New homes sales volume up as prices come down

National sales volumes are reported as being as high as 16% in April due to the drop in prices builders are accepting according to the Real estate journal (part of Wall Street Journal) article posted by Jeff Bater. The report shows that the builders are continually more interested in moving product than having it sit.

Very reminiscent of how in Las Vegas in 04, 05 the builders drove the prices up by limiting the number of available units. Don't get me wrong, they were cranking out houses faster than a target maker at a Rosie Odonnel shooting range. They did however have a minimal unit release per phase, allowing them to increase prices more rapidly and more often. Now this is not to say the builders were the only cause of the increase in median prices at that time of over 40%, (again speaking specifically to Las Vegas/Henderson, 2004, 2005), but the re-sale home sellers also jumped right into the feeding frenzy as well.

Oh how the tables have turned!!! Now we are seeing the builders dumping inventory with offers of $20,000 in incentives, paying closing costs and yup, dropping prices...though the tactic we see in Las Vegas is more of the massive incentives and upgrades, along with offering the general real estate agents they didn't want to see in the 04, 05 days higher commissions for bringing in their clients. For the re-sale seller its pretty tough to compete with those terms. Re-sellers are once again having to follow suit and drop prices, or offer incentives. Above all, any home on the market has to be immaculate since the buying population seems to be staying quite cautious.

Re-sale stats in Las Vegas to this point don't reflect the National New Home sales stats at this point. As of today, in the Las Vegas/Henderson market, re-sale detached single family volume is off by about 8%, but the average sales price is up about 5% from $389,626 to $409,646. Condo/Townhome is up slightly in volume, but down in average prices about 4% from $259,819 to $249,648...these are incomplete numbers for May, check back at the beginning of June for the actual run down.

Have a great memorial day weekend!!!!

Thanks to all the vets and active service personnel for the sacrifices you make and have made for all of us!!!

Writing off the mortgage interest

I was talking with a client over the weekend and she that told me, "she still didn't get how that tax thing worked". I was a bit surprised, considering that was one of the reasons she wanted to go from renting to owning a home. I suppose it's one of those things that you know is good for you and you just accept, sort of like not sticking your tongue on a frozen pole.

Okay, so here goes, and remember to always talk to an accountant or a tax preparer before entering write offs on your tax forms. So having given my official disclaimer...the lawyers are happy now...here's how it works.

In simplest terms the money that you pay toward your mortgage interest, can be deducted from your gross income, the same way you would deduct the cost of a harpoon if you were a whale hunter...and in no way do I endorse harpooning whales, again the lawyers make me say these things...

So if you're wanting a real world example of how this works or how it can influence your decision between renting and owning, lets set up an example. A home with a value of $200,000, where the seller paid your closing costs and an apartment that rents for $1,000 a month

Rent $1,000/month

Mortgage payment principle and interest on a $200,000 loan is $1,199

of the $1,199 principle and interest payment, $1,000 is mortgage interest.

Over the course of a year, $12,000 has been spent on rent, with no tax benefits, its just gone.

Over the course of a year $14,388 has been spent on mortgage principle and interest of which, $12,000 has been spent on mortgage interest. Unlike with paying rent, you can deduct $12,000 from your gross income, meaning you "never made that money and don't have to pay taxes on it" In other words the savings comes in not having to pay taxes on $12,000.

If you are in 15% tax bracket that is a savings of $1,800.

again, if you couldn't deduct mortgage interest you would owe the IRS an additional $1,800

In addition to the tax savings, you've knocked down the principle on your loan by $2,388. So instead of oweing $200,000 you now owe $197,612. If your house has gone up in value by even as little as 1%,(Las Vegas traditionally has gone up in value on average at about 6%-8%, with the exception of 04', 05 where we jumped like 43%), but at 1%, ($2,000), your homes value is now $202,000, you owe $197,612. This means you now have an equity position in your home of $4,388.

Okay back to comparing the rent vs own thing.

Rent end of year cost $12,000, no tax deduction no equity position

Own end of year cost $14,388, tax savings of $1,800, equity position of $4,388

You paid $2,388 more to own your home over 1 year than to rent, but that $2,388 is now equity in your home, (you get it back when you cash out your equity) in this example the home also went up $2,000 (again money you get back when you cash out) and you saved $1,800 in taxes. (money you didn't have to pay).

Okay, now this gets real interesting if you hang onto your home for a few years. The average for first time home buyers before selling is 3 to 5 years...lets call it 3 years.

3 years renting-$36,000 (if by some miracle your rent stays at $1,000/month)

3 years owning-(1% increase in value, 200K initial purchase price, $200,000 loan amount

6% int/ 15% income tax bracket

year 1- $200,000 principle loan amount/$1199/mo. P&I payment- $12,000 to interest $2388

to principle.

$1800 tax savings/home value to $202,000/$2,388 principle reduction.

year 2- $197,612 principle loan amount(original value less principle reduction)/$1199 P&I/mo

$11,820 to interest $2,532 to principle
$1773 tax savings/home value to $204,020/$2,532 principle reduction.

year 3- $195,080 principle loan amount(yr. 2 principle less principle reduction)/$1199 P&I/mo
$11,700 to interest $2,688 to principle

$1755 tax savings/home value to $206,060/$2,688 principle reduction.

End of 3 years

Renting- $36,000 out of pocket, no return on money spent, no tax deductions.

Owning- $43,164 out of pocket

Total tax savings over 3 years-$5,328

Total principle reduction over 3 years-$7,608

Total increase in value of home over 3 years-$6,060

In simple terms, renting over 3 years has cost $7,164 less then owning. Owning has saved you $5,328 in taxes and has created an equity position in your home of $13,668.

Owning over 3 years at 1% increase in value of the home created $11,832 return on investment and provided a roof over your head.

So back to the original reason for this post, how is mortgage interest written off of my taxes? The money you pay for your mortgage insurance is tax free. Again, check with your accountant for your specific situation.

60 Minutes Takes A Shot At Realtor Commission

60 minutes recently ran a piece about how Realtors have a set 6% commission and how discount online brokerages save sellers money. If you think about it, is this any different than an owner that decides to sell their home themselves? The online brokerages are offering a form of advertising to the sellers of real estate for a fee. Some online brokerages offer lock boxes, signs and fliers, but as with most "on-line" services, you lose a lot of the hands on support. Algorithms and programs take the place of an actual market analysis for pricing. One needs only to look at how a site such as Zillow averages a number of homes in a given area regardless of builder, sub-division or upgrades. In a market such as ours, where prices vary greatly by subdivision, the money saved on "doing it yourself" may not be such a bargain.

The crux of the 60 minutes piece revolved around a "set commission", apparently they didn't realize that there is no such thing as a "set commission". Commissions by law are negotiable and can not be set as a standard. Reducing a commission has become part of doing business in the market today. The CBS story didn't mention the fact that the commissions and Realtor income have been declining steadily since 2005. This means only one thing, full service Realtors have been discounting their listings and providing their services for less money. Discount and online brokerages make up less than 10% of the National Association of Realtors membership, yet commissions have decreased 25% over the last ten years. It would be impossible for a segment that small to have effectively reduced commissions that much. Again, the concept of a discounted commission structure is nothing new, but it was an excellent marketing technique to convince consumers that full time Realtors don't earn their keep, as well as a good angle for a bit of a smear piece by 60 Minutes.

Paying a commission or a flat fee for listing services is obviously up to you. Just like making improvements to your home, you can build a patio cover yourself if you have the know how, or you can even get the information on how to build one. The difference is that if you hire a licensed contractor, you wont be swinging the hammer, you'll have someone on-site that has built hundreds of patio covers before and that most likely will be able to save you money on materials and in time. Most importantly you'll have someone involved that understands the ordinances and codes and how to get the proper permits. Using a full service Realtor isn't that different than using a licensed contractor. A full service Realtor doesn't just get clients from the internet, though the internet has become a wonderful tool for marketing properties to consumers, but they work in the communities in which they sell homes. In other words, they know if your home is in a sub-division that is worth more than a house of the same square footage across the street. The Realtor puts together a proven multi faceted marketing plan to sell your house, that include a lot more than a web site and a sign in the yard. Unfortunately the internet is not the be all and end all of advertising. It is an incredible informational tool that can help shape decisions, but as a marketing tool it is only one facet of available marketing avenues.

I have routinely saved my clients money in more ways than offering a discounted commission. I have seen things that seem harmless on the surface in an offer, that equate to loan fraud and could have cost my client money from fines as well as possible criminal charges. Catching a mistake by a home inspector because I'm on-site during an inspection such as, "The HVAC system is broken and needs to be replaced", this was fixed when I showed the inspector to the vacation switch in the off position. A silly mistake that would have cost at least a service call fee or worse the sale of the house from the buyer assuming the house was in bad shape. I have been able to dispute low appraisals by supplying comparable homes the appraiser missed, as well as showing differences in subject properties based on upgrades. Mistakes are even made at closing, because the contract wasn't followed exactly. These are all examples of what having a Full Service Realtor brings to the table, and the great thing is that there is no "Set commission". You can negotiate what you think is fair and get an on-site, full service Realtor that doesn't just rely on the internet to sell your home.

Another thing the CBS story failed to highlight was the cost and liability a Realtor takes on when taking a listing. The internet marketing, the flier creation and production, the newspaper advertising, the postcards and direct mail advertising as well as the cost for the print advertising all come out of the Realtors pocket BEFORE the house is sold and the Realtor receives a commission. Additionally, if a buyer that does not have a Realtor wants to view the home, the listing agent has the ability to pre-qualify the buyer to ensure the individual isn't just casing the joint. Also, a Realtor can be liable for the cost of a home should there be litigation involved in which the Realtor is found to have been at fault.

What I tell my clients is that in hiring me, you get expert on-site advice, proven marketing and advertising to sell your home in the quickest way possible, many years of experience in selling real estate and someone that has a vested interest in getting you the most money for your home.

The 60 Minutes piece also tried to make it sound like there was a conspiracy against on-line or discount brokerages. Real estate is a competitive business, but conspiring to put another brokerage out of business is ridiculous.

For a response to this I will quote directly from Blanche Evens of the Realty Times she refers to Leslie Stahl in her editorial as well as Redfin online brokerage and erealty online brokerage.

Redfin makes a strong case that other brokers and the real estate associations are trying to put the company out of business. As proof, Stahl dredges up Steve DelBianco, who helped co-found eRealty in 1999.

"No sooner than they were up and running, the local agency in Austin that regulates the industry adopted a new rule that effectively barred e-realty from listing houses for sale on its website," said the CBS report.

"They sued us for breaking the rule they created to shut down eRealty's ability to compete," Delbianco whined to Stahl. Commissions were "the only objection," DelBianco told Stahl. "Realtors embrace the idea of some automation and some use of the Internet. But the minute it cuts into their pocketbooks, well, all hell broke loose."
eRealty's venture capital dried up; the company lost $33 million and went belly up, sums DelBianco.

Is this revisionist history? Realty Times remembers the story a little differently.
What really happened was that eRealty took the Austin MLS feed without permission and put it on its website as a lead generator. While technology allowed them to do so, they didn't have permission from other brokers, which is why they got sued. The suit was settled out of court and eRealty immediately made a deal with Yahoo! to give it MLS listings in exchange for being the exclusive broker. Now, other brokers don't share their listings to give others a competitive advantage; they share to get the listings sold, which was NOT eRealty's first agenda. Their agenda was to create a marketing advantage using other brokers' listings as lead generators.
eRealty didn't go belly-up, but was sold to Prudential. Their CEO Russell Capper works for Prudential today.

Why didn't Stahl do a little fact-checking to find out if DelBianco were telling the truth? Anyone at the Austin Board of Realtors or the Austin MLS would have been happy to explain their side of it, except for a little problem -- they are under a gag order by the court, the same one that eRealty and its principals are under - except when they talk to CBS.

Here's the thing, if you want to try selling your home yourself, then by all means give it a shot.

If you want a discounted listing, then don't feel like you can't ask for one. There is no such thing as a "Set commission"!!!

Las Vegas homes sold through April 2007

Las Vegas continues to see high inventory and slow sales. The Greater Las Vegas Association of Realtors reports that as of April there were;

Inventory (listed homes)

22,242 re-sale Single Family Residential homes listed in the multiple listing service, (this statistic does not include the number of new homes being sold by builders). This figure shows an increase in SFR of 4.5% from March and an increase of 25% from April of 2006.

6,178 re-sale condominiums (again does not include new construction) up 3.1% from March and up 62% from April of 2006.

Closed (sold homes)

1,381 SFR homes sold in April, down 14% from March and down 39% from April of 2006

296 Condominiums sold in April, down 13.2% from March and down 45% from April of 2006

Median Sold Price

SFR median sold for April is $305,000 no change from March, but down 1.6% from April 2007

Condominiums medial sold for April is $202,000 up 1.1% from March and up 0.5% from April 2007

As I mentioned above, these are statistics from The Greater Las Vegas Association of Realtors and do not include any new homes. The increase in median pricing of Condo's has to be considered a good sign. This increase of .5% in spite of the fact that the inventory has risen 62% since 2006.

Depending upon which source you site, Las Vegas is growing at a rate of 6000 to 8000 new residents a month. This of course does not take into account the number of people leaving, but it does make a pretty firm statement that Las Vegas is still an attractive place to call home.

Unemployment statistics as of March is at 4.2%, with job growth at 3.3%, (the national average is 1.4%). The Nevada Workforce Informer posted the following statement in the March Nevada Economy in Brief;
Nevada has gained nearly 270,000 jobs since March 2002, a period that saw the construction of only one mega-resort in Las Vegas. With the Palazzo, Encore at Wynn Las Vegas, Project CityCenter, Echelon Place, Cosmopolitan and other projects taking shape, the Las Vegas Strip is seeing its first major resort construction cycle since the late 1990’s. These projects will create tens of thousands of permanent jobs once they are completed. Those workers will need new homes, schools and places to shop. Growth of the southern Nevada economy has traditionally been sparked by resort construction, and the biggest construction cycle on record is under way.