Key Indicators In Housing Slowdown Analysis

With the housing market clearly sagging, economists and investors are watching a variety of gauges to get a handle on the severity of the contraction.  

Last week, the Commerce Department reported that construction starts on new homes dropped 6% in August from July, to an annualized 1.665 million. That "housing starts" figure was about 5% lower than forecast and 20% lower than the year earlier 2.075 million. The month-over-month decline was the sixth one this year and put housing starts at the lowest level in more than three years.  

The government estimates housing starts by surveying a sample of people who have applied for building permits. In places where permits aren't required, the process includes driving around looking for new-home construction.

Read more about other gauges tracking home sales…

New Home Sales Increased In August

New-home sales unexpectedly climbed during August, breaking a string of three declines as the median price for a house compared to a year earlier was lower.

Meanwhile, demand for durable goods unexpectedly fell during August in a fairly broad-based decline, and an indicator of business equipment investment dipped.

According to the Commerce Department, sales of single-family homes increased by 4.1% to a seasonally adjusted annual rate of 1.050 million. July sales fell 7.5% to 1.009 million, revised from a previously estimated 4.3% decline to 1.072 million. Sales dropped 0.9% in June and 1.8% in May. Demand was flat in April.

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Not all real estate attorneys are competent, let alone good. And it’s important to find one who will help, rather than hinder the deal. Finding a good real estate attorney is like finding a good broker. First, you should ask your broker and friends for recommendations. You want someone experienced, someone who has handled a minimum of fifty closings within the past three years. After you get several names, call them up and ask them how much they charge and what they will do for that fee. Don’t be embarrassed to ask about fees. It’s crucial that you know how much you’re getting for your money.

Some attorneys (especially those in medium or large law firms) charge by the hour. Others (especially solo practitioners) charge a flat fee. Try to find someone who will charge you a flat fee for his or her time. That way if there is a problem with the closing, you won’t be charged for all those extra hours.

Looking solely at how much attorneys charge for their services is not necessarily the best way to choose your attorney. For this, the biggest investment of your life, ask yourself if you feel comfortable telling this person all the intimate details of your financial life. It’s vital that you feel comfortable with, and perhaps even a bit close to, your attorney.

If a deal is really complicated, you will almost certainly need an attorney. Sam once worked on a house closing that seemed pretty ordinary until he found out there were ten lenders. He had to negotiate a separate deal with each lender until they were all satisfied. The extremely complicated closing took ten hours. Some at the closing called it the "hour per lender" deal.

Once you hire the attorney, the general idea is to let him or her do the job. If the attorney advises you on certain points, believe him or her. If he or she tells you to do something, do it. The attorney knows the ins and outs of real law much better than you do.

Note: Hiring a real estate lawyer is not the same thing as having your Uncle Harry, the tax attorney, do your real estate closing. Real estate law is specialized and while Uncle Harry may be a whiz at writing wills, or leasing airplanes, or finding creative places to put your money, he may help you get nailed to the wall in two minutes if he doesn't truly understand the finer points of real estate law.

Tax Advantages of Home Ownership

While you build equity in your home by paying off your mortgage, many of the expenses of maintaining the home provide you with several tax deductions. The higher your income, the greater the limits placed on the deductions, and some requirements must be met before they take effect. Here are some examples of deductible expenses:

• Interest paid on your mortgage, as long as the acquisition mortgage amount does not exceed $1 million.
• Interest paid on home equity loans – not more than $100,000 is deductible.
• Casualty losses from fire, storm, flood, earthquake or other such incident. The loss after your insurance reimbursement must exceed $100 and 10% of your adjusted gross income.
• Home-office costs that qualify.
• Local real estate property taxes paid on a principal residence or second home.

For details about the many tax breaks for homeowners and assistance with your tax return, be sure to consult your tax advisor.

House Prices Expected to Fall More

According to the National Association of Realtors, home prices are projected to fall for the rest of the year, with sellers being forced to accept a new reality: Buyers now wield the power, with the supply of homes for sale at a 13-year high.

The median-priced U.S. single-family detached home — half cost more, half less — fell 1.7% in August to $225,700, compared with a year ago. The decline is no doubt jarring to sellers, who haven't seen prices fall nationally since April 1995. The price drop was also sharp, the second-steepest in 38 years.

Sales of existing homes, meantime, fell for the fifth month in a row.

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