Architectural salvage shops offer great deals on unique, high-quality furnishings - if you know how to tell the treasures from the trash.
By Josh Garskof, Money Magazine contributing writer
January 30, 2009: 5:20 AM ET
(Money Magazine) -- If you've never set foot in an architectural salvage shop, you're missing out on an amazing world of bargains for house repairs and upgrades. A cross between a home improvement center and an antique store, these cavernous warehouses sell used, or "pre-owned," house parts, from french doors and ornate mantelpieces to like-new commercial-grade appliances.
Discover what you need at one of these emporiums and you'll spend just 25% to 50% as much as you would to buy the equivalent items new - if you could find comparable craftsmanship. The trick is distinguishing between the old stuff that's made with higher-quality materials and workmanship than today's products and the stuff that is truly, well, junk. These strategies will help.
Pick the right shop
There are two breeds of salvage yard. Some operate like high-end collectibles stores with only hand-picked prewar products - and lofty prices (you'll find those listed at bmra.org). And then there are nonprofit recycling centers, which carry materials from any era, including contemporary gear like Jacuzzi tubs and the water heaters needed to fill them. It's in the latter kind of shops - many of which call themselves ReStores - that you can hunt up truly unbelievable deals. To find nonprofit centers in your area, go to habitat.org and redo.org.
Stick with safer stuff
Alas, some of the most appealing older offerings at salvage yards - windows, faucets, toilets - may not meet today's building codes, at least not without modifications that could quickly trump any cost benefit. Safer categories of antique furnishings include light fixtures, bathtubs, radiators, shutters, doors and hardware, notes Brad Guy, a deconstruction expert who teaches demolition crews how to cherry-pick valuable materials from buildings before they're razed.
Get help before you go
If you'll be installing salvaged items as part of a straightforward DIY project, such as replacing a shattered glass door-knob with a perfect match or finding a set of kitchen cabinets to repurpose for a serious garage workshop, it's fine to fly solo. But if you're picking out a claw-foot bathtub, for example, you'll want to consult with your plumber about exactly what you need before heading to the salvage center, suggests Chicago remodeling contractor Ron Cowgill. That way, you know you're getting a tub that will fit in your bathroom - and meet plumbing code.
Be aware of extra costs
Before you grab that fantastic Victorian-era mantelpiece with peeling paint, be aware that the $400 to $800 you'll spend to strip off the old paint will likely strip away the cost savings over buying a new knockoff version. In fact, don't bring home any product with deteriorating paint, since it probably contains lead. If you're in the market for light fixtures, know that you'll also likely need to spend at least another $50 to have them rewired by an electrician or lighting shop.
There's usually no way to connect and test an appliance at the salvage center, so buy these items with the understanding that there's a chance they'll need a tune-up when you get them home. You might pay $2,500 for a pre-owned Viking range and end up shelling out $400 to $500 to get it in working order. But given that you'd probably spend around $6,000 to buy the appliance new, you'll still come out way ahead, notes Steve Feldman, president of Green Demolitions, an appliance resale store in Hawkins, N.Y.
Score a tax break
There's another way to take advantage of the salvage shop: as a supplier. Anytime you remove doors, radiators, vent covers, cabinets, sinks, tubs, patio pavers or other reusable materials from your home, donate the items to your local ReStore, and you'll get a tax deduction in exchange. The store may even pick it up and deconstruct it for free if you make a big enough contribution (at least a few thousand dollars).
As with clothing you bring to Goodwill, you tell the store the fair market value and get a receipt for that amount, which you can then write off as an in-kind charitable donation, says Minneapolis architect Ali Awad. (Many salvage yards display inventory on their websites, so you can gauge ballpark prices by doing a little surfing.) For big remodeling jobs, you may also get a discount from your contractor for needing less Dumpster space. And even the smallest salvage project will make you feel virtuous, since it fulfills all three tenants of being green: reduce, reuse and recycle.
TREASURE TROVE
Items that demand top dollar when purchased new, such as a porcelain farmhouse sink or glazed accent tiles, typically sell for 50% to 75% less at an architectural recycling center.Makeover your home - for 75% less
Friday, January 30, 2009
Thursday, January 29, 2009
10 Hot Trends in Home Design
By Melissa Dittmann Tracey
LAS VEGAS — Contemporary touches are what home owners and buyers desire in 2009, according to a panelist of designers at a session Tuesday on “Design Trends Marketplace” at the International Builder Show. Today’s minimalist design may mix straighter furniture elements, two different colors repeated throughout (e.g. white and green) and a mix of fun, bold accessories (such as a red chair) or a traditional element (such as an antique mirror).
Indeed, contemporary architecture is even spreading to suburbia (see examples from Agave’s energy efficient contemporary homes in Austin, Texas).
Here are some of the common design trends growing in demand.
1. Lighting options used as pieces of art in funky shapes (see examples: www.lightcrafters.com). A variety of lighting options can be used that are decorative yet functional.
2. Outdoor living that serves as an extension of the inside of the home with outdoors that boast comfortable seating, audio, TVs, a fireplace, and artwork to punch up the space.
3. Design accessories reflecting nature speak to buyers who are more aware of preserving the environment. For example, tree designs are popular, such as via an art sculpture, painting, or even reflected in a table (see www.palecek.com).
4. Green design elements, such as water-efficient appliances and LED lighting under the kitchen cabinets, continue to gain traction and offer cost savings.
5. His and her amenities are increasing, such as even separate garages and vanities with his countertop higher than her’s for a more custom look.
6. Car lifts offer compact storage of vehicles and are expected to grow in popularity as lot sizes grow smaller. A basement built under a garage can allow for the car to descend into the basement until you need it. Or a garage with a higher ceiling can stow the car above.
7. Windows can serve as focal points of a room as well as boost energy efficiency. Floor-to-ceiling windows can add drama to a room.
8. Wood in dark or light stains and in various materials are being used throughout homes. For example, wood details on the ceiling can enhance the architecture and Palmwood, which comes from coconut palms, can be used to add a featured wall in the room.
9. Mirrors add glamour to a room and help buyers see themselves in the space–literally. Mirrors add a focal point, enlarge rooms, and can be an important detail to include in homes (see www.mirrormatecommercial.com for examples).
10. More electronics are being sprinkled everywhere, such as iPod docking stations throughout the home and TVs in practically every room (e.g. kitchen, study, and bathrooms).
LAS VEGAS — Contemporary touches are what home owners and buyers desire in 2009, according to a panelist of designers at a session Tuesday on “Design Trends Marketplace” at the International Builder Show. Today’s minimalist design may mix straighter furniture elements, two different colors repeated throughout (e.g. white and green) and a mix of fun, bold accessories (such as a red chair) or a traditional element (such as an antique mirror).
Indeed, contemporary architecture is even spreading to suburbia (see examples from Agave’s energy efficient contemporary homes in Austin, Texas).
Here are some of the common design trends growing in demand.
1. Lighting options used as pieces of art in funky shapes (see examples: www.lightcrafters.com). A variety of lighting options can be used that are decorative yet functional.
2. Outdoor living that serves as an extension of the inside of the home with outdoors that boast comfortable seating, audio, TVs, a fireplace, and artwork to punch up the space.
3. Design accessories reflecting nature speak to buyers who are more aware of preserving the environment. For example, tree designs are popular, such as via an art sculpture, painting, or even reflected in a table (see www.palecek.com).
4. Green design elements, such as water-efficient appliances and LED lighting under the kitchen cabinets, continue to gain traction and offer cost savings.
5. His and her amenities are increasing, such as even separate garages and vanities with his countertop higher than her’s for a more custom look.
6. Car lifts offer compact storage of vehicles and are expected to grow in popularity as lot sizes grow smaller. A basement built under a garage can allow for the car to descend into the basement until you need it. Or a garage with a higher ceiling can stow the car above.
7. Windows can serve as focal points of a room as well as boost energy efficiency. Floor-to-ceiling windows can add drama to a room.
8. Wood in dark or light stains and in various materials are being used throughout homes. For example, wood details on the ceiling can enhance the architecture and Palmwood, which comes from coconut palms, can be used to add a featured wall in the room.
9. Mirrors add glamour to a room and help buyers see themselves in the space–literally. Mirrors add a focal point, enlarge rooms, and can be an important detail to include in homes (see www.mirrormatecommercial.com for examples).
10. More electronics are being sprinkled everywhere, such as iPod docking stations throughout the home and TVs in practically every room (e.g. kitchen, study, and bathrooms).
Wednesday, January 28, 2009
Existing-Home Sales Show Strong Gain In December
Existing-home sales rose unexpectedly while inventory declined, led by a surge of sales in the West, according to the National Association of Realtors®.
Existing-home sales – including single-family, townhomes, condominiums and co-ops – jumped 6.5 percent to a seasonally adjusted annual rate1 of 4.74 million units in December from a downwardly revised pace of 4.45 million units in November, but are 3.5 percent below the 4.91 million-unit pace in December 2007.
For all of 2008 there were 4,912,000 existing-home sales, which was 13.1 percent below the 5,652,000 transactions recorded in 2007. This is the lowest volume since 1997 when there were 4,371,000 sales.
Lawrence Yun, NAR chief economist, said home prices continue to fall significantly. “It appears some buyers are taking advantage of much lower home prices,” he said. “The higher monthly sales gain and falling inventory are steps in the right direction, but the market is still far from normal balanced conditions. Buyers will continue to have an edge over sellers for the foreseeable future.”
Total housing inventory at the end of December fell 11.7 percent to 3.68 million existing homes available for sale, which represents a 9.3-month supply2 at the current sales pace, down from a 11.2-month supply in November.
Yun said the market is underperforming and hurting the broader economy. “We’ve added 25 million people to our population over the past decade and housing affordability conditions are the best we’ve seen since 1973, but household formation is much lower than expected,” he said. “Consequently, there is a pent-up demand which could be unleashed with the right stimulus, including a non-repayable home buyer tax credit. The Obama administration and Congress need to move fast to stimulate a spring sales upturn which will help to stabilize home prices and set the foundation for a sustainable economic recovery.”
The national median existing-home price3 for all housing types was $175,400 in December, which is 15.3 percent below December 2007 when the median was $207,000. There remains a significant downward distortion in the current median from a large number of distress sales at discounted prices, currently 45 percent of transactions; the median is where half of the homes sold for more and half sold for less. For all of 2008, the median price was $198,600, down 9.3 percent from $219,000 in 2007.
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said it’s an excellent time for first-time home buyers with good jobs. “The typical buyer plans to stay in their home for 10 years, which is the correct approach in today’s market,” he said. “With historically low mortgage interest rates, flexible sellers, a large inventory, and homes that are selling for less than replacement construction costs in much of the country, buyers who’ve been on the fence should take a closer look at today’s market.”
McMillan added that first-time buyers may want to consider an FHA loan, which offers downpayments of 3.5 percent on a safe 30-year fixed-rate mortgage.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 5.29 percent in December from 6.09 percent in November; the rate was 6.10 percent in December 2007. Last week, Freddie Mac reported the 30-year rate was 5.12 percent.
Single-family home sales rose 7.0 percent to a seasonally adjusted annual rate of 4.26 million in December from a level of 3.98 million in November, but are 1.4 percent below a 4.32 million-unit pace in December 2007. For all of 2008, single-family sales fell 11.9 percent to 4,349,000.
The median existing single-family home price was $174,700 in December, down 14.8 percent from a year ago. For all of 2008, the single-family median was $197,100, which is 9.5 percent below 2007.
Existing condominium and co-op sales increased 2.1 percent to a seasonally adjusted annual rate of 480,000 units in December from 470,000 in November, but are 18.4 percent below the 588,000-unit level a year ago. For all of 2008, condo sales dropped 21.0 percent to 563,000 units.
The median existing condo price4 was $181,400 in December, down 18.3 percent from December 2007. For all of 2008, the median condo price was $210,000, which is 7.2 percent below 2007.
Regionally, existing-home sales in the Northeast slipped 1.4 percent to an annual pace of 720,000 in December, and are 14.3 percent below December 2007. The median price in the Northeast was $235,000, which is 7.8 percent lower than a year ago.
Existing-home sales in the Midwest increased 4.0 percent in December to a level of 1.04 million but are 10.3 percent below a year ago. The median price in the Midwest was $140,800, down 11.4 percent from December 2007.
In the South, existing-home sales rose 7.4 percent to an annual pace of 1.74 million in December, but are 11.2 percent lower than December 2007. The median price in the South was $158,600, which is down 8.0 percent from a year ago.
Existing-home sales in the West jumped 13.6 percent to an annual rate of 1.25 million in December and are 31.6 percent higher than a year ago. The median price in the West was $213,100, down 31.5 percent from December 2007.
# # #
1The annual rate for a particular month represents what the total number of actual sales for a year would be if the relative pace for that month were maintained for 12 consecutive months. Seasonally adjusted annual rates are used in reporting monthly data to factor out seasonal variations in resale activity. For example, home sales volume is normally higher in the summer than in the winter, primarily because of differences in the weather and family buying patterns. However, seasonal factors cannot compensate for abnormal weather patterns.
Existing-home sales, which include single-family, townhomes, condominiums and co-ops, are based on transaction closings. This differs from the U.S. Census Bureau’s series on new single-family home sales, which are based on contracts or the acceptance of a deposit. Because of these differences, it is not uncommon for each series to move in different directions in the same month. In addition, existing-home sales, which generally account for 85 to 90 percent of total home sales, are based on a much larger sample – more than 40 percent of multiple listing service data each month – and typically are not subject to large prior-month revisions.
2Total inventory and month’s supply data are available back through 1999, while single-family inventory and month’s supply are available back to 1982. Condos were tracked quarterly prior to 1999 when single-family homes accounted for more than nine out of 10 purchases.
3The only valid comparisons for median prices are with the same period a year earlier due to the seasonality in buying patterns. Month-to-month comparisons do not compensate for seasonal changes, especially for the timing of family buying patterns. Changes in the composition of sales can distort median price data. Year-ago median and mean prices sometimes are revised in an automated process if more data is received than was originally reported.
4Because there is a concentration of condos in high-cost metro areas, the national median condo price can be higher than the median single-family price. In a given market area, condos typically cost less than single-family homes.
Existing-home sales for January – including monthly revisions to sales rates for the past three years – will be released February 25. Each February, NAR Research incorporates a review of seasonal activity factors and fine-tunes historic data for the previous three years based on the most recent findings. Revisions will made to monthly seasonally adjusted annual sales rates for 2006 through 2008, as well as the inventory month's supply data. There will be no revisions to raw inventory or home prices aside from the normal prior month revisions.
Existing-home sales – including single-family, townhomes, condominiums and co-ops – jumped 6.5 percent to a seasonally adjusted annual rate1 of 4.74 million units in December from a downwardly revised pace of 4.45 million units in November, but are 3.5 percent below the 4.91 million-unit pace in December 2007.
For all of 2008 there were 4,912,000 existing-home sales, which was 13.1 percent below the 5,652,000 transactions recorded in 2007. This is the lowest volume since 1997 when there were 4,371,000 sales.
Lawrence Yun, NAR chief economist, said home prices continue to fall significantly. “It appears some buyers are taking advantage of much lower home prices,” he said. “The higher monthly sales gain and falling inventory are steps in the right direction, but the market is still far from normal balanced conditions. Buyers will continue to have an edge over sellers for the foreseeable future.”
Total housing inventory at the end of December fell 11.7 percent to 3.68 million existing homes available for sale, which represents a 9.3-month supply2 at the current sales pace, down from a 11.2-month supply in November.
Yun said the market is underperforming and hurting the broader economy. “We’ve added 25 million people to our population over the past decade and housing affordability conditions are the best we’ve seen since 1973, but household formation is much lower than expected,” he said. “Consequently, there is a pent-up demand which could be unleashed with the right stimulus, including a non-repayable home buyer tax credit. The Obama administration and Congress need to move fast to stimulate a spring sales upturn which will help to stabilize home prices and set the foundation for a sustainable economic recovery.”
The national median existing-home price3 for all housing types was $175,400 in December, which is 15.3 percent below December 2007 when the median was $207,000. There remains a significant downward distortion in the current median from a large number of distress sales at discounted prices, currently 45 percent of transactions; the median is where half of the homes sold for more and half sold for less. For all of 2008, the median price was $198,600, down 9.3 percent from $219,000 in 2007.
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said it’s an excellent time for first-time home buyers with good jobs. “The typical buyer plans to stay in their home for 10 years, which is the correct approach in today’s market,” he said. “With historically low mortgage interest rates, flexible sellers, a large inventory, and homes that are selling for less than replacement construction costs in much of the country, buyers who’ve been on the fence should take a closer look at today’s market.”
McMillan added that first-time buyers may want to consider an FHA loan, which offers downpayments of 3.5 percent on a safe 30-year fixed-rate mortgage.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 5.29 percent in December from 6.09 percent in November; the rate was 6.10 percent in December 2007. Last week, Freddie Mac reported the 30-year rate was 5.12 percent.
Single-family home sales rose 7.0 percent to a seasonally adjusted annual rate of 4.26 million in December from a level of 3.98 million in November, but are 1.4 percent below a 4.32 million-unit pace in December 2007. For all of 2008, single-family sales fell 11.9 percent to 4,349,000.
The median existing single-family home price was $174,700 in December, down 14.8 percent from a year ago. For all of 2008, the single-family median was $197,100, which is 9.5 percent below 2007.
Existing condominium and co-op sales increased 2.1 percent to a seasonally adjusted annual rate of 480,000 units in December from 470,000 in November, but are 18.4 percent below the 588,000-unit level a year ago. For all of 2008, condo sales dropped 21.0 percent to 563,000 units.
The median existing condo price4 was $181,400 in December, down 18.3 percent from December 2007. For all of 2008, the median condo price was $210,000, which is 7.2 percent below 2007.
Regionally, existing-home sales in the Northeast slipped 1.4 percent to an annual pace of 720,000 in December, and are 14.3 percent below December 2007. The median price in the Northeast was $235,000, which is 7.8 percent lower than a year ago.
Existing-home sales in the Midwest increased 4.0 percent in December to a level of 1.04 million but are 10.3 percent below a year ago. The median price in the Midwest was $140,800, down 11.4 percent from December 2007.
In the South, existing-home sales rose 7.4 percent to an annual pace of 1.74 million in December, but are 11.2 percent lower than December 2007. The median price in the South was $158,600, which is down 8.0 percent from a year ago.
Existing-home sales in the West jumped 13.6 percent to an annual rate of 1.25 million in December and are 31.6 percent higher than a year ago. The median price in the West was $213,100, down 31.5 percent from December 2007.
# # #
1The annual rate for a particular month represents what the total number of actual sales for a year would be if the relative pace for that month were maintained for 12 consecutive months. Seasonally adjusted annual rates are used in reporting monthly data to factor out seasonal variations in resale activity. For example, home sales volume is normally higher in the summer than in the winter, primarily because of differences in the weather and family buying patterns. However, seasonal factors cannot compensate for abnormal weather patterns.
Existing-home sales, which include single-family, townhomes, condominiums and co-ops, are based on transaction closings. This differs from the U.S. Census Bureau’s series on new single-family home sales, which are based on contracts or the acceptance of a deposit. Because of these differences, it is not uncommon for each series to move in different directions in the same month. In addition, existing-home sales, which generally account for 85 to 90 percent of total home sales, are based on a much larger sample – more than 40 percent of multiple listing service data each month – and typically are not subject to large prior-month revisions.
2Total inventory and month’s supply data are available back through 1999, while single-family inventory and month’s supply are available back to 1982. Condos were tracked quarterly prior to 1999 when single-family homes accounted for more than nine out of 10 purchases.
3The only valid comparisons for median prices are with the same period a year earlier due to the seasonality in buying patterns. Month-to-month comparisons do not compensate for seasonal changes, especially for the timing of family buying patterns. Changes in the composition of sales can distort median price data. Year-ago median and mean prices sometimes are revised in an automated process if more data is received than was originally reported.
4Because there is a concentration of condos in high-cost metro areas, the national median condo price can be higher than the median single-family price. In a given market area, condos typically cost less than single-family homes.
Existing-home sales for January – including monthly revisions to sales rates for the past three years – will be released February 25. Each February, NAR Research incorporates a review of seasonal activity factors and fine-tunes historic data for the previous three years based on the most recent findings. Revisions will made to monthly seasonally adjusted annual sales rates for 2006 through 2008, as well as the inventory month's supply data. There will be no revisions to raw inventory or home prices aside from the normal prior month revisions.
Tuesday, January 27, 2009
New Fannie, Freddie rules on the way
Regulator will issue new rules governing the mortgage finance company's portfolio holdings. Also coming, new capital requirements for Federal Home Loan Banks.
By Tami Luhby
NEW YORK (CNNMoney.com) -- The federal regulator of Fannie Mae and Freddie Mac will set new rules early next week governing the mortgage finance companies' portfolios, which play a crucial role in the nation's housing market.
The Federal Housing Finance Agency is required by Congress to issue regulations ensuring the companies' portfolios are backed by sufficient capital, while keeping in mind their ability to provide funding for the mortgage market by turninghome loans into securities. Their portfolios contain mortgages and securities backed by home loans.
The agency will also establish new capital rules for the 12 regional Federal Home Loan Banks, which provide much-needed low-cost funding for more than 8,000 banks nationwide. The home-loan bankshave suffered in the economic crisis and may have to reduce their lending to shore up their finances.
"The regulations will address items critical to the safety and soundness of the 14 government-sponsored enterprises, which play a vital role in the nation's mortgage market," said James Lockhart, the agency's director.
Analysts, however, say it's more important to determine the future of Fannie and Freddie, which were taken over by the federal government in September, than to issue portfolio regulations.
"What Congress decides to do with these two companies is the real question," said Jonathan Koppell, associate professor at the Yale School of Management.
Portfolio problems
Fannie and Freddie are the largest sources of funding for the U.S. housing market. They buy mortgages from lenders and either hold them on their books or bundle them into securities. The companies also buy mortgage-backed securities.
Their $1.7 trillion portfolios have long been a source of controversy. Regulators had capped the growth of the companies' portfolios after the pair emerged from accounting scandals earlier this decade in an effort to minimize their riskiness.
But as the mortgage crisis unfolded over the past two years, the federal government has leaned more heavily on Fannie and Freddie to keep the housing market afloat. With investors shying away from buying mortgage-backed securities, the two companies are essentially the only players in the arena nowadays. Regulators lifted the portfolio caps last March.
Fannie and Freddie, however, continue to suffer as delinquencies rise. On Friday, Freddie announced it would ask the U.S. Treasury for up to $35 billion more in assistance as it anticipates losses in its fourth-quarter results. The company has already drawn down $13.8 billion of the $100 billion in federal funds made available to it when it was placed into conservatorship in September.
Trouble at FHLB
Meanwhile, the agency must also set capital requirements at the Federal Home Loan Banks, which are owned by the 8,000 member banks but have an implicit government guarantee. Established during the Great Depression, the home-loan banks are the nation's largest source of residential mortgage and community development credit. They provide low-cost loans, called advances, to member institutions, taking collateral such as high-quality mortgage-backed securities in exchange. Banks nationwide have increasingly relied on the home-loan banks for crucial funding as other sources dry up.
But as the value of the mortgage-backed securities drops, the home-loan banks are facing a credit crunch of their own. Some have cut back their dividends. Others have announced they may fall below their current capital requirements.
If the Federal Housing Finance Agency ups the home-loan banks' capital rules, they may not be able to lend as much. But that may not be a bad thing, experts said.
"The problem of the last five years is that people were doing too much lending," said Thomas Stanton, a lecturer at Johns Hopkins University. "They cannot be as big as everyone would like."
By Tami Luhby
NEW YORK (CNNMoney.com) -- The federal regulator of Fannie Mae and Freddie Mac will set new rules early next week governing the mortgage finance companies' portfolios, which play a crucial role in the nation's housing market.
The Federal Housing Finance Agency is required by Congress to issue regulations ensuring the companies' portfolios are backed by sufficient capital, while keeping in mind their ability to provide funding for the mortgage market by turninghome loans into securities. Their portfolios contain mortgages and securities backed by home loans.
The agency will also establish new capital rules for the 12 regional Federal Home Loan Banks, which provide much-needed low-cost funding for more than 8,000 banks nationwide. The home-loan bankshave suffered in the economic crisis and may have to reduce their lending to shore up their finances.
"The regulations will address items critical to the safety and soundness of the 14 government-sponsored enterprises, which play a vital role in the nation's mortgage market," said James Lockhart, the agency's director.
Analysts, however, say it's more important to determine the future of Fannie and Freddie, which were taken over by the federal government in September, than to issue portfolio regulations.
"What Congress decides to do with these two companies is the real question," said Jonathan Koppell, associate professor at the Yale School of Management.
Portfolio problems
Fannie and Freddie are the largest sources of funding for the U.S. housing market. They buy mortgages from lenders and either hold them on their books or bundle them into securities. The companies also buy mortgage-backed securities.
Their $1.7 trillion portfolios have long been a source of controversy. Regulators had capped the growth of the companies' portfolios after the pair emerged from accounting scandals earlier this decade in an effort to minimize their riskiness.
But as the mortgage crisis unfolded over the past two years, the federal government has leaned more heavily on Fannie and Freddie to keep the housing market afloat. With investors shying away from buying mortgage-backed securities, the two companies are essentially the only players in the arena nowadays. Regulators lifted the portfolio caps last March.
Fannie and Freddie, however, continue to suffer as delinquencies rise. On Friday, Freddie announced it would ask the U.S. Treasury for up to $35 billion more in assistance as it anticipates losses in its fourth-quarter results. The company has already drawn down $13.8 billion of the $100 billion in federal funds made available to it when it was placed into conservatorship in September.
Trouble at FHLB
Meanwhile, the agency must also set capital requirements at the Federal Home Loan Banks, which are owned by the 8,000 member banks but have an implicit government guarantee. Established during the Great Depression, the home-loan banks are the nation's largest source of residential mortgage and community development credit. They provide low-cost loans, called advances, to member institutions, taking collateral such as high-quality mortgage-backed securities in exchange. Banks nationwide have increasingly relied on the home-loan banks for crucial funding as other sources dry up.
But as the value of the mortgage-backed securities drops, the home-loan banks are facing a credit crunch of their own. Some have cut back their dividends. Others have announced they may fall below their current capital requirements.
If the Federal Housing Finance Agency ups the home-loan banks' capital rules, they may not be able to lend as much. But that may not be a bad thing, experts said.
"The problem of the last five years is that people were doing too much lending," said Thomas Stanton, a lecturer at Johns Hopkins University. "They cannot be as big as everyone would like."
Monday, January 26, 2009
10 real estate myths for buyers and sellers
The truth about the housing market
In today’s uncertain market, fear runs rampant on both the buying and selling sides of the fence. Many myths need debunking. Here are five untruths held by buyers, and five held by sellers.
Buyer myth #1: The longer the house is on the market, the more you can negotiate.
When buyers ask, “How long has this property been on the market?” They think “six months” means they can negotiate the price down. It more often means the seller is stubbornly holding on to their price.
Buyer myth #2: The sellers today are desperate.
Most aren’t. Always ask why the sellers are selling. It’s the key to finding how motivated and anxious they are. “I’m being transferred to Dallas” is a very different answer than, “We’d like to find something bigger.” The first homeowner is hot to trot.
Buyer myth #3: You can’t buy a home today with less than 20 percent down.
FHA loans require only 3.5 percent down, and you can even ask the seller to pay the closing costs.
Buyer myth #4: You need good credit to get a good loan.
Once again, the FHA to the rescue! They’re happy to lend money to buyers with bad credit.
Buyer myth #5: You shouldn't buy before prices have bottomed.
You can’t sharpshoot the real estate market. Once you identify the “bottom,” prices have already moved up.
Seller myth #1: Now’s the absolute worst time to sell.
Not necessarily. It depends upon where you live. Many of the worst hit markets, like Las Vegas, Phoenix or San Diego, are already beginning to turn around. And if you’re a homeowner who wants to trade up, the loss you’ll take on your current home will be more than offset by the bargain you’ll get on the next one.
Seller myth #2: Never respond to a low-ball bid.
All buyers today feel obligated to put in low-ball offers to see if the seller bites. If you respond with a reasonable counter offer, most buyers can be convinced to come up in price and make the deal.
Seller myth #3: The first offer is never the best offer.
Most sellers believe that it’s smart to hold out for something better. But four times out of five, the first offer is the best you’ll ever see.
Seller myth #4: 'I can always reduce my price later.'
Sellers often price their home high for a few weeks just to test the market. But buyers shop by price bracket and if your house is in the wrong one, you’ll just help sell everyone else’s home while yours sits there overpriced. And reducing your price later in small increments puts you in the position of chasing the tide as it goes out.
Seller myth #5: Before you refinance, shop around.
You can if you want, but you’ll usually get the best deal from your current
In today’s uncertain market, fear runs rampant on both the buying and selling sides of the fence. Many myths need debunking. Here are five untruths held by buyers, and five held by sellers.
Buyer myth #1: The longer the house is on the market, the more you can negotiate.
When buyers ask, “How long has this property been on the market?” They think “six months” means they can negotiate the price down. It more often means the seller is stubbornly holding on to their price.
Buyer myth #2: The sellers today are desperate.
Most aren’t. Always ask why the sellers are selling. It’s the key to finding how motivated and anxious they are. “I’m being transferred to Dallas” is a very different answer than, “We’d like to find something bigger.” The first homeowner is hot to trot.
Buyer myth #3: You can’t buy a home today with less than 20 percent down.
FHA loans require only 3.5 percent down, and you can even ask the seller to pay the closing costs.
Buyer myth #4: You need good credit to get a good loan.
Once again, the FHA to the rescue! They’re happy to lend money to buyers with bad credit.
Buyer myth #5: You shouldn't buy before prices have bottomed.
You can’t sharpshoot the real estate market. Once you identify the “bottom,” prices have already moved up.
Seller myth #1: Now’s the absolute worst time to sell.
Not necessarily. It depends upon where you live. Many of the worst hit markets, like Las Vegas, Phoenix or San Diego, are already beginning to turn around. And if you’re a homeowner who wants to trade up, the loss you’ll take on your current home will be more than offset by the bargain you’ll get on the next one.
Seller myth #2: Never respond to a low-ball bid.
All buyers today feel obligated to put in low-ball offers to see if the seller bites. If you respond with a reasonable counter offer, most buyers can be convinced to come up in price and make the deal.
Seller myth #3: The first offer is never the best offer.
Most sellers believe that it’s smart to hold out for something better. But four times out of five, the first offer is the best you’ll ever see.
Seller myth #4: 'I can always reduce my price later.'
Sellers often price their home high for a few weeks just to test the market. But buyers shop by price bracket and if your house is in the wrong one, you’ll just help sell everyone else’s home while yours sits there overpriced. And reducing your price later in small increments puts you in the position of chasing the tide as it goes out.
Seller myth #5: Before you refinance, shop around.
You can if you want, but you’ll usually get the best deal from your current
Friday, January 23, 2009
30-year fixed rates climb back above 5%
Mortgage rates are on the rise for the first time since the Federal Reserve's decision to purchase mortgage backed securities in November.
Larissa Padden, CNNMoney.com contributor
NEW YORK (CNNMoney.com) -- Interest rates on 30-year fixed rate mortgages rose after an 11 week streak of declines.
Government sponsored mortgage lender Freddie Mac said Thursday that fixed rates on 30-year mortgages averaged 5.12% for the week ending Jan. 22. That's up from last week when is averaged 4.96% but still below 5.48%, which is where the rate stood at this time last year.
This is the first time interest rates have risen since the Federal Reserve announced it would purchase $500 billion worth of mortgage backed securities on November 25, 2008.
"Fixed-rate mortgages followed bond yields and edged up this holiday week," said Frank Nothaft, Freddie Mac (FRE, Fortune 500) vice president and chief economist in a release on Thursday.
"However, over the first three weeks of 2009, the 30-year fixed-rate mortgage was an average 0.25 percentage points below its monthly average for December 2008. As a result, the number of mortgage applications for refinancing was roughly about 86 percent of all conventional loans over the same time period."
The 15-year fixed rate mortgage was also up this week, averaging 4.8%, compared with an average of 4.65% last week. But that's still still down from a year ago at this time, when the 15-year FRM averaged 4.95%.
One-year Treasury-indexed adjustable-rate mortgages (ARM) rose as well and averaged 4.92% this week, up from 4.89% last week. At this time last year, the 1-year ARM averaged 4.99%.
However, five-year Treasury-indexed ARMs continued to fall this week. The 5-year ARM averaged 5.24%, down from last week when it averaged 5.25%. To top of page
Larissa Padden, CNNMoney.com contributor
NEW YORK (CNNMoney.com) -- Interest rates on 30-year fixed rate mortgages rose after an 11 week streak of declines.
Government sponsored mortgage lender Freddie Mac said Thursday that fixed rates on 30-year mortgages averaged 5.12% for the week ending Jan. 22. That's up from last week when is averaged 4.96% but still below 5.48%, which is where the rate stood at this time last year.
This is the first time interest rates have risen since the Federal Reserve announced it would purchase $500 billion worth of mortgage backed securities on November 25, 2008.
"Fixed-rate mortgages followed bond yields and edged up this holiday week," said Frank Nothaft, Freddie Mac (FRE, Fortune 500) vice president and chief economist in a release on Thursday.
"However, over the first three weeks of 2009, the 30-year fixed-rate mortgage was an average 0.25 percentage points below its monthly average for December 2008. As a result, the number of mortgage applications for refinancing was roughly about 86 percent of all conventional loans over the same time period."
The 15-year fixed rate mortgage was also up this week, averaging 4.8%, compared with an average of 4.65% last week. But that's still still down from a year ago at this time, when the 15-year FRM averaged 4.95%.
One-year Treasury-indexed adjustable-rate mortgages (ARM) rose as well and averaged 4.92% this week, up from 4.89% last week. At this time last year, the 1-year ARM averaged 4.99%.
However, five-year Treasury-indexed ARMs continued to fall this week. The 5-year ARM averaged 5.24%, down from last week when it averaged 5.25%. To top of page
Thursday, January 22, 2009
The lowdown on getting a low down payment loan
It's not easy for anyone to get a loan these days, but the Federal Housing Authority is still offering 3.5% down loans to borrowers who qualify. Here's how it works.
By Les Christie, CNNMoney.com staff writer
January 20, 2009: 6:51 AM ET
NEW YORK (CNNMoney.com) -- The credit crunch has made it hard for anyone to get a loan these days - and borrowers who can only make a small down payment are facing even tougher odds.
But it's not impossible to land a low-down payment loan. The Federal Housing Administration (FHA) is actually still offering 3.5%-down mortgages to qualified buyers, even as the subprime loans that these types of borrowers had traditionally relied upon have dried up.
The FHA has been flooded with applications; in 2008 it helped 630,000 borrowers buy homes, most of them using low-down payment loans.
"People can get an FHA loan with very little out of pocket," said George Hanzimanolis, a mortgage broker in Pennsylvania and past president of the National Association of Mortgage Brokers.
He recently arranged an FHA mortgage for a client last month for $242,500 on a $250,000 home. The interest rate came in at 4.75% for a 30-year fixed rate loan, yielding a monthly payment of only about $1,265 - just $15 more than the rent the buyer had been paying on a smaller home. The tax savings will more than offset that, as well as his property taxes and insurance.
No wonder the program is flourishing.
How to get an FHA-insured mortgage
Applying for an FHA loan isn't difficult, and the parameters for those who qualify are fairly straightforward. Start by calling a mortgage broker or an FHA-approved lender. You can search for an FHA lender on the Web site of the U.S. Department of Housing and Urban Development.
For lenders, income is the main factor in determining who qualifies for an FHA loan. The agency's guidelines dictate that that buyers spend no more than 31% of their gross income on mortgage payments.
Lenders do look at buyers' credit histories, but the interest rates that FHA borrowers pay aren't actually based on their credit scores, as they are for most home buyers, according to Keith Gumbinger of HSH Associates, a publisher of mortgage loan information.Instead,FHA borrowers get the same interest rate that any conforming borrower with a good credit score would receive.
One catch: Borrowers with scores of 500 or less are generally required to pony up a down payment of 10% rather than the 3.5% minimum.
The FHA also charges insurance premiums, which pay to cover any defaults. Borrowers pay an up-front fee of 1.5% to 2.5% of the dollar-value of loan, as well as an annual fee of 0.5%.
So a buyer of a $200,000 home would be expected to come up with a $7,000 down payment as well as $5,000 for the initial insurance premium. The borrower's monthly mortgage payment would come to about $1,096, including the 0.5% ongoing fee, at an interest rate of 5%.
And there is a limit to just how much can be borrowed. In most parts of the country, FHA borrowers may not finance more than $271,500. In high-cost areas like New York and California, the cap is $625,000 for single family homes. In Hawaii, the cap is as much as $721,050.
And there is even more help available to lower-income home buyers from the government-funded American Dream Down Payment Initiative program. That fund makes $200 million a year available to help low-income home buyers pay for down payments, or to make home repairs. To be eligible, a borrower's income must be no more than 80% their area's median income. And the grants may not exceed $10,000, or six percent of the home price, whichever is greater.
Good track record
After the FHA issues a loan, it has a strong track record of keeping its borrowers in their homes.
The agency's loans do have significantly higher delinquency rates than prime loans - almost 12% compared with 4.3% for prime, according to the Mortgage Bankers Association. But thanks to the FHA's well developed loss mitigation procedures, its delinquent loans rarely end up in foreclosure.
Fewer than 1% of FHA loans were foreclosed on during the third quarter of 2008 compared with 0.6% for prime loans. At the same time, more than 4.5% of subprime loans went into foreclosure.
The FHA keeps foreclosure rates low by working hard with delinquent borrowers, according to John Courson, president of the Mortgage Bankers Association.
"It does a lot of forbearance [postponing payments] and pays a lot of partial claims [one time payments from the insurance fund borrowers pay into] to keep foreclosure rates down," he said.
With access to credit so restricted these days, the fact that people can still obtain safe, affordable mortgages while putting very little money down provides a real boost to housing markets.
FHA loans are especially critical for first-time home buyers, who are considered by experts to be critical to getting housing moving again. When they buy homes from existing home owners, that allows those homeowners to trade up to more expensive homes. That's the kind of cycle that could help get the market going.
Says Hanzimanolis: "These loans are really helping to move real estate these days."
By Les Christie, CNNMoney.com staff writer
January 20, 2009: 6:51 AM ET
NEW YORK (CNNMoney.com) -- The credit crunch has made it hard for anyone to get a loan these days - and borrowers who can only make a small down payment are facing even tougher odds.
But it's not impossible to land a low-down payment loan. The Federal Housing Administration (FHA) is actually still offering 3.5%-down mortgages to qualified buyers, even as the subprime loans that these types of borrowers had traditionally relied upon have dried up.
The FHA has been flooded with applications; in 2008 it helped 630,000 borrowers buy homes, most of them using low-down payment loans.
"People can get an FHA loan with very little out of pocket," said George Hanzimanolis, a mortgage broker in Pennsylvania and past president of the National Association of Mortgage Brokers.
He recently arranged an FHA mortgage for a client last month for $242,500 on a $250,000 home. The interest rate came in at 4.75% for a 30-year fixed rate loan, yielding a monthly payment of only about $1,265 - just $15 more than the rent the buyer had been paying on a smaller home. The tax savings will more than offset that, as well as his property taxes and insurance.
No wonder the program is flourishing.
How to get an FHA-insured mortgage
Applying for an FHA loan isn't difficult, and the parameters for those who qualify are fairly straightforward. Start by calling a mortgage broker or an FHA-approved lender. You can search for an FHA lender on the Web site of the U.S. Department of Housing and Urban Development.
For lenders, income is the main factor in determining who qualifies for an FHA loan. The agency's guidelines dictate that that buyers spend no more than 31% of their gross income on mortgage payments.
Lenders do look at buyers' credit histories, but the interest rates that FHA borrowers pay aren't actually based on their credit scores, as they are for most home buyers, according to Keith Gumbinger of HSH Associates, a publisher of mortgage loan information.Instead,FHA borrowers get the same interest rate that any conforming borrower with a good credit score would receive.
One catch: Borrowers with scores of 500 or less are generally required to pony up a down payment of 10% rather than the 3.5% minimum.
The FHA also charges insurance premiums, which pay to cover any defaults. Borrowers pay an up-front fee of 1.5% to 2.5% of the dollar-value of loan, as well as an annual fee of 0.5%.
So a buyer of a $200,000 home would be expected to come up with a $7,000 down payment as well as $5,000 for the initial insurance premium. The borrower's monthly mortgage payment would come to about $1,096, including the 0.5% ongoing fee, at an interest rate of 5%.
And there is a limit to just how much can be borrowed. In most parts of the country, FHA borrowers may not finance more than $271,500. In high-cost areas like New York and California, the cap is $625,000 for single family homes. In Hawaii, the cap is as much as $721,050.
And there is even more help available to lower-income home buyers from the government-funded American Dream Down Payment Initiative program. That fund makes $200 million a year available to help low-income home buyers pay for down payments, or to make home repairs. To be eligible, a borrower's income must be no more than 80% their area's median income. And the grants may not exceed $10,000, or six percent of the home price, whichever is greater.
Good track record
After the FHA issues a loan, it has a strong track record of keeping its borrowers in their homes.
The agency's loans do have significantly higher delinquency rates than prime loans - almost 12% compared with 4.3% for prime, according to the Mortgage Bankers Association. But thanks to the FHA's well developed loss mitigation procedures, its delinquent loans rarely end up in foreclosure.
Fewer than 1% of FHA loans were foreclosed on during the third quarter of 2008 compared with 0.6% for prime loans. At the same time, more than 4.5% of subprime loans went into foreclosure.
The FHA keeps foreclosure rates low by working hard with delinquent borrowers, according to John Courson, president of the Mortgage Bankers Association.
"It does a lot of forbearance [postponing payments] and pays a lot of partial claims [one time payments from the insurance fund borrowers pay into] to keep foreclosure rates down," he said.
With access to credit so restricted these days, the fact that people can still obtain safe, affordable mortgages while putting very little money down provides a real boost to housing markets.
FHA loans are especially critical for first-time home buyers, who are considered by experts to be critical to getting housing moving again. When they buy homes from existing home owners, that allows those homeowners to trade up to more expensive homes. That's the kind of cycle that could help get the market going.
Says Hanzimanolis: "These loans are really helping to move real estate these days."
Wednesday, January 21, 2009
Finally, Renters Have Some Pull
By DANA MATTIOLI
Now it's a renter's market, too.
As the housing downturn deepens, rental rates are falling in many major U.S. cities, including New York and Los Angeles, and tenants are finding they have greater leeway to renegotiate their leases.
Early in the housing crisis, former homeowners were starting to rent again, supporting demand for rentals. Now, with more newly constructed condos being converted into rental units, landlords are struggling to keep buildings occupied. Apartment rents nationwide fell 0.4% in the fourth quarter from the third quarter -- the first drop since 2003, according to Reis Inc., a New York City-based real-estate research company. Apartment vacancies rose to 6.6% in the quarter from 5.7% a year earlier.
In some major cities, the declines have been far steeper. In Manhattan, rents fell on almost all kinds of apartments in 2008. Rents of studio apartments fell 7.4%, and rents of one-bedrooms and two-bedrooms in buildings without a doorman fell 5.5% and 5.6%, respectively, according to a report released Tuesday by the Real Estate Group of New York, a Manhattan-based brokerage firm. In Miami, 60% of rents decreased in the fourth quarter, and 45% of rents in Los Angeles declined. Rents did buck the trend in a few cities. During 2008, rents increased 2.3% in Pittsburgh and 4.2% in Houston.
The overall weak rental market has emboldened a number of tenants to start negotiating with their landlords. Richard Laermer, owner of a public-relations firm, was heading toward 2009 with the prospect of lower income and a steep monthly rent -- $4,700 for a two-bedroom, two-bathroom apartment in midtown New York City. So in November, he asked his landlord for a break. Even though it was months before his lease was up, he won a $200-a-month rent decrease.
"Owners realize that there isn't the job growth necessary to sustain high demand for rentals, and they have to be much more realistic" about price, says Daniel Baum, chief operating officer of the Real Estate Group.
Seeking a Discount
Some landlords and property managers say they have never encountered so many tenants looking to bargain. Mitchell Rattner, president of Home Equity Savers in Riverwoods, Ill., owns 50 condo complexes and homes around Chicago with a partner and says that requests by tenants to negotiate were almost unheard of until fairly recently. In the past 10 months, he's discounted two of his tenants' rents midlease to keep them from moving out. "If they're good payers, we will give them a discount," he says.
But even in a positive climate for renters, there are steps people should take before trying to renegotiate a lease. Mr. Baum of New York's Real Estate Group suggests seeking out evidence of similar apartments in your neighborhood that are being rented for less. Present these findings to your landlord to bolster your case for a lower rent.
Offering to extend your lease can also help persuade a landlord to make a deal. Mr. Laermer told his landlord that he'd stay an extra year if he worked with him to lower the price midcontract; Mr. Laermer also hinted that he'd leave the building otherwise. Of course, if you plan to play hardball and threaten to leave, be sure you are prepared to move.
Gentle persistence can pay off. Michael Soon Lee, a broker who owns Realty Unlimited in the San Francisco area, worked with a couple in November to lower their rent. The wife had recently been laid off, and the $1,800 monthly rent was too high. At first, the apartment manager refused to budge on price. But Mr. Lee advised the couple to approach the property's owner, who reduced their rent to $1,400, asking only that they add another year to their lease.
A Worried Email
Jared Wilk, a Realtor at Wilk & Welch Associates, a real-estate developer and property manager in the Boston area, recently got an email from a tenant at one of his apartment complexes after her rent check bounced. The tenant was worried that she'd have to break her lease for financial reasons. Since she had rented the three-bedroom apartment for a year and a half, Mr. Wilk told her he would work with her to lower her rent or, if she wanted to find someone to sublet her apartment, he would waive the customary fee. Mr. Wilk says he was willing to make a deal with his tenant because of her steady track record -- and the fact that he wouldn't be able to rent the apartment for much more than the discount he would offer her.
It may be easiest to negotiate in cities like Miami and Las Vegas that have been hit hard by home foreclosures. There, renters are getting a boost from a "shadow supply" of rental units: Investors who have scooped up foreclosed homes are renting them out so they don't have to sell into a declining market. Such investors "are undercutting a lot of the normal rental rates so they can attract tenants quicker," says Elizabeth Olds, real-estate economist with Boston-based Property & Portfolio Research Inc.
In some California cities, vacancy rates are being boosted by the conversion of new condo projects into rentals, says Patrick S. Duffy, principal of MetroIntelligence Real Estate Advisors, a real-estate consulting firm based in Los Angeles. In downtown L.A., where there are a lot of new condos, the vacancy rate was almost 10% in the fourth quarter, compared with an L.A.-wide vacancy rate of 4.5%.
Signs: 'Now Renting'
For renters, it pays to be aware of your surroundings and look for indications that management may be willing to work with you. Blake McCrossin, a 27-year-old who works for an entertainment magazine in Los Angeles, noticed that the Hollywood apartment building he lived in for three years was having some difficulties. The building had once had a waiting list, but now the outside wall displayed "Now Renting" signs. The building maintenance and landscaping were suffering, and the desk security was becoming scarce.
In March 2008, he approached the management and explained that the $1,350 he was spending each month on his half of a two-bedroom unit was too expensive, since he had just had a pay cut. The landlords, eager to keep him and his roommate in the building, lowered the rent to $2,390 -- $1,195 a month each -- and granted both renters a month-to-month contract. (Mr. McCrossin moved seven months later, after the complex became more run-down.)
Fear of losing a good tenant is often enough to make landlords reconsider their rent. Jenna Carpenter, a 28-year-old living in a $2,000-per-month one-bedroom apartment on New York's Lower East Side, didn't plan to renegotiate her contract. But once she told her landlord she didn't plan to renew her lease in March, he offered to lower her rent. They are now negotiating a cut of between $300 and $400 a month.
Even if your landlord won't adjust your rent midlease, he or she may offer concessions. Ms. Olds suggests asking for free use of amenities that would normally carry a cost, such as a gym or pool, or even asking to be upgraded to a better apartment with a great view or more square feet.
Gift Cards and Appliances
First-time apartment-hunters can also nab lower rental prices and concessions. Some apartment buildings are luring potential renters with gift cards, appliances, reduced rates and concessions such as free pool and gym use. Building owners fear that this summer's crop of college grads will move back home with their parents rather than renting apartments, says Jessica Scully, vice president of Scully Company, a property-management company with units in Pennsylvania, Florida, New Jersey and Connecticut.
The company is offering up to two months of free rent to new tenants at some locations, Ms. Scully says. It is also starting to work with tenants whose contracts are about to expire, offering a free month of rent when they renew at some locations.
"In the apartment business before the downturn, it wasn't a 'Let's make a deal' climate," says Ms. Scully. Now, "it's something we are seeing more of."
Write to Dana Mattioli at dana.mattioli@wsj.com
Now it's a renter's market, too.
As the housing downturn deepens, rental rates are falling in many major U.S. cities, including New York and Los Angeles, and tenants are finding they have greater leeway to renegotiate their leases.
Early in the housing crisis, former homeowners were starting to rent again, supporting demand for rentals. Now, with more newly constructed condos being converted into rental units, landlords are struggling to keep buildings occupied. Apartment rents nationwide fell 0.4% in the fourth quarter from the third quarter -- the first drop since 2003, according to Reis Inc., a New York City-based real-estate research company. Apartment vacancies rose to 6.6% in the quarter from 5.7% a year earlier.
In some major cities, the declines have been far steeper. In Manhattan, rents fell on almost all kinds of apartments in 2008. Rents of studio apartments fell 7.4%, and rents of one-bedrooms and two-bedrooms in buildings without a doorman fell 5.5% and 5.6%, respectively, according to a report released Tuesday by the Real Estate Group of New York, a Manhattan-based brokerage firm. In Miami, 60% of rents decreased in the fourth quarter, and 45% of rents in Los Angeles declined. Rents did buck the trend in a few cities. During 2008, rents increased 2.3% in Pittsburgh and 4.2% in Houston.
The overall weak rental market has emboldened a number of tenants to start negotiating with their landlords. Richard Laermer, owner of a public-relations firm, was heading toward 2009 with the prospect of lower income and a steep monthly rent -- $4,700 for a two-bedroom, two-bathroom apartment in midtown New York City. So in November, he asked his landlord for a break. Even though it was months before his lease was up, he won a $200-a-month rent decrease.
"Owners realize that there isn't the job growth necessary to sustain high demand for rentals, and they have to be much more realistic" about price, says Daniel Baum, chief operating officer of the Real Estate Group.
Seeking a Discount
Some landlords and property managers say they have never encountered so many tenants looking to bargain. Mitchell Rattner, president of Home Equity Savers in Riverwoods, Ill., owns 50 condo complexes and homes around Chicago with a partner and says that requests by tenants to negotiate were almost unheard of until fairly recently. In the past 10 months, he's discounted two of his tenants' rents midlease to keep them from moving out. "If they're good payers, we will give them a discount," he says.
But even in a positive climate for renters, there are steps people should take before trying to renegotiate a lease. Mr. Baum of New York's Real Estate Group suggests seeking out evidence of similar apartments in your neighborhood that are being rented for less. Present these findings to your landlord to bolster your case for a lower rent.
Offering to extend your lease can also help persuade a landlord to make a deal. Mr. Laermer told his landlord that he'd stay an extra year if he worked with him to lower the price midcontract; Mr. Laermer also hinted that he'd leave the building otherwise. Of course, if you plan to play hardball and threaten to leave, be sure you are prepared to move.
Gentle persistence can pay off. Michael Soon Lee, a broker who owns Realty Unlimited in the San Francisco area, worked with a couple in November to lower their rent. The wife had recently been laid off, and the $1,800 monthly rent was too high. At first, the apartment manager refused to budge on price. But Mr. Lee advised the couple to approach the property's owner, who reduced their rent to $1,400, asking only that they add another year to their lease.
A Worried Email
Jared Wilk, a Realtor at Wilk & Welch Associates, a real-estate developer and property manager in the Boston area, recently got an email from a tenant at one of his apartment complexes after her rent check bounced. The tenant was worried that she'd have to break her lease for financial reasons. Since she had rented the three-bedroom apartment for a year and a half, Mr. Wilk told her he would work with her to lower her rent or, if she wanted to find someone to sublet her apartment, he would waive the customary fee. Mr. Wilk says he was willing to make a deal with his tenant because of her steady track record -- and the fact that he wouldn't be able to rent the apartment for much more than the discount he would offer her.
It may be easiest to negotiate in cities like Miami and Las Vegas that have been hit hard by home foreclosures. There, renters are getting a boost from a "shadow supply" of rental units: Investors who have scooped up foreclosed homes are renting them out so they don't have to sell into a declining market. Such investors "are undercutting a lot of the normal rental rates so they can attract tenants quicker," says Elizabeth Olds, real-estate economist with Boston-based Property & Portfolio Research Inc.
In some California cities, vacancy rates are being boosted by the conversion of new condo projects into rentals, says Patrick S. Duffy, principal of MetroIntelligence Real Estate Advisors, a real-estate consulting firm based in Los Angeles. In downtown L.A., where there are a lot of new condos, the vacancy rate was almost 10% in the fourth quarter, compared with an L.A.-wide vacancy rate of 4.5%.
Signs: 'Now Renting'
For renters, it pays to be aware of your surroundings and look for indications that management may be willing to work with you. Blake McCrossin, a 27-year-old who works for an entertainment magazine in Los Angeles, noticed that the Hollywood apartment building he lived in for three years was having some difficulties. The building had once had a waiting list, but now the outside wall displayed "Now Renting" signs. The building maintenance and landscaping were suffering, and the desk security was becoming scarce.
In March 2008, he approached the management and explained that the $1,350 he was spending each month on his half of a two-bedroom unit was too expensive, since he had just had a pay cut. The landlords, eager to keep him and his roommate in the building, lowered the rent to $2,390 -- $1,195 a month each -- and granted both renters a month-to-month contract. (Mr. McCrossin moved seven months later, after the complex became more run-down.)
Fear of losing a good tenant is often enough to make landlords reconsider their rent. Jenna Carpenter, a 28-year-old living in a $2,000-per-month one-bedroom apartment on New York's Lower East Side, didn't plan to renegotiate her contract. But once she told her landlord she didn't plan to renew her lease in March, he offered to lower her rent. They are now negotiating a cut of between $300 and $400 a month.
Even if your landlord won't adjust your rent midlease, he or she may offer concessions. Ms. Olds suggests asking for free use of amenities that would normally carry a cost, such as a gym or pool, or even asking to be upgraded to a better apartment with a great view or more square feet.
Gift Cards and Appliances
First-time apartment-hunters can also nab lower rental prices and concessions. Some apartment buildings are luring potential renters with gift cards, appliances, reduced rates and concessions such as free pool and gym use. Building owners fear that this summer's crop of college grads will move back home with their parents rather than renting apartments, says Jessica Scully, vice president of Scully Company, a property-management company with units in Pennsylvania, Florida, New Jersey and Connecticut.
The company is offering up to two months of free rent to new tenants at some locations, Ms. Scully says. It is also starting to work with tenants whose contracts are about to expire, offering a free month of rent when they renew at some locations.
"In the apartment business before the downturn, it wasn't a 'Let's make a deal' climate," says Ms. Scully. Now, "it's something we are seeing more of."
Write to Dana Mattioli at dana.mattioli@wsj.com
Tuesday, January 20, 2009
Super-Efficient Fridge Among the Innovations at Builders Show
Products aimed at homeowners lack glitz this year. Emphasis is on green features that can save energy.
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By JUNE FLETCHER
Plunging temperatures and a plummeting economy are making everyone more conscious of energy efficiency.
Small changes, like wrapping ducts and water heaters in insulation, buying compact fluorescent bulbs and putting motion sensors on lights in closets, garages and front porches, cost little and can often make a dramatic difference in utility bills (See "Free Energy").
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Solar HVAC
Lennox Industries
Solar HVAC
Solar HVAC
Pricier and fancier energy-saving products aimed at homeowners looking to remodel or build new will be featured at the International Builders Show, a trade show being held from Jan. 20 to 23 in Las Vegas. Manufacturers typically don't roll out their glitziest offerings like talking refrigerators and crystal-encrusted faucets in downturn years, but this year's emphasis on green features has spurred some innovation in practical products. Here are some new offerings that caught my eye:
Solar HVAC Lennox Industries in Richardson, Texas, is showing the industry's first integrated solar-assisted heating, cooling and ventilation system for homes. The system uses a three foot by five foot, 190-watt solar panel, which can be mounted on a pole, fence or the roof, to help move air across the outdoor coil, reducing the need for power from the grid. Available through Lennox authorized dealers and some big box stores in March, the system will cost about $2,000 to $3,000 more than regular systems, which run between $3,000 to $15,000 installed.
Super-Efficient Fridge Whirlpool Corp. in Benton Harbor, Mich., is unveiling the latest in its line of Resource Saver products, a side-by-side refrigerator that the company says exceeds federal Energy Star standards by 10%, and uses the energy equivalent of a 60-watt light bulb. Among its features is a fast-cool button that automatically drops the temperature of the unit to accommodate hot leftovers. The refrigerator will be in stores beginning in March, in white, black, stainless and satin finishes. The suggested price is $2,099.
Free Energy
According to Don Carr, certified green program manager for the NAHB Research Center, savings of 10% or more on utility bills can be achieved by following these simple, no-cost tips:
* Turn down the heat on your water heater until it's just warm enough for your morning shower.
* Use cold water to wash clothes.
* Wash windows, and remove light-blocking window screens during the winter. Keep drapes open during the daytime and closed at night.
* Put all electronics on power strips and turn them off when you leave the room. This keeps them from drawing residual power while they're off.
* Change furnace filters regularly. Dirty ones make furnaces work harder.
Electronic Fan TamarackTechnologies in Buzzards Bay, Mass., has just released the Airetrak Advantage electronic control system, which replaces a traditional bathroom fan and light wall switch with a single, programmable unit that turns the fan into a whole-house ventilation system. Cost is $79; the unit must be ordered directly from the manufacturer at tamtech.com. Although the unit can be installed by a handy do-it-yourselfer, the company recommends using a licensed electrician.
Wireless Thermostats: To help homeowners fine-tune room temperatures, Honeywell International, based in Morris Township, N.J., is promoting its recently released Honeywell Prestige Deluxe Comfort Thermostat System Kit, which consists of a handheld thermostat and a wireless high-definition color touchscreen programmable thermostat. The system has a wireless outdoor sensor as well. Cost is $490, uninstalled.
Write to June Fletcher at fletcher.june@gmail.com
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By JUNE FLETCHER
Plunging temperatures and a plummeting economy are making everyone more conscious of energy efficiency.
Small changes, like wrapping ducts and water heaters in insulation, buying compact fluorescent bulbs and putting motion sensors on lights in closets, garages and front porches, cost little and can often make a dramatic difference in utility bills (See "Free Energy").
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Solar HVAC
Lennox Industries
Solar HVAC
Solar HVAC
Pricier and fancier energy-saving products aimed at homeowners looking to remodel or build new will be featured at the International Builders Show, a trade show being held from Jan. 20 to 23 in Las Vegas. Manufacturers typically don't roll out their glitziest offerings like talking refrigerators and crystal-encrusted faucets in downturn years, but this year's emphasis on green features has spurred some innovation in practical products. Here are some new offerings that caught my eye:
Solar HVAC Lennox Industries in Richardson, Texas, is showing the industry's first integrated solar-assisted heating, cooling and ventilation system for homes. The system uses a three foot by five foot, 190-watt solar panel, which can be mounted on a pole, fence or the roof, to help move air across the outdoor coil, reducing the need for power from the grid. Available through Lennox authorized dealers and some big box stores in March, the system will cost about $2,000 to $3,000 more than regular systems, which run between $3,000 to $15,000 installed.
Super-Efficient Fridge Whirlpool Corp. in Benton Harbor, Mich., is unveiling the latest in its line of Resource Saver products, a side-by-side refrigerator that the company says exceeds federal Energy Star standards by 10%, and uses the energy equivalent of a 60-watt light bulb. Among its features is a fast-cool button that automatically drops the temperature of the unit to accommodate hot leftovers. The refrigerator will be in stores beginning in March, in white, black, stainless and satin finishes. The suggested price is $2,099.
Free Energy
According to Don Carr, certified green program manager for the NAHB Research Center, savings of 10% or more on utility bills can be achieved by following these simple, no-cost tips:
* Turn down the heat on your water heater until it's just warm enough for your morning shower.
* Use cold water to wash clothes.
* Wash windows, and remove light-blocking window screens during the winter. Keep drapes open during the daytime and closed at night.
* Put all electronics on power strips and turn them off when you leave the room. This keeps them from drawing residual power while they're off.
* Change furnace filters regularly. Dirty ones make furnaces work harder.
Electronic Fan TamarackTechnologies in Buzzards Bay, Mass., has just released the Airetrak Advantage electronic control system, which replaces a traditional bathroom fan and light wall switch with a single, programmable unit that turns the fan into a whole-house ventilation system. Cost is $79; the unit must be ordered directly from the manufacturer at tamtech.com. Although the unit can be installed by a handy do-it-yourselfer, the company recommends using a licensed electrician.
Wireless Thermostats: To help homeowners fine-tune room temperatures, Honeywell International, based in Morris Township, N.J., is promoting its recently released Honeywell Prestige Deluxe Comfort Thermostat System Kit, which consists of a handheld thermostat and a wireless high-definition color touchscreen programmable thermostat. The system has a wireless outdoor sensor as well. Cost is $490, uninstalled.
Write to June Fletcher at fletcher.june@gmail.com
Friday, January 16, 2009
Should You Refinance?
Waves of homeowners are rushing to refinance their mortgages. And no wonder: Long-term rates have collapsed to historic lows.
Thirty-year home loans can run as cheap as 5% right now – down from 6.4% as recently as last summer.
By any long-term measure, today's rates are a great deal.
The refinancing boom means a sudden surge in new business for a lot of mortgage brokers. The typical refi costs a homeowner maybe $2,000 or so in costs, including fees.
Brokers may be among the few making out in this economy – which is ironic, because some (repeat: some) are the villains who got us into this mess in the first place.
But before you join the stampede, it's worth asking: When does it make sense to refi?
How-To Guide
Check out the Journal's Personal Finance How-To Guide for tips and info:
* How Much You Should Spend on a Home
* The Basics of Home Equity Loans and Lines of Credit
Related Articles
* Rates Boost Refinancing's Appeal
* IRS Eases Up on Homeowners
If you are planning to move or even pay off your loan within the next few years, refinancing probably makes little sense because you won't be paying monthly bills long enough for the savings to cover the costs.
On the other hand, in some circumstances, refinancing is pretty much a slam dunk.
If you plan to stay in your home for years, and you are currently in an adjustable-rate mortgage, you should strongly consider a refi. ARMs are incredibly dangerous – the financial equivalent of Russian roulette, but with multiple bullets. Refinancing into a 30-year fixed-rate loan may not cut your current monthly payments by much, but it gets rid of the risk that those payments will suddenly skyrocket.
Refinancing also usually makes sense if you are currently paying a much higher rate, though few homeowners are any more.
As a rule of thumb, Greg McBride, economist at Bankrate.com, looks for a payback period of a couple of years. "Generally, if you can earn the costs back within two to three years, and it's a home you're prepared to stay in for much longer than that, it's usually a good thing," he says.
But if the savings are more marginal, you need to do the math.
Some mortgage brokers will tell you how much interest you will save "over the life of the loan" if you refinance.
It's usually a very large number. But it should also be taken with a grain of salt.
First, that number ignores taxes. Mortgage interest is deductible from your income tax. So paying less interest may mean you will pay slightly higher taxes.
What that actually does to your monthly savings is more complex, because your mortgage bill includes principal repayment as well as interest, and only the interest is deductible. Interest shrinks as a proportion of the bill over time. But you could certainly shave maybe 25% off the overall savings as a very crude starting point to see a more realistic number.
The second problem? The total savings figure also ignores the time value of money.
Thanks to inflation, those dollars are going to be worth a lot less by the time you get hold of them than they would be today. Even if inflation only averages 2.5% a year, which is incredibly optimistic, a dollar in 30 years' time will only be worth 50 cents in today's money.
And that's not all. That figure also ignores the magic of compound interest.
Refinancing costs money. And that money, if you invested it instead of spending it on refinancing fees, could earn you a very good return. Especially over a long time period – like 30 years.
Imagine your refinancing costs would be a fairly typical $2,000. If you socked that money away at just 5%, by 2039 you'd have $8,600.
And that's a paltry long-term return.
The collapse in the stock market makes this more compelling, not less. At today's distressed levels, anyone investing over 30 years has an excellent chance of producing terrific returns. If you can earn 9%, then that $2,000 would grow to a thumping $26,500.
Food for thought.
Thirty-year home loans can run as cheap as 5% right now – down from 6.4% as recently as last summer.
By any long-term measure, today's rates are a great deal.
The refinancing boom means a sudden surge in new business for a lot of mortgage brokers. The typical refi costs a homeowner maybe $2,000 or so in costs, including fees.
Brokers may be among the few making out in this economy – which is ironic, because some (repeat: some) are the villains who got us into this mess in the first place.
But before you join the stampede, it's worth asking: When does it make sense to refi?
How-To Guide
Check out the Journal's Personal Finance How-To Guide for tips and info:
* How Much You Should Spend on a Home
* The Basics of Home Equity Loans and Lines of Credit
Related Articles
* Rates Boost Refinancing's Appeal
* IRS Eases Up on Homeowners
If you are planning to move or even pay off your loan within the next few years, refinancing probably makes little sense because you won't be paying monthly bills long enough for the savings to cover the costs.
On the other hand, in some circumstances, refinancing is pretty much a slam dunk.
If you plan to stay in your home for years, and you are currently in an adjustable-rate mortgage, you should strongly consider a refi. ARMs are incredibly dangerous – the financial equivalent of Russian roulette, but with multiple bullets. Refinancing into a 30-year fixed-rate loan may not cut your current monthly payments by much, but it gets rid of the risk that those payments will suddenly skyrocket.
Refinancing also usually makes sense if you are currently paying a much higher rate, though few homeowners are any more.
As a rule of thumb, Greg McBride, economist at Bankrate.com, looks for a payback period of a couple of years. "Generally, if you can earn the costs back within two to three years, and it's a home you're prepared to stay in for much longer than that, it's usually a good thing," he says.
But if the savings are more marginal, you need to do the math.
Some mortgage brokers will tell you how much interest you will save "over the life of the loan" if you refinance.
It's usually a very large number. But it should also be taken with a grain of salt.
First, that number ignores taxes. Mortgage interest is deductible from your income tax. So paying less interest may mean you will pay slightly higher taxes.
What that actually does to your monthly savings is more complex, because your mortgage bill includes principal repayment as well as interest, and only the interest is deductible. Interest shrinks as a proportion of the bill over time. But you could certainly shave maybe 25% off the overall savings as a very crude starting point to see a more realistic number.
The second problem? The total savings figure also ignores the time value of money.
Thanks to inflation, those dollars are going to be worth a lot less by the time you get hold of them than they would be today. Even if inflation only averages 2.5% a year, which is incredibly optimistic, a dollar in 30 years' time will only be worth 50 cents in today's money.
And that's not all. That figure also ignores the magic of compound interest.
Refinancing costs money. And that money, if you invested it instead of spending it on refinancing fees, could earn you a very good return. Especially over a long time period – like 30 years.
Imagine your refinancing costs would be a fairly typical $2,000. If you socked that money away at just 5%, by 2039 you'd have $8,600.
And that's a paltry long-term return.
The collapse in the stock market makes this more compelling, not less. At today's distressed levels, anyone investing over 30 years has an excellent chance of producing terrific returns. If you can earn 9%, then that $2,000 would grow to a thumping $26,500.
Food for thought.
Thursday, January 15, 2009
Short Sale v. Foreclosure
Is it better to negotiate with a short seller or look for a house that is already bank owned?
By JUNE FLETCHER
Q: I am thinking of relocating to Miami Beach, as I've read that there are deals there. Is it better to negotiate with a short seller or look for houses already owned by the bank? And if I go for the latter, how low should my offer be—and will the lender offer me financing?
[Short Sale v. Foreclosure] Getty Images
A: There's no shortage of distressed properties in Miami Beach. RealQuest.com currently lists 442 homes there that are somewhere in the foreclosure process, and 58 that have gone back to the bank. And Fannie Mae just launched a test program that will preapprove short sales, making it easier for buyers like you. However, the program is not available in your area.
But bear in mind that in the case of both short sales and bank-owned homes you are negotiating with lenders rather than sellers. In a short sale, the seller might be desperate to accept any offer to avoid foreclosure, but that doesn't matter if the primary and junior lien holders don't agree to it. With bank-owned properties, you will be dealing with the "real-estate owned" or REO department of the lender who took ownership of the house at the auction. In both cases, you should be prepared to be patient, since lenders are overwhelmed with distress sales these days and may take weeks to respond to your offer. According to a survey of real-estate agents conducted in November by Campbell Communications the average wait time to get an answer from a lender on a short sale is 8.1 weeks, up from 4.5 weeks in a survey conducted earlier in 2008.
It's hard to know whether or not you'll get a better deal on a short sale or a bank-owned home because the situation varies with each property. Some short sales are priced higher because the seller has junior lien holders who won't sign off on the deal unless they're paid something. But some foreclosures are priced higher than corresponding short sales because the bank needs to recover costs for repairs, especially if an angry former owner decided to punch holes in the walls, steal the light fixtures and flush cement down the toilet.
Because the back stories of properties differ, you should begin your quest by finding a buyer broker that specializes in distressed properties (many won't touch them, since deals typically take a long time to close, and commissions tend to be minimal). A good buyer broker will be able to provide a comparative market analysis that shows sales of similar homes, and may also be able to get a sense from other brokers of prices of pending sales. That's important to know because lenders are going to try to hold out for fair market value for the home, even in a declining market, and will insist on an appraisal to justify the sales price to their shareholders. The broker should also investigate how long the property has been on the market, what's owed on it and how many offers it has received.
While it isn't unusual to see both short sales and bank-owned properties listed at prices far below those offered by traditional sellers, don't expect them to sell for much more than 20% below asking price, says Fort Lauderdale, Fla., broker Scott Coloney, who has assembled a "foreclosure response team" of financial and legal partners to facilitate distress sales. In fact, properties in good condition and in desirable locations may even spark bidding wars. "So low-balling is a waste of time," he says.
Moreover, with your bid you'll have to show that you have the cash to buy the property, or a letter from a lender pre-approving you for a loan. That letter can be from the bank that owns the property—and you'll probably be taken more seriously as a bidder if it is—but don't expect the bank to offer you special low financing terms to close the deal.
Write to June Fletcher at fletcher.june@gmail.com
By JUNE FLETCHER
Q: I am thinking of relocating to Miami Beach, as I've read that there are deals there. Is it better to negotiate with a short seller or look for houses already owned by the bank? And if I go for the latter, how low should my offer be—and will the lender offer me financing?
[Short Sale v. Foreclosure] Getty Images
A: There's no shortage of distressed properties in Miami Beach. RealQuest.com currently lists 442 homes there that are somewhere in the foreclosure process, and 58 that have gone back to the bank. And Fannie Mae just launched a test program that will preapprove short sales, making it easier for buyers like you. However, the program is not available in your area.
But bear in mind that in the case of both short sales and bank-owned homes you are negotiating with lenders rather than sellers. In a short sale, the seller might be desperate to accept any offer to avoid foreclosure, but that doesn't matter if the primary and junior lien holders don't agree to it. With bank-owned properties, you will be dealing with the "real-estate owned" or REO department of the lender who took ownership of the house at the auction. In both cases, you should be prepared to be patient, since lenders are overwhelmed with distress sales these days and may take weeks to respond to your offer. According to a survey of real-estate agents conducted in November by Campbell Communications the average wait time to get an answer from a lender on a short sale is 8.1 weeks, up from 4.5 weeks in a survey conducted earlier in 2008.
It's hard to know whether or not you'll get a better deal on a short sale or a bank-owned home because the situation varies with each property. Some short sales are priced higher because the seller has junior lien holders who won't sign off on the deal unless they're paid something. But some foreclosures are priced higher than corresponding short sales because the bank needs to recover costs for repairs, especially if an angry former owner decided to punch holes in the walls, steal the light fixtures and flush cement down the toilet.
Because the back stories of properties differ, you should begin your quest by finding a buyer broker that specializes in distressed properties (many won't touch them, since deals typically take a long time to close, and commissions tend to be minimal). A good buyer broker will be able to provide a comparative market analysis that shows sales of similar homes, and may also be able to get a sense from other brokers of prices of pending sales. That's important to know because lenders are going to try to hold out for fair market value for the home, even in a declining market, and will insist on an appraisal to justify the sales price to their shareholders. The broker should also investigate how long the property has been on the market, what's owed on it and how many offers it has received.
While it isn't unusual to see both short sales and bank-owned properties listed at prices far below those offered by traditional sellers, don't expect them to sell for much more than 20% below asking price, says Fort Lauderdale, Fla., broker Scott Coloney, who has assembled a "foreclosure response team" of financial and legal partners to facilitate distress sales. In fact, properties in good condition and in desirable locations may even spark bidding wars. "So low-balling is a waste of time," he says.
Moreover, with your bid you'll have to show that you have the cash to buy the property, or a letter from a lender pre-approving you for a loan. That letter can be from the bank that owns the property—and you'll probably be taken more seriously as a bidder if it is—but don't expect the bank to offer you special low financing terms to close the deal.
Write to June Fletcher at fletcher.june@gmail.com
Wednesday, January 14, 2009
7 Ways to Cut Back Expenses
1. Homeowners Insurance
If you can afford to, consider raising your deductible to $500 or $1,000. You can also reduce your premium by reducing coverage on the "household contents" portion of your insurance policy. This part of your homeowner's policy covers your personal belongings rather than the structure itself.
Most insurance companies offer discounts if you buy your homeowners and automobile policies from them. You can also reduce your premium by installing smoke alarms, deadbolt locks and home security systems that are monitored 24 hours a day.
Potential Savings: By raising your deductibles, combining policies and installing home security devices, you can save as much as 25 percent every month on premiums, according to the Insurance Information Institute.
2. Auto Insurance
Start by shopping around and requesting multiple quotes. (You might also want to get quotes for homeowners insurance at the same time, since having multiple lines with one company usually results in reduced costs.) Make sure the coverage you seek from competitors matches the coverage you have (or want) so that the comparisons are apples-to-apples.
Auto polices can vary by several hundred dollars, depending on the insurance company and your driving record. Blemishes like speeding tickets and chargeable accidents will cost you more.
Be sure to advise your insurance agent of your car's safety features. Such things as air bags, anti-lock brakes, daytime running lights and anti-theft devices can shave dollars off your premium.
Be sure not to skimp on liability insurance, though. A March 2008 report by AAA concluded that the average cost of a crash-related injury was $68,170, factoring in medical costs, property damage and rehabilitation, etc.
"If you're in a nasty accident you could lose everything," says Gary Foreman, publisher of Stretcher.com. "That is not the place to start saving."
You can also save money by raising your auto insurance deductible, but make sure that you can afford the increased deductible if you're in an accident. If you own an older vehicle that is fully paid for, you may want to drop comprehensive coverage altogether and opt for general liability coverage only.
Potential Savings: Increasing your deductible from $200 to $500 could cut costs on your collision and comprehensive coverage by 15 percent to 30 percent. Opting for a $1,000 deductible could save you 40 percent or more, according to the Insurance Information Institute.
3. Groceries
The U.S. Department of Labor's Bureau of Labor Statistics says Americans spend nearly 14 percent of the household budget on food. Gary Foreman, publisher of Stretcher.com, believes it's closer to 20 percent, and of that amount, 25 percent is wasted.
"That's because it either: 1) Gets bought and goes bad before they cook it; or 2) They cook it and it goes into the refrigerator -- with every intention of turning it into tomorrow night's leftovers -- but it ends up becoming a science project," he says.
The Goal: Reduce wasted food by 25 percent. You'll see your grocery dollar go a lot further. Cutting coupons can make a dramatic difference.
"Layer the savings, don't settle for just one kind of savings at the grocery store," says Ellie Kay, author of "How to Save Money Every Day."
She advises shoppers to learn to compound savings by monitoring store sales and using double coupons, cash-off-your-next-shopping-trip vouchers, store coupons and more.
It's a good idea to keep track of the prices of frequently bought items in a notebook, suggests Gary Foreman, publisher of Stretcher.com. "So when you see a sale price, you can truly judge if it's a good deal and stock up on it."
Shopping Tip: Make a simple meal plan for the entire week before you go shopping to keep you from buying things that look enticing but don't get eaten.
Cooking Tip: Microwaves can be a busy family's best friend. Prepare a dinner plate or two using leftovers; date and freeze them. Display a list of meals on the front of the freezer. When something gets eaten, cross it off the list. When a new meal is ready for the freezer, add it to the list in chronological order so older food gets eaten first.
Potential Savings: Ellie Kay says the average family of four can save up to $3,900 per year by following these tips.
4. Communications
Premium cable channels and cell phone plans with thousands of minutes and options like texting and Web access go right to the top of the "want" list rather than the "need" list.
The average monthly price for expanded basic programming is $42.76, according to the National Cable & Telecommunications Association. Add a couple of premium channels, a sports package or two and your monthly bill can easily top $100 per month.
"Nobody should be in the position that they are going to lose their home or can't make credit card payments on time because they absolutely have to have HBO2," says Gary Foreman, publisher of Stretcher.com.
Consider if you really need extra cell phone options or an infrequently used landline. The average monthly cost for bundled cell phone service (including voice, Web access and texting options) is between $99 and $149, plus taxes and surcharges.
Potential Savings: $100 or more per month.
5. Clothing
Families with young children tend to spend more on clothing because kids seem to grow into the next size overnight, and they tend to be a little rougher on their wardrobe. The solution? Shop the clearance racks often.
"I purchased six pairs of jeans for my kids this way, with original prices at $60 and sales prices at $20 for a total savings of $240," says Ellie Kay, author of "How to Save Money Every Day."
Another solution is to buy used clothing at consignment or thrift shops, but make sure it's in good condition.
Financial adviser Susan Zimmerman of Mindful Asset Planning in Apple Valley, Minn., says she saved a bundle by waiting until her children were older before they got the latest gear.
"I didn't buy toddler and preschool clothes at a store at all," she says. "I got them at garage sales and things like that."
Potential Savings: Hundreds of dollars, depending on how many children you have and how often you need to buy clothing.
6. Utility Bills
The typical American family spends more than $1,600 a year on home utility bills, according to the U.S. Department of Energy. The price of home heating oil alone rose 49.2 percent between August 2007 and August 2008, according to the U.S. Bureau of Labor Statistics.
Much of that energy is wasted through cracks in windows and doors and through open chimney flues.
Close the damper on your fireplace if you have one. Leaks through the damper can increase your heating bills by 8 percent or more.
In colder climates, small improvements such as caulking and using plastic films around window frames will stem the amount of heat that's wasted.
"Start with obvious things like weather stripping the house to reduce air conditioning and heating costs," says Gary Foreman, publisher of Stretcher.com. "Any time you can create an air pocket that way, you will save on your heating bill."
Set your thermostat back when you're not home and while you're sleeping. Lower the temperature on your water heater to 120 degrees Fahrenheit. An added benefit is that you'll prevent unnecessary scalding injuries.
Potential Savings: You can save up to 10 percent on your heating and cooling costs. A dwelling that incorporates a "whole-house energy efficiency plan" by using proper insulation, compact fluorescent light bulbs and energy-efficient appliances can cut energy costs by up to 25 percent, according to the U.S. Department of Energy.
7. Entertainment
Just because you're in "savings combat mode" doesn't mean you have to wait until 49-cent-burger-night to treat the gang to dinner and a movie. One way to curb expenses: Invest in region-specific entertainment coupon books at such sites as Entertainment.com.
The books sell for between $25 and $45 each and pay for themselves in short order. The discount coupons offer deals for eating at local restaurants, but an added benefit is you can also save on movie theaters, theme parks and other local stores.
Potential Savings: The coupon book for the Fort Lauderdale, Fla., area claims more than $18,200 in savings if you use every coupon. Of course, you don't want to use every coupon or your entertainment expenses will be through the roof! But even if you were to use just 10 percent of the coupons, you'd save about $1,820.
If you can afford to, consider raising your deductible to $500 or $1,000. You can also reduce your premium by reducing coverage on the "household contents" portion of your insurance policy. This part of your homeowner's policy covers your personal belongings rather than the structure itself.
Most insurance companies offer discounts if you buy your homeowners and automobile policies from them. You can also reduce your premium by installing smoke alarms, deadbolt locks and home security systems that are monitored 24 hours a day.
Potential Savings: By raising your deductibles, combining policies and installing home security devices, you can save as much as 25 percent every month on premiums, according to the Insurance Information Institute.
2. Auto Insurance
Start by shopping around and requesting multiple quotes. (You might also want to get quotes for homeowners insurance at the same time, since having multiple lines with one company usually results in reduced costs.) Make sure the coverage you seek from competitors matches the coverage you have (or want) so that the comparisons are apples-to-apples.
Auto polices can vary by several hundred dollars, depending on the insurance company and your driving record. Blemishes like speeding tickets and chargeable accidents will cost you more.
Be sure to advise your insurance agent of your car's safety features. Such things as air bags, anti-lock brakes, daytime running lights and anti-theft devices can shave dollars off your premium.
Be sure not to skimp on liability insurance, though. A March 2008 report by AAA concluded that the average cost of a crash-related injury was $68,170, factoring in medical costs, property damage and rehabilitation, etc.
"If you're in a nasty accident you could lose everything," says Gary Foreman, publisher of Stretcher.com. "That is not the place to start saving."
You can also save money by raising your auto insurance deductible, but make sure that you can afford the increased deductible if you're in an accident. If you own an older vehicle that is fully paid for, you may want to drop comprehensive coverage altogether and opt for general liability coverage only.
Potential Savings: Increasing your deductible from $200 to $500 could cut costs on your collision and comprehensive coverage by 15 percent to 30 percent. Opting for a $1,000 deductible could save you 40 percent or more, according to the Insurance Information Institute.
3. Groceries
The U.S. Department of Labor's Bureau of Labor Statistics says Americans spend nearly 14 percent of the household budget on food. Gary Foreman, publisher of Stretcher.com, believes it's closer to 20 percent, and of that amount, 25 percent is wasted.
"That's because it either: 1) Gets bought and goes bad before they cook it; or 2) They cook it and it goes into the refrigerator -- with every intention of turning it into tomorrow night's leftovers -- but it ends up becoming a science project," he says.
The Goal: Reduce wasted food by 25 percent. You'll see your grocery dollar go a lot further. Cutting coupons can make a dramatic difference.
"Layer the savings, don't settle for just one kind of savings at the grocery store," says Ellie Kay, author of "How to Save Money Every Day."
She advises shoppers to learn to compound savings by monitoring store sales and using double coupons, cash-off-your-next-shopping-trip vouchers, store coupons and more.
It's a good idea to keep track of the prices of frequently bought items in a notebook, suggests Gary Foreman, publisher of Stretcher.com. "So when you see a sale price, you can truly judge if it's a good deal and stock up on it."
Shopping Tip: Make a simple meal plan for the entire week before you go shopping to keep you from buying things that look enticing but don't get eaten.
Cooking Tip: Microwaves can be a busy family's best friend. Prepare a dinner plate or two using leftovers; date and freeze them. Display a list of meals on the front of the freezer. When something gets eaten, cross it off the list. When a new meal is ready for the freezer, add it to the list in chronological order so older food gets eaten first.
Potential Savings: Ellie Kay says the average family of four can save up to $3,900 per year by following these tips.
4. Communications
Premium cable channels and cell phone plans with thousands of minutes and options like texting and Web access go right to the top of the "want" list rather than the "need" list.
The average monthly price for expanded basic programming is $42.76, according to the National Cable & Telecommunications Association. Add a couple of premium channels, a sports package or two and your monthly bill can easily top $100 per month.
"Nobody should be in the position that they are going to lose their home or can't make credit card payments on time because they absolutely have to have HBO2," says Gary Foreman, publisher of Stretcher.com.
Consider if you really need extra cell phone options or an infrequently used landline. The average monthly cost for bundled cell phone service (including voice, Web access and texting options) is between $99 and $149, plus taxes and surcharges.
Potential Savings: $100 or more per month.
5. Clothing
Families with young children tend to spend more on clothing because kids seem to grow into the next size overnight, and they tend to be a little rougher on their wardrobe. The solution? Shop the clearance racks often.
"I purchased six pairs of jeans for my kids this way, with original prices at $60 and sales prices at $20 for a total savings of $240," says Ellie Kay, author of "How to Save Money Every Day."
Another solution is to buy used clothing at consignment or thrift shops, but make sure it's in good condition.
Financial adviser Susan Zimmerman of Mindful Asset Planning in Apple Valley, Minn., says she saved a bundle by waiting until her children were older before they got the latest gear.
"I didn't buy toddler and preschool clothes at a store at all," she says. "I got them at garage sales and things like that."
Potential Savings: Hundreds of dollars, depending on how many children you have and how often you need to buy clothing.
6. Utility Bills
The typical American family spends more than $1,600 a year on home utility bills, according to the U.S. Department of Energy. The price of home heating oil alone rose 49.2 percent between August 2007 and August 2008, according to the U.S. Bureau of Labor Statistics.
Much of that energy is wasted through cracks in windows and doors and through open chimney flues.
Close the damper on your fireplace if you have one. Leaks through the damper can increase your heating bills by 8 percent or more.
In colder climates, small improvements such as caulking and using plastic films around window frames will stem the amount of heat that's wasted.
"Start with obvious things like weather stripping the house to reduce air conditioning and heating costs," says Gary Foreman, publisher of Stretcher.com. "Any time you can create an air pocket that way, you will save on your heating bill."
Set your thermostat back when you're not home and while you're sleeping. Lower the temperature on your water heater to 120 degrees Fahrenheit. An added benefit is that you'll prevent unnecessary scalding injuries.
Potential Savings: You can save up to 10 percent on your heating and cooling costs. A dwelling that incorporates a "whole-house energy efficiency plan" by using proper insulation, compact fluorescent light bulbs and energy-efficient appliances can cut energy costs by up to 25 percent, according to the U.S. Department of Energy.
7. Entertainment
Just because you're in "savings combat mode" doesn't mean you have to wait until 49-cent-burger-night to treat the gang to dinner and a movie. One way to curb expenses: Invest in region-specific entertainment coupon books at such sites as Entertainment.com.
The books sell for between $25 and $45 each and pay for themselves in short order. The discount coupons offer deals for eating at local restaurants, but an added benefit is you can also save on movie theaters, theme parks and other local stores.
Potential Savings: The coupon book for the Fort Lauderdale, Fla., area claims more than $18,200 in savings if you use every coupon. Of course, you don't want to use every coupon or your entertainment expenses will be through the roof! But even if you were to use just 10 percent of the coupons, you'd save about $1,820.
Tuesday, January 13, 2009
Washington Report: Obama Stimulus Plan
With both President-elect Obama and the new Congress in Washington last week, work on the forthcoming $775 billion economic stimulus plan moved into high gear.
But don't necessarily look to the stimulus plan alone for costly new incentives for home building or real estate sales. There are actually two packages out there -- the new stimulus plus the $350 billion in unspent funds from last Fall's congressional bailout legislation.
The 2009 economic stimulus may well contain some direct assistance to spur the housing market. Senate budget committee chairman Kent Conrad of North Dakota said last week that "it's hard for me to see a stimulus plan (passing Congress) that doesn't have a significant housing component."
But Obama himself suggested that the primary focuses of the economic stimulus would probably be elsewhere -- payroll tax cuts for workers, infrastructure projects and alternative energy development and some form of tax relief for businesses.
Asked about housing relief specifically in an interview on CNBC, Obama said, "I think the most important thing when it comes to declining home values, is number one, preventing further foreclosures that erode home values across the board."
Meanwhile, there were indications on Capitol Hill that foreclosure relief may well be funneled from the unused $350 billion left over from the original $700 billion authorized in the so-called "TARP" bailout fund. The initial $350 billion was used by the Treasury primarily to prop up banks, but congressional Democrats are demand that it now be used to help keep home owners out of foreclosure.
Aides to Obama said one likely housing-related target in the stimulus plan is an extensive "energy retrofit" program for houses and office buildings, including federal facilities. Obama has endorsed "weatherizing" -- improving the energy efficiency - of one million homes a year. That could take the form of additional tax credits or financial incentives, and would create employment -- another key goal.
Last week a bipartisan group of senators gave further impetus to the real estate retrofit idea, calling for a boost in the current $2,000 federal tax credit for energy efficient homes to $5,000.
Wrangling over what gets includes in the stimulus is likely to continue until the Inauguration January 20th, and a final stimulus plan isn't likely to be passed until sometime in February.
In the meantime, housing and real estate lobbies looking for tax credits and mortgage subsidies increasingly understand that there are two money pots in play - not just one. From whichever pot it comes, home building and real estate are likely to end up with a sizable chunk of the action.
But don't necessarily look to the stimulus plan alone for costly new incentives for home building or real estate sales. There are actually two packages out there -- the new stimulus plus the $350 billion in unspent funds from last Fall's congressional bailout legislation.
The 2009 economic stimulus may well contain some direct assistance to spur the housing market. Senate budget committee chairman Kent Conrad of North Dakota said last week that "it's hard for me to see a stimulus plan (passing Congress) that doesn't have a significant housing component."
But Obama himself suggested that the primary focuses of the economic stimulus would probably be elsewhere -- payroll tax cuts for workers, infrastructure projects and alternative energy development and some form of tax relief for businesses.
Asked about housing relief specifically in an interview on CNBC, Obama said, "I think the most important thing when it comes to declining home values, is number one, preventing further foreclosures that erode home values across the board."
Meanwhile, there were indications on Capitol Hill that foreclosure relief may well be funneled from the unused $350 billion left over from the original $700 billion authorized in the so-called "TARP" bailout fund. The initial $350 billion was used by the Treasury primarily to prop up banks, but congressional Democrats are demand that it now be used to help keep home owners out of foreclosure.
Aides to Obama said one likely housing-related target in the stimulus plan is an extensive "energy retrofit" program for houses and office buildings, including federal facilities. Obama has endorsed "weatherizing" -- improving the energy efficiency - of one million homes a year. That could take the form of additional tax credits or financial incentives, and would create employment -- another key goal.
Last week a bipartisan group of senators gave further impetus to the real estate retrofit idea, calling for a boost in the current $2,000 federal tax credit for energy efficient homes to $5,000.
Wrangling over what gets includes in the stimulus is likely to continue until the Inauguration January 20th, and a final stimulus plan isn't likely to be passed until sometime in February.
In the meantime, housing and real estate lobbies looking for tax credits and mortgage subsidies increasingly understand that there are two money pots in play - not just one. From whichever pot it comes, home building and real estate are likely to end up with a sizable chunk of the action.
Monday, January 12, 2009
House Bill Aims to Stabilize Housing, Addresses Foreclosures and Stimulus
A bill that embraces the need for righting the housing market—the first big step toward economic recovery—was introduced Friday in the U.S. House of Representatives.
H.R. 384, The TARP Reform and Accountability Act, was offered by Rep. Barney Frank (D-Mass.), chair of the House Financial Services Committee. The bill would require the Treasury Department to develop a program, outside the Troubled Asset Relief Program, to stimulate demand for home purchases and lower property inventories, by making affordable mortgages available for qualified buyers through interest rate buydowns, a priority of the National Association of Realtors®.
The measure would amend the TARP provisions of the Emergency Economic Stabilization Act of 2008 to make significant steps to reduce foreclosures, strengthen accountability and close loopholes. Treasury could consider the impact of areas with the highest inventories of foreclosed properties.
NAR President Charles McMillan was heartened by the legislation that would move the housing market forward. “The bill proposed by Chairman Frank is an important first step toward launching a real estate recovery. Housing has always led this country out of economic downturns, and this bill recognizes that the key to bolstering the overall economy is creating stability in the real estate markets. With foreclosure relief, improving the Hope for Homeowners Plan, and expanding TARP to support commercial real estate loans and commercial mortgage-backed securities, this legislation will help create housing stability.”
“By directing the Treasury Department to increase the availability of affordable mortgages rates for qualified home buyers and to offer reduced rate loans designed to stimulate demand for home purchases and clear inventory of properties, Chairman Frank has responded to the most critical issues facing potential homeowners," McMillan said.
Foreclosure relief, using the second half of the $700 billion previously authorized by Congress, would be conditioned on stipulation that $50 billion be used for foreclosure mitigation and calls for a plan to be put into action by March 15. That would allow the Treasury to begin committing the remaining TARP funds for the plan no later than April 1.
The plan would require that foreclosure assistance must apply only to owner-occupied residences. Further, the bill would provide liability protection for loan servicers who engage in loan modifications. Such servicers would have to report regularly to the Treasury.
In addition, the Treasury would be authorized to provide support for commercial real estate loans and commercial mortgage-backed securities, an NAR priority.
NAR has been urging the incoming Obama administration, as well as Congress, to address critical housing needs. “This legislation is a great beginning, but more needs to be done. We must continue to bring potential homebuyers into the market by ensuring low mortgage interest rates, making the higher 2008 conforming loan limits permanent, and applying the $7,500 tax credit to all homebuyers and making it non-repayable,” McMillan said.
H.R. 384, The TARP Reform and Accountability Act, was offered by Rep. Barney Frank (D-Mass.), chair of the House Financial Services Committee. The bill would require the Treasury Department to develop a program, outside the Troubled Asset Relief Program, to stimulate demand for home purchases and lower property inventories, by making affordable mortgages available for qualified buyers through interest rate buydowns, a priority of the National Association of Realtors®.
The measure would amend the TARP provisions of the Emergency Economic Stabilization Act of 2008 to make significant steps to reduce foreclosures, strengthen accountability and close loopholes. Treasury could consider the impact of areas with the highest inventories of foreclosed properties.
NAR President Charles McMillan was heartened by the legislation that would move the housing market forward. “The bill proposed by Chairman Frank is an important first step toward launching a real estate recovery. Housing has always led this country out of economic downturns, and this bill recognizes that the key to bolstering the overall economy is creating stability in the real estate markets. With foreclosure relief, improving the Hope for Homeowners Plan, and expanding TARP to support commercial real estate loans and commercial mortgage-backed securities, this legislation will help create housing stability.”
“By directing the Treasury Department to increase the availability of affordable mortgages rates for qualified home buyers and to offer reduced rate loans designed to stimulate demand for home purchases and clear inventory of properties, Chairman Frank has responded to the most critical issues facing potential homeowners," McMillan said.
Foreclosure relief, using the second half of the $700 billion previously authorized by Congress, would be conditioned on stipulation that $50 billion be used for foreclosure mitigation and calls for a plan to be put into action by March 15. That would allow the Treasury to begin committing the remaining TARP funds for the plan no later than April 1.
The plan would require that foreclosure assistance must apply only to owner-occupied residences. Further, the bill would provide liability protection for loan servicers who engage in loan modifications. Such servicers would have to report regularly to the Treasury.
In addition, the Treasury would be authorized to provide support for commercial real estate loans and commercial mortgage-backed securities, an NAR priority.
NAR has been urging the incoming Obama administration, as well as Congress, to address critical housing needs. “This legislation is a great beginning, but more needs to be done. We must continue to bring potential homebuyers into the market by ensuring low mortgage interest rates, making the higher 2008 conforming loan limits permanent, and applying the $7,500 tax credit to all homebuyers and making it non-repayable,” McMillan said.
Friday, January 9, 2009
Mortgage help gains momentum
Hundreds of billions will be spent to spur the economy. The elephant in the room - foreclosure prevention - hasn't gotten much notice. That is changing.
By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: January 9, 2009: 8:08 AM ET
NEW YORK (CNNMoney.com) -- There are many ways to spend $800 billion to revive the economy. In recent days, President-elect Barack Obama has ticked off many of them: invest in infrastructure projects, help states pay for Medicaid, cut taxes on the middle class, expand use of renewable energy.
But what about helping those at risk of foreclosure, and by extension the housing market as a whole?
Lawmakers in Washington are demanding that more be done, and they are aiming their sights both at the $700 billion financial rescue package known as TARP and the massive economic stimulus bill Obama is pushing as vehicles for new housing measures.
Already, Treasury Secretary nominee Timothy Geithner is working on plans to revamp the way TARP is used to make foreclosure prevention a bigger priority, two transition aides told CNN. Congress has made it known that it likely won't release any more TARP funds until some of the money is earmarked for housing.
For his part, Obama has been shy on details but has said that within a month or two he would unveil "a sweeping effort to address the foreclosure crisis so that we can keep responsible families in their homes."
Meanwhile, Senate Budget Chairman Kent Conrad, D-N.D., on Wednesday said it would be a mistake to pass a stimulus bill without also tackling the housing crisis.
"The housing market is 16% of the economy," Conrad said. "To think that we are going to have a package of economic recovery that does not address housing adequately I think would miss the boat."
What's on the table
Use TARP for homeowners: House Financial Services Chairman Barney Frank, D-Mass., is writing a bill that would impose conditions on the use of any more TARP money. He sent a memo to colleagues this week calling for "substantial efforts" to be made to reduce foreclosures, a spokesman for Frank's office said in an e-mail.
One of his suggestions: mandate that some TARP money be used to support a version of a plan proposed by FDIC Chairwoman Sheila Bair. The FDIC has estimated the cost of that program at roughly $25 billion, although other estimates run higher.
Bair's plan would systematically modify loans and provide a government guarantee to protect investors in the event a homeowner re-defaults after the loan has been modified.
Reform bankruptcy law: On Thursday, Senate Banking Chairman Christopher Dodd, D-Conn., and Sen. Richard Durbin, D-Ill., said that Citigroup (C, Fortune 500) has agreed to support a proposal that the lending industry has strongly opposed that would allow bankruptcy judges to write down the primary mortgages of homeowners filing for bankruptcy.
The bank's support of the proposal is based on the condition that the change only apply to existing mortgages and that homeowners filing for bankruptcy notify their lenders 10 days before to give them a chance to modify the mortgage.
Other lenders and housing industry interests -- including the powerful National Association of Home Builders -- have also started to lower their resistance to so-called bankruptcy cramdowns.
The long-held argument against cramdowns is that they would cause rates to rise because mortgage securities investors would demand a higher interest rate to compensate for the risk that a judge could rewrite mortgage contracts on terms disadvantageous to the investor.
Offer bigger tax break to home buyers: NAHB has been pushing for all home buyers to get a temporary tax credit for buying a primary residence worth up to 10% of the purchase price. A tax credit is a dollar-for-dollar reduction of one's tax liability.
Currently, only first-time buyers may get a temporary tax credit worth up to $7,500 for a limited period of time. But that credit functions more as an interest-free loan from Uncle Sam because the home buyer has to repay it over time.
Neither Dodd nor Senate Finance member Charles Schumer, D-N.Y., speaking to the press on Thursday, endorsed the idea of an actual tax credit. Dodd said a tax credit would not help prevent foreclosures but could spur economic growth.
And Schumer said there was "broad support" among members of the Senate Finance Committee to make tax policy changes to support housing, particularly existing homes as opposed to newly constructed ones.
Push interest rates down: The National Association of Realtors, among others, has pushed for the Treasury Department to take a more active role in driving mortgage rates down by buying securities backed by 30-year fixed-rate mortgages from Fannie Mae and Freddie Mac.
A plan already in place at the Federal Reserve has already had the effect of lowering rates on the 30-year fixed to record lows. The Fed is buying up to $500 billion in mortgage-backed securities backed by Fannie and Freddie, a move that bolstered confidence in the mortgage giants' ability to continue to buy and back loans in the secondary market.
Another idea that has been floated recently is to have Uncle Sam use money to buy down points on home buyers' mortgages to lower interest rates.
CNN's Jessica Yellin contributed to this report.
By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: January 9, 2009: 8:08 AM ET
NEW YORK (CNNMoney.com) -- There are many ways to spend $800 billion to revive the economy. In recent days, President-elect Barack Obama has ticked off many of them: invest in infrastructure projects, help states pay for Medicaid, cut taxes on the middle class, expand use of renewable energy.
But what about helping those at risk of foreclosure, and by extension the housing market as a whole?
Lawmakers in Washington are demanding that more be done, and they are aiming their sights both at the $700 billion financial rescue package known as TARP and the massive economic stimulus bill Obama is pushing as vehicles for new housing measures.
Already, Treasury Secretary nominee Timothy Geithner is working on plans to revamp the way TARP is used to make foreclosure prevention a bigger priority, two transition aides told CNN. Congress has made it known that it likely won't release any more TARP funds until some of the money is earmarked for housing.
For his part, Obama has been shy on details but has said that within a month or two he would unveil "a sweeping effort to address the foreclosure crisis so that we can keep responsible families in their homes."
Meanwhile, Senate Budget Chairman Kent Conrad, D-N.D., on Wednesday said it would be a mistake to pass a stimulus bill without also tackling the housing crisis.
"The housing market is 16% of the economy," Conrad said. "To think that we are going to have a package of economic recovery that does not address housing adequately I think would miss the boat."
What's on the table
Use TARP for homeowners: House Financial Services Chairman Barney Frank, D-Mass., is writing a bill that would impose conditions on the use of any more TARP money. He sent a memo to colleagues this week calling for "substantial efforts" to be made to reduce foreclosures, a spokesman for Frank's office said in an e-mail.
One of his suggestions: mandate that some TARP money be used to support a version of a plan proposed by FDIC Chairwoman Sheila Bair. The FDIC has estimated the cost of that program at roughly $25 billion, although other estimates run higher.
Bair's plan would systematically modify loans and provide a government guarantee to protect investors in the event a homeowner re-defaults after the loan has been modified.
Reform bankruptcy law: On Thursday, Senate Banking Chairman Christopher Dodd, D-Conn., and Sen. Richard Durbin, D-Ill., said that Citigroup (C, Fortune 500) has agreed to support a proposal that the lending industry has strongly opposed that would allow bankruptcy judges to write down the primary mortgages of homeowners filing for bankruptcy.
The bank's support of the proposal is based on the condition that the change only apply to existing mortgages and that homeowners filing for bankruptcy notify their lenders 10 days before to give them a chance to modify the mortgage.
Other lenders and housing industry interests -- including the powerful National Association of Home Builders -- have also started to lower their resistance to so-called bankruptcy cramdowns.
The long-held argument against cramdowns is that they would cause rates to rise because mortgage securities investors would demand a higher interest rate to compensate for the risk that a judge could rewrite mortgage contracts on terms disadvantageous to the investor.
Offer bigger tax break to home buyers: NAHB has been pushing for all home buyers to get a temporary tax credit for buying a primary residence worth up to 10% of the purchase price. A tax credit is a dollar-for-dollar reduction of one's tax liability.
Currently, only first-time buyers may get a temporary tax credit worth up to $7,500 for a limited period of time. But that credit functions more as an interest-free loan from Uncle Sam because the home buyer has to repay it over time.
Neither Dodd nor Senate Finance member Charles Schumer, D-N.Y., speaking to the press on Thursday, endorsed the idea of an actual tax credit. Dodd said a tax credit would not help prevent foreclosures but could spur economic growth.
And Schumer said there was "broad support" among members of the Senate Finance Committee to make tax policy changes to support housing, particularly existing homes as opposed to newly constructed ones.
Push interest rates down: The National Association of Realtors, among others, has pushed for the Treasury Department to take a more active role in driving mortgage rates down by buying securities backed by 30-year fixed-rate mortgages from Fannie Mae and Freddie Mac.
A plan already in place at the Federal Reserve has already had the effect of lowering rates on the 30-year fixed to record lows. The Fed is buying up to $500 billion in mortgage-backed securities backed by Fannie and Freddie, a move that bolstered confidence in the mortgage giants' ability to continue to buy and back loans in the secondary market.
Another idea that has been floated recently is to have Uncle Sam use money to buy down points on home buyers' mortgages to lower interest rates.
CNN's Jessica Yellin contributed to this report.
Thursday, January 8, 2009
Cheap Ways to Boost Your Homes Value
by Kelli B. Grant
These days, most homeowners are facing a scary reality: a rapid decline in their home's value.
According to the National Association of Realtors, median existing home prices are down 7.1% from last July -- and aren't expected to recover until well into 2009.
One way to buck the trend and boost the value of your home is to make some basic renovations. There's no need to embark on big-ticket projects — you probably won't recoup all of the costs anyway. Instead, seek out some inexpensive projects that will not only brighten up the place, but put a little extra cash in your pocket should you decide to sell your home. Here are five worth considering:
1) Paint
Cost: $60 for two gallons of Benjamin Moore interior paint — enough to paint the walls and ceiling of a 12-by-15 room.
A little paint or varnish can go a long way toward improving your home's value. One fresh coat (along with a little sanding and caulking) wipes out the scuffs, chips, cracks and other damage that clearly convey wear and tear. Make your first priority the front door, where everyone from visitors to potential buyers lingers. "You're standing on the front porch and you have a good 15, 20 seconds just to look," says David Lupberger, home improvement expert with ServiceMagic.com, a Golden, Colo.-based contractor marketplace. Inside, don't forget to freshen up the baseboards, doors and ceilings after you tackle the walls.
Just remember to stick to neutral colors if you're thinking of selling sometime soon, advises Lupberger. Buyers might not share your appreciation for the eye-popping combo of Fireball Orange and Traffic Light Green in the living room.
2) Basic Maintenance
Cost: $250 for a home inspection, including walk-through and report of suggested fixes.
"You have to be careful with remodeling because you can spend money in the wrong place and not get it all back," says Lyle Martin, co-founder of Assist-2-Sell, a Reno, Nev.-based real estate brokerage. A common mistake: making aesthetic upgrades while ignoring basic maintenance. New bathroom tiles mean nothing if the plumbing is faulty or the underlying wall has dry rot.
If you don't address these problems before putting your home on the market, it'll cost you. Buyers traditionally negotiate a $2 discount for every $1 in damage that turns up in a home inspection, according to home inspection service HouseMaster.
Aim to complete a few small maintenance projects each year, like fixing that creaky floorboard or replacing a cracked light switch plate, advises Martin. Not sure where to start? Hire a home inspector to point out which areas would be problematic were your home on the market.
3) Energy-Efficiency Upgrades
Cost: $500 to replace your old clothes washer with an Energy-Star certified Frigidaire washer (including a $50 utility-provided rebate and an estimated $50 in energy savings the first year).
Energy-efficiency projects such as installing Energy-Star windows or swapping for a high-efficiency boiler are one of the few upgrades that hold their value in a down market. Not only will such improvements cut your energy bills, but they'll also be more attractive to buyers who are hunting for more earth-friendly homes. "Homeowners can show buyers their utility bills as documentation of the effects of those energy-efficiency improvements," says Rozanne Weissman, a spokeswoman for the Alliance to Save Energy. "With energy prices so high, it makes a big difference."
Look for incentives and rebates through your utility providers and state and local governments. And don't forget about federal tax credits. Both the House and Senate have given tentative approval to a two-year extension of the energy-efficiency tax credits from the Energy Policy Act of 2005, which offered a credit of up to $500 for select projects completed in 2006 and 2007. Look to the Tax Incentives Assistance Project to refresh your memory on what criteria projects must meet to qualify.
4) Install New Fixtures
Cost: $86 for an American Standard faucet, 10 drawer pulls and 10 knobs.
Giving a room a more modern look requires little more than a screwdriver and some new fixtures. "New hardware can completely freshen a house," says Amy Matthews, host of DIY Network's "Sweat Equity." "Things that are outdated are things that buyers would turn their noses up at." As far as fixes go, it's dirt cheap. New drawer handles or knobs can be had for as little as $2 each. There are also plenty of options out there for personalizing your space. Home Depot lists almost 900 kitchen and bathroom faucets priced below $50. You might also try swapping out ceiling-mount light fixtures or doorknobs.
5) Landscaping
Cost: $200 for five each of dogwood, forsythia and red-flowering butterfly shrubs, plus $100 for enough mulch to cover 200 square feet of planting beds.
"A good first impression is crucial," says Jennifer Michaels, senior vice president for FSBO.com, a for-sale-by-owner listing site. Your carefully groomed landscaping — or, in contrast, weed-overgrown jungle — is one of the first things a potential buyer notices. But enhancing curb appeal is also something every seller does. You'll score more points with a yard that was obviously fixed up long before you listed your property.
Savings can be had as well, as long as you plant wisely. Drought-resistant shrubs require less water, while perennials won't require repeat plant purchases in coming years. Leafy deciduous trees shade your home from the hot summer sun, and allow maximum heat transfer inside during cold winters.
These days, most homeowners are facing a scary reality: a rapid decline in their home's value.
According to the National Association of Realtors, median existing home prices are down 7.1% from last July -- and aren't expected to recover until well into 2009.
One way to buck the trend and boost the value of your home is to make some basic renovations. There's no need to embark on big-ticket projects — you probably won't recoup all of the costs anyway. Instead, seek out some inexpensive projects that will not only brighten up the place, but put a little extra cash in your pocket should you decide to sell your home. Here are five worth considering:
1) Paint
Cost: $60 for two gallons of Benjamin Moore interior paint — enough to paint the walls and ceiling of a 12-by-15 room.
A little paint or varnish can go a long way toward improving your home's value. One fresh coat (along with a little sanding and caulking) wipes out the scuffs, chips, cracks and other damage that clearly convey wear and tear. Make your first priority the front door, where everyone from visitors to potential buyers lingers. "You're standing on the front porch and you have a good 15, 20 seconds just to look," says David Lupberger, home improvement expert with ServiceMagic.com, a Golden, Colo.-based contractor marketplace. Inside, don't forget to freshen up the baseboards, doors and ceilings after you tackle the walls.
Just remember to stick to neutral colors if you're thinking of selling sometime soon, advises Lupberger. Buyers might not share your appreciation for the eye-popping combo of Fireball Orange and Traffic Light Green in the living room.
2) Basic Maintenance
Cost: $250 for a home inspection, including walk-through and report of suggested fixes.
"You have to be careful with remodeling because you can spend money in the wrong place and not get it all back," says Lyle Martin, co-founder of Assist-2-Sell, a Reno, Nev.-based real estate brokerage. A common mistake: making aesthetic upgrades while ignoring basic maintenance. New bathroom tiles mean nothing if the plumbing is faulty or the underlying wall has dry rot.
If you don't address these problems before putting your home on the market, it'll cost you. Buyers traditionally negotiate a $2 discount for every $1 in damage that turns up in a home inspection, according to home inspection service HouseMaster.
Aim to complete a few small maintenance projects each year, like fixing that creaky floorboard or replacing a cracked light switch plate, advises Martin. Not sure where to start? Hire a home inspector to point out which areas would be problematic were your home on the market.
3) Energy-Efficiency Upgrades
Cost: $500 to replace your old clothes washer with an Energy-Star certified Frigidaire washer (including a $50 utility-provided rebate and an estimated $50 in energy savings the first year).
Energy-efficiency projects such as installing Energy-Star windows or swapping for a high-efficiency boiler are one of the few upgrades that hold their value in a down market. Not only will such improvements cut your energy bills, but they'll also be more attractive to buyers who are hunting for more earth-friendly homes. "Homeowners can show buyers their utility bills as documentation of the effects of those energy-efficiency improvements," says Rozanne Weissman, a spokeswoman for the Alliance to Save Energy. "With energy prices so high, it makes a big difference."
Look for incentives and rebates through your utility providers and state and local governments. And don't forget about federal tax credits. Both the House and Senate have given tentative approval to a two-year extension of the energy-efficiency tax credits from the Energy Policy Act of 2005, which offered a credit of up to $500 for select projects completed in 2006 and 2007. Look to the Tax Incentives Assistance Project to refresh your memory on what criteria projects must meet to qualify.
4) Install New Fixtures
Cost: $86 for an American Standard faucet, 10 drawer pulls and 10 knobs.
Giving a room a more modern look requires little more than a screwdriver and some new fixtures. "New hardware can completely freshen a house," says Amy Matthews, host of DIY Network's "Sweat Equity." "Things that are outdated are things that buyers would turn their noses up at." As far as fixes go, it's dirt cheap. New drawer handles or knobs can be had for as little as $2 each. There are also plenty of options out there for personalizing your space. Home Depot lists almost 900 kitchen and bathroom faucets priced below $50. You might also try swapping out ceiling-mount light fixtures or doorknobs.
5) Landscaping
Cost: $200 for five each of dogwood, forsythia and red-flowering butterfly shrubs, plus $100 for enough mulch to cover 200 square feet of planting beds.
"A good first impression is crucial," says Jennifer Michaels, senior vice president for FSBO.com, a for-sale-by-owner listing site. Your carefully groomed landscaping — or, in contrast, weed-overgrown jungle — is one of the first things a potential buyer notices. But enhancing curb appeal is also something every seller does. You'll score more points with a yard that was obviously fixed up long before you listed your property.
Savings can be had as well, as long as you plant wisely. Drought-resistant shrubs require less water, while perennials won't require repeat plant purchases in coming years. Leafy deciduous trees shade your home from the hot summer sun, and allow maximum heat transfer inside during cold winters.
Wednesday, January 7, 2009
Mortgage rates hit fresh 37-year low
Borrowing costs continue to fall, but that's failed to boost home buying.
NEW YORK (CNNMoney.com) -- Rates on mortgage loans are the lowest in the 37-year history of the Freddie Mac Primary Mortgage Market Survey, according to a weekly report released Wednesday.
The average 30-year, fixed-rate loan issued to borrowers declined to 5.1%, with 0.7 up-front points, for the week ending December 31, according to the survey.
The rate dropped from an average of 5.14% last week, which was the previous 37-year low. Freddie Mac (FRE, Fortune 500) began surveying lenders back in 1971. The 30-year fixed was at 6.06% a year ago.
The average for a 15-year, fixed rate loan was just 4.83%, its lowest level since March 25, 2004, when it hit 4.70 percent.
"Since the end of October of this year, these rates have declined by about 1-1/3 percentage points, or payment savings of approximately $173 a month for a $200,000 loan," said Freddie's chief economist, Frank Nothaft in a statement. "As a result, the number of refinance applications for conventional mortgages jumped over 500 percent between the weeks ending on October 31st and December 26th."
Housing won't budge
Unfortunately, the low interest rates have not spurred much of an increase in the number of new loans made to home buyers. According to the Mortgage Bankers Association, nearly 83% of all mortgage applications recorded last week were to refinance existing loans rather than to buy a home, indicating that low interest rates have so far failed to free up the frozen housing market.
Action from the Federal Reserve is also putting downward pressure on rates, according to Keith Gumbinger, of HSH Associates, a publisher of mortgage information that releases its own market survey.
The Fed announced in November that it will buy as much as $500 billion worth of mortgage backed securities (MBS) from Freddie Mac and Fannie Mae (FNM, Fortune 500) over the first six months of 2009. On Tuesday, it said it would start buying the securities next week.
"Just the fact that they said they'd do that put downward pressure on rates," said Gumbinger.
Lawrence Yun, chief economist for the National Association of Realtors, predicts the Fed action will help 30-year mortgages hold steady at around 5% or less over the next few months.
"The Fed is providing an additional buyer for the MBS, increasing demand for them and lowering rates," he said.
That should eventually boost the housing market, which has been crippled lately. Existing home sales fell 8.6% month-over-month to an annualized rate of just 4.49 million units in November.
The full impact of the low rates may not be felt for a while, however. "When rates fall, people respond, but the increase in sales usually follows by three to five months," said Yun.
That would coincide with the normally brisk spring selling season and, along with home prices that are the most affordable they've been in several years, could rejuvenate markets starting around March.
"Lower rates and falling house prices are making home ownership more affordable," said Nothaft. "House prices fell 18% over the 12-month period ending in October, according to the S&P/Case-Shiller 20-city composite index."
Despite these positive factors, Yun is still not totally optimistic about the boost they can provide housing markets.
"It's hard to dictate the confidence of consumers," he said.
Freddie Mac's is the longest running, and one of the most closely watched, mortgage market surveys around. The company surveys 125 lenders around the nation, asking them what the average rates are for their best customers who are putting 20% down on conforming loans, which generally have a cap of $417,000 in most markets or $625,00 in high-cost areas. To top of page
NEW YORK (CNNMoney.com) -- Rates on mortgage loans are the lowest in the 37-year history of the Freddie Mac Primary Mortgage Market Survey, according to a weekly report released Wednesday.
The average 30-year, fixed-rate loan issued to borrowers declined to 5.1%, with 0.7 up-front points, for the week ending December 31, according to the survey.
The rate dropped from an average of 5.14% last week, which was the previous 37-year low. Freddie Mac (FRE, Fortune 500) began surveying lenders back in 1971. The 30-year fixed was at 6.06% a year ago.
The average for a 15-year, fixed rate loan was just 4.83%, its lowest level since March 25, 2004, when it hit 4.70 percent.
"Since the end of October of this year, these rates have declined by about 1-1/3 percentage points, or payment savings of approximately $173 a month for a $200,000 loan," said Freddie's chief economist, Frank Nothaft in a statement. "As a result, the number of refinance applications for conventional mortgages jumped over 500 percent between the weeks ending on October 31st and December 26th."
Housing won't budge
Unfortunately, the low interest rates have not spurred much of an increase in the number of new loans made to home buyers. According to the Mortgage Bankers Association, nearly 83% of all mortgage applications recorded last week were to refinance existing loans rather than to buy a home, indicating that low interest rates have so far failed to free up the frozen housing market.
Action from the Federal Reserve is also putting downward pressure on rates, according to Keith Gumbinger, of HSH Associates, a publisher of mortgage information that releases its own market survey.
The Fed announced in November that it will buy as much as $500 billion worth of mortgage backed securities (MBS) from Freddie Mac and Fannie Mae (FNM, Fortune 500) over the first six months of 2009. On Tuesday, it said it would start buying the securities next week.
"Just the fact that they said they'd do that put downward pressure on rates," said Gumbinger.
Lawrence Yun, chief economist for the National Association of Realtors, predicts the Fed action will help 30-year mortgages hold steady at around 5% or less over the next few months.
"The Fed is providing an additional buyer for the MBS, increasing demand for them and lowering rates," he said.
That should eventually boost the housing market, which has been crippled lately. Existing home sales fell 8.6% month-over-month to an annualized rate of just 4.49 million units in November.
The full impact of the low rates may not be felt for a while, however. "When rates fall, people respond, but the increase in sales usually follows by three to five months," said Yun.
That would coincide with the normally brisk spring selling season and, along with home prices that are the most affordable they've been in several years, could rejuvenate markets starting around March.
"Lower rates and falling house prices are making home ownership more affordable," said Nothaft. "House prices fell 18% over the 12-month period ending in October, according to the S&P/Case-Shiller 20-city composite index."
Despite these positive factors, Yun is still not totally optimistic about the boost they can provide housing markets.
"It's hard to dictate the confidence of consumers," he said.
Freddie Mac's is the longest running, and one of the most closely watched, mortgage market surveys around. The company surveys 125 lenders around the nation, asking them what the average rates are for their best customers who are putting 20% down on conforming loans, which generally have a cap of $417,000 in most markets or $625,00 in high-cost areas. To top of page
Monday, January 5, 2009
10 Commandments for Frugal Living
ByJeffrey Strain, Special to TheStreet.com
Frugality often gets a bad rap. Many people misunderstand frugality and assume that it's nothing more than being "cheap" when, in reality, frugality is making sure that you get the most from the money and resources you have, even if they are limited.
For those who are just beginning to embrace frugality as a part of their lifestyle, here are 10 frugal commandments to live by.
Thou shalt not buy things you don't need. To get the most from the money that you have, it's essential to have a basic understanding of the difference between wants and needs. Chances are that a lot of things that you assume are needs are only wants you have disguised as needs in order to justify purchasing them.
Basic needs are food (including water), shelter and clothing plus the essentials needed to work so that you can provide those basics. That means that the TV (and virtually every other gadget in your house) is a want and not a need. Having the willpower to buy only those things that you really need (being frugal doesn't mean being stingy, but it does mean that any wants you do have are specifically saved and budgeted for as opposed to impulse purchases) is essential to getting the most out of frugality.
Simply put, if you don't need it, don't buy it, no matter how good the price.
Thou shalt only buy when you have the money. One of the basic premises of frugality is having the money to pay for the things that you buy. By budgeting and saving for those things that you want and paying for them with cash rather than using credit, you ensure you aren't paying far more than you should be for the products and services that you buy.
Thou shalt purchase by value, not price. One of the biggest misconceptions about being frugal is that those who are frugal only purchase things that are cheap or the very lowest price. The truth is that those who are frugal always try to buy the best value taking into account other factors such as the life expectancy and additional upkeep costs that come into play beyond retail price. This often means looking at the long term cost of an item rather than just the initial purchase price.
Thou shalt be patient. Those who embrace frugality rarely have the latest and greatest gadgets that have just hit the market. Instead, those who are frugal wait for the early adopters to embrace the technology until the point at which the price falls to a reasonable level as the gadget makes its way to the masses.
Those who are frugal are usually a generation or two behind on the latest gadgets, but they still perform the functions that need to be done and they get them for a fraction of the price.
Thou shalt buy used. A basic tenet of frugality is to get the best value from what you purchase, and this often means purchasing products used. Those who are frugal are more than happy to let someone else pay full retail price and absorb the premium pricing for products that are depreciating assets (think of the difference in price between a brand new car and a two-year-old vehicle, as an example).
Used products are often a fraction of the price of the new models and in many instances perform the needed task just as well.
Thou shalt look for alternatives before buying. If you need something, automatically going out and buying it is not an approach that a true frugal person would take. Instead, before spending any hard-earned money on something that may only be used a few times, consider alternatives.
Is it possible to borrow it from a friend, a neighbor or a place such as the library? Would renting it be less expensive in the long run? Do you have something else already on hand that can be used to perform the same task? Buying is only one of many options when it comes to getting things you may need.
Thou shalt ignore the Joneses. Part of living a frugal life is understanding that life isn't a competition over who has the most stuff. It's important to concentrate on your and your family's needs, and not what others are spending their money on. Just because your neighbors bought it doesn't mean that you need to go out and buy something on par or better.
Thou shalt not pay full retail price. When you are going to make a purchase, you should never pay full retail price for it. There are a number of ways to avoid paying full retail such as using coupons, finding discounts, waiting for sales and negotiating a lower price. With a bit of preparation and forethought, there is never a reason to pay full retail price for anything you purchase.
Thou shalt not waste. One thing that those who are frugal hate is waste. While this obviously includes the waste of money, it also goes beyond money to such areas a wasted resources and wasted time. Efficiency is a frugal person's friend, and those who are frugal tend to follow the green mantra of reduce, repurpose, reuse and recycle for the things that they do possess.
Thou shalt do things yourself. When something needs to be done, the first choice to perform the task should be yourself rather than hiring someone else to do it. Frugal people tend to be do-it-yourself experts and do not pay others to do things that they can easily do by themselves. When they don't know how to do something, they research it to see if it is something that they can do with the proper instructions or something sufficiently complicated that it's best to let an expert handle.
While it may take some practice at first, getting these 10 frugal commandments down will make your savings account look a lot healthier come 2010.
Frugality often gets a bad rap. Many people misunderstand frugality and assume that it's nothing more than being "cheap" when, in reality, frugality is making sure that you get the most from the money and resources you have, even if they are limited.
For those who are just beginning to embrace frugality as a part of their lifestyle, here are 10 frugal commandments to live by.
Thou shalt not buy things you don't need. To get the most from the money that you have, it's essential to have a basic understanding of the difference between wants and needs. Chances are that a lot of things that you assume are needs are only wants you have disguised as needs in order to justify purchasing them.
Basic needs are food (including water), shelter and clothing plus the essentials needed to work so that you can provide those basics. That means that the TV (and virtually every other gadget in your house) is a want and not a need. Having the willpower to buy only those things that you really need (being frugal doesn't mean being stingy, but it does mean that any wants you do have are specifically saved and budgeted for as opposed to impulse purchases) is essential to getting the most out of frugality.
Simply put, if you don't need it, don't buy it, no matter how good the price.
Thou shalt only buy when you have the money. One of the basic premises of frugality is having the money to pay for the things that you buy. By budgeting and saving for those things that you want and paying for them with cash rather than using credit, you ensure you aren't paying far more than you should be for the products and services that you buy.
Thou shalt purchase by value, not price. One of the biggest misconceptions about being frugal is that those who are frugal only purchase things that are cheap or the very lowest price. The truth is that those who are frugal always try to buy the best value taking into account other factors such as the life expectancy and additional upkeep costs that come into play beyond retail price. This often means looking at the long term cost of an item rather than just the initial purchase price.
Thou shalt be patient. Those who embrace frugality rarely have the latest and greatest gadgets that have just hit the market. Instead, those who are frugal wait for the early adopters to embrace the technology until the point at which the price falls to a reasonable level as the gadget makes its way to the masses.
Those who are frugal are usually a generation or two behind on the latest gadgets, but they still perform the functions that need to be done and they get them for a fraction of the price.
Thou shalt buy used. A basic tenet of frugality is to get the best value from what you purchase, and this often means purchasing products used. Those who are frugal are more than happy to let someone else pay full retail price and absorb the premium pricing for products that are depreciating assets (think of the difference in price between a brand new car and a two-year-old vehicle, as an example).
Used products are often a fraction of the price of the new models and in many instances perform the needed task just as well.
Thou shalt look for alternatives before buying. If you need something, automatically going out and buying it is not an approach that a true frugal person would take. Instead, before spending any hard-earned money on something that may only be used a few times, consider alternatives.
Is it possible to borrow it from a friend, a neighbor or a place such as the library? Would renting it be less expensive in the long run? Do you have something else already on hand that can be used to perform the same task? Buying is only one of many options when it comes to getting things you may need.
Thou shalt ignore the Joneses. Part of living a frugal life is understanding that life isn't a competition over who has the most stuff. It's important to concentrate on your and your family's needs, and not what others are spending their money on. Just because your neighbors bought it doesn't mean that you need to go out and buy something on par or better.
Thou shalt not pay full retail price. When you are going to make a purchase, you should never pay full retail price for it. There are a number of ways to avoid paying full retail such as using coupons, finding discounts, waiting for sales and negotiating a lower price. With a bit of preparation and forethought, there is never a reason to pay full retail price for anything you purchase.
Thou shalt not waste. One thing that those who are frugal hate is waste. While this obviously includes the waste of money, it also goes beyond money to such areas a wasted resources and wasted time. Efficiency is a frugal person's friend, and those who are frugal tend to follow the green mantra of reduce, repurpose, reuse and recycle for the things that they do possess.
Thou shalt do things yourself. When something needs to be done, the first choice to perform the task should be yourself rather than hiring someone else to do it. Frugal people tend to be do-it-yourself experts and do not pay others to do things that they can easily do by themselves. When they don't know how to do something, they research it to see if it is something that they can do with the proper instructions or something sufficiently complicated that it's best to let an expert handle.
While it may take some practice at first, getting these 10 frugal commandments down will make your savings account look a lot healthier come 2010.
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