Thursday, April 28, 2011

10 cities with top schools: a range of real estate prices

A list of the nation's top 10 cities with top-performing public schools challenges the idea that the best schools can only be found in the most expensive housing markets, announced a report from school ratings site GreatSchools and business magazine

"The two biggest life stage decisions a family makes are finding a great place to live and excellent schools for their kids," said Bill Jackson, CEO and president of GreatSchools, in a statement.
"Great schools exist within every housing budget. This is good news to REALTORS® who want to help their clients when relocating to a new area," the report added. 
The Northeast, the West and the South each accounted for three cities in the top 10 list. The Midwest accounted for one. That city, Pella, Iowa, had the lowest median home value among the ten: $148,200. Manhattan Beach, Calif. had the highest: $1,278,980.
Cities with home values between $200,000 and $399,999 accounted for the biggest share: three out of ten cities.
GreatSchools analyzed various data points for the report, including public school test scores, median home prices, population, and unemployment rates. The site considered 17,589 towns and cities in 49 states and Washington, D.C.
Cities in Nebraska were not considered because the state lacks a single statewide standardized test.
Towns with populations under 10,000, fewer than five K-12 public schools, or unemployment rates higher than the state average were also not considered. 
Small cities prevailed in the report. The city with the largest population was Manhattan Beach, with a population of 37,745. Five of the top 10 cities had the minimum number of schools -- five -- required for consideration.
"Cities with sprawling, unified school districts like Houston and Los Angeles might harbor extremely high-scoring schools whose results are cancelled out by under-performing ones," Forbes said in its article about the report.
City# schoolsPop.
Median home
value (Q3 2010)
(Nov. 2010)
1. Falmouth, Maine510,669$351,5505.0%100.00
2. Mercer Island, Wash.524,351$708,7408.7%99.12
3. Pella, Iowa510,475$148,2005.3%98.25
4. Barrington, R.I.616,284$296,0109.7%97.96
5. Bedford, N.H.621,504$293,7305.5%97.96
6. Moraga, Calif.516,465$722,01011.5%97.69
7. Manhattan Beach, Calif.737,745$1,278,9804.5%97.69
8. Parkland, Fla.525,106$426,3909.7%95.98
9. St. Johns, Fla.918,063$181,70010.3%95.98
10. Southlake, Texas1226,297$476,8808.2%95.74

Source: GreatSchools/Forbes.

Wednesday, April 27, 2011

Strategic defaults or walkaways can now be spotted!?!

Fair Isaac, developer of the ubiquitous FICO score, has a new warning for homeowners plotting a strategic default or walkaway: We can now spot you in advance. We've developed a black-box risk-identification tool that enables lenders and mortgage servicers to tag you months in advance -- and then pursue their own strategic measures to intervene.
The tool is so effective, according to FICO, that it can "capture nearly 67 percent of strategic defaulters" who are otherwise unremarkable and undetectable, paying their mortgages on time.
Sound a little spooky? Not for the major lenders who are working with FICO to install the new statistical risk-scoring model, aimed at some of the costliest and most perplexing defaulters in the marketplace: people who just stop paying on their loan abruptly, without ever previously being late, even though they have the income to pay.
Strategic walkaways are a multibillion-dollar headache to banks and investors. A study by researchers at the University of Chicago's Booth School of Business found that during last September alone, 35 percent of mortgage defaults in the U.S. were strategic -- up sharply from 26 percent in March 2009.
With an estimated 23 percent of all residential mortgages underwater as of March of this year, according to data from consulting firm CoreLogic, spotting -- and dealing with -- walkaways has become a high priority for the biggest banks.
Walkaways are also more than a slight concern to default risk-scoring giants like Fair Isaac and Vantage Score LLC, the joint venture created by the three national credit bureaus: Equifax, Experian and Trans Union.
Both companies have been stunned to find that the very consumers they deemed the least likely to go into default -- people with 800-plus FICOs and 900-plus Vantage scores -- are statistically more likely to default strategically, with no outward signs of impending payment stoppages, than the lower-scoring masses.
People with low FICO scores still default more often than high scorers, but when high scorers do default, they are far more likely to do so out of the blue. In the lowest score category (300 to 499) more than twice as many people default nonstrategically -- they begin missing payments over time, typically because of income declines -- than strategically.
These walkaways are especially vexing to score-modeling experts like Andrew Jennings, Fair Isaac's chief analytic officer and head of FICO Labs. "They open up new credit accounts" before stopping their mortgage payments, he told me in an interview last week. "They prepare."
They intentionally default on their mortgages in part "because they believe it is in their best financial interest, and because they believe the consequences will be minimal," Jennings said.
Jennings supervised Fair Isaac's work in developing a special tool that pinpoints likely strategic defaulters while they're still cocooning and haven't yet revealed their intentions to lenders.
Some of the research involved examining massive samples of credit bureau data -- 5 percent of all U.S. mortgage accounts -- during a recent one-year period, looking for telltale clues, month by month, that would separate out strategic defaulters from ordinary defaulters.
What the project turned up, said Jennings, helped formulate the model that FICO has now created for lenders and servicers.
So what's in the black box? Obviously the complex statistical model and exactly how it works is proprietary. But Jennings said it looks at a composite of separate risk factors from credit and real estate databases, and enables servicers to identify borrowers whose profiles match those of strategic defaulters most closely.
Some of the key characteristics include:
--How long have the borrowers owned the house? The shorter the time span, the higher the risk.
--Are they good to excellent managers of their household finances and credit relationships? Do they make modest and responsible use of credit cards and other revolving debt? Do they pay their accounts on time as a rule? Do they rarely, if ever, go over the limits on their cards -- or even come close?
--Have they departed from their past credit usage patterns in recent months by opening up multiple new accounts?
--Based on local property-value indexes, is it likely that they have slipped into negative equity territory? Remember: How deeply underwater is only a moderately predictive factor. Lots of owners whose properties are worth far less than their mortgage balances do not strategically default, but keep plugging away paying every month, while borrowers who fit the FICO strategic defaulter profile may be only slightly underwater but still walk away abruptly.
By the way, location is not a key factor in the equation. FICO found that 40 percent of all strategic defaulters live in "recourse" states where lenders can -- and do -- pursue defaulters for any un-recovered debts following a foreclosure.
Of course, the model cannot peer into would-be walkaways' minds and motivations. "We're not trying to explain their psyches," Jennings said, "but you see the patterns" and certain borrowers' profiles light up like flashing neon signs.
The top bracket of high-risk homeowners identified by FICO's new model are 110 times more likely to strategically default than other borrowers -- even though they otherwise appear to be solid customers, according to Fair Isaac.
Armed with these risk profiles, what are banks and servicers likely to do as they scan their portfolios? Fair Isaac recommends that they intervene early with what it calls "pre-delinquent treatments."
These include contacting high-risk borrowers to warn them about the consequences of strategic defaults: Their credit scores will tank by 150 points or more, they'll be hampered or penalized in applications for rentals, employment, car loans or leases, and they can forget about buying another home for at least several years, possibly as long as seven.
If they live in a state that allows deficiency recoveries, servicers will probably emphasize their determination to do so in the event of any default.
Will all this work? Major banks and FICO think it should help. The jury is out at the moment, but if the early detection concept is valid, who knows?
Maybe it will cause some homeowners to think twice and discourage them from taking that first, crucial step: Secretly plotting their walkaway, months in advance.
Ken Harney

Tuesday, April 26, 2011

5 reasons urban living trumps suburban

Book Review
Title: "Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier "
Author: Edward Glaeser
Publisher: The Penguin Press, 2011; 352 pages; $29.95 hardcover, $14.99 e-book

Love and economics. Outside of marital economic conversations, like dowries, prenuptials and divorce settlements (and maybe even inside them!), the two seem to be strange conceptual bedfellows.
Apparently, someone forgot to mention this to economist Edward Glaeser, whose book "Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier" is a veritable love letter about the metropolis, laden with economic proof points that cities deserve not just Glaeser's, but the undying affection of every world citizen -- rich and poor, laborer and businessperson, suburban and rural alike.
Glaeser's central theory -- which he proceeds to prove and prove again throughout the book with vivid case studies of slums, skyscrapers, asphalt and sprawl from Detroit to Dubai, from Bangalore to Singapore -- is that large cities the world over have a strong track record over history of improving the lot in life of both their residents and their fellow non-urban countrymen.
This, he holds, creates opportunity, economies of scale, and even concentrates brainpower at a scale and so efficiently and synergistically that citizens and residents become wealthier, up their intellectual games, live more eco-friendly lives, and on many other levels are happier and healthier than they would have been living elsewhere.
Glaeser is a Manhattanite, born and raised, so his love for cities does not surprise; most native urbanites I know, from Manhattan to London to Vancouver to San Francisco, need very little prodding to start reeling off the reasons they live, work and play in their town. Usually, this list includes a few names of restaurants, retail centers, a university, library or park, and a blurb or two about how diverse/creative/smart their neighbors are.
However, having personally grown up in a distant suburb with many semi-rural neighborhoods, only moving to an urban area as an adult, I was fascinated by Glaeser's various economic/philosophical definitions of what exactly a city is that renders it worthy of his designation as humanity's greatest invention.
In fact, that is a large part of what Glaeser does in "Triumph of the City" -- he tweaks the most elemental way in which readers understand what a city actually is. Viewed though Glaeser's learned, well-documented, inspired lens, a city is much more than buildings and people crammed together. In fact, one of his earliest definitions of a city is "the absence of physical space between people and companies," which facilitated factory productivity in the last century, and facilitates knowledge sharing today.
Throughout the love letter to and about cities that is "Triumph of the City," Glaeser defines and explores cities variously as hubs for productivity and prosperity, gateways to ideas and innovation; as people, not buildings; as cultural centers and luxury resorts; and as the home to slums that, while seemingly impoverished, actually offer economic, sanitation and health care opportunities to their residents totally unavailable to their non-urban counterparts.
Glaeser defines cities as the locations that power the lowest rates of gasoline consumption and lowest carbon footprints of any human living pattern.
He then segues into a sharp critique of seemingly "green" public policies mandating greenbelts and imposing "draconian" caps on urban development, as overly simplistic ("California would have more than enough water for its citizens if it didn't use so much of it irrigating naturally dry farmland") and having the undesirable effects of keeping property prices prohibitively high for all but the elite economic classes and encouraging sprawl to the suburbs (and the corresponding, higher carbon footprints that go along with commuting and big suburban houses on big, grassy lots).
The book also offers a nuanced contrast between cities that work and cities that don't. In fact, Glaeser uses the contrast between New York City -- with its troubled past and triumphant present -- and Detroit -- with its troubled past and even more troubled present -- to isolate and explore what he deems "the essential ingredients of urban reinvention."
It made me want to run for mayor -- it seems there is a handbook for smart transformation of a city, and a set of cautionary tales about what doesn't work, all to be found inside "Triumph of the City."
Whether you live in a city, troubled or triumphant, or are one of the millions of Americans whose disgust with $4-plus per gallon gas prices has you contemplating the sometimes intimidating move to your area's big city, this book will restore your faith in what cities can be, and inspire and energize you to play your role in manifesting that possibility in your own city, if you choose to.
By Tara-Nicholle Nelson
Inman News™

Monday, April 25, 2011

Home selling tax tips for accidental landlords

Due to the precipitous decline in the housing market over the past few years, many homeowners who would otherwise sell their homes are renting them out. This may be because prices are too low, or because they have to move before they can sell due to a job change.

Such accidental landlords should understand that if they rent out their homes too long before they sell them, they could lose the biggest tax break available for most people: the home sale exclusion.
Homeowners who qualify for the home sale exclusion don't have to pay any income tax on up to $250,000 of the gain from the sale if they're single, or up to $500,000 if they're married and file a joint return. Of course, this exclusion is useful only for homeowners who have equity in their homes, not the millions who are "under water" and will receive no profit if they sell their homes.
To qualify for the exclusion, a homeowner must satisfy the ownership and use tests. This means that during the 5-year period ending on the date of the sale, the homeowner must have:
  • owned the home for at least 2 years (the ownership test), and
  • lived in the home as a primary residence for at least 2 years (the use test).
However, the homeowner need not be living in the house at the time it is sold. The two years of ownership and use may occur anytime during the five years before the date of the sale.
This means that a homeowner can move out of the house for up to three years and still qualify for the exclusion. Moreover, a homeowner can rent out a home and count that time as ownership time.
This rule has a very practical application: A homeowner may rent out a home for up to three years prior to the sale and still qualify for the exclusion. However, the exclusion works a bit different for homeowners who have rented out their homes.
They cannot exclude from their income the part of their gain equal to the depreciation they claimed (or could have claimed) while renting the home. Moreover, if the home is rental property at the time of the sale, the sale must be reported to the Internal Revenue Service on Form 4797:  Sales of Business Property.
Example: Connie purchases a house on Feb. 1, 2007, and lives in it for two full years. She then moves to another state to take a new job. Rather than sell the house in a down market, she elects to rent it out.
If she sells the house by Feb. 1, 2012, she'll qualify for the $250,000 home sale exclusion because she owned and used the house as her principal home for two years during the five-year period before the sale. If she waits even one more day to sell, she will get no exclusion at all.
Thus, accidental landlords who have equity in their homes need to sell them before the three-year rental period expires, or they'll lose the home sale exclusion. If they can't or don't want to sell, they would have to move back into the home to preserve the exclusion.
Homeowners who don't qualify for the exclusion will have to pay a 15 percent capital gains tax on their gain from the sale (assuming the home was owned for at least one year).
Inman News

Tuesday, April 19, 2011

How Can You Beat a Cash Buyer?

Cash buyers are flooding the real estate market in record numbers to take advantage of bargain housing prices. But these buyers may put consumers who need financing at a disadvantage. 

Sellers often prefer cash deals because it can mean faster closings and transactions that are less likely to fall through. Some sellers are even accepting lower offers because they are from cash buyers than higher offers from a financing buyer just because they view it as a more solid deal that will be quicker to the closing table. 

So how can your financed buyers compete? Experts offer a few tips.

Get pre-approved or pre-qualified for a mortgage. “The smartest thing they can do is make sure they talk to a competent mortgage banker … to pre-approve them ahead of time,” says Mike Litzner, broker and owner of Century 21 American Homes in New York.

Show you’re in good standing. You'll improve your chances of getting a seller to accept your bid by having more cash that you’re willing to put down, showing you have a stable job, and good credit, Litzner says. Also, a well-prepared, typed-out contract that includes a cover page summary of the contract deals is another way to show you’re a serious buyer, says Dan Quinn, a real estate professional with Prudential Carruthers REALTORS® in the Silver Spring area of Maryland.

Offer more earnest money. Offering a high down payment and high deposit can also help improve your chances of beating out a cash bidder, Quinn says. 

Act quickly. “What I found out is with these cash buyers, they act quickly,” Quinn says. “To compete, you have to act quickly. A lot of times, these are investors and they have a relationship with these listing agents.” Buyers' agents should develop rapport with the listing agents too, Quinn says. 

Realize, however, that while some sellers may be highly motivated to accept a cash buyers offer, even if it’s lower than others, sellers with more equity in their homes may be less wooed by lowball cash offers, says Donne Knudsen, a mortgage loan originator with Cobalt Financial Corp. in Los Angeles. Instead, sellers who still have equity in their homes likely will be more motivated by the best and highest offer, since closing quickly may not be as critical to them, she says. 


What Can Increase and Decrease a Home’s Value?

Little things can make a big difference in how much you ultimately sell a property for, according to a group of New York brokers who say just a few small, smart improvements to a home can increase the sales price by 5 to 10 percent.
They’ve calculated it down to a science. In a recent New York Times article, “To Sell an Apartment, No Detail Is Too Small,” brokers in New York City share how seemingly small defects in a home can drastically affect the home’s final sales price and how just a few small staging upgrades–like throw pillows–can actually increase the value.
Here are some examples of what these New York brokers have found that can impact a sales price. (Keep in mind these are based on New York rents so the prices reflected below may be higher than many other markets.)
  • Chipped plaster or broken bathroom tiles: Knock $500 to $5,000 off an offer
  • Dirty rugs: Subtract $5,000
  • Clutter: Subtract 5 to 15 percent from sales price
  • Fresh towels and throw pillows (estimated cost: $700): Add $25,000 to sales price
  • New lights (cost: $2,000 replacing lighting fixtures and $250 for a professional lighting designers expertise): Add $32,500
  • Professional paint job (estimated cost: $10,000): Add $50,000 to the sales price
  • Replacing cabinets (estimated cost: $20,000 on new kitchen cabinets and paint): Add $107,000
To learn about more upgrades that can make a big difference in your market, read our recent blog entry: 6 Do-It-Yourself Updates That Can Increase Home’s Value By More Than $10,000
So what small upgrades have you found has helped to increase the final sales price of a home?
Melissa Dittmann Tracey, REALTOR® Magazine

2010 Home Sales by Zip Code

 This number crunch article provides homes sales data from 2010 sorted by cities and they're corresponding zip codes. The data used for the article was based on single-family detached homes that were reported sold in the Greater Albuquerque Market Areas in 2010.   Listings that had reported invalid zip codes were corrected in the data set but the actual MLS listing was not changed.

City/ZipSalesAVG Sale Price
Bosque Farms24$215,473
Cedar Crest26$247,823
Los Chavez3$131,167
Los Lunas234$168,172
Los Ranchos de Abq29$546,736
Rio Rancho1,182$186,583
Sandia Park48$374,314