FORT LAUDERDALE, Fla. – Nov. 13, 2007 – Three years ago, home builders held lotteries to deal with hordes of people, mostly short-term investors, overwhelming their sales centers. Today, with housing markets crashing, builders practically beg for buyers.
“During the boom, you were developing strategies to manage demand,” said Jill DiDonna, a vice president of Sunrise-based GL Homes. “Now your whole modus operandi is trying to stimulate demand. It’s come 180 degrees.”
GL has grown substantially since beginning as a small local company in 1976. At the end of 2006, GL was ranked as the 36th largest builder in the nation, according to Professional Builder magazine.
The privately held builder also is one of the largest in Palm Beach and Broward counties and is feeling the brunt of the slump because its business is concentrated in the Sunshine State. California, Nevada and Florida were out front in the housing boom and now are leading the downturn.
GL, with revenue last year of $871.7 million and about 250 employees, builds homes for young families and retirees in Broward, Palm Beach, Indian River, Lee and Hillsborough counties. About 35 percent of its business is the growing active-adult segment.
“People are still moving to Florida to retire, and retirees don’t have time to wait on the sidelines,” said DiDonna, 37, in her 14th year at GL.
She discussed the state of the home-building industry during an interview last week at the company’s headquarters. Portions of her answers are paraphrased.
Q: In your opinion, when will the housing market improve?
A: Home builders and sellers are reducing their prices. Over time, the market will be stimulated by that adjustment. How long do I think that will take? Eighteen months to two years.
Q: Until then, can builders afford to keep offering deep discounts?
A: Buyers’ psychology today is that they expect to get good deals. Very few sales are happening without incentives. We just sold 40 homes in Vero Beach. We knocked anywhere from $60,000 to $100,000 off the price of the homes. That seemed to be the magic number. If a house is selling for $300,000, and it cost you $250,000 to build, and you have to sell it for $225,000, at least you have some cash flow coming in. Something is better than nothing.
Q: Are there any silver linings in this slump?
A: The active-adult market is very encouraging. That 55-and-older segment hasn’t seen the downturn that other segments have. At our Valencia Pointe development in Boynton Beach, we’re selling 26 homes a month during season. I go in there when I’m really depressed.
Q: How can consumers take advantage of a buyer’s market?
A: Get pre-approved for a mortgage before making an offer. You will have more credibility. Base your offer on something, like a comparable sale. Negotiate for items that carry value and affect the total purchase price, such as lot premiums, options, closing costs, deposit requirements, closing dates and interest rates. Builders are motivated by quick closings. If you can close quickly, that can play to your advantage in negotiations.
Q: What tactics should buyers avoid?
A: Don’t lowball. It gets the process off to a bad start, and builders won’t take you seriously. Don’t expect the builder to rebuild the house for you to include some unusual feature. Don’t blow the deal over $10,000 or $15,000 when you’ve already negotiated significant savings. Finally, don’t expect that a home will be there when you’re ready. Unique properties at the right price will sell quickly.
Wednesday, November 14, 2007
UF: Florida population growth slows but still remains high
GAINESVILLE, Fla. – Nov. 8, 2007 – According to the University of Florida (UF), Florida’s population growth slowed considerably last year as the housing boom went bust, but it remained relatively strong and likely will stay that way for the next few years.
“There have been a number of news articles lately focusing on the idea that population growth has fallen off the table top in Florida and practically come to a standstill, and that simply isn’t true,” says Stan Smith, director of the UF’s Bureau of Economic and Business Research, who led the research. “Florida has a strong economy and adds jobs every year. That is a major factor in last year still being a big year for population growth, even though it was less than in the previous three years.”
The estimates released this week show the Sunshine State’s population grew by 331,000 between 2006 and 2007, compared with 431,000 between 2005 and 2006; 402,000 between 2004 and 2005; and 448,000 between 2003 and 2004, Smith said. Florida’s total population was estimated at 18,680,367 as of April 1, 2007.
Based on recent trends, Smith said he expects Florida to add about 300,000 residents a year during the next two to three years unless there is a recession.
“The housing boom certainly contributed to Florida’s growth in those earlier years, and the housing bust contributed to the slowdown this last year,” he says. “When economic conditions are tough, it’s much harder for people to sell their homes in New York, Ohio, Michigan or some other state and move to Florida.”
Today’s increasing number of foreclosures, large inventories of unsold houses and the decline in housing prices in some cities contrast starkly with the flourishing construction industry, huge numbers of home sales and flurry of people buying homes simply to make a quick profit that characterized the last few years, he said.
But Florida’s healthy job market and the continued movement of retirees and foreign immigrants to the state helped bolster population growth last year.
“Job growth has been higher in Florida than the national average,” Smith says, adding that the largest increases in jobs during the past year have been in leisure and hospitality services, education and health service. “You also have to factor in Florida’s climate, with its relatively warm winters, which continues to attract people from the Northeast and Midwest from one year to the next.”
Although less significant than employment, retiree migration stands to become increasingly important in the future.
“Over the next 20 years as the baby boomers reach retirement age, the probability is high that many of them will want to move to Florida,” Smith says.
Florida, with its large foreign-born population, also has grown because of the increase in U.S. immigration during the past decade because many newcomers move to places where they already have a network of family and friends, Smith says. Typically, Florida attracts about 8 percent or 9 percent of the nation’s immigrants in a year.
“What is considered a slow year for population growth in Florida would be considered a fast year for most states,” he says. “Between 1990 and 2000, no county in Florida lost population, which is unusual considering that typically 30 (percent) to 40 percent of the nation’s counties lose population during any particular decade.”
Flagler, the state’s most rapidly growing county, has ballooned by 88 percent since 2000, from 49,832 to 93,568; followed by Sumter, which increased 68 percent from 53,345 to 89,771, and Osceola, up 54 percent from 172,493 to 266,123.
Contributing to Flagler’s growth is its location between Jacksonville and Daytona Beach, which is attractive to retirees as well as to commuters. Boosting Sumter County’s population gains are spillover from Orlando to the southeast, as well as the booming Villages retirement community, which covers parts of three counties. Third-ranked Osceola County has drawn a sizeable population of Puerto Rican immigrants in recent years.
Counties with the biggest increases in absolute numbers were Orange County, which grew by 209,259 between 2000 and 2007, followed by Miami-Dade with an increase of 208,513 and Hillsborough with an increase of 193,913. Monroe was the only county in Florida to lose population between 2000 and 2007, declining by 602.
© 2007 FLORIDA ASSOCIATION OF REALTORS®
“There have been a number of news articles lately focusing on the idea that population growth has fallen off the table top in Florida and practically come to a standstill, and that simply isn’t true,” says Stan Smith, director of the UF’s Bureau of Economic and Business Research, who led the research. “Florida has a strong economy and adds jobs every year. That is a major factor in last year still being a big year for population growth, even though it was less than in the previous three years.”
The estimates released this week show the Sunshine State’s population grew by 331,000 between 2006 and 2007, compared with 431,000 between 2005 and 2006; 402,000 between 2004 and 2005; and 448,000 between 2003 and 2004, Smith said. Florida’s total population was estimated at 18,680,367 as of April 1, 2007.
Based on recent trends, Smith said he expects Florida to add about 300,000 residents a year during the next two to three years unless there is a recession.
“The housing boom certainly contributed to Florida’s growth in those earlier years, and the housing bust contributed to the slowdown this last year,” he says. “When economic conditions are tough, it’s much harder for people to sell their homes in New York, Ohio, Michigan or some other state and move to Florida.”
Today’s increasing number of foreclosures, large inventories of unsold houses and the decline in housing prices in some cities contrast starkly with the flourishing construction industry, huge numbers of home sales and flurry of people buying homes simply to make a quick profit that characterized the last few years, he said.
But Florida’s healthy job market and the continued movement of retirees and foreign immigrants to the state helped bolster population growth last year.
“Job growth has been higher in Florida than the national average,” Smith says, adding that the largest increases in jobs during the past year have been in leisure and hospitality services, education and health service. “You also have to factor in Florida’s climate, with its relatively warm winters, which continues to attract people from the Northeast and Midwest from one year to the next.”
Although less significant than employment, retiree migration stands to become increasingly important in the future.
“Over the next 20 years as the baby boomers reach retirement age, the probability is high that many of them will want to move to Florida,” Smith says.
Florida, with its large foreign-born population, also has grown because of the increase in U.S. immigration during the past decade because many newcomers move to places where they already have a network of family and friends, Smith says. Typically, Florida attracts about 8 percent or 9 percent of the nation’s immigrants in a year.
“What is considered a slow year for population growth in Florida would be considered a fast year for most states,” he says. “Between 1990 and 2000, no county in Florida lost population, which is unusual considering that typically 30 (percent) to 40 percent of the nation’s counties lose population during any particular decade.”
Flagler, the state’s most rapidly growing county, has ballooned by 88 percent since 2000, from 49,832 to 93,568; followed by Sumter, which increased 68 percent from 53,345 to 89,771, and Osceola, up 54 percent from 172,493 to 266,123.
Contributing to Flagler’s growth is its location between Jacksonville and Daytona Beach, which is attractive to retirees as well as to commuters. Boosting Sumter County’s population gains are spillover from Orlando to the southeast, as well as the booming Villages retirement community, which covers parts of three counties. Third-ranked Osceola County has drawn a sizeable population of Puerto Rican immigrants in recent years.
Counties with the biggest increases in absolute numbers were Orange County, which grew by 209,259 between 2000 and 2007, followed by Miami-Dade with an increase of 208,513 and Hillsborough with an increase of 193,913. Monroe was the only county in Florida to lose population between 2000 and 2007, declining by 602.
© 2007 FLORIDA ASSOCIATION OF REALTORS®
Run the Numbers Before Buying an Investment Property
People talk about running the numbers before buying an investment property, but what are the numbers and how do you get accurate numbers? Running the wrong numbers can make the difference of making $500 or losing $1000 per month. In this article, we will go through the costs and factors to consider making your investments successful.
RENTAL INCOME
Rental income is not as straightforward as it seems. Sometimes properties are under-rented and sometimes properties are over-rented, so be sure to find out the market rents when you consider a property. When we bought our first fourplex, we looked at comparable leases and realized our rents were too high, so instead of assuming we would continue to receive $3600 of rental income, we had to be realistic and assume it was more like $3200.
MORTGAGE INTEREST
A huge cost is mortgage interest. You should definitely sort out the details of your loan options and get an idea of current rates before running the numbers. It could make or break a deal. If you are getting a duplex or a house, the loans are generally similar to other home loan programs. Triplexes and fourplexes tend to have higher rates, and commercial is a whole other ballgame. One thing to consider is to put more down because the more you put down, the less your loan will be, which means less monthly interest to pay. Another consideration is the type of loan. We usually recommend people to get a fixed rate mortgage these days because the current ARM (adjustable rate mortgage) rates are not all that much lower than fixed rates.
Just get educated about the loan options and run the numbers with them. Oh, and do not just take advice from one mortgage person. The best way to get educated is to talk to a variety of mortgage brokers and banks to find your best solution; not all loan places have the same programs.
TAXES
People frequently use the taxes from the year when they purchased the property, assuming the taxes will stay the same. Taxes change every year. Taxes can go up drastically after a purchase. For example, an owner occupied property usually has tax breaks, so unless you intend to owner occupy too, your taxes will go up.
In addition, the county appraisal that your taxes are based on could go up after your purchase. For example, if you buy a property for 100,000 but the tax appraisal last year was for 50,000, don't count on it remaining at 50,000. In fact, I have seen cases where a year after a property was purchased the tax assessor increased the appraisal value to the purchase price. The safest approach is to look at the tax rate and the purchase price to determine your future taxes.
VACANCY COST
For some reason people tend to forget to take into account vacancy rate. Even when looking to invest in a desirable rental area, it's best to always take into account at least an 8-10% vacancy rate. Do some investigation, look at your market and find statistics on the average vacancy rate.
TENANT TURNOVER COST
We have personally found the biggest surprise to be the expense of tenant turnover. This includes advertising for a new tenant, cleaning, repainting, replacing carpet, etc. If you expect to have high tenant turnover, like next to a college campus, anticipate this to be a significant cost.
INSURANCE COST
Insurance on investment properties are typically higher than owner occupied, single family properties. So get an insurance quote on the property instead of basing your expected insurance off of the insurance bill for your house. You also should purchase liability insurance, which can be expensive.
MAINTENANCE COSTS
This is by far the most difficult number to estimate. It depends on the property, whether you fix some of the problems yourself or hire outside help, and random luck. So we can't give you a hard and fast number but we can look into different factors to take into account.
**Property Type - When you evaluate different properties remember to take into account the type of property. If it's brick you won't have to paint or worry about wood root. Decks need constant maintenance. A property with wood or concrete floors will be easier to clean and will not have to be replaced when a tenant moves out. Just think about the aspects of the property and their maintenance costs.
**Property Size - A smaller property is easier to maintain than a larger property. For instance, say there are two properties for sale for 200,000 and each have a combined rent of 2000. A property with 2 units and a total of 1000 square feet will be cheaper to maintain than a property with 6 units and 3000 square feet. The larger property will be more expensive to maintain when you are replacing the larger roof, painting the interior walls etc. More units mean more money spent on advertising, make-readies, and more appliances to repair.
**Property Location - Consider your proximity to the property. If you buy a property 30 miles away, over the course of a year you can spend a decent amount of gas money driving back and forth.
**Your personal management style - How often will you do maintenance work yourself vs. hiring help? For instance, when a unit needs painting will you paint the rooms or hire a painter? Hiring professionals is definitely more expensive, but you have to be realistic about how much you will personally do, especially if you are looking at many units.
UTILITY COSTS
Be sure to check what the tenants pay for and what the owner pays for. This includes all the utilities and lawn maintenance. In addition, there may be owner expenses like parking lot lights and trash bin service.
PROPERTY MANAGEMENT COSTS
If you are going to hire a property management company, definitely get their rates. We personally choose properties that we can manage ourselves.
SUMMING THE NUMBERS
We wrote a investment property calculator which is located here Investment real estate calculator. Once you add all the numbers up, you often find the property has 0 cash flow or even negative cash flow. This doesn't necessarily mean you should not purchase the property. There are positive tax benefits to rental properties and depending on your situation, a property with technically 0 cash flow could still put more money in your pocket due to tax benefits. If you think the property is going to appreciate in the future, a zero or negative cash flow property could still be appealing.
The point here is that if you are buying a property with zero or negative cash flow, it's best to know beforehand instead of after the property has been purchased.
RENTAL INCOME
Rental income is not as straightforward as it seems. Sometimes properties are under-rented and sometimes properties are over-rented, so be sure to find out the market rents when you consider a property. When we bought our first fourplex, we looked at comparable leases and realized our rents were too high, so instead of assuming we would continue to receive $3600 of rental income, we had to be realistic and assume it was more like $3200.
MORTGAGE INTEREST
A huge cost is mortgage interest. You should definitely sort out the details of your loan options and get an idea of current rates before running the numbers. It could make or break a deal. If you are getting a duplex or a house, the loans are generally similar to other home loan programs. Triplexes and fourplexes tend to have higher rates, and commercial is a whole other ballgame. One thing to consider is to put more down because the more you put down, the less your loan will be, which means less monthly interest to pay. Another consideration is the type of loan. We usually recommend people to get a fixed rate mortgage these days because the current ARM (adjustable rate mortgage) rates are not all that much lower than fixed rates.
Just get educated about the loan options and run the numbers with them. Oh, and do not just take advice from one mortgage person. The best way to get educated is to talk to a variety of mortgage brokers and banks to find your best solution; not all loan places have the same programs.
TAXES
People frequently use the taxes from the year when they purchased the property, assuming the taxes will stay the same. Taxes change every year. Taxes can go up drastically after a purchase. For example, an owner occupied property usually has tax breaks, so unless you intend to owner occupy too, your taxes will go up.
In addition, the county appraisal that your taxes are based on could go up after your purchase. For example, if you buy a property for 100,000 but the tax appraisal last year was for 50,000, don't count on it remaining at 50,000. In fact, I have seen cases where a year after a property was purchased the tax assessor increased the appraisal value to the purchase price. The safest approach is to look at the tax rate and the purchase price to determine your future taxes.
VACANCY COST
For some reason people tend to forget to take into account vacancy rate. Even when looking to invest in a desirable rental area, it's best to always take into account at least an 8-10% vacancy rate. Do some investigation, look at your market and find statistics on the average vacancy rate.
TENANT TURNOVER COST
We have personally found the biggest surprise to be the expense of tenant turnover. This includes advertising for a new tenant, cleaning, repainting, replacing carpet, etc. If you expect to have high tenant turnover, like next to a college campus, anticipate this to be a significant cost.
INSURANCE COST
Insurance on investment properties are typically higher than owner occupied, single family properties. So get an insurance quote on the property instead of basing your expected insurance off of the insurance bill for your house. You also should purchase liability insurance, which can be expensive.
MAINTENANCE COSTS
This is by far the most difficult number to estimate. It depends on the property, whether you fix some of the problems yourself or hire outside help, and random luck. So we can't give you a hard and fast number but we can look into different factors to take into account.
**Property Type - When you evaluate different properties remember to take into account the type of property. If it's brick you won't have to paint or worry about wood root. Decks need constant maintenance. A property with wood or concrete floors will be easier to clean and will not have to be replaced when a tenant moves out. Just think about the aspects of the property and their maintenance costs.
**Property Size - A smaller property is easier to maintain than a larger property. For instance, say there are two properties for sale for 200,000 and each have a combined rent of 2000. A property with 2 units and a total of 1000 square feet will be cheaper to maintain than a property with 6 units and 3000 square feet. The larger property will be more expensive to maintain when you are replacing the larger roof, painting the interior walls etc. More units mean more money spent on advertising, make-readies, and more appliances to repair.
**Property Location - Consider your proximity to the property. If you buy a property 30 miles away, over the course of a year you can spend a decent amount of gas money driving back and forth.
**Your personal management style - How often will you do maintenance work yourself vs. hiring help? For instance, when a unit needs painting will you paint the rooms or hire a painter? Hiring professionals is definitely more expensive, but you have to be realistic about how much you will personally do, especially if you are looking at many units.
UTILITY COSTS
Be sure to check what the tenants pay for and what the owner pays for. This includes all the utilities and lawn maintenance. In addition, there may be owner expenses like parking lot lights and trash bin service.
PROPERTY MANAGEMENT COSTS
If you are going to hire a property management company, definitely get their rates. We personally choose properties that we can manage ourselves.
SUMMING THE NUMBERS
We wrote a investment property calculator which is located here Investment real estate calculator. Once you add all the numbers up, you often find the property has 0 cash flow or even negative cash flow. This doesn't necessarily mean you should not purchase the property. There are positive tax benefits to rental properties and depending on your situation, a property with technically 0 cash flow could still put more money in your pocket due to tax benefits. If you think the property is going to appreciate in the future, a zero or negative cash flow property could still be appealing.
The point here is that if you are buying a property with zero or negative cash flow, it's best to know beforehand instead of after the property has been purchased.
Five solutions for a troubled housing market
NEW YORK – Nov. 9, 2007 – How do you fix a troubled housing market? Forbes.com asked that question of a broad range of housing experts, including CEOs of real estate firms, real estate practitioners, economists from lending institutions, and research directors at analytics firms. Here are five of their best suggestions.
1. Restore investor faith. “Mortgage fraud, by both borrowers and insiders, must be identified and prosecuted in order for faith to be restored in the market,” says Anthony Sanders, professor of real estate finance at Arizona State University.
2. Expand Fannie Mae, Freddie Mac and the Federal Housing Administration loans. “Our local banks and community banks have done a great job providing funding. (FHA) should be there as a supplemental for people who have good credit,” says Congressman Lincoln Davis (D-Tenn.)
3. Cut construction and prices. “The market will only hit bottom after builders cut construction and sellers slash prices,” says Mark Zandi, chief economist at Moody’s Economy.com. “The longer builders and sellers hold on, the longer the market will struggle.”
4. Bring back non-agency loans. “The dramatic seizing of the mortgage-credit markets caused the elimination of almost any loan that wasn’t backed by Fannie Mae or Freddie Mac,” says Bob Walters, chief economist at Quicken Loans. The revival of non-agency loans “will add much-needed mortgage funding to potential home buyers and folks looking to refinance.”
5. Buyers and sellers get real. Nelson Gonzalez, senior vice president of Esslinger, Wooten Maxwell, believes that once buyers realize that they’re not going to convince a seller to accept a rock-bottom price, fluidity and activity can return to the market. “There is much pent-up demand,” he says, “and buyers have been sitting on their hands for some time now.”
Source: Forbes, Matt Woolsey (11/07/07)
1. Restore investor faith. “Mortgage fraud, by both borrowers and insiders, must be identified and prosecuted in order for faith to be restored in the market,” says Anthony Sanders, professor of real estate finance at Arizona State University.
2. Expand Fannie Mae, Freddie Mac and the Federal Housing Administration loans. “Our local banks and community banks have done a great job providing funding. (FHA) should be there as a supplemental for people who have good credit,” says Congressman Lincoln Davis (D-Tenn.)
3. Cut construction and prices. “The market will only hit bottom after builders cut construction and sellers slash prices,” says Mark Zandi, chief economist at Moody’s Economy.com. “The longer builders and sellers hold on, the longer the market will struggle.”
4. Bring back non-agency loans. “The dramatic seizing of the mortgage-credit markets caused the elimination of almost any loan that wasn’t backed by Fannie Mae or Freddie Mac,” says Bob Walters, chief economist at Quicken Loans. The revival of non-agency loans “will add much-needed mortgage funding to potential home buyers and folks looking to refinance.”
5. Buyers and sellers get real. Nelson Gonzalez, senior vice president of Esslinger, Wooten Maxwell, believes that once buyers realize that they’re not going to convince a seller to accept a rock-bottom price, fluidity and activity can return to the market. “There is much pent-up demand,” he says, “and buyers have been sitting on their hands for some time now.”
Source: Forbes, Matt Woolsey (11/07/07)
First-time buyers can be in the money
MILWAUKEE – Nov. 8, 2007 – Caught in the shifting rapids of mortgage lending, Billy Alt and Kim Le are just now moving into the condo they thought they were buying in August.
The condo they were buying was in the process of being converted from a rental unit to a condo, and that involved some fancy financial footwork – the kind of transactional footnote that caused barely a blip until this summer’s upheaval in the mortgage market.
They quickly reorganized the finances of the deal to keep it on track.
“If we had been looking just a few weeks earlier, it would have been perfectly timed,” said Le.
While credit standards have clenched up, driving many too-lax lenders from the field, plenty of financiers are looking for customers, say home lenders.
“It’s a very good time for first-time buyers,” said Susan Wommack, national account manager with LoanSifter.com, an industry database business in Little Chute, Wis. “The lenders who are still standing are very competitive, and service levels have gone up, too.”
“For people with good credit, who’ve shown some responsibility, and have some income to work with, there’s plenty of money,” said Kevin Kubacki, senior loan officer with Pyramax bank in Greenfield, Wis.
Because a reliable history of meeting mortgage payments weighs heavily in calculating credit scores, first-time buyers are at a bit of a disadvantage, he added, typically landing between 620 and 680.
That limits the types of mortgages that borrowers can get more than the interest rates they’ll pay. For instance, a first-time buyer hoping to snag a relatively rare no-down-payment loan these days hasn’t a prayer with a credit score of less than 680.
Kubacki and other lenders say that first-timers are finding good luck with government programs specifically geared for them, such as those offered by the Federal Housing Administration.
Restrictions are geared to include as many first-time buyers as possible, because that’s the whole point of such programs, lenders say.
Coming up with the downpayment can be hard.
“The 100 percent financing programs have been popular, but people are rightfully wary of those, so we are returning to a 3 percent or 5 percent downpayment,” said Joni VonAsten, underwriting processor and closing supervisor for Wisconsin Mortgage Corp. in Brookfield, Wis. “We’re going back to the standards that have always been in place.”
Key lending ratios for first-time borrowers
• Total debt - including student loans shouldn’t exceed 50 percent of gross monthly income. That includes property taxes and insurance.
• Total housing payments including property taxes and insurance - shouldn’t exceed 34 percent of gross monthly income.
The condo they were buying was in the process of being converted from a rental unit to a condo, and that involved some fancy financial footwork – the kind of transactional footnote that caused barely a blip until this summer’s upheaval in the mortgage market.
They quickly reorganized the finances of the deal to keep it on track.
“If we had been looking just a few weeks earlier, it would have been perfectly timed,” said Le.
While credit standards have clenched up, driving many too-lax lenders from the field, plenty of financiers are looking for customers, say home lenders.
“It’s a very good time for first-time buyers,” said Susan Wommack, national account manager with LoanSifter.com, an industry database business in Little Chute, Wis. “The lenders who are still standing are very competitive, and service levels have gone up, too.”
“For people with good credit, who’ve shown some responsibility, and have some income to work with, there’s plenty of money,” said Kevin Kubacki, senior loan officer with Pyramax bank in Greenfield, Wis.
Because a reliable history of meeting mortgage payments weighs heavily in calculating credit scores, first-time buyers are at a bit of a disadvantage, he added, typically landing between 620 and 680.
That limits the types of mortgages that borrowers can get more than the interest rates they’ll pay. For instance, a first-time buyer hoping to snag a relatively rare no-down-payment loan these days hasn’t a prayer with a credit score of less than 680.
Kubacki and other lenders say that first-timers are finding good luck with government programs specifically geared for them, such as those offered by the Federal Housing Administration.
Restrictions are geared to include as many first-time buyers as possible, because that’s the whole point of such programs, lenders say.
Coming up with the downpayment can be hard.
“The 100 percent financing programs have been popular, but people are rightfully wary of those, so we are returning to a 3 percent or 5 percent downpayment,” said Joni VonAsten, underwriting processor and closing supervisor for Wisconsin Mortgage Corp. in Brookfield, Wis. “We’re going back to the standards that have always been in place.”
Key lending ratios for first-time borrowers
• Total debt - including student loans shouldn’t exceed 50 percent of gross monthly income. That includes property taxes and insurance.
• Total housing payments including property taxes and insurance - shouldn’t exceed 34 percent of gross monthly income.
Seven smart strategies for real estate
NEW YORK – Nov. 5, 2007 – For millions of Americans approaching retirement, a big part of their fortune is tied up in something they might never want to sell: their homes.
Even with the recent drop in home prices, the real value of a single-family house in the U.S. has more than doubled in 10 years, according to the Standard & Poor’s Case-Shiller index, and home values in some markets have tripled.
Many who bought mid-priced houses in the mid-1990s now find themselves living in homes worth a small fortune. They could retire comfortably if they could somehow tap into that. But it’s easier said than done.
Ya gotta live somewhere
Unlike stocks and bonds, a home can’t be sold quickly for a profit. The costs to sell a home and move are high, and the declining real estate market makes it doubly difficult these days. And even if you can find a buyer, many longtime homeowners simply don’t want to sell. Too many memories and hard work are tied up in their houses. And after a sale, they know they’ll still need a place to live.
We asked financial advisers for some tips on how to handle real estate as you approach retirement. Their advice is aimed at those ages 55 to 65, but it can be used by anyone investing in real estate.
1. Figure out how much your home is worth – to you.
For most people, a home “becomes an integral part of their identity, of who they are,” says Avani Ramnani, of New Jersey-based Athena Wealth Advisors. Their status in the community is linked to their home, which also holds memories of raising children and the “sweat and hard work” that went into improving it.
All this can make it difficult to sell, even if it’s financially smart. Some people will pay almost any price to stay in their homes for as long as possible.
If you know you need to sell, Ramnani advises first going out and finding a new place where you’d love to live. That may make it easier to load up the moving trucks. While lamenting the home you’re losing, you can also get excited about the one you’ll be gaining.
2. Run the numbers first.
If you’re planning to retire soon, you’ve probably already crunched the numbers: How much will you have to live on? How much will you need? The value of the real estate you own is apt to come into the equation eventually.
But many planners advise running those numbers first without including real estate sales. If you can afford to do so, “don’t look at [your home] as an investment,” says Marshall Groom, a planner in Richmond, Va. “You have to live somewhere.”
3. Downsizing early can pay off.
If your home is worth a lot, and you don’t mind moving to cheaper digs, you can unlock a lot of extra retirement money by downsizing. If that’s your intention, Kristopher Johnson, a planner at Timothy Financial Counsel in Wheaton, Ill., advises doing it sooner rather than later.
The cash raised can provide money to live on early in retirement, while you leave other accounts – like individual retirement accounts – untouched. That gives your nest egg more time to grow untouched, Johnson says. It also gives you more flexibility in dodging tax bills.
Keep in mind, however, that you might need to pay taxes on any real estate windfall. Consult an accountant or planner to make sure your calculation of the benefits of downsizing reflects this possible penalty.
4. Avoid too much real estate exposure.
A key principle for investors is diversification: Putting your money in many different types of assets protects you from bad luck in any one investment.
By the same logic, you should avoid putting more than one-third of your retirement assets in real estate, says Rebecca Preston, a Providence-based planner and member of the Alliance of Cambridge Advisors.
There are a couple reasons for this, beyond diversification. First, real estate is illiquid, i.e., it’s expensive and difficult to buy and sell. An unsold, vacant house can be a big drag on your budget, to stay nothing of your psyche.
Second, real estate isn’t that great an investment over the long term. This decade saw a huge run-up in prices in many markets, but prices can also stay stagnant for long periods of time, as they did in the 1990s. From 1990 to 2000, home values on the Case-Shiller index grew less than 3 percent per year, while stocks on the S&P 500 grew more than 15 percent annually.
5. Think carefully before buying a second home.
As they approach retirement, many Americans think about relocating – to the beach, to the mountains, to a warmer climate, to a place closer to downtown. To try this out, many buy a second home while holding on to their primary dwelling.
Planners say this is a very expensive move. If you’re not careful, doubling your housing expenses can put a big strain on your budget.
Plus, what if your second home doesn’t work out? Many retirees move to a new community only to find they don’t fit in there or miss home. A better idea may be to first take long vacations in a new spot and then rent for a while. “Usually we encourage our clients into a slow transition, rather than a sudden move,” Ramnani says.
If you’re going to be spending only a small part of the year in a secondary location, Preston says it makes sense to rent rather than buy. Unless you’ll be spending more than three or four months at the vacation place, “it’s not worth it,” she says. “You can usually get a nice rental place these days.”
6. Beware of alternative strategies.
There are ways to profit from the value of your house while you’re still living in it. But they get mixed reviews.
One way to tap into your home equity is with a home equity loan. By borrowing money against your home’s value, you can then invest it in the stock market or other investments. “It’s a very risky strategy,” says Mark Rylance, a planner at RS Crum in Newport Beach, Calif. If you invest in a flat or down market – which the stock market could well be for the near future – “it can be pretty brutal.”
Getting better reviews are reverse mortgages, where a lender pays a homeowner as it takes ownership of more of the home equity over time. However, there are limits to this product: It’s relatively new, and fees can still be too high, planners say. The reverse mortgage market is “not mature yet,” Rylance says. Also, it’s better for older retirees; those 55 to 65 may be expecting another 25 or more years in their homes. Finally, a reverse mortgage can make it tough if you want to leave your house to heirs.
7. Deal with falling prices.
As a planner in the formerly hot real estate market in Orange County, Calif., Rylance sees a lot of stress among homeowners worried about their plummeting home values. In the past, a popular strategy was to sell an expensive home for a nice house at half the price in places like Oregon, Nevada, or Idaho.
Now, many have put off plans to move. “People are waiting,” he says.
If you are forced to move or really want to sell, Ramnani advises cutting your price early to win a buyer rather than letting a property sit on the market. The carrying costs of a vacant home can be hefty, and you’re also losing out by not being able to invest that money elsewhere. It’s “the cost of missed opportunity,” she says. “You have all this money stuck.”
Amid falling home values, there is some consolation. “They are going to sell for lower now, but they’re also going to buy for lower,” Preston says.
It can be painful to sell for less than you think your home is worth, but sometimes it’s better to cut your losses and move on. And with home prices expected to continue to fall, you may soon be able to snap up a good deal in a popular location.
Even with the recent drop in home prices, the real value of a single-family house in the U.S. has more than doubled in 10 years, according to the Standard & Poor’s Case-Shiller index, and home values in some markets have tripled.
Many who bought mid-priced houses in the mid-1990s now find themselves living in homes worth a small fortune. They could retire comfortably if they could somehow tap into that. But it’s easier said than done.
Ya gotta live somewhere
Unlike stocks and bonds, a home can’t be sold quickly for a profit. The costs to sell a home and move are high, and the declining real estate market makes it doubly difficult these days. And even if you can find a buyer, many longtime homeowners simply don’t want to sell. Too many memories and hard work are tied up in their houses. And after a sale, they know they’ll still need a place to live.
We asked financial advisers for some tips on how to handle real estate as you approach retirement. Their advice is aimed at those ages 55 to 65, but it can be used by anyone investing in real estate.
1. Figure out how much your home is worth – to you.
For most people, a home “becomes an integral part of their identity, of who they are,” says Avani Ramnani, of New Jersey-based Athena Wealth Advisors. Their status in the community is linked to their home, which also holds memories of raising children and the “sweat and hard work” that went into improving it.
All this can make it difficult to sell, even if it’s financially smart. Some people will pay almost any price to stay in their homes for as long as possible.
If you know you need to sell, Ramnani advises first going out and finding a new place where you’d love to live. That may make it easier to load up the moving trucks. While lamenting the home you’re losing, you can also get excited about the one you’ll be gaining.
2. Run the numbers first.
If you’re planning to retire soon, you’ve probably already crunched the numbers: How much will you have to live on? How much will you need? The value of the real estate you own is apt to come into the equation eventually.
But many planners advise running those numbers first without including real estate sales. If you can afford to do so, “don’t look at [your home] as an investment,” says Marshall Groom, a planner in Richmond, Va. “You have to live somewhere.”
3. Downsizing early can pay off.
If your home is worth a lot, and you don’t mind moving to cheaper digs, you can unlock a lot of extra retirement money by downsizing. If that’s your intention, Kristopher Johnson, a planner at Timothy Financial Counsel in Wheaton, Ill., advises doing it sooner rather than later.
The cash raised can provide money to live on early in retirement, while you leave other accounts – like individual retirement accounts – untouched. That gives your nest egg more time to grow untouched, Johnson says. It also gives you more flexibility in dodging tax bills.
Keep in mind, however, that you might need to pay taxes on any real estate windfall. Consult an accountant or planner to make sure your calculation of the benefits of downsizing reflects this possible penalty.
4. Avoid too much real estate exposure.
A key principle for investors is diversification: Putting your money in many different types of assets protects you from bad luck in any one investment.
By the same logic, you should avoid putting more than one-third of your retirement assets in real estate, says Rebecca Preston, a Providence-based planner and member of the Alliance of Cambridge Advisors.
There are a couple reasons for this, beyond diversification. First, real estate is illiquid, i.e., it’s expensive and difficult to buy and sell. An unsold, vacant house can be a big drag on your budget, to stay nothing of your psyche.
Second, real estate isn’t that great an investment over the long term. This decade saw a huge run-up in prices in many markets, but prices can also stay stagnant for long periods of time, as they did in the 1990s. From 1990 to 2000, home values on the Case-Shiller index grew less than 3 percent per year, while stocks on the S&P 500 grew more than 15 percent annually.
5. Think carefully before buying a second home.
As they approach retirement, many Americans think about relocating – to the beach, to the mountains, to a warmer climate, to a place closer to downtown. To try this out, many buy a second home while holding on to their primary dwelling.
Planners say this is a very expensive move. If you’re not careful, doubling your housing expenses can put a big strain on your budget.
Plus, what if your second home doesn’t work out? Many retirees move to a new community only to find they don’t fit in there or miss home. A better idea may be to first take long vacations in a new spot and then rent for a while. “Usually we encourage our clients into a slow transition, rather than a sudden move,” Ramnani says.
If you’re going to be spending only a small part of the year in a secondary location, Preston says it makes sense to rent rather than buy. Unless you’ll be spending more than three or four months at the vacation place, “it’s not worth it,” she says. “You can usually get a nice rental place these days.”
6. Beware of alternative strategies.
There are ways to profit from the value of your house while you’re still living in it. But they get mixed reviews.
One way to tap into your home equity is with a home equity loan. By borrowing money against your home’s value, you can then invest it in the stock market or other investments. “It’s a very risky strategy,” says Mark Rylance, a planner at RS Crum in Newport Beach, Calif. If you invest in a flat or down market – which the stock market could well be for the near future – “it can be pretty brutal.”
Getting better reviews are reverse mortgages, where a lender pays a homeowner as it takes ownership of more of the home equity over time. However, there are limits to this product: It’s relatively new, and fees can still be too high, planners say. The reverse mortgage market is “not mature yet,” Rylance says. Also, it’s better for older retirees; those 55 to 65 may be expecting another 25 or more years in their homes. Finally, a reverse mortgage can make it tough if you want to leave your house to heirs.
7. Deal with falling prices.
As a planner in the formerly hot real estate market in Orange County, Calif., Rylance sees a lot of stress among homeowners worried about their plummeting home values. In the past, a popular strategy was to sell an expensive home for a nice house at half the price in places like Oregon, Nevada, or Idaho.
Now, many have put off plans to move. “People are waiting,” he says.
If you are forced to move or really want to sell, Ramnani advises cutting your price early to win a buyer rather than letting a property sit on the market. The carrying costs of a vacant home can be hefty, and you’re also losing out by not being able to invest that money elsewhere. It’s “the cost of missed opportunity,” she says. “You have all this money stuck.”
Amid falling home values, there is some consolation. “They are going to sell for lower now, but they’re also going to buy for lower,” Preston says.
It can be painful to sell for less than you think your home is worth, but sometimes it’s better to cut your losses and move on. And with home prices expected to continue to fall, you may soon be able to snap up a good deal in a popular location.
Foreign cash could boost housing market
For an individual or developer trying to sell a home, interested buyers are just as likely to already have a place in London or Paris as they are to be first-timers new to the market.
“European investment is likely to pick up,” said Mark Vitner, chief economist for Charlotte, N.C.-based Wachovia Corp. “Now is the time to come over and take advantage.”
The theory goes that foreign investors step in and replace first-time home buyers who have been squeezed out of the housing market during the recent downturn. These new investors in turn allow current homeowners to sell and trade up to larger homes.
That will help restart owners moving up the housing ladder, a process that had been key to economic growth in recent years.
Some mortgage brokers are already seeing a boost in inquiries about buying property from overseas. Dan Green, a certified mortgage planning specialist and author of TheMortgageReports.com, said the number of inquiries he’s received from outside the U.S. is probably five to 10 times larger than it was a year ago.
A boost in the number of homebuyers would provide needed relief for the beleaguered housing market.
Home sale prices fell every month in 2007 through August, according to the S&P/Case-Shiller index. Existing home sales have declined for eight straight months through September, according to the National Association of Realtors.
As the housing market has plummeted, the dollar has also sunk to record lows compared to other currencies, such as the euro, meaning more spendable cash in the U.S.
“The dollar is on sale,” said Susan Wachter, a professor of real estate at the Wharton School at the University of Pennsylvania.
Today, a foreign buyer would need only 34,100 euros to make a $50,000 down payment on a house. At the beginning of the year, the same buyer would have needed 37,920 euros to make the same down payment.
The influx of foreign investors can help set a floor for the real estate market, Green said.
Because lending guidelines have been so restricted in recent months due to rising delinquencies and defaults, it is more difficult for U.S. customers to get a home loan. First-time homebuyers are especially being squeezed right now, Green said, and that is where the foreigners can provide support.
For investors from countries like Ireland, the exchange rate is providing a boost in spending power, said Phillip Hegarty, the sales director for Castleroc Estates, a Dublin, Ireland-based firm that works with Irish investors to buy residential and commercial real estate in the United States.
“It’s an enticing investment,” Hegarty said.
Hegarty said there is plenty of demand for investment in locations like Chicago and New York, and often that demand exceeds supply.
But New York and Chicago are not the only locations likely to provide popular options for foreign investors. Places like Florida and California are likely to see a surge in foreign investment.
“In a market with great turmoil, (the weak dollar) is one factor supporting some key markets,” Wachter said of the weakening dollar.
Wachter said markets like Miami and San Francisco, which are under pressure from the U.S. slowdown, are increasingly being supported by foreign investors.
“European investment is likely to pick up,” said Mark Vitner, chief economist for Charlotte, N.C.-based Wachovia Corp. “Now is the time to come over and take advantage.”
The theory goes that foreign investors step in and replace first-time home buyers who have been squeezed out of the housing market during the recent downturn. These new investors in turn allow current homeowners to sell and trade up to larger homes.
That will help restart owners moving up the housing ladder, a process that had been key to economic growth in recent years.
Some mortgage brokers are already seeing a boost in inquiries about buying property from overseas. Dan Green, a certified mortgage planning specialist and author of TheMortgageReports.com, said the number of inquiries he’s received from outside the U.S. is probably five to 10 times larger than it was a year ago.
A boost in the number of homebuyers would provide needed relief for the beleaguered housing market.
Home sale prices fell every month in 2007 through August, according to the S&P/Case-Shiller index. Existing home sales have declined for eight straight months through September, according to the National Association of Realtors.
As the housing market has plummeted, the dollar has also sunk to record lows compared to other currencies, such as the euro, meaning more spendable cash in the U.S.
“The dollar is on sale,” said Susan Wachter, a professor of real estate at the Wharton School at the University of Pennsylvania.
Today, a foreign buyer would need only 34,100 euros to make a $50,000 down payment on a house. At the beginning of the year, the same buyer would have needed 37,920 euros to make the same down payment.
The influx of foreign investors can help set a floor for the real estate market, Green said.
Because lending guidelines have been so restricted in recent months due to rising delinquencies and defaults, it is more difficult for U.S. customers to get a home loan. First-time homebuyers are especially being squeezed right now, Green said, and that is where the foreigners can provide support.
For investors from countries like Ireland, the exchange rate is providing a boost in spending power, said Phillip Hegarty, the sales director for Castleroc Estates, a Dublin, Ireland-based firm that works with Irish investors to buy residential and commercial real estate in the United States.
“It’s an enticing investment,” Hegarty said.
Hegarty said there is plenty of demand for investment in locations like Chicago and New York, and often that demand exceeds supply.
But New York and Chicago are not the only locations likely to provide popular options for foreign investors. Places like Florida and California are likely to see a surge in foreign investment.
“In a market with great turmoil, (the weak dollar) is one factor supporting some key markets,” Wachter said of the weakening dollar.
Wachter said markets like Miami and San Francisco, which are under pressure from the U.S. slowdown, are increasingly being supported by foreign investors.
Proposed tax changes may have only a marginal impact
TALLAHASSEE, Fla. – Nov. 5, 2007 – Will the slumping Florida housing market get a major boost if voters approve a measure that allows homeowners to take their tax break with them when they move?
That’s what lawmakers are touting, but some economists question whether the legislation will do much to reverse the current slowdown in homes sales.
The so-called tax portability will have a “marginal, positive effect on the real estate market, certainly, not of the size and magnitude to cause a major recovery,” said Hank Fishkind, an Orlando-based private-sector economist who has served as an adviser to a number of Florida governors.
Sean Snaith, an economics professor at the University of Central Florida, said the measure isn’t likely to spur home sales to a significant degree or make much difference to the overall health of the state.
“Our economy is so big,” Snaith said, totaling about $770 billion a year in gross state product. But now growth is slowing nationwide and in Florida, with more powerful forces at work, he said, that could swamp any tax-related strategy to boost home sales.
“What we really need to do is take a hard look at how we pay for things” through assorted taxes and fees, Snaith said.
The measure passed by the Legislature earlier this week, if approved by voters Jan. 29, would give existing homeowners a tax break if they sell and move to another dwelling in the state. That could remove at least one potential barrier for homeowners who have been reluctant to move.
“It’s very exciting. We’re glad it passed, and we’re looking forward to having it jump-start the market,” said Trey Price, a public-policy analyst with the Florida Association of Realtors.
Florida lawmakers are looking for a way to undo some of the “unintended consequences” of the state’s Save Our Homes property-tax provision, originally approved by voters in 1992 to help families stay in their homes and not be forced to sell just to escape escalating property taxes.
It caps increases in appraisals of owner-occupied homes at 3 percent a year or the rate of inflation, whichever is lower, and homes are assessed at the full market value only when sold.
Many fear it has “trapped” homeowners, because selling and then buying another home in the state can immediately triple or quadruple a homeowner’s property taxes.
Snaith and a number of other economists say they don’t expect Florida’s housing market, which is falling from record highs set two years ago, to recover until 2009 because of record-high inventory, record-high prices in inflation-adjusted terms, and weaker demand for a host of reasons that include higher property-insurance costs.
Tax issues, they contend, affect sales on the “margins” of the market but do nothing for the fundamentals. Larger forces, such as an oversupply of homes and weak demand, are the real keys to the state’s and the nation’s lethargic home sales.
But it all could be moot if courts rule the tax structure unconstitutional. Price, with the Orlando-based state Realtors trade association, said the organization fears the final version of the bill “increases the likelihood of its being overturned.”
He would not say what might happen if the tax savings, retroactive for buyers during 2007, were overruled by the courts.
Gov. Charlie Crist, in touting the tax-cutting proposal during appearances this week, repeated his claim that the measure will thaw Florida’s frozen real-estate market.
“This is going to fire-up Florida’s economy – this economic engine that’s been held back,” Crist said at the Capitol before traveling to Jacksonville, Orlando and Port St. Lucie to promote the proposed constitutional amendment.
Some residents still are not sold on the idea of preserving the tax break for existing homeowners.
“I oppose portability. That’s wrong,” said Jonathan Nunes, 37, who bought a home in east Orlando two years ago for $330,000 and pays about $5,000 a year in property taxes to Orlando and Orange County, along with other government entities that get smaller slices of the tax pie that comes out of his pocket. He said he figures he will vote against the tax measure, for a number of reasons.
High taxes in general are the main problem, Nunes said, along with the high cost of housing in general.
“The dollar cost of the home is the bigger issue,” he said, and “taxes are just ridiculously high.”
That’s what lawmakers are touting, but some economists question whether the legislation will do much to reverse the current slowdown in homes sales.
The so-called tax portability will have a “marginal, positive effect on the real estate market, certainly, not of the size and magnitude to cause a major recovery,” said Hank Fishkind, an Orlando-based private-sector economist who has served as an adviser to a number of Florida governors.
Sean Snaith, an economics professor at the University of Central Florida, said the measure isn’t likely to spur home sales to a significant degree or make much difference to the overall health of the state.
“Our economy is so big,” Snaith said, totaling about $770 billion a year in gross state product. But now growth is slowing nationwide and in Florida, with more powerful forces at work, he said, that could swamp any tax-related strategy to boost home sales.
“What we really need to do is take a hard look at how we pay for things” through assorted taxes and fees, Snaith said.
The measure passed by the Legislature earlier this week, if approved by voters Jan. 29, would give existing homeowners a tax break if they sell and move to another dwelling in the state. That could remove at least one potential barrier for homeowners who have been reluctant to move.
“It’s very exciting. We’re glad it passed, and we’re looking forward to having it jump-start the market,” said Trey Price, a public-policy analyst with the Florida Association of Realtors.
Florida lawmakers are looking for a way to undo some of the “unintended consequences” of the state’s Save Our Homes property-tax provision, originally approved by voters in 1992 to help families stay in their homes and not be forced to sell just to escape escalating property taxes.
It caps increases in appraisals of owner-occupied homes at 3 percent a year or the rate of inflation, whichever is lower, and homes are assessed at the full market value only when sold.
Many fear it has “trapped” homeowners, because selling and then buying another home in the state can immediately triple or quadruple a homeowner’s property taxes.
Snaith and a number of other economists say they don’t expect Florida’s housing market, which is falling from record highs set two years ago, to recover until 2009 because of record-high inventory, record-high prices in inflation-adjusted terms, and weaker demand for a host of reasons that include higher property-insurance costs.
Tax issues, they contend, affect sales on the “margins” of the market but do nothing for the fundamentals. Larger forces, such as an oversupply of homes and weak demand, are the real keys to the state’s and the nation’s lethargic home sales.
But it all could be moot if courts rule the tax structure unconstitutional. Price, with the Orlando-based state Realtors trade association, said the organization fears the final version of the bill “increases the likelihood of its being overturned.”
He would not say what might happen if the tax savings, retroactive for buyers during 2007, were overruled by the courts.
Gov. Charlie Crist, in touting the tax-cutting proposal during appearances this week, repeated his claim that the measure will thaw Florida’s frozen real-estate market.
“This is going to fire-up Florida’s economy – this economic engine that’s been held back,” Crist said at the Capitol before traveling to Jacksonville, Orlando and Port St. Lucie to promote the proposed constitutional amendment.
Some residents still are not sold on the idea of preserving the tax break for existing homeowners.
“I oppose portability. That’s wrong,” said Jonathan Nunes, 37, who bought a home in east Orlando two years ago for $330,000 and pays about $5,000 a year in property taxes to Orlando and Orange County, along with other government entities that get smaller slices of the tax pie that comes out of his pocket. He said he figures he will vote against the tax measure, for a number of reasons.
High taxes in general are the main problem, Nunes said, along with the high cost of housing in general.
“The dollar cost of the home is the bigger issue,” he said, and “taxes are just ridiculously high.”
Sunday, August 12, 2007
Groups organize to seek lower property tax rates
PALM BEACH COUNTY, Fla. – Aug. 6, 2007 – Joe Raineri, a radio talk show host in Palm Beach County, got mad one day about property taxes and decided to do something about it. So did part-time Broward County residents Bill Levison and James Guglielmo, as well as others including Dory Kilburn and Frank MacNeil.
Furious at the tax rates agreed to by their elected officials, dozens of people from Broward and Palm Beach counties have organized grassroots groups and are demanding deeper tax cuts on houses and apartments than what state legislators have provided for.
Raineri set up a Web site, formed a citizens group (Not Good Enough Florida), and is devoting one-hour Sunday commentaries on radio station WJNO in West Palm Beach to the subject of property taxes and how he thinks the Legislature blew it.
“Those politicians got it all wrong,” says Raineri, 34. “That’s why so many of us are getting organized. That’s why we’re still in a ruckus. It’s because what they did, well, it’s just not good enough for Florida.”
With names like “Cut Taxes Now,” “No More Property Taxes,” and “Cut Unfair Taxes and Spending,” anti-tax groups and their leaders played a part in prodding Gov. Charlie Crist and the Legislature into making property taxes a priority this year. Now, a second wave of associations like the one Raineri formed is out to oppose what the Legislature passed in June, and to demand additional or different tax reductions.
Most of these activists share a dislike for super-sized homestead exemptions approved by the Legislature, which Florida voters will have the opportunity to accept or reject in a referendum next Jan. 29. Those exemptions contain no tax savings for snowbirds and other nonpermanent residents, and ultimately doom existing Save Our Homes protections for homeowners.
“People need to turn the state upside down on taxes,” said Bernie Navarro, a Miami mortgage broker who formed one of the anti-tax groups, Citizens for Property Tax Reform. “People feel helpless now. There should be protests in the streets.”
Many of the citizen groups have only a few hundred members. Some are linked to established state and national anti-tax organizations, or snowbird associations. Others are well-connected machines with extensive fundraising operations, such as Navarro’s group, which began as a cheerleading venture for an abortive tax plan written by House Speaker Marco Rubio, R-West Miami.
Some analysts say what’s going on is an anti-establishment form of political activism that’s borrowed a page or two from the tactics of California anti-tax crusader Howard Jarvis, who energized residents of the Golden State in the ‘70s with his rallying cry: “I’m mad as hell.”
As for what the groups bring to Florida’s ongoing debate over taxes, one thing is clear: They are keeping the issue at the forefront and are reminding elected officials that their political futures may depend upon a drop in tax bills.
John Hallman, a consultant in Boca Raton who has helped organize some of the groups, fears they may not be marching in step.
“I was hoping for a more unified approach,” Hallman said. “My fear is that if we have too many stray efforts ... people will be confused.”
Some of the associations are championing ballot initiatives that could be put to the state’s voters in November 2008. One proposal, the “30-40-50 plan” would work this way if enacted: a homesteaded taxpayer 62 or older would pay taxes based on 30 percent of a property’s taxable value. Non-senior homesteaders would pay on 40 percent, and everyone else, including snowbirds, landlords and business owners, would pay on 50 percent.
Levison, 71, a retired electrical engineer, summers in Massachusetts and winters in Hallandale Beach. He spends most days e-mailing other snowbirds to rally opposition to Florida’s property tax system. “I have a feeling our best hope is through a lawsuit,” said Levison, who organized Broward Activists for Tax Equity.
Guglielmo, another snowbird, lives part-time in Hallandale Beach and is president of Americans Reforming Florida’s Biased Homestead Tax Law. He, too, wants to take the tax-relief battle to court, and so does MacNeil of Palm Beach Shores, who heads the Committee for Fair Florida Real Estate Taxes.
Kilburn, with the Boynton Intracoastal Group that includes her neighbors in Boynton Beach, says she pays 38 times more in taxes than some of her neighbors. The state’s real-estate tax system, she says, unfairly favors long-time, permanent residents over part-timers, noncitizens and renters.
“This was supposed to be my ideal retirement,” said Kilburn, 56, who lives the rest of the year near Ottawa in Canada. “The tax system is pitting neighbor against neighbor.”
Copyright © 2007 South Florida Sun-Sentinel, Mark Hollis. Distributed by McClatchy-Tribune Information Services.
Furious at the tax rates agreed to by their elected officials, dozens of people from Broward and Palm Beach counties have organized grassroots groups and are demanding deeper tax cuts on houses and apartments than what state legislators have provided for.
Raineri set up a Web site, formed a citizens group (Not Good Enough Florida), and is devoting one-hour Sunday commentaries on radio station WJNO in West Palm Beach to the subject of property taxes and how he thinks the Legislature blew it.
“Those politicians got it all wrong,” says Raineri, 34. “That’s why so many of us are getting organized. That’s why we’re still in a ruckus. It’s because what they did, well, it’s just not good enough for Florida.”
With names like “Cut Taxes Now,” “No More Property Taxes,” and “Cut Unfair Taxes and Spending,” anti-tax groups and their leaders played a part in prodding Gov. Charlie Crist and the Legislature into making property taxes a priority this year. Now, a second wave of associations like the one Raineri formed is out to oppose what the Legislature passed in June, and to demand additional or different tax reductions.
Most of these activists share a dislike for super-sized homestead exemptions approved by the Legislature, which Florida voters will have the opportunity to accept or reject in a referendum next Jan. 29. Those exemptions contain no tax savings for snowbirds and other nonpermanent residents, and ultimately doom existing Save Our Homes protections for homeowners.
“People need to turn the state upside down on taxes,” said Bernie Navarro, a Miami mortgage broker who formed one of the anti-tax groups, Citizens for Property Tax Reform. “People feel helpless now. There should be protests in the streets.”
Many of the citizen groups have only a few hundred members. Some are linked to established state and national anti-tax organizations, or snowbird associations. Others are well-connected machines with extensive fundraising operations, such as Navarro’s group, which began as a cheerleading venture for an abortive tax plan written by House Speaker Marco Rubio, R-West Miami.
Some analysts say what’s going on is an anti-establishment form of political activism that’s borrowed a page or two from the tactics of California anti-tax crusader Howard Jarvis, who energized residents of the Golden State in the ‘70s with his rallying cry: “I’m mad as hell.”
As for what the groups bring to Florida’s ongoing debate over taxes, one thing is clear: They are keeping the issue at the forefront and are reminding elected officials that their political futures may depend upon a drop in tax bills.
John Hallman, a consultant in Boca Raton who has helped organize some of the groups, fears they may not be marching in step.
“I was hoping for a more unified approach,” Hallman said. “My fear is that if we have too many stray efforts ... people will be confused.”
Some of the associations are championing ballot initiatives that could be put to the state’s voters in November 2008. One proposal, the “30-40-50 plan” would work this way if enacted: a homesteaded taxpayer 62 or older would pay taxes based on 30 percent of a property’s taxable value. Non-senior homesteaders would pay on 40 percent, and everyone else, including snowbirds, landlords and business owners, would pay on 50 percent.
Levison, 71, a retired electrical engineer, summers in Massachusetts and winters in Hallandale Beach. He spends most days e-mailing other snowbirds to rally opposition to Florida’s property tax system. “I have a feeling our best hope is through a lawsuit,” said Levison, who organized Broward Activists for Tax Equity.
Guglielmo, another snowbird, lives part-time in Hallandale Beach and is president of Americans Reforming Florida’s Biased Homestead Tax Law. He, too, wants to take the tax-relief battle to court, and so does MacNeil of Palm Beach Shores, who heads the Committee for Fair Florida Real Estate Taxes.
Kilburn, with the Boynton Intracoastal Group that includes her neighbors in Boynton Beach, says she pays 38 times more in taxes than some of her neighbors. The state’s real-estate tax system, she says, unfairly favors long-time, permanent residents over part-timers, noncitizens and renters.
“This was supposed to be my ideal retirement,” said Kilburn, 56, who lives the rest of the year near Ottawa in Canada. “The tax system is pitting neighbor against neighbor.”
Copyright © 2007 South Florida Sun-Sentinel, Mark Hollis. Distributed by McClatchy-Tribune Information Services.
Fractional Ownerships:
Fractional Ownerships: Have your vacation home and afford it, too
NORTH PALM BEACH, Fla. – Aug. 9, 2007 – If the cost were the same, which would you rather own: a vacation home in the hills of Tuscany or holiday digs in London, Aspen, South Beach and Rio de Janeiro?
If you prefer the latter, you’re not alone. A growing number of Americans are following the lead of well-heeled Europeans and investing in fractional ownership of vacation property. For the price of that Tuscan villa, you might own quarter shares in the four other destinations.
“That’s exploding,” says Andy Sirkin, attorney and partner in Sirkin Paul Associates of San Francisco and Paris, which specializes in fractional ownership. “Every week, we see a 10 to 20 percent increase in the number of calls.”
As a fractional owner, you actually become a co-owner of a vacation property; you split the purchase price, maintenance and taxes with your co-owners, as well as the property’s appreciation down the road.
The advantages of fractional ownership are numerous:
• Investment diversification. You don’t have to bear the full financial burden of a holiday house you will likely only use a few weeks a year.
• Buying power. You may be able to buy a far more desirable property or in a better location than you could have afforded alone.
• Location. With a do-it-yourself fractional, you’re not tied to properties on the tourist strip, and may opt instead to buy in a more desirable – and affordable – neighborhood.
• Culture cushion. Split the obstacles of setting up house in a foreign country among the group – or better yet, buy into an already established fractional in your country of choice.
• No rental headaches. Although some groups do allow its owners to rent out their allotted time, others prohibit it, as do certain locales.
• Equity participation in the property’s likely appreciation.
• Control over the ownership, maintenance, even the decor.
• Travel diversification. Flexibility to co-own homes in several locations rather than being tied to one.
• Business expense. Want to reward your employees, woo your clients and write off part of your fractional? You may be able to if you use it for business.
The disadvantages are few but can be significant. Though their number is growing with demand, there are still relatively few lenders willing to finance the purchase of a fractional. All kinds of financial foibles can arise if you fail to carve the terms of your fractional in stone with the help of an attorney familiar with the nuances of this emerging field. The pro rata shares may add up to more than what the property would have cost a single buyer. Be as careful in selecting a vacation fractional as you would your own home, since there is no guarantee it will hold its value, even in a resort location.
Baby boomers lead the way
Sirkin says fractionals reflect the changing lifestyles of baby boomers who want to either recoup some of the outlay on their little-used vacation home or diversify their vacation destinations without having to sell the place or, worse, rent it.
“This way, they have use of the house when they want it, the house is not beaten up by being rented out, and they’re not bearing the entire cost of acquiring or maintaining the house. Plus, they don’t have the management headaches of renting it out. That is what is causing people to turn to this in increasing numbers.”
Ownership and control
If this all sounds a little familiar, it should. In fact, perhaps the biggest hurdle facing the emerging fractional industry is that it is frequently confused with your parent’s version: the timeshare.
Two things separate the fractional from the timeshare: ownership and control. With a timeshare, you typically bought the use of a property for two or three weeks a year; there was no ownership in the property itself and you had little, if any, control over when or where you stayed. With a fractional, you are actually a co-owner of the property, either by deed or, as is often the case with foreign fractionals, as a shareholder in a nonprofit business entity such as a partnership or limited liability company. Although deeded ownership does not guarantee you any particular level of control per se, it does provide the opportunity to incorporate that into your governing documents.
As your parents may attest, the problem with timeshares is that their investment value tended to decline rather than appreciate, especially when the developer moved on.
“What gave older timeshare concepts a bad name was that people didn’t really have any control at all, so what happened was, either the property became run down over time or costs went up exorbitantly, or both,” says Sirkin. “So it got to the point where you were paying more than you would for a much nicer hotel room down the street. They were too big, the developers had no incentive to keep it up once they sold out the project and there was no one to actually take care of it.”
Neil McAllister, co-founder of YourFraction.net, a fractional advisory service based in Florida and Edinburgh, Scotland, says fractionals have learned from the mistakes of timeshares.
“I think with the average timeshare, something like 50 percent of it goes to commissions and fees, whereas the true brick-and-mortar value is really quite low,” he says. “The finance people we’re using have said they would prefer that the total of all the fractions does not exceed 130 percent of the value of the property.”
Fractionals are all the rage just now, with megadevelopers such as Ritz-Carlton, Four Seasons, Marriott and Interwest busily marketing private residence clubs, or PRCs, in their luxury resort properties, hoping their four-star pedigrees will lure boomers away from do-it-yourself options.
Would you rather be a direct owner in a small fractional or a luxury PRC member? Sirkin says the choice once again comes down to equity and control. “If you buy a nice house in a desirable resort area, that is going to hold its value, period. Even if the group doesn’t do such a good job of being a group, the basic real estate value is there,” he says.
The fractional solution
There is little doubt that America is on a tear for vacation real estate. According to the National Association of Realtors’ most recent “Vacation Home Buyers Survey,” vacation-home sales rose 4.7 percent to a record 1.07 million in 2006, up from 1.02 million the previous year. Vacation homes accounted for 14 percent of all homes purchased last year, up from 12 percent in 2005. Four out of five owners surveyed said they purchased the home primarily for vacation use.
But Christine Karpinski, author of “How to Rent Vacation Properties by Owner,” says those dream getaways often come with some unrealistic expectations.
“Very few people buy a vacation home with the intention of renting it out; they always think they will be able to use it, but people just aren’t realistic,” she says.
Karpinski is now affiliated with HomeAway.com, which lists some 85,000 paid rental listings for homeowners looking to recoup some of their vacation home investments. HomeAway charges between $140 and $400 for a one-year rental listing, depending on features. She finds fractionals a more realistic alternative to vacation-home ownership – if you think ahead.
“It’s a great way to build equity,” she says. “A lot of times people don’t get into partnerships because they have this idealistic view of the future; they want to retire to Florida or Hawaii. But a lot of times, those decisions are made between the ages of 45 and 55, when you don’t necessarily know your future. Ten years later, you may have aging parents and new grandchildren to where you don’t really want to move to Hawaii.”
How to draft the agreement
Hammering out the details of a fractional falls somewhere between drafting a partnership agreement and writing up governing documents for a condo association. Sirkin estimates the average cost at $2,000 to $4,000, with an additional $400 to run it by a real estate attorney in the county or country where the property is located – definitely a good idea. But remember, those costs are shared by your co-owners.
Most of the fractions Sirkin has worked with number four to eight co-owners; the number is often driven by the desirable number of weeks each year and the proximity of the property. Among domestic destinations, Colorado ranks first, followed by Florida, Hawaii, California, Nevada, Texas and the Carolinas. A quick online search for “fractionals + (your desired location)” will put you in touch with local Realtors, developers and others in the know.
McAllister, who is currently working on fractioning a 55-apartment Tuscan villa and a golf estate at St. Andrews, says fractionals allow even average Joes to have their vacation home and afford it, too.
“If you buy at a sensible price, there is a very good chance that it will appreciate in value, whereas timeshares do nothing but depreciate. And whichever way you look at it, either as an investment or free holidays for X number of years, there’s very little risk.”
NORTH PALM BEACH, Fla. – Aug. 9, 2007 – If the cost were the same, which would you rather own: a vacation home in the hills of Tuscany or holiday digs in London, Aspen, South Beach and Rio de Janeiro?
If you prefer the latter, you’re not alone. A growing number of Americans are following the lead of well-heeled Europeans and investing in fractional ownership of vacation property. For the price of that Tuscan villa, you might own quarter shares in the four other destinations.
“That’s exploding,” says Andy Sirkin, attorney and partner in Sirkin Paul Associates of San Francisco and Paris, which specializes in fractional ownership. “Every week, we see a 10 to 20 percent increase in the number of calls.”
As a fractional owner, you actually become a co-owner of a vacation property; you split the purchase price, maintenance and taxes with your co-owners, as well as the property’s appreciation down the road.
The advantages of fractional ownership are numerous:
• Investment diversification. You don’t have to bear the full financial burden of a holiday house you will likely only use a few weeks a year.
• Buying power. You may be able to buy a far more desirable property or in a better location than you could have afforded alone.
• Location. With a do-it-yourself fractional, you’re not tied to properties on the tourist strip, and may opt instead to buy in a more desirable – and affordable – neighborhood.
• Culture cushion. Split the obstacles of setting up house in a foreign country among the group – or better yet, buy into an already established fractional in your country of choice.
• No rental headaches. Although some groups do allow its owners to rent out their allotted time, others prohibit it, as do certain locales.
• Equity participation in the property’s likely appreciation.
• Control over the ownership, maintenance, even the decor.
• Travel diversification. Flexibility to co-own homes in several locations rather than being tied to one.
• Business expense. Want to reward your employees, woo your clients and write off part of your fractional? You may be able to if you use it for business.
The disadvantages are few but can be significant. Though their number is growing with demand, there are still relatively few lenders willing to finance the purchase of a fractional. All kinds of financial foibles can arise if you fail to carve the terms of your fractional in stone with the help of an attorney familiar with the nuances of this emerging field. The pro rata shares may add up to more than what the property would have cost a single buyer. Be as careful in selecting a vacation fractional as you would your own home, since there is no guarantee it will hold its value, even in a resort location.
Baby boomers lead the way
Sirkin says fractionals reflect the changing lifestyles of baby boomers who want to either recoup some of the outlay on their little-used vacation home or diversify their vacation destinations without having to sell the place or, worse, rent it.
“This way, they have use of the house when they want it, the house is not beaten up by being rented out, and they’re not bearing the entire cost of acquiring or maintaining the house. Plus, they don’t have the management headaches of renting it out. That is what is causing people to turn to this in increasing numbers.”
Ownership and control
If this all sounds a little familiar, it should. In fact, perhaps the biggest hurdle facing the emerging fractional industry is that it is frequently confused with your parent’s version: the timeshare.
Two things separate the fractional from the timeshare: ownership and control. With a timeshare, you typically bought the use of a property for two or three weeks a year; there was no ownership in the property itself and you had little, if any, control over when or where you stayed. With a fractional, you are actually a co-owner of the property, either by deed or, as is often the case with foreign fractionals, as a shareholder in a nonprofit business entity such as a partnership or limited liability company. Although deeded ownership does not guarantee you any particular level of control per se, it does provide the opportunity to incorporate that into your governing documents.
As your parents may attest, the problem with timeshares is that their investment value tended to decline rather than appreciate, especially when the developer moved on.
“What gave older timeshare concepts a bad name was that people didn’t really have any control at all, so what happened was, either the property became run down over time or costs went up exorbitantly, or both,” says Sirkin. “So it got to the point where you were paying more than you would for a much nicer hotel room down the street. They were too big, the developers had no incentive to keep it up once they sold out the project and there was no one to actually take care of it.”
Neil McAllister, co-founder of YourFraction.net, a fractional advisory service based in Florida and Edinburgh, Scotland, says fractionals have learned from the mistakes of timeshares.
“I think with the average timeshare, something like 50 percent of it goes to commissions and fees, whereas the true brick-and-mortar value is really quite low,” he says. “The finance people we’re using have said they would prefer that the total of all the fractions does not exceed 130 percent of the value of the property.”
Fractionals are all the rage just now, with megadevelopers such as Ritz-Carlton, Four Seasons, Marriott and Interwest busily marketing private residence clubs, or PRCs, in their luxury resort properties, hoping their four-star pedigrees will lure boomers away from do-it-yourself options.
Would you rather be a direct owner in a small fractional or a luxury PRC member? Sirkin says the choice once again comes down to equity and control. “If you buy a nice house in a desirable resort area, that is going to hold its value, period. Even if the group doesn’t do such a good job of being a group, the basic real estate value is there,” he says.
The fractional solution
There is little doubt that America is on a tear for vacation real estate. According to the National Association of Realtors’ most recent “Vacation Home Buyers Survey,” vacation-home sales rose 4.7 percent to a record 1.07 million in 2006, up from 1.02 million the previous year. Vacation homes accounted for 14 percent of all homes purchased last year, up from 12 percent in 2005. Four out of five owners surveyed said they purchased the home primarily for vacation use.
But Christine Karpinski, author of “How to Rent Vacation Properties by Owner,” says those dream getaways often come with some unrealistic expectations.
“Very few people buy a vacation home with the intention of renting it out; they always think they will be able to use it, but people just aren’t realistic,” she says.
Karpinski is now affiliated with HomeAway.com, which lists some 85,000 paid rental listings for homeowners looking to recoup some of their vacation home investments. HomeAway charges between $140 and $400 for a one-year rental listing, depending on features. She finds fractionals a more realistic alternative to vacation-home ownership – if you think ahead.
“It’s a great way to build equity,” she says. “A lot of times people don’t get into partnerships because they have this idealistic view of the future; they want to retire to Florida or Hawaii. But a lot of times, those decisions are made between the ages of 45 and 55, when you don’t necessarily know your future. Ten years later, you may have aging parents and new grandchildren to where you don’t really want to move to Hawaii.”
How to draft the agreement
Hammering out the details of a fractional falls somewhere between drafting a partnership agreement and writing up governing documents for a condo association. Sirkin estimates the average cost at $2,000 to $4,000, with an additional $400 to run it by a real estate attorney in the county or country where the property is located – definitely a good idea. But remember, those costs are shared by your co-owners.
Most of the fractions Sirkin has worked with number four to eight co-owners; the number is often driven by the desirable number of weeks each year and the proximity of the property. Among domestic destinations, Colorado ranks first, followed by Florida, Hawaii, California, Nevada, Texas and the Carolinas. A quick online search for “fractionals + (your desired location)” will put you in touch with local Realtors, developers and others in the know.
McAllister, who is currently working on fractioning a 55-apartment Tuscan villa and a golf estate at St. Andrews, says fractionals allow even average Joes to have their vacation home and afford it, too.
“If you buy at a sensible price, there is a very good chance that it will appreciate in value, whereas timeshares do nothing but depreciate. And whichever way you look at it, either as an investment or free holidays for X number of years, there’s very little risk.”
Fixed mortgage rates sink further
This week, mortgage industry experts surveyed by Bankrate.com are almost evenly split when it comes to the direction of mortgage rates. A slight plurality of 38 percent believes that rates will fall over the next 35 to 45 days. Another 31 percent think mortgage rates will rise, and 31 percent predict that they will remain relatively unchanged.
WASHINGTON (AP) – Aug. 10, 2007 – Rates on 30-year mortgages sank this week to their lowest point in two months, a dose of good news for people thinking about buying a home.
Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages averaged 6.59 percent. That was down from 6.68 percent last week and was the lowest since early June, when rates stood at 6.53 percent.
The moderation is a piece of welcome news for prospective homebuyers, some of whom also have been faced with a situation of harder-to-get credit. In mid-June, rates on 30-year mortgages had climbed to 6.74 percent, an 11-month high.
Mortgages rates have ebbed as recent stock market turbulence has prompted investors to plow money into bonds, driving down rates on bonds. That, in turn, has pushed down rates on mortgages, which have eased amid signs the economy is growing gradually and hiring has cooled off a bit. The unemployment rate inched up to 4.6 percent in July, a six month high.
Rates on 15-year fixed-rate mortgages, a popular choice for refinancing, also moved lower this week. They dropped to 6.25 percent, from 6.32 percent last week. Rates on one-year adjustable-rate mortgages also fell to 5.65 percent, compared with 5.69 percent last week.
However, rates on five-year adjustable-rate mortgages rose this week to 6.33 percent, from last week's average of 6.29 percent.
The mortgage rates do not include add-on fees known as points. Thirty-year and 15-year mortgages each carried a nationwide average fee of 0.4 point. Five-year and one-year ARMs each carried an average fee of 0.5 point.
A year ago, rates on 30-year mortgages stood at 6.55 percent, 15-year mortgages were at 6.20 percent, five-year adjustable-rate mortgages also averaged 6.21 percent and one-year ARMs were at 5.69 percent.
After a five-year boom, the housing market fell into a slump last year. Sales turned weak as did home prices. The slump is expected to drag on probably through the rest of this year.
Worries that the housing slump will worsen and that credit problems in the home mortgage market will spread, possibly hurting the broader financial system and the overall economy, have fed turmoil on Wall Street. Stocks have been swinging wildly in recent weeks.
Problems first sprouted in the market for higher-risk mortgages, which are held by people with tarnished credit histories. But some problems have spilled over to more creditworthy borrowers.
Home foreclosures, meanwhile, have climbed to record highs.
As a result, lenders have been tightening credit standards, making it harder for some people to find financing for big-ticket purchases, such as homes and cars.
The National Association of Realtors on Wednesday lowered its forecast for sales of existing homes – a big chunk of the housing market. It predicted sales would total 6.04 million this year, which would be the lowest level since 2002. A previous forecast had projected sales of 6.11 million for this year.
On the Net: Freddie Mac: http://www.freddiemac.com
WASHINGTON (AP) – Aug. 10, 2007 – Rates on 30-year mortgages sank this week to their lowest point in two months, a dose of good news for people thinking about buying a home.
Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages averaged 6.59 percent. That was down from 6.68 percent last week and was the lowest since early June, when rates stood at 6.53 percent.
The moderation is a piece of welcome news for prospective homebuyers, some of whom also have been faced with a situation of harder-to-get credit. In mid-June, rates on 30-year mortgages had climbed to 6.74 percent, an 11-month high.
Mortgages rates have ebbed as recent stock market turbulence has prompted investors to plow money into bonds, driving down rates on bonds. That, in turn, has pushed down rates on mortgages, which have eased amid signs the economy is growing gradually and hiring has cooled off a bit. The unemployment rate inched up to 4.6 percent in July, a six month high.
Rates on 15-year fixed-rate mortgages, a popular choice for refinancing, also moved lower this week. They dropped to 6.25 percent, from 6.32 percent last week. Rates on one-year adjustable-rate mortgages also fell to 5.65 percent, compared with 5.69 percent last week.
However, rates on five-year adjustable-rate mortgages rose this week to 6.33 percent, from last week's average of 6.29 percent.
The mortgage rates do not include add-on fees known as points. Thirty-year and 15-year mortgages each carried a nationwide average fee of 0.4 point. Five-year and one-year ARMs each carried an average fee of 0.5 point.
A year ago, rates on 30-year mortgages stood at 6.55 percent, 15-year mortgages were at 6.20 percent, five-year adjustable-rate mortgages also averaged 6.21 percent and one-year ARMs were at 5.69 percent.
After a five-year boom, the housing market fell into a slump last year. Sales turned weak as did home prices. The slump is expected to drag on probably through the rest of this year.
Worries that the housing slump will worsen and that credit problems in the home mortgage market will spread, possibly hurting the broader financial system and the overall economy, have fed turmoil on Wall Street. Stocks have been swinging wildly in recent weeks.
Problems first sprouted in the market for higher-risk mortgages, which are held by people with tarnished credit histories. But some problems have spilled over to more creditworthy borrowers.
Home foreclosures, meanwhile, have climbed to record highs.
As a result, lenders have been tightening credit standards, making it harder for some people to find financing for big-ticket purchases, such as homes and cars.
The National Association of Realtors on Wednesday lowered its forecast for sales of existing homes – a big chunk of the housing market. It predicted sales would total 6.04 million this year, which would be the lowest level since 2002. A previous forecast had projected sales of 6.11 million for this year.
On the Net: Freddie Mac: http://www.freddiemac.com
Subprime Mortgages
PHILADELPHIA – Aug. 9, 2007 – Given all the financial turmoil blamed on subprime mortgages this year, it’s easy to forget that they are a small slice of the mortgage market.
For starters, about a third of the nation’s 75 million homeowners have no mortgage.
Of the $9.8 trillion in outstanding residential mortgage debt at the end of March, 13 percent – or $1.27 trillion – was in the hands of subprime borrowers.
And of subprime borrowers, 13.3 percent were behind on their payments, according to the Mortgage Bankers Association.
If losses reach $113 billion this year and next, as Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pa., predicted, that would still be just 1 percent of the overall mortgage market.
Even so, “it’s big enough to be a catalyst for investors to reevaluate the risks they’ve been taking,” Zandi said. “The financial impact is bigger because investors overstepped so far in so many markets.”
Investor appetite for risk enabled subprime and Alt-A – or minimally documented – mortgage lending exploded from $215 billion in 2001 to $1 trillion in 2005, according to Inside Mortgage Finance. That happened in a symbiotic relationship with soaring house prices, particularly in California, Florida, Nevada and Arizona.
“They are absolutely linked. Without subprime, there is no bubble,” said Susan Wachter, a professor of real estate at the Wharton School of the University of Pennsylvania.
And now, it is going to take a long time to recover.
Zandi predicted that average house prices nationwide will fall 10 percent from their peak in late 2005 to their trough in the middle of next year.
It will take years to unwind the financial knot of mortgages wrapped into debt securities that are now buried deep inside hedge funds and foreign-investment vehicles.
On Wall Street, companies connected to risky mortgage lending have already lost billions in stock market value, as nervous institutional lenders pull back from the sector.
The market value of Radian Group Inc. has evaporated by $2.52 billion – or more than half – since the end of June because of a credit squeeze at a subprime-mortgage investor that the Philadelphia mortgage insurer co-owns.
Another Philadelphia company, RAIT Financial Trust, has lost more than 70 percent – or $1.25 billion – of its market value over the same period because of its exposure to mortgage companies and homebuilders.
Subprime lending did not start out as a monster that laid waste to the equity of homeowners and the market value of lenders.
It has been around for a long time in the form of equity-based lending – which means that loans are based on the value of property rather than the quality of a borrower’s credit – said Guy Cecala, publisher of Inside Mortgage Finance in Bethesda, Md.
“Historically, the feeling was you couldn’t use a credit score with a subprime borrower because they had no credit,” Cecala said.
But using their experience with credit cards, lenders adapted the use of the credit score to subprime-mortgage lending. That gave them the confidence to put a price on the higher risk of subprime lending.
That contributed to an increase in the U.S. homeownership rate, from about 64 percent in 1995 – where it had been since the late 1960s – to a peak of 69.2 percent at the end of 2004, said Wachter, the Wharton professor.
In 2004, subprime-mortgage lending exploded from 8 percent of the mortgage market – where it had been for years – to 18 percent, Cecala said. It climbed to 20 percent in 2005.
“What happened is that mortgage lenders started digging a lot deeper” for potential borrowers to make loans that could be sold on Wall Street, Cecala said.
The game is over for now.
“We’ve entered a period of uncertainty,” said Gordon B. Fowler, chief investment officer at Glenmede Trust Co., of Philadelphia. “How bad does it get for the consumer and how much will that take down growth? And the other piece of uncertainty is who is going to be left holding the bag? We’re not going to know who is holding the bag for quite some time.”
For starters, about a third of the nation’s 75 million homeowners have no mortgage.
Of the $9.8 trillion in outstanding residential mortgage debt at the end of March, 13 percent – or $1.27 trillion – was in the hands of subprime borrowers.
And of subprime borrowers, 13.3 percent were behind on their payments, according to the Mortgage Bankers Association.
If losses reach $113 billion this year and next, as Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pa., predicted, that would still be just 1 percent of the overall mortgage market.
Even so, “it’s big enough to be a catalyst for investors to reevaluate the risks they’ve been taking,” Zandi said. “The financial impact is bigger because investors overstepped so far in so many markets.”
Investor appetite for risk enabled subprime and Alt-A – or minimally documented – mortgage lending exploded from $215 billion in 2001 to $1 trillion in 2005, according to Inside Mortgage Finance. That happened in a symbiotic relationship with soaring house prices, particularly in California, Florida, Nevada and Arizona.
“They are absolutely linked. Without subprime, there is no bubble,” said Susan Wachter, a professor of real estate at the Wharton School of the University of Pennsylvania.
And now, it is going to take a long time to recover.
Zandi predicted that average house prices nationwide will fall 10 percent from their peak in late 2005 to their trough in the middle of next year.
It will take years to unwind the financial knot of mortgages wrapped into debt securities that are now buried deep inside hedge funds and foreign-investment vehicles.
On Wall Street, companies connected to risky mortgage lending have already lost billions in stock market value, as nervous institutional lenders pull back from the sector.
The market value of Radian Group Inc. has evaporated by $2.52 billion – or more than half – since the end of June because of a credit squeeze at a subprime-mortgage investor that the Philadelphia mortgage insurer co-owns.
Another Philadelphia company, RAIT Financial Trust, has lost more than 70 percent – or $1.25 billion – of its market value over the same period because of its exposure to mortgage companies and homebuilders.
Subprime lending did not start out as a monster that laid waste to the equity of homeowners and the market value of lenders.
It has been around for a long time in the form of equity-based lending – which means that loans are based on the value of property rather than the quality of a borrower’s credit – said Guy Cecala, publisher of Inside Mortgage Finance in Bethesda, Md.
“Historically, the feeling was you couldn’t use a credit score with a subprime borrower because they had no credit,” Cecala said.
But using their experience with credit cards, lenders adapted the use of the credit score to subprime-mortgage lending. That gave them the confidence to put a price on the higher risk of subprime lending.
That contributed to an increase in the U.S. homeownership rate, from about 64 percent in 1995 – where it had been since the late 1960s – to a peak of 69.2 percent at the end of 2004, said Wachter, the Wharton professor.
In 2004, subprime-mortgage lending exploded from 8 percent of the mortgage market – where it had been for years – to 18 percent, Cecala said. It climbed to 20 percent in 2005.
“What happened is that mortgage lenders started digging a lot deeper” for potential borrowers to make loans that could be sold on Wall Street, Cecala said.
The game is over for now.
“We’ve entered a period of uncertainty,” said Gordon B. Fowler, chief investment officer at Glenmede Trust Co., of Philadelphia. “How bad does it get for the consumer and how much will that take down growth? And the other piece of uncertainty is who is going to be left holding the bag? We’re not going to know who is holding the bag for quite some time.”
University of Florida Survey - House Values
GAINESVILLE, Fla. – Aug. 9, 2007 – Floridians are optimistic about housing prices despite the gloom pervading much of the real estate industry, a new University of Florida survey finds.
Only 5 percent of 287 Florida homeowners said they think their house values will fall during the next five years, according to the survey, which was conducted in July by UF’s Bureau of Economic and Business Research.
Eighty-two percent expected the value of their houses to rise, and 13 percent said they would remain the same. The median respondent expected a gain of 18 percent, or a little more than 3 percent a year.
UF economists said they were not surprised by the results.
“The last time housing prices fell and didn’t recover within five years was during the Great Depression,” said Jonathan Hamilton, a UF economics professor and chairman of the economics department. “Most of the problem in Florida right now is that we’ve had a huge amount of building and lots of speculative buying, and things are now catching up.”
Although there is a large inventory of condominiums for sale statewide, many of these units are likely to be sold and occupied within the next few years, he said.
Florida’s draw as a retirement destination as the baby boomers age is another factor that bodes well for the state, said David Denslow, a UF economics professor who led the research. “As these baby boomers flood into Florida, they will be pushing housing prices up,” he said.
The questions were asked as part of the bureau’s monthly consumer confidence telephone survey. The responses about housing price expectations did not vary significantly by age, race, gender, region within the state or current house value, Denslow said.
“This surprised me a little bit because we expect people to be more pessimistic where there is a huge glut on the market such as the Tampa Bay or the Orlando area,” he said. “The people who do distressed house sales, the Web sites where they say they’ll buy your house for only 80 percent of its value, they love Orlando right now.”
The housing market is in a period of correction after the dramatic appreciation in real estate values nationally and particularly in Florida since 2000, Denslow said. In most Florida markets the median price of existing homes is declining, he said.
“Although these declines are temporary, there will be at least some Florida markets where house price appreciation will be very low over the next five years,” he said. “My guess would be that you’ll see low house price appreciation in the Tampa Bay, Orlando and Miami area simply because of the number of existing units on the market.”
In contrast, large price reductions are unlikely in Gainesville or Tallahassee where the housing boom has not been nearly as dramatic, Denslow said. “And similarly, I don’t think that Jacksonville is going to be hurt as badly as Fort Myers or Naples or the Fort Pierce area,” he said.
The survey’s error rate was 4 percent.
© 2007 FLORIDA ASSOCIATION OF REALTORS®
Only 5 percent of 287 Florida homeowners said they think their house values will fall during the next five years, according to the survey, which was conducted in July by UF’s Bureau of Economic and Business Research.
Eighty-two percent expected the value of their houses to rise, and 13 percent said they would remain the same. The median respondent expected a gain of 18 percent, or a little more than 3 percent a year.
UF economists said they were not surprised by the results.
“The last time housing prices fell and didn’t recover within five years was during the Great Depression,” said Jonathan Hamilton, a UF economics professor and chairman of the economics department. “Most of the problem in Florida right now is that we’ve had a huge amount of building and lots of speculative buying, and things are now catching up.”
Although there is a large inventory of condominiums for sale statewide, many of these units are likely to be sold and occupied within the next few years, he said.
Florida’s draw as a retirement destination as the baby boomers age is another factor that bodes well for the state, said David Denslow, a UF economics professor who led the research. “As these baby boomers flood into Florida, they will be pushing housing prices up,” he said.
The questions were asked as part of the bureau’s monthly consumer confidence telephone survey. The responses about housing price expectations did not vary significantly by age, race, gender, region within the state or current house value, Denslow said.
“This surprised me a little bit because we expect people to be more pessimistic where there is a huge glut on the market such as the Tampa Bay or the Orlando area,” he said. “The people who do distressed house sales, the Web sites where they say they’ll buy your house for only 80 percent of its value, they love Orlando right now.”
The housing market is in a period of correction after the dramatic appreciation in real estate values nationally and particularly in Florida since 2000, Denslow said. In most Florida markets the median price of existing homes is declining, he said.
“Although these declines are temporary, there will be at least some Florida markets where house price appreciation will be very low over the next five years,” he said. “My guess would be that you’ll see low house price appreciation in the Tampa Bay, Orlando and Miami area simply because of the number of existing units on the market.”
In contrast, large price reductions are unlikely in Gainesville or Tallahassee where the housing boom has not been nearly as dramatic, Denslow said. “And similarly, I don’t think that Jacksonville is going to be hurt as badly as Fort Myers or Naples or the Fort Pierce area,” he said.
The survey’s error rate was 4 percent.
© 2007 FLORIDA ASSOCIATION OF REALTORS®
Sales to hold in modest range, says NAR
WASHINGTON – Aug. 9, 2007 – The housing market will probably hold close to present levels in the months ahead, according to the latest forecast by the National Association of Realtors® (NAR).
Lawrence Yun, NAR senior economist, says he isn’t looking for any notable changes in sales activity. “Existing-home sales should be relatively stable over the next few months, holding in a modest range, with some pent-up demand growing from buyers who’ve been on the sidelines,” he says. “Mortgage disruptions will hold back sales over the short term, but long-term fundamentals are favorable. A modest upturn is projected for existing-home sales toward the end of the year, with broader improvement to include the new-home market by the middle of 2008.”
Existing-home sales are forecast at 6.04 million in 2007 and 6.38 million next year, below the 6.48 million recorded in 2006. New-home sales are expected to total 852,000 this year and 848,000 in 2008, down from 1.05 million in 2006. Housing starts, including multifamily units, are likely to total 1.43 million in 2007 and 1.40 million next year, below the 1.80 million units started in 2006.
“With the population growing, the demand for homes isn’t going away – it’s just being delayed,” Yun says. “More buyers, and cutbacks in new construction, will eventually draw down the inventory levels and support future price appreciation, but general gains will be modest next year. Serious buyers today have a long-term view of housing as an investment – speculators have left the market.”
Existing-home prices should ease by 1.2 percent to a median of $219,300 in 2007 before rising 2.0 percent next year to $223,600. The median new-home price will probably fall 2.3 percent to $240,800 in 2007, and then rise 2.3 percent next year to $246,300.
The 30-year fixed-rate mortgage is forecast to average 6.7 percent in the fourth quarter and then ease to the 6.5 percent range next year.
Growth in the U.S. gross domestic product (GDP) is projected to be 1.9 percent this year, down from a 2.9 percent growth rate in 2006; GDP is expected to grow 2.8 percent next year.
The unemployment rate is estimated to average 4.6 percent this year, unchanged from 2006. Inflation, as measured by the Consumer Price Index, is likely to be 2.7 percent this year, down from 3.2 percent in 2006. Inflation-adjusted disposable personal income should rise 3.1 percent in 2007, the same as last year.
© 2007 FLORIDA ASSOCIATION OF REALTORS
Lawrence Yun, NAR senior economist, says he isn’t looking for any notable changes in sales activity. “Existing-home sales should be relatively stable over the next few months, holding in a modest range, with some pent-up demand growing from buyers who’ve been on the sidelines,” he says. “Mortgage disruptions will hold back sales over the short term, but long-term fundamentals are favorable. A modest upturn is projected for existing-home sales toward the end of the year, with broader improvement to include the new-home market by the middle of 2008.”
Existing-home sales are forecast at 6.04 million in 2007 and 6.38 million next year, below the 6.48 million recorded in 2006. New-home sales are expected to total 852,000 this year and 848,000 in 2008, down from 1.05 million in 2006. Housing starts, including multifamily units, are likely to total 1.43 million in 2007 and 1.40 million next year, below the 1.80 million units started in 2006.
“With the population growing, the demand for homes isn’t going away – it’s just being delayed,” Yun says. “More buyers, and cutbacks in new construction, will eventually draw down the inventory levels and support future price appreciation, but general gains will be modest next year. Serious buyers today have a long-term view of housing as an investment – speculators have left the market.”
Existing-home prices should ease by 1.2 percent to a median of $219,300 in 2007 before rising 2.0 percent next year to $223,600. The median new-home price will probably fall 2.3 percent to $240,800 in 2007, and then rise 2.3 percent next year to $246,300.
The 30-year fixed-rate mortgage is forecast to average 6.7 percent in the fourth quarter and then ease to the 6.5 percent range next year.
Growth in the U.S. gross domestic product (GDP) is projected to be 1.9 percent this year, down from a 2.9 percent growth rate in 2006; GDP is expected to grow 2.8 percent next year.
The unemployment rate is estimated to average 4.6 percent this year, unchanged from 2006. Inflation, as measured by the Consumer Price Index, is likely to be 2.7 percent this year, down from 3.2 percent in 2006. Inflation-adjusted disposable personal income should rise 3.1 percent in 2007, the same as last year.
© 2007 FLORIDA ASSOCIATION OF REALTORS
Sunday, April 22, 2007
U.S. Government Site Has Stats Aplenty
Have you ever wondered how much beer Americans drink? How many sheep call Texas home? Did you ever wish you knew the average income of folks in Springfield, Missouri?
For all the times you wish you had access to statistics that are relevant to your business - or for when you just want to beef up your collection of useless trivia - this site is for you.
Claiming to be the "gateway to statistics for over 100 federal agencies," www.fedstats.gov gives you access to a full range of official statistical information available to the public from the federal government. Use this site to track economic and population trends, education, health care costs, aviation safety, foreign trade, energy use, farm production, and more.
The site includes a list of links organized alphabetically on more than 400 topics, ranging from acute conditions to weekly earnings.
Search by program and subject areas, or by the name of a specific agency. Or use MapStats to profile your state, county, federal judicial district, or congressional district. Just select the name from the menu or use the map provided for your state.
For all the times you wish you had access to statistics that are relevant to your business - or for when you just want to beef up your collection of useless trivia - this site is for you.
Claiming to be the "gateway to statistics for over 100 federal agencies," www.fedstats.gov gives you access to a full range of official statistical information available to the public from the federal government. Use this site to track economic and population trends, education, health care costs, aviation safety, foreign trade, energy use, farm production, and more.
The site includes a list of links organized alphabetically on more than 400 topics, ranging from acute conditions to weekly earnings.
Search by program and subject areas, or by the name of a specific agency. Or use MapStats to profile your state, county, federal judicial district, or congressional district. Just select the name from the menu or use the map provided for your state.
How Stressed Are You?
Is your life hectic, fast-paced and fraught with deadlines and crises?
When you live a hurry-up, not-enough-time existence, you trigger your body's natural response of adrenalin release. You know that feeling? The heart quickens, the senses become more alert and the tension in your muscles is increased. It is the caveman "fight or flight" response. What you probably aren't aware of is that you can become addicted to adrenalin.
The danger is that you become dependent on the adrenalin to fuel you and get you through your days. Like a rubber band that resumes its shape after being stretched, your body is designed to use the adrenalin rush for emergencies - allowing you to get by with less sleep and be super-alert and then return to a natural calm state. If, however, that rubber band is continually stretched, there is a point where it begins to crack and then breaks. Your body is no different. The adrenal glands, as a part of your immune system, are designed to work on keeping you well and healthy. If you continually divert them and use them for fueling your energy, you will notice you get sick more. John Wanamaker said," People who cannot find time for recreation are obliged sooner or later to find time for illness."
The adrenalin response can be intensely pleasurable and we can begin to "crave" it or structure our living so that we leave things to the last minute, counting on that "doing our best work under pressure" response. If you live this way long enough, it starts to feel very uncomfortable when it isn't coursing through your veins. Eventually, however, you will pay the price.
Here are some questions to ask:
· Do you overpromise and then rush to get it done at the last minute?
· Do you drink coffee or other caffeine-filled drinks to keep going?
· Do you react strongly to the unexpected?
· Do you drive five mph or more over the speed limit, tailgate, and become impatient with other drivers?
· Do you tend to run late?
· Do you feel an inner rush or lack of calmness most of the time?
· Do you talk a lot, even when people have stopped listening?
· Do you find you attract more problems or upsets than you deserve?
· Are you constantly thinking about work, even when you are home or on vacation?
· Do you have your pager and/or phone on all the time?
· Do you usually pull things off right at the last moment?
· Do you have a compulsion to always "be doing" something?
· Do you feel guilty when resting or relaxing?
· Are you irritable and easily aggravated?
· Is there a vague sense of depression when you aren't working?
If you answered yes to five or more of these, you are probably using adrenalin as your energy source.
If you are ready to slow down, enjoy the moment and not push so hard, the first step is awareness. You can then decide what behaviors are you going to change. Identify your triggers that initiate the adrenalin rush and start eliminating them. Here are some triggers and solutions:
TRIGGER SOLUTION
Overpromising Results Deliberately underpromise,regardless of the other person's reaction
Arriving just in time or late Leave 15 minutes earlier for every appointment
Involved in lots of projects Pare it down by 50% or no more than 3
Continual use of caffeine Cut it out (expect withdrawal symptoms)
Having lots of incompletions Start completing everything 100%
Letting people walk over you Expand the boundaries you set with others
Driving too fast Drive at the speedlimit or 5 miles under
Should's & Have to's Get rid of shoulds - live your OWN agenda
Putting up with & tolerating things Get it done and tolerate NOTHING - re-educate others
"Every now and then go away, have a little relaxation, for when you come back to your work your judgment will be surer. Go some distance away because then the work appears smaller and more of it can be taken in at a glance and a lack of harmony and proportion is more readily seen." - Leonardo Da Vinci
Be willing to feel bored. It may take three to six months before you stop craving the high. You will eventually find a new energy source kicks in - your natural passion for what's important and what is truly valuable to you.
Life is too short to hurry. Living an adrenalin lifestyle robs you of the enjoyment and appreciation of the present moment. It is always nicer for others to be around someone who is not stressed and hurried. You'll find you attract more "nice" people to you. It could be the best thing you do for your business and yourself this year.
When you live a hurry-up, not-enough-time existence, you trigger your body's natural response of adrenalin release. You know that feeling? The heart quickens, the senses become more alert and the tension in your muscles is increased. It is the caveman "fight or flight" response. What you probably aren't aware of is that you can become addicted to adrenalin.
The danger is that you become dependent on the adrenalin to fuel you and get you through your days. Like a rubber band that resumes its shape after being stretched, your body is designed to use the adrenalin rush for emergencies - allowing you to get by with less sleep and be super-alert and then return to a natural calm state. If, however, that rubber band is continually stretched, there is a point where it begins to crack and then breaks. Your body is no different. The adrenal glands, as a part of your immune system, are designed to work on keeping you well and healthy. If you continually divert them and use them for fueling your energy, you will notice you get sick more. John Wanamaker said," People who cannot find time for recreation are obliged sooner or later to find time for illness."
The adrenalin response can be intensely pleasurable and we can begin to "crave" it or structure our living so that we leave things to the last minute, counting on that "doing our best work under pressure" response. If you live this way long enough, it starts to feel very uncomfortable when it isn't coursing through your veins. Eventually, however, you will pay the price.
Here are some questions to ask:
· Do you overpromise and then rush to get it done at the last minute?
· Do you drink coffee or other caffeine-filled drinks to keep going?
· Do you react strongly to the unexpected?
· Do you drive five mph or more over the speed limit, tailgate, and become impatient with other drivers?
· Do you tend to run late?
· Do you feel an inner rush or lack of calmness most of the time?
· Do you talk a lot, even when people have stopped listening?
· Do you find you attract more problems or upsets than you deserve?
· Are you constantly thinking about work, even when you are home or on vacation?
· Do you have your pager and/or phone on all the time?
· Do you usually pull things off right at the last moment?
· Do you have a compulsion to always "be doing" something?
· Do you feel guilty when resting or relaxing?
· Are you irritable and easily aggravated?
· Is there a vague sense of depression when you aren't working?
If you answered yes to five or more of these, you are probably using adrenalin as your energy source.
If you are ready to slow down, enjoy the moment and not push so hard, the first step is awareness. You can then decide what behaviors are you going to change. Identify your triggers that initiate the adrenalin rush and start eliminating them. Here are some triggers and solutions:
TRIGGER SOLUTION
Overpromising Results Deliberately underpromise,regardless of the other person's reaction
Arriving just in time or late Leave 15 minutes earlier for every appointment
Involved in lots of projects Pare it down by 50% or no more than 3
Continual use of caffeine Cut it out (expect withdrawal symptoms)
Having lots of incompletions Start completing everything 100%
Letting people walk over you Expand the boundaries you set with others
Driving too fast Drive at the speedlimit or 5 miles under
Should's & Have to's Get rid of shoulds - live your OWN agenda
Putting up with & tolerating things Get it done and tolerate NOTHING - re-educate others
"Every now and then go away, have a little relaxation, for when you come back to your work your judgment will be surer. Go some distance away because then the work appears smaller and more of it can be taken in at a glance and a lack of harmony and proportion is more readily seen." - Leonardo Da Vinci
Be willing to feel bored. It may take three to six months before you stop craving the high. You will eventually find a new energy source kicks in - your natural passion for what's important and what is truly valuable to you.
Life is too short to hurry. Living an adrenalin lifestyle robs you of the enjoyment and appreciation of the present moment. It is always nicer for others to be around someone who is not stressed and hurried. You'll find you attract more "nice" people to you. It could be the best thing you do for your business and yourself this year.
Mortgage Rate Trend Index
The mortgage industry experts polled by Bankrate.com last week (March 29-April 4) said don’t rush to lock because mortgage rates probably aren’t going anywhere over the next 30 to 45 days. Half of the panelists (50 percent) think rates will stay about the same; 29 percent think mortgage rates likely will fall, while 21 percent think they will rise.
WASHINGTON – April 9, 2007 – Mortgage rates around the country crept up last week, although rates on 30-year mortgages still hovered close to their low for the year.
In its weekly survey, mortgage giant Freddie Mac reported last Thursday that 30-year, fixed-rate mortgages averaged 6.17 percent for the week ending April 5.
That was up slightly from 6.16 percent the previous week. Even with the uptick, it was near the low for this year of 6.14 percent, set during the first two weeks of March.
Analysts said mortgage rates have been fairly stable in recent weeks as financial markets – which directly influence these rates – try to figure out the direction of the country’s economic growth as well as inflation.
“Mortgage rates have remained within a narrow band of 0.1 percentage points over every week in March,” said Frank Nothaft, Freddie Mac’s chief economist. “This relative stability is due to mixed economic data releases as to how strong the economy is and whether future inflation will recede,” he explained.
Rates on 15-year, fixed-rate mortgages, a popular choice for refinancing, rose to 5.87 percent last week, up a notch from the previous week’s 5.86 percent.
Five-year adjustable rate mortgages averaged 5.92 percent, compared with 5.88 percent the previous week. One-year adjustable mortgages edged up to 5.44 percent; the previous week, they averaged 5.43 percent.
The mortgage rates do not include add-on fees known as points. Thirty-year mortgages carried a nationwide average fee of 0.4 point. Fifteen-year mortgages had an average fee of 0.5 point. Five-year and one-year adjustable mortgages each carried an average fee of 0.6 point.
A year ago, rates on 30-year mortgages stood at 6.43 percent, while 15-year mortgages were at 6.10 percent. Five-year adjustable-rate mortgages averaged 6.11 percent and one-year adjustable-rate mortgages were at 5.57 percent.
WASHINGTON – April 9, 2007 – Mortgage rates around the country crept up last week, although rates on 30-year mortgages still hovered close to their low for the year.
In its weekly survey, mortgage giant Freddie Mac reported last Thursday that 30-year, fixed-rate mortgages averaged 6.17 percent for the week ending April 5.
That was up slightly from 6.16 percent the previous week. Even with the uptick, it was near the low for this year of 6.14 percent, set during the first two weeks of March.
Analysts said mortgage rates have been fairly stable in recent weeks as financial markets – which directly influence these rates – try to figure out the direction of the country’s economic growth as well as inflation.
“Mortgage rates have remained within a narrow band of 0.1 percentage points over every week in March,” said Frank Nothaft, Freddie Mac’s chief economist. “This relative stability is due to mixed economic data releases as to how strong the economy is and whether future inflation will recede,” he explained.
Rates on 15-year, fixed-rate mortgages, a popular choice for refinancing, rose to 5.87 percent last week, up a notch from the previous week’s 5.86 percent.
Five-year adjustable rate mortgages averaged 5.92 percent, compared with 5.88 percent the previous week. One-year adjustable mortgages edged up to 5.44 percent; the previous week, they averaged 5.43 percent.
The mortgage rates do not include add-on fees known as points. Thirty-year mortgages carried a nationwide average fee of 0.4 point. Fifteen-year mortgages had an average fee of 0.5 point. Five-year and one-year adjustable mortgages each carried an average fee of 0.6 point.
A year ago, rates on 30-year mortgages stood at 6.43 percent, while 15-year mortgages were at 6.10 percent. Five-year adjustable-rate mortgages averaged 6.11 percent and one-year adjustable-rate mortgages were at 5.57 percent.
Fannie Mae to Unveil Plan
WASHINGTON – April 17, 2007 – Fannie Mae, one of the nation’s biggest investors in home mortgages, plans to unveil a campaign today that would allow lenders to refinance certain borrowers’ homes, and federal regulators expect to release a statement urging mortgage lenders to help financially troubled borrowers hold onto their homes.
According to testimony submitted to the House Financial Services Committee, Fannie Mae’s chief executive, Daniel H. Mudd, is expected to say that his company is altering its loan products so that lenders can qualify more high-risk borrowers for refinancing. Fannie Mae is targeting adjustable-rate mortgages, which typically offer low teaser rates that increase later. Under a campaign dubbed HomeStay, Fannie Mae would allow lenders it works with to refinance homes without first having to clear up borrowers’ unpaid bills on their credit reports.
Fannie Mae would expand products now available to 500 selected lenders to about 2,000 nationwide, Mudd is expected to tell the committee today. Mudd’s statement also says Fannie Mae will stretch the loan term for this refinancing product to a maximum of 40 years from a current limit of 30 years, which will shave monthly mortgage payments by about 5 percent.
“Altogether, we estimate that about 1.5 million homeowners who face resetting [adjustable rate mortgages] and potential payment shock this year and next could be eligible for our loan options,” Mudd’s statement said.
The testimony comes as Capitol Hill lawmakers are considering the causes and the needed responses to the unfolding mortgage crisis now that the number of missed payments and foreclosures has jumped. The problem has been largely driven by troubles in the subprime mortgage market, which caters to people with blemished credit records, little money for down payments or other credit risks.
Meanwhile, federal regulators plan to release a one-page statement today asking lenders to help keep troubled borrowers in their homes.
The statement was crafted after nearly three dozen lenders, investment bankers and consumer advocates met behind closed doors yesterday in Washington with regulators.
“The agencies encourage financial institutions to consider prudent workout arrangements that increase the potential for financially stressed residential borrowers to keep their homes,” though such arrangements may not be feasible for everyone, says the statement from the Federal Reserve, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Office of the Comptroller of the Currency. Options include converting variable-rate loans to fixed-rate loans.
The statement was characterized by one person familiar with it, who spoke on condition of anonymity, as “friendly encouragement” meant to send a message to the industry, rather than a mandate.
Lenders and companies that manage mortgages say they are trying to do their part in remedying the problem. But some say their hands are tied because many mortgages have been packaged into huge bonds and sold to investors, so that the terms of the loans cannot be altered easily when a borrower can no longer make payments.
Rules that govern these bonds sometimes forbid lenders from reaching out to borrowers until they are 30 days late on their payments. These rules are meant to protect investors.
In today’s statement, regulators will assure lenders that “the agencies will not penalize financial institutions that pursue reasonable workout arrangements.”
According to testimony submitted to the House Financial Services Committee, Fannie Mae’s chief executive, Daniel H. Mudd, is expected to say that his company is altering its loan products so that lenders can qualify more high-risk borrowers for refinancing. Fannie Mae is targeting adjustable-rate mortgages, which typically offer low teaser rates that increase later. Under a campaign dubbed HomeStay, Fannie Mae would allow lenders it works with to refinance homes without first having to clear up borrowers’ unpaid bills on their credit reports.
Fannie Mae would expand products now available to 500 selected lenders to about 2,000 nationwide, Mudd is expected to tell the committee today. Mudd’s statement also says Fannie Mae will stretch the loan term for this refinancing product to a maximum of 40 years from a current limit of 30 years, which will shave monthly mortgage payments by about 5 percent.
“Altogether, we estimate that about 1.5 million homeowners who face resetting [adjustable rate mortgages] and potential payment shock this year and next could be eligible for our loan options,” Mudd’s statement said.
The testimony comes as Capitol Hill lawmakers are considering the causes and the needed responses to the unfolding mortgage crisis now that the number of missed payments and foreclosures has jumped. The problem has been largely driven by troubles in the subprime mortgage market, which caters to people with blemished credit records, little money for down payments or other credit risks.
Meanwhile, federal regulators plan to release a one-page statement today asking lenders to help keep troubled borrowers in their homes.
The statement was crafted after nearly three dozen lenders, investment bankers and consumer advocates met behind closed doors yesterday in Washington with regulators.
“The agencies encourage financial institutions to consider prudent workout arrangements that increase the potential for financially stressed residential borrowers to keep their homes,” though such arrangements may not be feasible for everyone, says the statement from the Federal Reserve, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Office of the Comptroller of the Currency. Options include converting variable-rate loans to fixed-rate loans.
The statement was characterized by one person familiar with it, who spoke on condition of anonymity, as “friendly encouragement” meant to send a message to the industry, rather than a mandate.
Lenders and companies that manage mortgages say they are trying to do their part in remedying the problem. But some say their hands are tied because many mortgages have been packaged into huge bonds and sold to investors, so that the terms of the loans cannot be altered easily when a borrower can no longer make payments.
Rules that govern these bonds sometimes forbid lenders from reaching out to borrowers until they are 30 days late on their payments. These rules are meant to protect investors.
In today’s statement, regulators will assure lenders that “the agencies will not penalize financial institutions that pursue reasonable workout arrangements.”
Tax Reform Package Gets Mixed Reaction
TALLAHASSEE, Fla. (AP) – April 16, 2007 – A tax-protest leader told a Senate committee Friday the chamber’s bipartisan property tax reform package is too weak, while business interests and local government officials offered mixed reactions.
Republican and Democratic Senate leaders released their plan Thursday. It includes a rollback of city and county taxes to 2005-06 levels, then a two-year freeze and cap on future increases.
The plan is expected to save taxpayers $11 billion over the next five years. A competing proposal offered by House Republicans would slash taxes by more than $25 billion over the same span. Most Democrats and local government officials oppose the House GOP plan.
“The Senate plan leaves a lot to be desired, I’m sorry to say,” said Dr. David McKalip, a St. Petersburg neurosurgeon and spokesman for the Florida Taxpayers Alliance. “The rollbacks are not enough.”
McKalip told the Finance and Tax Committee the alliance is pushing for rollbacks to 2001 as included in the House GOP plan.
Citizens across the state have been organizing such groups to protest inequities and sharp increases in property taxes prompted by soaring real estate values in recent years. Gov. Charlie Crist and legislative leaders have responded by making tax relief a top legislative issue.
McKalip also criticized provisions in both chambers that would allow what he called “irresponsible local governments” to lift the tax caps through votes of more than a simple majority. Only voters should be allowed to remove the tax caps, he said.
Committee Chairman Mike Haridopolos, R-Indialantic, later said the one-year rollback was chosen to prevent a sudden and steep drop in local government budgets. The Senate is using a “glide slope” approach to phase-in the tax cuts from $1.14 billion the first year to $3.23 billion in the fifth year, he said.
“This spike (in taxes) did not happen overnight and you’re not going to solve it overnight,” Haridopolos said.
Florida League of Cities lobbyist John W. Smith called that aspect “well thought-out.” Smith, though, said while the Legislature is freezing local taxes, it also should freeze new spending requirements that it puts on local governments.
Florida Chamber of Commerce lobbyist Victoria Weber said her members like most of what they see in the Senate plan. She also questioned the rollback but said she wasn’t sure how far back it should go.
“We understand it’s a balancing act,” Weber said. “We don’t want to cripple local governments.”
She lauded provisions that offer extra relief for affordable rental housing, first-time home buyers and small businesses.
Weber, though, joined lobbyists for homebuilders and the real estate industry who asked lawmakers to add provisions that would also limit the ability of cities and counties to make up for property tax losses by increasing impact fees, which raise the prices of new homes, and other taxes.
Sen. Jim King, R-Jacksonville, raised a thorny question about the proposal to increase the standard $25,000 exemption on primary homes, known as homesteads, to $50,000 for first-time home buyers. The extra $25,000 would drop over time as a new homeowner gains benefits from the existing Save Our Homes Amendment, which limits tax increases on homesteads to no more than 3 percent a year.
King wondered how tax officials could verify if someone was a first-time home buyer, particularly if they move from another state. Haridopolos said they would have to rely on the honor system but later acknowledged a better solution may be needed.
Sen. Steve Geller, D-Cooper City, also admitted the Senate has offered a “hideously complicated” solution to an unexpected consequence of the Save Our Homes Amendment voters approved in 1992.
Many owners feel trapped in their existing homes because they would lose Save Our Homes benefits if they move. The Senate plan includes a “portability” provision that would let them apply at least part of their benefits to a new home. After the first year, the tax would increase by 10 percent annually until it equals what the homeowner would have paid without portability. The 3 percent cap would then kick back in.
Republican and Democratic Senate leaders released their plan Thursday. It includes a rollback of city and county taxes to 2005-06 levels, then a two-year freeze and cap on future increases.
The plan is expected to save taxpayers $11 billion over the next five years. A competing proposal offered by House Republicans would slash taxes by more than $25 billion over the same span. Most Democrats and local government officials oppose the House GOP plan.
“The Senate plan leaves a lot to be desired, I’m sorry to say,” said Dr. David McKalip, a St. Petersburg neurosurgeon and spokesman for the Florida Taxpayers Alliance. “The rollbacks are not enough.”
McKalip told the Finance and Tax Committee the alliance is pushing for rollbacks to 2001 as included in the House GOP plan.
Citizens across the state have been organizing such groups to protest inequities and sharp increases in property taxes prompted by soaring real estate values in recent years. Gov. Charlie Crist and legislative leaders have responded by making tax relief a top legislative issue.
McKalip also criticized provisions in both chambers that would allow what he called “irresponsible local governments” to lift the tax caps through votes of more than a simple majority. Only voters should be allowed to remove the tax caps, he said.
Committee Chairman Mike Haridopolos, R-Indialantic, later said the one-year rollback was chosen to prevent a sudden and steep drop in local government budgets. The Senate is using a “glide slope” approach to phase-in the tax cuts from $1.14 billion the first year to $3.23 billion in the fifth year, he said.
“This spike (in taxes) did not happen overnight and you’re not going to solve it overnight,” Haridopolos said.
Florida League of Cities lobbyist John W. Smith called that aspect “well thought-out.” Smith, though, said while the Legislature is freezing local taxes, it also should freeze new spending requirements that it puts on local governments.
Florida Chamber of Commerce lobbyist Victoria Weber said her members like most of what they see in the Senate plan. She also questioned the rollback but said she wasn’t sure how far back it should go.
“We understand it’s a balancing act,” Weber said. “We don’t want to cripple local governments.”
She lauded provisions that offer extra relief for affordable rental housing, first-time home buyers and small businesses.
Weber, though, joined lobbyists for homebuilders and the real estate industry who asked lawmakers to add provisions that would also limit the ability of cities and counties to make up for property tax losses by increasing impact fees, which raise the prices of new homes, and other taxes.
Sen. Jim King, R-Jacksonville, raised a thorny question about the proposal to increase the standard $25,000 exemption on primary homes, known as homesteads, to $50,000 for first-time home buyers. The extra $25,000 would drop over time as a new homeowner gains benefits from the existing Save Our Homes Amendment, which limits tax increases on homesteads to no more than 3 percent a year.
King wondered how tax officials could verify if someone was a first-time home buyer, particularly if they move from another state. Haridopolos said they would have to rely on the honor system but later acknowledged a better solution may be needed.
Sen. Steve Geller, D-Cooper City, also admitted the Senate has offered a “hideously complicated” solution to an unexpected consequence of the Save Our Homes Amendment voters approved in 1992.
Many owners feel trapped in their existing homes because they would lose Save Our Homes benefits if they move. The Senate plan includes a “portability” provision that would let them apply at least part of their benefits to a new home. After the first year, the tax would increase by 10 percent annually until it equals what the homeowner would have paid without portability. The 3 percent cap would then kick back in.
Faith in US Home Values Persist
LOS ANGELES – April 12, 2007 – Eighty-four percent of U.S. residents say home values will hold steady or increase, despite trends to the contrary, a nationwide poll found.
Nearly a third of those surveyed this month predicted home values in their localities would rise in the next six months, a Los Angeles Times/Bloomberg poll said Wednesday. Sixteen percent anticipated a decrease. The rest said values would hold steady.
Before the poll was conducted the National Association of Realtors reported home prices fell 2.7 percent in 2006’s last three months.
The association forecast Wednesday existing-home prices would probably slip an average 0.7 percent this year.
“Housing is always a good investment,” San Diego carpenter Scott Richard Wallace said in an interview after the poll. “I don’t see it ever losing.”
Sixty percent of the poll respondents also said a recession was somewhat or very likely within the next year.
The nationally representative poll of 1,373 adults, conducted by telephone April 5 through Monday, has a margin of sampling error of plus or minus 3 percentage points.
Nearly a third of those surveyed this month predicted home values in their localities would rise in the next six months, a Los Angeles Times/Bloomberg poll said Wednesday. Sixteen percent anticipated a decrease. The rest said values would hold steady.
Before the poll was conducted the National Association of Realtors reported home prices fell 2.7 percent in 2006’s last three months.
The association forecast Wednesday existing-home prices would probably slip an average 0.7 percent this year.
“Housing is always a good investment,” San Diego carpenter Scott Richard Wallace said in an interview after the poll. “I don’t see it ever losing.”
Sixty percent of the poll respondents also said a recession was somewhat or very likely within the next year.
The nationally representative poll of 1,373 adults, conducted by telephone April 5 through Monday, has a margin of sampling error of plus or minus 3 percentage points.
Tuesday, March 20, 2007
The Price is Right, So buy Now
GAINESVILLE, Fla. – March 9, 2007 – Hopeful homebuyers in Florida should act now: The price is right as the state’s single-family residential housing market bottoms out, according to a University of Florida study released today.
“If you’re thinking of buying a house, there’s probably not much to be gained by holding out at this point,” says Wayne Archer, director of UF’s Bergstrom Center for Real Estate Studies. “It doesn’t look like prices are going to fall anymore.”
The quarterly survey of experts in the real estate industry completed in January shows that the share of respondents observing a drop in single-family housing prices has dipped, while a growing number find prices staying even with inflation, Archer says.
“We see that as a benchmark,” he says. “When prices maintain the same level as inflation, then we’re probably in some kind of equilibrium. It indicates the market is stabilizing.”
The exception is condominiums, which are overbuilt and prone to speculative and naïve investors, he says.
This is the first time in the UF survey’s five-quarter history that the buyers’ investment outlook for residential development has brightened. It declined for the first three surveys and remained flat for the fourth survey at the end of October, starting to rise only in this latest survey.
Because of the dominance of single-family housing, the findings have far-reaching and potentially optimistic implications for the state’s real estate industry, Archer says.
“You can’t get away from the fact that the single-family housing market is the single largest driver of the real estate market,” he says. “Most brokers and real estate agents are dealing with single-family housing. Most lending is for single-family housing. And single-family housing drives home furnishings. So when it stabilizes, that’s important.”
One possible explanation for the housing market turning the corner is a restricted supply of land for residential development, Archer says. The shortage meant there was less overbuilding than there might otherwise have been, he says.
Condos did not have this land restraint, which is one reason they are overbuilt, Archer says. At the same time, condos are prone to strong speculative swings because they are considered a relatively easy commodity to exchange; it’s not difficult to acquire them in multiple units or to buy contracts on them, he says.
The stabilization of the single-family housing market came earlier than anticipated and is not expected to affect all parts of the state equally, Archer says. The quieter markets likely will take longer to rebound than those in Central and South Florida, where growth has been explosive.
Jacksonville typically has been a slower and steadier market than Orlando, Tampa-St. Petersburg, Miami and other cities in South Florida, but that is changing, Archer says. Recently, the Jacksonville housing market has picked up momentum.
Even with a turnaround, Archer says he does not believe Florida’s real estate market is likely to reach the same level that it did at its peak in 2005-06. “I don’t think any thoughtful person would expect sales to go back to where they were a year or so ago,” he says. “That was probably an overheated condition and it was extraordinary.”
On a positive note, nearly all other markets, including apartments and commercial rental markets, appear to be remaining steady or even experiencing robust growth. “They did not experience a downturn in the same sense that the single-family development market did and they’re continuing to be strong,” Archer says.
Optimism about Florida real estate seems to be particularly apparent among foreign investors. Many respondents commented that foreign investors and lenders are aggressively trying to invest more capital in the state’s rental markets.
“They apparently have no fears about the future of these markets, despite what we perceive as our problems with hurricanes, taxes and other concerns,” Archer says.
For the survey, UF’s Survey Research Center asked a series of questions of 318 industry executives, real estate lawyers, market analysts, title insurers, financial advisers, market research economists, real estate scholars and other experts in the field, an increase over the 183 respondents in the last survey.
More information is available on the center’s Web site, www.cba.ufl.edu/fire/realestate/cres/findings.asp
“If you’re thinking of buying a house, there’s probably not much to be gained by holding out at this point,” says Wayne Archer, director of UF’s Bergstrom Center for Real Estate Studies. “It doesn’t look like prices are going to fall anymore.”
The quarterly survey of experts in the real estate industry completed in January shows that the share of respondents observing a drop in single-family housing prices has dipped, while a growing number find prices staying even with inflation, Archer says.
“We see that as a benchmark,” he says. “When prices maintain the same level as inflation, then we’re probably in some kind of equilibrium. It indicates the market is stabilizing.”
The exception is condominiums, which are overbuilt and prone to speculative and naïve investors, he says.
This is the first time in the UF survey’s five-quarter history that the buyers’ investment outlook for residential development has brightened. It declined for the first three surveys and remained flat for the fourth survey at the end of October, starting to rise only in this latest survey.
Because of the dominance of single-family housing, the findings have far-reaching and potentially optimistic implications for the state’s real estate industry, Archer says.
“You can’t get away from the fact that the single-family housing market is the single largest driver of the real estate market,” he says. “Most brokers and real estate agents are dealing with single-family housing. Most lending is for single-family housing. And single-family housing drives home furnishings. So when it stabilizes, that’s important.”
One possible explanation for the housing market turning the corner is a restricted supply of land for residential development, Archer says. The shortage meant there was less overbuilding than there might otherwise have been, he says.
Condos did not have this land restraint, which is one reason they are overbuilt, Archer says. At the same time, condos are prone to strong speculative swings because they are considered a relatively easy commodity to exchange; it’s not difficult to acquire them in multiple units or to buy contracts on them, he says.
The stabilization of the single-family housing market came earlier than anticipated and is not expected to affect all parts of the state equally, Archer says. The quieter markets likely will take longer to rebound than those in Central and South Florida, where growth has been explosive.
Jacksonville typically has been a slower and steadier market than Orlando, Tampa-St. Petersburg, Miami and other cities in South Florida, but that is changing, Archer says. Recently, the Jacksonville housing market has picked up momentum.
Even with a turnaround, Archer says he does not believe Florida’s real estate market is likely to reach the same level that it did at its peak in 2005-06. “I don’t think any thoughtful person would expect sales to go back to where they were a year or so ago,” he says. “That was probably an overheated condition and it was extraordinary.”
On a positive note, nearly all other markets, including apartments and commercial rental markets, appear to be remaining steady or even experiencing robust growth. “They did not experience a downturn in the same sense that the single-family development market did and they’re continuing to be strong,” Archer says.
Optimism about Florida real estate seems to be particularly apparent among foreign investors. Many respondents commented that foreign investors and lenders are aggressively trying to invest more capital in the state’s rental markets.
“They apparently have no fears about the future of these markets, despite what we perceive as our problems with hurricanes, taxes and other concerns,” Archer says.
For the survey, UF’s Survey Research Center asked a series of questions of 318 industry executives, real estate lawyers, market analysts, title insurers, financial advisers, market research economists, real estate scholars and other experts in the field, an increase over the 183 respondents in the last survey.
More information is available on the center’s Web site, www.cba.ufl.edu/fire/realestate/cres/findings.asp
MLS Statistics for January 2007
2006 2007 %+/-
Listings in January 1856 2320 +25%
Listings to date 1856 2320 +25%
Contracts in January 241 287 +19%
Contracts to date 241 287 +19%
Sales in January 319 249 -22%
Sales to date 319 249 -22%
As we expected, the number of listings are still going up - +25% January 07 compared to Jan 06. However, the number of contracts also increased - by +19% January /January. Neverthless, the ratio between number of listings and number of sales continues to increase although at a slower pace. It is still a buyers market and will likely continue to be for the next 3-6 months.
Listings in January 1856 2320 +25%
Listings to date 1856 2320 +25%
Contracts in January 241 287 +19%
Contracts to date 241 287 +19%
Sales in January 319 249 -22%
Sales to date 319 249 -22%
As we expected, the number of listings are still going up - +25% January 07 compared to Jan 06. However, the number of contracts also increased - by +19% January /January. Neverthless, the ratio between number of listings and number of sales continues to increase although at a slower pace. It is still a buyers market and will likely continue to be for the next 3-6 months.
How Sub-prime Crisis Could Hurt Home Sales
The sub-prime crisis has turned into quite a nightmare for some homeowners and the lenders who originated those loans. Now, the $64 million question is: if and how will it affect the housing market.
"Delinquencies and foreclosures are going up because rate re-sets are kicking in on exotic arm loans -- the interest-only and negative amortization arms -- the very aggressive type of mortgages," says economist Zoltan Pozsar, of Moody's Economy.com
The problem, Pozsar says is that borrowers were not properly qualified for these mortgages.
"The way lenders have qualified these borrowers is by saying, "let's look at the teaser rates—it's two percent for the first two-years of the loan'—and sure [borrowers] could qualify on that. Lenders were basically not looking at whether the same borrowers could qualify when the rates re-adjust to six or seven percent," says Pozsar.
Pozsar says that even a two to five percent rate increase can translate into a few hundred dollars increase in a monthly mortgage payment—something he says many of these borrowers did not completely understand nor are they prepared for.
"Especially for these low-income households, who were mainly targeted for these loans, a few hundred bucks is a lot," says Pozsar.
As homes are foreclosed on, the original mortgage loans on those homes are not being paid to the investors who bought them as investments. So the investors are looking for the money from the original lender.
"The reason these lenders are going bankrupt is that investors [to whom] they have sold these mortgages are now forcing them to buy these "junk" loans back, so to speak, and [the lenders] don't have the cash to do so," explains Pozsar.
As this happens, a domino effect is set in motion.
"The issue here is that lending standards are tighter, the funds that flow to lending institutions to make mortgage loans are drying up, there's less [money] going into that part of the financial system, there is a mini-credit crunch developing especially in the sub-prime market," says Pozsar.
The scenario creates a very volatile situation for not only potential borrowers, homeowners, lenders, and investors but also the entire housing market.
"One predication I would make is, once all these mortgage lenders go out of business because they are choking on these losses, this firewall that exists between investors and originators is going to go away," says Pozsar.
He says, that leaves investors in a far more vulnerable position.
"The next act of the sub-prime mess is going to be investors and hedge funds getting [financially] hurt, especially the ones that hold the riskiest of these sub-prime-mortgage bank securities.
But Pozsar says the real threat may still lie in the future.
"Now, if that happens, through contagion, the fear could easily spread from the sub-prime market to the prime MBS (mortgage-backed securities) market and that would further reduce the funds that are available for mortgage lending out there and that could translate back into the real economy by even the good borrowers not being able to find the money and get a mortgage. So that could force an extra round of decline in home sales and home construction," cautions Pozsar.
Before you think it is all doom and gloom, Pozsar says about this hypothesis, "This is a risk that we are very carefully monitoring; it's not happening yet but it could."
However, some mortgage and real estate organizations don't believe the situation is quite that ominous. Credit tightening rather than defaults may have a more substantial effect. But these associations still point out that we have a strong, solid economy in which people are being employed, not laid off. It's this sound financial environment that some experts say makes today's housing market different from the last housing crisis in the 1990s -- and gives them reason to expect a brighter picture on the housing front.
Published: March 19, 2007
"Delinquencies and foreclosures are going up because rate re-sets are kicking in on exotic arm loans -- the interest-only and negative amortization arms -- the very aggressive type of mortgages," says economist Zoltan Pozsar, of Moody's Economy.com
The problem, Pozsar says is that borrowers were not properly qualified for these mortgages.
"The way lenders have qualified these borrowers is by saying, "let's look at the teaser rates—it's two percent for the first two-years of the loan'—and sure [borrowers] could qualify on that. Lenders were basically not looking at whether the same borrowers could qualify when the rates re-adjust to six or seven percent," says Pozsar.
Pozsar says that even a two to five percent rate increase can translate into a few hundred dollars increase in a monthly mortgage payment—something he says many of these borrowers did not completely understand nor are they prepared for.
"Especially for these low-income households, who were mainly targeted for these loans, a few hundred bucks is a lot," says Pozsar.
As homes are foreclosed on, the original mortgage loans on those homes are not being paid to the investors who bought them as investments. So the investors are looking for the money from the original lender.
"The reason these lenders are going bankrupt is that investors [to whom] they have sold these mortgages are now forcing them to buy these "junk" loans back, so to speak, and [the lenders] don't have the cash to do so," explains Pozsar.
As this happens, a domino effect is set in motion.
"The issue here is that lending standards are tighter, the funds that flow to lending institutions to make mortgage loans are drying up, there's less [money] going into that part of the financial system, there is a mini-credit crunch developing especially in the sub-prime market," says Pozsar.
The scenario creates a very volatile situation for not only potential borrowers, homeowners, lenders, and investors but also the entire housing market.
"One predication I would make is, once all these mortgage lenders go out of business because they are choking on these losses, this firewall that exists between investors and originators is going to go away," says Pozsar.
He says, that leaves investors in a far more vulnerable position.
"The next act of the sub-prime mess is going to be investors and hedge funds getting [financially] hurt, especially the ones that hold the riskiest of these sub-prime-mortgage bank securities.
But Pozsar says the real threat may still lie in the future.
"Now, if that happens, through contagion, the fear could easily spread from the sub-prime market to the prime MBS (mortgage-backed securities) market and that would further reduce the funds that are available for mortgage lending out there and that could translate back into the real economy by even the good borrowers not being able to find the money and get a mortgage. So that could force an extra round of decline in home sales and home construction," cautions Pozsar.
Before you think it is all doom and gloom, Pozsar says about this hypothesis, "This is a risk that we are very carefully monitoring; it's not happening yet but it could."
However, some mortgage and real estate organizations don't believe the situation is quite that ominous. Credit tightening rather than defaults may have a more substantial effect. But these associations still point out that we have a strong, solid economy in which people are being employed, not laid off. It's this sound financial environment that some experts say makes today's housing market different from the last housing crisis in the 1990s -- and gives them reason to expect a brighter picture on the housing front.
Published: March 19, 2007
NAR Market Forecast March 2007
WASHINGTON – March 15, 2007 – Unusual weather patterns and problems in the subprime lending marketplace are creating challenges in assessing housing market conditions, but a recovery is likely this year, according to the latest forecast by the National Association of Realtors®.
David Lereah, NAR’s chief economist, says there is some ambiguity about the current housing market. “Our goal each month is to fine-tune the forecast based on the latest housing data and a variety of economic indicators, but extraordinary weather variations are skewing home sales and clouding the picture,” he said. “Underlying trends point to a housing recovery in 2007, but it will take a couple months for us to get a better handle on it. Existing-home sales are expected to slowly improve from what appears to be the cyclical low last fall, but we think there will be some additional pain in the new home market, which hopefully will start to rise later in the year.”
Existing-home sales are projected at 6.42 million this year and 6.66 million in 2008, compared with 6.48 million last year. “Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next. However, total sales this year will be fairly close to 2006 because last year started high and ended low,” Lereah said.
“Lending problems in our nation’s subprime marketplace are building, which could inhibit future housing activity and further dampen our forecast. Even so, these problems are likely to be contained and not spill over into the prime mortgage market.”
New-home sales are forecast at 950,000 in 2007 and 981,000 next year, down from 1.06 million in 2006. Housing starts will probably total 1.50 million this year and 1.56 million in 2008, in contrast with 1.80 million units last year.
The 30-year fixed-rate mortgage is expected to rise to 6.7 percent by the end of the year. Last week, Freddie Mac reported the 30-year fixed rate dropped to 6.14 percent. “Over the last few years, mortgage interest rates have moved in surprising directions – the unexpected dip we’re seeing now, and a rise in mortgage applications, are positive signs,” Lereah said. “With soft home prices and lower interest rates, affordability has improved for home buyers and that is encouraging them to get into the market.”
The national median existing-home price is projected to rise 1.2 percent to $224,500 this year, following a 1.0 percent gain in 2006. The median new-home price should grow 1.7 percent to $249,600 in 2007, following a 1.9 percent increase last year. Stronger gains are probable in 2008, with existing-home prices rising 3.1 percent and new-home prices growing 3.0 percent.
For critics who don’t understand the weather impact on seasonally-adjusted sales, Lereah explained we’re likely to be reminded about the consequences throughout this spring. “Here’s what’s happened and how it’s likely to play out. In December, unusually mild weather brought out shoppers and January existing-home sales rose,” he said. “However, a sudden chill in January slowed shopping activity relative to December and pending sales, based on contracts, fell.
“We have yet to see the biggest weather impact – February’s winter storms brought markets to a halt in much of the country, and it was the coldest February since 1979 – that should drag sales down in March,” Lereah said. “This means we may not see an upturn in closed transactions before May 25 when we report sales for April.”
The unemployment rate will probably average 4.7 percent this year; it was 4.6 percent in 2006. Inflation, as measured by the Consumer Price Index, is forecast at 2.1 percent in 2007, down from 3.2 percent last year, while growth in the U.S. gross domestic product is seen at 2.5 percent this year, compared with 3.3 percent in 2006. Inflation-adjusted disposable personal income is expected to rise 3.1 percent in 2007, up from a gain of 2.6 percent last year.
© 2007 FLORIDA ASSOCIATION OF REALTORS®
David Lereah, NAR’s chief economist, says there is some ambiguity about the current housing market. “Our goal each month is to fine-tune the forecast based on the latest housing data and a variety of economic indicators, but extraordinary weather variations are skewing home sales and clouding the picture,” he said. “Underlying trends point to a housing recovery in 2007, but it will take a couple months for us to get a better handle on it. Existing-home sales are expected to slowly improve from what appears to be the cyclical low last fall, but we think there will be some additional pain in the new home market, which hopefully will start to rise later in the year.”
Existing-home sales are projected at 6.42 million this year and 6.66 million in 2008, compared with 6.48 million last year. “Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next. However, total sales this year will be fairly close to 2006 because last year started high and ended low,” Lereah said.
“Lending problems in our nation’s subprime marketplace are building, which could inhibit future housing activity and further dampen our forecast. Even so, these problems are likely to be contained and not spill over into the prime mortgage market.”
New-home sales are forecast at 950,000 in 2007 and 981,000 next year, down from 1.06 million in 2006. Housing starts will probably total 1.50 million this year and 1.56 million in 2008, in contrast with 1.80 million units last year.
The 30-year fixed-rate mortgage is expected to rise to 6.7 percent by the end of the year. Last week, Freddie Mac reported the 30-year fixed rate dropped to 6.14 percent. “Over the last few years, mortgage interest rates have moved in surprising directions – the unexpected dip we’re seeing now, and a rise in mortgage applications, are positive signs,” Lereah said. “With soft home prices and lower interest rates, affordability has improved for home buyers and that is encouraging them to get into the market.”
The national median existing-home price is projected to rise 1.2 percent to $224,500 this year, following a 1.0 percent gain in 2006. The median new-home price should grow 1.7 percent to $249,600 in 2007, following a 1.9 percent increase last year. Stronger gains are probable in 2008, with existing-home prices rising 3.1 percent and new-home prices growing 3.0 percent.
For critics who don’t understand the weather impact on seasonally-adjusted sales, Lereah explained we’re likely to be reminded about the consequences throughout this spring. “Here’s what’s happened and how it’s likely to play out. In December, unusually mild weather brought out shoppers and January existing-home sales rose,” he said. “However, a sudden chill in January slowed shopping activity relative to December and pending sales, based on contracts, fell.
“We have yet to see the biggest weather impact – February’s winter storms brought markets to a halt in much of the country, and it was the coldest February since 1979 – that should drag sales down in March,” Lereah said. “This means we may not see an upturn in closed transactions before May 25 when we report sales for April.”
The unemployment rate will probably average 4.7 percent this year; it was 4.6 percent in 2006. Inflation, as measured by the Consumer Price Index, is forecast at 2.1 percent in 2007, down from 3.2 percent last year, while growth in the U.S. gross domestic product is seen at 2.5 percent this year, compared with 3.3 percent in 2006. Inflation-adjusted disposable personal income is expected to rise 3.1 percent in 2007, up from a gain of 2.6 percent last year.
© 2007 FLORIDA ASSOCIATION OF REALTORS®
Florida Tax Reform
MANATEE COUNTY, Fla. – Feb. 27, 2007 – Capping government spending. Doubling homestead exemptions. Rolling back property taxes. Repealing the state's property tax system in favor of the nation's highest sales tax. These are some of the property tax proposals flying around Tallahassee with a clamor and discord this state hasn't seen in recent memory.
State officials seem to favor at least some version of property tax reform. But as legislators meet this spring, they'll have to weigh the ire of second-home and business owners with the pressing needs of local governments that contend the expanded waistline of budgets have had to keep pace with the needs of burgeoning populations.
"I like the idea that we're being very bold in how we're addressing the issue," says state Rep. Bill Galvano, R-Bradenton. "This is the first proposal where I've seen somewhere make up the difference, and that's important to me. Having said that, I think more homework has to be done."
Perhaps the first homework lesson could be a brief overview of economic policy-making around the United States. Other states around the country have tried or are currently considering many of the reforms facing Florida today.
Colorado residents learned the hard way how government spending limits can stunt the prosperity of a state, after more than a decade of spending caps that limited the state's ability to fund education, health care and other essential services. Enacted in 1992, the Taxpayer Bill of Rights, or TABOR, awarded taxpayers rebates if more revenue was collected than could be spent under the state spending cap. Revenues were limited, but state-mandated programs such as education and prisons still had to be funded.
"Essentially, we had our foot on the brake and the gas pedal at the same time," said Evan Dreyer, from Colorado Gov. Bill Ritter's office. "In times of recession, it made it difficult to recover from pre-recessionary levels. There was a growing concern from the business community about the unintended consequences on the ability of the economy to grow."
Voters in 2005 narrowly approved Referendum C, which lifted spending caps on a five-year trial, allowing the government more flexibility to pay for essential services.
"We were seeing programs people cared about being squeezed," said Bob Kling, an assistant professor of economics at Colorado State University. "Primary education, higher education, roads. The mandatory parts were suffering. There were some very strange, perhaps unforeseen implications for the way TABOR was written."
Since Referendum C was enacted, the state's budget has been significantly less constrained and there is more funding for essential services, Kling said. State officials will decide in 2010 whether to ask voters to extend Referendum C or return to spending caps. But history shows the measure helped right that state's monetary ship.
"Ref-C was an important step in our economic recovery," Dreyer said.
Comparing solutions
Comparing other state's taxing systems to Florida's is a bit like comparing apples to grapefruit considering the vast differences among state economies and the varying demographics of property-tax payers.
Still, there's much that can be learned from what other states have experienced and are considering, according to Harley Duncan, executive director of the Washington, D.C.-based Federation of Tax Administrators. The federation is a group of state revenue and tax departments that focuses on taxing policies. Property tax reform has been the hottest issue of the year for state governments around the country, Duncan said.
The tax reform proposals from Gov. Charlie Christ and House Speaker Marco Rubio drew both praise and criticism over the past two weeks, but most of their proposals seem to at least borrow from what other states already are considering.
There have been attempts to solve assessment inequities by freezing property tax valuation levels, or limiting the amount they can go up each year. New Jersey, Pennsylvania and South Dakota are each considering some form of limiting property tax assessments, Duncan said.
Homesteaded owners in Florida already receive a 3 percent per year cap, which limits taxable values from skyrocketing along with market values.
Other states are considering controls on local government spending. Perhaps these amendments have the most momentum, since state authorities often shoulder the blame for stifling tax rates.
"It's very frustrating to have responsibility for property tax, but they're not the ones who set the tax rate or determine how much local governments are going to spend," Duncan said. "It adds to the state-local tension -- and that's why you see limits."
Rubio's plan would establish a baseline for taxation by rolling back property taxes to 2000-2001 levels, adjusted by a formula based on inflation and population growth. Local governments could decide to go over the cap with only a two-thirds vote or a simple majority if two-thirds is not possible.
New Jersey, with the nation's highest property tax rates, is considering offsetting property taxes with a 1 percent sales tax implemented last year, according to Stateline.org. The measure would save the average homeowner $1,000 a year and would restrict annual property tax increases to 4 percent.
Some states will consider using state money to "buy down" property taxes, Duncan said. States such as New Jersey, Pennsylvania and New York would provide direct rebates to taxpayers with state money. Duncan said this is the most common approach being considered, but neither of the plans on the table in Florida call for the state to provide rebates.
Florida, Duncan said, seems to be proposing some of the boldest property tax reforms, and he questioned the feasibility of some of the changes. The most drastic piece of Rubio's plan calls for voters to decide whether to abolish property taxes in favor of an 8.5 percent sales tax, which would be the highest in the country.
"I'm not aware that anyone is proposing going as far as Florida. To totally eliminate the property tax and shift to other sources of funding . . . It's pretty hard to replace the whole thing."
Dramatic proposals
Under Crist's plan, homestead property owners would see their exemptions double from $25,000 to $50,000. The homestead exemption also would become portable so that homeowners would be able to buy larger or smaller homes within the state without losing the 3 percent cap. Finally, Crist would make second-home owners and commercial property owners eligible for the 3 percent Save Our Homes cap.
Rubio also has suggested the Legislature approve a rollback of about 20 percent on all property taxes. A second phase that would require a referendum would eliminate property taxes on all homesteaded properties. The Legislature also would increase the sales tax 2.5 cents on the dollar, to implement the nation's highest sales tax. There also would be spending caps imposed on counties and municipalities.
Harvey Duncan pointed to Ohio and North Carolina as two states that have implemented successful tax reform. The state of Ohio simply repealed a homestead-like exemption for commercial and industrial business. Local governments get the money those taxes would have generated, and can allocate the funds for local projects, said Gary Gudmundson, communications director for the Ohio Department of Taxation.
Separately, a Commercial Activities Tax imposes a .26 percent on business revenue over $1 million. The first $1 million is taxed $150 and together the taxes create revenues to reimburse local governments for another tangible property tax that was phased out.
"For decades, the tangible property tax was identified as a troublesome tax for the economy of Ohio," Gudmundson said. "With it going away, the burden has shifted off manufacturing and now there's a greater inclusion of tax on the service sector of the economy."
'Wrong direction'
Jonathan Hamilton, chairman of the economics department at the University of Florida, said the real solution to Florida's tax woes is simply lowering property tax rates.
"The one thing where I'm seeing relatively little discussion, is lowering property tax rates for everybody," Hamilton said. State officials "seem to be talking about a very targeted tax rate reduction, and there are a lot of reasons why it's not the brightest idea."
Moving from property tax collections, considered a particularly stable form of taxation, to increasing reliance on sales tax "seems like a move in the wrong direction" that could eventually hurt the state's bond and credit ratings, he said. To find a real solution to local government spending, Hamilton said, "voters are welcome to elect officials who are going to cut property tax rates for them if they think they're higher than they need."
State representatives say they want to learn all they can about the current proposals being discussed. They also will take into consideration the views of property owners at forums around the state.
Rep. Ron Reagan, R-Bradenton, threw his support behind Rubio's plan. "We're responding to what the people in the state of Florida have said," he said last week. "This is going to allow more people to buy more homes."
Sen. Mike Bennett said Florida's property tax system is "truly out of whack" and he endorses change to prevent business from leaving the state. But he did not endorse the current proposal yet, saying he was "investigating" it.
"Government is not free," he added.
As Galvano said, "I think at this point, what we've done is run it up the flagpole and really start the discussions."
State officials seem to favor at least some version of property tax reform. But as legislators meet this spring, they'll have to weigh the ire of second-home and business owners with the pressing needs of local governments that contend the expanded waistline of budgets have had to keep pace with the needs of burgeoning populations.
"I like the idea that we're being very bold in how we're addressing the issue," says state Rep. Bill Galvano, R-Bradenton. "This is the first proposal where I've seen somewhere make up the difference, and that's important to me. Having said that, I think more homework has to be done."
Perhaps the first homework lesson could be a brief overview of economic policy-making around the United States. Other states around the country have tried or are currently considering many of the reforms facing Florida today.
Colorado residents learned the hard way how government spending limits can stunt the prosperity of a state, after more than a decade of spending caps that limited the state's ability to fund education, health care and other essential services. Enacted in 1992, the Taxpayer Bill of Rights, or TABOR, awarded taxpayers rebates if more revenue was collected than could be spent under the state spending cap. Revenues were limited, but state-mandated programs such as education and prisons still had to be funded.
"Essentially, we had our foot on the brake and the gas pedal at the same time," said Evan Dreyer, from Colorado Gov. Bill Ritter's office. "In times of recession, it made it difficult to recover from pre-recessionary levels. There was a growing concern from the business community about the unintended consequences on the ability of the economy to grow."
Voters in 2005 narrowly approved Referendum C, which lifted spending caps on a five-year trial, allowing the government more flexibility to pay for essential services.
"We were seeing programs people cared about being squeezed," said Bob Kling, an assistant professor of economics at Colorado State University. "Primary education, higher education, roads. The mandatory parts were suffering. There were some very strange, perhaps unforeseen implications for the way TABOR was written."
Since Referendum C was enacted, the state's budget has been significantly less constrained and there is more funding for essential services, Kling said. State officials will decide in 2010 whether to ask voters to extend Referendum C or return to spending caps. But history shows the measure helped right that state's monetary ship.
"Ref-C was an important step in our economic recovery," Dreyer said.
Comparing solutions
Comparing other state's taxing systems to Florida's is a bit like comparing apples to grapefruit considering the vast differences among state economies and the varying demographics of property-tax payers.
Still, there's much that can be learned from what other states have experienced and are considering, according to Harley Duncan, executive director of the Washington, D.C.-based Federation of Tax Administrators. The federation is a group of state revenue and tax departments that focuses on taxing policies. Property tax reform has been the hottest issue of the year for state governments around the country, Duncan said.
The tax reform proposals from Gov. Charlie Christ and House Speaker Marco Rubio drew both praise and criticism over the past two weeks, but most of their proposals seem to at least borrow from what other states already are considering.
There have been attempts to solve assessment inequities by freezing property tax valuation levels, or limiting the amount they can go up each year. New Jersey, Pennsylvania and South Dakota are each considering some form of limiting property tax assessments, Duncan said.
Homesteaded owners in Florida already receive a 3 percent per year cap, which limits taxable values from skyrocketing along with market values.
Other states are considering controls on local government spending. Perhaps these amendments have the most momentum, since state authorities often shoulder the blame for stifling tax rates.
"It's very frustrating to have responsibility for property tax, but they're not the ones who set the tax rate or determine how much local governments are going to spend," Duncan said. "It adds to the state-local tension -- and that's why you see limits."
Rubio's plan would establish a baseline for taxation by rolling back property taxes to 2000-2001 levels, adjusted by a formula based on inflation and population growth. Local governments could decide to go over the cap with only a two-thirds vote or a simple majority if two-thirds is not possible.
New Jersey, with the nation's highest property tax rates, is considering offsetting property taxes with a 1 percent sales tax implemented last year, according to Stateline.org. The measure would save the average homeowner $1,000 a year and would restrict annual property tax increases to 4 percent.
Some states will consider using state money to "buy down" property taxes, Duncan said. States such as New Jersey, Pennsylvania and New York would provide direct rebates to taxpayers with state money. Duncan said this is the most common approach being considered, but neither of the plans on the table in Florida call for the state to provide rebates.
Florida, Duncan said, seems to be proposing some of the boldest property tax reforms, and he questioned the feasibility of some of the changes. The most drastic piece of Rubio's plan calls for voters to decide whether to abolish property taxes in favor of an 8.5 percent sales tax, which would be the highest in the country.
"I'm not aware that anyone is proposing going as far as Florida. To totally eliminate the property tax and shift to other sources of funding . . . It's pretty hard to replace the whole thing."
Dramatic proposals
Under Crist's plan, homestead property owners would see their exemptions double from $25,000 to $50,000. The homestead exemption also would become portable so that homeowners would be able to buy larger or smaller homes within the state without losing the 3 percent cap. Finally, Crist would make second-home owners and commercial property owners eligible for the 3 percent Save Our Homes cap.
Rubio also has suggested the Legislature approve a rollback of about 20 percent on all property taxes. A second phase that would require a referendum would eliminate property taxes on all homesteaded properties. The Legislature also would increase the sales tax 2.5 cents on the dollar, to implement the nation's highest sales tax. There also would be spending caps imposed on counties and municipalities.
Harvey Duncan pointed to Ohio and North Carolina as two states that have implemented successful tax reform. The state of Ohio simply repealed a homestead-like exemption for commercial and industrial business. Local governments get the money those taxes would have generated, and can allocate the funds for local projects, said Gary Gudmundson, communications director for the Ohio Department of Taxation.
Separately, a Commercial Activities Tax imposes a .26 percent on business revenue over $1 million. The first $1 million is taxed $150 and together the taxes create revenues to reimburse local governments for another tangible property tax that was phased out.
"For decades, the tangible property tax was identified as a troublesome tax for the economy of Ohio," Gudmundson said. "With it going away, the burden has shifted off manufacturing and now there's a greater inclusion of tax on the service sector of the economy."
'Wrong direction'
Jonathan Hamilton, chairman of the economics department at the University of Florida, said the real solution to Florida's tax woes is simply lowering property tax rates.
"The one thing where I'm seeing relatively little discussion, is lowering property tax rates for everybody," Hamilton said. State officials "seem to be talking about a very targeted tax rate reduction, and there are a lot of reasons why it's not the brightest idea."
Moving from property tax collections, considered a particularly stable form of taxation, to increasing reliance on sales tax "seems like a move in the wrong direction" that could eventually hurt the state's bond and credit ratings, he said. To find a real solution to local government spending, Hamilton said, "voters are welcome to elect officials who are going to cut property tax rates for them if they think they're higher than they need."
State representatives say they want to learn all they can about the current proposals being discussed. They also will take into consideration the views of property owners at forums around the state.
Rep. Ron Reagan, R-Bradenton, threw his support behind Rubio's plan. "We're responding to what the people in the state of Florida have said," he said last week. "This is going to allow more people to buy more homes."
Sen. Mike Bennett said Florida's property tax system is "truly out of whack" and he endorses change to prevent business from leaving the state. But he did not endorse the current proposal yet, saying he was "investigating" it.
"Government is not free," he added.
As Galvano said, "I think at this point, what we've done is run it up the flagpole and really start the discussions."
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