For the American mortgage market, it could be the hottest buzzword of the year: Suitability.
That’s because Congress has a new top legislator for mortgage matters, Rep. Barney Frank (D-Mass.), who believes, “You shouldn’t lend [home buyers or refinancers] more than they can afford to pay back, and you don’t lend them more than their house is worth.”
It doesn’t matter if you spell it Peppermill Village or Pepper Mill Village — they use both versions in the civic association’s newsletter, the Peppermill Shaker. Either way, it’s still the same lively Prince George’s County community where resident involvement thrives across generational boundaries.
Oscar Waters, who works for the American Indian Cultural Resources Center in nearby Suitland, likes Peppermill Village’s location — close to the Addison Road Metro station and seven minutes from FedEx Field — but also praises his neighborhood as “a community dedicated to the young folks.”
SHARON, Conn. — The day after the fire eight years ago, the stone mansion was open to the sky, in ruins.
An electrical fire ravaged Weatherstone, designer Carolyne Roehm’s 1765 home in Sharon. When she studies a photograph taken as the roof caved in, she closes her eyes just briefly, then opens them and smiles.
CHICAGO — People looking to extract equity from their homes have increasingly been turning to cash-out refinancing, industry observers say.
A big reason that people are tapping their equity through refinancing comes down to dollars and cents, according to Amy Crews Cutts, deputy chief economist with Freddie Mac. Because home-equity loans and lines of credit are most often tied to the prime rate, now at 8.25 percent, those options have gotten more expensive even as long-term mortgage rates have remained relatively low, with the 30-year loan averaging about 6.25 percent.
“Use common sense to make sense.”
It sounds like Ben Franklin, but the speaker is David Johnston, a green-building consultant in Boulder, Colo. His aphorism, he said in a recent interview, has proven to be a useful shorthand way of explaining sustainable green-building principles and practices.
Q: DEAR BOB: My husband and I own a house in Florida, where I live and work. He has a job in another state, where he lives. The house is in both our names and we may sell it in several years. Do we both have to live in the house the specified time to claim that $500,000 tax exemption? — Jeannie A.
A: DEAR JEANNIE: Yes, but you both don’t have to live in the house as your principal residence at the same time, if that is a problem. To qualify for the full $500,000, married-couple, principal-residence-sale tax exemption, Internal Revenue Code 121 requires each spouse to occupy the home as his or her primary dwelling at least 24 of the last 60 months before its sale. A joint tax return must be filed in the year of principal-residence sale.
By John Spence
From MarketWatch
Homebuyers have been backing out of sales contracts and forfeiting their down payments during the housing slowdown, but cancellation rates should steady in the first quarter and taper off later in 2007, said the chief executive of one of the nation’s largest home builders Thursday.
“Cancellations are likely to stabilize and stay level this quarter, and then decrease,” said Ara Hovnanian during a Web cast of a real estate conference sponsored by Deutsche Bank in New York, adding cancellations should get back to “normalcy in a quarter or two.”
The Hovnanian CEO said many cancellations are for older contracts signed when the market was booming and home prices were rising. He said one way the company is avoiding cancellations is to negotiate with buyers at the closing table.
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“We don’t like to do it, but it can prevent cancellations,” Hovnanian said.
Home builders have been reporting surging cancellation rates driven higher by sagging consumer confidence and difficulty in selling existing homes.
When asked to pick an indicator he’s looking at to spot a potential bottom for housing, Hovnanian said “we’re watching [home] resale listings, which is something we never used to focus on.”
Home builders face an inventory glut sparked by overbuilding and speculative demand drying up, but are hoping the spring selling season can jumpstart a recovery in 2007.
“The time between Thanksgiving and the Super Bowl is a slow time, so it’s difficult to gauge anything,” Hovnanian said. “We’re waiting to see if things stabilize.”
Meanwhile, Toll Brothers Inc. Chief Financial Officer Joel Rassman said the speed of various markets’ recoveries will depend on the amount of “speculative” building and the use of incentives.
Home builders have ramped up concessions to buyers such as appliance upgrades and financing breaks in order to move homes in inventory. For example, Lennar Corp. earlier this week said sales incentives offered to homebuyers averaged $47,300 per home in the fourth quarter, up from $10,600 the previous year.
Rassman said buyers are putting off home purchases because they think the house may end up being cheaper soon. The CFO said the luxury builder is closely watching buyer traffic at its communities and reservation deposits to get a handle on where the market is heading. It also conducts “soft” interviews during home tours to see if people are “real buyers” or what the company calls “tire-kickers.”
If local housing markets and economies bounce back, there could be some consolidation in the home-building business, especially with larger public companies snapping up smaller private competitors, Rassman said.
“There was no [spring] selling season last year, and if it happens again a lot of the smaller private builders won’t be around the next selling season,” he said.
Email your comments to rjeditor@dowjones.com.
– January 22, 2007
By June Fletcher
Question: I’m thinking about buying a home in Mexico. Where should I look and what should I keep in mind?
Answer: You’re not alone in your quest. The U.S. State Department estimates that there are 385,000 Americans living permanently in Mexico, almost twice the number of a decade ago. Many are buying in new waterfront resorts targeted to Americans in popular destinations like Puerto Vallarta, Cancun, Sonora and the Baja Peninsula.
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The appeal is more than just the thought of permanently toasty weather. The cost of living, from housing to health care, is significantly lower in Mexico than it is in the U.S. That makes the country especially attractive to retirees on fixed incomes, as well as to younger telecommuters and others with portable jobs fleeing high-cost U.S. cities. Increasingly available creature comforts like high-speed Internet access are making the country more attractive to Americans. In Baja, there’s even a Costco with an oceanfront view.
Buying south of the border has its risks, however, so keep these thoughts in mind:
1. Beware of high-pressure sales tactics. Anyone who’s ever visited Cancun knows how annoying it is to step off the airplane, bleary-eyed from the flight, and be set upon by pushy real-estate and time-share salespeople. Even the fanciest resorts participate in similar aggressive tactics, offering discounts on meals or popular side trips if you’ll listen to a real-estate spiel.
My advice: Walk away from anyone who pressures you. If you get roped into signing a deal, remember that you have five days under Mexican law to cancel the contract and get back your deposit money.
2. Obtain title insurance. By Mexican law, foreigners can’t own real estate outright within 100 kilometers (about 62 miles) of a border and within 50 kilometers (about 31 miles) of any coastline. Of course, that’s just where Americans most want to live. So the Mexican government allows foreigners to buy through bank trusts, with the bank holding title to the property. That generally works well, unless there’s a challenge to the title — a real problem in a country that recognizes squatter’s rights. Although title insurance is more readily available than it was a decade ago, it isn’t offered on every property. If you can’t get it, pass on the deal.
3. Check your finances. Often, Americans are lured to Mexico by its comparatively low cost to buy or build a house. But they overlook other costs, which can be much higher than they are stateside. In general, acquisition fees are high, about 6%, and include a mandatory real-estate transfer tax, a fee for a government-appointed notary to handle the transaction, and a bank appraisal fee. And while Mexican property taxes tend to be low, capital-gains taxes on the sale of investment property can reach 35% — a pretty big bite. For more information, check out Tom Kelly’s excellent book, “Cashing in on a Second Home in Mexico” (2005, Crabman Publishing).
– June Fletcher is a staff reporter at The Wall Street Journal and the author of “House Poor” (Harper Collins, 2005). Her “House Talk” column appears most Mondays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don’t want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.
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Email your comments to june.fletcher@wsj.com.
– January 22, 2007
By Mark Whitehouse
From The Wall Street Journal Online
Consumer prices resurged a bit and builders broke ground on more new homes in December, but the activity did little to change economists’ view that inflation is cooling and that the housing slump has yet to hit bottom.
A bump up in energy prices caused consumer prices to rise 0.5% in December from a month earlier after remaining flat or falling in the three previous months, the Labor Department reported yesterday. Excluding food and energy, so-called core prices — a measure officials at the Federal Reserve watch closely — rose 0.2%, in line with economists’ expectations, as apparel retailers ratcheted back holiday discounts. Compared with a year earlier, overall prices rose 2.5% and core prices were up 2.6%.
Meanwhile, unusually warm weather prompted new-home construction to rise for the second consecutive month, the Commerce Department reported. At a seasonally adjusted annual rate of 1.64 million in December, housing starts were up 4.5% from November, but still down 18% for the year. All of the gain came in multi-unit structures such as apartment buildings. Construction of new single-family homes, which account for about three-fourths of total activity, fell 4.1% in December from the previous month despite the warm weather. Single-family housing starts were down 25% from a year earlier.
Economists saw the reports as well within the game plan of Fed policy makers, who expect persistent weakness in housing to help cool the economy, gradually bringing core inflation back down to a more acceptable annual level of 1% to 2%. In the fourth quarter, core prices rose at an annualized rate of 1.4%.
“Things are playing out pretty much along the lines the Fed expected,” said Joshua Shapiro, chief U.S. economist at consultancy MFR, Inc. “Inflation pressures are gradually easing and housing is still weak.”
While many economists believe the worst of the housing slump has passed, declines in home construction could still have a way to go. Major housing slumps over the past several decades have seen home construction drop by an average of about 60% over at least two years. As of December, total new-home construction was down 28% from its most recent peak, which came in January 2006.
Builders face a large backlog of unsold homes, suggesting they will likely have to pull back further to get supply in line with demand. Earlier this week, home buildersLennar Corp. andCentex Corp. offered downbeat outlooks, with the latter saying it was facing the toughest market in 25 years. The National Association of Home Builders index of sentiment has shown some improvement in recent months, though it remains well below 50, meaning negative responses outweigh positive.
On the inflation front, concerns remain. For one, workers’ wages have started rising after a long period of relative dormancy: As of December, the average hourly production wage stood at $17.04, up 4.2% from a year earlier. When people make more money, they tend to push prices of goods and services up, though so far that hasn’t been evident in the consumer-price data, said Andrew Tilton, U.S. economist at Goldman Sachs in New York.
“The dog that hasn’t barked is really wage inflation,” he said. “That’s the biggest risk over the next six months or so.”
Another concern is that the recent string of subdued inflation numbers could be the temporary result of unusually heavy holiday discounting. In recent months, big retailers such asWal-Mart Stores Inc. andBest Buy Co. have slashed prices of electronics items such as flat-panel televisions in an effort to spur sales. That trend appeared to continue in December, as audio and video prices fell 0.7% from a month earlier.
In apparel, though, retailers appeared to be regaining the power to raise prices. Apparel prices rose 0.3% in December after falling in previous months, a move that Brian Bethune, U.S. economist at Global Insight, attributed to strong demand at high-end retailers. “The upscale channels seem to be doing very well,” he said. “That may have put more pressure on apparel prices toward the end of the year.”
Beyond the goods sector, inflation in services has yet to show much sign of abating. Rent of shelter, a category that makes up about 40% of the core price index, rose 0.4% in December from November, and has risen at a 4.4% annualized rate over the last six months. Still, some relief could be on the way. Richard Campo, chief executive of Houston-based Camden Property Trust, which owns some 70,000 apartments across the country, says he expects rents to keep rising in 2007, but at a slower rate than in 2006.
Email your comments to rjeditor@dowjones.com.
– January 22, 2007
A plantation that served as a Union headquarters during the Civil War is on the market in Remington, Va., for $2.95 million.
Known as Presque Isle, French for “almost an island,” or as the Willis House to locals, the brick manor home, built around 1813, housed the command post for officer and tactician extraordinaire Emory Upton. It was the site from which he planned incursions through Northern Virginia. The house is on a knoll, and the Hazel River winds around the property, making it easy to defend because attackers would need to ford the river to get there.