The Eleven Reasons People Can't Sell Their Homes

The environment for home sales becomes more difficult with each passing month. Some estimates put 11 million mortgages, about 20% of the U.S. total, underwater, meaning that homeowners owe their banks more than the underlying properties are worth. Home repossessions reached more than 100,000 for the first time in September. Rising foreclosure rates continue to further depress housing prices.

The federal government let its tax benefit for homeowners expire in April and has not renewed it since them. The program did boost sales earlier this year. Shoppers must now face a market without the credit in which many home prices continue to fall.


The clamor over flawed foreclosure paperwork and robo-signers could further chill the housing market. People who might buy have bought a home in foreclosure will now worry about obtaining proper documentation and effective transfer of title.

24/7 Wall St. spoke with experts at real estate research firms Zillow.com and RealtyTrac to find the best way to sell a home. We also interviewed management from the National Association of Realtors, a number of real estate brokers, bank managers and elected officials in affluent communities. What emerged from these conversations and our research is the following: successful home sellers often do the same small number of things correctly. Often, these tactics are the difference between finding a buyer and not.

1. Pick the Best Broker

Many people who decide to sell contact a real estate brokerage with a sterling reputation or go to one that has the largest number of listings. Frequently, when potential sellers call these firms, they are turned over to the first available broker in the office. That person is often not the best representative. As a matter of fact, what is a successful broker doing in the office anyway? There are a small number of brokers in most markets who have a better track record than their peers. Most of them have been brokers for a long time and did not lose their jobs when the housing bubble collapsed.

2. Get an Appraisal

Sellers should obtain an appraisal for their home before they put it on the market. One of the major reasons house sales fall apart is that the bank assesses the home for less than the buyer has agreed to pay. For example, a buyer and seller agree on a price of say $250,000. Then the buyer goes to his bank to get a mortgage. But, the bank appraises the house for $200,000. Now, the buyer has to put up more money. Sellers who get their own appraisals get a realistic idea of what price a bank would value a house at before they enter into a sale. Most appraisers already do some work for banks. An appraisal often tells a seller what a "safe" price is. And an appraisal's average cost is only about $200.

3. Get the Right "Comp"

Sellers must make sure that foreclosures in their area are included in the "comps" the Realtor gives them. Traditionally, a broker will give a seller a list of similar properties in the market and that information is part of what is used to set a price. What brokers do not always do is put the price of any foreclosed properties that are comparable into the calculation. A typical foreclosed home sells for 25% to 30% less than similar inventory in the same area. If sellers don't take that into consideration, their home will not be priced competitively and they put themselves at a disadvantage. Sellers wind up slashing prices after their overvalued properties are on the market for several months without success.

4. Tax Assessment

Low property taxes are critical to finding buyers. Property taxes in most cities, towns and counties have gone up for years as home values appreciated. This revenue is used to run schools and other local services. However, now home values have dropped sharply, and the appraisals by local authorities on which taxes are based are too high. Many cities have a process for homeowners to request lower appraisals, and as a consequence obtain a reduced property tax. Some states even have a board of appeals for homeowners who do not think they were treated fairly. One way for people to get local authorities to cut the tax assessment of their home is to put it on the market at below the appraised price. If the home does not sell for several months, they can present empirical evidence of the lower value. A home assessed for $300,000 that goes on the market for $275,000, but does not sell for a year, is probably not worth $300,000.

5. Conserve Utilities

Turn the lights off! Most buyers ask for utility bills. "Energy wasters" who sell a home will rue the times they forgot to turn off lights, turn down the air conditioner or left the TV on all day. It would be ill-advised to fake the amount of energy being used by simply living in the dark and cutting utility costs to nearly zero. However, careful and prudent use of energy can cut bills by enough so that a buyer does not have sticker shock about what it costs to maintain electricity, gas or oil to run a house.

6. Sell "Green"

Not very many homes are actually built with environmentally friendly material or heated by solar panels or wind. But those that are have a special appeal to the crowd that buys green cars such as the Prius. A seller may have one of only a few "green" homes in their town or city. That may make it highly desirable to many shoppers.

7. Curb Appeal

This item appears on most lists, and many sellers don't bother to take the advice to prune the hedges or clean the gutters. But it is even more complex than that. Walk to the road on which your home is located. Now walk toward the house. What does a buyer see for the first time? Most sellers never bother to look at their homes through a buyer's eyes. Do the shingles need a paint job? Are the shutters looking shoddy? "Love at first sight" is no less rare with homes than with people.

8. Everything Is Negotiable

Negotiate the fee with the broker. The fee paid to a Realtor for selling a home is traditionally 6%. Sellers often believe that they can get that down to 5% or even 4%. But, in a market where brokers are desperate for business, pressing for 3% or even 2% may work. Whatever the savings are, they can materially affect how much a seller can drop the price of his home and still walk away with a profit.

9. Get an Inspection

Sellers should do some of the inspection work and testing before their home goes on the market. Inspectors for buyers are often aggressive when they report what is "wrong" with a home to their clients. For as little as $250, an inspector will go through your house and tell you what the inspector is likely to flag such as a roof leak or old, energy-wasting windows. That gives the seller a chance to fix the problem for less than the buyer may want to lower the price by, or at least know the items that a buyer will use to negotiate down the price.

10. Hire a "Stager"

For as little at $200, you can hire someone who can make your home look better by moving pictures, furniture, lights and addressing problems that may make the home show poorly. These people are cousins to the men and women who "fix" expensive homes before magazines come in to photograph them for stories. "Stagers" have lists of tricks that few Realtors and almost no homeowners know. The "better" your home looks, the more appealing it will be to potential buyers.

11. Fix It First

Sell a house that does not need any work. In a market in which people count every penny and worry about job security, fewer buyers want homes that are "fixer uppers" that require work that could cost thousands or even tens of thousands of dollars to address. These days, a buyer choosing between two homes will most likely take the one that needs the least work. It may cost some money to get your home to the point where a buyer can walk in and do almost no work. However, it may be the difference between selling a home and having it languish on the market.

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Seven Easy Steps to Avoid Foreclosure

Don't spend your hard earned money paying some middleman shyster to work with your lender! You can be your own best representative and the steps you need to take are simple.

All these steps are based on experience and recommendations from the US Department of Housing and Urban Development.

1. DO NOT IGNORE THE LETTERS & PHONE CALLS FROM YOUR LENDER As painful and time consuming as it may be, answer their phone calls and respond to their letters. Most lenders, especially in this economy, have programs in place and are willing to work with you if you communicate with them. Be calm, be patient and open to discussing your situation.

2. BE PREPARED Collect your financial information and share it with your lender. They will want to know:

* Why you are having trouble making your payments

* When you will be able to bring your mortgage current

* Do you plant to keep your home or are you trying to sell it

* Is your shortfall situation short or long term

* What is your current income

* Details of your monthly expenses – utilities, insurance, entertainment, credit card payments, car payments, education…

* Do you have any other sources of income? Can family or friends help you through this tight situation?

Without this information they are much less likely to be able to help you.

3. ASK QUESTIONS The Federal Government and private lenders have programs in place to help homeowners in jeopardy keep their homes. You may qualify for one of these programs. Ask your lender and HUD approved counselor. Should you not qualify for any of today’s programs keep asking. New programs are constantly being developed.

4. STAY IN YOUR HOME FOR NOW Do not abandon your home! If you move out foreclosure proceedings will move more swiftly.

5. DO NOT LIST YOUR HOME FOR SALE If you reasonably expect to be able to afford your home DO NOT put it up for sale. A home for sale is very UNLIKELY to qualify for any special programs, receive forbearance assistance, loan modification or refinancing.

6. CONTACT A HUD-APPROVED HOUSING COUNSELING AGENCY This is far and away your BEST FREE resource for mortgage questions. You will find these agencies provide excellent information on services and programs offered by both government agencies and private organizations that could help you. The housing counseling agency may also offer credit counseling.

7. DON’T PAY SOMEONE TO WORK WITH YOUR LENDER Hiring a middleman is one sure way to spend money you don't have. Use the free counseling agencies available. They provide great insight and will help you determine your best course of action. They will help you interact with your lender and get the best option available to you. Skilled, knowledgeable and FREE!

Overall

Forbearance In forbearance, your lender will agree to a modified payment plan based on your financial situation. Often this includes a reduction or suspension of your monthly payments. You may qualify for this if you have recently experienced a reduction in income or an increase in living expenses. You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan.

Mortgage Modification You may be able to refinance your loan at a reduced principal or interest rate and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem and can afford the new payment amount.

Partial Claim Your lender may be able to work with you to obtain a one-time payment from the FHA-Insurance fund to bring your mortgage current. You may qualify if:

* Your loan is at least 4 months delinquent but no more than 12 months delinquent; * You are able to begin making full mortgage payments.

Sell Your Home If you are unable to qualify for any of the above options, have some equity in your home and are confident it can be sold quickly you should seriously consider selling the home. It may be better to cut your loses and find another housing solution rather than continue to fight a losing battle.

Pre-foreclosure sale / Short Sale This will allow you to avoid foreclosure by selling your property for an amount less than the amount necessary to pay off your mortgage loan. You may qualify if:

* The loan is at least 2 months delinquent; * You are able to sell your house within 3 to 5 months; and * A new appraisal (that your lender will obtain) shows that the value of your home meets HUD program guidelines.

Deed-in-lieu of foreclosure As a last resort, you may be able to voluntarily “give back” your property to the lender. This won't save your house, but it is not as damaging to your credit rating as a foreclosure. You can qualify if:

* You are in default and don't qualify for any of the other options; * Your attempts at selling the house before foreclosure were unsuccessful; and * You don't have another FHA mortgage in default.

DO I QUALIFY FOR ANY OF THESE OPTIONS? You will have to discuss your situation in detail with your lender to determine if you qualify. A housing counseling agency can also help you determine which, if any, of these options may meet your needs. Often they will assist you in interacting with your lender if needed.

SHOULD I BE AWARE OF ANYTHING ELSE? Yes. If you're selling your home beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty. Be especially alert to the following:

Phony counseling agencies

Some groups calling themselves “counseling agencies” may approach you and offer to perform certain services for a fee. These are services you could do for yourself for free, such as negotiating a new payment plan with your lender, or pursuing a pre-foreclosure sale. If you have any doubt about paying for such services, call a HUD-approved housing counseling agency. Do this before you pay anyone or sign anything.

Equity skimming In this type of scam, a “buyer” approaches you, offering to get you out of financial trouble by promising to pay off your mortgage or give you a sum of money when the property is sold. The “buyer” may suggest that you move out quickly and deed the property to him or her. The “buyer” then collects rent for a time, does not make any mortgage payments, and allows the lender to foreclose. Remember, signing over your deed to someone else does not necessarily relieve you of your obligation on your loan.

Main points:

1. Act now - Don't avoid your lender's calls or letters. 2. Don't lose your home and damage your credit history. 3. Call or write your mortgage lender immediately and be honest about your financial situation. 4. Stay in your home to make sure you qualify for assistance. 5. Arrange an appointment with a HUD-approved housing counselor to explore your options. 6. Cooperate with the counselor or lender trying to help you. 7. Explore every alternative to keep your home. 8. Beware of scams. 9. Do not sign anything you don't understand. And remember that signing over the deed to someone else does not necessarily relieve you of your loan obligation.

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We downsized from £60,000 to £16,000

The Stoddart family downsized from a comfortable £60,000-a-year life in Brighton to live in west Wales on £16,000 – and they still have to pay a mortgage. Here they tell how they did it

I was sitting in a business meeting a couple of years ago doing what normal people do in meetings at work. There was lots of "blah, blah, blah, financial targets" and "waffle, waffle, waffle, notes from the last meeting" when it dawned on me that, now in my mid-30s, I didn't want to "do business" any more. I didn't want to work in an office, in fact.

I started wondering what would happen if we were all thrown into a practically challenging situation, such as the middle of a jungle somewhere; how would we cope and, you know, survive? What good would PowerPoint and Adobe Acrobat skills do then?

Look, I was a bit bored and my mind was wandering, it happens to us all. But the point was I'd had a growing, gnawing sense of frustration at my lack of practical abilities for a while. My young family and I were reliant on others in pretty much every area of our lives. If we wanted something we bought it, if something broke we'd replace it, or get someone in to fix it. I couldn't even change a plug, for goodness sake. Our lives in Brighton were comfortable but when we stopped and thought, which we increasingly did, deeply unsatisfying.

Cut to the present and my partner, Chris, 39, and our two young children, aged two and four, have traded in our tiny suburban-by-the-sea home, affectionately known among friends as "the hobbit house", for a 2.3 acre smallholding half an hour outside Cardigan in west Wales for virtually the same price – just short of £300,000. We have swapped well-paid and bustling city living to become the skint owners of a small and remote piece of land up a, sort of, hill, where the nearest pub is an hour's walk away.

Chris is working part time still in an office-based job and I am currently unwaged while writing a book about our often hapless efforts to become all-round useful for a change. We share childcare and smallholding duties, our few savings are long gone, and we still have a large mortgage commitment.

So how's it going? Well, the challenges this past year and a bit have been immense and at times we've felt lonely, frustrated, angry, confused and overwhelmed in equal measure. But throughout it we've been able to laugh at ourselves and our uselessness (if not always immediately) and "get on with it". From cooking off a single gas-ring camping stove for nearly a month to dealing with escaped pigs in the road and frozen water pipes, we've come through it hardier and stronger.

There have been days when it's rained so much the ground is so muddy you can barely wade through it and when the wind has been so cold the phrase "chilled to the bone" takes on real meaning. But there have been many moments of sheer joy and the children love it here, really love it. What child wouldn't relish being able to play in a field, feed pigs and collect chicken eggs, and then ride on tractors and diggers and the like. Who needs a day in a theme park when you have all that on your doorstep?

The fact the children are of pre-school age has made the move easier. We didn't have to worry about them having to start afresh at school – their first experience of it will be at the rather excellent new bilingual school just a five-minute drive away.

We hope our new practically minded, thrifty lifestyle, rich in so many ways, will give our boys a solid grounding and fill them with the confidence and strength of character necessary to find their own way in the world.

Our greatly reduced coffers have forced us to start to become the more practically minded people we have long craved to be. I emphasise "start": we have years of learning and "catching up" ahead of us. From trying to fix a blocked septic tank (thankfully not me that time) and coppicing wood, to repairing an old bike and giving the kitchen cupboards a lick of paint, we are giving things a go, rather than paying to get someone in. We have to.

Some things work, others don't, and we're lucky to have patient and helpful neighbours, one of whom has become a mentor in all things "handy" and "country practical". He knows how to do most things, and what he doesn't know he has a go at anyway, and this "can do" attitude is greatly inspiring. I think he finds our idealistic and, at times, ill-considered ideas amusing and we are becoming more and more able to help him in return – the fine art of bartering being very much alive in rural west Wales.

If you'd have told me a few years back we'd be living on just shy of £16,000 a year I'd have laughed. Let alone if you'd have told me that we'd have a hefty mortgage to pay out of this and our weekly food budget would be £50. We now spend less on food in a month than we'd have blown in a week in our old lifestyle. But we eat a healthier, more wide-ranging diet than ever before. We're growing some of our own vegetables and soft fruit and starting to rear our own meat, and buy high quality food staples in bulk – huge sacks of flour and rice and the like which save a lot of money and last many months. I enjoyed cooking before but now I love it, and have become adept at making all sorts of meals, cakes, breads, sauces and condiments afresh.

Things that once seemed essential no longer do. I used to buy a lot of clothes and was always tempted by email marketing. Yet since moving I've not bought anything, apart from wellies and a poncho – because this is Wales and there's a lot of rain and, oh god, the mud. I have boxes and boxes of clothes already, so there's nothing I really need.

The kids need new clothes as they grow, but our policy of essential items only seems to work. The shopping craving doesn't go away entirely but has subsided over time. Undoubtedly living rurally has helped. I can't just stroll into town, I have to drive an hour to the nearest half-decent shops.

Interestingly, by far the biggest challenge has been the reactions of friends and family from our old life to our changed circumstances. They have been great, travelling by coach, car and train to visit, but we can't just go for lunch, or pay to go on a boat to look at the dolphins in the nearby bay. That would be a week's food money gone in a few hours. We have got better at explaining to others, and I think most people "get it".

The truth is, our needs and wants have gradually reduced over the time we've been here and we are becoming much easier to please. When a bottle of wine is a luxury for just a few times a week, rather than a two-minute hop to the nearest shop because you've run out, it matters more. It's a treat rather than a given, and the same goes for so many other areas of our lives. The desire to get a cheeky takeaway subsides along with your bank account and since living like a peasant you've learned to cook really well, so the half hour drive to pick up food hardly seems worth it.

If you were to ask me why we have done this, I'd say because it felt like it would make us happy in a real sense – there is no farming or alternative living background in my family. My former high-earning lifestyle was me just trying to be normal, to earn enough to buy nice things and then to work some more to buy more because that's what we are supposed to do, right? But the truth is, it didn't do it for us any more. We had an increasing sense of there must be more to life than "this".

The closest Chris and I had come to farm animals before was a city petting farm. Our upbringing was more of the Findus crispy pancake and frozen mixed vegetables nature.

And before you ask, we're not hippies, although I like hippies. We're not doing any yoghurt weaving ... yoghurt making maybe. We just wanted a stab at a lifestyle that may have the potential to offer us and our children long-term fulfilment.

With the help of our generous neighbours we are learning fast, from how to kill, pluck and gut a turkey to driving a tractor. It is exceptionally hard work and it can feel a bit overwhelming. There are also so many ideas and projects that we can't wait to start; from making our own dairy and beer, to building an underground cold store. It's exciting and positively life affirming. Who knows how useful our continued new found skills might turn out to be in the future, whatever it holds?

We won't be living on less than £16,000 a year for ever. As I say, I've spent this past year writing a book about our often bumbling experiences and so have been unwaged during this time. But neither is this some middle-class experiment. Our real-life experiences have shaped our outlook forever and our needs and wants have simplified. Regardless of how my writing career takes off, and whether our finances lift, we are in this thrifty peasant living for the long term. It's our definition of normal now.

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Spring Sellers Try House Swap Instead

Wendy Bauwens is no stranger to swapping. As a horse trainer, she has traded a harness for a new website and a riding lesson for a haircut. Today, however, she's lining up her biggest swap yet: her horse farm, Sunnyside Farms (pictured at left), located near Bozeman, Mont., for something closer to the ocean. A new place to call home in Hawaii or California are at the top of her list.

As spring selling season gets under way, some homeowners are opting for an unconventional route: house swapping. Even as the housing market defrosts this spring, sellers are on the lookout for creative ways to minimize their costs. Swapping offers several bottom-line benefits: there are few to no agents' fees, sellers can minimize their tax burden, and it's a way to leverage property that may be otherwise difficult to sell. On the downside, swappers face fewer choices and have to be prepared to finance the difference in property value if necessary.

Over the last few years, a handful of websites have sprung up to support swappers, including GoSwap.org, OnlineHouseTrading.com and DomuSwap.com. Craigslist operates a whole category for home trades. The small boom in swap and barter sites took hold at the height of the financial crisis two years ago and shows no sign of waning.


Swapping the Ocean for the Desert

Sergei Naumov, founder of GoSwap, says there are more than 30,000 listings on his website, most of which are concentrated in the southeastern states. Founded in 2006, the site started picking up steam in 2008 and traffic has yet to fall. He estimates the number of successful swaps to be in the thousands.

One of those success stories is Pam Farley, 58, who used GoSwap to trade her three-bedroom home in Osprey, Fla., for an adobe house near Santa Fe., NM. In late 2008, she and her husband were empty nesters, ready to move from their Florida home after 12 happy years. Their timing couldn't have been worse. The housing crisis was rippling across the state and qualified buyers were scarce. After sitting on their for-sale-by-owner listing for more than year, Farley decided to investigate a permanent house trade.





"I listed on several swap sites, and every day I had someone emailing me," she says. "We made adventures out of visiting the potential houses. We went to New England, Idaho, and Oregon. It was cool because we got to see interesting parts of country."

Farley, a painter, knew she wanted to move to the southwest to work on her craft and kept returning to a listing in New Mexico. Willingness try a new location is common among swappers, says Naumov. "A lot of the swappers tend to be older. They are not as bound by where they are, and their criteria is very open," he says. "Many people will consider a swap in any state."

Controlling the Process

Bauwens, who has a degree in marine biology, is also open to what the swap universe might send her way. Part of her desire to move away from her Montana farm, where she has lived for 10 years, is to pursue better job opportunities in marine science. Her other motivation is simply to change the scenery.

"I turned 40 last summer and I am in the mindset that life is too short to not be where you want to be," she says. "I am excited to move and wipe the slate clean."

With bartering as a way of life among horse trainers, Bauwens views her swap as a natural step. By advertising her farm as a swap on Craigslist rather than listing it as for sale, she avoids paying a 6-8% broker's commission and gets to keep the details of the transaction to herself.

"When you list on the MLS, people expect you to lower the prices," she says about her farm, which was appraised for around $350,000 several years ago. "Being in a small town, once it's listed, people start talking."

Making the Deal

After mutual visits to New Mexico and Florida, Farley and her home swapper quickly agreed on a deal. The next step, drawing up the offer-to-purchase contracts, was at the heart of the swap.

Even as the word "swap" conjures the days of yore, the deal is in fact two simultaneous sales. Ideally, both transactions close on the same day to prevent one owner from holding two mortgages or properties. For primary residences of equal value that are swapped, there is no taxable gain. If there is a difference in price, sellers can exclude capital gains up to $250,000 for a single taxpayer and $500,000 for married couples. Swappers of investment properties or businesses may defer taxes through section 1031 of the IRS code.

Farley's deal took several weeks and many drafts of the contracts faxed back and forth. After a wrinkle in securing financing, she was able to get a loan with a local bank in New Mexico and close on the swap in 30 days. "When we were done, it was fair and good," she says. "We protected each other."

As Bauwens sorts through the first trade offers that she has received for her farm, she feels a swap will help ensure the farm goes to another owner who will enjoy it as she has. She renovated the farm house a few years ago, complete with stained-glass windows and old barn wood, and acknowledges that it will be hard to move. "I feel strongly that if you put effort out there, something will happen," she says. "You have to create the good karma and the right thing will come along."

Farley's experience underscores the human connection to home buying and selling that swapping provides.

"Trading puts the power back in the people's hands," she says. "It makes it a real partnership between people possible. They are not stuck in their homes and they can move forward with their lives."

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10 home-improvement ideas for renters

There are plenty of (reversible) projects that can spruce up your living space without breaking the bank — or incurring the wrath of your landlord:

1. Play with color
Most apartments will let you paint walls and even floors. So give your rooms a shot of color. Some ideas: Paint one wall to liven up a room and create a focal point; paint the floors and molding a contrasting color, or paint a stenciled border along the tops of walls.

If your lease specifies that you return the walls to their original color when you leave, use lighter shades, as they are easier to paint over. (If you're not sure what your lease says about painting, check with your landlord before the first brush stroke. You don't want to have your deposit dinged when you move out.)

To bring some life to that blah beige carpet, "toss down a big colorful area rug and you've changed the room," says Linda Holmes, the president of Creative Carpentry Remodelers in Aurora, Ill.

Her advice: Focus on using items that are portable. "Don't spend money on anything you can't take with you when you leave," she says. As well as adding color and texture, a rug can define an area such as a dining or sitting room. Big pillows and colorful throws are also portable ways to bring in color.

2. Hang it all
Don't be afraid to put colorful rugs, scarves or art on the walls. Try a Victorian-inspired grouping of photos or mirrors hung from picture hooks and suspended from ribbon in an accent color, Holmes says.

3. Live in a material world
Beautiful fabric can pull a room together. Here are some ways to use it:

Put cloth directly on the walls with decorative nail tacks along the ceiling and baseboards, says Deborah Houseworth, the president of DLH Design Studio in Chevy Chase, Md. Drape or gather the fabric for "a subtle, wavy look," she says. To cover tacks, you can glue decorative trim over them. When it's time to leave, if the walls are white, just use some toothpaste to fill in the tack holes. "(Fabric) adds a little more texture and interest to the wall than paint," Houseworth says.
Drape colorful cloth from a rod suspended at the top of the wall to create a headboard, camouflage an unsightly vent or cover a window with a back-alley view, Houseworth suggests.

4. I screen, you screen
Angled across a corner, a folding screen "adds a lot of drama to a room," says New York interior designer Michael Love, the president of Interior Options. Plus you can use the hidden area to store a vacuum cleaner, ironing board or anything else you might want to disguise.

Indulge your do-it-yourself talents by constructing the screen, or check out home, discount and import stores for less expensive models.

5. Be a divider
Want to break up a combination living-dining room into something more intimate? Use an open bookcase, says Holmes. "It's like putting up a three-quarter-height wall," she says. You can build it yourself or buy it.

To add a more dramatic touch, place a few pieces of colorful glassware on it. "It keeps it open," Holmes says, "and it's a little more interesting than blank space."

6. Reflect on adding mirrors
To expand a small space, Houseworth suggests hanging "lots of large mirrors." Her secret: Go to a framing store and pick out the exact size and style frame you need and ask the framer to put a mirror in the frame. Unlike a ready-made mirror, "you can go contemporary or formal – framing materials are not limited by style," Houseworth says. Want the frame to almost disappear? Paint it the same shade as the wall.

7. Lighten up a room
A variety of low-voltage options in all prices can be plugged into outlets or installed in place of existing fixtures. These include spotlights, dangling lights, can lights and tiny track lights similar to what you might find in a gallery. Best of all, you can take these with you when you leave.

8. Create a built-in look.

If you're good with tools — or a checkbook — build or buy a free-standing bench seat for underneath a window. Flank it with two bookcases to give it that built-in look, Holmes says. You can even paint it to match the walls.

9. Change your hardware
A lot of apartments have generic doorknobs and/or kitchen cabinet pulls that are showing some wear. But that doesn't mean you have to live with them. Instead, pick up something new and interesting at a home or discount store and install it yourself. Save the old hardware in a drawer or closet so you can replace it when you move. And when you leave, take the new stuff with you.

10. It's easy being green
Create a beautiful garden on a patio or deck with large planters or whiskey barrels, says Rebecca Kolls, a master gardener and host of the nationally syndicated TV series "Rebecca's Garden." "Everything can be planted in a pot," she says.

Kolls suggests using whiskey barrels and going with a theme: a salsa garden with tomatoes, cilantro and hot peppers; a vegetable garden with beans and carrots; or even an organic lettuce patch with several leafy varieties.

For climbing plants such as tomatoes and beans, bamboo poles can provide some structure. Kolls advises mixing plants of differing heights and textures to give a professional look. Include tall plants to give shape, shorter plants to fill in and something that spreads to spill out over the sides. Look for colors that complement each other and pack the containers. "You can always take plants out in a month if it's too full," she says.

Hanging pots are ideal for herbs, Kolls says. Just like any other container, look for a combination of plants in complementary colors and different textures and sizes.

And treat yourself to a taste of the tropics. Place a lemon or banana tree on your terrace in a large planting container. When the weather turns cold, give it a sunny spot indoors.

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Energy-saving tips for renters

As consumers grow more energy-conscious, and environmental advocates push for greater awareness, there is no shortage of suggestions for new ways to cut energy bills and help the planet in the process. The cost-savers can be great for homeowners — but what about renters?

It turns out that many leases prevent tenants from making changes that could lead to substantial energy savings. For example, blocking drafts with caulking or foam sealant could be considered an illegal alteration or improvement in most leases. So might installing a programmable thermostat. "The things you can do as a renter are fairly limited," says Bomee Jung, a member of the board of directors of Green Home NYC, a volunteer-run organization that helps New York residents make their buildings more sustainable.

What’s more, tenants aren’t necessarily motivated to be energy-efficient. Some aren’t responsible for paying their own heating bills, and are therefore less conscientious. Others have small apartments, so even if they install insulation — which can reduce heating costs by up to 20% — they "may not see any difference in (their) bills," says Jennifer Thorne Amann, the buildings program director at the American Council for an Energy-Efficient Economy.



When do you need to consult your landlord about energy-saving renovations? Here are some tips:

No permission needed
If saving money is your main concern, start by taking small, simple steps to cut your electricity bill, like replacing incandescent lights with compact fluorescent or halogen bulbs and unplugging electronics when they’re not in use, or plugging them into a power strip that you can easily turn off. Some power strips now come with remote controls to save you having to "crawl back behind the desk," Jung says.



Even assuming your landlord is responsible for providing the refrigerator and other major appliances, you can still look for Energy Star-certified products when shopping for home electronics. Products like TVs, DVD players, computers and cable boxes now come with Energy Star ratings, says Ronnie Kweller, a spokeswoman at the AlliancetoSaveEnergy. A list of qualified products can be found at EnergyStar.gov. Buying an LCD television instead of a plasma screen will also save electricity.

For the winter, take out any window air conditioners. Putting a cover over the outside of the unit is better than nothing, but, "You’ve basically got a hole in your wall if you’ve still got the air conditioner in," Jung says. Another no-permission-needed strategy: Install heavy drapes and close them at night. That can help block cold air that seeps in from your windows, making you more comfortable and potentially saving on heating costs.

Ask before you try
Closing up drafts with caulking or foam sealant, or putting plastic film over your windows to keep heat in may seem noninvasive. But in a standard lease, both would be prohibited because "anything that you affix to the property is considered an improvement legally, or an alteration," says Janet Portman, co-author of the book "Every Tenant’s Legal Guide."

One solution: See if your landlord would be willing to share the cost with you. Caulk and foam sealant are eligible for federal tax credits, so you could offer to do the work and let your landlord take that credit, Kweller says. Whoever pays the heating bills will see some savings, and you’ll feel more comfortable.

Start negotiating
It could be worth your while to talk to your landlord about bigger improvements. "The biggest electricity user in your apartment is your refrigerator," Jung says. You’ll save on your electric bill if you can persuade your landlord to replace an old fridge with a new Energy Star model, even if you have to share the cost of the new appliance, she says.

If you already have an Energy Star-compliant fridge or other appliance in your apartment and it needs to be replaced, your landlord must replace it with something that meets the same standard. A tenant whose landlord attempts to replace an appliance with something less efficient could go to small claims court, Portman says. "It’s a classic, garden-variety contract claim. I’m paying for a steak; you can’t give me a hamburger," she says.



If your apartment is drafty and windows need to be replaced, raise the issue with your landlord. "Even a good landlord, they’re going to try to postpone those kinds of investments as long as they can," and likely won’t take action unless they hear tenants complaining, Amann says. In today’s tight real-estate market, tenants do have some leverage in such negotiations, particularly if a lease is coming up for renewal.

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Top 10 ways to lower your rent

In these difficult financial times, it is helpful to save money in any way that you can. The following tips could help you reduce the rent on your house or apartment.

1. Negotiate with the property-owner
Before you renew your lease, research the prices that are charged for similar rental houses or apartments in your area. Write a respectful letter detailing your understanding of the current average rents in your area and make sure you emphasize your excellent record as a tenant. Property owners may be willing to negotiate rent prices with current tenants rather than going through the hassle of finding new tenants.

2. Use Craigslist to secure a roommate
Craigslist's "rooms and shares" section can be a good way to get a roommate or roommates who can help reduce your monthly rental costs dramatically. You could cut your rental costs in half, and typically, the more roommates, the more you can expect to save. Make sure to screen any potential roommates for poor hygiene, bad boyfriends or body odor ahead of time or suffer the consequences.

3. Be willing to walk or ride the bus
In larger cities with well-established public-transportation systems, apartments that are closer to train stations and bus stops can be more expensive. If you are willing to walk a block or two, you could save yourself a couple hundred dollars a month. It also could be cheaper to rent an apartment when you do not need to reserve a parking space for a car.



4. Help out the landlord
Some landlords will be happy to give a discount if you offer to do some extra work around your rental unit. If you are renting a house, offer to perform seasonal work, such as cleaning out the gutters or shoveling snow. If you are in an apartment, offer to paint the walls or refinish the cabinets. When you can perform the maintenance yourself, the property owner will not have to hire someone else. You and the owner can save money.



5. Ask someone you know
Talk to your friends or colleagues about helping you find a cheaper place to live. Someone in your social network could have inside information about a property that is offered at a substantially lower rate. Renting from a friend can make moving smoother and more fun, in addition to saving you money.



6. Prepay or sign a one-year lease
Some landlords may offer discounts for tenants who prepay their rent. The guarantee of having a tenant who has already paid for the next few months makes it easier for a landlord to cut the price of the unit. A one-year lease also offers a more stable relationship between the landlord and tenant than does a month-to-month agreement, and that can lead to a rent reduction.


7. Work as an apartment manager
If you are handy with tools and are willing to work as an apartment complex manager, you might be able to live rent-free. The reduction in your rent will depend on the level of expertise you are expected to provide and the size of your apartment building. You could get a discount for simply offering to keep an eye on the property, collect rent checks and report any potential problems to the owners.
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8. Expand your search for a new apartment
Do not limit yourself to the apartments that are listed in the newspaper or online. Drive through the neighborhoods you would like to live in and look for for-lease signs. Rentals that do not advertise extensively can offer lower rent because they do not spend as much money looking for tenants.

9. Be flexible
Older apartments and houses are generally less expensive to rent than new ones. Do not accept a building that is falling apart, but keep in mind that older dwellings that are well-maintained can be just as comfortable for far less money.



10. Consider a new city
Location is a large part of the price of rent. Sometimes you can save a substantial amount by driving just a little farther from your desired location. Research the cost of renting outside of your immediate neighborhood. It can also save you some money if you have the flexibility to move to a new city where rents are lower overall.

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Chinese Purchases Of U.S. Real Estate Poised To Rise

Growth in the number of well-off mainland Chinese, an increase in overseas study by their children, and a drop in U.S. property prices are leading to more purchases of U.S. real estate by buyers from China. Where are they buying and why? How can U.S. developers and other sellers connect with Chinese buyers?

To find out more, I talked to Steven Lawson, CEO of the Windham Realty Group of Michigan. He opened the company’s China headquarters in Shanghai in 2008 and has lived in the city since 2007. Excerpts follow.

Q. From a Chinese point of view, why is it a good time to buy U.S. property?

A. The U.S. represents a good value for what we consider to be a rapidly globalizing Chinese investor. Permanent private ownership and the market adjustment in the last five years represent a good time for people who are well funded with cash to take advantage of market conditions.

Q. What do you mean by good value? The market is still coming down on the whole, according to some news reports.

A. The U.S. on the whole does have some softness. In particular, Las Vegas, Detroit are Atlanta are really dragging down the market. But when you look at the two cities that our clients are most interested in – New York, particularly Manhattan, and the L.A. area, they are not behaving in the same way as the U.S. market. In L.A, properties are still in many cases 20% below their 2007 peak, and there is some room for capital appreciation.

Importantly, a lot of our clients have some level of self- use intention, whether it’s a business connection, a children’s education connection, or an immigration intention connection. In terms of the clients who’ve transacted, I think we would say 60% + have an education connection. Education is a huge driver. So Boston is a rather natural market for us to kind of dig into. It’s only more recently that we’re seeing more purely investment-driven clients.

Q. How long have you been doing business with Chinese customers, and how are you approaching this new business?

A. We probably started thinking about China and investigating China a little later that we should have. It was in 2006. We started making trips to China in about 2006-2007. Now we have set up our infrastructure in China — an investment consulting business. In the U.S., we have a brokerage company. We’re able to work with our clients here (in China), and give them information. Then, we’re able to refer them to our U.S. company. It functions legally. In the U.S., we have two types of clients – self-use clients and about 20 developers spread out between New York, California, Florida and Michigan. Relative to our total business, China is still not proportionally big, but we anticipate that it’s still going to grow bigger and bigger.

Q. You mentioned that there is growing interest in investment in U.S. commercial properties among Chinese. How will that play out in the next few years?

A. I think it’s going to grow substantially, because the U.S. commercial market has some stress and difficulties, and it’s going to create opportunities. We are getting more inquiries from people who are interested in purchasing commercial property, primarily hotels, shopping centers and office buildings. One of the things we have done is to open a New York office. So we see a trend of emergence (of demand) on the commercial side.

Q. Who is a typical buyer?

A. We had a group in town this week, three to four people represented some typical Chinese diversified companies. They’re in the education field, they’re in the travel field and they’ve made other overseas investments but they’ve been more in Singapore and the UK. Now, they’re interested in acquiring U.S. property. I think the trend is moving in that direction.

Q. What’s a typical trip to the U.S. like when you have a group that is going over?

A. We arrive in New York, we show New York and New Jersey, and we go down to Florida. We show Miami and say, “Here’s a place where there isn’t a tremendous Chinese population but that we think one day there will be. Then we go to Vegas. That’s usually just to play, and then we do L.A. and San Francisco. This spring we’re going to alter that: we’re going to have Boston, too, because there’s just so much interest in education.

This year, we’re going to try to do a golf-related tour. We find a lot of clients have a lot of enthusiasm for golf, so we’ll (visit) some great golf courses and then enjoy looking at some golf real estate. You have to show some hospitality. You have to show you care before people develop some trust in you. We try to make it fun. We try to make it light. We have had transactions that have occurred as a result of a tour, but much more often it comes six months or a year later.

Q. How do you identify customers in China?

A. We have a website, and our web traffic is reasonably substantial. Of course we utilize search engine optimization and search engine positioning. The other thing we’ve done is to set up what we refer to as channel partners. They tend to be in the areas of immigration consulting, education consulting, financial consulting and real estate. These channel partners in essence send us clients, and we try to be reciprocal. We have clients looking for their services. We try to be reciprocal. It’s a big part of where we find clients to work with. Of course, there are exhibitions, such as the Money Show and also real estate exhibitions. We are working in Beijing with a pretty good media partner in the Beijing Media Group. We funded a small joint venture company with them for the northern China market, kind of mirroring what we’re trying to do in the southern and central areas.

Q. What are some of the best real estate “buys” in the U.S. today?

A. You can’t beat Manhattan overall, when you look at rental yields and when you look at how it’s been really restrained market over the last 10 years from a capital appreciation point of view despite everything that’s happened. Manhattan condominiums, for example, appreciated 60% between 2001 to 2010. We think that there’s still a lot of value there and a lot of stability there. If one of our clients says, “I want prime, I want stable, and I want safe,” we feel that Manhattan is very well aligned.

Some of our clients have more of a “want to see more rapid appreciation,” and we think that Miami, as long as you buy right, is well positioned from a 3-5 year viewpoint. The market saw some really substantial devaluation in properties, in some cases 50%+. Some very good developers (have) had some very prime properties that are selling for below construction cost.

Q. Would you say that for commercial property, too?

A. It’s primarily residential is what we’re advising people about now. We think that there are some very good oceanfront condominiums in good buildings where the building itself is not in any financial danger and is 50-60% sold. We think there’s a good opportunity for Chinese buyers who want to buy those now and do a 3-5 year flip.

Q. What about other markets?

A. The suburban parts of L.A. still offer some very good value — places like Arcadia, Pasadena, Orange County, and Newport Beach. These areas are still 20% – and in some cases a little better than 20% — below their 2007 peaks. The market took a pretty substantial hit in 2007, but it rebounded quite quickly. Again, these are places that are well aligned with different clients we work with.

Q. Jim Rogers said in an interview with Forbes recently that the agricultural sector holds a lot of promise for investors. Do you see much Chinese interest in U.S. agricultural land?

A. We do have two or three dairy farms in California that are on our website that are actively for sale, and we did bring a client to one. We have a client coming next month that has a fairly substantial dairy farming operation in China, not far from Wuxi, and it wouldn’t shock me if this group chose to transact on this dairy farm. The price of milk has gone way up proportionally to what this dairy farm is on the market for.


Q. Historically speaking, there isn’t a lot of connection between Florida and China. You’re working with developers there. Could you say more about how you pitch Florida’s potential to a Chinese investor?

A. The good part about Florida is that Chinese have heard of Disney and Orlando, but it’s amazing how little they’ve actually heard about Miami. And they don’t know how substantial it is. The state of Florida has engaged a PR firm in China to promote tourism and promote Florida as a destination, but it’s early. Could a university in a second-tier city in Florida attract Chinese students? I think the answer is yes, if they can integrate it with something. A partnership with a university in China would be a way that one could see flow thorough. Actually, in my home state of Michigan, is of course economically lagging in all kinds of ways. Three or four different universities have done an excellent job of attracting a really substantial number of Chinese students. That’s because they’ve made the effort and have done exceedingly well with it.

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Further Deflation of the Housing Bubble

The Washington Post, which completely missed the $8 trillion housing bubble whose collapse wrecked the economy, is still having a hard time understanding house prices. It notes that the Case-Shiller 20-City index is a moving average of sales closings for the prior three months. And, there is typically a 6-8 week period between when a contract is signed and when it closes. It therefore tells readers that the December data to be released on Tuesday:

should reflect the autumn lull in the economy. The question is whether the improved economic outlook over the past few months will translate into a firming up of home prices in early 2011.

Actually no. Short-term ups and downs in the economy will not be reflected in house prices. The main factor pushing house prices lower right now is the end of the homebuyers tax credit. This credit, which could be used for homes contracted before April 30th (and likely closed before the end of June), pulled many sales forward from the second half of 2010 and even 2011 into the first half of the year. Prices began to fall as soon as the credit ended.

It is easy to see from the data that the credit was driving the housing market, not short-term economic fluctuations. House prices stopped falling and actually rose somewhat in the second half of 2009, a point where the economy was still losing jobs, as people rushed to buy homes before the expiration date of the initial credit in November of 2009.

The main factor in the housing market is the further deflation of the housing bubble. People who understand the housing market expect prices to continue to drop until the bubble is deflated. This means a price decline of another 10-15 percent over the next year.

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Underwater Homes Abandoned By Banks

It's not just homeowners walking away from underwater homes -- so are banks and their mortgage servicers.

Unfortunately for some neighborhoods, the mortgage servicers are abandoning the homes after many of the homeowners have been booted out and the home has sat vacant for months on end, according to a new study by Chicago's Woodstock Institute, which examined foreclosure filings and vacancies in the Windy City.


Bank walkaways are becoming a problem throughout the nation, with a high concentration occurring in the Midwest and certain distressed areas of Florida, according to a national study.

This is quite a concern because vacant homes have limited or no oversight, and pose a substantial risk to the surrounding community by potentially lowering property values, attracting criminal activity, and causing blight.

When properties have been devalued because of deferred maintenance, vandalism, or general declines in local property values, then servicers may determine that the cost of proceeding with a foreclosure exceeds its expected return. In these cases, a servicer may choose to charge off the mortgage on the property and consider it a loss.

However, because servicers in most cities are not required to notify borrowers and
foreclosure, homeowners are sometimes unaware that they still own the home and are responsible for paying the debt and taxes and maintaining the property.

The institute found 18,320 properties on the Chicago's vacant buildings index as of September 2010. Of these, 12,674, or 69.2 percent, were associated with a foreclosure filed between 2006 and the first half of 2010. And 1,896 of them were classified as red flag properties on the City's vacant buildings index where there was a foreclosure filing with no subsequent outcome. Starting in 2006, distressed communities that were already dealing with vacant and abandoned building issues began to experience dramatic increases in foreclosure activity.

This is not just a Chicago issue, however: About 45,000 charge-offs occurred between January 2008 and March 2010 in the U.S., with the majority occurring in urban areas in rust belt Midwestern states, according to a Fall 2010 report issued by the Government Accountability Office.

The downloadable GAO report found that 60 percent of the charge-offs occurred before an initial foreclosure filing was made, reported the Chicago Tribune. However, for charge-offs after a foreclosure filing, Detroit topped the list with 1,500. Chicago had the second-highest number, followed by Cleveland, at 499 and 497, respectively. While more than 50 perce nt of all the abandoned foreclosures GAO identified were in Michigan, Indiana, and Ohio.

"These troubled vacant homes have subjected already hard-hit communities to unsightly and potentially unsafe conditions for extended periods of time," said Geoff Smith, senior vice president of Woodstock Institute. "Local government and service providers must be empowered to counter the devastating impacts these homes have on communities, and lenders and mortgage servicers must be held accountable if they choose not to adequately maintain vacant properties under their stewardship."

Red-flag foreclosures place a significant burden on any city. It Chicago that burden amounts to an estimated $36 million, which can be $13,000 to nearly $35,000 per property. That's because the city would have administrative costs of dealing with these properties in building court, securing the properties, responding to criminal activity, and potentially demolishing these properties.

The top mortgage servicers and trustees associated with these likely abandoned foreclosures in the City of Chicago include Bank of America (314 properties), Wells Fargo (234), U.S. Bank (185), Deutsche Bank (178), and JP Morgan Chase (165).

More than 40 percent of red flag homes have been in the foreclosure process for more than a year and a half, which means their loan servicers likely have decided not to complete foreclosure. The red flags are disproportionately concentrated in Chicago's African American communities on the South and West sides. Over 71 percent of the red flag homes are located in highly African-American communities, compared to only 6.5 percent in predominantly white communities.

The concentration of red flag vacant properties in communities of color, is even greater than the concentration of typical foreclosure filings or other vacant properties. African-American communities are 11 times more likely to have a red flag home than are white communities, even though they are three times more likely to have a foreclosed property and six times more likely to have a vacant building.

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Buy a house...then buy another

Renting in the City: All the Cool Kids Are Doing It

* The trend is favoring a lifetime of renting
* But buying a house may still be a great hedge against QE3 through QE6
* For the sake of your finances please forget that suburbia ever existed

Gary Gibson, Baltimore, Maryland…

It’s getting more expensive to live in Baltimore….at least if you’re a renter.

According to a recent article in the Baltimore Sun rents are up more than 6% over what they were last year in the Baltimore metro area. If you count the drop in various concessions — like waived application fees or initial free rent — then the increase is even more.

There is a drag on the rental market, however: the regretful buyers who now need to rent out the homes they can’t sell.

Lois Foster, a Baltimore real estate agent who helps people find homes to rent and manages properties for owners-turned-landlords, said she’s seeing rents of $200 to $500 less a month than owners could have gotten two or three years ago. There’s just a lot of competition, she said.

The guild is off the buying lily. All the credit that oozed out of the banks found its way into the national psyche. There it gave off a funny smelling gas that puffed up hopes and dizzied senses.

Stock prices were the first beneficiaries. Fattening 401(k)s danced 1920’s-style energetic jigs with dreams of early retirement. Even as those 401(k)s and those hopes tired and finally dropped dead on the dance floor, the Fed held down interest rates and more funny air kept the nation high. People pinned new hopes on — and sent reams of borrowed new money into — real estate.

That’s came to the sort of end you’d expect. While government cheerleading and easy credit drew in increasing numbers of bigger fools, the rental market found itself a lot emptier. All the people who really couldn’t afford to buy and who should have been renting were too busy buying on greater margins and not renting.

Some hotspot cities like New York and Boston saw their rental markets surging along with their real estate markets…but third-stringers like Baltimore…” Cohan, with Southern Management, said some competitors were offering as much as three to four months of free rent to get people in the door in 2008 and 2009. Not anymore.”

It’s no wonder that they were having such a hard time. The real estate market started to crater in 2006, but the ship of public opinion doesn’t exactly turn on a dime. You don’t nearly a century of brainwashing at the start of a downturn. By 2008 and 2009, renters were still considered to be socially backward and intellectually impaired…maybe even in need of corrective medication.

Upon finding out that a person was renting, someone else was likely to voice sincere worry: “What’s wrong with him? Is he unemployed? Illiterate? Dead?”

Being a renter was worse than gauche. For men it was worse than driving a beaten up old car. Even $7-an-hour female filing clerks were all getting mortgage approvals for $200,000 homes. Any man who couldn’t (or wouldn’t) score a mortgage was parading his lack of fitness to breed. To rent instead of own was to advertise your status as a loser, not the kind of sire any sensible woman would settle for. Your only hope was to troll among hipsters and other car-less, urban trash. A corpse could get a mortgage, but a renter couldn’t get a date.

But now opinions are changing, as they must. Reality can only be ignored for so long. According to a 2010 study o the Joint Center for Housing Studies of Harvard University, between 2004 and 2009, the number of renter households rose nearly 10%.

From the article “The Echo Boom: A New Wave of Market Change” on Wrightwood.com (emphases mine)…

Certainly, most young people rent apartments in their first years out of college, but there are reasons to believe that this generation will be renting far longer than their parents did. They have the largest college debt load in history – averaging over $20,000 per student. They also face a very different labor market from their parents: a fifth of them will likely be self-employed following the trend for all employers to offer more and more short-term contracts. Renting may make economic sense, not just when they are beginning their careers, but for many more years to come. Since the end of World War II, the trend was for more and more young families to purchase a home in the suburbs, leaving rental apartments to young singles. Based on the economics today, that trend may shift towards renting throughout their lives.

And from a July, 2010, article on CNN.com…

In May, U.S. Housing and Urban Development Secretary Shaun Donovan testified before a House committee that the financial crisis proved the need for a better balance between ownership and rental housing. And HUD senior official Raphael Bostic last week told the Washington Post: “In previous eras, we haven’t seen people question whether homeownership was the right decision. It was just assumed that’s where you want to go,” Bostic said. “You’re not going to hear us say that.”

Left to its own devices, the market pretty efficiently figures out who ought to own and who ought to rent. Those who can afford to do so buy a home because under normal circumstances, buying a home is not any more of an investment than owning one.

So the policies from DC that got their start under that busybody Herbert Hoover to “encourage” homeownership were never a good idea.

The article continues…

Hoover signed the Federal Home Loan Act, and in 1933, Franklin D. Roosevelt created the Home Owners’ Loan Corporation to provide low interest loans.

And the government was just getting started: a flurry of legislation was passed over the ensuing decades, helping veterans, minorities and the populace as a whole secure mortgages. But it appears the pendulum has swung.

“The government shouldn’t blindly encourage homeownership,” says Joe Gyourko, real estate finance professor at University of Pennsylvania’s Wharton School. “If the government does anything the government should encourage people to make the right decision.”

Owners don’t pay the landlord, but they pay taxes and maintenance costs on their house, and Gyourko says those costs can end up being roughly the same.

As far as buying a house as a smart long-term investment, Gyourko says that’s not always true. He says between 1975 and 2008, the price for houses of similar quality and size appreciated an average of about 1% per year after inflation. Investors could have earned more by buying Treasury bills.

Turns out that under most circumstances, homeownership is just another form of consumption. You need a place to live. So you can pay rent, out of which the landlord collects some small profit after mortgage, taxes and maintenance…or you can “buy” your house, or more accurately saddle yourself with debt and pay the mortgage, taxes and maintenance yourself.

But when you have meddling federal policies to encourage it…coupled with ever-increasing amounts of central bank credit to fuel the bidding…prices tend to rise enough to make generations sing in unison “housing always goes up!”

It took generations for this debt-addled Ponzi scheme to collapse; years of government meddling finally coupled furiously with easy credit from the central bank. The result is a veritable orgasm of tumbling prices. We’re in the shame and regret phase that follows these sorts of things. Stay tuned for more.

Buy a House… Then Buy Another

Investment ideas are cyclical. They come and go, like fashions or cicadas, obeying their own curious rhythms. In the last few years, rare was the investment thinker who said you should buy a house. Housing was in a bubble that was deflating.

But the investment seasons turn. Today some smart investors are once again saying you should a buy house. John Paulson is one of them.

You may know him as the man who turned the greatest trade of all time. Betting against the housing market, he netted a cool billion dollars for himself in 2007. One fund he managed rose 590% that year. Today, he is one of the richest men in America.

His advice today is very different. “If you don’t own a home, buy one,” Paulson said. “If you own one home, buy another one, and if you own two homes, buy a third and lend your relatives the money to buy a home.”

That’s a strong endorsement. It sounds similar to the advice another investor gave his audience in 1971, at the dawn of another inflationary age. It was Adam Smith (George Goodman) on The Dick Cavett Show. Here is a snippet from that conversation:

Smith: The best investment you can make is a house. That one is easy.

Cavett: A house? We were talking about the stock market. Investments…

Smith: You asked me the best investment. There are always individual stocks that will go up more, but you don’t want to give tips on a television show. For most people, the best investment is a house.

Cavett: I already own a house. Now what?

Smith: Buy another one.

It was good advice. In the 1970s, U.S. stocks returned about 5% annually, which failed to keep pace with inflation. Still, it was an up-and-down ride. In 1974, the stock market fell 49%. But here are the average selling prices for existing homes in the 1970s as inflation heated up:

* 1972 — $30,000
* 1973 — $32,900
* 1974 — $35,800
* 1975 — $39,000
* 1976 — $42,200
* 1977 — $47,900
* 1978 — $55,500
* 1979 — $64,200

You can see that housing held up pretty well. And think about the effect of a mortgage on 80% of that house in 1972. That would mean $6,000 in equity, a sum that went up fivefold in eight years. It’s hard to find a better inflation fighter than that. Granted, today’s market is different, but still.

Apart from this, you might also reflect on the fact that it is quite absurd today to think that anyone can buy an average house for any of these prices — and that, too, is the point. The average price today is $257,500 — even after the great collapse in the last few years.

“If you have a 7% mortgage and your house is worth half a million dollars,” Adam Smith writes, “you may gripe about shoes and lamb chops and tuitions like everybody else, but your heart isn’t in it.” Your heart won’t be in it because you’ll be in fine fettle with your house.

Of course, you can do a lot better than 7% today. For the first time, the rate on 30-year mortgages slipped below that on the 30-year Treasury bond. You can get a 30-year mortgage at little more than 4% today.

Factoring in mortgage rates, housing affordability is back to where it was in September 1996. Then mortgage rates were 8% and the average price of a home was $171,600. As Murray Stahl writes: “One can actually buy a home for a monthly payment that is not very many dollars different from the monthly payment one would have needed in September 1996, when rates were significantly higher.”

Adjusted for inflation, Stahl points out that the payment for an average-priced home today is about 30% lower than it was 14 years ago.

The advice of Paulson and Smith starts to make sense now, doesn’t it?

Essentially, real estate is a way to buy now and pay later. It is a way to short (or bet against) the dollar. And the case for housing extends to other property types, too. Owners of quality real estate are getting deals on mortgages that we are unlikely to see for a generation.

-Whiskey & Gunpowder-

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