Things That You Might Want To Know

Sales of high-end homes are doing better than the rest of the market in many locales, according to DataQuick Information Systems, which tracks home prices.

In Boston, for instance, the number of homes selling for at least $1 million fell to 619 in the first five months of 2006, but jumped to 711 in the first five months of this year - about equal to sales during the same period of 2005, which was a boom year.

The same situation is true for New York City; San Jose, Calif.; Seattle; Denver; and Houston. In San Francisco, Los Angeles, Phoenix, and Miami, high-end sales are down but not by nearly as much as sales in other price segments.

There seem to be three main causes of the split in the market. The first is that affluent families continue to do better than others, thanks to healthy income gains and a rising stock market. The upper end of the market has also been helped by an influx of well-off foreign investors whose buying power has grown with the recent decline of the dollar.

Finally, both the recent rise in interest rates and the problems in the mortgage market have had a much bigger effect on low-income and middle-class buyers than affluent ones. It has become harder to get a subprime mortgage, while the uptick in interest rates this year has added about $100 to the monthly payment on an average fixed-rate 30-year mortgage.

The forward-looking Pending Home Sales Index shows existing-home sales may ease but should stay fairly close to present levels in the months ahead, according to the NATIONAL ASSOCIATION OF REALTORS®.

The index, based on contracts signed in May, rose in the West and Northeast but fell in the Midwest and South. The national index stood at 97.7 in May, dropping 3.5 percent from a downwardly revised April index of 101.2. That number is 13.3 percent lower than May 2006 when the reading was 112.7. In April, the index was 10.4 percent lower than a year earlier.

The Consumer Confidence Impact

Lawrence Yun, NAR senior economist, says that housing activity continues to be impacted by tighter lending criteria and a lack of buyer confidence. "Some transactions are being postponed from mortgage market disruptions," he says. "But better supervised lending will put housing in a fundamentally healthier state over the long term."

Mortgage purchase applications are trending up, with some of the rise due to buyers reapplying for alternatives to subprime financing, Yun says. "Nonetheless, home sales should stay close to present levels in the months ahead given an accumulating pent-up demand," he adds. The pent-up demand results from slow household formation, which is significantly below levels that would be expected in a period of job creation and economic growth.

"As consumer confidence improves, home sales will rise," Yun says.

Regional Breakdown

Here's what happened across the United States with the PHSI:

  a.. West: rose 5.6 percent in May to 95.4 but was 13.7 percent below a year ago.
  b.. Northeast: increased 3.8 percent from April to 93.1 but is 9.6 percent lower than May 2006.
  c.. South: fell 7.6 percent in May to 107.2 and was 15.4 percent below a year ago.
  d.. Midwest: dropped 8.9 percent in May to 89.4 and was 11.7 percent below May 2006.

The index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed (sales usually are finalized within one or two months of signing). An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.

First-time home buyers who lack the upfront money for a down payment might want to enter into one of many types of co-ownership arrangements.

For example, an equity-sharing arrangement enables parents or another party to contribute all or part of the down payment for the intended occupants; these investors are listed on the title and are paid rent for their ownership stake, which can be put toward such expenses as insurance, maintenance, and property taxes that can be deducted from their income taxes.

A co-occupier arrangement, meanwhile, means two parties pay an equal portion of the down payment and homeownership costs; both reside in the home and share any profits at the time of resale, although they risk being held liable for the entire mortgage if one leaves and refuses to pay.

First-time buyers can receive downpayment gifts from parents, but parents must pay gift taxes if they contribute more than $12,000 in a single year. Experts discourage parents from obtaining personal loans to help out, as these do not permit tax deductions and could make the borrower appear as a greater risk in the eyes of the lender.