Home Sales Rise in Hard-Hit Areas

Buyers Snatch Up
Foreclosed Properties
After Big Price Cuts

By JAMES R. HAGERTY
May 27, 2008; WSJ

Home sales are rising in some U.S. metropolitan areas where lenders have slashed prices on foreclosed properties.

Generally, home sales remain weak. The National Association of Realtors reported last week that sales of previously occupied homes in April were down about 18% from the already depressed year-earlier level.

But sales are up sharply in some of the areas hit hardest by foreclosures and falling prices. They include: Las Vegas; Sacramento, Calif.; Fort Myers, Fla.; and inner-city Detroit.

Though Americans remain wary of further drops in housing prices, the data from these areas show that some buyers are trolling for bargains. Sellers "have moved into the acceptance mode" and are pricing homes more realistically, says Thomas Lawler, a housing economist in Leesburg, Va. "I think it is the first stage of good news for the market."

Lenders' inventory of foreclosed homes has steadily increased in the past couple of years and is believed to total around half a million homes. Many lenders initially were slow to slash prices, partly because they hoped to avoid huge losses. But more lenders have been capitulating as it becomes clear that delays often merely result in lower proceeds and higher costs for taxes, insurance and upkeep.

That doesn't mean housing is poised for a quick recovery. In much of the U.S., there is still a huge glut of homes for sale, and foreclosures continue to dump more property on the market. Realtors reported that the number of single-family homes on the market in April was enough to last 10.7 months at the current sales rate, the highest since 1985. During the housing boom of the first half of this decade, the supply typically was four to five months.

For the first four months of this year, home sales in Detroit, excluding suburbs, totaled 3,360, up 48% from a year earlier, according to the Michigan Association of Realtors. The average price dropped 56% to just $20,514. That average is so low because many of the sales involve decrepit homes in neighborhoods with few jobs.

Most of the recent sales in Detroit involve investors buying foreclosed homes, says Carl Williams, president of the local association of Realtors. The homes are selling, he says, because "the prices are dirt cheap."

Sales of "normal" homes, those that haven't been foreclosed, remain very slow, Mr. Williams says. Still, he sees it as a good sign that lenders are finding buyers for the foreclosed homes. To the extent that investors can renovate and find tenants for vacant houses, neighborhoods can start to heal.

In California's Sacramento County, sales of single-family homes totaled 1,669 in April, up 41% from a year earlier, according to DataQuick Information Systems, a research firm. The median sales price was $226,250, down 34%.

Alan Wagner, president of the Sacramento Association of Realtors, says the rise reflects more aggressive pricing by lenders. "They've got to liquidate inventory. They're taking that house and dropping $100,000 off the price, and all of a sudden they've got multiple offers," he says. Some homes that sold for more than $400,000 a couple years ago now go for $225,000 to $260,000, Mr. Wagner says.

That means some renters previously priced out of the market finally can afford homes -- if they can qualify for mortgages. That has become much tougher because lenders have tightened standards, but Mr. Wagner says the growing availability of U.S.-insured loans insured by the Federal Housing Administration is helping.

In the Las Vegas area, sales of single-family homes in April were up 30% from a year earlier. The Greater Las Vegas Association of Realtors says properties being sold by lenders account for more than half of recent sales.

Will Upgrading Your Home Help You Sell It?

Big-Ticket Renovations Lose
Value Amid Market Slump;
Investing in Curb Appeal

By M.P. MCQUEEN
May 15, 2008; Wall Street Journal

If you're putting your home on the market anytime soon, you may want to rethink those plans to bump out the kitchen or add an extra bath.

During the housing boom, such ambitious projects would recoup as much as 90 cents on the dollar. Not today. The resale value of improvements in general is sliding, according to experts. In a departure from recent trends, homeowners are getting the best payback from relatively mundane improvements, such as sprucing up the exterior of their house or putting in new windows.

After spending $400,000 remodeling the suburban East Greenwich, R.I., home he bought for $820,000 in 2002, Jonathan Salinger learned he probably couldn't sell it for more than $1.1 million in today's market. That's after posh additions that included landscaping, a pool, an outdoor kitchen, first-floor laundry and mud rooms, and custom cabinetry. As a result, the 45-year-old district manager for a mortgage lender recently decided not to list his house for sale and scratched plans to move the family closer to his children's private school in Providence.

The slumping housing market has made remodeling much trickier. When house prices were climbing ever higher, buyers knew they could spend big bucks to expand their homes and still make a profit when it came time to sell. But today, a buyer who spends unwisely on remodeling may be simply digging a deeper hole when it comes time to move.

Further complicating the equation: Even though housing prices are slumping, construction prices have continued to climb. That means adding that new bath will cost more, even as it contributes less to the resale value.

Homeowners have taken note. Remodeling activity peaked in 2006 before slowing last year. And it is expected to fall 4.8% this year, according to a report by the Harvard Joint Center for Housing Studies released last month.

Since many homeowners remodel using borrowed money, tighter credit means it's also harder for many homeowners to afford big projects. Still, American homeowners will spend an estimated $166 billion on remodeling this year, according to the Harvard housing center.

Nationally, returns for all major home-improvement projects are fetching 70 cents on the dollar, according to a Remodeling magazine survey of real-estate professionals conducted late last year. That's down from 80 cents in 2004. Back then, a minor kitchen remodel cost an average $15,300 and recovered an estimated 93% if the home was resold within a year. Today, a similar remodel costs $21,100 and would recoup only about 83%.

This doesn't mean all remodeling is a waste of money. Home improvements that help a property stand out in a glut of newly built houses and foreclosed properties are most likely to pay off now, as are those that make a house lower-maintenance or more energy-efficient.

"Make the outside of the house look really great so that people fall in love between getting out of the car and the front door. That is money that is worth spending," says Diane Saatchi, senior vice president at the Corcoran Group real-estate agency, who sells high-end properties in the Hamptons of New York's Long Island.

Freshly painted trim and new hardware also help a home show well, says Ms. Saatchi. And landscaping, including well-manicured trees and shrubs, can help older homes compete against new ones that lack mature vegetation, she says.

New windows and doors and siding help homes look well-tended and spiffy from the street. They also help make houses more energy-efficient, which increasingly matters to buyers grappling with rising fuel and air-conditioning costs, experts say.

Some elaborate remodels, though, may actually make your home harder to sell, says New Mexico builder Lonny Rutherford. He notes that lenders are nixing higher-than-normal appraisals, and that many buyers are looking for a deal. Even if someone wanted to pay extra, they "would have a hard time financing the house unless they have a lot of cash," he says.

Inferior remodeling work may be worse than none at all. Cheap cabinets and poor workmanship won't fool buyers as they might have a few years ago, when many had to make snap decisions about buying a house, says Anslie Stokes, a real-estate agent in Washington, D.C.

"Buyers can spot shoddy renovations, and they aren't willing to pay for it anymore," Ms. Stokes says.

Some improvements have regional appeal. Backup power generators bring greater returns in the West and Southwest, following several seasons of extreme weather that can knock out electrical power, than in New England. Steel replacement roofs bring greater returns in wildfire-prone California than in Iowa or Minnesota, according to the Remodeling magazine survey. As for interior amenities, home buyers in some high-tech-focused cities find "wired" homes very desirable, but they aren't in demand everywhere.

"People are looking for broadband access and alarm systems," says Jim Amorin, a real-estate appraiser in Austin, Texas. "That is almost getting to be a necessity in my market." He says barbecues, pools and other home-entertaining amenities are also in demand in his part of the country. "In downward-trending economies, people spend more time at home, so they like things that make that more enjoyable."

Despite the real-estate meltdown, some homeowners are still putting their faith in renovations. Susie Hastings, a 61-year-old homemaker, recently spent $60,000 upgrading her mother's 1948 four-bedroom house in Farmington, N.M., for possible resale or rental. Ms. Hastings replaced all the windows and doors with double-paned energy-efficient ones, redid the stucco exterior and added a high-efficiency boiler to slice the utility bill. Now she hopes the house will sell for more than its previous appraised value of $220,000.

"It has made a big difference in the look," she says.

Suite spot

Today's floor plans reflect dimensions of modern life

BY MIKE FOLEY • GANNETT NEWS SERVICE • May 11, 2008

In the not-too-distant past, two-story homes had the master bedroom on the second floor along with the other bedrooms.

The master bedroom was usually not much larger than others and most often could be distinguished only by the attached bathroom, or the parents inhabiting the space.

Not anymore.

Today, master bedrooms are in on the ground floor of home design. They are also bigger than ever, often with sitting areas, spacious walk-in closets or dressing rooms and even efficiency kitchens.

And by the way, it's not a "master bedroom" anymore -- it's a "master suite."

In the developing world of home design, deciphering the buying public's changing wants and needs has become a science.

Most often, consumers want more, and they're willing to pay for it, says Heather McGowen, communications director for Donald A. Gardner Architects in Greenville, S.C. That's one reason the average size of homes nationwide has grown over the years, according to the U.S. Census Bureau. In 1970, the average newly constructed home was 1,400 square feet. In 1990, that increased to 2,080 square feet and by 2005, the average size jumped again, to 2,434 square feet. The decline of the housing market, which began in November 2005, may cause average square-footage numbers to recede when new census numbers are announced in 2010.

The Northeast has the largest average size of new homes, followed by the South, the West and the Midwest, the census shows.

The one overlying trend is that everything is bigger -- from closets, to great rooms, to kitchens and more. But one of the most-tossed-about terms these days for buyers, real estate agents and designers alike is "master on main."

"I don't know of a new house we're selling that doesn't have a master on main, or even more common, a master and another bedroom on the main floor," says Kirby Britt, a Realtor with Keller Williams in Greenville. "They use that second bedroom as a second bedroom, an office or a guest room."

To add utility, the spare bedroom is usually accompanied by a full bath.

Even more impressive -- and trendy -- is the idea of making these masters on main larger than ever and yet still packed with features. McGowen says the suites often have refrigerators, a coffeemaker, sitting areas and oversize bathrooms with huge shower rooms, a large tub and giant walk-in closets.

When people aren't in their bedrooms, it seems like they want to be in their kitchens or outside. Keith Smith, owner of Keith Smith Builders in Greenville, says the new features he's finding people want in their homes are screened porches, grilling decks and of course, monster master suites.

Formal living rooms are rapidly going the way of the dinosaurs, and in their place are rooms that no one knows exactly what to call. Some choices are "hearth rooms," "keeping rooms," "morning rooms" or "family rooms." Call it what you will, Smith says people want them for everyday life and for entertaining.

"Keeping rooms are what people want now," he says. "We're putting fireplaces in those. And a lot of flat screens over the mantle."

The rooms are used as places to talk, for children to do homework while parents cook, or as spillover locations for parties when the kitchen gets too crowded.

Luxurious deals in the $400,000-plus range

BY GRETA GUEST • FREE PRESS BUSINESS WRITER • May 5, 2008

In the exclusive market for homes priced over $400,000, buyers can choose just more premium properties including a private rural setting, a lakefront home or an elegant Tudor in a historic urban neighborhood.

And the deals are even better than in more affordable price ranges as home prices and sales have steadily declined from their 2005 peaks.

Homes selling in this range -- from $400,000 up to $1 million and up -- are in cities such as the Grosse Pointes, Novi, Bloomfield Hills, Birmingham, Ann Arbor, New Haven, Washington Township and Northville.

And the homes are loaded with luxuries, such as finished daylight basements, gourmet kitchens, wine cellars, butler's pantries, home theaters and more.

Steven Roby, 51, a Royal Oak lawyer, and his wife, Annemarie, 50, recently bought a house in Birmingham for $700,000 that was listed at $819,000. They sold their Bloomfield Township home for nearly $300,000 less than they had hoped in order to make the big lifestyle change.

"We had 1.2 acres of grass. It was massive. It was extremely laborious to maintain after all the kids moved out," Roby said. "Once you discover Birmingham and realize how fantastic it is ... we could kick ourselves that we didn't move 15 years ago."

They looked for more than two years for the right house and found a 4,000-square-foot home with features including a finished daylight basement, home theater room with stadium seating, controls for the television and radio throughout the house, premium fixtures, marble countertops and virtually no lawn to cut.

As people move up to the top of the market, they are shedding their old homes as quickly as possible and taking the losses in stride.

Be practical and realistic

Dan and Sandra Quick, local attorneys, just moved their family into a new home in Bloomfield Hills but have not sold their home in Clarkston yet.

The Bloomfield Hills house was listed at $630,000, but the Quicks paid $592,000.

The 3,586-square-foot home has four bedrooms, three full bathrooms and two half baths. It has a gourmet kitchen, high ceilings, hardwood floors, designer fixtures and an attached three-car garage.

With a new job an hour away from Clarkston, Sandra Quick decided it was time to give up the old house, even though the family loved it. The house went on the market last week.

"Our house in Clarkston we listed at $279,000. We know we are taking a loss, particularly in light of the investment we made in a finished basement, updated bathrooms, hardwood flooring and other amenities, but we are gaining more on the other side," she said. "We have to be practical in this market."

Quick said the Bloomfield Hills home originally was listed at $847,000 and then taken off the market. The previous owner then put in $150,000 worth of improvements, including the gourmet kitchen complete with a Wolf professional stovetop and a Sub-Zero refrigerator that really sold her. Quick said she knows she got a steal on the house.

"There wasn't anything that worked for us in the $300,000 to $500,000 range. We definitely wanted an updated kitchen. We spend a ton of time in our kitchen and dining room as a family," she said.

Quick's agent, Sue Peterson with Hannett-Wilson-Whitehouse in Birmingham, said that it is critical in the upper price ranges that sellers are realistic in their pricing.

"They need to understand the amount of money they put into a home does not determine the amount a buyer wants to pay," Peterson said. "Everything is reduced to a buyer feeling they are getting good value for their money. Otherwise, the buyer will go on to another property."

And some sellers in this price range will take their home off the market if they can't get the price they want now, hoping things will improve in time.

Buyer's advantage

Buyers know they have the upper hand and are looking for recently updated kitchens with granite and premium appliances, as well as baths with jetted tubs and steam showers. These are features that previously were usually only found in higher-priced homes, she said.

Mike Fayz, an agent with Real Estate One in Dearborn Heights, who recently sold a $1-million home in Dearborn for $900,000, said the area is holding its value well.

"It's not like 50-cents on the dollar here. A lot of people would like to settle in this area," Fayz said.

The buyer was looking for a lot of amenities and also had looked in the Grosse Pointes and Northville before settling on the Dearborn home. It features three master suites, gourmet kitchen, theater room, finished daylight basement with a wine cellar, butler's pantry and a three-car attached garage in a gated golf community.

"They are still asking the same price that people did five years ago, and those are going to take longer to sell," Fayz said.

Local Realtors who specialize in the upper-tier market say these types of homes take a solid 6-10 months to sell.

Theresa Bunker Meushel, an agent with Coldwell Banker Schweitzer in Commerce Township, said the hot neighborhoods in the upper price ranges are in Washington Township, Hartland, Highland, Birmingham, Bingham Farms and Beverly Hills.

Other expected amenities include radiant floor heat, hardwood floors, more land and at least a three-car garage.

She said many of the buyers in this range are insulated from the job and real estate market disturbances.

"The people in the $500,000 and up range are the executives, and they don't have to worry about their jobs. I'm working with people coming in from Colorado, Pennsylvania and Florida, and they are executives relocating," she said.

Patient purchasers can get more house for their money

BY GRETA GUEST • FREE PRESS BUSINESS WRITER • May 4, 2008

As the spring home-selling season begins, metro Detroit buyers will delight in the high home inventory and falling prices: They will get more for their money in every price range, from location to amenities.

Much has changed since 2005, when the local market was at its peak. Places like Novi, Birmingham, Royal Oak, Ann Arbor and Sterling Heights, for instance, are more affordable now as home prices reach pre-2000 levels.

"Buyers are out there in this market, but they are looking for a deal. When they see the houses in the right range, they come out and start buying," said Paul Mychalowych, an agent with Keller Williams in Farmington Hills. "In the range of $200,000 to $400,000, you can buy in downtown Birmingham now. A few years ago, you couldn't touch it for under $500,000."

Because metro Detroit home values and sales are down substantially from three years ago and interest rates have come down, the buyer's market is heating up.

Home prices have dropped 23.2% since peaking in December 2005, according to the S&P/Case-Shiller Home Price Indices. And Michigan home sales fell 26.5%, from the peak of 137,558 homes sold in 2004 to 101,094 in 2007, according to the Michigan Association of Realtors.

"Everything's on clearance now," said Amanda Callahan, an agent with Keller Williams in Plymouth. "People are putting in $30,000 kitchens just to sell their houses and they don't get that investment back. This is absolutely the best time for first-time homebuyers to buy."

Time to upgrade

Dan Schwegler, 28, an actuarial analyst for AAA Michigan, and his wife, Lyndsey, 27, an actuary with an auto club, decided to give up their Warren starter home to grab a deal in South Lyon.

The Schweglers bought the 3,600-square-foot home even though they couldn't sell their 1,400-square-foot home in Warren. They leased it for the next two years in hopes that the market improves. But even if they lose money on the Warren house, they will more than make it up with the $54,000 they saved on the new house.

"The person we are buying from is losing the same percentage-wise, so it is a huge gain for us," Dan Schwegler said. "We are planning on starting a family soon and we don't want to ever move again."

They were able to buy the 4-bedroom, 2 1/2 -bath house in the Lyon Ridge subdivision for $358,000 after the original buyers backed out when their financing fell through.

"My only motive was financial reasons. We liked our old house and put a lot of work in it," he said. "But we are only going to move up and I doubt the market is going to get this bad again for at least a decade."

Now, the Schweglers live in a luxurious home with granite countertops, a large kitchen, a three-car garage, hardwood floors throughout and a master bathroom that makes them feel like they are in a five-star hotel every day.

Those amenities are not uncommon in the $200,000 to $400,000 price range. That money also buys you into better neighborhoods in cities like Milford, Pleasant Ridge, Chelsea, Ann Arbor, Birmingham, Carleton and Sterling Heights.

In the under $200,000 price range, buyers can find many choices in communities such as Allen Park, Westland, Dearborn, Ypsilanti, Detroit, Howell, Harrison Township, Fraser, Clinton Township, Warren, Holly, Farmington Hills, Keego Harbor, Waterford, Monroe, Royal Oak and Ferndale, according to data compiled by multiple listing service Realcomp in Farmington Hills.

And in the $400,000 to $1 million range, homes in the more exclusive neighborhoods in Novi, Bloomfield Hills, Birmingham, Ann Arbor, New Haven and Northville are seeing price reductions as well.

"The market cool-off has made all these areas more affordable," said Mychalowych. "People are finding updated kitchens and bathrooms, stainless steel appliances. And builders are throwing in all kinds of incentives including landscaping."

Mychalowych said many buyers are still sitting on the fence waiting for prices to drop more. But trying to time the market can be tricky. Recently he sold a home in Birmingham that had been on the market for a year. The price started at $350,000, but it sold for $260,000 to a couple that had been watching it for a year.

Perry Gatliff, an agent with Coldwell Banker Schweitzer's Grosse Pointe office, said the east-side area is holding its value better than other areas, but there are still good deals. Recently he sold a home in Grosse Pointe Farms for $135,000 to a first-time homebuyer who would have spent at least $175,000 on the house three years ago.

And although homes priced above $400,000 in the Grosse Pointes are selling, they take longer because the pool of potential buyers is smaller, he said.

Some great deals won't be around forever, said John Babcock, president of Babcock Homes in Commerce Township.

He said speculative houses that builders constructed when the market was at its peak -- those houses built without a buyer lined up -- are not being replaced when they sell. Builders are building almost exclusively to order now.

"We haven't put a new spec in the ground for a year and a half. I don't know of any builders who are building specs because there isn't any money in that now," Babcock said. "While the existing home market is still flooded with homes and foreclosures, the new home market seems to be drying up."

Detroit prices dropping faster

Maureen Maitland, vice president of index services at Standard & Poors, which issues the S&P/Case-Shiller Home Price Indices, said metro Detroit gave back price gains made in the market since January 2000. Then, the index was set to 100. By the end of February, Detroit became the only city of the top 20 nationwide with an index value of under 100, at 97.61.

"We have a nationwide decline in home prices that is occurring because of a 15-year run-up," Maitland said. "While all home prices are coming down, Detroit's are coming down more than others because of what is happening in the Detroit economy."

Dana Johnson, chief economist for Comerica Bank, said that from 2001 to 2005, Michigan house prices rose at a 3.5% annual rate compared to the national 8% growth rate.

"The implication for Michigan is that its housing sector will start recovering when the local economy begins to expand," Johnson wrote in an April 30 briefing. "I continue to believe that Michigan will finally begin to grow again in 2009."

Home sales fell 7% in metro Detroit in 2007 as the region lost 93,400 jobs over the past two years, according to Lawrence Yun, senior research forecaster for the National Association of Realtors.

Most economists are certain that the bottom of the housing market hasn't been reached yet, but some expect that to occur later this year.

"There is absolutely nothing in data out this week -- not from the Case-Shiller home price indexes or RealtyTrac's foreclosure stats -- that contains even a hint that the housing is bottoming out," said Bernard Baumohl, managing director of the Economic Outlook Group in Princeton, N.J.

Carol Copping, an agent with Real Estate One in Novi, said despite such reports, she is seeing more buyers out looking.

"We have really seen a tremendous pickup in the last month. Some of it is weather related," she said. "I think we are getting very close to bottom ... a lot of these homes are getting multiple offers, which we haven't seen, for like, five years. I think a lot of people who were waiting have decided maybe now is the time to stop waiting."