Mortgage Points- Pro's and Con's

Posted by Sean McAlister | | 0 comments »

Mortgage points are often a confusing aspect of home lending. Getting a first-time mortgage or even a refinance just by itself can be a major undertaking. There is a lot of financial information to grasp and very few places to turn for help in doing so. Sometimes it's hard for many home buyers to work out what is the best option to take.

Many potential borrowers find themselves wondering "what are points on a mortgage," how do they work and why they should be considered. Let's take a look at points and their pros and cons.

First off, a mortgage point, or discount point, is nothing more than one percent of the loan amount. When "points are paid" upfront, it means that a fee is being paid to the lender in advance of the loan. Generally, this maneuver results in a lower interest rate being charged, since the lender is getting part of its interest payment in advance. This payment does not reduce the principle amount of the loan.

For example, if a mortgage is set for $100,000 at 5 percent and 2 points, the borrower will need to pay $2,000 to the lender at the time of closing to enjoy that 5 percent rate. Most lenders offer borrowers the ability to choose a higher interest rate instead of points, which makes it easier to obtain a loan with little or no money down.

The pros and cons of going with points will depend on the individual loan and the personal financial and credit situation of the buyer, but there are some generalizations that can be made in most cases. They include:


Can result in a tax deduction. The IRS sees points, in many cases, as an advanced interest payment. This means these fees might be deductible from income taxes. The rules about how much or how little can be claimed and in what years should be reviewed carefully. On mortgage refinances, for example, the deduction might not be allowed in the year the points are paid.
Can result in a lower end price. If a mortgage is going to be kept for the duration, the end result of buying points on the front end can be great on the back end. When all is said and done, there can be some substantial money savings. It is wise to ask and see a truth in lending statement workup for both scenarios, with points paid and without. This will help show the true bottom line.

The upfront costs for buying a home are often greater when points are included in the mix. On the converse, if points are excluded, a person might have to pay later, but they can enjoy the home in the meantime.
Lost money on resale. If the intent is to keep the home and mortgage for only a short period of time, paying points probably isn't the wisest choice. The few dollars saved in monthly fees likely won't add up to cover the costs in points if a mortgage is closed out within a year or two of origination.
Making the choice between points or no points can be a little confusing. It's best to ask your lender to see a full breakdown of both options before moving forward.

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By Jeff Bater
From The Wall Street Journal Online

New-home sales defied expectations and stopped sliding during July, making a modest increase that gave the beleaguered housing market a little good news.

Meanwhile, demand surged for expensive goods during July in a broad-based increase that topped expectations by a wide margin and included a strong climb in a key barometer of capital spending by businesses.

Sales of single-family homes increased by 2.8% last month to a seasonally adjusted annual rate of 870,000, the Commerce Department said Friday. June new-home sales fell 4% to an annual rate to 846,000; originally, the government said June sales dropped by 6.6% to 834,000.

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The median estimate of 23 economists surveyed by Dow Jones Newswires was a 1.4% decline in July sales to an 822,000 annual rate.

Year over year, new-home sales were 10.2% lower than the level in July 2006.

The sickly housing sector has pulled down U.S. economic growth for six straight quarters. Groundbreakings by home builders in July fell to the lowest level in 10 years. Analysts expect the slump to continue. Lenders are tightening standards for borrowers, which sent up mortgage rates during the summer. Inventories of homes are running high.

Friday's data showed the ratio of new houses for sale to houses sold slipped during July, falling to 7.5 from 7.7 in June. There were an estimated 533,000 homes for sale at the end of July, down from June's 538,000. The median price of a new home increased by 0.6% to $239,500 in July from $238,100 in July 2006. The average price decreased by 3.4% to $300,800 from $311,300 a year earlier. In June this year, the median price was $230,600 and the average was $304,900.

Regionally last month, new-home sales increased 22.4% in the West and 0.6% in the South. Demand plunged 24.3% in the Northeast and dropped 0.9% in the Midwest. An estimated 74,000 homes were actually sold in July, down from 77,000 in June, based on figures not seasonally adjusted.

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Posted by the Asbury Park Press on 08/26/07

If you are selling property now in a market bedeviled by huge inventories of homes and a credit crunch, you could do better if you dumped your real-estate agent.

With a wide range of flat-fee and Internet-based services, you may fare well on your own, yet it's still important to know your options.

For years, homeowners relied upon licensed real-estate agents or brokers, who charged from 5 percent to 7 percent commissions. These middlemen included your home in the industry's Multiple Listing Service and did marketing, advertising and negotiating.

What if you listed and sold the property yourself and avoided the commission?National Real Estate Listings without the Commissions!

According to a recent study, people who used a "for sale by owner" Web site, also known as FSBO, got at least as much for their homes as those who went through a conventional broker.

In many cases, considering the Web site only charged a flat fee, the vendors obtained a higher net selling price than through broker contracts.

Researchers Aviv Nevo and Igal Hendel of Northwestern University, and Francois Ortalo-Magne of University of Wisconsin-Madison examined sales conducted from 1998 to December 2004 through the Web site

Shorter time

Although the study only looked at one Internet service, it noted that listing on the MLS — instead of the Web site — "does shorten the time it takes to sell a house."

The study is welcome news for sellers who want to lower their commission costs and boost net sales prices.

Homeowners could use some help when dealing with the real-estate industry these days. As the revolution in do-it-yourself home selling takes on new forms, it isn't having a significant impact in lowering brokerage expenses.

While housing prices have risen over the past five years, when adjusted for inflation, commissions haven't dropped, even with new services and increased efficiencies in real-estate transactions.

"From 1998 to 2005, U.S. housing prices climbed 37 percent in real terms, and, although national average commission rates appear to have fallen from 5.5 percent to 5 percent, average brokerage fees per transaction rose 26 percent in real terms during the same period," according to a U.S. Federal Trade Commission report published in April.

Industry defenses

The mainstream real-estate brokerage industry has fought discounting in a number of ways.

In 10 states, the industry has succeeded in having "anti- rebate" laws enacted that forbid brokers from discounting commissions, according to the FTC.

Agents typically split their fees with cooperating brokers. In anti-rebate states, no commission discount would be allowed, a practice that clearly hurts home sellers.

Another seemingly anti-consumer tactic is a "minimum-service law" in seven states that requires real-estate brokers to provide specific services.

Local real-estate groups were also accused of restricting flat-fee brokers' access to multiple listing services, which has resulted in several suits against industry organizations by the FTC during the past year.

Right service

Echoing the findings of the trade commission, the Consumer Federation of America, a Washington-based public-action group, found in its own report last year that "the desire of traditional brokers to "double dip' — where one broker collects all of the commission — lies behind all of their anti- competitive actions."

Is greed good when you are desperate to sell a property? Or are you better off avoiding a full-service broker altogether? The answer depends on how adept you are at selling your own property.

If you need full service and your broker can deliver a sale based on his referral network, then it may be worth the commission. If not, you have some options.

"Limited Service" or "Flat-Fee" brokers may charge you as much as $595 for listing or advertising your home. But that's all they are obligated to do.

You can often find a cheaper "MLS-only" package that will only add your home in the industry's listing service. You are responsible for advertising, showing and negotiating.

"Flat-Fee Plus" packages often include negotiating and other assistance for an additional $1,500 or more. You can also upgrade to full service at discounted rates with some online brokers.

Legitimate buyer

Keep in mind that if you take the do-it-yourself route, while your net sales proceeds will be higher, you will have to do much more work and it may take longer to close a sale.

The bottom line is finding a legitimate buyer who is willing to pay the highest possible price. If you have a buyer already lined up or live in a high-demand neighborhood, you certainly don't need a full-service broker.

Should you not feel comfortable marketing your home, brokers with advertising and referral resources may be a better bet. They are also helpful in finding financing.

Although commissions are still too high in an era in which securities and mutual-fund commissions have dropped to practically nothing, there's still the guiding hand of economic self interest that influences who is likely to close a deal.

As the FTC study notes, "brokers have certain incentives to "steer' consumers toward those homes that offer the highest cooperating broker commission and away from homes listed by brokers known to charge discounted commission rates."

ON THE WEB: Visit our Web site,, and click on this story for a link to a bonus William Pesek column.

John F. Wasik, author of "The Merchant of Power," is a columnist for Bloomberg News.

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By David Leonhardt, Vikas Bajaj
New York Times

Published on: 08/26/07

The median price of American homes is expected to fall this year for the first time since federal housing agencies began keeping statistics in 1950.Thinking of Selling Your Home? Let REALTORS® Compete For Your Business!

Economists say the decline, which could be foreshadowed in a widely followed government price index to be released this week, will probably be modest —- from 1 percent to 2 percent —- but could continue in 2008 and 2009. Rather than being limited to the once-booming Northeast and California, price declines are also occurring in cities such as Chicago, Minneapolis and Houston, where the increases of the last decade were modest by comparison.

Home prices in Atlanta —- which rose far less than in some other cities during the first half of this decade —- are essentially flat.

The predicted national reversal is particularly striking because many government officials and housing-industry executives had said that a nationwide decline would never happen, even though prices had fallen in some coastal areas as recently as the early 1990s.

While the housing slump has already rattled financial markets, it so far has had only a modest effect on consumer spending and economic growth. But forecasters believe its impact will lead to a slowdown over the next year or two.

"For most people, this is not a disaster," said Nigel Gault, an economist with Global Insight, a research firm in Waltham, Mass. "But it's enough to cause them to pull back."

In recent years, many families used their homes as a kind of piggy bank, borrowing against their equity and increasing their spending more rapidly than their income was rising. A recent research paper co-written by the vice chairman of the Federal Reserve said that the rise in home prices was the primary reason that consumer borrowing had soared since 2001.

Now, however, that financial cushion is disappearing for many families. On an inflation-adjusted basis, the national median price —- the level at which half of all homes are more expensive and half are less —- is not likely to return to its 2007 peak for more than a decade, according to Moody's, a research firm.

Unless the real estate downturn is much worse than economists are expecting, the declines will not come close to erasing the increases of the last decade. And for many families who do not plan to move, the year-to-year value of their house matters little.

It does, however, contradict the widely held notion that there is no such thing as a nationwide housing slump. A 2004 report jointly written by the top economists at five organizations —- the industry groups for real estate agents, homebuilders and community bankers, as well as Fannie Mae and Freddie Mac, the large government-sponsored backers of home mortgages —- was typical. It said that "there is little possibility of a widespread national decline since there is no national housing market."

In 2005, Ben S. Bernanke, then an adviser to President Bush and now the Fed chairman, said "strong fundamentals" were the main force behind the rise in prices. "We've never had a decline in housing prices on a nationwide basis," he added.

But Global Insight, the research firm, estimates that the home-price index to be released Thursday by the Office of Federal Housing Enterprise Oversight, a regulatory agency, will show a decline of about 1 percent between the first and second quarter of this year. Other forecasters predict that the index will rise slightly in the second quarter before falling later this year.

In all, Global Insight expects a decline of 4 percent, or roughly 10 percent in inflation-adjusted terms, between the peak earlier this year and the projected low point in 2009. In California, prices are expected to decline 16 percent —- or about 20 percent after taking inflation into account.

Since the index began in 1975, it has slipped from one quarter to the next on a few occasions, but it has never fallen over a full year.

Another index dating back to 1950, calculated by Freddie Mac, has also never shown an annual decline. Price data published by the National Association of Realtors, based on the prices of houses sold in a given year, have also never declined. According to the association, the median home price is now about $220,000.

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Planning on Buying or Selling? Find a Local Realtor

Tensions can run high in both the selling and buying of real estate. After all, there is a lot of money and emotion involved! There are also time pressures and numerous privacy issues to deal with. The sale and purchase of real estate can be a lengthy process involving numerous professionals from many fields.

The Real Estate Center at Texas A&M University asked 3,000 Texas home buyers to describe their recent purchase, about 400 replied. Their responses showed how stressful buying a home can be, for buyers and sellers. The Realtors and attorneys who try to keep all tensions at bay in order to complete the transaction also feel the burdens of stress!

"The process is grueling in the best of circumstances, and the severe buyers' market of recent times only increased the stress," says Dr. Jack C. Harris, Center research economist. "In conjunction with Lawyers Title Company, the Real Estate Center asked recent home buyers about their buying experience and what changes they think would make the process more buyer friendly."

The final question on the survey was, "If you could change anything about the home buying process, what would that be?" Almost a third answered the question, and most of them expressed dissatisfaction about some phase of the process.

Understandably some of the complaints were about circumstances beyond anyone's control. This included high prices, interest rates, the lack of listings in a specific area, where they wanted to buy, etc.

However, all of us Real Estate Professionals can learn much from some of the things that WE can, and should, do something about. Many of the folks surveyed felt that the Realtor did not perform up to their expectations. They were especially miffed when the Realtor assumed too much, that they understood what was going on, and didn't keep them well enough informed. In such a pressure cooker of financial and time constraints, the unfamiliar territory of buying and selling a property can be nerve wracking!

Many buyers and sellers need to be reassured and comforted. It is sometimes hard for the Realtor to know which of the dozens or even hundreds of people they are working with at one time need the most attention. Some of the Realtors' clients felt the agent did not take enough time with them. This was true even for some buyers who had a Buyer's Agent under contract to work on their behalf alone.

Realtors should alert and educate their clients, whether they be sellers or buyers, to the complexities and details of the real estate transaction. Some buyers feel that they are rushed through the looking, choosing, buying and settling process, and sometimes they are.

More and more buyers, especially the most savvy ones, are using Buyer's Agents. When there is a Buyer's Agency Agreement signed, most buyers expect far more service. Some feel that they don't always get it. In fact, according to the survey, 70% of those who had a Buyer's Agent wanted even more care, concern and service from their agent than they felt they had received.

The sellers, too, felt they had received too little service, care and attention in many cases, for the commission involved. Some seller's felt that the selling agent was not responsive enough to them, that calls were not returned promptly enough, or that not enough assurance, information, concern and communication was forthcoming from their agent.

Even though it is legally the seller who pays the Real Estate commission, it is really part of the overall transaction. Many buyers feel that they are the ones who are really paying that commission. They feel that the several thousand dollar commission is just tacked onto the selling price by the seller and thus it is they, the buyer, who is ultimately paying more for the property than they should! Buyers often feel that sellers inflate home prices to recover the cost of the commission.

Some purchasers want more contact with the sellers of the property; before, during and after they decide on the property and place a contract on it. Many wanted to develop a relationship with the seller of the property and have direct communication with them between the time of the contract and the settlement. Some felt that an agreement would have been more easily arrived at if the sellers and buyers could have hammered out details in person.

Other buyers had met with the sellers and considered that it had been the biggest error of the entire process. Most folks felt that the insulation of the Realtor(s), keeping the sellers and buyers apart and in communication only via written offers and changes to the contract was appropriate as it gave them the advantage of advice and discussion with their Realtor and time to think and discuss things before responding.
A huge part of the work and value that a Realtor or all the Realtors involved bring to the transaction is the mediation, conflict resolution, refereeing and monitoring of communications between buyer and seller. Often that is a huge and difficult task. Sometimes it is just too monumental to achieve satisfaction on the part of their client. Often it is those clients who are most difficult to work with that are the least satisfied with their Realtor. That is all part of the job we do. We do our best, from our own viewpoint, we try to satisfy the personality of our clients, and usually that is well appreciated!

After all, the natural flavor of a buying and selling transaction is adversarial. The Realtor is like a Gladiator in most cases; going to battle, in an honorable way and according to the rules, on behalf of their backer -- their client. There are many behind-the-scenes conflicts on behalf of clients that never are divulged and shouldn't be. It is the duty of the Realtor to put all parts of the transaction in the best, although truthful, light possible. A Realtor who transfers the natural adversarial animosities between buyer and seller does a disservice to his client no matter which side of the transaction is being represented.
Most buyers and sellers comments on the survey evidenced the importance and value of the agent in the transaction process. However, it is important that all of us Real Estate professionals (especially realtors) learn from our buyers and sellers, especially to responses they give about our profession when they are being surveyed on our service.

From the survey results of the Texas A&M University, Realtor(s )are well advised to learn that respondents praised especially helpful agents. It is reasonable to assume the majority who wrote nothing when asked to comment on any dissatisfaction, on this anonymous survey, were well satisfied with the service they received from their Realtor(s).

"We had a great experience," wrote one buyer. "The agent made all the difference. She kept us well informed almost daily. This was so important to us." While a majority of survey respondents had no comment regarding agents, 85% said they would use or recommend the agent again.

According to the survey report, complaints about the complexity of the home buying process fell into one of three categories: too complicated, too time-consuming or too costly. Many felt the process involved too much paperwork. Undoubtedly, they were reacting to the numerous, lengthy legal forms they had to sign before, during and after the contracting of the property as well as the seemingly almost unconfrontable stack of documents requiring a signature at closing.
It can take a terrific amount of time to find and buy a home. We often work with buyers for months seeking the right home. Some of them we've been working with, staying in touch with, and showing properties to -- for years. Those with some particular interests may find that a "possible" choice for them might only come on the market once in a great while! It is not an easy or comfortable situation for anyone involved, but the finding and buying or selling of a home or property can be made a MUCH more comfortable process with open, full and honest communication between the agent and the client at all times.

Many of our sellers would like us to find a buyer in a week or less for their property. Interestingly enough, it is often the property that is most difficult to find a buyer for that has the most impatient seller.
Even after a property is chosen by a buyer, there is a lot of time and work still needed from all those involved. The time, the continued negotiations, the inspections, reports, and evaluations needed, all the calls and appointments that need to be made on behalf of all parties involved almost always take far more time than anyone not directly involved can realize. This is usually frustrating to everyone. The sellers as well as the buyers often feel they are stuck in quicksand, unable to move or do anything without sinking further into the mire. At the same time -- that same quicksand of details required to complete the transaction seems at times to be filled with alligators ready to bite and take them down anyway. In some ways, that is all too true. And, it is the duty of all the Realtors involved to keep our clients and customers as comfortable as possible during these trying times of details and difficulties.

The Realtor usually spends a good deal of time trying to manage the lender(s) and get the money required to bring the deal to closing. Often this is the most difficult part of the transaction, even when the buyers and sellers are easy to work with. Usually, the first contact with a lender is all roses and sunshine. All too often however, the clouds and thorns of problems are soon evident. Realtors are often fully employed trying to get all the requirements fulfilled for the lender and the purchaser and when those are complete we work to make certain the promised funds are still available, approved and ready for closing, ON TIME.

At the closing, there is another 2% to 3% or, in some few cases, even more of the purchase price involved at closing for each the buyer and the seller. The long list of expensive items often seems too costly to both the buyer and the seller. Some folks find this irritating and feel it to be unfair. Some wonder why there are so many fees and services that find their way to the settlement table and may wonder if the fees and services were even necessary.

The myriad details involved with the finding, selecting, negotiating, contracting and transferring of ownership and funds at final settlement is time consuming, detailed, and often challenging.

People are accustomed to buying most things instantaneously and getting instant gratification for their decisions. Especially for those of us who use the Internet a lot. In a recent survey it was shown that most people who purchase via the Internet want the purchase delivered to them via overnight service. MOST buyers do not appreciate the legal complexities of taking title to real estate. They most often, simply do not understand why it should be so complicated to buy a piece of land or a home, nor do they understand the complexities of getting them approved for the best rate and terms in the mortgage obligation -- even if they have done it before.

The real estate industry has made great and consistent accomplishments in speeding up the entire buying process; from searching via the Web to getting mortgage approvals in sometimes an hour. Even title searches, lien searches, judgment searches and the typing of the dozens of pages of legal documentation has been streamlined with modern devices and techniques. However, there is another bundle of issues that slow the process while the aforementioned have sped it up. The litigious society we live in, the relatively recent and growing list of written disclosure requirements and legal contingencies have adversely affected the time and ease involved. It has limited the progress and speed of the individual parts of the transaction steps at nearly every point.

We, as Real Estate Professionals should, in fact we must, pay special attention and take special care in helping buyers and sellers understand what is going on at each step of the selling and purchasing process. We need to make it clear why the various expenses incurred at closing are ordinary and necessary. We need to alert our clients and customers to the potential consequences of each place where they can be financially and legally harmed or put at risk by cutting corners. We do our best!
Based on every available survey, it is evident that the Internet is growing and soon to be of utmost importance to buyers searching for a home. A review of 37 major search engines showed that Real Estate related searching and use was the third major use of the Internet, world wide. In America, it was second except for a temporary flurry of interest in searching for information on digital cameras which barely put it in third place here also.

The Internet is, however, not the only factor in the overall search. At price ranges of $300,000 and more; about 90% of the first contacts are to a Realtor with an attractive, informative, workable and fast acting Web site. As the price of the home descends, the percentage of buyers using the Web decreases. For homes under $100,000, only about 25% of our personal response is a result of our Web site presence and expertise.
Simultaneously, fewer Realtors instead of more, are finding the Web useful according to our recent survey. The reason is obvious to some of us; most users want sites to be far more informative, more private, and want the sites to have a lot more content. They want more pictures, better descriptions, related sales, crime reports, etc. Some of these things are not even available yet for our market area but the buyers still want them. People would like to rule out those homes they are not interested in before they even contact a Realtor in most cases -- especially for the more expensive properties.

Users want the sites to come up faster and to be more intuitive of their interests and needs. People are also reluctant to show what they don't know as it makes them feel vulnerable. Thus we try to have lots of data on our site so the sellers and buyers can educate themselves before they contact a Realtor.

Some clients seem to realize and appreciate that Realtors are also dependent on other professionals to make the home buying transaction go more safely, more legally proper and in all ways more smoothly. Buyers do expect the agent to keep them informed about progress and to effectively, quickly and professionally handle any obstacles to their goals and purposes in the transaction.

The entire process of selling and or buying a property, especially a home, can be nerve wracking and full of tension for everyone concerned. Some problems are unavoidable, some are unpredictable, some are created out of nothing by some party to the transaction. Many problems can be resolved or avoided if the sales agent provides information, reassurance and support to the buyer.

In the final analysis, it is up to you, the buyer or the seller to be the "squeaky wheel in need of oil" and call, write, e-mail and otherwise let your Realtor know immediately when you feel needy of more communication, care, solace or help. Our job is about 98% invisible to our customers and clients. Even when we tell everyone what we are doing, it is almost always hard for them to believe the time it takes for what seems, to them, a simple task. We usually have a few dozen customers and clients at any one time that we are trying to service as if they were the only person in our professional lives.

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Friday, August 24, 2007

Inman News

The rate of new single-family home sales dropped about 10.2 percent in July and the median sales price rose 0.59 percent compared to the same month last year, the U.S. Census Bureau and Department of Housing and Urban Development announced today.

Sales of new single-family houses in July 2007 reached a seasonally adjusted annual rate of about 870,000, compared with the July 2006 estimate of 969,000. The rate is calculated as a projection of the monthly sales total over a 12-month period, adjusted for seasonal fluctuations in sales activity.

The median sales price of new houses sold in July 2007 was $239,500, compared with a median price of $238,100 in July 2006. Meanwhile, the average price of new homes sold in July 2007 was $300,800, down 3.4 percent compared with the July 2006 average price of $311,300.
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The seasonally adjusted estimate of new houses for sale at the end of July was 533,000, which represents a supply of 7.5 months at the current sales rate. A supply greater than six months is generally considered to indicate a buyer's market.

Statistics are estimated from sample surveys and are subject to sampling variability as well as nonsampling error including bias and variance from response, nonreporting and undercoverage, the agencies noted.

Changes in seasonally adjusted statistics can show irregular movement, and it can take five months to establish a trend for new houses sold. Preliminary new-home sales figures are subject to revision. On average, the preliminary seasonally adjusted estimate of total sales is revised about 3 percent, according to the report.

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By Jeff Bater From The Wall Street Journal Online

Home builders slowed groundbreakings during July, pulling construction to its lowest rate in 10 years as sales keep tumbling and credit tightens, a government report said Thursday.

Housing starts decreased by 6.1% to a seasonally adjusted 1.381 million annual rate, after rising 2.1% in June to 1.470 million, the Commerce Department said. Originally, Commerce reported June starts 2.3% higher at 1.467 million.

July starts were lower than Wall Street had predicted. The median forecast of 22 economists surveyed by Dow Jones Newswires was a 4.6% drop to a 1.400 million annual rate. It was the lowest level of starts since 1.355 million in January 1997.

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The housing sector is a mess. Year-to-year, housing starts were 20.9% below the level in July 2006. Falling demand for new homes and bloated inventories are discouraging builders. They are also worried about tight credit, a fear that has rattled financial markets in the past week and led central banks in parts of the world to rush in with injections of liquidity.

This week, the National Association of Home Builders said its August survey found members' confidence at the lowest since 1991.

"The decline in builder confidence is consistent with our outlook for further construction cuts and a prolonged housing recession," Lehman Brothers said in a note to clients Wednesday.

The Federal Reserve released a survey on Monday examining credit conditions in the U.S. Of the 16 domestic banks surveyed that originate subprime loans, 56% said they have tightened standards on those loans. Of those originating nontraditional mortgages including adjustable-rate and interest-only mortgages, 40% said they had tightened credit standards. The quarterly study of senior loan officers said demand for many types of commercial and consumer loans has weakened in the past three months. And 38% of survey respondents reporting weaker demand for prime mortgages; 44% of subprime issuers reported weaker demand.

The subprime crisis is behind an anxiety that some label a "credit crunch." Fears abound that more and more lenders will grow gun-shy. The phenomenon has been described as a financial contagion leading to a restriction on the availability of credit in world financial markets. The roots of the crisis are in the high-cost money that lenders doled to borrowers with bad credit who wanted to purchase homes. Rising interest rates and falling property values drove up defaults and foreclosures among these homeowners. That caused some lenders to shut down and cost investors billions of dollars in securities tied to subprime mortgage assets. Analysts see an unpleasant impact on the slumping housing market.

"Prospects for future sales remain grim given credit problems in the mortgage market," Lehman's note said. "Builders fear that tighter lending standards and the liquidity squeeze in the mortgage market will limit mortgage availability, further restraining sales."

Thursday's data contained a sign things will get even worse: building permits tumbled 2.8% to a 1.373 million annual rate in July. Economists had expected permits to drop 0.6% to a rate of 1.405 million. June permits fell 7.0% to 1.413 million. Permits, of course, are an indicator of future building activity.

July single-family housing starts decreased 7.3% to 1.070 million. Construction of housing with two or more units fell 1.6% to 311,000; within that category, groundbreakings of homes with five or more units -- or multi-family -- were 2.5% lower.

Regionally, housing starts decreased by 1.3% in the Northeast, 3.7% in the West, and 11.0% in the South. Construction rose in the Midwest, up 2.6%.

Nationwide, an estimated 127,800 houses were actually started in July, based on unseasonally adjusted figures. An estimated 118,600 building permits were issued last month, also based on unadjusted figures.

Jobless Claims Rise
The number of U.S. workers filing new claims for jobless benefits increased for a third-straight time last week to its highest level in two months, suggesting that labor markets continue to soften after tepid job gains in July.

Jobless claims were up 6,000 to 322,000 on a seasonally-adjusted basis in the week ended Aug. 11, the Labor Department said Thursday. Claims for the Aug. 4 week were unrevised.

Wall Street forecasts had called for 1,000 decline last week to 315,000, according to a Dow Jones Newswires survey.

The four-week average -- which economists use to gauge underlying labor market trends -- rose 4,750 last week to 312,500.

Labor markets are being eyed amid growing worries about the availability of credit in financial markets that have led to steep drops in global equity markets. As long as labor markets hold up, economic fundamentals should support growth. But if they start to falter, then consumers could curtail spending, which makes up the bulk of economic activity.

Nonfarm payrolls expanded by just 92,000 last month and the unemployment rate ticked up, though it remains low by historical standards. Thursday's claims figures suggest the underlying trend remains decent, though not as strong it was earlier in the year.

The Federal Reserve last week held interest rates steady at 5.25% for a ninth-straight time dating back to last summer and continued to cite inflation as its primary concern, though it acknowledged some downside growth risks. Officials again cited high resource utilization -- a nod to the tight jobs market -- as an inflation risk.

If labor markets and, in turn, consumption head lower it would likely intensify pressure on Fed officials to lower rates. Futures markets are already pricing in rate reductions as early as next month to alleviate credit crunch worries.

According to the Labor Department report Thursday, continuing claims for workers drawing unemployment benefits for more than a week rose 17,000 to 2,567,000 in the week ended Aug. 4, the latest week for which such data are available. That's the highest reading in four months.

The insured unemployment rate was unchanged at 1.9% in the Aug. 4 week.

There were 33 states and territories reporting an increase in initial jobless claims for the Aug. 4 week, while 20 reported a decrease.

Kentucky had the biggest increase, 4,731, due to layoffs in automobile and manufacturing industries. California reported the sharpest decline, 1,999, due to fewer layoffs in trade and services industries.

-- Brian Blackstone contributed to this article.
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Sean McAlister

In a recent report for homebuyers, all signs suggest that their time is now. In many parts of the country, sellers have finally gotten the message by now, and homebuyers must take the hint. Real estate experts say a switch in the psychology of the housing market has helped buyers to see the silver lining around the market's storm clouds and usher in the fine shopping weather. Two years of stormy real estate markets appear to have created an ideal climate for bargain-minded house hunters who know where to look.

David Lereah, the chief economist for the National Association of Realtors, said that "we are now in a solid buyer's market," also added "It has been a seller's market for many years, but now we are seeing people across the country making deals and bringing prices down."

"What happened was, investors pulled out in droves, and the housing markets went dead," comments Lereah, "When the investors stopped buying, regular buyers got scared." A loss of confidence on the part of real estate investors triggered the psychological switch, he says.

"Now they are making deals," Lereah says, speaking about the dearth of buyers, sellers eventually realized they would have to make concessions on their sale prices.

Mickey Levy, the chief economist for the Bank of America, points out that the market is also suffering from an oversupply of homes created by an overzealous home-builder community. If the downturn was simply a product of a short-term panic, things would likely be back to normal by now.

He says that "While demand is picking up, there is still that large supply overhang," and added "And while the numbers are starting to come up for sales, prices still have a bit to drift before they start rebounding." With a listless housing market, savvy buyers in many markets across the U.S. are finding themselves in the best position they have been in for nearly a decade when it comes to price negotiations.

Levy does warn, however, that not all sellers are in a dealing mood. He also said that "Even though existing-home prices are basically flattish on a national level, I would issue a bit of caution with that number," following up with "Housing is inherently a local market, and national numbers are notorious for not offering an accurate snapshot of what is happening in a particular market.

"On the whole, Levy says to expect prices, on average, to drift slightly lower as a function of clearing out excess inventory. And inventory is the key. So, while prices in Southern California and parts of Florida may be down significantly, other markets may still be enjoying healthy price gains.

SOMETIMES VOLATILITY FEELS good, as demonstrated by Friday's market rally, but by its very nature, what volatility giveth it will also taketh away.

The latest gains, fueled by the Federal Reserve's surprise move to knock a half percentage point off the discount rate that it charges banks for loans, are a welcome relief for the ravaged market. Enjoy it while it lasts. The Chicago Board Options Exchange Volatility Index, or VIX, also known as the "investor fear gauge," tumbled early Friday to near 25 before bouncing back to 29.99 by the end of trading, still miles above its 52-week low of 9.39. There's little reason to think volatility will abate anytime soon.

Tobias Levkovich, Citigroup's chief U.S. equity strategist, wrote Thursday that although investors like to think a fed-funds rate cut will dampen volatility, he believes it would only be helpful if economic conditions don't break down further.

"As a reminder, the surprise Fed rate cut in January 2001 did little to turn the tide, even though it provided some very short-term relief, since the capital spending driven economy faltered and earnings collapsed," Levkovich wrote. "Thus, a Fed rate cut without some willingness to lend money to small business and consumers would equally end up being in vain." The rate-setting Federal Open Market Committee is scheduled to meet next on Sept. 18.


Dow Correction Serves Up Big-Cap Bargains When Less Is More Woes Widen as Countrywide Forced to Tap Credit Line
And as horrible as August has been, historically September is the worst time of the year for average monthly performance. It would be entirely in this market's character to follow Friday's euphoria with another fire sale next week or next month.

The Dow was down 10%, albeit briefly, on Thursday from its all-time closing high of 14000 set on July 19. And even with Friday's rally the industrials are off 1,000 points in a month. In light of recent extreme volatility the Dow appears likely to re-test those lows again soon.

Be fearful when others are greedy, Warren Buffett has said, and greedy when others are fearful. The next time the Dow flirts with 12600, the dreaded, official 10% correction, there are sectors to grab greedily and some of which to remain fearful. (See "Dogs and Diamonds of the Dow" sidebar.)

Firmly on the buy side are some of the Dow's technology stocks. "They're just being indiscriminately sold now and are creating some real bargains," says Art Hogan, chief market strategist at Jefferies & Co.
As growth stocks, tech tends to outperform later in the market up-cycle and this one is rapidly approaching six years. Furthermore, tech stocks with diversified global revenue streams — meaning they're not solely at the mercy of the U.S. economy and consumer — offer the best bets. Surging demand for PCs helped Dow component Hewlett-Packard (HPQ: 47.15, +1.10, +2.4%) report better-than-expected earnings after Thursday's bell. The company also raised its outlook. Just as important, H-P has robust free cash flow and little debt — key considerations in this tight credit environment. And its forward P/E offers a discount to the broader market.

In much the same vein, Microsoft (MSFT: 28.25, +0.44, +1.6%) trades at a discount to the S&P 500 and has no debt. Intel (INTC: 23.70, +0.60, +2.6%) looks attractively underleveraged, but it's forward P/E offers a premium to the broader market. International Business Machines (IBM: 110.90, +1.21, +1.1%) trades at a deep discount to the market, but carries a lot of debt.

After tech, the most promising stocks are to be found in energy, a key overweight sector at Citigroup. "With powerful cash flow, the energy sector is not likely to be burdened with debt and our proprietary valuation work is very supportive for integrated oil and gas names," Levkovich wrote Thursday.
True, Dow component Exxon Mobil (XOM: 84.14, +3.47, +4.3%) is highly leveraged, but it also generated more than $36 billion in free cash in the trailing 12 months. Meanwhile, it's forward P/E offers discounts of about 20% and 15% to the broader market and its own five-year average, respectively.

On the other side of the ledger are the financials. They stand to continue to sell off despite seemingly attractive valuations. "I'm not a real fan of the financials here," says Ed Yardeni, president and chief investment strategist of Yardeni Research. "I think they're going to continue to be distressed and be a source of unhappy news and I think earnings comparisons are going to be tough."

Sometimes stocks are cheap for a reason, and with so much uncertainty as to where the next subprime landmines lay, the risks appear to outweigh the rewards. Remember, the equity markets, trading on emotion rather than deliberation, are the tail. The credit markets are the dog. That puts Dow components American Express (AXP: 58.89, +0.72, +1.2%), Citigroup (C: 48.81, +1.26, +2.7%) and JP Morgan Chase (JPM: 47.01, +1.54, +3.4%) off the buy-on-the-next-dip list, despite deeply discounted forward P/Es. Insurer American International Group (AIG: 65.96, +2.01, +3.1%) offers financial services, as does conglomerate General Electric (GE: 38.45, +1.25, +3.4%). Be wary there, too.

It takes a steely tolerance for risk to buy when everyone else is selling. But that, of course, is when the best opportunities present themselves. "I think that 12 months from now we'll look at some stock prices that we're seeing quoted these days and say that was really a buying opportunity," says Jefferies' Hogan. "It's just very difficult for the average investors to catch those falling knives."

For most folks, finding ways to keep their money growing, and doing so in a safe way, is a mind-boggling process. Investing in real estate is an option most would take a second glance, considering the way property market values are going up today.

However, a lot of think that the path to success in real estate is in buying a handful of rental properties, leasing them out for 20 or so years, and then retire rich with millions in equity and a large, fat cash flow to sustain you till retirement. That notion is however quite true; in 30 years probably, the mortgages on the properties will have been paid off, the said property will have at least doubled or tripled in value, and the rents will be substantially higher than today.

The only one problem with that notion is that you have bills and financial needs today and while achieving a healthy cash flow in 20 years or so is a nice idea, it still doesn't solve today's cash flow concerns. You need to solve today's cash flow problems before worrying about creating long term wealth. If you are like the average American, probably your biggest concern is security.

That is the main reason why so many people today keep working at jobs that they absolutely don't like; because they can't let go of the security that a regular paycheck gives. By investing in good real estate deals, one has the chance of getting good yields in the future, and putting their hard-earned money on good pieces of property could help increase their savings in the long-term.

Investing in real estate has been a usually safe and respectably good investment choice over the last decades. With the housing and property market booming over the last several years, people have seen wonderful rate of returns in their real estate portfolio.

Because of all this, real estate looks to be a safe, secure investment. We constantly hear stories of people making ridiculous returns on their investments; however, what we don't hear is how many people have lost their shirts playing the same game. Real estate investing can be a terribly risky one unless you are well informed of the market's movement and indicators.

Real Estate as a tangible investment

One main reason why many people prefer to invest in real estate over equity markets is that real estate is tangible. You can touch it. If you own shares of a certain company or startup tech firm, the best that you can get is a quote on your screen. It's like being able to drive to a house and say that you own it. It makes you feel more secure. I feel like I have more control when I can reach out and touch something physical.
Less risks, greater returns in real estate investing.

When done properly, one can achieve greater better returns in real estate than on investing in the stock market, without additional risk. In fact, I would argue that you can achieve better returns with less risk. Try getting insurance on your stock portfolio. It will never happen because insurance companies know that real estate is a much safer investment.

Real estate Isn't rocket science

According to investment experts, the greatest advantage of plunking your cash on real estate investments is that you don't have to be a George Soros to make good money in this field. Whenever you try to make money, say for example, in the stock market, you need to understand the technical and fundamental techniques of yields, net asset values and such.

You need to get a firm grasp of stuff like inventory turnover, daily sales ratios, etc. In real estate, it is a much simpler, uncomplicated process. If you have a good real estate broker and you do have basic understanding of a basic financial sheet, then you are all set. A good real estate broker can help you in dealing with all the aspects of land and property investment.

When you are selling any kind of real estate, all you want to know is "when will I get my money and what are the odds that I'll get it?" If you've signed a contract with a qualified buyer for your home, you can be fairly certain that you'll walk away from closing with the money in your pocket. When it comes to selling (or reselling) land for development, the chances of your getting your money at all or getting it by a specified point in time are much less certain.

Once you put your land on the market, all sorts of people start to surface and express interest in your property. Naturally, you assume they're buyers. That's where you've made your first mistake because a fair number of these people have absolutely no intention of handing you money for your property. How can you tell if a land buyer is real or not? Here are some tip-offs.

Scenario A -- You sign an offer from a developer who's willing to pay your asking price and you take your property off the market. Buried among the other contingencies in the contract is a right to assign the contract and a provision giving the buyer 6 months to do due diligence. You don't think anything about that because you are thrilled to get your price, so you sit back and wait.

About 2-3 weeks before the end of the due diligence period, the buyer requests an extension for another 6 months, saying that he's delayed getting site information and sketch plans from his engineer. You sign an extension (hey, still getting your price). Shortly before the first anniversary of signing the sale contract, the buyer gives notice that he's terminating the deal. You're thinking about all of those other buyers who didn't have the opportunity to give you offers because you took your property off the market. It's been a whole year and now you don't even have a buyer. Well guess what? You never had a buyer.

What you had was a speculator. Speculators try to find properties they think they can quickly flip (assign) to somebody else for a chunk of change. So they induce sellers to sign purchase contracts and take their properties off the market by offering to pay whatever the seller is asking. Speculators don't spend any time, effort or money doing due diligence. They spend their effort on shopping the property around to see if they can find someone willing to "buy" the contract by paying them an assignment fee on top of the purchase price the flip buyer would pay the land owner. If they can't find a buyer, they get their down money back and walk away from the deal, just as they did with you.

Legitimate land buyers do need to be able to assign the purchase contract to an entity (e.g., partnership, corporation, LLC) they form to take title to the property and develop it. But you never want to give a buyer an unconditional right to assign. Have your attorney change the provision so that the buyer can assign only to an entity in which they have a majority ownership interest. And buyers don't need 6 months to do due diligence (and certainly not 12 months) unless there are extraordinary circumstances.

Scenario B -- You sign an offer from someone who's willing to pay your asking price and you take your property off the market. Buried among the development contingencies in the contract is a provision that allows the buyer to put signage on the property (ostensibly to market the future new homes) without having to close with you first. This ploy is less subtle than the above but could produce equally bad results for you.
Time keeps dragging on and you keep wondering if settlement will ever occur. And the buyer keeps telling you that he can't close with you yet because he still hasn't satisfied all of the contingencies in the purchase contract (subdivision approval, utility permits or whatever). This buyer may be using the signage to attract a flip buyer. Alternatively, he doesn't want to close with you until/unless he's able to get pre-sales (deposits or sale contracts) of the lots. Either way, you could lose. You might have to wait a long time if there are many lots or the buyer is asking too high a price. If a flip buyer doesn't materialize, your deal could die.
You want to keep buyers motivated to get to closing, not delay it. If you allow the buyer's signage on your property without them going to closing, you are only encouraging them to put off the settlement as long as possible. You could even be giving buyers an excuse to terminate the deal when all they really want to do is flip the property.

Buying land can be a very confusing ordeal. There are many reasons to buy land. Some people buy for investment, some buy to live on the property. No matter why you buy land, we all want to make money with the property in the long run. Here are a list of tips and tricks to help you in the process. These tips are from Max Mosko. Max Mosko has been buying and selling land for over 40 years.
1. Make sure you have electricity in front of the property, or at a minimum 1/2 mile from the property. Its could cost over $2000/pole to bring power to your site.
2. In most cases, you can only build one home per lot. Dont think that if you buy a 100 acre parcel, you can build a whole community. Check with your local zoning office on land use.
3. Try to avoid buying swamp land. Also try to avoid buying low land.
4. One acre home sites can cost 90k. 100 acre home sites could cost 100k. Your better of buying the larger parcel. One day it may be of great value.
5. If you need to get zoning help, see a local in town lawyer. They have have extra pull in their township.
6. If you live in a cold climate, don't expect to sell you raw land in the harsh winter, when its covered with snow.
7. Don't invest more than 2-3 hours away from where you live. It make every step of the buying/selling process more difficult.
8. Make sure you can build at least one home on your property, otherwise it may not be of any value.
If your looking to purchase land, feel free to contact us. We sell land throughout Canada and the USA.