Home Prices Drop, Along With Consumer Confidence

The Conference Board's consumer confidence index, released Tuesday, fell to 50.4 this month, the lowest reading since February 1992 and half what it was a year ago. The index dropped more steeply than expected from 58.1 in May. The consensus estimate of economists surveyed by Thomson/IFR was for a more modest decline to 56.5 for June.

Patrick Newport, an economist at Global Insight, expects the Case-Shiller index to fall another 20 percent to 30 percent. Prices should halt their descent sometime next year, he said.

"The numbers are going to get worse because inventory levels continue to be at record highs or near record highs," Newport said.

Much of the pricing pressure comes from foreclosures and so-called short sales, in which a lender accepts an offer less than the value of the mortgage. These distressed sales can be discounted by 20 percent to 50 percent, forcing home sellers to slash their listing prices to compete.

An industry group Tuesday said U.S. consumer confidence plummeted more sharply than expected in June to it lowest level in more than 16 years. The Conference Board's reading of consumers' expectations hit an all-time low. (Associated Press)

Tips for First-Time Homebuyers

Home-price adjustments in markets around the country have opened doors of opportunity for many renters. If you are transitioning from renter to homeowner, the prospect of making such a large investment may be exciting, while at the same time overwhelming. But it doesn’t have to be. Here are six common mistakes to avoid.

1. Not understanding the homebuying process. Educate yourself. Find a homebuyer seminar that you can attend or research online. The U.S. Department of Housing and Urban Development Web site (www.hud.gov) has an entire section devoted to homebuyers with common questions of first-time homebuyers, mortgage and home-buying programs information, downloadable tools such as a wish list and home-shopping checklist, tips on selecting a real estate professional, etc. Likewise, Prudential Real Estate’s popular Web site, prudential.com/realestate, offers consumers brand-new tools for the homebuying process, such as free home environmental reports, Value Range Estimates and Property Profiles, among other resources.

2. Not asking questions. There are many facets and intricacies to the homebuying process, so although you may gain a basic knowledge, you will still have questions. Don’t hesitate to let your real estate professional know that you are new to the process. Make sure you choose a sales professional who is willing to spend time with you and walk you through the entire process. He or she will expect you to have questions at each step—from house hunting, to making an offer to the closing. Remember, this is one of the largest financial transactions of your life, so you want to have a clear understanding of what’s going on.

3. Buying on impulse. Don't feel pressured into making an offer on the first home you see. Buyers, especially first-timers, may be impressed by the first two or three homes they view. Look at a good selection. List the positives and negatives about each home. Narrow the prospects to three or four and then return for a closer look. When you decide to make a bid on a property, work with your real estate professional to get all of your questions answered before making an offer. But don't wait too long to make an offer. The longer you wait, the greater the chance other prospective buyers may place offers, making it harder for you to negotiate a good deal.

4. Looking outside your price range. Before beginning your home search, consider getting pre-qualified to so get an idea of how much you may be able to borrow. Use this information as a starting point in determining your price range. Then take into consideration other factors that will affect your monthly budget once you are a homeowner, such as property taxes, homeowners insurance, utilities, private mortgage insurance (PMI) and maintenance.

5. Not planning ahead. Think about personal changes you are planning in the next five to seven years. For instance, are you starting a family, and if so, is the home large enough and will it continue to be? If this will be a starter home or if you think you’ll be relocating in a few year, you’ll probably want to pay closer attention to appreciation and resale value. If a double-income is necessary to qualify for financing and to make your payments, do your plans foresee an income sufficient to continue making payments?

6. Failure to focus on location. Don’t just focus on the house. Examine the community. Does it suit your lifestyle? Is the area safe, well-maintained, close to work, stores and schools? Find out about zoning and what new construction is planned on vacant land in the immediate area. Also consider the property marketability when it’s time to sell.

Above all, remember knowledge is key. No question is a silly question. Your real estate professional can be an invaluable asset throughout the process. Making smart home buying decisions will make the home-buying process less scary and your first home purchase a rewarding experience.

Prudential Olympia, REALTORS is an independently owned and operated member of Prudential Real Estate Affiliates, Inc., a Prudential Financial company. Equal Housing Opportunity.

Can You Afford That House?

Before you start searching for your dream home, you first need to determine a price range you can afford. According to the Federal Housing Administration (FHA), depending on the consumer’s current debt ratio, most people can typically afford to pay 31 percent of their gross monthly income for mortgage payments. For example, if you earn $50,000 annually, then your monthly income is about $4,167. Thirty-one percent of that is $1,292.

There are several online tools to calculate a monthly mortgage you can afford using factors such as your current monthly expenses, down payment and the interest rate. You can also work with a lender to get pre-qualified for a loan. This estimate will help you gauge how much money you may be able to borrow and the monthly mortgage payments.

However, the amount you are able to afford for a home loan should not be your only consideration for determining your price range. With homeownership come other housing expenses.

Utilities

The most obvious of additional housing expenses are utilities—gas, electricity and water. But don't forget about telephone, trash collection, and cable or satellite bills.

Taxes

As a property owner, you are responsible for property taxes. The rate will vary from city to city. In our community, the tax rate is 0.00972 percent. That means for a home with a market value of $200,000, yearly taxes will run $1,944. To get a general idea on how much the tax bill will be for a property, ask the seller for a copy of the previous year's tax assessment. Your real estate professional can help you refine these figures.

Association Dues

Another cost you may incur is homeowner association (HOA) dues. Most condominiums and some (residential developments/subdivisions/neighborhoods) have HOAs, which are legal entities, created to maintain common areas and enforce deed restrictions. As a property owner, you are required to pay the established monthly or annual homeowner association dues. Be sure you factor this cost into your budget.

Maintenance

You also need to consider the upkeep of your home. You should budget for seasonal maintenance such as lawn care, pest inspections and carpet cleaning, as well as unexpected repairs. The amount you budget will depend on the age of the home, as older homes tend to require more repairs such as installing a new roof, painting and replacing older appliances.

Insurance

Depending on the type of coverage and your area, the costs for homeowners insurance each year can be anywhere from a few hundred to thousands of dollars. And, if you live in an area that has high risks for flooding, earthquakes, hurricanes, etc., you may need supplemental insurance.

Remodeling/Upgrades

Unless the home you purchase is picture perfect, you’ll more than likely be adding your personal touch. Therefore, you need add to your housing budget the costs for remodeling and upgrades. According to “Remodeling Magazine’s” 2007 Cost vs. Value Report, the national average for a midrange minor kitchen remodel is $21,185; a bathroom remodel averages $15,789.

Even minor cosmetic fix-ups such as light fixtures, window treatments, carpeting and decorative cabinet knobs can begin to add up.

By determining all the costs associated with homeownership, you can go into your home search with a reasonable price range that will allow you stay within your budget.

Prudential Olympia, REALTORS is an independently owned and operated member of Prudential Real Estate Affiliates, Inc., a Prudential Financial company. Equal Housing Opportunity.