Article in March 24, 2007 Detroit News

Existing home sales increase

Realtors pleased, but are still worried about defaults on subprime mortgages leaving a glut on the market.

Martin Crutsinger / Associated Press

WASHINGTON -- Sales of existing homes rose in February by the largest amount in nearly three years, but worsening troubles in subprime mortgages were viewed as a roadblock to a full-fledged rebound.

The National Association of Realtors reported Friday that existing home sales climbed 3.9 percent last month, pushed higher by a milder-than-normal winter that boosted sales in areas of the country such as the Northeast.

It was the biggest one-month gain since March 2004 and left sales at an annual rate of 6.69 million units, a pace that was still 3.6 percent below a year ago.

Even with the improvement in sales, the median price of a home kept falling, dropping to $212,800 in February, down 1.3 percent from a year earlier. It marked a record seventh straight decline in prices compared to the same month a year earlier.

The price weakness was a far cry from the double-digit price increases that were being recorded during housing's boom years.

After five years in which sales set new records, sales of existing homes dropped by 8.5 percent last year, the biggest annual decline in 17 years.

Many economists believe sales will fall again this year as the housing industry continues to work through an adjustment following a boom that was fueled by the lowest mortgage rates in four decades and speculative frenzy as investors rushed to cash in on soaring real estate prices.

Economists are now concerned that rising defaults in subprime mortgages, those offered to borrowers with weak credit, will trigger tighter lending standards that will make it harder for new buyers to qualify for loans. As borrowers default on their mortgages, they will dump more properties onto an already glutted market.

"The subprime mortgage market has taken a beating because of an unexpected surge in defaults," said Patrick Newport, an economist at Global Insight. He predicted home prices will fall in 2007, which would be the first decline on an annual basis on record.

By region of the country, existing home sales were up 14.2 percent in the Northeast, a gain attributed in large part to warmer-than-normal weather.

Sales also were up in the Midwest, a gain of 3.9 percent, and 1.6 percent in the South. Sales were unchanged in the West, which analysts blamed in part on a reluctance by sellers in that region to cut prices to attract buyers.

KB Home reported that its profits for the first quarter had plunged and it warned of continuing pressure on profits for the rest of the year because of such factors as near-record levels of unsold homes and lenders tightening standards.

Article in March 25, 2007 Detroit Free Press

Home-sale accelerant

Bill aims to spur housing market with an 18-month moratorium on state's pop-up tax

March 25, 2007

BY MARGARITA BAUZA

FREE PRESS BUSINESS WRITER

A proposed change in Michigan's pop-up tax would give home sellers like Anthony Rimanelli a much-needed boost in a sagging real estate market.

House Bill 4440-4441, which awaits state Senate consideration after being passed by the House 77-31 on March 14, would allow the buyer of a home to inherit the tax amount the seller currently pays, eliminating what is known as Michigan's pop-up tax.

Rimanelli pays $3,500 in taxes for his Grosse Pointe Woods bungalow. His tax bill increased an average of 4.7% annually from when he bought his house in 1997 for $127,000. His taxes that year were $2,370. The rate of increase is capped by the state's Proposal A, which limits annual increases in a home's taxable value to the rate of inflation or 5%, whichever is less.

If the proposed bill -- sponsored by Rep. Andy Meisner, D-Ferndale -- passes and is signed into law, the buyer of Rimanelli's home would be allowed to retain the current $3,500 tax bill, dodging the pop-up tax -- the name given to the adjusted tax amount a new homeowner pays when a just-purchased home is reassessed for taxes based on its full market value.

The law would be in place for 18 months and be retroactive to anyone who bought a home in Michigan on or after March 1.

"It's a phenomenal opportunity," said Rimanelli, who is selling his 1,100-square-foot home for $187,500. "Whoever buys this house is not going to get that pop-up tax hike."

Ripple effect

"Buyers would inherit the taxable value of whatever the current owner has," said Michael J. LeVan, a broker with Adlhoch & Associates in Grosse Pointe Park. "It wouldn't readjust. The law would jump-start the economy and get the real estate industry moving and selling again.

"So much of our economy is based on real estate. Think of what else people do when they buy a house -- they paint, they buy furniture."

Critics of the proposed law say it unfairly penalizes sellers who haven't owned their houses for a long time and are paying higher taxes due to the pop-up provision. Some House Republicans opposed the measure because it isn't permanent and could hurt builders of new homes, who would be put at a competitive price disadvantage.

"The plan picks winners and losers," LeVan said. "If you have two identical houses next to each other and one of those houses was purchased 10 or 15 years ago and the other house a year or two ago, these two houses have dramatically different tax bills.

"If you're a buyer and one house has got a $5,000 tax bill and the other has a $10,000 tax bill, the guy with the $10,000 tax bill is stuck. He'd have to reduce his price dramatically to compete with the guy next door with the smaller tax bill," LeVan said.

Supporters of the plan include Annette Keeble, a broker with Camelot Exquisite Homes in Bloomfield Hills and Rochester. She said the moratorium could give housing sales a badly needed boost.

"It's going to lessen the inventory that agencies have to carry," Keeble said. "It's going to motivate people to sell."

Bill Ballenger, editor and publisher of Inside Michigan Politics, said the bill has a good shot at passage.

"The Legislature is desperate to show it's doing something positive to help the economy and the sluggish housing market.

"It would cost money potentially to local units of government, but if houses don't sell that's not going to help local units of government either."

Rimanelli, who is looking to buy a home with his wife, Gina, when his current house sells, is looking for a home whose owner has lived in it for a long time.

"That's definitely a criteria," he said. "I don't want to get slammed by taxes."

Stalling starters

The proposed law doesn't do much for Kristina Pellegrini, who is carrying two mortgages as she tries to sell her starter home, which she bought six years ago.

"In my opinion, it's terrible," said Pellegrini, who is asking $249,000 for her Grosse Pointe Woods home, which currently sits vacant while she tries to sell it.

The house, which has a tax bill of $6,000 a year, has been on the market for 18 months.

"If you haven't lived in your house a long time, it puts you at a disadvantage," she said. "A lot of people buy starter homes and then move on to something bigger. I think this law would hurt a lot of people like that. There are a lot of houses in my exact same situation."

LeVan worries the law will add a burden to those who haven't been in their homes a long time, forcing them to lower their selling price to compensate for the expected higher tax bills.

He said he realizes the bill is just a temporary fix. Realtors are currently working with state Rep. Andy Dillon, D-Redford Township, on another proposal that would kick in after the 18-month pop-up tax moratorium expires.

That proposal would -- at the time of sale -- match the taxable value of a home to the average taxable value of similar homes in that community.

"It would bring people gradually towards the middle," LeVan said. "Some bills would go up, some would go down."

Article in March 22, 2007 Wall Street Journal

Finding a Mortgage
In Tougher Times

Turmoil in Subprime Market Hits Home as Terms Tighten
For Some Borrowers; Better Deals for the Prime Segment

By JANE J. KIM
March 22, 2007

Just two days before Shari Scott and her family were supposed to move into their new home, her loan officer at New Century Financial Corp. called her with some bad news: The company wasn't going to be able to lend her the money for her mortgage after all.

"I literally stopped the car and threw up," says the 30-year-old accountant from Burleson, Texas, who got the news on her cellphone while driving home from work this month. By that point, she already had the mortgage title papers in hand and was supposed to close on the loan the next day. "Homeless was the first thing that went through my mind," she says.

Ms. Scott's plight shows how the turmoil on Wall Street is hitting Main Street. Fears about defaults have slowed the flow of investments to riskier segments of the mortgage market, which has dried up the amount of money available for loans to riskier borrowers. As a result, some mortgage companies such as New Century Financial are halting new loans to borrowers with blemished credit histories, while others are tightening lending standards. Some lenders are backing out of loan agreements, leaving borrowers scrambling for more expensive financing. Ms. Scott was able to arrange a new subprime mortgage, but the monthly payment was several hundred dollars more than the New Century loan. A New Century spokeswoman declined to comment.

For prime borrowers, or those with the best credit, finding a mortgage may actually have gotten easier, and the loans more affordable. Declining yields on Treasury bonds have pushed down rates on 30-year fixed-rate mortgages to about 6.3% currently from about 6.5% early last month, according to HSH Associates. Lenders may be willing to negotiate an even better deal for the best borrowers.

Meanwhile, borrowers in the gray area between prime and subprime, a category known as Alt-A, are encountering tighter lending standards, as are buyers of investment properties. "Four or five months ago, I could get a loan for zero down," says Howard Shatsky of Los Angeles, who has been trying to secure financing for a real-estate investment. "It makes it hard for somebody without a very high credit score to get a loan," he says. "Right now, I'm a little nervous."

The turmoil that began in the subprime sector has changed the dynamics of getting a mortgage and, coupled with flattening home prices, is squeezing many consumers' finances. Here's what the shakeout means for borrowers across the credit spectrum.

Subprime

Borrowers with weak credit are having the greatest difficulty finding loans. Many cash-strapped borrowers are getting shut out of the market as lenders drop products, such as no-down-payment loans that carry little, if any, documentation of income, assets or employment. Other borrowers are now being required to pony up money for a down payment or to boost their credit scores.

Patrick McCarroll, a mortgage banker in Fort Worth, Texas, says he has been inundated with notices from subprime lenders in recent weeks that are suddenly dropping loans and changing terms. Many are now requiring a 5% to 10% down payment on loans that previously required none, and a higher credit score in order to qualify, he says.

"If borrowers can't afford to put any money down, they should stay out of the market," says Mitch Ohlbaum, a mortgage broker in Los Angeles. "You're going to get so badly beat up on the rates and terms."

Borrowers who can find a loan are likely to pay interest rates that are several percentage points higher than they were a few weeks ago, brokers say. Adam Stein, a mortgage broker in Auburn, Wash., says that while he was able to find new financing for two clients after their loan agreements collapsed, the terms on the new loans are less favorable. "While I might have had at least five lenders competing for their business before, now I'm lucky if I can find one," he says.

There are a number of ways to gauge a borrower's credit scores, but the most widely used is the FICO score developed by Fair Isaac Corp. (Visit myfico.com for more details.) The best mortgage rates are offered to prime borrowers with scores typically of 720 or more. Subprime borrowers often have scores below 620, while many of the newer nontraditional loans are aimed at those Alt-A borrowers with credit scores between 620 and 700.

It's not just low-income borrowers who are getting caught by problems in the subprime market. Borrowers with higher incomes can also have scuffed credit. In recent years, many Americans took out adjustable-rate mortgages that often carry a low teaser rate that rises sharply after two or three years, to buy properties they expected would rise in value, allowing them to sell before the rate adjusted. Many of these loans came with inducements -- such as little or no down-payment requirement -- to make a mortgage more attractive.

Vicky Pierce of Plano, Texas, took out an ARM in 2003 with a fixed rate of 6.5% for three years on a rental property. "I really didn't expect that we would have that property very long," she says. "Our hope was that the market would appreciate and we'd sell it within three years." But an expensive divorce that dinged her credit score derailed her plans. Because she had pulled cash out of the loan, she had very little equity in the property, making it hard to sell the property without losing money.

Now, after the rate on her loan reset last fall to 8.5%, her monthly payments are $400 higher and she expects the payments will jump by another $400 in May. Ms. Pierce is trying, so far unsuccessfully, to sell the rental property. Her backup plan: Sell her main residence and move to a smaller home.

One alternative for some subprime borrowers is to consider a loan insured by the Federal Housing Administration, a government agency that helps low- and middle-income home buyers qualify for low-interest mortgages. The FHA, which offers lenders a guarantee that a loan will be repaid, requires borrowers to make a minimum down payment of at least 3% and pay mortgage-insurance premiums that could amount to as much as 2% of the loan.

Prime

Borrowers with good credit looking for conventional loans, able to make a down payment and willing to document their income are being rewarded with lower rates. Big banks, such as Bank of America Corp. and J.P. Morgan Chase & Co.'s Chase Home Lending, say they are seeing substantial gains in new loan applications and refinancings amid the drop in mortgage rates in recent weeks and as buyers gear up for the spring selling season. "We think we may have gained some market share," says Bob Caruso, Bank of America's national servicing executive.

"If you have a credit score of at least 720, the lending pool increases dramatically," says Philip Tirone, a mortgage broker in Los Angeles, who is advising clients with the best credit and who have adjustable-rate mortgages to think about refinancing into a longer-term fixed-rate loan. "Since there are more lenders competing for your business, you'll be able to negotiate a better rate."

Alt-A

Some of the concerns hitting the subprime market are spreading upward to borrowers with midtier credit scores, and those who take out Alt-A loans, a catch-all category that includes many of the nontraditional loans that helped to fuel the housing boom, such as option ARMs and mortgages that carry little, if any, documentation of income or assets.

Now, lenders are dropping loans that provide 100% financing for borrowers in this category who aren't willing or able to document their income or assets. In notices sent to brokers this week, Capital One Financial Corp.'s Greenpoint Mortgage raised the minimum credit score and cut the maximum amount homeowners could borrow without documenting their income and assets on certain mortgages. Earlier this month, Countrywide Financial Corp. stopped offering borrowers the option of no-money-down home loans. Chase Home Lending reduced the maximum amount homeowners could borrow to 95% from 100% without documenting their income and assets last month.

Borrowers can boost their chances of getting a loan and a better rate by taking steps now to raise their credit scores. Consumers in the middle of closing either a subprime or Alt-A mortgage should also ask their agent to extend any contingencies -- a standard clause that allows them to back out of a deal if they cannot sell their current home or obtain financing -- until the loan is closed, brokers say. Otherwise, borrowers could be at risk of losing their deposits.

Article in March 22, 2007 Detroit Free Press

89,000 left Wayne County, census data show

Suburbs benefit: Macomb, Livingston among hot destinations

March 22, 2007

BY MARISOL BELLO, ZACHARY GORCHOW and VICTORIA TURK

FREE PRESS STAFF WRITERS

While Michigan's population held steady in the last six years, Wayne County lost more residents than any other county in the country, save for hurricane-ravaged Orleans Parish, according to U.S. Census Bureau estimates to be released today.

Wayne County's loss of more than 89,000 residents from 2000 to 2006 represents an ongoing slide, fueled by the steady number of families leaving Detroit and high job losses and foreclosures. But that loss has meant rapid growth in places like Livingston, Washtenaw and Macomb counties.

Statewide, Kent and Ottawa counties -- the Grand Rapids area -- and Benzie and Grand Traverse Up North also grew faster than most other counties.

The Wayne County loss represents 4% of the county's almost 2 million residents. The only place with a bigger loss -- more than 261,000 in New Orleans' home parish in Louisiana, or 54% of the parish population -- can point to the slow recovery from Hurricane Katrina in 2005.

"If we're No. 1 outside of Louisiana ... that's important," said Kurt Metzger, a demographer and research director for the United Way for Southeastern Michigan. "It's significant to look at what the heck is going on here. ... We're leading in foreclosures, job losses, all these things build on each other."

But Wayne County's struggles have resulted in gains for surrounding counties.

Macomb pulled in almost 45,000 residents, increasing its population by 6%. Washtenaw gained more than 21,000, or 7%, and Livingston grew by almost 28,000, or 18%.

Oakland County's population increased by 20,000-- or 2% -- to 1.2 million.

Wayne County has been particularly battered by Michigan's economy. The county's unemployment rate in January was 9.1%, compared with a statewide rate of 6.9%, the highest in the nation.

From 2000 to 2006, Michigan's population grew by 1.6%, to 10.1 million. In the same span the state lost 336,000 jobs, according to a University of Michigan study.

The number of mortgage foreclosures in Wayne County last year hit 40,220 -- one out of every 21 homes -- more than any other county in the nation's largest metropolitan areas.

In Livingston County, three-quarters of the population increase occurred as a result of people moving in domestically, as opposed to immigrants and births outpacing deaths.

Husband and wife Mark and Chris Jackson, ages 36 and 33, are moving their software business and residence from Livonia to Livingston County next week. They need more space for their business, CMJ Designs, and they said they couldn't find what they needed at the right price in Livonia or surrounding communities.

Seeing that metro Detroiters were moving west, they looked at Northville, but found it too expensive, so they chose downtown Brighton with its strong business district and settled on a home in nearby Green Oak Township. Both grew up in Dearborn Heights.

"What I really like about Livingston County is it's newer, cleaner, it's nicer, and it's got low crime rates, which is a big plus," said Chris Jackson.

Meanwhile, many of the changes in Macomb County are occurring because Detroiters from the east side are moving to the southern reaches of Macomb, particularly to affordable communities such as Eastpointe, Warren and Center Line, Metzger said.

And the growth in the northern portions of the county is fueled by Oakland County residents who are moving to new housing complexes with cheaper taxes, he said.

"The numbers really point to the fact that this is a region," Metzger said. "Wayne County's losses contribute to Oakland County's and Macomb County's growth. None of the counties operate independently."

Rod and Nadine Motley are the quintessential new Macomb County residents who left Detroit in the past six years. When the family looked to buy their first home in 2005, they chose to leave Detroit's east side and buy a three-bedroom ranch in Eastpointe.

Rod Motley, 36, a FedEx courier who was born and raised in Detroit, said he wanted to stay close to the city. But he wanted better education for his two school-age children, cheaper insurance and more peace of mind, away from the crime and trash-strewn streets in Detroit.

Motley said he loves Eastpointe's emphasis on keeping its streets clean, and fining residents when they don't mow their grass or when they improperly bag their trash.

He especially loves the drop in his car insurance rates. Today, he said his insurance for two cars is the same amount he paid for one car in Detroit.

"What I like about Eastpointe is what you find in any other suburban community," Motley said. "I love my home. But I wish I'd moved a little farther out, maybe past 10 Mile."

Much of Wayne County's population loss is a result of moves from families like the Motleys.

An estimated 13,000 residents a year move out of Detroit. The most recent census estimates show Detroit's population may be as low as 836,000, though the figure does not include people who live in group quarters, such as nursing homes.

Other areas struggling with population losses are inner-ring suburbs like Dearborn Heights, Redford Township and Lincoln Park. Larger communities like Dearborn and Livonia are basically holding steady, and communities on the edge of Wayne County like Brownstown, Canton and Northville townships are growing fast.

Wayne County and Detroit officials say they have plans to stop the hemorrhage by attracting new jobs.

Detroit Mayor Kwame Kilpatrick wants to target specific neighborhoods for renewal and train Detroiters for new careers in information technology and health care.

County Executive Robert Ficano said the county must become more business-friendly.

The county is working on a strategy to develop the area between Metro Airport in Romulus and Willow Run Airport in Van Buren Township as a business hub.

To combat one of the most serious disadvantages facing older, fully developed communities -- aging housing on smaller lots -- Ficano wants to let residents upgrade or make additions to their homes without seeing their property taxes go up.

Currently, that program is for commercial property.

"We have to keep trying everything we can because we're in a crisis," Ficano said.

Article in March 19, 2007 Wall Street Journal

Economy Can Withstand
More Mortgage Foreclosures

By JAMES R. HAGERTY
March 19, 2007

About 1.1 million foreclosures are likely to result from jumps in monthly payments on adjustable-rate home-mortgage loans made in 2004 through 2006, according to a study by First American CoreLogic.

Christopher Cagan, director of research at the real-estate-information concern based in Santa Ana, Calif., said those foreclosures are likely to occur over six to seven years and won't be enough to damage the national economy. (Financial markets could be hurt, however.

Dr. Cagan analyzed 8.4 million adjustable-rate loans made during those three years and estimated that 13% of them, totaling $326 billion, will end in foreclosures. After lenders resell those properties, the total losses for lenders or investors holding the loans will be $113 billion, he estimated. That is about 1% of total U.S. home-mortgage loans outstanding.

"The vast majority of borrowers will be fine," Dr. Cagan said.

The estimates are based on an assumption that average home prices will remain about level with the December 2006 level over the next five years. If prices drop 10%, the number of foreclosures would jump to 1.9 million, Dr. Cagan projected. But a 10% rise in prices would cut foreclosures to 489,000, he estimated. When prices rise, people struggling with loan payments are more likely to be able to refinance into a loan with easier terms or sell their homes for more than the loan balance.

The projections include only foreclosures expected to result from jumps in interest rates that occur when loans "reset" from their initial interest rate to a higher one, usually after two to five years. They don't take into account foreclosures that will occur for such reasons as job losses, deaths, divorces, illness or fraud.

The worst-performing loans will be those that started with low "teaser" rates, below 4%, the study predicts. On such loans, the typical rise in monthly payments at the reset is 118%, Dr. Cagan calculates.

Article in March 17, 2007 Wall Street Journal

Learning to Be a Landlord

Whether by Choice or Forced Into It, People Become Mini-Trumps;
Step One: To Survive the Experience, Find a Good Tenant

By JEFF D. OPDYKE
March 17, 2007

With home prices retreating from fever-pitch highs, a new breed of real-estate investor is eclipsing the speculator: the landlord.

More Americans are hanging out "for rent" signs. Some were forced into the business after buying investment houses or condos at top dollar during boom times that they now can't sell. But many are discovering their inner landlord on purpose, often buying properties well below prices from a year or two ago.

It can be lucrative. For the first time in several years, rents are rising in many places, in part because the subprime-lending crisis is making it harder for people with marginal credit records to secure mortgages, increasing rental demand.

Shantay Wakefield and Gerald Taggart, a couple in Fairview Heights, Ill., have bought two rental properties in the past two years. The two 30-year-olds figured they would be income-generating investments, though they didn't foresee the pitfalls.

"You find out quickly that this is not easy," says Ms. Wakefield, a high-school teacher. They expected repairs to one of their rentals to take four weeks; they took seven months, and costs piled up.

Nevertheless, she says, "The sense of accomplishment, that's what we've enjoyed."

At the National Association of Residential Property Managers in Virginia Beach, Va., membership in the past year has increased by more than 20%. In Nashville, Tenn., Wilson Group Real Estate's property-management-services arm has nearly doubled to 250 clients in the past year, thanks to the landlord boom.

Getting into real estate remains relatively easy. Despite the difficulties in the loan market for higher-risk, subprime borrowers, there are lots of financing options available for investment real estate, assuming your credit is good.

But that doesn't mean it is a good idea for you. Think of it like operating a small business, even if it is just a single condo. Tricky tax laws, obscure local ordinances and other imponderables can turn what looked like a no-brainer rental into a money pit.

Keep in mind that "you're buying an income stream, not a pretty house," says Paul Howard of the Florida Landlord Network, which provides services to landlords in the Sunshine State. A house will attract only so much rent. If you overpay, you can raise the rent only so much before your property starts sitting vacant.

Mr. Howard says he recently took a call from an engineer in Maryland who had just bought a waterfront Florida home and was looking for help finding a renter. "I ran the numbers," and "even if this guy got top dollar for rent, he was still underwater by $800 a month," Mr. Howard says. "He overpaid, and now he's got problems."

The first step is to assemble a small team of pros, especially a real-estate agent knowledgeable about local rental rates and other issues that will impact your bottom line. Consider retaining a local property manager who can help you navigate ordinances, set a fair rent, find tenants, arrange lawn services and handle worst-case scenarios, like evictions.

The downside: Managers tend to charge a month's rent upfront and about 10% of the rent thereafter.

Tenant Complaints

Ms. Wakefield and Mr. Taggart manage such duties themselves. One of their two properties has been smooth sailing. The other's tenant is "calling every day with a new complaint," Ms. Wakefield says. "Right now she wants us to put in a water line because she bought a new refrigerator with a water dispenser."

Property managers are listed in phone books or online. You will want one that has been in the business full time for years. To track rental finances, many landlords use Quicken Rental Property Manager or similar software.

Running a credit check "is a must," says George Heim, a retired policeman in Wall Township, N.J., who, along with his wife, inherited a home that is now a profitable rental unit. Landlords can sign up for services from providers such as Fidelity Information Corp. (gofic.com1) to get these reports for small fees.

Key Questions

Insist on references from previous landlords. Key questions to ask: Did the tenant pay on time? How much damage was done to the property?

A typical mistake is to underbudget for repairs. Keeping the home in good condition helps attract quality tenants. "It's just so silly to scrimp on maintenance," says the Florida Landlord Network's Mr. Howard. "When you're a landlord, you're in the retail business, not real estate. You don't want to lose your good customers."

Insurance is another concern. An injury to your tenants or their guests on your property could mean a lawsuit. A good insurance agent and lawyer can help determine how best to structure your business to limit your personal liability.

Where's My Accountant?

Rental real estate also comes with a dizzying array of tax breaks, deductions and write-offs, perhaps more so than just about any other investment. You have deductions for interest, insurance, repairs, even for the mileage accumulated driving to the bank to deposit the rent checks. It is worth the expense to hire an accountant with rental-income expertise.

Overall, aim for an annual return of at least 10% to 12%. Remember, you can earn 5% in risk-free U.S. Treasury bonds, so you should make more to compensate for the headaches of being a landlord, such as the Christmas Eve phone call informing you of a broken toilet.

That happened to John Hayes, president of HomeVestors of America Inc., a national chain based in Dallas that buys and sells homes in need of repair. "This kind of stuff is a hassle," says Mr. Hayes, who is also a landlord. Fortunately, he had a plumber on 24-hour call -- another good idea.

Article in March 11, 2007 Wall Street Journal

Boosting Your Home's Resale Value

By AMY HOAK
March 11, 2007

For home sellers, a little extra work can mean not only a difference in how smoothly the sale goes, or how much they can ask for their home, but also if they get to the closing table at all in an uncertain market.

"Talk to Realtors and they will tell you anything you do cosmetically to increase curb appeal is going to help the resale value," says Sal Alfano, editor of Remodeling magazine.

In addition, many home buyers stretch economically to get into a home, says David Lupberger, home-improvement expert for ServiceMagic.com, an online company that connects homeowners with screened home-service professionals. Sensing work needs to be done will cause many to take a pass.

Here's the bright spot: Many improvements that have an impact on selling a home aren't very expensive at all, says Jim Gillespie, president and CEO of Coldwell Banker. And some tasks, such as giving rooms a fresh coat of paint, quickly pay off.

Those planning on adding a "for sale" sign to the front lawn this spring might want to consider these five areas while creating their to-do list.

1 First impressions count

It's wise to make a good impression from the moment a potential buyer pulls up to the house, experts say. First glimpses of the home will include the home's exterior, the shrubbery, the gutters and the front door.

Peeling trim could be a kiss of death. Paint the exterior of the home in an odd color and you could lose buyers before they come inside. Don't underestimate the importance of good lawn care, either.

"A lawn that looks good on the outside gives the impression that someone cares about that home," says Trey Rogers, professor of turfgrass management at Michigan State University and author of "Lawn Geek," a book of tips on how to maintain a lawn.

2 Neutralize and declutter

When it comes to preparing a home's interior, real-estate professionals worth their paychecks will advise a client to make a move to more neutral colors .

"People can't visualize beyond what they see," Mr. Gillespie says. Neutral colors, including beige and ivory, can also have an added advantage of making a room appear larger.

Removing a home's clutter is also extremely important in getting potential buyers to imagine their family living in the house, Mr. Gillespie adds. Beyond that, do some basic spring cleaning: Shampoo the carpets, rebuff hardwood floors and oil any wood cabinetry, Mr. Lupberger says.

3 Consider replacement projects

Sellers might also consider having a home inspection done prior to listing the home as a way to detect any overdue replacement projects, Mr. Gillespie says. A seller has the option of either fixing the problem or giving the buyer a discount to account for the needed repairs, but Mr. Gillespie is an advocate for making the necessary repairs before selling.

Home buyers recognize the value of a house that doesn't need major repairs, Mr. Alfano says. "The house is probably not going to move, or you're not going to get all the value out it, if the new buyer knows they're going to have to replace the roof sometime soon," he says.

In fact, according to the 2006 "Cost vs. Value" report from Remodeling magazine, a roof replacement for a midrange home had an average cost of $14,276, and returned $10,553, or 73% at resale. A vinyl-siding replacement had an average cost of $9,134, and returned $7,963, or 87% at resale.

4 Kitchens and bathrooms rule

It's no secret that buyers tend to be awed by updated kitchens and bathrooms.

"If the last time it was remodeled was in 1980, that's going to be points against versus another house that was upgraded even five years ago with sort of a modern look," Mr. Alfano says. "It's hard to go wrong with a kitchen or bath remodel unless you get a little too edgy with the design or the materials."

If kitchen cabinets are structurally fine but their exteriors are outdated, it might be worth it to reface them, Mr. Lupberger says. If counters are old, replacing them will add new life to the room.

5 Warranty coverage and documentation

Sellers can provide some extra peace of mind to buyers by purchasing a home warranty on their home that will cover such things as heating and plumbing should the buyer run into problems after closing. The coverage is getting a bit more popular nowadays, Mr. Gillespie says. Warranties can be bought from companies including American Home Shield and Aon.

Mr. Gillespie also recommends displaying the age of the water heater and furnace; if either one is on the older side, have it inspected for proof that it works correctly. Also, explain if any home improvements have produced a cost savings in terms of energy usage, Mr. Alfano says.

Article in March 9, 2007 Detroit News

Home sales get winter lift

Region enjoys a 6.7%-increase in February

March 9, 2007

BY JOHN GALLAGHER

FREE PRESS BUSINESS WRITER

Home sales turned upward in February in southeast Michigan, but like the Detroit Lions winning a game, it's hard to tell whether it's a fluke or a sign of recovery.

The multiple-listing service Realcomp reported Thursday that sales of single-family houses and condominiums in the region increased by 6.7% from January to February.

Karen Kage, chief executive of the Farmington Hills-based service, said January's sales of 2,985 single-family and condominium homes increased to 3,184 last month, even though February had three fewer days. February's sales were also above the 3,159 sales recorded in the same month a year ago.

Moreover, pending sales -- an indication of deals not yet closed -- were on the rise, giving hope that the month's uptick may be repeated in March, April and beyond.

"It's the first really positive thing we've seen since about the second quarter of last year," Kage said.

To be sure, the increases are very modest, and home sales are still far below where they were two or three years ago.

What improvement occurred may be due to bargain hunting. Median sale prices continue to decline and stood at $130,047 in February in southeast Michigan, the Realcomp data showed. That was down from $140,000 in February 2006 and $150,000 in February 2005.

Moreover, sales are taking longer and requiring price cuts and other concessions.

Johnie Fairchild, 71, a retired nurse, said she recently sold her ranch home near 8 Mile and Evergreen in Detroit for $103,000, but it took a year and two cuts from the original asking price of $119,000.

"With it being a buyer's market, so many homes available, people have a lot to choose from," she said.

Her real estate agent, Darralyn Bowers of Southfield-based Bowers & Associates, said sellers must contend with demanding shoppers.

"We have a guarded, cautious buyer now. They're working with a sharp pencil," Bowers said.

Falling prices aren't the only sign of a fragile market. Foreclosures have been rising sharply in Michigan, and home builders are building fewer residential units than at any time since the early 1980s, according to the latest building-permit data from the Southeast Michigan Council of Governments.

SEMCOG's data showed that net residential permits were about 7,500 last year, compared with more than 21,000 in 2004.

The current housing slump began in mid-to-late 2005 and deepened throughout 2006 in nearly all areas of Michigan. The number of transactions declined last year by nearly 14% for all of Michigan, and by more than 20% in many parts of metro Detroit.

Nationally, sales figures have begun to show a modest improvement, leading some analysts to say the slump bottomed out last fall and a modest recovery had begun.

Last week, David Lereah, chief economist for the National Association of Realtors, predicted that an "underlying pattern of stabilization in the housing market" would lead to stronger sales in coming months.

Some analysts say a national improvement may have become more apparent already if the harsh weather that afflicted much of the nation so far this year had not held down sales.

Article in March 8, 2007 Detroit News

Metro area home sales perk up in February

The Detroit News

Residential home and condo sales in southeast Michigan rose 6.7 percent in February compared to January, according to a local multiple listing service.

That's despite there being three fewer days in February than January, Farmington Hills-based Realcomp said.

Sales in Wayne and Oakland counties rose between 4 percent and 5 percent, while Macomb County sales dipped 1 percent.

Compared to the same month in 2006, February sales in the region were up just shy of 1 percent.

Article in February 27, 2007 Detorit News

Can't sell, so owners give bank the homes

Desperate families walk away rather than lose them to foreclosure.

Ron French / The Detroit News

STERLING HEIGHTS -- Alan and Alyson Wirgau live in a cute ranch on a quiet suburban street next to an award-winning school. There's a new roof above their heads, a new deck in back and a For Sale By Owner sign in front.

Instead of weighing offers, the family is weighing an option that seemed unthinkable a year ago: If they don't sell their home soon, they may turn down the heat, load their possessions in a U-Haul and drive away.

With a job in Indianapolis and dim prospects for selling their home, the Wirgaus are considering handing the keys back to the bank and walking away from their home.

They are among a growing number of Michigan families asking lenders to take their homes off their hands. That trend, paralleling a rapid rise in foreclosures, illustrates the desperation some families feel as home values fall below their mortgage debt.

That process, called a deed in lieu of foreclosure, is an agreement to give up all ownership rights in a home or piece of property to the lender.

It's not a good option for anyone, but it's often better than the alternative. Homeowners' credit ratings are hurt, but not as much as in a foreclosure; the lenders lose money on homes now worth less than the outstanding loan, but lose less than the cost of a foreclosure proceeding.

There is no state or national data on deeds in lieu of foreclosure because it is an internal agreement between lenders and homeowners.

But at Michigan's largest foreclosure law firm, Trott and Trott in Bingham Farms, deeds in lieu of foreclosure rose 35 percent in 2006. Looking at the firm's data, attorney Dave Trott estimates there were more than 1,000 deeds in lieu of foreclosure in Michigan last year.

While that number is small compared to foreclosures (one in 80 homes in the Detroit area alone is in foreclosure), deeds in lieu are sometimes a less-bitter economic pill.

"Nobody knows you can even do it," said Ann Howard, a bankruptcy attorney in Southfield. "I'm seeing people coming in and saying, 'What do we do about our house?' Their (mortgage) rate changed, they're not getting the overtime they used to, they've taken a job out of state."

In normal times, they're the homeowners who would write "motivated seller" in their house ads and sell for a few thousand less. But with no buyers and property values declining, homeowners who have to sell fast find themselves in unchartered financial territory.

No offers at break-even price

Two years ago the Wirgau family's 1,500-square-foot home was valued at $210,000. Today, it's for sale at $180,000 -- just enough to pay the mortgage and the closing costs.

No one has made an offer in the three months it's been on the market. At the full asking price, "we'd just break even, and I'd bend down and kiss their (the buyers') feet," Alyson Wirgau said.

For five months, Alan Wirgau has been commuting to a new job in Indianapolis, where he lives in a $400-a-month studio apartment during the week. He drives back to Michigan on Friday night and leaves early Monday morning for Indiana.

"I just put a new set of tires on my car," Alan Wirgau said. "At some point, you have to ask, 'Where do we draw the line?' "

It's better for everyone if the Wirgaus can sell their home. But if they don't, they're good candidates for a deed in lieu of foreclosure. They aren't behind on their mortgage payments, their home is worth close to the amount still owed, and the home is in good shape.

Lenders who frowned on such deals as well as short sales (accepting less than the loan amount for the sale of a home) now are routinely agreeing to both. For lenders, the choice often is between losing a little money now or a lot of money later.

A foreclosure can cost a lender thousands of dollars and can take a year. The homes often are not well-maintained during that period, costing the lender more money for repairs.

"The banks don't know what they're going to get back," Howard said. "If people are willing to hand the house over, then it's less likely the bank will get possession of a house that is completely trashed."

By agreeing to a deed-in-lieu or a short sale, the lender "gets possession quicker," said Michael Kus, spokesman for the Michigan Association of Community Banks. "Instead of waiting the redemption period (of a foreclosure proceeding, which can take six-12 months), you can get it marketed quicker."

And with home prices continuing to fall, the sooner a lender can sell the distressed house, the less money the lender loses, Kus said.

"It's the busiest department in the banks now, short sales and deeds in lieu," Howard said. "They have people devoted to it."

A deed in lieu of foreclosure is, at best, a mixed blessing. Homeowners may get rid of their home quickly, but their ability to purchase a new home is damaged.

At Rock Financial, a deed lieu carries the same stain as a foreclosure when a consumer applies for a new home loan, according to Bob Walters, chief economist at Rock Financial/Quicken Loans.

Livonia bankruptcy attorney Charles Schneider advises clients against deeds in lieu, but not for the expected reasons. He argues that it makes more financial sense for a distressed homeowner to go through foreclosure.

Honor bottom line or deal?

Most families who are on the verge of losing their homes have bad credit anyway, Schneider said. A family going through foreclosure proceedings can live in a home for almost a year without making mortgage payments.

"Making payments on a home that is under equity, you're literally throwing money down the drain," Schneider said. "Say you go 10 months without paying a $1,500 mortgage -- that's $15,000 to start over. Why would you pay that money when you can live there rent-free for that time?"

Alan Wirgau understands the economics of such a decision, but not the morality.

"You made a contract," he said. "You should do your best to honor it." Still, he can't help but wonder whether he'll feel differently if his home doesn't sell in the coming months.

In July, the family's adjustable rate mortgage will jump from 5.25 percent to 8.25 percent, costing another $250 a month. A property tax bill of $2,800 will be due.

"If we're not out of here by then, something's gotta give," Wirgau said.

"People choose between trying to salvage some of their credit rating versus living in the house for free," said Southfield bankruptcy lawyer Stuart Gold. "Some banks are even paying people to give their houses back, even on a short sale. They'll pay them $500 to help on moving expenses to get them out of the house."

The key for distressed homeowners, say attorneys, lenders and real estate agents, is to talk to lenders early. Homeowners who wait until they are behind on their mortgage payments will find their options severely limited.

The Wirgaus don't know what they're going to do. They're considering lowering the price of their home and dipping into their savings to pay the bank the difference. Even then, there's no guarantee that their house will sell.

They sit at their kitchen table weighing the pros and cons of a deed in lieu or a foreclosure, and wonder whether they could go through with it.

"I've covered all the angles," Alan Wirgau said. "I hope it doesn't come to that but it may be worth starting over.

"Some people have no choice," he said. "It's a sad state of affairs."