prolonged delay in foreclosures could also hurt long-term prices by driving investors who had been returning to the real estate market to invest elsewhere.
"Some of the money that is waiting to go to [into foreclosure sales] might evaporate and those sales could be lost," said Zandi.
And the delays could further depress the value of all homes in areas with high numbers of foreclosures by keeping the houses vacant longer and delaying a correction in the market.
"I would think anything that delays the disposition of these properties has the potential to further depreciate surrounding home value," said Sharga.
WASHINGTON – Sales of new homes improved last month after the worst summer in nearly five decades, but not enough to lift the struggling economy.
The Commerce Department says new home sales in September grew 6.6 percent from a month earlier to a seasonally adjusted annual sales pace of 307,000. Even with the increase, the past five months have been the worst for new home sales on records dating back to 1963.
Paul Dales, U.S. economist with Capital Economics, called the September home sales encouraging. But he said it doesn't change the fact that activity remains at extremely low levels.
"That's unlikely to change for a few years," Dales said.
Most major homebuilder stocks fell after the report's release. Toll Brothers Inc. fell nearly 1 percent.
New home sales have risen 9 percent from the bottom in May but are still down 78 percent from their peak sales pace of nearly 1.4 million homes in July 2005. A healthy sales pace is around 800,000 new homes.
Builders are competing with millions of foreclosures and other distressed properties that show no signs of abating. They are unlikely to ramp up construction until those are cleared away and demand picks up.
High unemployment, tight credit and uncertainty about home prices have kept people from buying homes. Government tax credits propelled the market earlier in the year, but those expired in April.
The September sales figures were driven by a 61 percent monthly surge in the Midwest. Sales grew about 3 percent in the South and Northeast. They fell by nearly 10 percent in the West.
The median sales price was $223,800. That was up 3.3 percent from a year earlier.
The number of unsold new homes on the market fell to 204,000, the lowest since July 1968. At the current sales pace, it would take about eight months to exhaust that supply, compared with a healthy level of about six months.
The industry is suffering the fallout of a massive building boom, in which many homes were sold to speculators. They then resold the homes, often to borrowers who took out risky loans and defaulted. Those unsustainable boom times aren't coming back.
The residents of the Sawmill Camping Resort have offered to purchase the 120-acre community, which will essentially turn the popular LGBT destination into a not-for-profit co-op.
According to George Cressman, President of the Sawmill Resort Homeowners Association, current Sawmill owner Phil Godown has agreed to the purchase and once it’s complete, changes will begin happening immediately, mostly related to check-in times for visitors
“That will give our workers more resources to do their jobs efficiently,” Cressman said. “The other changes will be in the ownership pride that will result in sprucing up the park.”
Because the newly reformed Sawmill board will be a not-for-profit, all proceeds will go back into campground improvements, Cressman added.
The purchase makes Sawmill the largest gay resident and member owned community and business in the United States, according to Cressman. More than 45,000 members are already involved with the organization. The Homeowners Association represents all the resident and members interests and is the organization behind the banking, legal and administration of the gay community purchase of Sawmill.
No staff changes are expected to happen once the sale is finalized, but a board of seven to nine people will determine how money is spent at the resort destination, located in Pasco County.
An exclusive number of only 100 shares will be issued to those wishing to participate in the new Co-op and current residents and members can participate by purchasing at an introductory price of $23,000 per share. That price will increase to $28,000 on Nov. 11.
Those purchasing sales receive a 99-year lease to the properties that house permanent homes and RVs. Share purchases also means residents and members will no longer pay monthly rents.
“The resident and member purchase of Sawmill Resort will include the liquor license and all the business assets” Cressman said. “This will ensure Sawmill Resort improves in the delivery of making Sawmill the best gay entertainment venue and a place to just have fun in the state.”
Changes will not only be physical in nature at the 120-lot campground. Residents will have to adjust their mindset as well.
“The members are excited and anxious for this new adventure,” Cressman said. “It takes getting used to the idea of a gay co-op community.”
Existing-home sales rose again in September, affirming that a sales recovery has begun, according to the National Association of REALTORS®.
Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums, and co-ops, rose 10 percent to a seasonally adjusted annual rate of 4.53 million in September from a downwardly revised 4.12 million in August, but remain 19.1 percent below the 5.60 million-unit pace in September 2009 when first-time buyers were ramping up in advance of the initial deadline for the tax credit last November.
Lawrence Yun, NAR chief economist, said the housing market is in the early stages of recovery. “A housing recovery is taking place but will be choppy at times depending on the duration and impact of a foreclosure moratorium. But the overall direction should be a gradual rising trend in home sales with buyers responding to historically low mortgage interest rates and very favorable affordability conditions,” he said.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.35 percent in September from 4.43 percent in August; the rate was 5.06 percent in September 2009.
The national median existing-home price for all housing types was $171,700 in September, which is 2.4 percent below a year ago. Distressed homes accounted for 35 percent of sales in September compared with 34 percent in August; they were 29 percent in September 2009.
NAR President Vicki Cox Golder said opportunities abound in the current market. “A decade ago, mortgage rates were almost double what they are today, and they’re about one-and-a-half percentage points lower than the peak of the housing boom in 2005,” she said. “In addition, home prices are running about 22 percent less than five years ago when they were bid up by the biggest housing rush on record.”
To illustrate the jump in housing affordability, the median monthly mortgage payment for a recently purchased home is several hundred dollars less than it was five years ago. “In fact, the median monthly mortgage payment in many areas is less than people are paying for rent,” Golder said.
Housing affordability conditions today are 60 percentage points higher than during the housing boom, so it has become a very strong buyers’ market, especially for families with long-term plans. “The savings today’s buyers are receiving are not a one-time benefit. Buyers with fixed-rate mortgages will save money every year they are living in their home – this is truly an example of how home ownership builds wealth over the long term,” Golder added.
Total housing inventory at the end of September fell 1.9 percent to 4.04 million existing homes available for sale, which represents a 10.7-month supply at the current sales pace, down from a 12-month supply in August. Raw unsold inventory is 11.7 percent below the record of 4.58 million in July 2008.
“Vacant homes and homes where mortgages have not been paid for an extended number of months need to be cleared from the market as quickly as possible, with a new set of buyers helping the recovery along a healthy path,” Yun said. “Inventory remains elevated and continues to favor buyers over sellers. A normal seasonal decline in inventory is expected through the upcoming months.”
A parallel NAR practitioner survey shows first-time buyers purchased 32 percent of homes in September, almost unchanged from 31 percent in August. Investors were at an 18 percent market share in September, down from 21 percent in August; the balance of purchases were by repeat buyers. All-cash sales were at 29 percent in September compared with 28 percent in August.
Single-family home sales increased 10 percent to a seasonally adjusted annual rate of 3.97 million in September from a pace of 3.61 million in August, but are 19.5 percent below the 4.93 million level in September 2009. The median existing single-family home price was $172,600 in September, down 1.9 percent from a year ago.
Existing condominium and co-op sales rose 9.8 percent to a seasonally adjusted annual rate of 560,000 in September from 510,000 in August, but are 16.2 percent lower than the 668,000-unit level one year ago. The median existing condo price was $165,400 in September, down 6.2 percent from September 2009.
Existing-home sales by region:
Northeast – increased 10.1 percent to an annual pace of 760,000 in September but are 20.8 percent below September 2009. The median price in the Northeast was $239,200, which is 1.4 percent below a year ago.
Midwest – jumped 14.5 percent in September to a level of 950,000 but are 26.4 percent below a year ago. The median price in the Midwest was $139,700, down 5.2 percent from September 2009.
South – sales rose 10.6 percent to an annual pace of 1.77 million in September but are 14.9 percent lower than September 2009. The median price in the South was $149,500, down 2.6 percent from a year ago.
West – increased 5.0 percent to an annual level of 1.05 million in September but are 16.7 percent below a year ago. The median price in the West was $213,600, which is 4.9 percent lower than September 2009.
The question starts to hang in the air sometime after the children arrive, and the apartment in the city begins to feel a little tight: Should we consider moving to a house in the suburbs?
But that would mean leaving friends behind, along with easy access to work, the theater, great ethnic restaurants and just the general stimulation of urban living. The prospect of more space, however, is tempting — a bedroom for each child, a lawn to stretch out on. And there's the luxury of simply pulling into a driveway and a reputable public school just around the corner.
Which to choose?
Ultimately, deciding which lifestyle best suits you — and where to buy — comes down to personal preferences. But if the deciding factor is the relative cost of each, the answer is quantifiable, even if it not immediately obvious given the different tax rates and other variables.
So we set out to do the math, based on an apartment and a house in the New York metropolitan area. Here's what we found: a suburban lifestyle costs about 18 percent more than living in the city. Even a house in the suburbs with a price tag substantially lower than an urban apartment will, on a monthly basis, often cost more to keep running. And then there's the higher cost of commuting from the suburbs, or the expense of buying a car (or two) and paying the insurance.
But the one big caveat in all the calculations is private schooling. If the city dwellers decide to send their children to private school — say when their children hit middle-school age — that expense would instantly make the suburbs a bargain.
"At some point, the benefits of the city are not worth the things you need to give up," said Jessica Buchman, a senior vice president at Corcoran, a New York real estate brokerage, for instance, when five people have to share one bathroom, or there's no outside space.
While our analysis was by no means scientific, our goal was to recreate the type of decision a hypothetical family of four earning $175,000 a year might encounter. We chose an upper-middle-class income because that's generally what our family needs to earn, conservatively, to afford a median-price home in Park Slope, a section of Brooklyn that is family-friendly, has good schools and is generally more affordable than Manhattan.
The two-bedroom, one-bathroom co-operative apartment that we're using as a model in Park Slope is listed at $675,000, close to the median price for the neighborhood, as calculated by Zillow.com.
We stacked that against a four-bedroom, two-and-a-half bathroom home in South Orange, N.J., just a 30-minute train ride from Manhattan, where the two parents work. The house is selling for $595,000.
The result? You obviously get more space for your money in the suburbs, but it cost about $1,285 more a month, or 18 percent, including income taxes, to live there. A tax expert also ran the numbers for a family earning $150,000, and the bottom line was generally the same.
Specifically, each month, the suburban family needs to lay out about $5,668 to run their home and commute to work in Manhattan, compared with $3,852 for the urban family. That includes most relatively static expenses — from the mortgage, property taxes and homeowner's insurance, to transportation, utility bills and, for the house, landscaping. Even though big repairs for the house, like replacing a water heater or putting on a new roof would heap on even more costs, estimating those expenses is so arbitrary that we chose to exclude them. (A full list of the expenses we did include can be found in a chart accompanying this article.)
"The big factor in this example is really the property taxes" in New Jersey, said Jude Coard, a tax partner at the New York accounting and advisory firm Berdon, who performed the income tax analysis.
But after you consider the impact of income taxes, and include the typical deductions, the difference between the two families narrows. That's because the Brooklyn family's annual income tax bill is about 21 percent more than the New Jersey family's, in part because the Brooklyn couple pays New York City income taxes and receives less of a deduction on their much lower property taxes.
The big-ticket item that pushes the Jersey costs ahead is the property taxes, about $16,000 for our chosen house. And then there's the cost of two cars, monthly train passes and higher utility bills. But if you add the sky-high private school tuition to the Park Slope family's costs — and the annual bill is often more than $25,000 a child — the pendulum would swing back in favor of the suburbs.
"Those are really big numbers, especially when you have more than one child," said Ms. Buchman, the broker.
For wealthier families, the calculus changes again because suburban living allows them to escape New York City taxes, which, at 3.65 percent of income above $90,000, can really add up, especially for families earning more than $300,000, Mr. Coard said.
Families weighing such a move need to do a fair amount of research to calculate their own monthly cash flow. The numbers will vary, sometimes greatly, depending on income, the property and state you're living in, along with a host of other factors like whether they are subject to the alternative minimum tax. Then, there is cost of home maintenance — always a wild card. Are you moving into a rambling old clapboard house or a freshly renovated home?
Naturally, these decisions aren't always driven by numbers alone. Ms. Buchman, who represents buyers and sellers in Park Slope, said most of her clients aren't ready "for the exodus," though she has seen an uptick in the number of clients leaving the city.
"It hasn't been about value, it's been about quality of life and having different options for their children's education," she said. "It usually goes back to the suburban lifestyle of school buses and big football teams and cheerleaders."
There are still plenty of couples, she said, who are planning to raise their twins in a two-bedroom.
Susan Joseph, a senior vice president of research and public affairs at a consulting firm in Manhattan, said she thought she fit that profile, planning on moving from her rent-stabilized one-bedroom apartment on the Upper West Side of Manhattan to Brooklyn when she had children.
"We wanted to be the Park Slope family," said Ms. Joseph, 39. "What we didn't want was to live in the suburbs. To me, it meant sterile, boring strip malls and no diversity. I loved being able to walk everywhere."
She and her husband, Marc Archer, 41, started to look in Park Slope for a larger place just before Ms. Joseph became pregnant with their daughter, Devin, and ultimately settled on a three-bedroom apartment in a newly constructed building on the fringes of Park Slope.
But then the baby arrived.
"I don't think I realized how my priorities were going to change once she was around," Ms. Joseph said. "When Devin was a little bigger and started moving around, and when I thought about what our life might look like in Brooklyn, I kept talking myself into it. But it was just enough space. I felt like I couldn't exhale."
So the couple managed to pull out of their contract in March, and, by May, had bought a center-hall colonial in Montclair, N.J., where they already had friends.
"The five-bedroom, four-bathroom house with a yard and the requisite cuteness of Montclair cost less than a one-bedroom in Manhattan," Ms. Joseph said. At $675,000, it also cost marginally less than the apartment in Park Slope, and they paid about $50,000 less than the seller did in 2008.
The newfound pleasures of suburbia are still fresh. Ms. Joseph recently marveled at the fact that she had a view of flowers, a big swing set and a deck from her kitchen window.
"Many people leave the city grudgingly, and the reason they can cede defeat and leave is the value proposition," said Alex Silberman, a broker with Keller Williams Realty who works in Essex County, N.J. A move "may resonate more with people as they go through their life changes."
The reverse holds true, too. Many empty-nesters are giving up the high-maintenance house in the suburbs in exchange for the attractions of city life.
"We have loved it," said Christiane Delessert, a financial planner in Waltham, Mass., who, with her husband, both in their 60s, moved from the suburbs to downtown Boston. "As in any new situation, it is a balancing act between needs, wishes and the pocketbook."
Follow the money to these towns and cities, where affluent young professionals are abundant.
1. Newport Beach, CA
Kevin Steele
Population: 79,661 Single: 30% Median Family Income: $144,917
This hip coastal town offers the glamour of nearby Los Angeles without the grunge of the big city. Add the sun, surf, and sand to this suburban paradise, and it's no surprise Newport Beach ranks at the top of our list of best places for affluent singles. After you land that date with a wealthy surfer, take a romantic gondola cruise -- or better yet -- shop for yachts which are plentiful here. Afterward, take a romantic stroll along the mile-long stretch of Corona Del Mar with a latte in hand for a day of window shopping at fashionable boutiques, vintage stores and even a doggy spa. --A.C.
2. Newton, MA
Dave Lauridsen
Population: 82,139 Single: 31.3% Median Family Income: $138,070
It may be the home of Heartbreak Hill, the legendary slope that challenges runners during the final stretch of the Boston Marathon, but don't let that discourage you. Boston's rich and famous shack up in this suburb just west of Beantown, and you might spot some young hunks like "The Office's" John Krasinski, who frequents his hometown for a weekend visit to his parents' house. Keep your night casual with pizza and beer as you cheer on the Red Sox or the Celtics at a local bar -- or head to Boston and tour the historic city on the Old Town Trolley. --H.Y.
3. Brookline, MA
Courtesy of Town of Brookline
Population: 57,929 Single: 42% Median Family Income: $124,035
If you're looking for suave and sophisticated company, start your search in this suburb, which is full of Boston's highly educated. In fact, nearly half of Brookline's population boasts a master's degree. Slip on your golf or tennis polo (or even your curling sliders) and head to the oldest country club in the nation to schmooze with high-profile politicians and corporate executives. If you're lucky, you might even score an invitation to one of their vacation homes on Cape Cod. --H.Y.
4. Sandy Springs, GA
Courtesy of Sandy Springs
Population: 82,674 Single: 35.6% Median Family Income: $115,171
Charming Southern gentlemen and sweet Georgia peaches in this Atlanta suburb are making the rounds at one of three major hospitals in the area or running operations at a Fortune 500 company like United Parcel Service or Newell Rubbermaid. Thanks to the natural springs the city is named for and the Chattahoochee River that flows through it, Sandy Springs offers a tranquil and peaceful setting for romance to blossom. After taking a stroll along the riverbank, head to Buckhead, Atlanta's vibrant uptown district, for a night on the town. --H.Y.
5. Irvine, CA
Jessica Levine
Population: 207,500 Single: 31.3% Median Family Income: $113,768
A stone's throw from Laguna Beach and an hour's drive from bustling Los Angeles, Irvine serves as home base for many tech startups, so look no further for both engineer and business types. Take your date on a tour of a local strawberry farm, or if you're feeling more carnivorous, head to the In-N-Out Burger -- which is headquartered there -- for a burger and shake to die for. (Hint: Try ordering from the secret menu). Then work off those calories at one of the city's several championship golf courses or with a game of ultimate Frisbee. --A.C.
6. Milpitas, CA
Courtesy of City of Milpitas
Population: 67,503 Single: 30.4% Median Family Income: $113,735
Ever dream of flying? Give it a try in this Silicon Valley town, which serves as the epicenter of Northern California's hang gliding and paragliding community. Milpitas has one of the largest ratios of residents to parkland in the San Francisco Bay area. All that wide-open green space and a warm, Mediterranean-like climate make it great for outdoor sports all year-round, and young singles enjoy hiking, fishing and cycling in Ed R. Levin Park. Plus, the dog park there can be a great place to find puppy love. --A.C.
7. Sunnyvale, CA
Courtesy of Sunnyvale Chamber of Commerce
Population: 133,876 Single: 30% Median Family Income: $110,276
Geek is chic in this hub for tech companies, where you're likely to meet an engineer from Yahoo!, Honeywell, Palm or Lockheed Martin at the latest Tweetup or "Tech and Beer" happy hour. Flirt over the latest gadgets and a cup of Joe at the Sunnyvale Art Gallery's café, where Thursday is open mic night. Or take a romantic walk through the historic Murphy Avenue area downtown -- a popular place for bar-hopping, open-air summer concerts and farmers markets. --A.C.
8. Mountain View, CA
Courtesy of Mountain View Chamber of Commerce
Population: 73,093 Single: 34.8% Median Family Income: $109,215
With NASA and Google in town, Mountain View is the perfect place to find a rocket scientist. Googlers alone range from former neurosurgeons, CEOs and puzzle champions to alligator wrestlers and Marines, so there's no shortage of interesting dates. But since eligible bachelors outnumber women in this town, the savviest singles may want to head to wine-tasting classes, get involved in a local charity, or try yoga -- instead of standing around in a bar. --A.C.
9. Chapel Hill, NC
Dan Sears
Population: 53,713 Single: 50.6% Median Family Income: $106,865
Who doesn't love a little southern charm? This college town has a lively nightlife, rowdy Tar Heel games and home-style cooking for singles of all ages to enjoy. Mingle with eligible bachelors and bachelorettes on bar-lined Franklin Street, or take a date to Crook's Corner for some nationally-acclaimed grits and banana pudding. Cheering on your favorite U.N.C. team is also a surefire way to take the edge off a first date. And if you're into music, find someone who will rock your world at nearby Cat's Cradle, a small venue where local bands perform alongside big acts like The Counting Crows, John Mayer and Iggy Pop. --B.E.
10. Santa Clara, CA
Courtesy of Santa Clara CVB
Population: 110,200 Single: 34% Median Family Income: $105,516
European-style streets lined with upscale shops, spas and restaurants give this Silicon Valley `burb a sophisticated appeal. Stroll along Santana Row for luxury boutiques and bars. Like many of Santa Clara's neighboring towns, you're likely to meet wealthy techies here, but that's not all. Since the 49ers are headquartered here, you can also rub elbows with eligible single football players and cheerleaders. --A.C.
For Americans looking to buy retirement property, the historic real estate crash has created all sorts of opportunities. Home prices in 20 major metropolitan areas have declined roughly 28 percent from their 2006 peaks. Meanwhile, government efforts to ramp up demand for homes have significantly reduced mortgage costs for borrowers. Thirty-year fixed mortgage rates stood at 4.37 percent for the week ending September 16, only slightly above the 39-year lows reached two weeks earlier.
Taken together, lower home prices and cheap mortgage rates have made home buying much more affordable than just a few years ago. And given that real estate values in many traditional retirement spots--like Florida and Arizona--have fallen even harder than the national average, Americans who are ready to embark on the second half of their lives are in a particularly favorable position. To that end, U.S. News has compiled a list of 10 places where retirement home buyers can purchase property for less than $600 a month.
In putting together our list, we obtained median home price data from the National Association of Realtors for 159 metropolitan statistical areas throughout the country. After subtracting a 20 percent down payment, we plugged the remaining figure into a mortgage calculator using a 4.37 percent rate on a 30-year fixed mortgage. We then looked for places that would make desirable retirement destinations and whose monthly mortgage payments totaled less than $600. Please note that these monthly payments only reflect costs for mortgage principal and interest, which will represent the majority of a homeowner's monthly housing expenses. It does not, however, take into account expenses for taxes, insurance, and utilities, which can vary significantly from one place to another.
1. Phoenix
With more than 200 golf courses, many miles of outdoor trails, and all sorts of museums and art galleries, the Phoenix area has long been an attractive retirement destination. Home prices in Phoenix doubled from 2002 to 2006, but dropped 51 percent as the real estate bubble deflated. The bust, however, has helped make the area's real estate market more affordable for would-be retirement home buyers. The median home price in the Phoenix area stood at $145,000 in the second quarter of 2010, up 11 percent from a year earlier. Buyers that put 20 percent down--or $29,000--on a median-priced Phoenix home will have monthly payments of roughly $579 for mortgage principal and interest.
2. Las Vegas
Few American cities have seen home prices swing as wildly as they did in Las Vegas over the past 10 years. After nearly doubling from 2002 to 2006, real estate values in Sin City have since plummeted by 57 percent. But the area's glitzy casinos, abundant golf courses, and 320 days of sunshine a year continue to make life enjoyable for retirees. The median home price in the Las Vegas area was $142,000 in the second quarter of 2010, a slight increase from a year earlier. After making a 20 percent down payment--of $28,400--buyers will have monthly payments of $567 on a median priced home in the Las Vegas area.
3. San Antonio
This city has 300 days of sunshine a year, more than 50 golf courses, 21 distinct parks, and a calendar packed with festivals and events. History buffs can check out the Alamo, where Mexican and Texan troops staged their legendary battle in 1836, while art enthusiasts can visit one of the 63 local galleries. The median home price in San Antonio was $148,000 in the second quarter of 2010, a decline of roughly 3 percent from a year earlier. Buyers who put 20 percent down--or $29,600--on a median-priced San Antonio home will have monthly payments of roughly $591.
4. Greenville, S.C.
Greenville is tucked into the foothills of South Carolina's lovely Blue Ridge Mountains. Its 39 parks, minor league baseball team, and 14-acre zoo make this city of 62,000 an attractive spot for active retirees. The median home price in Greenville increased 7 percent, to $150,000, from the second quarter of 2009 to the same period this year. After making a 20 percent down payment--of $30,000--buyers will have monthly payments of $599 for principal and interest on a median-priced home in Greenville.
5. Boise, Idaho
With a population of 206,000, Boise, Idaho is a wonderful retirement spot for art lovers and outdoor enthusiasts alike. Residents can explore the 25-mile Greenbelt river path in the fall and head to the nearby mountains for skiing come winter. Boise State University offers continuing education programs and plenty of sporting events. Meanwhile, the city has a full menu of museums, theater groups, and other performing arts offerings. The median home price in the Boise area was $140,000 in the second quarter of 2010, a decline of roughly 13 percent from a year earlier. Buyers who put 20 percent down--or $28,000--on a median-priced home in the Boise area will have monthly payments of around $559.
6. Corpus Christi, Texas
Along the Gulf of Mexico in the Southeastern portion of Texas lies Corpus Christi. The community of 287,000 residents is located just outside the Padre Island National Seashore, an undeveloped, 130,000-acre playground of sand dunes and beaches. Visitors are permitted to drive along its shoreline or toss a fishing line in the water in the hopes of landing a saltwater catfish. The median home price in Corpus Christi increased slightly, to $136,000, from the second quarter of 2009 to the same period of 2010. After making a down payment of 20 percent--or $27,200--buyers will have monthly payments of around $543 for a median-priced home in Corpus Christi.
7. Tampa, Fla.
Whether it's boating on the bay, bass fishing in the Hillsborough River, or scanning for dolphin from its white-sand shorelines, the Tampa area has plenty of activities to offer retirees. Like many other markets in Florida, real estate values in Tampa have tanked in recent years, plummeting 42 percent since July 2006. The median home price in the Tampa area was $141,000 in the second quarter of 2010, a slight increase from a year earlier. Buyers who put 20 percent down--or $28,200--on a median-priced, Tampa-area home can expect to make payments for mortgage principal and interest of about $563 each month.
8. Columbia, Mo.
With 102,000 residents, Columbia, Mo., is the home of the University of Missouri. On account of Columbia's affiliation with the university, area residents can enroll in continuing education programs and cheer on the Tigers at football or basketball games. The median home price in the area was $147,000 in the second quarter of 2010, a slight increase from a year earlier. Buyers who make a down payment of 20 percent--or $29,400--on a median-priced, Columbia-area home will have monthly payments of about $587.
9. Tucson, Ariz.
With 350 days of sunshine a year, Tucson residents don't have any excuses for staying indoors. Retirees can hike through the five surrounding mountain ranges, explore a nearby cave, visit a Native American archaeological dig, or check out the Center for Creative Photography. The median home price in Tucson declined 14 percent, to $150,000, from the second quarter of 2009 to the same period of 2010. Buyers that put 20 percent--or $30,000--down on a median-priced Tucson home will pay roughly $599 a month in mortgage principal and interest payments.
10. Ft. Myers, Fla.
Located along the southwest coast of Florida, Ft. Myers is another affordable spot for retirement property in the Sunshine State. The median home price in Ft. Myers has increased 12 percent, to $94,000, from the second quarter of 2009 to the same period of 2010. After making a down payment of 20 percent-- or $18,800--buyers will have monthly payments of about $375 on a median-priced home in Ft. Myers.
It's hard to read the headlines and not conclude that becoming a homeowner is a terrible idea.
Last week, the National Association of Realtors announced that existing-home sales in July had fallen an astounding 25.5 percent from the previous year. Sure, there was a federal tax credit in place last summer. But with single-family home sales at their lowest level since 1995 and unemployment still stubbornly high, home prices may fall further.
In the meantime, millions of homeowners are still far underwater, and government programs to help them have fallen well short of their goals. More foreclosures are coming, casting a deeper shadow over home prices. So it's hardly surprising that the conventional wisdom says that home values will never again rise faster than inflation.
But as with stocks and the weather, it is dangerous to assume any certainty in the housing market. And by wallowing too much in the misery of others, people looking for a new place to live run the risk of thinking every home purchase will end in regret, at least financially.
Many still could, if they buy in hard-hit areas where prices could fall further.
But a mortgage is still a form of long-term forced savings, after all. This is more important than ever, since fewer people have access to generous pensions than they did during the last big housing slump. A 401(k) or similar plan is no bargain, either, with its erratic returns and employer matches that come and go as the economic winds shift. Social Security is also likely to be less generous, and Medicare will probably cost more.
Besides, owning a home isn't just about what shows up on a net worth statement — something that bears repeating after all the "investing" that people thought they were doing when buying homes over the last 10 or 15 years. Many of these more qualitative factors, from living free of a landlord's whim to having access to a good school district or retirement community, haven't changed and probably never will.
It is possible, as a homeowner, to make very little money but still buy plenty of happiness. So before you swear off real estate, reconsider a few of the basics.
Worst Cases
Some buyers may rue the day in 2010 they bought their homes. They may end up like those who bought in 2006 and have lost their jobs. Now those people face the difficulty of moving to pursue employment elsewhere because they owe much more than their homes are worth.
Marke Hallowell and Allison Firmat, who are getting married next month, are well aware of the history. Yet they plan to put 5 percent or less down, using a fixed-rate mortgage backed by the Federal Housing Administration, once they find a condominium in southern Orange County, Calif. (They've already been outbid a few times.)
Ms. Firmat is not working, and Mr. Hallowell is a Web developer. Does he worry about mobility problems or making the payments in the event of a job loss, given that he's the sole breadwinner? "We're getting such a good deal on interest rates that we could rent our place out," he said.
Mr. Hallowell and Ms. Firmat say they believe their approach is conservative, at least compared to what they might have done five years ago.
"Nothing is going to change the rate we will have," Mr. Hallowell said. "Condos like the ones we're looking at now were unobtainable in the past, unless we went into something with a total balloon payment. There were times I was tempted, but never seriously."
Indeed, many people who are buying at the moment are locking in mortgage rates of about 4.5 percent. A year ago, they might have paid 5.25 percent on a $300,000 loan for a monthly payment of about $1,657. Today, you could lock in a lower monthly payment of around $1,520 on a mortgage that size, or you might not need to borrow that much, given that prices have fallen in many areas.
Forced Savings
You may make nothing at all beyond inflation over time on a home, but the part of your mortgage payment that goes toward principal is a form of forced savings.
Sure, you might do better by renting and investing the difference between the rent and the total costs of ownership. But at least three things need to go right.
First, you need to actually save the money. Americans have trouble with that sort of plan. Then, you need an after-tax return that's better than whatever a home would deliver. That's a task that might not have gone so well over the last 10 or 12 years, and it involves its own future risk, given how little safer investments are returning now. Finally, you must not raid the savings along the way.
Difficult Landlords
A bank can kick you out only if you don't pay your mortgage. But landlords can drive you away in any number of ways.
Laura Mapp and her husband, Carl Berg, rented from a relative, but it didn't go particularly well. They found another landlord they liked, but came back from a holiday trip one year to a note saying he wanted to move in himself. They had a month to scram. (The note came with a bottle of wine, at least.)
In yet another rental, they let their landlord know they were looking to buy and inquired about a month-to-month lease. No problem, their landlord said, as long as they used his boyfriend as their real estate agent.
Earlier this year, the couple gave up on landlords and bought a house in the Highland Park neighborhood in Seattle.
The Nice Part of Town
No matter how pretty the neighborhood, prices may still fall further in places like greater Detroit, Cleveland and Las Vegas; outlying areas of Los Angeles, San Francisco and Phoenix; and much of Florida.
But if you want to live in the Fox Hill Farm development in Glen Mills, Pa., you'll have to buy because renters are not allowed, said Bob Kuhn, who lives there. The same may be true of other communities for older people.
And there may not be many family-size rentals — or at least any financial edge to be gained by renting — in suburbs or urban neighborhoods with excellent public schools.
After many years of building their down-payment fund and a couple of years of watching the listings in the Eagle Rock and Mount Washington areas of Los Angeles, Garret and Alison Williams realized that prices simply were not falling much there.
By the time they were ready to pounce this year, they had a big enough down payment and interest rates had fallen so far that renting didn't make much financial sense, even if they could have found a rental big enough for them and their two small children.
"Had we rented, we would be paying more than we're paying for a mortgage," said Ms. Williams, who had lived in the same two-bedroom rental for 12 years before she and her family moved into their new house in Eagle Rock earlier this month. "I don't see how we could really regret having made the move when it's so much better for us on so many levels."
To pare down their growing inventory of properties, Fannie Mae and Freddie Mac are scrambling to unload nearly 150,000 foreclosed homes. And that means 2004-esque deals — like requiring as little as 3% down, offering to pay a portion of the closing costs and arranging special financing and warranties for repairs and renovations.
It's another option for home owners who want to trade up — and an easier way into the market for first-time home buyers, says Dean Baker, co-director of the Center for Economic and Policy Research who studies the housing market.
The best bargain might be the home's price. A SmartMoney analysis revealed that buyers could save $100,000 by buying a Fannie or Freddie home instead of similar fair-market properties just a few blocks away.
And while many of Fannie and Freddie's homes are at the lower end of the market and in less-desirable areas, a SmartMoney.com search of Fannie Mae and Freddie Mac listings revealed that buyers could find properties in good neighborhoods — and for $100,000 less than comparable houses nearby. For example, a five-bedroom, three-bath with a backyard, deck and two-car garage in tony Alexandria, Va., was listed for $445,000, $100,000 less than the average listing price in the area, according to Trulia.com. Four blocks away, a similar non-foreclosed colonial is listed for $639,900.
Or how about a three-bedroom, two-bath in Bergen County's leafy River Edge, N.J for $359,900 -- $85,000 less than the average listing in the area. One avenue over, a non-foreclosed similar home is listed for $474,888.
The downside: Angry neighbors. These types of listings are devaluing nearby properties, says David Howell, realtor and executive vice president at McEnearney Associates, which sells homes in the metropolitan Washington D.C. area. That means in some areas where Freddie and Fannie homes are on the market, buyers could find a better deal on a nearby market-rate home that doesn't require repairs, he says.
Buying a Fannie or Freddie home can be more complex than pursuing an open-market real estate listing — or even a commercial bank foreclosed property. There's a smaller selection of appealing properties — there were just six higher-end homes listed on a recent day in Alexandria, for example — and those tend to sell the fastest. And there's little room to negotiate price.
"Our goal is to recover as much as we can to offset our loss and not to be low balling properties just to move them," says a Freddie Mac spokesman. "We absolutely have no motivation to be leading a downward spiral in home prices."
The three best features of Fannie and Freddie foreclosures that make digging for these deals worthwhile:
Small Down Payment
For its foreclosed properties, Fannie Mae will accept down payments as low as 3% on 30-year mortgages at the same interest rates banks are currently offering. And Fannie Mae doesn't require private mortgage insurance. Compared to a typical bank mortgage, which requires 10% down, plus PMI for buyers with less than 20%, that's a huge savings — an estimated $51,000 up front and upwards of $2,500 per year PMI on a $300,000 mortgage.
It's a tradeoff, though. For buyers with 20% down, mortgage payments on a 30-year mortgage loan at 5% would be $1,288 a month. With just 3% down, the buyer would need to borrow $291,000 and make a $1,562 monthly payment.
Help with Renovations
Fannie and Freddie have fixed big flaws like leaky roofs and damaged electrical work, and they often handle small projects like replacing appliances that are broken or missing, tearing up old carpet, or fixing other damage left by former owners or vandals.
Now, to entice buyers who want to update or upgrade, many of Fannie Mae's properties come with an optional mortgage that includes extra financing up to $30,000 for repairs and improvements. But with a little down payment and the extra amount tacked on, the buyer could end up owing more than the house is worth — especially if home prices continue to drop.
First Dibs
Buyers who plan to live in their Freddie Mac-purchased home will get to see properties for at least the first 15 days they're on the market — before the listing opens to would-be landlords. Many bank-owned foreclosure properties are snatched up by cash-stocked investors who can wait out the downturn to sell later at a profit.
And Fannie and Freddie homes can be seen inside and out — unlike some regular foreclosure listings. Consider bringing along a contractor when you view the home to help spot areas that need repairs and provide pricing. (Most contractors will do this for free.)
"It gives families who want to buy a home to live in the opportunity to look and bid without competition from cash-rich investors," says a Freddie Mac spokesman.
This article is part of a series related to being Financially Fit
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