It looks like the housing boom is finally over. If you buy now, the risk is high risk that you’ll get zero or negative returns on your investment over the next few years. What, then, should you do?

Easy – focus on affordability. If you can, choose a house in a market where prices haven’t gone through the roof, whether it’s Buffalo, N.Y., in the Northeast; Atlanta in the Southeast; Youngstown, Ohio, in the Midwest; San Antonio in the Southwest; Yakima, Wash., in the Northwest; or Riverside, Calif., in the West. You’ll get more living space, and you won’t have to worry so much that a financial setback such as a layoff will leave you unable to pay the mortgage

Sure, affordability has always been important. But in boom times, homebuyers were willing to stretch their finances to the limit because they figured the more house they owned, the bigger the gains on it would be. What’s more, they reasoned that if they did lose a job and had to downsize, they could sell their house and pay off the mortgage with money to spare.

GOOD INFO. That’s no longer a sure thing now that the boom is fizzling. The pace of home sales slowed sharply in October, according to a national survey of brokerage firms by Real Trends, a Littleton (Colo.) real-estate consulting firm. A slowdown in deals is what happens when buyers cut their bids, but sellers aren’t yet prepared to lower their asking prices (see BW Online, 11/9/05, Red Alert, or a Wake-Up Call?").

So how do you find an affordable market? One good source of information is the National Association of Realtors’ quarterly report on the median sales price of single-family homes in 147 of the nation’s biggest metro areas. The report for the third quarter was released on Nov. 15.

The median price is the one that cuts the market in two – half the homes sold for more than that price and half for less. The cheapest metro area in the Realtors’ report was Danville, Ill., where the median price in the third quarter was $72,800 – a level that’s scarcely imaginable to people house-hunting in, say, San Diego, Miami, or Boston. You can scan the Realtors’ listings to find relatively inexpensive markets in every part of the country, although the West on the whole is the least affordable region.

LONG-TERM VALUE? Remember, too, that often the cheapest houses lie outside the metro areas entirely. As prices rise, many people are buying in the exurban fringes of big cities – getting affordable housing in exchange for long commutes. In the New York area, one such frontier is Pike County, in northeastern Pennsylvania across the state of New Jersey. It’s a 2½-hour drive each way, but for people who can telecommute, it’s an option. In greater Los Angeles, the closest thing to a bargain is the fast-growing Inland Empire of Riverside and San Bernardino counties.

Of course, most buyers also hope that the place they buy will hold its value, even if it won’t appreciate much in the short term because of a softer national market. One of the best measures of whether a given market will hold its value is a quarterly assessment done jointly by economist forecaster Global Insight and National City, a Cleveland-based bank.

The assessment looks at how prices in 277 markets compare to their historical trends, figuring in such factors as the ratio of local home prices to local incomes. (The measure takes into account the fact that some markets, like Honolulu, tend to have high price-to-income ratios over very long stretches of time, indicating that those ratios are apparently sustainable.)

DRAMATIC VARIATIONS. By the Global Insight/National City measure, the best bargain in the country is College Station, Tex., home of the Texas A&M Aggies. Home prices in College Station are 20% under what history says they should be, given incomes, mortgage rates, and other relevant factors, the analysis says. At the other extreme, Naples, Fla., comes out most overvalued – at 79% above its trend. Although those numbers have been updated only through the second quarter, they don’t tend to vary abruptly from month to month.

Now, let’s scan the country to look for bargains. As you’ll see, prices vary dramatically region by region. While Springfield, Mass., looks cheap compared to nearby Boston ($218,000 median single-family home price, according to the Realtors, vs. $431,000 in Boston), it’s still way pricier than Springfield, Mo. ($122,000) or Springfield, Ill. ($112,000).

NORTHEAST: As elsewhere in the country, the closer you are to the coast, the more you’re going to pay for housing. And large metro areas with strong economic growth, like New York and Boston, fetch high prices. By the Realtors’ measure, upstate New York is quite cheap, however. The median single-family home price is $104,000 in Buffalo, $120,000 in Rochester, and $118,000 in Syracuse. Albany, the most easterly of the upstate cities, is also the priciest at $193,000. But that’s still well shy of metro New York at a median of $534,000.

Bargains are scarce in New England or New Jersey. Pennsylvania still has some inexpensive cities – headed by Pittsburgh at $123,000. Buffalo, Rochester, Syracuse, and Pittsburgh also look good in the Global Insight/National City rankings, coming up as undervalued at current prices.

SOUTHEAST: For a big city, Atlanta looks pretty affordable in the Realtors measure, at $171,000 for a median single-family home. You could do a little better in Memphis at $145,000. Florida, once a cheap place for Northerners to retire, is no longer a bargain, although Tallahassee on the Florida Panhandle is reasonable at $164,000 for a median home. Undervalued Southeastern and Southern cities, according to Global Insight/National City, include Albany, Ga., Baton Rouge, La., Charlotte, N.C., and Columbus, Ga.

MIDWEST: This is the country’s cheapest region, going by the Realtors’ median data. Detroit’s median price is $172,000, Cleveland is $147,000, St. Louis is $148,000. Even cities that have done relatively well in recent years are reasonably priced: Columbus, Ohio, is $157,000. Among the cities that register as undervalued with Global Insight/National City are Cedar Rapids and Des Moines, Iowa, and Indianapolis, Ind. But Detroit, despite its low prices, is 20% overvalued by this measure.

SOUTHWEST: No doubt about it: If you want a housing bargain in the Southwest, head for the Lone Star State. The housing boom seems to have passed right over Texas. According to the Realtors’ data, median prices are $147,000 in Dallas, $145,000 in Houston, and $138,000 in San Antonio. Those are remarkably low for large cities with healthy economies. It’s no surprise that these cities also show up alongside College Station, Tex., as substantially undervalued in the Global Insight/National City study. Dallas, for instance, is 13% undervalued.

NORTHWEST: Prices in the Northwest have been driven upward by proximity to California, so great deals are scarce. The median price in Portland, Ore., rose 20% and edged ahead of its sister city in Maine this past year, $254,000 vs. $249,000. And the Seattle area (home of all those Microsoft millionaires) has a $325,000 median.

As elsewhere in the country, the smaller cities have the lowest prices: Yakima, Wash., has a $141,000 median, while Kennewick-Richland, Wash., is at $157,000. One good choice is the charming city of Boise, Idaho, which isn’t only cheap – $148,000 median price – but is roughly fairly valued in the Global Insight/National City study.

WEST: You’d be hard-pressed to find a bargain anywhere in California, which is probably the most overvalued state in the Union. In the San Francisco metro area, the median price is $722,000. (enough for an entire neighborhood in Danville, Ill.) Even the state’s cheapest metro-area housing ain’t so cheap – the Inland Empire east of L.A., at a median price of $387,000.

If you love inexpensive Western living, a good bet is Salt Lake City at a median price of $181,000. By contrast, Denver clocks in at $253,000, Phoenix at $260,000, and Las Vegas at $313,000. Utah also comes out best on the Global Insight/National City value monitor, with Salt Lake, Provo, and Ogden all looking fairly valued or even undervalued at today’s prices. Want to take a house tour? Check out our search for Affordable Homes Under $500,000 region by region.Peter Coy

Encompass Realty
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WASHINGTON — Existing home sales set another record in the third quarter of 2005, and prices jumped nearly 15%, but even the National Association of Realtors in its report Tuesday said the housing market will probably begin cooling after its five-year boom.
Sales of single-family homes and condos rose to a 7.24-million annual pace in the July-September quarter, up 6.5% from a year earlier. At the same time, 69 of the 147 metropolitan areas studied had double-digit price gains, as the median price of a single-family home climbed 14.7%, year-over-year, to $215,900. That means half the homes that sold nationwide went for more than that, half for less. (Chart: Median prices in 150 metro areas.)

David Lereah, the Realtor’s chief economist, predicts the heady gains will cool as interest rates rise.

“We’re fairly confident that third-quarter home sales will prove to be the high point of the five-year housing boom,” Lereah says.

There are scattered signs that the housing market has already begun to slow. Interest rates on 30-year fixed-rate mortgages are now running about 6.3%, compared with 5.89% in the third quarter. The inventory of new and existing homes on the market is rising.

Still, DataQuick Information Services released a report Tuesday showing Southern California’s housing market remained strong in October. A total of 28,489 homes were sold during the month — a roughly 10% drop from September, but a 1% gain from a year ago.

“The big question is still whether … the real estate market will end this cycle with a crash or with a soft landing,” says DataQuick President Marshall Prentice, calling the latter outcome more likely.

The NAR said Phoenix had the most robust price gains in the third quarter of 2005: The median home price soared 55.2% to $268,000 from the same period in 2004. In Orlando, home prices rose 44.8% to a median $261,300, while Cape Coral-Fort Myers, Fla., saw a 42.5% price gain to $277,600.

Median prices ranged from $72,800 in Danville, Ill., to $721,900 in San Francisco. Elmira, N.Y., and Decatur, Ill., were also among the least expensive markets, while Anaheim, Calif., Honolulu and San Diego ranked with San Francisco as the priciest.

Six areas had small price drops during the period, though the Realtors said the weakness was concentrated in lower-priced cities with large inventories of unsold homes, a weak job market or both.

The housing market has been a main economic driver, buoying the job market and boosting consumer spending as owners have extracted hundreds of billions in equity. High Frequency Economics says that even a slowdown to more traditional rates of home construction could shave 2 percentage points off annual economic growth, now running at a 3.8% pace

Attendtion Sellers !

If you are selling your house right now in Arizona, I have some news for you.

The real estate market is NOT a SELLERS MARKET right now.

Inventory has almost reached last years levels and that means, check your market vaule…

Right now I am getting lower than list price with seller contributions to Buyers closing cost.

So if you don’t have to sell, I would just wait 120 days… unless you have a property in certian cities, like Gilbert…

Reality check this 3rd week in Jan. 2006 of which will determine the next 6 months.

Encompass Realty
Encompass Realty, Encompass Mortgage, www.encompassrealty.com, www.encompassmortgage.net, www.encompassmortgage.org, Arizona commercial mortgage loan, Arizona residential mortgage loan, Commercial Loan, Residential Loan, Arizona Real Estate, Arizona real estate loans

Home buyers can’t ask too many questions before purchasing. The better informed the buyer is, the greater the probability the home will be a long-term, satisfying purchase. But home buyers who fail to ask key questions and only discover problems after purchase may have little practical recourse. Here are five of the toughest questions to ask a seller.

Why are you selling your home?

The reason it is important for buyers to know why the seller is selling is to determine how flexible and motivated the seller will be with price and terms. As a buyer, it is shocking to discover how many listing agents either don’t know the seller’s true reason for selling, or they pretend they don’t know.

Sometimes, it is none of the buyer’s business why the seller is selling, such as a divorce or family problems. But often it is vital for the buyer to know the true reason, such as when there is a pending foreclosure and the buyer must be able to complete the purchase before the foreclosure sale deadline.

My favorite reason for a home sale that I love to hear is: “The seller is retiring and moving to Florida (or Arizona, Texas, or wherever).” Then I know there is an excellent chance the retiree seller will carry back a first or second mortgage for extra retirement income.

If a house or condo has been listed for sale more than 90 days, chances are the seller is not highly motivated to sell. But when a house has been listed for sale a long time, it becomes a “tired listing,” which often creates a negotiation opportunity with little competition from other buyers.

How did you determine the asking price?

Smart home sellers and their listing agents set the asking price based on recent sales prices of nearby comparable homes. But some home sellers, especially do-it-yourself “for sale by owners,” set their asking prices based on their purchase price, plus capital improvements added, plus the inflation rate, or some other nonsense method that bears no relationship to actual market value. Still other sellers irrationally set their asking prices at the total cash they need to pay off their mortgage(s) and other debts.

Naive home sellers don’t realize most buyers are not dummies. Buyers often know vast details about competitive homes, which sellers haven’t even inspected. That’s why it is so important for serious buyers to inquire of sellers and their realty agents how the asking price was established to discover if it is realistic or plucked from air.

What was your purchase price?

If the home was purchased many years ago at a price far below today’s market value, the seller has lots of room to negotiate. However, if the purchase price was close to today’s current market value, then the seller will usually be inflexible negotiating the price and terms.

Occasionally, the seller overpays for a home at the time of purchase. This is especially true for luxury homes for which there is limited buyer demand. These overpriced residences often languish on the market unsold for many months until the seller becomes motivated to sell at the current market value even if it’s a loss.

Even when a home seller or the listing agent refuses to tell a serious buyer the purchase price, it is still possible in most communities to discover this information at the county recorder’s office.

Another source is the local tax assessor or the tax collector’s office. Depending on how local property taxes are established, the purchase price will usually be part of the official records. Many cities and counties now have this information available online.

What home defects have you reported on the disclosure statement?

If you are buying a house or condo that is listed for sale with a professional realty agent, then the agent should provide you with a written defect disclosure statement from the seller as part of the listing procedure.

Many states, by law, now require home sales defect disclosure statements to prevent future lawsuits for misrepresentation. Even in states where written disclosures are not required, smart sellers and their realty agents voluntarily provide defect disclosures to prevent future legal problems.

Smart home buyers need to know the defects of which the seller is aware to take into consideration when making a purchase offer. Of course, a home purchase offer should always provide a contingency for the buyer’s approval of their professional inspector’s report, just in case the seller “forgot” to reveal any defects.

After the buyer’s purchase offer is accepted by the seller, if it contains an inspection contingency clause and that inspection reveals unexpected defects, the buyer has several choices: (a) a repair credit can be negotiated with the seller, (b) the buyer can cancel the purchase and obtain refund of the good faith deposit, or © proceed with the home purchase anyway.

Home buyers, and their buyer’s realty agent, should always accompany their professional inspector to discuss any problems discovered. What looks like a serious defect often turns out to be unimportant after the inspector explains it to the home buyer.

Are there any current or planned off-site facts that will affect this home?

The listing agent, home seller and the buyer’s selling agent should be aware of any significant off-site facts that affect or might affect the home such as a nearby airport that has a flight path over the home or a planned street-widening project that will take some of the front yard away from a home.

Conclusion

Just remember, every home has drawbacks and no home is perfect. However, home buyers who ask these tough questions in advance will likely maximize their long-term satisfaction with their new home. Inman News