Financing with FHA – Better Read This!

If you are considering using an FHA loan to purchase your next home, you should be aware that changes are on the way.  Read this article to understand the directions to come.

By NICK TIMIRAOS The Federal Housing Administration will announce more-stringent lending requirements and higher borrower fees on Wednesday to cushion against rising defaults and stave off the need for a taxpayer bailout of the agency.

 The FHA, which has taken on a major role in the housing market during the economic downturn, doesn’t lend money to home buyers, but insures lenders against default on loans that meet FHA criteria. In exchange for that backing, borrowers who take out FHA-backed loans must pay an upfront insurance premium, currently set at 1.75% of the total loan amount. The premium can be rolled into the loan.

 The FHA is set to raise that fee to 2.25%, the second increase in the past two years, according to people familiar with the matter. The value of the FHA’s reserves to cover losses has fallen to $3.6 billion, about 0.5% of the $685 billion in loans outstanding, down from 3% a year earlier. Congress requires the agency to maintain a 2% capital-reserve ratio. If the larger upfront fee had been in place last year, the FHA would have boosted its reserves by more than $1 billion.

 Also to boost the reserve, the FHA will ask Congress to increase a separate insurance fee that borrowers pay annually, people said. If the agency were to run short of cash to cover projected losses, it likely would have to ask Congress for money for the first time ever.

 FHA officials declined to comment.

 The FHA, which backs as many as half of all new loans in certain housing markets, has come under fire for insuring loans with little or no money down as home prices have plunged over the past three years. With its reserves falling, the agency has been forced to walk a tightrope between protecting taxpayer dollars and helping to facilitate the housing recovery.

 The FHA will keep minimum down payments at the current 3.5% level for most borrowers. But the agency will require riskier borrowers with credit scores below 580 to make a minimum 10% down payment. While the FHA doesn’t have a credit-score cutoff, most lenders require a minimum 620 score.

 Some housing analysts have pushed for higher down payments on FHA-backed loans, and a bill in Congress would raise down payments to 5%, from the current 3.5%.

 Instead, the FHA will reduce the amount of money that sellers can kick in for closing costs to 3% of the sale price, down from the current level of 6%. The higher cap led to abuses where sellers “heavily marked up the purchase price,” says Lou Barnes, a mortgage banker in Boulder, Colo.

 The FHA is also set to announce a series of measures to boost its ability to oversee and take action against lenders that originate loans with FHA backing.

 “Mortgage lenders will find the new rules painful but necessary,” says Howard Glaser, an industry consultant. He says the rules were overdue given that “an ‘anything goes’ environment” had prevailed in recent years as former subprime brokers migrated into FHA-backed loans.

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Record Properties Receive Foreclosure Notices in 2009

Have you been wondering about the Foreclosure Market?  Are you wondering about getting into the Foreclosure Market?  Here is a RealtyTrac article with statistics from 2009.

By Daren Blomquist

Activity Up 25 percent from 2008 despite estimated shadow inventory of 1 million+

A total of 3,957,643 foreclosure filings — default notices, scheduled foreclosure auctions and bank repossessions — were reported on 2,824,674 U.S. properties in 2009, a 21 percent increase in total properties from 2008 and a 120 percent increase in total properties from 2007. The report also shows that 2.21 percent of all U.S. housing units (one in 45) received at least one foreclosure filing during the year, up from 1.84 percent in 2008, 1.03 percent in 2007 and 0.58 percent in 2006.

Foreclosure filings were reported on 349,519 U.S. properties in December, a 14 percent jump from the previous month and a 15 percent increase from December 2008 — when a similar monthly jump in foreclosure activity occurred. Despite the increase in December, foreclosure activity in the fourth quarter decreased 7 percent from the third quarter, although it was still up 18 percent from the fourth quarter of 2008.

“As bad as the 2009 numbers are, they probably would have been worse if not for legislative and industry-related delays in processing delinquent loans,” said James J. Saccacio, chief executive officer of RealtyTrac. “After peaking in July with over 361,000 homes receiving a foreclosure notice, we saw four straight monthly decreases driven primarily by short-term factors: trial loan modifications, state legislation extending the foreclosure process and an overwhelming volume of inventory clogging the foreclosure pipeline.

“Despite all the delays, foreclosure activity still hit a record high for our report in 2009, capped off by a substantial increase in December,” Saccacio continued. “In the long term a massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond as lenders gradually work their way through the backlog.”

Nevada, Arizona, Florida post top state foreclosure rates in 2009
More than 10 percent of Nevada housing units received at least one foreclosure filing in 2009, giving it the nation’s highest state foreclosure rate for the third consecutive year. Nevada foreclosure activity in December increased 27 percent from the previous month but was still down 22 percent from December 2008. Fourth quarter foreclosure activity in Nevada was down 37 percent from the previous quarter thanks to substantial decreases in October and November.

Arizona registered the nation’s second highest state foreclosure rate in 2009, with more than 6 percent of its housing units receiving at least one foreclosure filing during the year, and Florida registered the nation’s third highest foreclosure rate, with 5.93 percent of its housing units receiving at least one foreclosure filing during the year.

Other states with 2009 foreclosure rates ranking among the nation’s 10 highest were California (4.75 percent), Utah (2.93 percent), Idaho (2.72 percent), Georgia (2.68 percent), Michigan (2.61 percent), Illinois (2.50 percent), and Colorado (2.37 percent).

California, Florida, Arizona, Illinois account for 50 percent of national total
Four states accounted for more than 50 percent of the nation’s 2009 total, with more than 1.4 million properties receiving a foreclosure filing in California, Florida, Arizona and Illinois combined.

A total of 632,573 California properties received a foreclosure filing in 2009, the nation’s largest state foreclosure activity total and an increase of nearly 21 percent from 2008. After four straight month-over-month declines, California foreclosure activity in December increased nearly 9 percent from the previous month, but the state’s fourth quarter foreclosure activity was still down 17 percent from the previous quarter.

Florida posted the nation’s second largest total, with 516,711 properties receiving a foreclosure filing in 2009 — a 34 percent increase from 2008. The state’s fourth quarter foreclosure activity was down nearly 9 percent from the previous quarter despite a 4 percent monthly increase in foreclosure activity in December.

Arizona foreclosure activity in December spiked 40 percent from the previous month, helping the state post the third largest foreclosure activity total for the year. A total of 163,210 Arizona properties received a foreclosure filing in 2009, a nearly 40 percent increase from 2008.

A total of 131,132 Illinois properties received a foreclosure filing in 2009, the nation’s fourth largest total and an increase of nearly 32 percent 2008. The state’s fourth quarter foreclosure activity increased nearly 29 percent from the previous quarter, and the state’s December foreclosure activity was up nearly 9 percent from the previous month.

Other states with 2009 totals among the 10 highest in the country were Michigan (118,302), Nevada (112,097), Georgia (106,110), Ohio (101,614), Texas (100,045), and New Jersey (63,208).

Foreclosure Market Data by State – 2009 Totals

Rate Rank	State Name	Total Properties with Filings	%Housing Units	1/every X HU	%Δ from 2008	%Δ from 2007
	U.S.	2,824,674	2.21	45	21.21	119.67
30	Alabama	19,896	0.93	107	156.26*	257.07*
31	Alaska	2,442	0.87	116	25.49	83.33
2	Arizona	163,210	6.12	16	39.60	323.17
23	Arkansas	16,547	1.29	78	15.90	158.30
4	California	632,573	4.75	21	20.81	153.52
10	Colorado	50,514	2.37	42	0.23	28.20
21	Connecticut	19,679	1.37	73	-10.24	65.93
35	Delaware	3,034	0.78	128	20.59	203.70*
	District of Columbia	3,235	1.14	88	-22.64	316.34*
3	Florida	516,711	5.93	17	34.10	212.61
7	Georgia	106,110	2.68	37	24.46	79.67
15	Hawaii	9,002	1.78	56	182.64	831.88
6	Idaho	17,161	2.72	37	101.61*	371.46*
9	Illinois	131,132	2.50	40	31.81	103.91
18	Indiana	41,405	1.49	67	-9.87	47.98
43	Iowa	5,681	0.43	234	5.50	38.46
36	Kansas	9,056	0.74	135	45.64	272.06*
40	Kentucky	9,682	0.51	197	33.66*	89.66*
39	Louisiana	11,750	0.63	158	64.82*	196.12*
41	Maine	3,178	0.46	219	11.47	1,011.19*
13	Maryland	43,248	1.87	54	33.74	129.08
22	Mass.	36,119	1.33	75	-18.54	103.64
8	Michigan**	118,302	2.61	38	11.54	35.65
20	Minnesota	31,697	1.38	73	56.28	174.27
42	Mississippi	5,402	0.43	232	135.59*	283.39*
28	Missouri	28,519	1.08	93	-8.75†	21.40†
44	Montana	1,373	0.32	317	10.19	19.39
46	Nebraska	1,845	0.24	423	-42.16	-49.26
1	Nevada	112,097	10.17	10	44.28	225.70
26	New Hampshire	7,210	1.21	82	8.65	482.39*
14	New Jersey	63,208	1.81	55	1.11	103.43
32	New Mexico	7,212	0.84	120	93.51*	140.88*
38	New York	50,369	0.63	158	0.67	30.19
37	North Carolina	28,384	0.69	145	-16.07	-2.46
49	North Dakota	390	0.13	796	5.12	56.00
12	Ohio	101,614	2.01	50	-10.53	12.93
34	Oklahoma	12,937	0.80	125	3.79	56.70
11	Oregon	34,121	2.12	47	89.55	303.27
33	Pennsylvania	44,732	0.82	122	20.21	173.11
27	Rhode Island	5,065	1.12	89	-23.06	175.57
25	South Carolina	25,163	1.24	80	67.81*	492.49*
47	South Dakota	765	0.21	467	90.30*	3,087.50*
17	Tennessee	40,733	1.49	67	-7.75††	57.19††
29	Texas	100,045	1.06	94	4.04	18.44
5	Utah	27,140	2.93	34	82.93	264.88
50	Vermont	143	0.05	2178	4.38	393.10*
16	Virginia	52,127	1.59	63	6.36	219.66†
24	Washington	35,268	1.29	78	35.34	132.27
48	West Virginia	1,479	0.17	597	115.91*	221.52*
19	Wisconsin	35,252	1.38	73	78.99*	190.55*
45	Wyoming	717	0.30	338	5.91	101.40

*Actual increase may not be as high due to data collection changes or improvements
**Collection of records classified as NOD began in August 2009 because of change in state law
† Collection of some records previously classified as NOD in this state was discontinued starting in January 2009
†† Collection of some records previously classified as NOD in this state was discontinued starting in September 2008

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NAR Urges Congress to tread lightly before changing FHA.

With so much riding on the housing market and the recovery these days, even small changes can have a huge ripple effect on the already struggling economy.  Read about the National Association of Realtors (NAR) plea with the US Congress and House Committe on Financial Services.

The Federal Housing Administration mortgage insurance program is a critical part of the American housing fabric and has never been more important than it is in today’s market, NAR President Vicki Cox Golder told a congressional panel today.

Testifying before the House Committee on Financial Services, Golder said that the FHA program is fiscally sound with responsible underwriting, and needs enhancements not radical reform. She urged Congress and the administration to tread lightly before making changes to a program that has a profound impact on economic recovery and serves the nation’s families.

“With the collapse of the private mortgage market, the importance of the FHA mortgage insurance program has never been more apparent. Thus far in 2009, nearly 80 percent of all FHA insured purchasers are first-time homebuyers. And if you take a closer look at the numbers, you’ll see that program is doing exactly what it was designed to do—make more affordable mortgage financing available to homeowners,” said Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz.

She pointed out that this year almost 50 percent of non-white Hispanic borrowers used FHA insurance or the Veterans Administration’s loan guaranty for home-purchase loans and 21 percent used the FHA or VA program to refinance a home loan. Last year, more than 60 percent of home-purchase loans and about 45 percent of refinance loans to black homebuyers were insured or guaranteed by either FHA or VA.

“As the leading advocate for homeownership and housing issues, NAR knows that without FHA mortgage insurance, our housing market could never start to recover,” Golder said.

FHA’s decline in reserves is in part a reflection of a projected change in home price values, and is not tied to excessive increases in defaults or unsound underwriting practices, she said. In citing the recent FHA audit, Golder said, “If FHA makes no changes to the way it does business today, the reserves will actually exceed 2 percent in the next several years. FHA has sufficient reserves.”

FHA cash reserves and capital reserves give the agency combined assets of $30.4 billion—enough to pay all claims over a 30-year period. Most banks are required to hold reserves sufficient to pay only one year of claims. “Realtors® strongly believe that FHA is taking the necessary steps to assure its financial solvency,” Golder said.

“We look forward to working with the Department of Housing and Urban Development. We have confidence that FHA Commissioner Dave Stevens will do what’s needed to ensure the financial health and stability of the FHA fund. We encourage FHA to take steps that will have the least impact on FHA borrowers who are such an important part of our housing and economic recovery,” said Golder.

NAR strongly opposes H.R. 3706, the “FHA Taxpayer Protection Act of 2009,” which would increase FHA’s downpayment requirement. The bill would not add anything to FHA reserves but would put homeownership out of reach for many creditworthy borrowers.

“Realtors® believe that the best way to ensure FHA’s success is to strengthen it,” she said.

Golder also thanked Chairman Barney Frank (D-Mass.) and the committee for passing legislation to extend the higher loan limits through 2010, but urged the committee to make the higher limits permanent. “The higher limits are not just for a few states with high median prices. There are currently 245 counties in 28 states that have high cost limits—this is a national issue,” she said.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

* Source: NAR December 2, 2009

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Buyers Rely on FHA but FHA is changing.

FHA is an important source for Buyers according to NAR (read below).  FHA has announced changes coming this year so look for updates on how this might affect you or your friends and family.

According to the most recent Realtors® Confidence Index, 39 percent of recent buyers purchased a home with a Federal Housing Administration-insured loan. Realtors® who took part in the November survey also reported that the number of first-time home buyers continued to climb to 51 percent.

“FHA helps provide affordable mortgage financing to homeowners, particularly first-time home buyers who are so important in drawing down inventory to help stabilize the current housing market,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz. “These recent survey results reaffirm that, despite its current challenges, FHA is a critical part of the American housing fabric.”

The RCI results also indicated that distressed sales increased to 33 percent of all home sales last month, and that both investors and first-time home buyers are competing for these properties. The preponderance of distressed properties on the market has also influenced buyers’ perceptions of other homes for sale. Realtors® report that many buyers have pricing expectations that treat every property as if it were in foreclosure.

In addition, Realtors® expressed ongoing concerns with the impact of the Home Valuation Code of Conduct on recent appraisals. According to some survey respondents, inexperienced or out-of-area appraisers continue to rely heavily on sales prices of distressed properties, even when other comps are available.

“As the first, best source for real estate information, Realtors® have their finger on the pulse of current housing trends, and their knowledge and experience offer valuable insights into today’s real estate market,” said Golder. “We know that an economic recovery is not possible without a housing recovery, and we will continue to work with policymakers at all levels to ensure that this happens.”

The RCI is a key indicator of housing market strength based on a monthly survey of more than 50,000 Realtors®; in a typical month there are more than 3,000 usable responses. Participants are asked about their expectations for the demand for homes, price of homes, and other economic conditions.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

* Source: Realtor.org December 18, 2009

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Kentucky Housing Corporation (KHC) for Low Financing Rates in KY

FRANKFORT, Ky. (Jan. 6, 2010)—Gov. Steve Beshear today announced that Kentucky Housing Corporation (KHC) will begin offering the lowest interest rates in its history thanks to President Obama’s Homeowner Affordability and Stability Plan. 

“With housing industry troubles leading nearly every newscast and topping nearly every paper for the last year, it’s rare to find a positive point to focus on,” said Gov. Beshear. “Kentucky Housing Corporation is now offering positive housing news for Kentuckians.”

KHC’s rate for government loans (Federal Housing Administration, Veterans Administration and Rural Housing Service) are currently at 4.375 percent.  Applicants with a 700 or better credit score who are not using KHC down payment assistance can receive a 4.125 percent rate.  These are the lowest rates that KHC has ever offered, and they plan to help as many Kentuckians as possible achieve homeownership.  KHC has a stated goal of helping 3,500 first-time home buyers and second-time home buyers in targeted counties acquire homes in 2010. 

“KHC consistently works to help homeowners find ways to work through whatever barriers they face in acquiring a home,” said Richard L. McQuady, chief executive officer of KHC.  “The federal government’s new Homeowner Affordability and Stability Plan will enable us to provide low-rate mortgages to help many more families.”

The Homeowner Affordability and Stability Plan, created by the Obama administration, is designed to stimulate and stabilize the U.S. housing market.  The plan lowers the borrowing costs of housing finance agencies (HFAs) across the country, who in turn can offer very low mortgage rates to home buyers through KHC-approved lenders.

The new bond purchase program supports new lending by HFAs, which means HFAs can sell bonds easier, and get cash from the bonds they already have, thereby creating more funds to support home-mortgage loans.  The Obama administration worked with the National Council for State Housing Agencies (NCSHA), the U.S. Treasury, Freddie Mac, and Fannie Mae to create the new bond purchase program, which was finalized in November 2009.

“Without the initiative started by President Obama, and the hard work from NCSHA, the U.S. Treasury, Freddie Mac, and Fannie Mae in creating a solid and sustainable plan, these rates would not be possible,” said Gov. Beshear.  “We are grateful that the funds provided through this initiative will allow thousands of residents across the state to have a home of their own.”

To learn more about this and other options available to potential home buyers through KHC, visit www.kyhousing.org, or contact KHC’s Homeownership Department toll-free in Kentucky at (800) 633-8896 or (502) 564-7630, extension 291, or TTY 711.

*Courtesy of KHC

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The Best Bang for the Buck in Remodeling

Trying to decide where to spend your precious capital to get some bang for the buck.  Here are some ideas from Remodeling Magazine.

10 Big-Impact, Low-Cost Remodeling Projects

Working with sellers who have some—but not unlimited—cash for upgrades? Here are budget-minded enhancements you can suggest to make their home stand out.

1. Tidy up kitchen cabinets.

“Potential buyers do open kitchen cabinets and look inside,” says Morrissey. “Home owners can add rollout organizing trays so when buyers peek in, they feel like there’s lots of room for their stuff.”

2. Add or replace tile.

“By retiling very inexpensively, you make a room look way cleaner that it was,” says Javier Zuluaga, owner of Home Repairs and Remodeling LLC in Tempe, Ariz. “Every city has stores that offer $1 to $2 tile, so home owners have to pay only for the low-cost tile and labor to replace a dated backsplash or add a new one. We also use inexpensive tile to upgrade bathrooms.”

3. Add a breakfast bar.

When a wall separates a kitchen from a family room, suggest cutting out an opening to create a breakfast bar. “In one home, there was a cutout in the wall between the kitchen and living room,” explains Matthew Quinn, a sales associate at Quinn’s Realty & Estate Services in Falls Church, Va., who handles estate and real estate sales for family members whose loved ones have passed away. “We left the structure of the cutout, added an oversized granite breakfast bar, and put chairs in front of it. That cost about $600.”

4. Install granite tile instead of a slab.

“Everybody is hot for granite kitchen countertops, but that can be a $5,000 upgrade,” says John Wilder, a general contractor and owner of Fence and Deck Doctor in New Castle, Ind. “Instead, home owners can put in 12-inch granite tiles for about $300 in materials and get very high impact for little money.”

5. Freshen up a bathroom without retiling.

“With a dated bathroom, I recommend putting in a new medicine cabinet for $100 to $150, light fixtures for about $100, a faucet for $50 to $75, and a vanity for $200 to $300,” says Wilder. “And instead of replacing the tile, the existing grout can be lightly scraped and regrouted, which leaves a haze that can be buffed out and will make the tile look brand new. Also install glass shower doors. A French door adds a lot of panache and elegance for $250, and people will notice the door, not the tile. With all that, you’ve done a bathroom remodel for $1,000 to $2,000.”

6. Freshen up the basement.

“If home owners have cement block or poured concrete walls in the basement, suggest they have a contractor fill in cracks with hydraulic cement and then paint with waterproofing paint,” recommends Wilder. “They can then add a top coat to add color. They can also paint the basement floor with a good floor paint, which spiffs it up. The basement may not be finished, but it’s no longer a damp dungeon.”

7. Add a room.

Look for large spaces that can be enclosed to create a new bedroom for just the price of creating a wall. “One time, we closed off a half-wall to an office and added a door to the other side of the room, thus creating another bedroom,” says Quinn. “That $400 procedure, which took a contractor one day, netted about $40,000 in the sales price.” Zuluaga has also added bedrooms inexpensively. “In a two-bedroom house, there was an archway that led to a third room that was used as a den,” he explains. “It had a dry bar where there would have been a closet, so we took out the dry bar and created a closet so the owners had a third bedroom.”

8. Spruce up cabinet fronts.

Suggest home owners update tired-looking kitchen cabinets. Reconditioning is the least expensive move for under $1,000. “If the wood is starting to look shabby from use or contaminants in the air, we take out the nicks and scratches, recondition it with oil, and put new hardware on,” explains Heidi Morrissey, vice president of marketing and sales at Kitchen Tune-Up in Aberdeen, S.D. For $1,500 to $4,000, owners can replace the cabinet doors and drawer fronts, and for $4,000 to $12,000, they can have all the cabinets refaced. “With refacing, owners can change the color of the cabinets by replacing the door and having a new skin put on the boxes,” says Morrissey. “If they have oak cabinets today, they can have cherry the next day.”

9. Replace light fixtures.

“In a foyer and in bathrooms and kitchens,” says Wilder, “replacing overhead light fixtures provides a lot of pop for a little money.” If the kitchen has track lighting, Zuluaga suggests the home owner spend $450 to $600 to have an electrician replace it with recessed canned lights on a dimmer switch to add ambience. For about $700, Zuluaga also suggests installing pendant lights over a kitchen island or peninsula.

10. Tech-up the garage.

“Sometimes we replace the garage door opener with a remote touchpad entry system,” says Zuluaga. “That costs about $425 and makes it look like a high-end system.”

Courtesy of Remodeling Magazine & G.M. Filisko

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Remodeling Cost / Value Report

Trying to decide whether to remodel?  Wondering if the Cost is worth the Risk?  Check out the anuual Cost vs. Value Report from Remodeling magazine.

Uncertainty and restraint are the order of the day in this economy, and that sense of caution is reflected in home owners’ return on their investment in remodeling projects, according to REALTORS® in 80 metropolitan markets surveyed by Remodeling magazine for this year’s Cost vs. Value Report.

The majority of the 10 remodeling projects with the best return on investment nationally are a testament to pragmatism. Six of the 10 projects—siding and window replacement using a variety of materials—involve home maintenance that costs less than $14,000.

Two more—adding an attic bedroom or a wood deck—reinforce the notion that boosting the amount of livable space in and around your home will attract buyers who are increasingly looking for more room for their buck. In past years, converting an attic into a bedroom was a project that landed squarely in the middle of the rankings, but this year it leapfrogged over other categories into third place. It’s an admittedly pricey project, with an average national cost of nearly $50,000, but it generates an average national return of 83.1 percent and a better-than-100 percent return on investment, according to REALTORS® in 14 of the 80 cities surveyed. Adding a wood deck is much more economical, with an average national cost of slightly more than $10,000. Its average national return is 80.6 percent, but in six cities, its return is estimated at 100 percent or greater.

The six siding and window home maintenance projects in the top 10, combined with the project with the biggest return on investment—a mid-range entry door replacement—prove something that every sales associate tells sellers throughout the country: First impressions count. A mid-range entry door replacement, a project new to the survey this year, is the only home remodeling project that REALTORS® expect to generate a full return for the money nationally. It’s the least expensive of the 33 projects included in the analysis, yet it brings a whopping average national return on investment of 128.9 percent. It generates a better-than-100 percent return in 48 of the 80 cities, according to REALTORS® surveyed, and in several cities, its return is estimated at more than double its cost.

Additional data prove the value of restraint. Upgrading kitchens and baths is still a smart bet. However, home owners will recoup the greatest share of their costs by foregoing super-deluxe projects in favor of mid-range kitchen and bath remodels. A mid-range kitchen remodel brings an average 72.1 percent return on investment, while an upscale kitchen re-do returns only an average of 63.2 percent of the money invested. A mid-range bathroom project has an average 71 percent cost recovery, but the average recovery on an upscale bathroom project is nearly 10 points lower, at 61.6 percent.

The only upscale projects that cracked the top 10 were the home maintenance projects of fiber-cement siding replacement and vinyl window replacement. The average cost of fiber-cement siding is more than $13,000, but its return on investment reached 83.6 percent, placing it squarely in second place in the survey. The average cost of vinyl window replacement is nearly $14,000, and it generates an average return of 76.5 percent, or tenth place in the survey. Of the 12 upscale projects, nine landed in the bottom half.

Overall, home owners recouped an average of 63.8 percent of their investment in 33 different home improvement projects, according to REALTORS® who responded to the survey. The expected cost recoup was generally down from previous years in line with the drop in home prices nationally (see page 23). The return on home owners’ investment in remodeling projects has declined an average of 3.5 percentage points between 2008 and 2009. That’s down from the 2.7 point drop between 2007 and 2008 and much less than the 5.5 point drop between 2006 and 2007 and the 10.5 point drop from 2005 to 2006.

Zooming in from the national to the city level, Honolulu sits atop the rankings for having the most projects—18—that generate at least a full return on investment. In Honolulu, adding a wood deck, completing a minor kitchen remodel, adding fiber-cement siding, and replacing an entry door bring the highest returns, ranging from 121.1 to 195.3 percent return on investment. San Francisco is closest behind with 10 projects generating at least a full return on investment. Adding a master suite, doing a minor kitchen remodel, and replacing an entry door have the biggest returns, producing between 112.2 and 119.1 percent return on investment.

One surprise: Despite the common perception that contractors are hungry for work and therefore willing to wheel and deal, the average national cost of every project surveyed has gone up, though at a slower rate than in the previous year.

Data courtesy of Remodeling Magazine & G.M. Filisko

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Investing in Real Estate Once Again

Thinking about investing in Real Estate?  Read this week’s article from Realty Times to learn that you are not alone:

Savvy investors are always the first to jump in a potentially profitable housing market and a new survey indicates things are heating up.

More than 12 percent of homebuyers today plan to purchase a home as an investment, compared to less than half, only 5.6 percent, just seven months ago, according to a recent Move.com Homeownership Survey.

Foreclosure buyers account for 25.3 percent of consumers interested in purchasing a home and 42 percent of potential foreclosure buyers regard their purchases as investments, while 57.6 percent plan to live in the foreclosed home themselves.

“This latest Homeownership Survey validates what many had hoped to see in the housing markets — affordable prices and ample inventories are restoring the appeal of real estate to investors while providing opportunities for first time home buyers to enter the market,” said Move, Inc.’s chief revenue officer, Errol Samuelson.

Interest rates below 5 percent for much of the year and low home prices, which may be at or near market bottom, are also bringing investors back to the fold.

The new and improved home-buyer tax credit, no longer just for first time home buyers, can also be a boost for those taking the practical approach to investing by buying their own home first.

The survey of 1,004 consumers, conducted from October 16 to 18 this year, found:

• Foreclosure buyers are confident they will profit from discounted purchase prices, as well as healthy appreciation rates over the next five years.

• Most foreclosure buyers, 58.2 percent, expect to pay 20 percent or less than market price for a foreclosure, while 38.5 percent expect a 25 percent or greater discount.

• Expectations are high — 73 percent expect their properties to appreciate ten percent or more in five years, 28 percent expect their purchases to appreciate 20 percent or more.

Given the current market of flat and falling home prices, that may sound like high hopes, but RealtyTrac.com explains that lenders want to unload overhead-heavy inventories of repossessed and foreclosed home.

That forces lenders to list their homes below market and offer properties at a discount, giving the buyer some built in equity.

• Foreclosure buyers intend to convert their foreclosures into rentals (13.2 percent), fix them up for re-sale (11.3 percent), or house a family member until the home can be sold at a profit (17.4 percent).

In some markets, especially resort and vacation rental markets, where rents are higher, conditions bode well for investors who want to enjoy positive cash flow as they wait for equity to build.

“If you find a well priced property located in a healthy rental market and are able to manage and monitor the property and maintain a positive cash flow from the onset for a unit used strictly for income purposes, rather than being held with the expectation of price appreciation, this could be a good time to become a landlord,” said Nancy Osborne, chief operating officer of Erate.com, a Santa Clara, CA-based financial information publisher and interest rate tracker.

* Source: Realty Times, Jan 7, 2010

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New Wireless System to Blanket Lexington

LEXINGTON, KY – In hopes of spurring economic development and bridging the digital divide in some of the city’s most underserved neighborhoods, Mayor Jim Newberry and the Bluegrass Community Foundation announced a new wireless Web access partnership utilizing public and private funds.

With nearly $1.65 million provided by the Knight Foundation in combination with state and federal funds, a fee-based wireless internet system that once covered downtown will be reactivated in conjunction with new coverage areas in the East End, Cardinal Valley and the so-called “College Town” area between UK and downtown, providing free access to any wireless-capable device.

“An engaged and informed citizenry is an important indicator of a vibrant, healthy community,” said Lisa Adkins, CEO of the Blue Grass Community Foundation, which received the grant from the John S. and James L. Knight Foundation and will serve as nonprofit partner for the project and help the city engage the community.

In a release, Newberry likened Internet access to the expansion of the country’s interstate system in the ’50s and ’60s, by allowing for more commerce and bringing the nation closer together. “It will give businesses a tool that is essential to successfully compete in the global marketplace and it will give many citizens a tool that is essential to successfully compete in the classroom and in the workforce,” Newberry said in a release.

State and Federal funds of $1.1 million are being used in the program that will allow public safety officers better access to their databases needed for use in their daily duties.

Expected to be operating by summer, the network evolved from work started in the spring by the Lexington Broadband Coalition, a group made up of city, state, university, non-profit and business leaders in hopes of supporting public safety and expanding broadband access in underserved areas. The project will be jointly administered by a public-private partnership that includes LFUCG, the state, the University of Kentucky, the Knight Foundation and the Blue Grass Community Foundation, which will work with citizens to help them take advantage of the network, according to the release.

“This grant allows us to play a role in positioning the community to take advantage of the broadband network – to help inform and educate about applications and keep the lines of communication open regarding progress and opportunities,” BGCF’s Adkins said in the release. “And it ties in directly with the Legacy Center’s work on the Legacy Trail and in the East End.”

Eventually the group looks to expand service along the Legacy Trail which, when completed later this year, will stretch from the East End to the Kentucky Horse Park.

The Mayor plans on utilizing business and civic leaders to help develop a strategy to launch the network this summer and plan a public awareness campaign. “The opportunities the network presents to Lexington are unparalleled,” Newberry said in the release.

* Business Lexington Release

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Mortgage Interest Rates on the Rise – Don’t wait too long!

Meanwhile, 2009 also brought some of the best home loan rates ever seen in the history of the US, but things have worsened over the last month. This is in part because the Federal Reserve is winding down their Mortgage Backed Security purchasing program…right at a time when there is an increased volume of Mortgage Backed Securities coming to market.

So why are there more coming to market right now? It takes about four months for home loan originations to become securities – and summer originations were light, allowing the decreased Fed purchases during the fall to still help handle the flow of Mortgage Backed Securities coming to market at that time. But loan origination volume increased in late summer and early fall, due to lower home loan rates as well as the perceived expiration of the Home Buyer Tax Credit, which has since been extended. This increased volume of home loans are now securitized and hitting the markets, at a time when the Fed is buying less.

As with any item, when there is lots of supply – in this case, the increased volume of Mortgage Backed Securities – and diminishing demand – i.e. the Fed buying less and less – Economics 101 tells us that the price of that item will subsequently go down. And as Mortgage Backed Security or Mortgage Bond prices go down, home loan rates go up, which is what we saw happen throughout December. While rates were able to end last week at about the same place as they began the week, they did worsen about .50% from the beginning of December to the end.

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