Avoid homes that require ‘extreme makeovers’

Are you the adventurous type of home buyer who wants to make a profitable purchase? Or are you looking for a near-perfect “model home” acquisition where all you have to do is turn the key in the front door and move in?

If you are the adventurous type, as I am, please read on. But if you want to buy a model home in perfect condition and are willing to pay top dollar, you’re wasting time reading further.

Just a few days ago, I received an e-mail from a homeowner who purchased in December 2002. He spent three months fixing up the home and moved in during March 2003. He reports his home has substantially appreciated in market value, presumably due to the profitable improvements he made.

Now he wants to know how soon he can sell and claim his tax-free principal residence sale profits up to $250,000. The answer is he must wait until March 2005 to meet the 24-month ownership and occupancy test of Internal Revenue Code 121.

It sounds like that buyer bought a profitable home with the right things wrong. You can accomplish the same result.

WHAT ARE “THE RIGHT THINGS WRONG” WITH A HOUSE? If you want to profit from your home purchase by more than the current average 5 percent annual market value appreciation rate in most communities, you’ll need to buy a less-than-perfect home.

Here are five keys to unlock a profitable home purchase:

1—BUY A SOUND, WELL-LOCATED HOME WITHOUT MAJOR DEFECTS. Most home buyers aren’t looking for major fix-up projects. But minor cosmetic repairs are the most profitable way to enhance a home’s market value.

Presuming a house is in a decent location and doesn’t require major renovation, it is the perfect profit candidate. Paint is the most profitable cosmetic improvement of all. Spending $1 for paint often produces $5 or more in increased market value.

Other examples of profitable cosmetic improvements include new carpets and hardwood floor refinishing, fresh landscaping, new light fixtures, and updated window coverings.

But try to avoid buying a home that needs unprofitable structural improvements, such as a new roof or foundation repairs.

For example, if a house needs a new roof, which will be costly but will add little or no market value, that is an unprofitable but necessary expenditure. More examples are foundation repairs, new plumbing, or wiring updates, which are expensive but add zero market value.

2—ASK HOW MUCH THE SELLER PAID FOR THE HOME. This might seem like an irrelevant question for a home buyer to ask, but it is extremely important.

If the seller has owned the home for many years, he or she probably paid a low purchase price compared to today’s market value. That means the seller has lots of room to negotiate on price and terms.

However, if the home seller recently purchased for a price close to today’s market value, that seller doesn’t have much room to negotiate on the sales price, considering the condition of the residence.

3—PURCHASE BELOW MARKET VALUE TO COMPENSATE FOR THE OBVIOUS NEED FOR REPAIRS. Some naïve home sellers think their home, which needs cosmetic repairs, should sell for just as much as the similar home down the street, which was recently sold in excellent condition.

But savvy home buyers negotiate hard, emphasizing to sellers and their listing agents that the market for a home needing fix-up work is very limited.

Most prospective buyers seek near-perfect homes but the few buyers of fix-up homes must be rewarded in the form of a lower purchase price because they must encounter the work of fixing up the house.

4—BUY FROM A HIGHLY MOTIVATED HOME SELLER. Closely related to the previous key to unlocking a profitable home purchase is determining why the seller is really selling.

If the seller is just testing the market and isn’t anxious to move, negotiating a bargain purchase price to compensate for “the right things wrong” can be very difficult.

However, if the seller is highly motivated, such as moving to a retirement home, a job transfer, family situation, or economic problem such as a pending foreclosure, the seller is unlikely to hold out for the last dollar of profit.

5—LOOK FOR AFFORDABLE FINANCING. As home mortgage interest rates slowly escalate, it pays to look for affordable mortgage financing. The best source, by far, is the home seller.

Retirees who need extra retirement income are, by far, the best source of seller financing. To illustrate, if you discover the reason for the seller’s sale is to move to a retirement home, or an assisted living center, that seller probably needs extra income.

If he or she receives an all-cash sale, the best that seller can expect to receive today is 3 percent or 4 percent interest at a bank. But if you offer that seller 5 percent or 6 percent interest, secured by a mortgage on the home they know so well, you can obtain bargain financing and also help the seller.

I’ve learned from buying many houses with seller financing, the key to success is to include in the purchase offer the exact mortgage payment the seller will receive each month, such as $1,893.45. The interest rate alone is not sufficient to gain acceptance.

DON’T BUY A HOME NEEDING AN “EXTREME MAKEOVER.” One of my favorite weekly TV programs offers an extreme home makeover to a lucky homeowner. After viewers learn why the home needs major renovation, the experts quickly move in and perform major miracles within a week or so to create a practically new home for the happy homeowner.

But that’s not the real world. Having renovated many fix-up homes that needed profitable improvements, I know it takes weeks, sometimes months, to renovate a house.

However, the results of acquiring a house with “the right things wrong” can be extremely profitable. If you want to profit from your next home purchase, follow the five keys above and buy a house with profit opportunities. By Robert J. Bruss

Rising interest rates should not have much impact on debt-service burdens for businesses and households, Federal Reserve Chairman Alan Greenspan said Tuesday during a semiannual monetary policy report to Congress.

“Very large fractions of the total outstanding obligations of businesses and households are long-term, fixed-rate debt,” Greenspan stated in his testimony. “In short, financial markets along with households and businesses seem to be reasonably well prepared to cope with a transition to a more neutral stance of monetary policy.”

And financial intermediaries are generally “profitable and well-capitalized and appear to be well positioned to manage in a rising rate environment,” he stated, though some financial intermediaries and other creditors that extended loans or bought securities during the time of low interest rates could sustain capital losses as interest rates rise.

If there is a “more dynamic adjustment of interest rates,” Greenspan said the economy should be able to weather that storm. And he said that even in an economic environment in which interest rates rise smoothly back to more typical levels, there is still the possibility of increasing instances of financial strain.

Many household and business balance sheets were restructured during the protracted period of low interest rates, he said, and “homeowners were able to refinance at lower interest rates almost half of total outstanding home mortgage debt” from mid-2002 to mid-2003.

The recent rise in market interest rates “has slowed the pace of mortgage refinancing and reportedly has precipitated some winding down of leveraged positions among major mortgage market participants,” he also stated. by Glen Robberts Jr

Don’t get caught with your mortgage rate going up and the value of your home going down.
With mortgage rates on the rise as the Fed approaches its first rate hike in more than four years and home buyers scrambling for affordable monthly payments, some alternatives to the standard 30-year fixed and adjustable-rate mortgages (ARMs) could prove risky, say mortgage experts.

Leverage is the order of the day,” says Keith Gumbinger, vice president of HSH financial publications of Pompton Plains, N.J. “You need to be very careful of misusing a mortgage product. A lot of these things have not been tested in a rising interest rate environment.”

Gumbinger is especially concerned about heavily promoted “interest-only” loans that allow borrowers to reduce their monthly payments for a period of time, say three or five years, by paying only interest and no principal. After the prescribed time period, the borrower either owes the entire balance or must begin paying both principal and interest on the balance of a 30-year term, typically resulting in a big jump in monthly payments.

The scariest interest-only loan is an ARM whose interest rate adjusts monthly based on a standard index, says Gumbinger.

If rates were to keep climbing, and you had one of these short-term, interest-only ARMs, says Gumbinger, “You could find yourself in a very uncomfortable squeeze. It’s a brand new shovel to dig yourself a deeper hole.”

Other alternative loans that could put homeowners in a bind are so-called pledged-asset mortgages and piggyback mortgages, which both allow borrowing of up to 100% of a home’s value.

Eric Tyson, co-author of Mortgages for Dummies, with a second edition due out this summer, said, “People are using products like that to buy a house they can’t really afford.”

If rates keep rising, he said, “Something’s got to give. People will start racking up consumer debt on their credit cards.”

In the past year, the average national rate on the traditional 30-year fixed mortgage has inched up from 5.37%, the lowest in four decades, to 6.42% as of June 18, according to Gumbinger. The bulk of that move has been in the past three months.

The rise reflects the bond market’s concern that the Fed sees inflation at long last creeping back into the economy.

With the central bank ready to push short-term rates up by increasing its fed funds rate a minimum of 25 basis points at next week’s meeting, both short- and long-term mortgage interest rates could continue to climb this summer.

In many parts of the country, that means buyers will be struggling to qualify for increasingly expensive mortgages on homes whose prices have appreciated dramatically in recent years.

The average American house has risen in value by 7.7% in the last year, 42% in the past five years and by 210% since 1980, according to the Office of Federal Housing Enterprise Oversight. In pricier states, like New Jersey and California, values have tripled since 1980, and in New York state, they have quadrupled during the same period.

Real estate markets tend to go through cycles and it is not unusual after a long run-up in prices for them to correct by 10% or 20%, says Tyson. The last downturn started in the late 1980s following the stock market crash of 1987 and stretched into the early 1990s in most parts of the country.

One measure of whether you’re buying into an overpriced market, he says, is to figure the after-tax cost of buying a home vs. the cost to rent the same property. If the cost to buy is considerably higher than renting, then prices are probably inflated and could be due for a drop.

Here are three loans to be wary of as interest rates rise:

Interest Only
While these loans have been around since at least the 1980s, they’ve grown in popularity and are approaching 10% of new mortgages, says Gumbinger. Once geared for well-heeled homeowners who believed they could employ their cash better elsewhere, such as the stock market, these mortgages are now popular as “budget stretchers,” to help buyers make their monthly mortgage payments.

Tyson explains that while most mortgages are amortized or repaid each month partly in principal and partly in interest, interest-only loans include no principal payments in their initial years.

He offers as an example a five-year, interest-only $250,000, fixed-rate mortgage at 6%. The initial monthly payment is $1,250 compared to $1,500 on the same amount borrowed using a traditional, fixed-rate loan amortized over 30 years.

While the borrower has saved $250 a month on principal for five years, after that time the balance must be paid off in 25 years. The monthly payment jumps from $1,250 to $1,610.

An interest-only loan can be suitable for borrowers who know they will be in a home only a few years and would pay down only a little principal anyway. But, be sure you understand all of the terms before signing, advises Tyson.

Gumbinger says a popular new form of interest-only loans are three- and five-year ARMs, offered by major lenders, whose rates go up or down monthly according to a major index such as the one-month Treasury or Libor. ARMs typically cap rate increases at 2 percentage points a year, and 6 percentage points over the life of the loan. Rates start in the upper-3% and mid-4% range.

With rates that move so quickly, borrowers could get hammered if inflation surges. Gumbinger says users of these kind of ARMs are taking several risks: that rates won’t rise appreciably; that they’ll have the income to meet any payment increases even in a recession; and that if they made a small down payment and the market declines, they won’t be underwater if they need to sell, assuming average closing costs of 6%.

Pledged Assets
Last month the National Association of Securities Dealers, which regulates securities brokerage, issued an alert warning investors to be wary of pledged-asset mortgages.

The association said that unnamed brokerage firms were providing up to 100% financing loan-to-value mortgages to customers who, in lieu of a down payment, pledged their stocks, bonds, mutual funds and other securities. While these mortgages allowed the customers to avoid paying private mortgage insurance, or PMI, the NASD warned that they could be risky.

Here’s what can happen. If the value of the securities falls below a set minimum, the borrower could be required to deposit more cash or securities and the brokerage can sell the securities to meet a collateral call without contacting the borrower or getting permission about which securities to sell.

Also, because the loan is a 100% mortgage, the interest is usually greater than on a mortgage used with a cash down payment. If borrowers who choose an adjustable-rate mortgage and interest rates rise, the NASD cautioned, the returns from the investment portfolio might not keep up with the rising mortgage payments. This is especially prone to happen if the portfolio contains bonds, which decline in value when interest rates rise.

Piggybacks
Piggyback mortgages are typically issued to borrowers with good credit, who don’t have the cash to make a 20% down payment and avoid the annoying expense of PMI. Borrowers usually take out two loans from the same lender. The most common combinations are: a first mortgage covering 80% of the home’s value, with a 10% down payment and a 10% second mortgage to cover the balance, or a 90% first mortgage with a 10% home equity line of credit, or HELOC.

Many lenders encourage piggyback borrowers to take out a HELOC, which is a variable rate loan whose interest changes frequently with short-term rates.

Most of the risk with this kind of loan lies with the lenders, notes Tyson.

However, with a HELOC, borrowers could see at least a portion of their mortgage rate rise if interest rates increase.

Gumbinger says that if borrowers want to avoid interest-rate risk, they should keep in mind that today’s 6.42%, 30-year, fixed rate is a bargain when viewed over the last 40 years.

“People still have a window of opportunity to refinance at low, fixed rates,” he says. “It’s important to keep that long-term perspective. In some cases, it’s better to bite the bullet and take the 6 1/2%, fixed-rate mortgage. You’re buying peace of mind.” by Ann Perry

Like a loaf of bread, a house that sits for long tends to get stale. Savvy buyers know they can negotiate a lower price. Saddened sellers get tired or desperate and accept that lower price.

So make selling fast your goal. Here are seven ways to do so in 60 days.

1) Set a realistic price.
Check prices of comparable homes in your neighborhood that have been sold within the last six months—those that are similar in square footage, lot size and condition and have approximately the same extras or enhancements, such as a three-car garage, deck or new kitchen.

To find this out, look in the newspaper and real estate publications and write down addresses of nearby properties. Drive by and take notes, even snapshots. This will give you a fairly accurate idea of prices for similar homes. You can also gather sales price information from neighbors and the public records at your town hall.

Or, ask a realtor to do a free “Comparative Market Analysis” (CMA). This study will list similar properties that are currently for sale, in escrow, were taken off the market or have been sold. A realtor will prepare this report for free, hoping, of course, to get your listing.

Alternatively, hire an appraiser who has passed a state-administered exam. Contact your local title company or lender for recommendations.

) Do a walk through.
Pretend you’re a stranger, a buyer. Begin by driving to your house, getting out of the car, looking around and ultimately walking through the front door. Do this with your most honest friend—not your emotionally involved spouse or partner and not your adoring mother—but someone who will be realistic about the impression your property makes on a stranger. Together make a list of everything that doesn’t look, feel or act right, such as:

Windows that are stuck or missing screens
Leaks
Toilets that continually run
Broken appliances
Peeling paint
Messy garage
Yukky basement
Dirty carpets and floors
Lights that don’t work
Missing shingles
Squeaky or stuck doors, including the garage door

If something is broken, make repairs immediately. These infractions are not likely to squelch a deal except with the most persnickety buyer, but they definitely give even the casual buyer ammunition to negotiate a seriously lower price. One broken appliance, in fact, gives the impression that your house might be a much dreaded fixer-upper.

Incidentally, the first thing most buyers notice is the carpet or floor in the entrance hallway or the living room. Spend the money and have carpets cleaned and floors polished professionally.

And the number one thing that turns off buyers is a dreadfully damp, dingy, dark basement. Solve that with a dehumidfier, attractively painted sheetrock and soft lighting.

3) Clean up the clutter
Give your house a face lift. Treat it as though it is a stage set in a play, one in which the buyer can imagine living very happily ever after. If you don’t have a natural eye for space, color and decorating, hire a real estate enhancement expert to guide you.

Easy ways to create that “buy me!” feeling without spending too much money:

Take out one piece of furniture from each room so all of them appear large, spacious and inviting.
Empty out your closets so they are half to two-thirds full. Buyers love closet space … so give it to them. Store your off-season clothes and toys the kids no longer use. In the process, you’ll probably find lots of stuff you can donate to charity for a tax deduction!
Tip: You’re going to be packing up anyway, so why not start now.
Hang mirrors. They not only make rooms appear larger but they also capture the light.
Remove family pictures. You want buyers to envision living in this house—difficult to do if four generations of your family are on display.
Paint any room that is peeling, dreary or dirty. Pick a fairly neutral color—not necessarily a boring beige, but a soft yellow or light blue, Refrain from jazzing up the look with purple, bronze or black; they may be your favorites but appear awful to someone else.
Add live plants. Not only can they hide flaws if strategically placed, but they add a great deal of warmth to any room, including the kitchen and bath.
Clean off kitchen counters. You want to enhance the amount of work space available to the serious cook. Lots of little appliances, gizmos and gadgets are “counter” productive.
Get new slipcovers. You can buy reasonably priced, pre-made ones that cover sofas and chairs of all sizes.
Discard shabby drapes and curtains. Unless they’re hiding something even more shabby, forget about buying new ones—just wash the windows.
Get a boot rack or box. It should be large enough for everyone’s snow boots, Wellies and galoshes.
Put candles in all candle holders. You don’t need to light them, but they, along with flowers, add dramatically to your home’s appeal.

Bottom line: Your mini-makeover should give your house or condo a tranquil, work-friendly and child-happy feeling.

4) Accentuate curb appeal
The outside of your house is what gives visitors their first impression. You can boost “curb” appeal by painting your front door, adding a brass knocker, putting up attractive house numbers or installing a lamppost.

And, keep in mind that the dullest appearing house gains immediate character (and color) with shutters.

Then trim the bushes so that all doors and windows, including the half-basement ones, are vine-free. The lawn should also be mowed and dandelion-free.

Set aside time to repair your fence and clean up any utility or potting sheds. If your garage is a catch-all for 20 years’ worth of throwaways, you might want to hire someone to help you organize your tools and haul away old tires, non-functioning lawnmowers and rusty barbecues.

Finally, if the trim around the house and on the shutters is worn, scrape and apply a fresh coat of paint.

5) Spread the word
A good real estate broker will do this for you. But you can add to the marketing effort, whether you are using a broker or selling on your own.

According to the National Association of Realtors, newspapers are still the most common source of information for buyers, followed closely by the Internet. The three other most popular marketing strategies: a yard sign, an open house and old-fashioned word-of-mouth.

Tip: Make sure your yard sign says “by appointment only.” You don’t want every Sunday driver ringing your doorbell.

Three inexpensive ways to let people know you’re selling: Print flyers about your house for distribution around town and at your own open house. Put up notices on local bulletin boards—your church or synagogue, grocery store, library and YM or YWCA. Don’t overlook senior centers—seniors have adult children who are in the buying age category. And, finally tell all your family, friends and colleagues that your house is on the market.

6) Line up lenders
If someone falls in love with your now nearly perfect house, you don’t want anything to get in the way of their moving to contract. Getting a mortgage is the most likely obstacle. Although many buyers arrange to be preapproved for a mortgage, just as many do not and haven’t a clue as to where to begin. You can pave the way by contacting mortgage brokers, bankers and other lenders in advance, letting them know your house is for sale.

Offer a list of willing lenders to any serious buyer who does not come with a loan in his or her back pocket. Shortening the mortgage process also shortens the time in which the buyer can re-think his or her decision or look at other houses.

Tip: You may be thinking that you’ll grant the loan. But proceed very carefully. It is difficult for a private individual to check a buyer’s credit. If the buyer becomes delinquent, you may have a hard time collecting. Owner financing should be a last resort, if one at all.

7) Be document ready
Your “within-60-day-sale” is much more likely to happen if you’re organized and have assembled the necessary information. Begin by summarizing the annual cost of maintaining the house for prospective buyers. This dollar figure should include:

Heat & AC
Association dues
Water & sewer
Electric bills
Pool maintenance Trash collection
Insurance
Property taxes
Lawn care & snow removal
Septic tank care

And, be prepared to show invoices for a new roof or furnace, remodeling, additions, septic tank cleaning, removal of hazards and other major expenses.

You want to make your house a thing of beauty to those who come to behold it. If you succeed you will sell very quickly, perhaps in less than 60 days. by Nancy Dunnan

There is a program by Encompass Realty that will even increase your odds in selling you home….
Manny

New book shows how to raise the value of your home
Tuesday, July 13, 2004

If you want to know how to add market value to your home by making profitable improvements, perhaps before putting it up for sale, be sure to read “101 Cost Effective Ways to Increase the Value of Your Home” by Steve Berges. The author, a 25-year home builder and real estate investor, shares the facts about which home improvements are most profitable and which probably won’t increase your home’s market value more than their cost.

As a longtime investor in rental houses, I had a good idea which home improvements were the most profitable. But I quickly discovered from this new book that “visibility adds value.” If the improvement isn’t highly visible (such as foundation repairs), it probably won’t gain much (or any) market value.

Unfortunately, the book doesn’t include a nice, simple list of the most profitable home improvements. Instead, it leads the reader through several chapters listing the 101 cost-effective ways to improve your home’s market value, room-by-room.

Berges has a five-star rating system for virtually every possible home improvement, such as painting (one of the most profitable and least expensive improvements), to attic and wall insulation (one of the most unprofitable improvements).

The author, in my humble opinion, is too generous with his star ratings. For example, he says adding a “powder room” adds a “moderate” three-star increased value to the home because it is a small room with limited visibility. I’d like to know where he gets his statistics. Frankly, very few homes I’ve seen even have a powder room.

But Berges is “right on” with the majority of his evaluations as to how much market value most improvements add. To illustrate, he says room additions add moderate value, meaning they add from 90 cents to $1.10 for each dollar of cost. Based on my personal experiences with room additions, he is a bit on the generous side.

This is an excellent book to consult before making a substantial improvement to your residence. Suppose you are considering spending $30,000 or more to install an in-ground swimming pool. This book could save you from making a major financial mistake.

Berges says swimming pools have a “low impact value.” That means for every dollar spent on a new pool, you will be lucky to add 50 to 90 cents to your home’s market value. Additionally, he cautions pools often detract from home marketability to prospective buyers with small children because of the danger of swimming pools.

If you are getting ready to sell your home, and are considering updating it before listing for sale, reading this book can be very profitable time well spent. To illustrate, Berges recommends adding new kitchens appliances and including them in the sales price even if your kitchen isn’t updated. He rates new appliances as a five-star improvement.

However, some high-rated home improvements are surprising. For example, adding a pantry rates a five-star improvement value rating, according to Berges. Except in luxury up-scale homes, how many homes have you seen that have a pantry for storing food items? As a regular attendee at home builder national conventions, having toured hundreds of model homes, I can’t recall any modest-priced homes with a pantry.

Chapter topics include “Your Home is Your Greatest Asset’; “Required Approvals’; “Everything You Need to Know About Subcontractors”; “General Property and Grounds”; “Exterior Structures”; “General Exterior”; “General Interior”; “Interior Rooms and Components”; “Structural, Heating and Plumbing”; and “Electrical.”

This new book provides a quick and easy resource to determine if a contemplated home improvement will be a profitable investment, especially if you expect to sell your home within a few years. It also provides an excellent guide to which improvements will add the most market value and which should be avoided because they add little or no value. On my scale of one to 10, this superb new book rates a solid 10. By Robert J. Bruss

By Glenn Roberts Jr.

Editor’s note: The housing bubble debate has grown louder in recent weeks. Rather than add to the mix of confusing stories that attempt to decide who’s right and who’s wrong, this four-part series takes a closer at look at the numbers, what’s happening in specific markets and how the media is relaying the message. (See Part 1: Making sense of a changing housing market and Part 2: No agreement on real estate market.)

The buoyant and boisterous boom in housing may be receding in some parts of the country, but there hasn’t been a housing kaboom, according to real estate agents and analysts.

Some markets in Southern California are seeing growing inventories, a slowing in price increases or a longer time on market for homes. And similar trends have been reported in the Boston area and in parts of Texas.

The coastal areas tend to have the most volatility in pricing, said, Robert J. Shiller, an economics professor at Yale University. And “areas that have been through volatility in the past…are markets that will be more volatile in the future,” he said. Local housing markets are in constant flux, and snapshots of markets can quickly become outdated.

Nicholas Buss, a real estate market expert who works at PNC Real Estate Finance in Pittsburgh, Pa., said he has also noted a “coastal phenomenon” in which some coastal housing markets have experienced very rapid price appreciation, though he doesn’t expect rising interest rates to “crater the market. I’m not anticipating that we’re going to see any implosion in terms of home prices or any bubbles to be burst.”

Nicholas Buss, PNC Real Estate Finance
Buss added, “It’s difficult to point to anywhere and say (the housing market) is really sucking wind,” he said. “In many cases appreciation has continued to gain pace.”

Housing market performance can be intensely individual in nature, experts say, and there is considerable debate over the characteristics that define a housing market boom, bubble, bust or burst. There are buyer’s markets that exist during national housing booms and seller’s markets that exist during downturns. And some markets remain largely immune to national trends.

The percentage of households in California able to afford a median-priced home fell to 19 percent in May, an 8 percentage-point decrease compared to the same period a year ago, according to a report released today by the California Association of Realtors.

The May Housing Affordability Index declined one point compared to April, when it stood at 20 points.

The minimum household income needed to purchase a median-priced home at $465,160 in California in May was $108,450, based on a typical 30-year, fixed-rate mortgage at 5.77 percent and assuming a 20 percent down payment. This figure was up from $84,600 in May 2003, when the median price of a home was $367,630 and the prevailing interest rate was 5.62 percent.

In contrast, the minimum household income needed to purchase a median-priced home at $183,600 in the U.S. in May 2004 was $42,810.

At 46 percent, the High Desert region was the most affordable in the state, followed by the Sacramento region at 29 percent. The Santa Barbara region was the least affordable region in the state at 7 percent.

Existing-home sales and new-home sales are expected to reach record highs this year and home prices are expected to grow about 7-8 percent, the National Association of Realtors announced today in an annual forecast that is revised monthly.

The July forecast estimates that the 30-year fixed-rate mortgage will reach 6.7 percent this year. That estimate has been scaled back since last month’s forecast, when the association projected a 6.9 percent rate by year-end.

David Lereah, chief economist for the association, said the expected rise in interest rates is good news for the overall economy. “Corporate profits are up 40 percent from two years ago, so companies are spending and jobs are being created at a strong pace,” he said in a statement.

“In the housing markets, this is largely neutralizing the effects of modestly higher interest rates. In fact, mortgage interest rates will remain very favorable in historic terms for the foreseeable future,” he added. “One concern is for lower-income home buyers who are affected the most by a rise in financing costs – our hope is that the improving job market will provide the means to also afford decent housing at the lower rungs of the housing ladder.”

Existing-home prices are expected to rise 6.7 percent this year to $181,500, while median new-home prices are forecast to rise 7.9 percent this year to $209,600. The June forecast called for existing-home prices to reach $179,200 and new-home prices to reach $210,400.

Existing-home sales are expected to reach a record 6.31 million this year, or 3.4 percent above last year’s record numbers. And new-home sales are expected to rise 6.4 percent to 1.16 million this year. Housing starts, meanwhile, are expected to grow 2.6 percent this year to 1.9 million, the highest level since 1978.

NAR projects the U.S. gross domestic product to grow 4.5 percent this year, unemployment to drop to 5.2 percent, and the Consumer Price Index to rise 2.7 percent in 2004. Inflation-adjusted disposable personal income is expected to grow by 3.8 percent this year, and the consumer confidence index will trend up to 101 in the fourth quart