By Kenneth R. Harney
Syndicated Columnist

You may be thinking Christmas, Hanukkah, Kwanzaa and sugarplums, but thousands of fellow homeowners have been thinking refis, rate reductions, cash-outs and money-saving debt consolidations.

For the past two weeks, they've been bombarding lenders with applications for mortgage refinancing — driven by the most attractive rates in the marketplace in more than a year. Refinancings were up in mid-December by 60 percent over the same period last year, and they accounted for more than half of all home mortgage applications — the highest since spring 2004. Thirty-year fixed-rate loans slipped below 6 percent two weeks ago, and although they've rebounded slightly, they are still nearly a percentage point below where they were over the summer.

Fifteen-year fixed-rate loans in the mid-to-upper 5 percent range are readily available to applicants with solid credit.

Could a holiday-season refi be in the cards for you? Maybe, but it probably depends on whether you fit into one of several categories where today's rates make a lot of sense:
• You've got an adjustable-rate mortgage that's facing a "reset" into higher payments in the six months ahead. Your loan might be a payment-option mortgage, an interest-only mortgage originated in 2003 or 2004 with a three-year reset, or simply an ARM tied to short-term Treasury rates that's already costing you more than the fixed-rate alternatives.
• You've got a "piggyback" first- and second-mortgage package that was originally intended to let you purchase your house with a minimal or zero down payment while avoiding mortgage insurance premiums. But now the floating-rate second is above 8 percent and you want to bail.
• You need cash for a home- improvement project, a business investment or to buy a vacation home that's now available at a bargain price. Even though the fixed rate on your first is below 6 percent, the opportunity to cash out thousands of dollars and refinance into a larger replacement first mortgage is compelling.

So many current homeowners fit into these categories that Anthony Hsieh, president of LendingTree.com, predicts that this month's refi boomlet could stretch into 2007 — provided, of course, that rates remain close to 6 percent.

"This [boom] has legs," he said. "This is no head fake — it's for real."

For example, Douglas Duncan, chief economist for the Mortgage Bankers Association of America, estimates that $1.1 trillion to $1.7 trillion of adjustable-rate mortgages are scheduled for payment resets in the coming 12 months and that $600 billion to $700 billion is likely to be refinanced by homeowners eager to avoid higher monthly outlays.

Some loans are "nontraditional" mortgages that combine low initial payment periods with drastically higher payments after several years. For thousands of those borrowers facing big payment jumps, a refi into a fixed-rate mortgage is a no-brainer, Duncan said.

Other people who purchased during the housing boom using popular "3/1" adjustables in the mid-4 percent range for the initial three years now face significantly higher payments because short-term interest rates are much higher.

Consider this example from LendingTree: Say you bought your house in late 2003 with a $200,000 "3/1" adjustable at 4.375 percent with a margin of 3.75 percent and a 20 percent down payment. Your principal and interest payments have been $998.57 for the first three years. But now you face a reset into a 7.53 percent rate on your $197,000 balance — and a monthly payment increase of $383.

Your heads-up alternative: Refinance into a new 30-year fixed-rate $197,000 mortgage at 6.1 percent. Sure, your payment will be $196 higher than it is at your 4.375 percent rate, but not what you'd pay if you stuck with your current loan and its new rate.

Here's another scenario: Say you've got a great rate on the $200,000 first mortgage that you took out in 2002 — 5.5 percent. But you need $25,000 cash for remodeling or a business investment. On the one hand, you hate to get rid of a once-in-a-lifetime 5.5 percent rate. On the other hand, you have the opportunity to pull out the $25,000 with a refi, add it to the $192,500 balance on your current loan, and walk away with a new $217,500 replacement mortgage at 6.1 percent fixed for 30 years.

Your new monthly payment: About $184 more.

A gift from Santa? Hardly. Cash-out refis cost money. But your 6.1 percent fixed rate — not far above 40-year record lows — should still look good years from now.

Kenneth R. Harney: kenharney@earthlink.net
Copyright © 2006 The Seattle Times Company

If you are considering a refinance, don't just pick a lender blindly from the yellow pages! Give us a call and we can refer our favorites to you. We are just as picky as you are! You can reach us anytime at 425-280-4655.

It's ho-ho-house-hunting season, the time when homebuyers can drive the best bargains. And this month is likely to be better than any recent December.
By Marilyn Lewis

You're making your list; you're checking it twice. You've got your holiday shopping pretty much under control. But . . . wait.

Put this on your list: a new house. December is for house hunters what the day after Thanksgiving is for retail shoppers, a time for some of the best bargains of the year.

For homebuyers, that's because there's so little competition in December. Most everyone is focused on family, friends and celebrations, not on buying a home. Nationally, January 2005 saw roughly half as many deals recorded (they were negotiated in December) as in April, reports the National Association of Realtors. Sellers, particularly those with property on the market for more than a few months, want to sell before the year ends.

The December advantage
This December, buyers have additional leverage. "Sellers are more willing to compromise than at any time in the decade," says Walter Molony, a spokesman for the Realtors group. "During the (2001-06) housing boom, the seasonal benefit went away because there was a persistence of tight inventory problems, and sellers weren't motivated to make concessions."

With the boom over, it's a buyer's market again in December. Here's why:

The boom -- fueled by easy credit, low interest rates and, in many places, a shortage of housing -- resulted in overbuilding. Now there's a glut of new homes in some places, particularly in parts of Florida, California and Arizona.

Speculators who entered the market late hoping to flip property for a quick buck are dumping houses and condos, especially condos, on the market.

Though the market has been cooling for months, sellers have been reluctant to drop prices, apparently still hoping for the killings they might have made a year ago. By now, they may be reconsidering.

Buyers, reading about real estate prices dropping nationally, are pressing sellers to negotiate, even in strong markets.

Home values are softest in economically hard-hit cities and towns in the industrial Midwest. For most of the rest of the country, the rate of price growth has simply slowed way down from what it was before.

Finding bargains
Los Angelino Paul Davids has been wanting a home in Santa Fe, N.M., for years but thought he could not afford the market. He owns homes in L.A. and Sedona, Ariz., and had combed the Santa Fe market for the past four to six months. This month, he seized on what he believes is a bargain: a new 3,200-square-foot house with a two-car garage, a view and a bit of a buffer because it's surrounded by a couple of arroyos. Davids was able to negotiate the price down by 5%.

The holiday factor may have contributed. "It's a time of enormous opportunity," the movie writer-producer says.

The season may have played a role, too, for Christian Fox, now closing on a Eugene, Ore., house after two years of shopping. Fox, a commercial real estate agent and property manager, wanted a house on a large lot for less than $400,000. But Eugene buyers kept bidding up prices -- until recently.

Fox and his wife kept watching listings they liked until one, after three or four months on the market, dropped from $450,000 to $399,000. They offered 7% below that, and a deal was struck.

Sellers stand to benefit, too
Barb Barnard, a broker with Windermere Real Estate/Lane County, which serves Eugene, says December is a great time for sellers, too. "When something new comes on this time of year, there is usually a lot of interest and activity, since there are so few homes on the market. . . . If they list their house now, they seem to get more of the serious buyers and don't have to compete with as many other houses."

Some sellers are facing real economic loss with the market downturn. But many more are likely to profit -- they just won't make the fat profit they might have at the top of the market, the Realtors' Molony says.

Still, this can be a trying time for sellers. Ask Jay Jay Shapiro, an architect-engineer-builder in Santa Fe, who has been trying to sell two homes for a year and a half. The larger house, on 5 acres with a creek and private park, includes three bedrooms, four baths and 3,500 square feet, plus a guesthouse. Shapiro has dropped the price from $1.5 million to $1.375 million.

The smaller property is a four-bedroom, four-bath, 2,200-square-foot home, marked down from $1.2 million to $995,000. Shapiro wonders whether he should have accepted an offer of $900,000 that he had rejected.

"Everybody's waiting to see where it will bottom out," he says. "In my life I have never had a house on the market this long." His advice to sellers: Don't get insulted by a ridiculously low offer. Buyers are just trying to learn your lowest acceptable price. Counter the offer and stay in the game.

"I tell people if you get something within 95% of your asking price, you better think very hard about that offer," says Katie Stout, an agent with Century 21 The Platinum Group in Greeley, Colo., where prices are dropping and the market is rife with foreclosures.

How to bargain for a home
Negotiations depend on your local market conditions. Just because you read prices are soft in Scottsdale, Ariz., doesn't mean you'll get a 10% discount in, say, Iowa City, Iowa.

"Our appreciation only goes up 3% to 5% a year," says Iowa City real estate agent Jill Armstrong, "so people who come in from out of town and try lowballing a seller with an offer of 20% below asking price may just sour an agreement." Instead, buyers are getting concessions of 4% or 5% right now, up from about 3% in the past, she says.

Here is experts' advice for buyers:
To get a sense of how motivated a buyer may be to drop the price, find out how many days the property has been on the market. Days-on-market information is not accessible by the public, but an agent can get it for you.

If you want a home that's in foreclosure, don't bother dickering with banks over price. "They don't have time," Stout says. "Some of these asset managers are selling 450 houses." Your strategy: Cool your jets and learn how foreclosure sales work. Banks selling foreclosed homes in Greeley watch their properties closely, dropping prices about 10% a month until the property sells. In Greeley, that takes about three months -- roughly three 10% price drops. So wait until the place you want is within your reach and hope no one else buys it first.

The juiciest advantage goes to buyers with a noncontingent offer (meaning that they can buy immediately, without having the purchase contingent on selling their old home), a preapproved loan and no need to wait until the school year ends to move.

Bargain hunting involves giving up something to get something else you want more. For example, consider homes that are discounted because they need work you can do: painting, yardwork, cleaning or minor cosmetic repairs. Before negotiating on price, calculate the cost of bringing the place up to a livable standard. Pass on places needing major repairs like a new roof or foundation work.

Research both your market and the property you are interested in before beginning to negotiate because what works in one area could be poison in another. In Greeley, an offer 10% below the list price might fly. In Seattle, the seller might tell you to go away and never come back. Lowball offers are tolerated differently in different parts of the country. "It's cultural," says Barbara West, a broker with Windermere Real Estate/Lane County who loves negotiating. Her advice: Wait to bid on an overpriced property until it's been on the market a while because sellers need time to realize that their price is high.

Keep the offers and counteroffers to a minimum. Someone else might make a better offer while you are dickering.

Insist that your agent deliver your lower offer in person to the sellers, not just to their agent, to explain why you think your offer is justified and how much you appreciate the home. West has noticed that 99% of her in-person offers are accepted, while the success rate drops when the face-to-face component is ignored.

Negotiate for other concessions. In some markets, appliances are considered part of the deal; in others they are treated separately. Free-standing hot tubs and big yard-maintenance equipment can be negotiated for. If you like the home's custom draperies or a piece of furniture that looks perfect in the house, ask a seller to throw it in. The closer your offer is to the list price, the greater your odds of success. You can even negotiate on the closing date to seal the deal quickly or buy yourself more time.

Strapped buyers can ask sellers to pay closing costs, but this is usually a financing gambit, not a seller's concession: You offer the seller $6,000 above the list price, for example, if the seller will pay the $6,000 closing costs. This lets you essentially wrap your closing costs into the house financing. West advises against this, if possible, as sellers tend to feel they would lose something, even though they would actually come out even.

You may be able to save money on taxes if you act before the end of the year. Check out the tax breaks for energy projects, home improvement and lending fees.
By Liz Moyer, Forbes.com

While you're decking your halls, it might make sense to take a few minutes to think about your real estate tax strategies.

A little planning in 2006 could lighten your tax burden considerably, especially if you're still kicking yourself over tax breaks you could have taken this year but somehow overlooked, or over the tax breaks you thought you had lined up in late 2004 that came back to bite you later.

Credits for energy projects
First, the new stuff. Have you installed a solar heating system since January? You get to take advantage of a new law that went into effect this year that knocks off as much as 30% of the cost of certain projects meant to increase a house's energy efficiency.

For example, you can qualify for a credit for 10% of the cost of insulation systems that reduce heat loss or gain and for a credit of 30% off the cost of solar panels (up to $2,000 for this tax year). A 30% credit is also available for a solar water-heating system. Just don't get clever and try to apply that to a solar heating system on your pool or hot tub -- they don't count.

There is also a tax credit for qualified fuel-cell power plants, which convert fuel into electricity. Qualified fuel-cell power plants come with a 30% tax credit -- up to $500 for each 0.5 kilowatt of capacity.

Home improvement and lending fees
Apart from the energy tax credits, there are a lot of simple rules many people forget or overlook. Loans for substantial home improvements, such as adding a driveway, a new room or a porch or deck, are deductible, for example. This is not the case for repainting, plastering, patching a roof or fixing windows, however.

Fees paid to mortgage lenders, called points, are also deductible the year you take out the mortgage. So, if you've traded up this year, remember to make a note of those payments. Points are deductible on mortgage refinancings, too, but you have to spread the cost over the life of the new loan.

Most importantly, beware of setting yourself up for the dreaded Alternative Minimum Tax. This is an issue that has been popping up more frequently now that inflation is on the rise and, thus, more Americans fall under the AMT umbrella, or into its web, as it were.

The AMT was designed to force wealthy individuals pay a minimum amount in federal income tax. The trick is, it does not account for inflation, and so more Americans are falling under it as their incomes increase. The best way to avoid getting caught up in it is to sit down with your tax adviser or financial planner and look at your real estate tax situation.

Where conventional wisdom once held that you should pay real estate taxes this year to take the deduction, that doesn't hold up now. It could well push you into the category of AMT payers. Ditto selling your property now and potentially realizing a taxable gain, rather than waiting until the new year.

By Linda Thomas
Special to The Seattle Times

MARK HARRISON / THE SEATTLE TIMES

"We're all about making money go as far as possible," says Todd Asher of Sammamish, who took out an interest-only mortgage so the family would have money left over each month for one child's diapers and another's college tuition, among other things.

Almost every dollar Todd Asher earns is spoken for. He has one daughter in college, another in high school and a toddler in diapers.

"We made a decision to have my wife stay at home with our 18-month-old son, so we're living off my income, paying for tuition, diapers and everything else," said Asher, of Sammamish.

"We're all about making money go as far as possible." Asher, 39, has found a way to save a little each month through an interest-only mortgage loan. He diligently puts the savings into his 401(k), an individual retirement account and mutual funds.

"My goal when we purchased our current home was to buy the most house for the least amount of money and then save, save, save," Asher said.

Some mortgage specialists and financial planners believe unconventional home loans could be good tools to help consumers put away money for their future — if they're disciplined enough to invest the mortgage savings.

If homebuyers invest the extra $160 to $200 they save each month on an interest-only mortgage, then it "absolutely makes sense," said Jeff Tisdale, a broker at Skye Mortgage in Bellevue.

That doesn't happen often.

"People tell me all the time about how they plan to put the savings here or invest it there," Tisdale said. "The money instead goes into six bottles of wine or a Jet Ski payment."

What to do with $200
Savings from an unconventional mortgage compared with a standard 30-year fixed-rate mortgage might slip away because people don't think it's enough money to make a difference.

But Paul Merriman, founder and president of Seattle-based Merriman Capital Management, said every dollar a young homeowner invests now from mortgage savings will make a surprising difference when he or she retires.

Consider this scenario: A 30-year-old homebuyer invests $200 a month in a Roth IRA for five years. With a 10 percent compound rate of return (based on the S&P 500), he will have $15,312 in five years. Then, because he faces a higher mortgage payment of principal and interest, he stops contributing to the IRA. Even if he adds nothing more to the investment, the money continues to multiply.

"They will have $267,185 at age 65 and they will be able to take tax-free distributions of $16,031 (6 percent) the first year," Merriman said. "If they continue to earn 10 percent while taking out 6 percent, they will take out over $500,000 and have $585,435 left at age 85."
At a more conservative 6 percent rate of return, the homeowner would have saved $14,000 after five years, Merriman said, and that would grow to more than $82,000 over the next 30 years. Withdrawing $5,000 a year during retirement would leave $82,000 at age 85.
Not bad for a five-year savings plan that started with investing the difference between a standard mortgage and a 30-year interest-only loan.

Merriman, who is also editor and publisher of fundadvice.com, said there is an obvious impact of saving and investing early in life.

But some borrowers are oblivious to what's obvious.

Part broker, part parent
The job of a mortgage broker has changed since Debbie Steck started in the mortgage business in 1978.

A decade ago, a counseling session with borrowers amounted to little more than reminding homebuyers to bring bank statements and pay stubs at closing.

Steck, now the western regional manger for Golf Savings Bank based out of the Mountlake Terrace branch, said today's loan officers are financial advisers, too.

"Financial counseling should be our only job," Steck said. "Borrowers can fill out a loan application online, but the lowest rate on the wrong loan is a bad buying decision. Our job is to put people into the loan that makes sense for their needs."

Homebuyers, especially first-time borrowers, are more educated now because mortgage information is available on the Internet, she said.

Are borrowers following loan officers' financial advice? Do people have the tenacity to invest mortgage savings every month?

"People aren't as responsible as we'd like them to be," Steck said. "It seems their money always goes somewhere else."

Skye Mortgage's Tisdale is less diplomatic.

"Most people want everything now, and they come back every two years looking for more money," he said.

He also has families who "come back a little richer" each time with more money in the bank.
"I can't keep track of what people do once they walk out my door," Tisdale said. "I can tell you that the ones who are committed to investing their savings are rare."

Linda Thomas is a Seattle-based freelance journalist: linda@lindathomas.com
Copyright © 2006 The Seattle Times Company

By Elizabeth Rhodes
Seattle Times business reporter

SCOTT COHEN / THE SEATTLE TIMES

Zillow's Zestimate for this house on Seattle's Queen Anne Hill was $684,310. The house sold for $609,500, 11 percent less.

When Catherine and Dwight Gaston put their brick Tudor on the market a year ago, there was no such thing as Zillow, the Seattle-based home-valuation Web site that's taken the real-estate world by storm.

The Gastons and their real-estate agent set a price of $635,000 for the three-bedroom home on Queen Anne, one of Seattle's most sought-after neighborhoods. With its refinished oak floors, coved ceilings, leaded-glass windows and more than one bathroom, they were sure the house would sell quickly.

But it didn't sell, which surprised and saddened Catherine Gaston.

"We loved that house, and like everyone else, we hoped there'd be a bidding war and we'd get more," she said. "But no one wanted it."

The Gastons took it off the market for a while, then tried again to sell it for $635,000, although their real-estate agent suggested $605,000 was more realistic.

Then when Zillow launched in February, it said the Gastons' house was worth $684,310 — roughly $80,000 more than their agent's estimation and almost $50,000 more than they were asking.

After the Gastons reluctantly cut the price to $609,500, their house sold immediately for full price. The Zestimate was 12.3 percent higher than the actual selling price.

Was it a fluke? The company says no, calling its site a starting point to determine a home's worth. True value, after all, is what a buyer will pay.

Some 73 percent of recent single-family home sales in the Puget Sound area came within 10 percent of Zillow's valuation, or "Zestimate," according to information posted on its site.
That means 27 percent did not, and Seattle's Zestimates are more accurate than most everywhere else, the company says.

Zestimates and selling prices are within 10 percent of each other less than 60 percent of the time in New York, Houston, Dallas, Detroit, St. Louis, Kansas City, Mo., and Tampa-St. Petersburg, Fla.

The highest accuracy is in the San Francisco area at 76 percent.

Zillow has estimated the values of more than 67 million homes nationwide. It bases its numbers on information contained in public documents, such as county assessor records, but does not make visits to homes and doesn't know what they look like inside.

That's one reason Zillow assigns homes a value range as well as a Zestimate.

The Gastons' home had a value range of $588,507 to $759,584 — a $171,077 spread.

Accuracy varies from area to area

"Accuracy depends a lot by area, and in some areas we have a lot of great data, and in some we don't have much data at all," said Amanda Hoffman, a Zillow spokeswoman. "Luckily, in Seattle we do have a good amount of data.

"But even with the best amount of data and best accuracy rate, we want to reinforce that we're just a starting point," Hoffman said. "Zillow is meant to be a research tool. It's not meant to be a crystal ball to tell you what your house is worth. It's what your house may be worth given the data we have."

In September, the site began allowing homeowners to update their home's data and correct errors, a move with the potential to make Zestimates more accurate.

A month later, the National Community Reinvestment Coalition, a nonprofit economic-justice organization based in Washington D.C., filed a complaint with the Federal Trade Commission accusing Zillow of "intentionally misleading consumers and real estate professionals" about the accuracy of its valuations.

It asked the FTC for "immediate intervention" because of the likelihood of "substantial injury to consumers."

In a prepared statement, Zillow responded: "We believe these allegations are groundless. We make every effort to explain on our site the role of Zestimates as a research tool, as well as to clearly display our rates of accuracy for every area we cover."

The FTC hasn't yet responded to the complaint.

"The commission takes these things seriously, and we will review this matter," spokeswoman Claudia Bourne Farrell said.

Zillow is the creation of two former Microsoft executives, Lloyd Frink and Rich Barton, who also founded Expedia, the online travel service. Before its inception, homeowners and buyers had no instant way to learn anonymously, for free, what a particular house is worth.

Now the site's Zestimates and such features as tax records and 360-degree aerial mapping are bringing more than 3 million people to Zillow each month, Hoffman said.

Funded by $57 million in venture capital, Zillow makes money through advertising by real-estate companies, lenders and others who provide real-estate-related services.

A look at 25 homes in two counties

In April, The Times began tracking Zillow's accuracy by saving for-sale data on 30 homes chosen at random in King and Snohomish counties.

Of the 25 that eventually sold, 12 sold for more than their Zestimate, and three-quarters of those were within 10 percent of it.

One was less than 1 percent off.

Of the 13 that sold for less than their Zestimate, nine were within 10 percent of it.

But some displayed wide disparities, including a 50-year-old Mercer Island home with five bedrooms. Zillow pegged its worth at $910,374. It sold for $1.15 million in April. In that case, Zillow's estimate was 20.8 percent lower than the value.

Its listing agent, Coldwell Banker Bain's Susan Lettengarver, said she wasn't surprised.

"I don't know how anyone could price a home sight unseen," Lettengarver said, noting that the Mercer Island house had extensive updates — new baths, a professional-quality kitchen and a new media room with custom maple cabinets, and it has views of Lake Washington and Mount Rainier. "A panoramic view is pretty hard to judge without seeing it."

When Coldwell Banker Bain agent Terry Miller prices homes, she checks Zillow, mostly she says because tech-savvy sellers expect her to. But she doesn't use it to price properties.

Rather, she looks at three months' worth of "comps," or prices of comparable properties recently sold nearby.

She says she needs at least four of them, plus four active listings and four homes that have offers but have not closed.

Those help her arrive at a base price. Miller then adds or subtracts for busy street, condition, floor plan and the quality of upgrades, if any.

"Was it an awesome kitchen remodel 20 years ago or a cheap kitchen remodel 20 years ago?" Miller said. "Those are the things Zillow will not know.

"[Still,] Zillow helps consumers answer some questions. So I think it's a good starting place."
But Windermere Real Estate agents Karen and Andrew Fortier have seen what happens when sellers put too much stock in the online evaluator.

It estimated that a North Seattle house owned by their clients was worth $500,000.

The Fortiers calculated $400,000 was the maximum that buyers would pay. A fixer or perhaps a teardown candidate, it was directly off an Interstate 5 exit.

The sellers "were so excited because they knew they were going to be walking away with $500,000," Karen Fortier said.

Then she and her husband showed them comps.

"When we gave them the reality, they were shocked," she said.

"They thought Zillow was correct."

After sitting on the market for several months, the home recently sold for less than $400,000.
"No automated valuation site will be 100 percent accurate because there's so much subjectivity in houses," Zillow's Hoffman said.

"Ultimately a home is worth what someone will pay for it."

Elizabeth Rhodes: erhodes@seattletimes.com
Copyright © 2006 The Seattle Times Company

This beautiful craftsman style Cedar Park home has been completely remodeled. Separate entrance to downstairs living area affords a great opportunity for a mother-in-law, or HOME BUSINESS! New kitchen, bathrooms, carpet, flooring, lighting, and triple pane vinyl windows. Artistically landscaped with a large fenced backyard, and Cedar Park/Burke Gilman Trail are just steps from your front door. Lake Washington access just around the corner. Close shopping, transit & UW with plenty of room for boat & RV parking. This home is offered at only $399,950!

For a private showing, call us today! Katrina Williams Realty Group, John L. Scott LML
425-280-4655

Published: Sunday, December 10, 2006, Everett Herald

By Tom KellyHerald columnist

The peaks and valleys of the 2006 housing market were curious - perhaps even unique - but consumers and real estate professionals will probably experience a more consistent, positive environment in 2007, according to leading industry analysts.

National economists and pollsters, even the legendary Alan Greenspan, who retired as chairman of the Federal Reserve earlier this year, also concurred that housing activity should pick up some steam heading toward the end of the year and into 2007.

"Most of the negatives in housing are probably behind us," Greenspan said. "The fourth quarter should be reasonably good, certainly better than the third period."

Others, including Steve Murray, publisher of Real Trends, a real estate research and information company, were willing to push a positive outlook further into the future. Murray feels the desire for a home as a residence or as a recreation or retirement investment will remain strong for the next decade.

"We believe that housing consumers will purchase more homes in the next 10 years than they did in the last 10 years," Murray said. "And, we believe that real estate professionals will earn more in the next 10 years than they did in the last 10 years."

The key question, Murray said, is who will earn it?

"Consumers do not, and will not, rely on sales professionals solely for their housing information," Murray said. "Consumers will increasingly rely on the Internet for their information. Sales professionals who deliver information to consumers via the Web and then provide rapid response to consumer requirements will win the day."

David Lereah, chief economist for the National Association of Realtors, said 2006 was a different market because past declines were associated with the traditional factors of employment losses and rapidly increasing interest rates. The 2006 slump occurred while jobs were being created, sound economic fundamentals were in place and mortgage interest rates were at near historic lows.

"The 2006 declines came from affordability problems because prices were too high, forcing consumers to borrow too much," Lereah said. "We also experienced investors leaving the market, the perception that real estate was no longer a favorable investment, and the scare provided by some members of the media that a national bubble was bursting."

NAR predicts that existing-home sales are expected to coast at roughly the same level next year.

"Overall home price gains will be modest," Lereah said of 2007's national outlook. "Home sellers are becoming realistic about current market conditions and are now offering more competitive pricing, in addition to some incentives or concessions, especially to help first-time buyers."
The Realtors group expects that even with temporary declines in some months, the national median existing-home price should increase 1.9 percent to $223,700 by the end of the year then rise another 1.7 percent next year to $227,500.†The median new-home price is expected to drop 1.1 percent to $238,400 this year before rising 1.3 percent in 2007 to $241,400.
"We now have the most favorable market for home buyers in several years, and most sellers, who've been in their home for a normal period of homeownership, are still seeing very healthy returns on their investment," Lereah said.†

Conditions for buyers have improved because sellers are flexible now and mortgage interest rates are near historic lows. The market promises to be more balanced between buyers and sellers by early spring, supporting future price growth, he said.

Existing-home sales, expected to fall 8.6 percent to 6.47 million this year (the third-best performance on record) are projected to be essentially even in 2007 with a 0.6 percent decline to 6.43 million.†New-home sales, likely to drop 16.8 percent to 1.07 million in 2006, are forecast to fall another 8.7 percent next year to 975,000, largely because of a significant reduction in construction by builders.

How can the housing industry get better? Murray believes that sales agents can improve their efforts in serving sellers.

"We (agents) are not listening first and talking second," Murray said. "Sellers are far less satisfied than buyers. We have to remember that sellers are giving something up, and often that something is great memories. We need to ask them what matters to them as a seller and then shut up and listen to what they really need."

Tom Kelly's new book "Cashing In on a Second Home in Mexico: How to Buy, Rent and Profit from Property South of the Border" was written with Mitch Creekmore, senior vice president of Houston-based Stewart International. The book is available in retail stores, on Amazon.com and on tomkelly.com.

Mortgage Demand Rises as Rates Fall, Refinancing Surges

Updated 12/6/2006 11:23 AM ET
By Julie Haviv, Reuters

NEW YORK — Mortgage applications rose sharply last week, as the lowest interest rates in more than a year prompted a surge in demand for refinancing, an industry trade group said Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, including refinancing and home-purchase loans, rose 8.1% to 647.6 the week ended Dec. 1 from the previous week's 599.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.98%, down 0.15 percentage point from the previous week, lowest since the week ended Oct. 7, 2005, when it stood at the same level. Interest rates were also below year-ago levels of 6.32%.

Dean Maki, chief U.S. economist at Barclays Capital in New York, said the mortgage bankers' indexes tend to be volatile but lower rates have enticed consumers, which will benefit the U.S. housing market.

"The decline in mortgage rates and the slowing in home price appreciation, along with the buildup in inventories, has led to a much better situation for home buyers through increased affordability as well as more inventory to choose from," he said. "Households are saying on surveys that home buying conditions have improved notably, and that has coincided with the stabilization in home sales."

Fueling the rise in mortgage applications last week was a 13.7% jump in the MBA's seasonally adjusted index of refinancing.

The refinance share of requests rose to 50.1% from 46.9% the week before, highest since April 2004.

Demand for home purchase loans was also robust.

The MBA's seasonally adjusted purchase index, widely considered a timely gauge of U.S. home sales, rose 4.9% to 426.6, highest since May. However, the purchase index was substantially below its year-ago level of 495.1.

The indexes also point to stabilization, with the sharp weakness in home sales and housing starts seen so far this year expected to ease in coming months, analysts say.

While mortgage lenders benefited from the increase in demand for home loans last week, home builders are still feeling the pinch of the slowdown in the country's once-soaring real estate market.

"Housing construction is extremely weak at present and is currently shaving more than a percentage point from gross domestic product growth," said Maki. "Home sales, on the other hand, appear to be stabilizing."

The gap between some fixed- and floating-rate loan rates is slim. Fixed 15-year mortgage rates averaged 5.66%, down from 5.86%, lowest since January. Rates on one-year adjustable-rate mortgages fell to an average 5.79% from 5.87%, lowest since March.

The narrowing gap between fixed and adjustable loans has been luring consumers to fixed-rate loans.

The ARM share of activity fell to 23.9% of applications from 24.5% the previous week, lowest since October 2003.

The MBA's survey covers about half of retail residential loans. Respondents include mortgage banks, commercial banks and thrifts.

Copyright 2006 Reuters Limited.

If you are interested in refinancing, contact us today and we will put you in touch with a lender that will help you with your financial needs! Katrina Williams Realty Group 425-280-4655

Tax-code changes, easier financing and baby boomers' wealth are fueling a rise in second-home purchases nationwide. If you choose to buy, remember that your continuing expenses will double, too.

By Marilyn Lewis

The appeal of second homes is universal. Russians have their dachas, Swedes their stugas and Native Alaskans their fish camps. There are 6.8 million vacation homes in the United States -- one for every 11 year-round homes. For many people, the second-home dream has predictable components: golden summer light, kids squealing and splashing, family and friends together, quiet moments, long walks, refreshing naps and time to goof off. Others just want a place to golf or ski, to swim or sail, or simply a change of scenery.

As suburbanites and country mice snap up condos in the heart of the city, urban dwellers are buying second homes in the mountains, near the shore or down a country lane. Thanks to aging baby boomers and changes to the tax code, second-home sales are an increasing share of the real-estate market.

The big bandwagon

The second-home market, which includes vacation homes and investment properties, was a big component of the recent real-estate boom. The National Association of Realtors, or NAR, reports that 40% of all real-estate transactions in 2005 were for second homes; about 12% of all houses purchased were vacation places.

With wealth accumulated from work, home equity and investments, middle-age Americans are transforming rural areas, small towns and resort communities in their pursuit of recreational havens, landing pads for retirement and investments to diversify stock-heavy portfolios. Now, 7% of baby boomers own vacation homes. But middle-age folks from the 77 million-person baby-boom generation aren't the only buyers. Gen-Xers and even 20-somethings are getting second homes.

Still, because of their huge numbers, boomers buy most vacation homes. They are said to be more likely than other generations to own their own homes. An NAR analysis, "Baby Boomers and Real Estate: Today and Tomorrow," says: Boomers hold 57% of all vacation homes.

About 21% of vacation-home owners have two or more vacation properties.

Boomers own 58% of rental properties.

The question is, how do all these people buying vacation homes swing it financially?

The cash option

For a surprising number, the "how" is simple: Pay cash.

A recent NAR-Harris Interactive Poll said 32% of vacation-home owners paid cash, and that 82% of vacation homes are already paid off.

Where do buyers find money for a down payment? The same survey said:

Half used savings.

19% cashed out equity or took sales proceeds from their first homes.

23% used cash from the sale of other real estate.

Little St. George, Utah, population about 65,000, has become a magnet for vacation-home buyers. There, the median price for a house is about $350,000. Real-estate agent David Ellis says St. George's relatively low prices, red-rock vistas and proximity to the Grand Canyon and other parks draw urban refugees, many of whom have cashed out longtime family homes in expensive Southern California markets and beyond.

The recent real-estate slowdown also has affected St. George, but Ellis says vacation homes still are selling well. He estimates that 10% to 15% of his business is in vacation homes, and that about half of all his clients pay cash. "There is a limited number of people who, crazy as it is, are financing their second homes," he says. In fact, homes are selling better in the $1 million-plus end of the market, which includes plenty of vacation homes, he says.

Who has this kind of money? "The largest numbers are coming from Southern California and northern Utah, and there's a pretty strong migration from Nevada," Ellis says. "I've had clients from Michigan, Wisconsin, New York, Florida and Texas -- all over."

The big picture, explains NAR spokesman Walter Molony, is this: The second-home market is driven largely by a 1997 tax-code change allowing a couple to exclude up to $500,000 ($250,000 for singles) in home-sales gains from taxes.

"For the first time, this freed people to make housing choices based on their needs and desires rather than on avoiding that tax consequence," Molony says. Before, the incentive was to trade up. Now, downsizing is popular with boomers selling big family homes that have appreciated mightily. With pockets full of cash equity, many can buy both a smaller home and a vacation house or investment property.

Financing is now easier

Not long ago, when financing second homes, mortgage bankers demanded higher down payments, bigger interest rates and higher insurance fees. Today, says David Hehman, the CEO and co-chairman of EscapeHomes.com, which helps people plan and buy second homes, extra costs have mostly been erased by competition. Some lenders may still charge a one-eighth point extra because lenders see risk in a home that's not constantly monitored by the owner. Still, in years past, Hehman says, a second-home borrower would have paid a quarter- or a half-point extra.

Robert Jangaard, a Whidbey Island, Wash., resident, financed the construction of a recreation home at Lake Wenatchee, near Leavenworth, Wash., a couple of years ago. He and his family escape there to ski, golf and hike in the Cascades. Jangaard says his bank asked nothing special for the second-home loan -- no extra points, fees or bigger down payment. "It's not harder. In fact, it gets easier the more you borrow," Jangaard quipped. "It's all based on how well you know the banker and how familiar they are with your situation."

But, points out Dave Martin, a mortgage banker with First Horizon Home Loans in the Seattle area, you must have enough income to qualify for both your principal residence and your second home, if you are financing both. Martin financed his family's vacation home in Chelan, Wash. He, too, he found no difference in the requirements or costs of the loan.

You will pay more, though, if you will rent out the second home. Investment property, as it is considered, is financed and insured at higher rates.

Tips for financing

For those financing a second home, EscapeHomes.com's Hehman offers this advice:

Apply for financing in the town where you are buying. Bankers there may give better terms because they appreciate the market.

Caution: You'll pay for two of everything now -- new roofs, yard maintenance, appliance repairs. Budget to cover maintenance, property taxes and insurance.

Don't kill yourself financially, especially on a vacation place. "The most important thing is pure enjoyment and peace of mind. That's why you’re buying a second home,” Hehman says.

Try Internet loan sites to get lenders essentially bidding on your mortgage.

The friends-and-family plan

A number of people who can't foot the whole bill are doing what their parents and grandparents had done: going in with family or friends on a vacation home.

The big issue is: How will you share? There are as many ways to divide up the pie as there are ingenious thinkers in the group. By brainstorming and negotiating, invent a system that reflects your philosophies, resources and needs. A strapped partner could throw in more labor than others; older family members with more means might pay a larger share and be spared some of the more intensive chores.

The important part is putting your agreements down on paper. Make contracts to cover financing, maintenance and even how the house will be shared. You can always ease off later if these feel too formal. But tightening up a sloppy, unhappy situation can cause pain and resentment.

And this is your place for fun, remember?

Wonderful 4 bed/3 full bath home built in 2003! Featuring 1848 sqft on shy 1/4 acre lot. Upgraded appliances, gas fireplaces upstairs & down, tile entryways, 2'' wood blinds, ceiling fan, vaulted ceilings, back deck leading to beautiful $20k worth of landscaping to include terraced brick retaining walls & partial cedar fence. monitored security system, oak cabinets in the laundry room, wood shelves/workbench in garage w/ tons of overhead storage & extra storage nook. Your new home awaits!

This article was published on: 12/01/20062006

What’s the return for remodeling? Remodeling magazine’s annual report compares construction costs with resale values for 25 common remodeling projects in 60 U.S. markets.Prices for most remodeling projects continue to climb, while the recoup value of improvements at resale is declining to levels last seen in 2002. These are the findings of Remodeling magazine’s 19th annual Cost vs. Value Report — the eighth prepared in cooperation with REALTOR® Magazine.

None of this should come as much of a surprise to you: This year’s recoup values confirm the housing slowdown many parts of the country are experiencing. With both home-sale and remodeling activity at record levels in the last five to six years, some cooling is inevitable. Indications are that the current downturn represents a return to “normal” levels.

A number of improvements designed to make the report more reliable and useful has also affected both cost and value data. For starters, Remodeling took a fresh look at the specs for the 25 projects it studies each year. (REALTOR® Magazine, in the past, has limited the number of projects it included in its coverage.) The cost-to-construct figures (which include labor, material, subcontractors, and gross profit) are higher than in previous years, but also more accurate. (Read full project descriptions at www.remodelingmagazine.com.) The estimates of resale value are also more accurate than ever before (see “Survey confidence is high,” below), thanks to the more than 2,000 members of the NATIONAL ASSOCATION OF REALTORS® who completed Remodeling’s e-mail survey this past summer.

In addition, the report introduces nine regional averages, following the divisions established by the U.S. Census Bureau. This breakdown provides higher confidence levels than could be achieved with the four larger U.S. regions measured in previous years.

What the numbers mean
When comparing cost estimates for actual projects, remember that averaging tends to have a leveling effect on “Job Cost” data. And, seemingly small differences in size, scope, or quality of finishes can dramatically affect the final project cost. Remember, too, that, even in neighborhoods in the same city, local conditions can affect both the cost and value of a remodeling project, making our numbers appear too high or too low.

In an actual real estate transaction, the “cost recouped” for a given remodeling project depends on a variety of factors. These include the condition of the rest of the house, the value of similar homes nearby, and the rate at which property values are changing in the surrounding area. A home’s urban, suburban, or rural setting also affects its value, as does the availability and cost of new and existing homes in the immediate vicinity.

Bring value to clients and customers by marrying information from the report with your home pricing expertise and your knowledge of qualified remodelers in your area.

About the report
Research team Specpan, an Indianapolis-based company, programmed and hosted the Web-based survey, collected and compiled the data, and provided pre- and post-survey consulting. More than 100,000 NATIONAL ASSOCIATION OF REALTORS® members — salespeople, brokers, and appraisers—received e-mail links to the survey. Of those, 2,188 provided value estimates. Hometech Information Systems, the Bethesda, Md.–based estimating software developer, provided cost-to-construct estimates for each of the 60 cities surveyed. Survey confidence is high The statistical accuracy or confidence level of the national averages is 95 percent (+/– 2 percent), which means that 95 percent of the time, national results for this survey will fall within 2 percent to either side of the results published here.

No cause for alarm
Should you be concerned about lower recoup values in this year’s Cost vs. Value Report?The unusually strong housing market over the past few years has boosted both remodeling and new-construction activity. For many home owners, the appreciation in house prices significantly added to their net worth. Similarly, home improvement projects often paid for themselves through a comparable increase in the home’s value. But every good thing must come to an end. Eventually, things return to normal. Luckily, today’s “normal” is great news for home owners and real estate practitioners: When you consider its value at resale, a home improvement project costs only 20 cents to 25 cents on the dollar. The other 75 cents to 80 cents spent on a project goes directly back into the home through increased value — not to mention increased owner enjoyment. — By Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies at Harvard University.

Replacement projects lead returns
Of the top 10 projects nationally measured by cost recouped at resale, seven — including the top three — are replacement projects. An upscale fiber cement siding replacement returned 88 percent of the investment. Midrange vinyl siding replacement was second at 87.2 percent, and midrange wood window replacement edged out minor kitchen remodeling for third at 85.2 percent. Only roofing replacement finished outside the top 10 projects, at 73.9 percent for a midrange job, and 72.9 percent for an upscale one.

Energy efficiency in the face of high fuel prices could be a logical reason why replacement projects are high-value performers. But Charlie Gindele, president of Dial One Window Replacement Specialists, in Santa Ana, Calif., calls that a rationalization. “The thing that motivates people, by and large, is the aesthetics,” he says.

Amy Mills Siler, a salesperson at Joan Ryder and Associates Real Estate Inc., in Bel Air, Md., agrees that most home buyers are looking for a house with curb appeal. “If they drive up to a house with dingy aluminum siding and old windows, the buyers automatically get a bad taste in their mouth,” she says. “The old saying ‘Don’t judge a book by its cover’ falls on deaf ears with most clients.”Gindele, who works in Orange County, Calif., where median housing prices in the second quarter of 2006 topped $726,000, says the return on investment is just an added bonus to home owners, who undertake remodeling projects for a variety of benefits. Among other things, “they do it because they want the ease of operation, the beauty, the sound-deadening component,” he says. “But it’s nice to recover your expense.”

Riverfront offer could double

The Everett City Council will vote tonight on a resolution to sell a developer more land for a project along the Snohomish River.
By David ChircopHerald Writer

A major San Diego developer wants to buy twice as much land along the Snohomish River as it was first offered. Everett's original proposal called for selling 100 acres of developable riverfront property on a former mill and city dump site to OliverMcMillan two years ago. That offer may now grow to 200 acres.

"Rather than patchwork redevelopment, it made more sense to take the entire district," said Council President Brenda Stonecipher. The City Council is scheduled to vote tonight on a resolution that would place the increased offer on the bargaining table. Controlling adjacent wetlands and other properties will give the developer assurances that the way neighboring lands are used is compatible with its plans. It also will give OliverMcMillan more leverage to plan and develop the property, Stonecipher said.

If built, the project could include up to 1,500 houses and apartments, 1.2 million square feet of commercial space and a 150,000-square-foot hotel, according to plans released in October.
The figures translate to a shopping and office complex roughly the size of 1.3-million-square-foot Bellevue Square that would be sandwiched between I-5 and the Snohomish River.
The changes before the council tonight would deem the sale of environmentally sensitive wetlands, the Everett Animal Shelter's property and a public works facility "in the best interest of the city."

The agreement also states that the city will not sell the property for less than 90 percent of its appraised value. The city recently hired Allen Brackett Shedd, a Bellevue real estate appraisal firm, for $50,000 to determine the value of the property. City engineer Dave Davis said appraisals should be completed soon. City officials say selling the added acreage wouldn't do away with plans for a mix of open space, public trails, shoreline access and retail and residential developments.

"It isn't really any change in the concept of the project," said City Councilman Drew Nielsen.
The sale of the property will be contingent on conditions and requirements set by the city, he said. The city signed a contract worth $370,000 with Seattle-based Heartland LLC, a real estate consulting and investment firm, for help with the complex land deal. Jim Reinhardsen, the company's owner and managing director, serves as the city's contract project manager for the development. He has been paid $250,000 for the work to date.

How much the city is willing to spend on building roads, sewer lines and other public improvements hasn't been discussed publicly. Everett has spent $48.2 million in city, state and federal funds on the properties since 1991, according to the city's spokeswoman. That includes the cost of buying land, environmental cleanup, construction of the 41st Street overpass and numerous studies.

In late October, the city and the state Department of Ecology agreed to share $200,000 in remaining environmental cleanup work required on the former landfill site.
That includes testing groundwater for contaminants such as arsenic and monitoring methane gas levels along the 41st Street overpass.

After missing a May deadline to close the deal, the council extended talks with the developer to Jan. 31. Negotiations with the developer include determining who will be responsible for preserving wetlands, maintaining trails and keeping up public amenities, City Councilman Mark Olson said.

"There are a lot of issues down there," he said. "The city is not interested in just selling all of the land and walking away."

Reporter David Chircop: 425-339-3429 or chircop@heraldnet.com