From The Desk of Chris Mygatt - October 2007

Positive Angles

What are real estate professionals saying to homebuyers and sellers about current market conditions? The successful brokers and sales associates are talking about the strengths that exist in the market - not the negative media hype. Below are positive angles that appeared recently in the media and underscore why it is a good time to buy real estate.

Recent Media Excerpts about the Positive Signs in the Real Estate Market: Subprime Reality Check

• The subprime problem is certainly serious, but it is a short-term problem, mainly involving mortgages originated during 2004-2006 and playing out over the next two years or so.
• This issue will be mitigated by public and private efforts to help the families in distress. There is no reason for it to spread to the prime market.
• Lenders are trying to work out a modified repayment plan if there seems to be a realistic chance that the borrower can catch up. In the FHA's experience, about half the borrowers in the program do become current within a year. If the lenders and the regulators follow through, they can ease the problem substantially.
• We have been here before, and not that long ago. Delinquencies and especially foreclosures on prime mortgages remained low during 2000-2002, consistently around 1% for serious delinquencies and 0.2% for foreclosures. The subprime spike had no impact on the prime market then. There is no reason to expect one this time. The delinquency rate has again been stable, so far, while foreclosures have edged up to 0.25% from 0.2%.
• Loans originated in 2003 and earlier pose no unusual problem.
• Homeowners who are able to make their payments are not going to lose their homes because other homeowners are losing theirs. The roof is not caving in on housing. - "Desperate House Loans? (subscription required)" John Weicher, Wall Street Journal, Aug. 29, 2007.
  Mortgage
  Mortgage rates on 30-year fixed mortgages in the United States fell 4 basis points to 6.08 percent today, according to Bankrate.com's daily Your Best Interest report. The mortgages in the survey had an average of 0.63 discount and origination points. Bankrate.com, Aug. 29, 2007.
  
  Foreign Investors, Immigrants Boosting the Market "more and more consumers from around the world are interested in purchasing a home in the United States for themselves, as an investment, or simply to enjoy a piece of the American dream."
  - Pat V. Combs, of Grand Rapids, Mich., NAR President and vice president of Coldwell Banker-AJS-Schmidt. "NAR Study Confirms: They Come To America - To Buy Homes" Iverson Moore, National Association of Realtors, July 30, 2007.
• Amid slow demand from an aging and slow-growing native population, immigrants are fueling predictions of a rebound.
• In California, nearly one-third of recent homebuyers were foreign-born. For New York, New Jersey and Florida, the figures were between one-quarter and one-fifth. - "Immigrants Lift U.S. Housing Market," Mark Jewell, Forbes.com, July 30, 2007.
  
  Vacation-Home Buyers Going Strong
  Forbes.com, Best Places to Buy a Vacation Home, Aug. 9, 2007: If the sun is shining on the shore, or the powder's falling on the slopes, vacation-home buyers don't mind short-term market fluctuations very much. "The main thing motivating a vacation-home buyer is utility. They want to maximize their purchase around a recreational activity," David Hehman, president of EscapeHomes.com, a San Francisco-based second-home research site. As examples:
  Northeast: Summer destination Water Mill, N.Y., in Bridgehampton appreciated fastest, with a median home price of $1.38 million, increasing in value at an average of 21% a year over the last five years.
  Midwest: Victoria, Minn., which is surrounded by many of the state's trademark lakes, grew an average of 18% a year.
  South: The north end of Key Largo, Fla., has appreciated at 27% a year, on average, according to NeighborhoodScout, making it the fastest-growing vacation spot in the South.
  West: Moran, Wyo., situated between Grand Teton and Yellowstone National Parks, has seen 35% average increases in annual value since 2002.
  
  Bright Spots in the Market - "Real Estate Oases" Q. What types of neighborhoods are seeing strong activity? A. Housing analysts say:
• Real estate oases in most major markets whose local economies display moderate to strong fundamentals.
• Established neighborhoods convenient to the urban center's employment and cultural attractions that don't require residents to make long commutes.
• Above-median-income areas, often well above, with home prices to match. - "Bright spots in the overall gloomy market," Kenneth R. Harney, Washington Post Writers Group, Aug. 26, 2007.
  
  Positive News in Your Local Markets:

New York, N.Y. A home in Manhattan has never been more expensive than it is today. Condos are selling for an average price of $1.5 million, according to several real estate brokers. Indeed, prices of four-bedroom apartments averaged close to $10 million during the second quarter. "Real Estate Has Never Been Hotter in New York," Dr. Irwin Kellner, Marketwatch, July 24, 2007.
Westchester County, N.Y. Sales volume of single-family homes rose 1.3 percent in the second quarter, compared with last year. That rate of closings, if sustained for the rest of the year, would rank 2007 fifth in total sales volume, after 2005, 2004, 1999 and 1998. At the same time, the average sale price of single-family homes was $965,414, which is 3 percent higher than last year. "Those Horror Stories of Plummeting Home Prices? Not Here." Elsa Brenner, New York Times, July 29, 2007.
Salem, Ore., Pacific Northwest Sleepy towns like Salem, Ore.; Wenatchee, Wash.; and Provo-Orem, Utah may lack glamour but they are among the few places in the country where housing prices are growing at double-digit rates, according to a recent federal study. "Smaller Cities Buck Housing Slump," Aaron Clark, Associated Press, July 19, 2007.
Minneapolis-St. Paul, Minn. The best-selling areas drive home an old real estate theme that location and price remain the most critical determinants of value.

Real estate agents say that with gasoline prices hovering in the $3 a gallon range, more and more buyers have decided they don't want to spend their money, or time, commuting.

The majority of the quick sales this year have been entry-level houses in the $200,000 to $300,000 range, an indication that there's still strong demand "Hot Spots in a Cold Market," By Jim Buchta, Star-Tribune, Aug. 4, 2007. Real Estate Bright Spots & Industry Trends

Various mortgage lenders around the country and in Colorado are trying to work out a modified repayment plan if there seems to be a realistic chance that the borrower can catch up. In the FHA's experience, about half the borrowers in the program do become current within a year. If the lenders and the regulators follow through, they can ease the problem substantially.

We have been here before, and not that long ago. Delinquencies and especially foreclosures on prime mortgages remained low during 2000-2002, consistently around one percent for serious delinquencies and 1.2 percent for foreclosures. The subprime spike had no impact on the prime market then. There is no reason to expect one this time. The delinquency rate has again been stable, so far, while foreclosures have edged up to 1.25 percent from 0.2 percent. Most of the subprime problem originated during 2004-2006. Loans originated in 2003 and earlier pose no unusual problem.

Foreign Investors, Immigrants Boosting the Market: More and more consumers from around the world are interested in purchasing a home in the United States for themselves, as an investment, or simply to enjoy a piece of the American dream. A recent NAR study reveals that immigrants and foreign investors are coming to America specifically to buy homes. Amid slow demand from an aging and slow-growing native population, immigrants are fueling predictions of a rebound.

Vacation home buyers going strong: If the sun is shining on the shore, or the powder's falling on the slopes, vacation-home buyers don't mind short-term market fluctuations very much. The main thing motivating a vacation-home buyer is utility. They want to maximize their purchase around a recreational activity, according to EscapeHomes.com, a San Francisco-based second-home research site.

Neighborhoods seeing strong activity: According to housing analysts, the types of neighborhoods seeing the strongest activity include those with the following attributes.

Real estate in most major markets whose local economies display moderate to strong fundamentals.

Established neighborhoods convenient to the urban center's employment and cultural attractions that don't require residents to make long commutes.

Above-median-income areas, often well above, with home prices to match.