Markets are governed by the laws of supply and demand. We have learned that in school, read it in the newspapers, and experienced it in real life. The problem with the housing market today, we know, is not a lack of supply. There are plenty of homes available. The problem is on the demand side.

In housing, the demand side has two components. First of all, there must be willing and able buyers. But, for there to be able buyers, there must also be financing available. So far, the primary focus of government efforts has been on the financing component. Billions of dollars have been and will be spent on shoring up banks and institutions such as Fannie Mae and Freddie Mac, all in an effort to get credit flowing into mortgage markets again. To date, the success of these efforts has been only marginal. Partly it is because of a continuing reluctance to lend, but also it is because potential buyers are still somewhat reluctant to buy.

Recently, Congressman Ken Calvert (R Calif.) addressed these issues when speaking to a group meeting under the auspices of the National Association of Realtors® (NAR). This 2009 NAR Issues Conference was held in San Diego, California. The attendees were self-professed Realtor® “political junkies”, all of whom understand how closely their business is tied to decisions made in Washington, D.C.

Congressman Calvert suggested that the government needs to do more to create demand in the housing market. It can do that by increasing the attention that is paid to consumers – the potential buyers of homes.

The administration has already put in place an $8,000 tax credit for home buyers, but it has restrictions. It is only available to individuals who make no more than $75,000 or couples earning no more than $150,000. The credit is for $8,000 or 10% of the purchase price, whichever is less. It can only be used by first-time homebuyers (defined as one who has not owned a home for at least three years.) Unlike an earlier tax credit plan, it does not have to be repaid.

But why, it was asked at the conference, should the tax credit be restricted to first-time homeowners, owner occupants, or even to a single purchase? And why should it only be available to those below a certain income level? If the aim is to stimulate the housing market, why not make it available to anyone who purchases a home? Moreover, why restrict the number of credits available to any one purchaser? If someone buys two homes, let them have double the tax credit.

The congressman noted that some would object to such a proposal because it could be used by investors who were buying rental housing. To which the proper response should be, SO WHAT? Would it be a bad thing to have more rental housing available (which, of course, would help to bring down rental rates)? Or would it be better to have these homes continue to languish on the market as bank-owned properties and short sales?

Suppose, just suppose, that a $15,000 tax credit were available to anyone who purchases a home, and for every home purchased. That incentive should increase demand. And suppose, just suppose, that it so increased demand that it resulted in 1 million more homes being sold in 2009 than in 2008. That would be significant (though still behind the 6.4 million units pace of 2006). It would cost the government in lost taxes or refunds about $15 billion. Is that excessive?

First of all, $15 billion is chump change in relation to the amount of money that has been and will be lavished on big banks and Wall Street financial firms. Secondly, unlike most of what we have seen, every dollar spent would be directly tied to accomplishing the aims of the program. None of them would go to bonuses. Tax credits would only be given if homes were purchased. Moreover, if the plan were not successful, if it didn’t stimulate sales at all, then it wouldn’t have cost anything. How is that for novelty among government programs?

Stimulate the market by increasing demand. Use a program that only spends money if it works. Make it available to everyone. Pretty radical ideas. Maybe that Congressman is on to something.

B. Hunt

The annual homeowner association meeting convenes. The president announces that the floor is open for nominations. A fellow homeowner say to you, “You know, you would make a good board member.” Before you have a chance to reply, some body movement indicates that you are willing, ready and able to serve. “The nominations are closed,” a vote is taken, and suddenly YOU ARE ON THE BOARD OF DIRECTORS. You ask yourself, “What does being on the board mean, who is going to teach me and how much do I get paid?” Here are some basic guidelines on how to become a successful board member and enjoy it at the same time…a lesson in HOA responsibilities and practices.

What does it mean to be on the board? You have made a commitment that you will serve the HOA’s interests to the best of your ability, be fair on matters that come before the board, will do your best to preserve and enhance the values of the common areas and that you will spend money in a prudent manner. Being a director also means that you have fiduciary duties which require making reasonable investigation into matters dealt with and acting in a businesslike, prudent manner when making decisions.

Who is going to teach you? Hopefully, you have several veterans on the board who will help you. Ideally, you will have the property manager who works closely with the board and is willing to offer guidance. Continuity is one of a board’s greatest challenges. Ask questions. How have issues been handled in the past? Current boards should carefully consider plans laid by previous boards and not change them impulsively. Take time to become familiar with your association grounds and facilities. Review the HOA’s governing documents, the rules and regulations, and any other board policies to develop a familiarity with them. Keep a set handy for when specific questions arise.

Make a commitment to attend all board meetings and prepare in advance by studying the agenda and related material. There generally aren’t (or shouldn’t be) many meetings but each deals with critical issues. Give them your full attention.

Budget time offers an opportunity to help build a sound financial future for the community. The two basic parts of the budget are Operating (deals with routine maintenance and day to day expenses) and Reserves (long range, major repairs and replacements). As a member of the board, you will be asked to predict future financial needs by using both past budget history and new information accumulated for future repairs.

How much does the job pay? While no money is paid, there are many personal rewards to be had for a job well done. Dealing with people requires patience and flexibility. Remember that while disagreement is not always avoidable, you were elected to make decisions. Consider carefully those decisions put before you and do your best. If you serve as a committed member, it will be one of the more rewarding experiences that you will have.

R. Thompson

McLEAN, VA — Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 4.80 percent with an average 0.7 point for the week ending April 23, 2009, down from last week when it averaged 4.82 percent. Last year at this time, the 30-year FRM averaged 6.03 percent.

The 15-year FRM this week averaged 4.48 percent with an average 0.7 point, unchanged from last week. A year ago at this time, the 15-year FRM averaged 5.62 percent. This is tied with last week for the lowest the 15-year FRM has been since Freddie Mac began tracking it in August 1991.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 4.85 percent this week, with an average 06 point, down from last week when it averaged 4.88 percent. A year ago, the 5-year ARM averaged 5.68 percent. This is the lowest the 5-year ARM has been since Freddie Mac began tracking it in January 2005.

One-year Treasury-indexed ARMs averaged 4.82 percent this week with an average 0.4 point, down from last week when it averaged 4.91 percent. At this time last year, the 1-year ARM averaged 5.29 percent.

“Although long-term mortgage rates eased slightly this week, ARM rates remain elevated relative to those fixed-rate mortgages,” said Frank Nothaft, Freddie Mac vice president and chief economist. “For instance, interest rates for 1-year ARMs exceeded those for 30-year fixed-rate mortgages over the last two weeks; this is the first time this has happened since Freddie Mac began collecting data for ARMs in January 1984.”

“The housing market is showing further signs of possible improvement. House prices rose for the second consecutive month in February, the first back-to-back increase since April 2007, according to the Federal Housing Finance Agency. Among the nine Census divisions, six experienced positive gains in February, led by a monthly increase of 3.8 percent in the Pacific Division.”

Investors looking to acquire houses through short sales just might be in for some good news.

One of the largest holders of second liens in the U.S., the Bank of America, says it’s relaxing its policy on payoffs connected with short sales.

That’s important because large banks have been major impediments standing in the way of thousands of short sales, demanding money for home equity lines and second mortgages that would otherwise be worthless if the short sale property went to foreclosure.

Bank of America had been among the least cooperative of all banks in agreeing to short sale payoff terms, according to industry critics.

The company’s policy was blunt: Pay us 10 percent of what the homeowners owed on the equity line balance or second mortgage, or we won’t sign off on the short sale, which is necessary for the deal to go through.

Now the bank has adopted what spokesman Terry Francisco told Realty Times is “a less arbitrary, more rational” policy.

“What we’re saying (to short sale proposals) is — give us an opportunity to participate and gain at least some of the savings” that will go to the first lien holder — the primary lender on the property — by avoiding the high expenses and losses of a foreclosure, according to Francisco.

Bank of America is now asking for five percent of the sale proceeds on the short sale, net of realty commissions, closing and other costs.

The bank believes that should open the door to more successful transactions, as well as more fruitful negotiations with buyers and sellers to avoid foreclosures.

But not all short sale market experts are convinced that’s the case. Raffi Tal, CEO of Los Angeles-based I-Short Sale, Inc., one of the largest players in the field, says Bank of America’s new policy “will still jeopardize” many short sales that involve its second liens.

The bank’s previous 10 percent policy meant they’d demand $20,000 on a $200, 000 equity line balance, or they wouldn’t bless the deal. But their new policy still means “they want $15,000 if the net proceeds are $300,000″ on a short sale, Tal told Realty Times — even though the economic value of their holding may in fact be zero.

Bottom line for investors: If there’s a Bank of America second mortgage or credit line on the house you’re after in a short sale, work the new numbers. At least some of the time you might be surprised that the answer from the big bank is now ‘yes.’

And watch for other major banks to follow suit.

K. Harney

If hard times has you renting out that empty room for some fast cash, you could be opening the door to a lot more cost, not less.

The Insurance Information Network of California (IINC) says financially strapped homeowners renting out rooms to help pay the mortgage or other costs may be overlooking key issues that could lead to greater financial hardship.

Community, rental rules

Like opportunistic homeowners renting space to visitors in town for special events or even like charitable homeowners housing temporary disaster victims down on their luck, struggling homeowners looking for a fast buck should check for community, legal and insurance repercussions.

Renters who sublet, owners who live in communities governed by homeowners associations, zoning violators and others living under certain community rules or regulations could lose their home through either eviction or foreclosure if they violate terms of the contract, community edicts or local law.

That’s also true in some single-family detached housing communities.

Homeowner’s insurance, taxes

When it comes to homeowners insurance, the rental of rooms may be considered a business. However, limits could be placed on insurance coverage, including coverage for contents, personal liability, medical payments and identity fraud.

Policy add-ons or endorsements similar to those offered for home-based businesses are available to help cover a homeowner’s assets in case of a landlord-tenant dispute or suit.

When part of a home becomes a business certain tax laws could be triggered. For example to help foot the bill for the “Housing and Economic Recovery Act of 2008″ the act eliminates a capital gains exclusion for the portion of gain (during a sale) that comes while a home serves as a vacation or rental property.

“The last thing struggling homeowners need are more ways to lose money,” said Candysse Miller, IINC executive director.

She says homeowners should carefully review their insurance policies with their agent or company before taking on renters. Likewise, they should know the local rules and not try to surreptitiously circumvent them.

Renting concerns

Renters should also be aware that the landlord’s policy may not cover their possessions or provide liability protection in case they are sued.

On the other hand there’s always the possibility of the tenant from hell will wreak havoc and then fall back on legal renters’ rights law to over stay their welcome.

Instead of jumping at the prospect of a windfall, first-time landlords should spend ample time researching city and state landlord/tenant laws, tax rules and other related information.

A detailed background check on the prospective tenant can help identify any potential problems that may arise during the tenancy.

Many cities and municipalities as well as apartment and landlord associations also offer landlord/tenant services departments to help with questions and to avert disputes.

B. Perkins

Loan modification is a no-brainer for lenders. They essentially have the following choices:

• Loan modification
• Foreclosure
• Forbearance
• Deed in lieu
• Short sale

All things being equal, offering a loan modification to borrowers is usually the best option for lenders, because they avoid the high cost of foreclosure (by some estimates $50,000 to $100,000 per foreclosure) and they continue to collect interest on the loan – at a lower rate of return, but still enough to earn a profit.

Unfortunately, in many cases, another factor comes into play – mortgage insurance. If a loan is FHA- or VA-secured or the owners are paying PMI (private mortgage insurance), the lender stands to lose much less from foreclosure, because the insurance will make up a portion of the difference. In other words, the lender’s motivation to work out a reasonable deal with the homeowner/borrower is undermined by mortgage insurance – often mortgage insurance that the homeowner is paying for! When foreclosure numbers spiked, so did mortgage insurance claims. This is what contributed to the need for insurance giant AIG to receive bailout money from the government. Without it they could not have paid all the claims being made and still remain in business. AIG going out of business would have jeopardized the stability of millions of loans and caused even greater market insecurity.

If you are wondering why the federal government is willing to subsidize lenders for modifying mortgages and subsidize homeowners for making their monthly mortgage payments, wonder no more. One reason the government wants to bail out homeowners is because it has to. The government stands to lose more if homeowners with government-secured mortgages default on their loans than by paying ten thousand dollars or so to subsidize mortgage modifications for at-risk loans.You can also stop wondering why mortgage lenders approved all of those risky mortgage loans in the first place. Risks to the lenders were often reduced by the fact that the loans were insured. They could afford to gamble, because someone else would be there to pick up the tab on any losses.

Having insurance when disaster strikes is usually a good thing, but in the case of the foreclosure crisis, having mortgage insurance can work against you. It’s not like homeowner’s insurance that protects your investment in the case of a natural disaster. It only protects the lender’s investment – leaving you and your family without a roof over your heads. In addition, as a recent visitor to KeepMyHouse.com pointed out, eliminating PMI for loans that require it could make house payments more affordable, put more money in people’s pockets, and help stimulate the economy.

I am not entirely against having the government secure loans or requiring homeowners to pay PMI on certain mortgage loans. Up to this point, these programs have helped more people achieve the American Dream of Homeownership. However, when these same programs are working against homeowners during an unprecedented economic crisis, I think it is time to review the real purpose of these programs. Lenders need to start relying less on mortgage insurance and more on loan modification to mitigate their losses and help more Americans keep their homes.

R. Roberts

When home builders, the most depressed segment of the real estate industry, begin expressing optimism about a modest turnaround in the marketplace, maybe it’s time for even the most dour doomsayers to listen.

Last week’s home builders sentiment survey released by Wells Fargo and the National Association of Home Builders produced the single biggest monthly jump since 2003.

The survey focused on builders’ perceptions of traffic at sales sites and expectations of sales in the coming six months, both were up sharply from the previous month.

Builders cited low prices, low interest rates, and the $8,000 federal home purchase tax credit as key reasons for their positive outlook.

Mortgage rates continued their decline into the upper 4 percent range last week — averaging just 4.7 percent for 30-year fixed rate loans and 4.5 percent for 15 year money.

Some large builders have been sweetening those rates even more by “buying down” interest costs for purchasers to 3 percent or less, fixed for 30 years.

Of course, big improvements in traffic and sales projections do not necessarily mean that builders – or the real estate market as a whole — are out of the woods.

To put the builders’ sentiment survey into perspective: It’s still far below the point where the builders themselves rate market conditions as “good.” Most builders still rate their situations as “fair” to “poor.” But they do see movement toward much better conditions ahead.

In that sense, home builders may be tuned into a much larger public perception change underway about the national economy. The Gallup polling organization’s latest “Consumer Mood Index” rose sharply last week, and is now higher than it was at the same time last year.

Federal Reserve chairman Ben Bernanke expressed a similar, mildly optimistic view last week in public comments, as did President Obama.

Meanwhile, there’s fresh evidence that, despite all the moaning and groaning about real estate being in the doldrums, there’s a rising amount of business getting done. Wells Fargo reported a three billion dollar first quarter profit, much of it because of record results from its home mortgage operations.

Home sales in a number of hard-hit local areas continue to soar. In Orlando, Florida, for example, March sales were nearly 50 percent higher than March 2008.

And listing prices in major markets defied expectations by showing small monthly increases, according to a new report from Altos Research and Real IQ. In sixteen of the largest U.S. housing markets, according to the survey, listing prices were up by an average 1.1 percent.

Bottom line here: Think positive — at least a little.

K. Harney

Competition in some rental markets is pushing landlords to offer increasingly creative concessions to tenants, such as free rent for a month or two, and even job-loss protection that guarantees the rent will be paid if tenants lose their jobs.

A new survey by a real estate research company confirms that landlords nationwide are being forced to lower what they charge their customers, whether through direct rent reductions or freebies and breaks on lease terms that have the same net result.

New York-based REIS, Inc. reports that half of all apartment buildings in the U.S. reduced rents in the fourth quarter of 2008 and the first quarter of this year, according to Business Week.

Rents quoted by landlords dropped by six tenths of a percent in the first three months of 2009, and effective rents — netting out all the concessions offered by landlords — fell by 1.1 percent.

Effective rents were down in four out of five of the 79 metropolitan markets surveyed by REIS. So if you are a landlord who lowered your rents in the past couple of months, you’ve got lots of company.

In San Francisco, average effective rents were down by nearly 3 percent in the first quarter. In New York City, they were down by 2. 6 percent, 2.5 percent in San Jose, by 1.3 percent in Charlotte, and by 1.2 percent in Chicago.

Only the big Texas markets — Dallas and Houston — saw average effective rents move up.

Landlords are cutting rents primarily because of rising job layoffs, cutbacks in working hours, and higher unemployment filings.

According to James Lewis, president of Maitland, Florida-based Charles Wayne Consulting, “more and more tenants (are) doubling up or moving back with family to better deal with the bad economy.”

Cole Whitaker, a partner in Hendricks & Partners, an apartment consulting firm in Orlando, says building owners’ expenses – like property taxes and insurance – continue to rise, but landlords can’t pass those increases onto tenants and keep their buildings full.

“Our boys are eating (the differences)” for the time being, Whitaker told the Orlando Sentinel.

In some tough markets, landlords are adopting sales techniques used by car manufacturers. They are guaranteeing prospective tenants up to two months of free rent, even if they lose their jobs.

Cleveland-based Goldberg Co., an apartment investment firm with projects in Florida, Texas, North Carolina and Ohio, is advertising “layoff-proof” leases. After two months of unemployment and free rent, the company allows tenants who can’t find a job the right to break the lease — without paying a penalty.

K. Harney

For many people, buying their own home is still the American dream. Yet, it remains out of reach for a lot of people, even though the housing affordability index in many areas of the country is as good as it’s ever been. But if you’re not prepared to buy a house, then the index doesn’t mean a thing to you—except, perhaps, to create a painful sting and a constant reminder that you’re missing out on a good opportunity to buy real estate at lower prices. For more on affordability, see my column, Housing Most Affordable: May be Time to Move from Renting to Owning.

That’s advice that many experts are giving to those who are planning to stay in the same house for a few years. The cost of buying and relocating in a short period (a couple years) can make the concept of buying not appealing or cost effective. But if it’s for the long term, owning can make perfect sense. But what if you’re a first-time buyer or you haven’t owned a home in a while, how do you prepare for what is often the largest purchase you’ll ever make? Buying a home isn’t that difficult but it does require you to make sure that you’re in the right financial (and emotional) position to do it. How do you get there when so many other expenses often take precedence? Simple but not necessarily easy steps can help you position to transition from renter to home owner. It starts with getting familiar with your financial picture. If you are aware of what lenders are looking for before you apply for a loan, you’ll have a greater chance of getting it and it’ll be helpful when you meet with your real estate agent. No time will be wasted looking at homes that aren’t in your price range. You will have a clear-cut idea of what you can afford and then you can confidently look for the most suitable home.

Take a keen look at your budget. This presumes that you have a budget. If not, develop one. You can use numerous software programs to create a budget; many are free, or you can even use a basic spreadsheet. If you’re self-employed, take a look at free online bookkeeping software offered by Outright.com. It can help you track your income and expenses for your business allowing you to create a better recording system to help you save time and money. Review credit history. If you have no idea how your credit looks, then it’s time to give it a review. When you take a look at your credit report, you will be able to see if there are errors or dings from late payments that are negatively affecting your credit score. This gives you a chance to dispute errors or work to clean up your credit before you apply for a home loan. When I reviewed my credit cards, I found a few hundred dollars that had been automatically billed to my credit card in erroneous subscription fees. Your credit card can file a dispute with the companies and credit the funds back to your account. It pays to double check; you just never know what you’ll find.

Redistribute your money. Don’t think of it as cutting back, but rather as moving your money from one place to another. For example, if you’re spending $3 on a specialty coffee five days a week, think about making your java at home and putting that $15 a week into an account that is going to be used to purchase your home. It all adds up and most of the time, we don’t realize how much money a dollar spent here or there can accumulate.

Another way to redistribute money is to examine your insurance policies and consider raising the deductibles. A lot of people want low deductibles in case of a loss or an accident, but you can actually save money and redistribute that money into an account that is set aside for purchasing your home. But some statistics show that the average person files a claim only once every 13 years, according to insurance broker, Michael Rice of Thomas Ward Insurance Group. So raising your deductible from, say, $500 to $1,000 can give you an annual premium savings of 10 to 15 percent. Rice also recommends paying your premium in full if the insurance company offers you a discount to do so; some offer a five percent or more deduction and you won’t be charged administrative fees for periodic billing.

Keep your eye on the goal. Staying focused on the goal of buying a home will help you to remember that cutting costs now will allow you to have what you want in the long run. Our society is accustomed to instantaneous gratification so delaying the reward can be very challenging but well worth it. Owning your own home and, being able to purchase it while in a down market, is an exciting win-win.

P. Chongchua