REALTORS® SAY HOUSING INCENTIVES HELP ECONOMY, SMALL BUSINESSES

Having a sound and well-functioning real estate sector is critical to our country’s economic growth and development, as well as the growth and sustainability of many small businesses, according to the National Association of Realtors®.

In testimony on Capitol Hill before the House Committee on Small Business, NAR President Charles McMillan noted that the real estate industry supports millions of jobs and services. “By enacting provisions that stabilize America’s real estate markets, you are helping small businesses and America’s communities thrive and prosper,” said McMillan, a Realtor® and broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth.

NAR shared its belief that the 2009 stimulus legislation has proven helpful to small business owners - which includes many Realtors® - most notably by beginning to stabilize the housing market and stimulate the economy. “Along with other tax bills passed in 2007 and 2008, the 2009 stimulus legislation included a number of provisions that are helping the nation recover,” McMillan said.

The focus of NAR’s testimony was on three provisions that are having a positive impact on the real estate industry - the first-time homebuyer tax credit, the elimination of the mortgage cancellation tax, and the SBA loan programs.

The 2009 stimulus increased the amount of the homebuyer tax credit to $8,000 and eliminated the repayment feature of the credit. It also extended the program up to December 1, 2009. “It appears the tax credit is now being embraced based on the number of inquiries we and our members are receiving and the increased activity in the first-time homebuyer market,” said McMillan.

NAR has asked Congress to take steps to ensure the tax credit continues to stimulate the housing market and help families achieve the dream of homeownership. “We hope Congress will extend the tax credit through next year and make the credit available to all purchasers of primary residences,” McMillan said. “Additionally, to be fair, we’d like the repayment requirement from the 2008 stimulus bill to be eliminated so families are not penalized for buying their home just a few months before the new legislation went into effect.”

The second provision is the Mortgage Cancellation Relief Act passed by Congress in 2007. The tax relief has been extended through 2012, but NAR would like to see this become permanent. “It just doesn’t seem right to further penalize a family that has acted responsibly and has lost their home or been forced into a short sale because of market conditions. Eliminating the tax on the excused debt will help many families begin to recover more quickly and maybe will allow them to once again own a home,” McMillan said.

Lastly, NAR addressed the Small Business Administration loan program that provides fee waivers for some of its SBA programs and new loan programs and raised guarantees. “We applaud these efforts,” McMillan said. “However, the SBA often deems independent contractors, which most Realtors® are, ineligible for its programs and its standards are not always evenly applied across regions.” Realtors® and other independent contractors are often denied access to SBA programs. NAR asked Congress for assistance in making these loans available to more small businesses helping them to grow and prosper.

“NAR thanks you for all of your efforts to date. We stand ready to work with Congress and the Obama administration in any way possible to find further solutions to stabilize the real estate market and restore a strong marketplace and economy,” said McMillan.

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

2008 Cost vs. Value Report

Still Many Happy Returns for Home Rehabs

Remodeling magazine's annual report shows that maintenance-related projects and moderately priced upgrades are providing stable paybacks, even in a slower market.

By G.M. Filisko | December 2008

Despite home price drops in many cities, remodeling projects are holding their own as a way for owners to add value.

Many people are wondering where their money will be safest during these uncertain economic times. When home owners turn to you for your expert advice, counsel them that some things never change: Investing in their home still pays off.

NATIONAL ASSOCIATION OF REALTORS® statistics show that home prices have fallen by an average of 7 percent nationally in the past year. But the value of home owners’ investment in remodeling projects has declined only 3.86 percent on average between 2007 and 2008, according to Remodeling’s 2008–2009 Cost vs. Value Report.

Remodeling produces the Cost vs. Value Report each year in cooperation with REALTOR® magazine. REALTORS® responding to a survey in midsummer said home owners could expect to recoup a national average of 67.3 percent of their investment in 30 different home improvement projects. At the height of the housing boom in 2005, home owners could expect to recoup a national average of 86.7 percent on projects.

Remodeling remains hot in 10 cities, where, on at least some projects, home owners can recover 100 percent of their costs. In Charlotte, N.C., for example, decks, midrange kitchen remodels, vinyl siding, and window-replacement projects all would net more than they cost, in respondents’ estimation. High rates of recovery were seen in both strong real estate markets and weak ones.

Many cities with the highest rates of recovery were smaller—Jackson, Miss., and Billings, Mont., for example—which may point to lower labor and materials costs that are easier to recoup.

Seattle also made the list of cities with a cost recovery of more than 100 percent on decks and minor kitchen remodels. In fact, Pacific Coast cities recorded the best payback on remodeling by a wide margin, as they did in 2007. Although construction costs on the Pacific Coast are nearly 17 percent higher than national averages, the value of renovations at resale more than makes up for those higher prices.

The result is an average cost-recouped percentage that’s 14.8 percent higher than in the rest of the country. The toughest place to get your money back: Midwestern cities such as Chicago, Cleveland, Indianapolis, and Milwaukee.

Top 10 Project Paybacks

Once again, exterior remodeling projects lead the way for recovery on dollars spent in this year’s Cost vs. Value survey. When you compare the national averages, replacement projects that boost curb appeal—siding, windows, and decks—give you the greatest chance of recouping your money. Inside, only kitchen remodels can compare, at least on a national level.

1. Upscale fiber cement siding (86.7%)
2. Midrange wood deck (81.8%)
3. Midrange vinyl siding (80.7%)
4. Upscale foam-backed vinyl (80.4%)
5. Midrange minor kitchen remodel (79.5%)
6. Upscale vinyl window replacement (79.2%)
7. Midrange wood window replacement (77.7%)
8. Midrange vinyl window replacement (77.2%)
9. Upscale wood window replacement (76.5%
10. Midrange major kitchen remodel (76.0%)

The Real Deal: Examples from You

REALTORS® around the country helped us track down home owners who had recently completed remodeling projects. In all cases, the projects cost far less than the job cost estimates provided with the Cost vs. Value survey.

ATTIC-TO-BEDROOM

Location: Oak Park, Ill.



When Rick Nagle and Eileen Deamer of Oak Park, Ill., spent more than $35,000 to convert the attic of their 100-year-old home into a combination master bedroom and office, "resale value wasn’t our concern," says Deamer, a U.S. government employee and the married mother of two.

The transformation turned 600 square feet of makeshift office with a toilet in the middle of the room to a colonial-style bedroom/office with two walk-in closets and an adjoining sage green bath with a walk-in shower. To allow two simultaneous uses, pocket doors separate the bedroom and office spaces.

BATHROOM

Location: Fountain Hills, Ariz.



"This is such a crazy market to try to judge how much a renovation is worth, but having a refurbished kitchen and bathrooms makes almost any house more salable," says Shari Gay, ABR®, sales associate. The owner—Gay’s sister—added Saltillo clay floor tile throughout the 1,800-square-foot home, including the new bathroom. Bathroom finishes included a new cherry vanity cabinet, a tile shower, oil-rubbed bronze fixtures, and a soothing, sophisticated yellow color scheme, which all add up to a great look.

Total cost? About $5,000. "She’ll at least break even on the upgrades," predicts Gay. "If this were a boom market, she would get even more."

KITCHEN

Location: Honolulu



A kitchen is the heart of most homes. That’s why Hollywood set designer Wally White decided to spend most of his $15,000 renovation budget on upgrading the kitchen of his Honolulu studio condo. To spruce up the existing white cabinetry, which he left to save costs, the owner added bursts of color with celadon green granite countertops and walls painted in a complementary shade of light green. An undermounted white porcelain sink, a six-light halogen fixture on a dimmer, and brushed stainless steel faucet completed the look. It paid off.

White grossed $45,000 when he sold eight months later. "The unit sold for more than any other studio—and most of the one-bedroom condos in the building," says Susan Weinik, a sales associate with Realty Executives Oahu.

BASEMENT

Location: West Brighton, N.Y.



In a modest 1950s ranch in West Brighton, N.Y., a midrange basement upgrade suited Bernard Fallon’s mother-in-law, Ligaya Nocon, just fine. After purchasing her home "on the high end of the market," according to Fallon, broker at Fallon Associates Realty in Rochester, N.Y., Nocon kept basement renovation costs under $9,000.

She created a cottage feel by whitewashing the knotty pine paneling rather than replacing it. She also reupholstered the existing bar to cover wear and warmed up the room with wall-to-wall carpeting instead of wood or tile. "We just dressed it up for the personal enjoyment of my mother-in-law," says Fallon, "but I think it will help sell the property later."

Why Renovation Pays

Why are renovations holding their value better than home prices today? "When housing slows down, people stay put and renovate their house to make it more livable," says Paul Zuch, president of Capital Improvements, a designing, building, and remodeling company in Dallas. And by renovating before they sell, home owners get to enjoy the new space themselves, not just make the home more appealing to buyers. "It just makes sense," says Zuch.


Recent renovations also make buyers’ lives easier. "Home owners who remodel their home are providing a service to future buyers," says Eileen Nelis, a broker at Savvy and Co. in Charlotte, N.C. "When buyers purchase, they don’t want to do all that painting and remodeling, and they don’t want that price tag. They may be willing to make improvements down the line, but when they purchase, they want to open the door and have everything complete. It reduces their stress."

Making home improvements can also reduce sellers’ stress by heading off that time-honored negotiating technique—pecking away at the sales price by pointing out imperfections. "If sellers have done some improvements and dressed up their property, the improvements will help sell it," says Bernard Fallon, broker at Fallon Associates Realty in Rochester, N.Y. "If sellers don’t want to improve their property, buyers will tick off the repairs and try to take them off the price."

That doesn’t mean that every home owner should do every renovation, even in a more stable real estate market. Take Tulsa, Okla., where median home prices actually edged up slightly more than 2 percent in 2008, according to NAR. REALTORS® in Tulsa reported that, of the 30 remodeling projects surveyed, only 16 netted home owners at least 80 percent of the cost.

"Not every neighborhood will support the additional work," says Jim Hemphill, a sales associate at Coldwell Banker Select in Tulsa, "but in older, more established neighborhoods, if you redo a kitchen or bathroom or add a master bath or bedroom, you’ll get your money out."

Despite the value, the weak economy is likely to slow seller spending on remodeling, at least in the short term, predicts the most recent Leading Indicator of Remodeling Activity computed by the Joint Center for Housing Studies at Harvard University.

The LIRA for the third quarter of this year estimated that owners’ spending on home improvements will decline at an annual rate of 12 percent by the second quarter of 2009, continuing a two-year downward trend. Spending is unlikely to recover until the housing market turns around, according to the Center.

Yet, despite declines in overall remodeling dollars spent and a still shaky housing market, "people’s homes are still one of their best, most solid investments," notes Zuch. "Even though the markets have gone through some adjustments, it’s still smart to invest in your home."

Pending Home Sales up Strongly

Pending home sales activity surged as buyers took advantage of low home prices and affordable interest rates, according to the National Association of Realtors®.

The Pending Home Sales Index,1 a forward-looking indicator based on contracts signed in August, jumped 7.4 percent to 93.4 from an upwardly revised reading of 87.0 in July, and is 8.8 percent higher than August 2007 when it stood at 85.8. The index is at the highest level since June 2007 when it stood at 101.4.

Lawrence Yun, NAR chief economist, said home buyers were responding to improved affordability. “What we’re seeing is the momentum of people taking advantage of low home prices, with pending home sales up strongly in California, Nevada, Arizona, Florida, Rhode Island and the Washington, D.C., region,” he said. "It’s unclear how much contract activity may be impacted by the credit disruptions on Wall Street, but we’re hopeful most of the increase will translate into closed existing-home sales.”

The PHSI in the West surged 18.4 percent to 109.5 in August and remains 37.8 percent above a year ago. In the Northeast the index jumped 8.4 percent to 79.8 and is 2.0 percent higher than August 2007. The index in the Midwest rose 3.6 percent to 84.5 in August and is 6.6 percent above a year ago. In the South, the index increased 2.3 percent to 96.0 but is 2.1 percent below August 2007.

Yun notes the unusual timing of contract activity in August. “Home buyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie,” he said. “August shows some unleashing of pent-up demand before the credit crisis accelerated in September.”

He cautioned that the sampling size for pending home sales is smaller than the track on existing-home sales, so there is more volatility in the forward-looking series. “We need to see just how much of this gain holds up,” Yun said.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said despite all the turmoil in world financial markets, home mortgages are available. “Mortgages have been harder to find, and availability and terms vary depending on credit score and location, but Realtors® can help buyers find reputable lenders while helping them navigate the transaction process,” he said. “The recently enacted economic stimulus package should help housing by gradually freeing the flow of credit.”

Yun now expects growth in the U.S. gross domestic product (GDP) to contract for two consecutive quarters, in the fourth quarter of this year and the first quarter of 2009, before expanding in latter part of 2009 as the housing market begins a steady improvement.

Looking at middle-ground assumptions, existing-home sales are forecast at 5.04 million this year and 5.41 million in 2009. Following national declines of 5 to 8 percent in 2008, home prices are projected to increase 2 to 3 percent next year.

New-home sales should total around 503,000 this year and 471,000 in 2009. Housing starts, including multifamily units, are likely to fall 28.2 percent to 973,000 units this year, and come in around 843,000 in 2009 as builders continue to clear the accumulation in inventory.

The 30-year fixed-rate mortgage will probably average 6.1 percent in the fourth quarter and rise gradually to 6.6 percent by the end of 2009. NAR’s housing affordability index is expected to average 18 percentage points higher this year than in 2007.

The unemployment rate is projected to average 6.4 percent in the fourth quarter and then average 6.6 percent in 2009. Inflation, as measured by the Consumer Price Index, is estimated at 4.0 percent for 2008 and 2.0 percent next year. Inflation-adjusted disposable personal income is forecast to grow 1.7 percent this year and 1.0 percent in 2009.