First-time buyers find deals, help perk up house sales

Stephanie Armour
USA Today

Kelly and Jim Butler paint a room in their new home in Stratford, Conn. They paid $213,000 for the foreclosed home, $76,000 less than the previous owners. By Amy C. Etra for USA TODAY

Kelly Butler just got a bargain.

Sure, her new three-bedroom home came with fake barn wood nailed to the bathroom walls, carpet that had to be ripped up, broken closet doors and a need for plumbing and tile work.

No matter. Butler, 27, and her husband, Jim, 28, represent the new face of today’s home buyers: first-timers who are snapping up distressed homes and fixer-uppers that are being sold at bargain prices.

Up to 45% of homes being purchased today are in that category, according to an April report by the National Association of Realtors (NAR) — and that’s a major force driving existing home sales. First-time buyers accounted for more than half of all home sales in March, with activity concentrated in lower price ranges. But there is a troublesome side, because sales of foreclosed and other distressed homes tend to drag down overall home prices across the USA. These properties typically sell for 20% less than traditional homes.

Economists tracking the beleaguered housing market say these first-time home buyers represent a critical demographic that could help lead the industry out of its doldrums by buying up much of the excess inventory of homes that is drawing down home values nationwide. And in one promising sign, the inventory of unsold homes is starting to shrink. Total housing inventory at the end of March fell 1.6% to 3.74 million existing homes for sale, which represents a 9.8-month supply at the current sales pace, compared with a 9.7-month supply in February.

The Butlers have been fixing up their home since they moved in on Jan. 31. They plan to paint the brown exterior a cheerier white, with blue shutters. For 3% down, they got the foreclosed home in Stratford, Conn., with three bedrooms and two baths for $213,000 and a fixed loan at a 5.5% interest rate. The price was about 35% less than the previous owners paid a few years ago.

“Yeah, it’s a little scary from the outside,” says Kelly, an operations manager at The Regus Group, which rents office space. “But these fixer-uppers are really selling. There were even bidding wars. All these people were fighting for these houses.”

The hope among housing experts is that interest in millions of such properties across the nation will rise because of low interest rates, a tax credit for first-time home buyers of up to $8,000, and home prices that have sunk in some markets by more than 20%. Distressed homes are moving fast because they often sell below market value.

“In the open houses, many first-time home buyers are walking through,” says Lawrence Yun, chief economist at NAR. “It’s a very good sign that first-time home buyers are responding to tax incentives and historically low interest rates. I’m hopeful. This all points toward improving market conditions.”

An unwanted side effect

Signs that buyers are jumping off the sidelines to purchase distressed properties is a welcome indication that sales overall could pick up. But sales at these low prices are having the unwanted side effect of drawing down home prices across the board.

Although prices rose from February to March, the national median existing-home prices for all housing types was $175,200, down 12.4% from March 2008, according to NAR, which attributes much of the downward pressure on prices to the sale of distressed homes.

And there are potential risks to home buyers, who may leap at the good prices on distressed properties only to find they lose any cost savings because the homes need so much work. The national average cost of a bathroom remodel in 2008-09 is nearly $16,000; a major kitchen remodel runs more than $56,000, and replacing a roof is $18,825, according to Hanley Wood, which analyzes the housing industry.

“It can become like that movie The Money Pit,” says Leif Thomsen at Mortgage Master, a provider of mortgage services. “These first-time home buyers getting distressed properties can easily get in over their heads if they don’t know what they’re doing. We strongly recommend against buying any home at auction, because you can’t inspect the property first and have an inspection. There are real risks.”

The shift toward buying distressed properties does have an upside: In areas hard hit by foreclosures such as Florida, California and Nevada, some neighborhoods peppered with boarded-up homes with overgrown lawns now are showing signs of revitalization.

Florida was among the 10 states with the highest foreclosure rates, according to an April report by RealtyTrac. Despite a 12% decrease from the previous quarter, Florida‘s first-quarter total of foreclosures was still the second highest in the nation.

Foreclosure filings were reported on 119,220 Florida properties, a 36% increase from the first quarter of 2008. The state posted the nation’s fourth-highest state foreclosure rate during the quarter, with one in every 73 housing units receiving a foreclosure filing.

Some houses that were in foreclosure had previous owners who took everything that wasn’t nailed down, so the homes have had sinks ripped out, baseboards missing and wires dangling where light fixtures used to be; some banks that own the homes have gone in first and done some fix-up work, such as installing sinks, to spur sales.

Those distressed properties and low prices are boosting sales, with NAR reporting home sales higher than a year ago in Florida.

“What I’m seeing is incredible. At ground zero in Florida, my business has tripled overnight,” says Suzanne White, an agent at ZipRealty in Tampa. “There isn’t grass overgrown and mosquitoes all around in these neighborhoods anymore. First-time home buyers are saying rates are so low they can pay less than rent. The bank-owned properties are getting multiple offers and selling higher than asking price.”

Sacrifices for fixer-uppers

Financing isn’t as easy to get as it was during 2006, the peak of the housing boom. Buyers need good credit and a solid income that can be documented, and they need to be prepared to put money down.

The median down payment by first-time buyers was 4% in 2008, up from 2% in 2007, according to NAR. Many are turning to Federal Housing Administration (FHA) loans, which can require as little as 3.5% down.

The volume of single-family FHA-insured loans originated has tripled from $59 billion in fiscal year 2007 to more than $180 billion in 2008.

Buying a fixer-upper also can mean sacrifices: Buyers may have to wait before they can move in because the homes need work, and first-time buyers often have to look past a home’s problems to see the potential. For those buying foreclosed homes, dealing with a bank instead of a private owner can sometimes mean lengthy delays.

The sale of distressed properties could have a trickle-down effect that may help boost remodeling businesses, which have seen business slump as homeowners halt renovation plans.

And first-time home buyers are showing more interest. More than three-quarters of first-time home buyers say now is a good time to buy a home despite concern about the economy, according to a March survey by Century 21 Real Estate of 1,000 prospective first-time buyers. More than 80% say prices are affordable, and 68% say now is a better time to buy than six months ago.

Kimberly Miles, 26, is one of them. In February, she got an FHA-insured mortgage on a three-bedroom house with a two-car garage, overlooking a lake in Myrtle Beach, S.C.

The flooring, which smelled because of the previous owner’s pets and smoking habit, was ripped up. The drywall needed caulking, and the previous owner had taken the fridge.

The home, which had been in foreclosure, was listed at $142,000 in November and dropped to $122,000 in January. With the FHA-loan, she had to put down only 3.5%, and the $8,000 federal tax credit will pay for a lot of the renovations.

“It smelled awful. You couldn’t breathe in there, but I saw the potential,” says Miles, who works for the Myrtle Beach Area Chamber of Commerce and Convention and Visitors Bureau. “During the housing boom, I could never have gotten it.”

Julie Schmit
USA Today

Prices of single-family homes in 20 U.S. metropolitan areas in February were down 18.6% from a year earlier, yet the fact that the rate of decline slowed signaled some hope for the housing market, a report said Tuesday.

In 15 markets, annual declines were in excess of 10% and average home prices nationwide hit 2003 levels, according to the Standard & Poor’s/Case-Shiller index.

Yet the drop in the 20-city index was less than the 19% year-over-year decline in January. Also, it was the first time in 16 months that annual declines didn’t set records. “We … need a few more months of data before we can determine if home prices are finally turning around,” says David Blitzer of S&P’s index committee.

The National Association of Realtors said last week that home prices rose more than normal from February to March and that the market may be stabilizing. Still, price drops remain brutal, especially in areas where they rose fast. The Case-Shiller index shows the hardest-hit cities in February were Phoenix, Las Vegas and San Francisco.

Prices continue to fall amid a glut of unsold homes, including foreclosed ones, says Lawrence Yun, NAR chief economist. He says prices will keep falling in regions with many foreclosures and strengthen where there are few.

On that front, the Obama administration Tuesday unveiled a plan that it says may reduce payments for up to 1.5 million at-risk homeowners.

Under the plan, the government would tap a $50 billion housing fund to entice mortgage servicers to modify second mortgages and cut monthly payments for borrowers.

Half the troubled mortgages have second loans, given by lenders to help buyers avoid mortgage insurance and reduce their down payments. The second loans make it harder to modify first loans, because more parties are involved, and the home may still be unaffordable even if a first loan is changed, the administration says.

The plan would pay mortgage servicers $500 to modify second loans at 1% or 2% for five years, if first loans are modified. Servicers would also get $250 a year for three years if borrowers don’t default. Borrowers could get $1,000 over five years to pay down principal.

The plan may encourage modifications because second loans would likely be worthless in a foreclosure, says Ellen Harnick of the Center for Responsible Lending. It could have a significant impact on prices if foreclosures are curbed, she says.

Barbara Hagenbaugh
USA Today

WASHINGTON — Consumer confidence jumped to the highest level in five months in April as Americans’ expectations about the economy’s future, including the job market, improved, according to a report out Tuesday that offered fresh hope that the economy may be hitting a bottom.

Still, confidence remains very low, suggesting there is a long way to go before the economy gets back onto a healthy track.

The closely watched consumer confidence index rose to 39.2 in April from 26.9 in March, the Conference Board said. That marked the second consecutive increase in confidence from the record low hit in February and brought the index to the highest level since November.

While consumers’ feelings about the current economy improved a bit, their view of the economy six months out posted a big jump. The so-called expectations index was 49.5 this month, up from 30.2 in March and the highest since September.

“The sharp increase in the expectations index suggests that consumers believe the economy is nearing a bottom,” says Lynn Franco, director of The Conference Board Consumer Research Center. “However, this Index still remains well below levels associated with strong economic growth.”

Says Steven Wood, chief economist at Insight Economics, “Confidence is deeply mired in recessionary territory although consumers are not as depressed as they were earlier in the year.”

The consumer confidence index was 90.6 in December 2007, the month the economy fell into recession.

Consumers’ view of the job market six months from now improved. Some 13.9% said they expected there would be more jobs in six months than there are now, up from 7.3% in March and the highest in nearly two years. Still, one-third said they expected there would be fewer jobs in six months while more than half said they expected there would be the same number of jobs.

Economists keep a close eye on consumer confidence because consumer spending accounts for more than two-thirds of U.S. economic activity.

Economists in a USA TODAY survey conducted April 16-22 estimated consumer spending rose at a seasonally adjusted annual rate of 0.9% in the January-March quarter after diving in the second half of 2008. Official government numbers on first quarter consumer spending and overall economic activity will be released Wednesday. The economists predicted gross domestic product, the broadest gauge of U.S. economic activity, contracted at a 5% annual pace in the first quarter after plunging 6.3% in the fourth quarter, according to the median answer of the 51 economists.

More consumers said they planned to buy cars, homes and appliances in the next six months in April than in March, the Conference Board said.

Earlier Tuesday, a housing index showed that home prices dropped sharply in February, but for the first time in 25 months the decline was not a record — another sign the housing crisis could be bottoming.

The Standard & Poor’s/Case-Shiller index of home prices in 20 major cities was down 18.6% from February 2008, slightly better than the 19% in January.

The 10-city index was down 18.8%, compared to 19.4% the month before, the first time in 16 months it did not set a record.

But the good news was mixed. All 20 cities in the report showed monthly and annual price declines, and half recorded annual records. Prices were down more than 10% compared with February 2008 in 15 cities.

Prices in the 20-city index are down 30.7% from their peak in the summer of 2006, and the 10-city index is off more than 31.6%.

Contributing: Associated Press

Ritchie Bros. lowers gavel on condos, lakeside properties

Derrick Penner
Sun

Looking for a deal on a Vancouver Island condo, or an Interior lakeside retreat?

Buying property through an auction is one way to go.

Ritchie Bros. Auctioneers — which has sold everything from an entire residential subdivision in Quesnel, Vancouver Island condos and recreational lots on the Sunshine Coast — has more sales slated for the coming month.

“There is a good chance you’re going to get a good deal,” Ritchie Bros. spokeswoman Kim Schulz said in an interview, but quickly added that what makes a good deal is in the eye of the buyer and the seller.

Property auctions in the United States are more closely associated with distressed real estate as banks unload homes in foreclosure.

In B.C., the tactic has been used more as an inventory clearance method. Schulz said that in Ritchie Bros.’ case, the firm’s real estate sellers tend to be customers from its equipment auctions who just happen to have property they want to sell. They’re also comfortable with the company’s unreserved sales method.

“If you’re going to a real estate auction, you really need to understand, is it reserved or is it unreserved,” Schulz said.

Reserved means the seller has set a minimum price that must be met in order for the property to be sold. Unreserved means the seller commits to selling to the highest bidder with no conditions.

Ritchie Bros. may soon have company in the property auction field, though in a different way.

Maynard’s Auctioneers, a big player in estate-sale auctions, is actively shopping an auction concept to real estate marketing firms, Barry Scott, president of Maynard’s Auctioneers, said in an interview.

Scott said it is unlikely unreserved auctions will gain wider traction because there isn’t much distress in the marketplace.

“If you had a lot of ‘must sells,’ it would be more applicable,” Scott said. “But you probably won’t see downtown real estate sold at unreserved auction.”

However, he does see a role for auctions to bring a different kind of attention to real estate sales in cases where developers sell the majority of a project through traditional means, but want to quickly clear out remaining units.

“After people see what things have sold for, they are more capable of arriving at what they think the fair value is,” Scott said.

GOING ONCE, GOING TWICE . . .

Auctions can move along quickly so here are a few tips.

– Do your homework on location and price. Take advantage of any open houses the auctioneer might have to inspect the property and neighbourhood.

– Understand that the auction is a final sale, not an open house, so don’t go thinking you’re going to bid on a whim.

– Arrange financing beforehand. The auctioneer will want to see proof you can close on the purchase.

– Don’t get caught up in the frenzy. Set your budget and stick to it.

© Copyright (c) The Vancouver Sun

Brian Morton
Sun

Local realtors say that there’s never been a better time to buy a house because of dropping prices and extremely low mortgage rates.

While that may be true, buying a home is much more than just a question of the purchase price.

In fact, according to a report released Monday by the Canadian Real Estate Association, a typical B.C. buyer can expect to spend an additional $60,200 over and above the price.

That includes an average of $2,075 on household purchases, $7,325 for furniture and appliances, $1,925 on moving costs, $17,800 on renovations, $24,175 for services (including financial, legal and real estate fees, and appraisals), and $6,900 in taxes.

The report, prepared for CREA by Altus Group Economic Consulting, notes the total spending cited in the study relates only to the cost of moving from one home to another and for renovations after moving in. It does not include renovation expenditures by sellers preparing homes for sale.

“The number that surprised us most was the massive increase in renovation spending,” CREA chief economist Gregory Klump said in an interview about their report, which looked at the various economic spinoffs from resale housing in the period from 2006 to 2008. “Renovation spending was a little more than double in B.C. what it was during 2004 to 2006. Everyone thinks that new home construction is a great source of economic activity and indeed it is. But it’s not just new home construction. Resale housing also generates an awful lot of employment and retail spending.”

Klump said the study shows that an average of 202,750 jobs were created in Canada each year covered by the study because of resale housing transactions.

According to the report, the $60,200 in additional consumer spending in B.C. was the highest in Canada, which recorded an average of $46,400 in economic spinoffs. By comparison, from 2004 to 2006 the average transaction yielded $32,200 in additional consumer spending. From 2002 to 2004, it was $24,697.

The CREA study revealed that the resale housing industry in Canada generated an average of $22.3 billion annually across the country in various economic spinoffs in the period from 2006 to 2008.

Klump said that higher fees related to higher real estate costs helped push the costs higher in B.C.

The report also noted that most money is spent in Canada‘s four largest provinces (Ontario, Quebec, B.C. and Alberta).

Nearly half the spinoffs were generated in Ontario, where homebuyers contributed $9.3 billion to the economy. B.C. was in second spot, with homebuyers contributing $5.4 billion to the economy.

The report concluded that B.C. experienced the highest relative job impact of any province by generating 44,735 direct and indirect jobs — nearly one in 50 jobs across the province’s economy and far higher than the national average of one in 85 jobs.

According to CREA, there were 462,734 residential properties sold through the Multiple Listing Service in Canada in 2008.

© Copyright (c) The Vancouver Sun