Real Estate New York

Market Update April 2008

Capital Region Sellers Negotiating

After years of sellers often getting more than their asking price the first months of 2008 have seen a return to the bargaining table by area sellers.

However, as we can see from the Market Update stats for the preceding months, average prices for area homes have not declined significantly (average $231,249 Mar. 2007 to $226,316 Mar. 2008) as confirmed by Office of Federal Housing Enterprise Oversight (OFHEO). They most likely will not. This is because:

The Capital Region has never been overpriced as is the case in many formerly hot areas of the county. The area's solid economic base prevents market upheavals. Even in the down years of the early 90's most areas retained their value, though appreciation slowed to 4% to 5% as opposed to the 15% to 18% normally seen in a hot seller's market.
Owners often owe most of the value of their property. In the liberal lending years most buyers mortgaged between 95% and 100% of the value of their home. This means that for an owner to take even a 10% loss in value they would likely be forced to sell short to pay off their mortgage. In other words, an owner would have to bring money to the closing table to essentially pay someone to buy their home. 1

Homes are rarely mispriced. Before computers it occasionally happened that an agent would misprice a home—usually too high but occassionally too low. The computerized Competitive Market Analysis (CMA) based on recent similar sales has made market pricing so easy, accurate, and up to date, that this rarely happens. And when it does, agents themselves often buy the property to flip for a qiuck profit. 2
Agents know for sure when a home is overpriced simply because it isn't selling. When this happens they get a price reduction--if possible. In terms of the seller's bottom line, this is a much better strategy than to accept a low offer because a price reduction below market value generates renewed interest and usually a surplus of buyers in competition with each other.

The good news is that for the first time in years some owners are ready and willing to negotiate. But while we are most definitely in a buyers' market--for the moment--overly optimistic expectations of catastrophic price reductions are unlikely in our area.

Therefore you can pretty much count on getting what you pay for in Capital Region homes.

Just the same, the real bargain is the home that's right for you and your family and the one that has a high potential for appreciation.

This is where real money is made. In the last few years, seller's who bought low and sold high often netted an impressive return on their investment as much as 150% to 400%. A home that is worth the money now is very likely to be much more valuable down the road. This is the major benefit of living in an area with sound economic fundamentals supporting a strong, stable housing market.

1. For instance, if an owner owes $295,000 in mortgages &/or home equity loans and sells the home listed at $300,000 for 10% less or $270,000 they would have to provide $25,000 from their own funds for a short sale. This is true even if the home only has its original mortgage that has been paid down for several years because the first years of amortization pay mostly interest and only a tiny percent of the principal.

2. This is typical of larger companies where listings are sometimes held off the market to give their agents the first opportunity to buy. At Real Estate New York we never hold properties off the market in this manner.

Home Sales Up Across the Country

The American housing industry got some unexpected good news on Monday (March 24th) as falling home prices seem to be encouraging buyers to return to the battered market.

The National Association of Realtors reported the results of its latest housing survey on Monday, beating Street expectations. The report showed sales of existing homes increased by 2.9%, to 5.03 million units in February, from 4.89 million in January. According to Thomson Financial, the Street had expected a decline of 0.8%, to 4.85 million units.

Although February's numbers are still well below the all-time high of 7.072 million units set in 2005, the increase shows that the housing crisis may be waning.

“We're not expecting a notable gain in existing-home sales until the second half of this year, but the improvement is another sign that the market is stabilizing,” said Lawrence Yun, chief economist of the Realtors association.

Home Styles: NeoClassic

A well-publicized, world-class event can inspire fashion for years. At least that's the case with the 1893 World's Columbian Exposition in Chicago, which showcased cutting-edge classical buildings that architects around the country emulated in their own residential and commercial designs. The Neoclassical style remained popular through the 1950s in incarnations from one-story cottages to multilevel manses. Its identifying Ionic or Corinthian columned porches often extend the full height of the house. Also typical: symmetrical facades, elaborate, decorative designs above and around doorways, and roof-line balustrades (low parapet walls).

Last Minute Home Owner Tax Primer

As April 15 approaches, here's what home owners need to know about the deductibility of mortgage interest and property taxes.

Taxpayers may deduct on Schedule A of Form 1040 mortgage interest on the purchase or home equity debt on two residences, their primary home and another dwelling, including a boat or a mobile home. These dwellings must have sleeping, cooking, and toilet facilities to qualify for a loan interest deduction. Interest paid on vacant land isn't deductible.

Real estate taxes are deductible on all properties owned by the taxpayer — not just the first two. The deduction must be taken in the year the taxes are paid. Taxes placed in escrow are deductible when they are paid to the taxing authority, not when the money is put in escrow. Penalties and interest on late tax payments aren't deductible.

Also, in order to deduct taxes and interest, the taxpayer must itemize instead of taking the standard deduction.

Source: Houston Chronicle, Shannon Buggs (03/27/08)

Local Democrats Cheer HUD Secretary's Exit

Among New York politicians, there was little sympathy over the resignation of Alphonso R. Jackson as the secretary of the United States Department of Housing and Urban Development.

Senator Hillary Rodham Clinton , who has tried to make the mortgage crisis a centerpiece of her campaign platform as she seeks the Democratic nomination for president, said in a statement:

Secretary Jackson's resignation ends a tenure at HUD marked by an indifference to Congressional oversight powers, cronyism, and corrupt contracting practices that have no place in our government. Yet while Secretary Jackson's resignation is appropriate, it does nothing to address the Bush Administration's wait-and-don't-see posture to our nation's housing crisis, which is threatening to drive our economy into a painful recession.

Now is the time for immediate action, not more half-measures and white papers. While I appreciate the Administration's willingness to acknowledge the need for more regulation of our financial markets, we cannot let a discussion about rearranging the regulatory deck chairs divert us from the fact that our housing and credit markets are in crisis, and are sinking deeper every day that we fail to take aggressive action.

That's why today I am outlining immediate steps we can take to shore up the housing and credit markets, restore confidence in our regulatory infrastructure, and keep millions of families in their homes. These include smart, near-term regulatory changes that are calibrated to the actual crisis we face. And they include aggressive actions to help restructure at-risk mortgages and keep millions of families in their homes.

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$200 Billion Added to Mortgage Pipeline

Regulators are lowering capital requirements for mortgage finance firms - a move that could pump hundreds of billions more into mortgage market but raises risks.

An additional $200 billion in financing is headed to the battered mortgage markets after federal regulators Wednesday said they would allow finance giants Fannie Mae and Freddie Mac to reduce the capital they keep on hand.

The move is the latest attempt by policymakers to ease the housing crisis, although it raises risks faced by two government-sponsored firms that are crucial to the functioning of global financial markets.

in Addition, Congress recently raised the limits for the loans that Fannie and Freddie can buy or insure up to $729,750, increasing the risks for the firm and the demands on their capital.

The new loan rules were seen as a necessary step to end the credit squeeze that has hammered home values across the nation and caused billions in losses and writedowns on Wall Street, raising the risk of a recession.

The lower capital limits are important, not just for the additional $200 billion they make available, but for the change of thinking it signals in the Bush administration, said Jaret Seiberg, financial services analyst for policy research firm Stanford Group.

"The psychology is quite critical here," said Seiberg. "There is now an increasing view in the market that the administration understands the seriousness of the crisis and is willing to take steps it previously dismissed."

Treasury Secretary Henry Paulson's Blueprint for Modernized Financial Regulatory Structure

WASHINGTON, Mar. 31, 2008 The Treasury's 'Blueprint for a Modernized Financial Regulatory Structure', which Secretary Henry Paulson formally presented this morning, includes only a few immediate steps and he emphasized that it is not a response to the current credit crunch or turmoil in financial markets.

"This will not be a small or easy effort," Paulson said. "'With few exceptions, the recommendations in this Blueprint should not and will not be implemented until after the present market difficulties are past."

The Treasury's most urgent priority is working through the housing downturn and market disruption and it will remain so until the problems are resolved.

What this means to Capital Region home owners is that although the Fed will respond to the abuses such as those leading to the present sub-prime mortgage situation, it does not intend to implement drastic government intervention nor provide tax payer funds to bail out present unsound lenders.

Market Update

Market Statistics as of April 1, 2008

This graph represents average sale versus list prices

March stats show an upturn in the average selling prices while the average asking price increased as well, while the difference between what sellers are asking and what the buyers are paying remained the same at 96.57%

However, while the average March 2008 asking price was nearly identical to what it was a year ago, the average selling price was less by nearly $5,000. This indicated the willingness of area sellers to negotiate.

Mortgage Rates and Trends

The link to up to the minute New York State mortgage information seems to work better than presenting the actual graph.

Click for up to the minute mortgage rate information

Buyers' versus Sellers' Market Report

The graph above shows the number of sales in a given month divided by the number of homes on the market in the four main counties of the Capital Region. And it looks like the market has turned back towards a seller's market.

As you can see, in October we were in a balanced market. As of December 1, the market turned back toward favoring the buyer. This upturn in buyer fortunes continued unchanged as of February 1, 2008 but for March the trend is back towards a sellers' market, though buyers are still calling the tune for now.

*This ratio can be used to determine whether we are in a buyers' or sellers' market as indicated in Dennis Maier's article on Market Timing featured in eZine Real Estate. In general, if it would (theoretically) take less than 6 1/2 months to sell the current inventory it's a sellers' market. If it would take more than 9 months to sell all the homes on the market it's a buyers' market.

How LOW Can You Go?

We're often asked what a reasonable offer would be for a given property. Unfortunately, there's no easy answer. Much depends on the seller's motivation and their expectations for the coming market.

A seller must ask themselves before they accept an offer whether they can reasonably expect to get more from someone else down the road and can they pay off their mortgage plus have enough left over for the next home.

In addition, the terms of an offer often outweigh the dollar amount, so these must also be factored in along with the overall characteristics of market at the time.

What we generally tell buyers is that on average the Capital Region runs between 94% and 102% asking price to selling price. (March 96.57%) This has remained true for the last ten years at least.

The good news is that any home buyers eventually own will most likely not only hold its value but appreciate nicely in the stable Capital District real estate market.

However, a more accurate answer would be to say that although the average is 96.5% some buyers pay more than the average and some less. So an offer below 96.5% of the asking price is still not out of the question.

This answer still falls short when the time comes to make an offer that has a good chance of being accepted.

What we've done is to assemble statistics that list the amounts homes sold for and the percentage of the asking price each received for the year to date.
Click the graph to view a larger version.