2007: Florida’s Top Real Estate Issues

What’s happening in my market?

The January issue of Florida Realtor magazine includes its annual forecast of local markets and, for most, the outlook holds generally good news – especially for the second half of 2008. Look for it in early January

What were the top real estate stories of 2007? The slowing home sales market tops the list, followed by Florida-specific concerns – property taxes and property insurance – along with troubles in the mortgage market and, finally, a proposed Hometown Democracy constitutional amendment that could go before voters in 2008. Here are the issues that shaped Florida’s real estate world in 2007 and a glimpse at what the New Year holds.

Home sales: Bad to worse, yet turning around?

Home sales slowed to a crawl in 2007; though some areas of Florida fared better. It’s a single story with multiple causes – the perfect storm. News stories in 2007 have, independently, pinned the blame on real estate investors with more money than common sense; mortgage brokers and banks willing to give a homebuyer more money than he can possibly pay back; and homebuyers who did not the time to read the mortgage terms associated with the biggest financial deal of their life.

Florida, along with a handful of other states, had the dubious honor of being at the epicenter of the home sales slowdown. In the October monthly sales report from the Florida Association of Realtors, the year-over-year number of home sales fell 29 percent, though price declines were more modest at 8 percent. While much of the mainstream media focuses on the drop, however, the figures more accurately reflect how out-of-control the real estate market was during the now-past boom years. Currently, Florida home sales compare favorably to five years ago. And over a five-year period, Florida housing prices have actually risen more than any other state except Hawaii, even with the recent price declines – up 96.23 percent in Florida, according to OFHEO, the government agency that tracks home price changes.

As the year ends, buyers have a bountiful inventory to choose from and demand exists. Many buyers fear, however, that prices will drop a bit more, making a current purchase ill-advised if they can wait it out. While that stance comes more from anxiety than actual fact, the market will turn – slowly, doggedly, yet evenly – barring any new housing-related crises, such as the mortgage meltdown that peaked in August.

Wild cards impacting the market in 2008 include:

• Business tactics: The word’s getting out – it’s time to buy. Mortgage interest rates remain historically low and much of the media, once focused on housing market woes, now seems to be picking up on some bright spots. A few Florida cities may already be seeing the early signs of a turnaround, and if buyers sense the market has bottomed out, those waiting for a better deal will jump in quickly, afraid to miss the trough. If that happens soon – a big “if” – the rebound could be quick, just as the slowdown seemed to happen overnight.

• Foreclosures: Subprime lending also empowered a number of homebuyers to purchase a home they could not afford once adjustable mortgage rates moved higher – in some cases, dramatically so. As ARMs adjust higher in 2008 and later, more homeowners could lose their home, adding inventory into a system that already has more homes for sale than buyers. However, actions by the federal government to save borrowers, banks or both could moderate the impact of foreclosures.

• Mortgage rates: In December 2007, 30-year fixed-rate mortgages were close to their lowest level in two years – 6.14 percent on Dec. 21. Most experts predict a slight rise in 2008 but within reasonable levels that won’t deter homebuyers. But mortgage rates always impact home sales and any significant increase could throw cold water on a recovering real estate market.

• Developer bankruptcies: Bonita-based WCI Communities is struggling; Miami-based Levitt and Sons went under. Financial troubles within the home construction industry present challenges to buyers under contract, homeowners living in unfinished developments, and financial institutions stuck with assets worth less than the money they lent. A strengthening real estate market will boost struggling builders, but a few could still face bankruptcy before the market regains its footing.

• Condominiums: Condos in many Florida cities proved a flashpoint for investors who sometimes buy and trade real estate as if it’s stock, willing to put down more money than a property is worth, sure in the knowledge that someone else will come along and pay even more. But the last person holding the deed when the market stalls is left with property worth far less than they owe the bank – and thousands of condo owners, including some developers, now find themselves “upside down.” In some Florida cities, this industry should struggle for a while even after the market rebounds.

• Legislative changes: A Jan. 29 ballot approval of property tax portability could entice Floridians who wish to move up or down to jump into the market. Lawmakers generally agree that not enough has been done, even if the amendment passes, and during the 2008 session of the Florida Legislature, which begins March 4, 2008, other initiatives are expected, notably those that offer more relief to businesses and non-homesteaded homeowners. Property insurance and housing affordability are other issues that could be impacted by legislative changes.

Property tax relief: Is it here yet?

The problem: As property values skyrocketed, property taxes – a percentage of property value – rose with them. Most local governments, flush with new tax money, spent it. Homesteaded owners, protected by Florida’s Save Our Homes constitutional amendment, saw only slight increases, which were viewed as unfair by non-homesteaded owners who picked up the slack. Commercial and non-homesteaded property owners balked and demanded property tax cuts.

Possible solutions (pick one): A constitutional amendment approving property tax portability to be voted on in January. Or a citizens amendment being promoted by House Speaker Marco Rubio. Or an amendment that will be created by Florida’s Taxation and Budget Reform Commission. Or new laws created by the 2008 Florida Legislature that expand the property tax reform laws passed during a June 2007 special session. Or the result of a court case involving a property tax reduction plan approved at that same June session.

Or none of the above. Or, perhaps, all of the above.

Each property tax reform initiative developed so far has had one group waving the flag of passage, while local governments and civil servants quickly form an opposition team, with many teachers, firefighters, health care professionals and others saying any property tax reduction will surely result in a cutback of services. Some homeowners may look at the potential tax savings – perhaps only hundreds of dollars a year – and turn a sympathetic eye to these government servants. Consequently, passage of a constitutional amendment reforming property taxes, which would require approval by 60 percent of voters, could become a challenge.

But the fight for property tax reform will continue even if the final solution remains unclear. FAR, as the forefront protector of Florida property owners, considers relief the lynchpin of its 2008 legislative efforts, and the association will remain in the thick of things until a solution is found. FAR strongly backs passage of Amendment 1 on the Jan. 29 ballot (http://www.floridarealtors.org/LegislativeCenter/TopInitiatives/index.cfm)

Property insurance: Improving but not there yet

One year ago, property insurance topped FAR’s list of real estate stories for the year, but things have improved – slightly. In January, a special session of the Florida Legislature boosted the state’s reinsurance fund, lowering risk for insurers. But savings were less than promised, so the state started carrying a bigger stick when insurers requested rate adjustments. Add to the mix a legislative change in the state’s insurer, Citizen’s Property Insurance Corp., that froze rates and expanded coverage, and Florida property owners now have a few more affordable choices.

A key component of the ongoing battle, however, cannot be legislated or changed. While the state has experienced two years without having a hurricane that hit land, another blow will again send insurers packing even though they enjoyed highly profitable years. Lawmakers and regulators could still tinker with the rules to encourage greater savings, even as the big insurers continue to limit their risk, notably in coastal areas.

Mortgage market meltdown

Rising home values convinced mortgage lenders that their risk was limited. If a homeowner puts no money down and loses a home to foreclosure, banks recoup their investment and more if the home went up in value. But when home prices started to decline, the lenders’ risk increased – even on mortgages issued under the old rules.

In the heyday of the seller’s market, mortgage lending looked like the old West, with gamblers and gunslingers running wild and turning a profit. Now that the dust has settled and the gunslingers have moseyed into the sunset, here’s what’s left heading into 2008:

• Tightened lending standards: The subprime mortgage meltdown that peaked in August caught industry experts by surprise. Mortgages became harder to get as lenders raised their credit standards. Barring unseen complications, most credit-worthy borrowers should see a brighter 2008.

• Financial bankruptcies: Homeowners aren’t the only ones facing bankruptcy; some lenders are also in trouble. In some cases, mortgages became impossible to get as lenders halted operations. Washington Mutual and Countrywide cut back their mortgage businesses significantly; H&R Block backed out; Citigroup reported troubles; and the list goes on.

• FHA resurgence: With subprime mortgages harder to the find, the federal government plans to expand mortgage programs under the FHA, and bills to do so are already working their way through Congress. FHA Commissioner Brian Montgomery hopes his agency’s programs “fill the void” as the subprime market continues to unravel.

The undemocratic Hometown Democracy

Hometown Democracy is a citizens’ initiative to amend the Florida Constitution that, if approved by voters, would require all local comprehensive land-use plan changes to be put to a referendum-like vote. That would force Florida citizens – rather than the local leaders they elected to office – to make decisions on thousands of complicated land-use planning issues. Hometown Democracy has the potential to greatly impact Florida’s real estate industry.

A bright spot appeared in 2007, however: A law now allows voters to rescind their signature from any proposed citizens constitutional amendment should they have second thoughts; and Associated Industries of Florida has been working with a coalition of businesses and associations to prevent the proposed Hometown Democracy constitutional amendment from appearing on next year’s general election ballot. The new law gives signers of a petition 150 days to cancel their first signature; for more info, go to: (http://www.fbnnet.com/hometowndem/Form_DS-DE_19R_Petition%20Revocation_Final.pdf).


© 2007 FLORIDA ASSOCIATION OF REALTORS®

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President Signs Extension Of IRS Deduction For Mortgage Insurance

WASHINGTON – Dec. 21, 2007 – President Bush signed legislation yesterday that extends the IRS tax deduction for private mortgage insurance (PMI) premiums. Qualified borrowers get the deduction for mortgage originations between 2007 and 2010.

The deduction was first approved late in 2006 and initially applied only to the 2007 tax year. Extension of the tax deduction was part of the Mortgage Forgiveness Debt Relief Act of 2007 approved earlier this month by both the U.S. House of Representatives and the U.S. Senate.

Families with an adjusted gross income of $100,000 or less may use the PMI tax break. Families with incomes up to $109,000 receive a partial deduction.

“Continuing this tax deduction will help low- and moderate-income consumers, particularly first-time home buyers who are unable to put down 20 percent,” says Kevin Schneider, president of the Mortgage Insurance Companies of America (MICA). “On average, the annual tax break could be worth $350 per taxpayer.”

Even with home prices declining in many areas, many families find it difficult to accumulate a 20 percent downpayment.

“This important tax deduction is a crucial component in keeping the American dream of homeownership alive for many families,” says Suzanne Hutchinson, MICA executive vice president. “As risky, exotic loans are no longer considered viable housing finance options, more secure loans with private mortgage insurance remain readily available for qualified borrowers.”

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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Commercial Real Estate Fundamentals Sound – Investment Slowing

WASHINGTON – Dec. 21, 2007 – The fundamentals in commercial real estate remain healthy with only slight increases in vacancy rates expected for the office and industrial sectors during 2008, although credit restrictions have recently slowed overall investment activity, according to the latest Commercial Real Estate Outlook of the National Association of Realtors® (NAR).

The report said commercial fundamentals are essentially sound. “Although vacancy rates remain relatively low for all sectors, they are expected to rise slightly in the office and industrial markets during the coming year because much of the space being absorbed is in high-quality buildings or is built-to-suit,” says NAR Chief Economist Lawrence Yun. “As a result, there is a fair amount of older space on the market, particularly in the industrial sector where obsolescence is a factor, although industrial rents are showing healthy gains. Vacancy rates in the retail and multifamily sectors are projected to tighten in 2008 with rents rising in all sectors.”

Yun said the credit crunch has been impacting the market over the last few months, but 2007 is already a record for commercial real estate investment. “Tighter credit conditions will limit individual commercial real estate investment deals moving forward,” he says. “Because capitalization rates are already very low, it is likely that commercial property prices will ease. The era of rapid commercial property price increases has ended.”

A record $325.0 billion was invested in commercial real estate in the first 10 months of 2007, up from $306.8 billion for all of 2006; that total does not include transactions valued at less than $5 million or investments in the hospitality sector, based on analysis of data from Real Capital Analytics.

Patricia Nooney of Saint Louis, chair of the Realtors® Commercial Alliance, says commercial real estate investment is expected to stay historically strong. “Even with the credit crunch there’s been no significant impact on institutional investors, and it’s unrealistic to set new records every year in a cyclical business,” she says. “There’s been a shift in investment activity to foreign buyers, who are taking advantage of the dollar’s decline relative to other currencies. With many areas showing favorable fundamentals, commercial property in the U.S. has become very attractive to foreign investors.”

The NAR forecast in four major commercial sectors analyzes quarterly data for various tracked metro areas. The sectors are the office, industrial, retail and multifamily markets. Torto Wheaton Research and Real Capital Analytics provided historic metro data.

Office market

With jobs still being created, the demand for office space remains positive and is helping to absorb the more than 30 million square feet of new space becoming available in the current quarter. Investment grade office properties with solid income streams will be the most in demand by institutional investors, equity funds and foreign investors.

Since not all of the vacated space is being back-filled or leased, office vacancies are forecast to rise to 13.2 percent by the fourth quarter of 2008 from an estimated 12.9 percent in the current quarter; it was 12.6 percent at the end of 2006. Annual rent growth in the office sector should be 8.0 percent this year and 2.0 percent in 2008, after rising 5.2 percent in 2006.

Projections for the fourth quarter show areas with the lowest office vacancies include New York City; Honolulu; Tucson, Ariz.; Long Island, N.Y.; Los Angeles; and Riverside, Calif., all with vacancy rates of 10.0 percent or less.

Net absorption of office space in 57 markets tracked, which includes the leasing of new space coming on the market as well as space in existing properties, is likely to total 55.4 million square feet in 2007 and 43.0 million next year, but below the 81.2 million in 2006.

Office building transaction volume in the first 10 months of this year totaled a record $173.5 billion, compared with $133.5 billion for all of 2006. So far this year foreign investors purchased $12.5 billion worth of office properties, with buyers from the Middle East and Germany accounting for half of that volume.

Industrial market

The weaker dollar is fueling an increase in exports, but leasing activity has declined in port distribution hubs, and vacancy rates in those markets are edging up; some users are building or renting in secondary markets.

With abundant land and relatively low concerns regarding site remediation, secondary and tertiary markets are experiencing greater interest. So far this year, almost 16 percent of industrial investment has taken place outside of the 58 primary markets tracked.

Vacancy rates in the industrial sector are projected to average 9.4 percent in the fourth quarter and 9.5 percent by the end of 2008; vacancies averaged 9.4 percent in the fourth quarter of 2006. Annual rent growth will more than double to 3.3 percent by the end of 2007 and is seen at 1.3 percent a year from now, compared with a 1.4 percent annual gain at the end of 2006.

The areas with the lowest industrial vacancies include Los Angeles; San Francisco; Tucson; Orange County, Calif.; Portland, Ore.; and Las Vegas, all with vacancy rates of 6.1 percent or less.

Net absorption of industrial space in 58 markets tracked is expected to total 127.4 million square feet in 2007 and 144.0 million next year, down from 205.4 million in 2006.

Industrial transaction volume in the first 10 months of 2007 was $35.8 billion, compared with $38.9 billion for all of 2006.

Retail market

Even with a decline in consumer confidence, retail vacancy rates remain fairly stable. Declining production of new space will help improve fundamentals in this sector during 2008.

Vacancy rates in the retail sector will probably rise to 8.9 percent in the current quarter from 8.0 percent at the end of last year, and then ease to 8.6 percent by the fourth quarter of 2008. Average retail rent should grow by 2.2 percent this year and 1.9 percent in 2008, after rising 3.9 percent in 2006.

Retail markets with the lowest vacancies include San Francisco; Orange County, Calif.; San Jose, Calif.; Ventura County, Calif.; Washington, D.C.; and San Diego, all with vacancy rates of 5.5 percent or less.

Net absorption of retail space in 53 tracked markets is forecast at 18.6 million square feet for 2007 and 24.7 million next year, up from 10.5 million in 2006.

Retail transaction volume in the first 10 months of this year totaled $52.9 billion, exceeding the $46.9 billion for all of 2006. The Southeast is the most sought-out region this year.

Multifamily market

The apartment rental market – multifamily housing – is experiencing increased demand from the slowdown in home sales. With a rising population and a growing number of households, vacancies are tightening and rents are rising.

Multifamily vacancy rates are projected to average 5.4 percent in the current quarter, down from 5.9 percent in the fourth quarter of last year, and then continue to decline to 5.1 percent by the end of 2008. Average rent is likely to rise 3.1 percent for 2007 and 3.8 percent next year, following a 4.1 percent increase in 2006.

Multifamily net absorption is expected to total 234,400 units in 59 tracked metro areas in 2007, below the 229,500 last year, but should rise to 245,800 in 2008.

The areas with the lowest apartment vacancies include Northern New Jersey, Salt Lake City, San Jose, San Diego, Nashville and Philadelphia, all with vacancy rates of 3.3 percent or less.

Multifamily transactions in the first 10 months of this year totaled $62.3 billion, compared with $87.4 billion for all of 2006. The sale of buildings originally constructed as condos are being sold to multifamily investors in markets like Washington, D.C., and South Florida. Many markets have seen condo “for sale” signs change to “apartment for lease” signs almost overnight. Some condominium complexes are being converted into office buildings, and others are becoming mixed-use projects.

The NAR Research Division for the Realtors Commercial Alliance publishes the Commercial Real Estate Outlook. Organizations in the RCA include the CCIM Institute, the Institute of Real Estate Management, the Realtors Land Institute, the Society of Industrial and Office Realtors, and the Counselors of Real Estate. The RCA also provides commercial products and services.

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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IRS Ruling: State Grants for Hurricane Mitigation Are Tax-Free

TALLAHASSEE, Fla. – Dec. 13, 2007 – Florida Chief Financial Officer Alex Sink announced yesterday that grants awarded to homeowners through the My Safe Florida Home (MSFH) program are not taxable income and do not have to be reported when filling out federal income taxes.

CFO Sink made the announcement after receiving a Letter Ruling from the Internal Revenue Service (IRS) stating that MSFH grants will be excluded from “gross incomes for federal income tax purposes.”

“Floridians taking personal responsibility to harden their homes and receive a grant from the My Safe Florida Home program shouldn’t be hit with an additional tax bill in January 2008,” says CFO Sink, who runs the Department of Financial Services and the MSFH program. “I commend the IRS for granting our request that mitigation grants should not be considered part of a homeowner’s income.”

Following a June 2007 request from CFO Sink, the IRS issued a Letter Ruling in late November that all grants given through the MSFH program will not be considered income and will not be reported as income to the federal government. Without this recent ruling, matching grant recipients could have been facing a tax liability of $1,250 on a $5,000 MSFH grant, based on the IRS Flat Tax calculation rate of 25 percent. The ruling potentially saves approximately $2.15 million in additional federal income taxes.

The MSFH program resumed offering wind inspections and expanded statewide in April 2007 after conducting a pilot program during the previous year. During the last 7 months, the MSFH program has performed approximately 114,000 free wind inspections, and a total of 127,816 inspections since the program began. Approximately 15,985 homeowners have been approved to receive matching grants and are working with the MSFH program to harden their homes. Statewide, the program has issued a grand total of more than 2,637 grants to homeowners for more than $8.6 million.

Property insurance savings

Many Florida homeowners who participate in the free inspection program also receive insurance premium discounts without making any improvements since the inspection form, once sent to their insurer, can show hurricane mitigation features that are already in place. Sink says that 95,807 (76 percent) of participating homeowners are eligible for an average discount of $210 on their wind insurance premiums, based on the current structure of the home during the free MSFH wind inspection. Over the last seven months, the program has alerted Floridians to a potential savings in windstorm insurance premiums totaling more than $20 million.

Any Floridian who lives in a single-family, site-built home is eligible for a free wind inspection through the program. Floridians can apply on-line at www.MySafeFloridaHome.com or by calling the program toll-free at (866) 513-6734. Homeowners who receive free wind inspections through the MSFH program will get a detailed inspection report, complete with additional eligibility information on matching grants and estimated insurance premium discounts, if the homeowner is eligible.

In order to be eligible for the program’s matching grant reimbursements of up to $5,000, the Legislature requires that homeowners meet the following requirements: have received a completed wind inspection after May 1, 2007; live in a single-family, site-built home built before March 1, 2002; have a valid homestead exemption; have an insured value of $300,000 or less; and be located in the wind-borne debris region.

Additionally, while the free wind inspections will still cover seven potential wind-resistance improvements, matching grants may only be applied to opening protections, including windows, exterior doors and garage doors, as well as the bracing of gable ends.

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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NAR: Worst Is Over – Existing-Home Sales To Trend Up In 2008

WASHINGTON – Dec. 11, 2007 – Existing-home sales are projected to trend up in 2008, with pending home sales showing a slight near-term rise, according to the latest forecast by the National Association of Realtors® (NAR). However, a recovery for new-home sales is unlikely before 2009.

Lawrence Yun, NAR chief economist, says the worst part of the credit crunch has already worked its way through the data. “The unusual mortgage disruptions that peaked in August were clearly seen in lower home sales that were finalized in September and October, so the market was underperforming,” he says. “Now that mortgage conditions have improved, some postponed activity should turn up in existing-home sales over the next couple of months, and I expect sales at fairly stable to slightly higher levels.”

The Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts signed in October, increased 0.6 percent to an index of 87.2 from an upwardly revised reading of 86.7 in September. It was the second consecutive monthly gain, but still 18.4 percent below the October 2006 index of 106.8. “The broad trend over the coming year will be a gradual rise in existing-home sales, but because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007,” Yun says.

The PHSI in the Northeast jumped 16.0 percent in October to 80.6 but is 11.1 percent below a year ago. In the West, the index rose 8.4 percent to 87.3 but is 16.9 percent lower than October 2006. The index in the Midwest slipped 1.4 percent in October to 85.5 and is 11.7 percent below a year ago. In the South, the index dropped 7.8 percent in October to 91.6 and is 25.3 percent below October 2006.

“The improvement in the Northeast reaffirms a trend apparent for some months now that shows signs of recovery, noteworthy because that was the first region to slump, and the gain in the West indicates some easing of interest rates for jumbo loans,” Yun says. “Lawmakers need to understand that raising the loan limits on FHA and GSE-backed conventional loans will markedly improve mortgage availability.”

Existing-home sales are likely to total 5.67 million this year, the fifth highest on record, rising to 5.70 million in 2008, in contrast with 6.48 million in 2006. Existing-home prices should be down 1.9 percent to a median of $217,600 for all of 2007, and then rise 0.3 percent to $218,300 in 2008.

“Home price growth in the vast affordable midsection of America will help raise the national median existing-home price slightly in 2008. I then expect price appreciation to return to more normal patterns in 2009, perhaps rising one or two percentage points above the rate of inflation,” Yun says.

“Even with a modest decline in the national aggregate price this year, it’s important to keep in mind that nearly two-thirds of the metro areas in the U.S. are showing price increases,” he said. “The apparent disparity results from fewer sales in high-cost markets, so a change in the mix of sales is dragging down the national median home price.”

Areas showing healthy price gains include disparate markets such as Gary-Hammond, Ind.; Binghamton, N.Y.; Corpus Christi, Texas; and Spokane, Wash. “We can’t emphasis enough how much local conditions vary, even within a given area, so it’s important for consumers to make decisions based on local market conditions.”

New-home sales are forecast at 788,000 this year and 693,000 in 2008, down from 1.05 million in 2006; no sustained improvement is seen for new homes until 2009. Because builders have correctly adjusted production, housing starts, including multifamily units, will probably total 1.36 million this year and 1.16 million in 2008, down from 1.80 million last year. The median new-home price is projected to drop 3.0 percent to $239,100 for 2007, and then decline another 0.2 percent to $236,600 in 2008.

The 30-year fixed-rate mortgage is estimated to rise slowly to the 6.4 percent range by the end of 2008, with additional cuts in the Fed funds rate lowering short-term interest rates.

Growth in the U.S. gross domestic product (GDP) should be 2.1 percent in 2007, down from a 2.9 percent growth rate last year; GDP growth is forecast to improve to 2.4 percent in 2008.

The unemployment rate is likely to average 4.6 percent for 2007, unchanged from last year, but rise to 5.0 percent in 2008. Inflation, as measured by the Consumer Price Index, will probably be 2.8 percent this year and 2.7 percent in 2008, down from 3.2 percent in 2006. Inflation-adjusted disposable personal income is estimated to grow 3.1 percent this year, the same as in 2006, and then grow 2.2 percent next year.

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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FAR Offers A Total Of $106,000 In Scholarship Awards

ORLANDO, Fla. –Dec. 11, 2007 – Florida high school seniors: Are you filling out college applications and poring over potential scholarship programs? Then make plans to enter the Florida Association of Realtors®’ (FAR) 2007-2008 Scholarship/Essay Contest for High School Seniors for a chance to win up to $10,000 in scholarship funding.

Entering the contest is easy. Students write a typed, double-spaced essay – 500 words or less – on the topic, “How Does a Realtor Professional Benefit the Community?” This topic allows students the freedom to write about the wide range of Realtor professionals who work in a variety of fields, including residential brokerage, commercial brokerage, industrial and office brokerage, farm and land brokerage, real estate appraising, property management, land development and real estate counseling, to name just a few of the general specialties. Or essays may address such points as the benefits of homeownership to society, or to families on a personal level, or how the selling of commercial real estate encourages economic growth.

“This scholarship program offers Florida Realtors the opportunity to demonstrate their dedication to their community by helping young people continue their education and realize their dreams for the future,” says 2008 FAR President Charles “Chuck” Bonfiglio. “There’s a side to the real estate profession that often goes unheralded – Realtors do a lot more for the community than people may realize. Now in its eighth year, our successful scholarship program is just one example.”

Now in its eighth year, FAR’s scholarship program benefits students from across the state, with prize money going to the first-, second- and third-place essays in each of the Association’s 13 districts. Students turning in the top district-winning essays will each win a $5,000 scholarship prize while the second-place entries will each receive a $1,500 scholarship award. Plus, students will be recognized for winning third in each district with a $500 scholarship award. The 13 district-winning essays will go on to compete to win three $5,000 FAR scholarships on the statewide level, for a total of $106,000 in scholarship awards. All essays, along with an official Essay Cover Form, must be postmarked before or on March 7, 2008, and mailed to the Florida Association of Realtors, 7025 Augusta National Drive, P.O. Box 725025, Orlando, FL, 32872-5025.

Check with the high school guidance office to obtain an application kit and essay cover form for FAR’s 2007-2008 Scholarship/Essay Contest for High School Seniors. Or go to the media section of FAR’s Media Center Web site, (http://media.floridarealtors.org) to download the scholarship/essay contest application kit, official cover form and list of FAR District Vice Presidents.

FAR’s statewide scholarship awards program is open only to high school seniors who reside in the state of Florida and plan on continuing their education at a college, university, technical school or other institution of higher learning. Children whose parents are licensed real estate practitioners are not eligible for contest entry; nor are children with parents employed by any local Realtor board/association or by the Florida Association of Realtors.

Just think: Write 500 words or less and win up to $10,000 – scholarship money that could cover the costs of tuition at a local community college or pay for a lot of the tuition costs at a Florida state university. Now that’s a scholarship that will go FAR.

© 2007 FLORIDA ASSOCIATION OF REALTORS

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UF Survey: Florida’s Real Estate Report Mixed

GAINESVILLE, Fla. – Dec. 7, 2007 – All is not gloom and doom with Florida real estate, according to the latest University of Florida study, which finds a positive outlook for commercial properties despite the bad news in the housing market.

“There is more than one world of real estate, and while you can paint a very grim picture of single-family housing and condos, rental and commercial property look on balance to be healthy and normal even though they are not as rosy as they were a year ago,” said Wayne Archer, director of UF’s Bergstrom Center for Real Estate Studies.

The findings are from the center’s quarterly survey of Florida real estate trends that was completed in October. A total of 339 professional real estate analysts and investors participated in the survey, with appraisers making up the largest group, 60 percent, followed by consultants, 10 percent, and brokers, 9 percent.

The report’s release coincides with Florida being reported as one of a handful of states most vulnerable to the effects of the subprime mortgage fallout, with one widely quoted property expert even going so far as to say that “Florida is the epicenter of all things wrong with the housing industry,” Archer said.

“What these apocalyptic accounts fail to consider is that job formation and migration to the state are still strong, and these are the factors that drive the real estate market,” he said.

Many of the pessimistic reports look only at the single family and condo picture, which are not doing well, but investment, occupancy and rental rates for retail, office, industrial and hospitality are considered to be progressing normally, although not in as good a shape as a year ago, Archer said.

The outlook for nearly all of the commercial and rental markets — apartment, office, retail and industrial — calls for them to increase slightly less than the rate of inflation compared to slightly more than the rate of inflation that was predicted a year ago, he said.

“With all the horror stories in the news about foreclosures, people can’t help but be a little more sober and cautious,” he said.

The one segment of the single-family market upon which the UF survey collects detailed information, the new home market, is the least distressed, Archer said. “While the outlook for existing home sales is grim for the next quarter or two and possibly even over the next year, the outlook for new home sales looks like it’s going to be stable a year from now, at least in some markets,” he said.

Inventories of existing single-family homes are at their highest levels in a long time, with part of the problem stemming from second home purchases, Archer said. Many people who were disappointed with the stock market returns invested their retirement savings in second homes or rental homes with the intention of selling them for a quick profit, only to have the market turn sour, leaving a huge inventory, he said.

To make matters worse, people who might normally meet the marginal requirements for a mortgage can no longer qualify because of the current credit crunch, Archer said. At the same time, homeowners who are selling expect to get the same price they might have received a year or two ago, he said.

“Unfortunately, those prices had inflated enormously and in most cases there is simply going to have to be some adjustment over the next year or two,” he said.

Florida’s housing picture is the worst on the southwest coast, particularly for existing single-family homes, but it is mixed in southeast Florida, Archer said. “While the condo story for Miami and southeast Florida is disastrous, it’s a different situation with freestanding single-family homes, where the volume of sales is expected to stabilize in the next year or so,” he said.

One factor to its advantage is that the southeast coast is a haven for international investment and the recent decline in the dollar makes it even more attractive, he said.

The single-family housing market is healthiest and apartment occupancy rates most stable in north and central Florida, Archer said. In Jacksonville, half the respondents expect an increase over the next year in absorption rates, the ability of the real estate market to sell off houses that are for sale, he said.

© 2007 FLORIDA ASSOCIATION OF REALTORS

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Tax Tips For Real Estate Developers And Investors

CHICAGO – Dec. 6, 2007 – As 2007 comes to an end and planning for 2008 begins, real estate developers and investors should consider some tax tips that could save money for companies in the long run:

1. Properly account for lease income. You may be accounting for your lease income for tax purposes based on the cash received or on the terms of the lease agreement. However, a Code section specifically addressing leases may require the income to be accounted for differently.

2. Determine if you are a dealer or an investor. Do you know your status as either a dealer or an investor for tax purposes? Proper planning up front will ensure the desired treatment upon disposition of the property.

3. Allocate land cost to your benefit. To defer income upon the sale of parcels from a tract of land purchased, proper allocation of the cost among the various parcels must be done. The IRS requires that the cost be “equitably apportioned.” But how? There are several methods available that should be considered when allocating cost.

4. Color your building green. Including solar and other alternative energy property in a new building can generate tax credits. A new owner can deduct up to $1.80 per square foot of the cost of an energy efficient commercial building instead of depreciating it over 39 years.

5. Take full advantage of depreciation. Has your company recently undertaken new construction projects, expansions or renovations? Substantial long-term savings could result from a cost segregation study, which categorizes your assets into the appropriate and most tax-advantaged depreciable lives.

“To learn how these tax tips may apply to your real estate business, please contact your tax advisor,” said Jerry Williford, tax senior manager in Grant Thornton LLP’s real estate industry practice.

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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Outside Remodeling Projects Pay Off, Realtors Report

WASHINGTON – Dec. 4, 2007 – Many buyers judge a house by its exterior, or so it seems from the results of the 2007 Remodeling Cost vs. Value Report. Three of the four projects with the highest national percentage of costs recouped this year were exterior upgrades, according to the report, which was produced by Hanley Wood, LLC, in cooperation with the National Association of Realtors’ (NAR) Realtor Magazine.

The study found the most profitable project on the national level was upscale siding replacement, recouping 88 percent of costs upon resale. Wood deck additions and wood window replacements also returned 85 percent and 81 percent, respectively. On a national average, the only interior project to return more than 80 percent of remodeling costs this year was a minor kitchen remodel, returning 83 percent of project costs at resale.

“The results of this year’s Cost vs. Value report underscore the importance of curb appeal in the buyer’s eye,” says 2008 NAR President Dick Gaylord. “Realtors know what attracts buyers in their local markets and can help your house put its best façade forward, so to speak – it’s another way Realtors add value to the real estate transaction.”

The 2007 Remodeling Cost vs. Value Report compares construction costs with resale values for 29 midrange and upscale remodeling projects comprising additions, remodels and replacements in 60 markets across the country. Data are provided for nine U.S. regions, following the divisions established by the U.S. Census Bureau. This is the report’s 10th consecutive year.

Four new projects were added this year: the aforementioned wood deck addition, a back-up power generator, and both a midrange and upscale garage addition. Nationally, the back-up power generator only returned 58 percent of the investment on resale, although the return was highest in the West South Central region, which comprises Arkansas, Louisiana, Oklahoma and Texas, at 68 percent. Buyers in the Pacific region of Alaska, California, Hawaii, Oregon and Washington value their garages: The midrange garage addition returned nearly 70 percent nationally but 88 percent in this region, while the upscale garage addition returned approximately 65 percent nationally but 78 percent in this area.

Homeowners in the Pacific region could also expect to see some of the highest percentages of remodeling expenses returned at resale, with 13 of the 29 projects returning 90 percent or higher of project costs. Homeowners in the East North Central region of Illinois, Indiana, Michigan, Ohio and Wisconsin might expect some of the lowest returns; only one project – upscale fiber cement siding – returned more than 80 percent upon resale (82 percent of costs recouped), while nine projects returned less than 60 percent of project costs.

The least profitable projects were a back-up power generator, sunroom addition and home office remodel. The back-up power generator returned the lowest percentage of initial cost in the East North Central, New England (Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island and Vermont), Pacific and West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) regions.

Sunrooms are least popular in the East South Central (Alabama, Kentucky, Mississippi and Tennessee), Mountain (Arizona, Colorado, Idaho, Montana, Nevada, New Mexico and Wyoming), and West South Central regions. Home office remodels return the lowest percentage of project costs in the Middle Atlantic (New Jersey, New York and Pennsylvania) and South Atlantic (Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia) regions.

Gaylord explains that the resale value of any given remodeling project depends on a variety of factors. “When considering a remodeling project, particularly with an eye toward resale, it’s important to evaluate your home’s current condition, how the project will change the existing space in your home, as well as how your remodeled home will compare to other homes in your community,” says Gaylord.

“For example, using a breakfast nook to expand the kitchen seems like a good use of space, but using the same space to add a first-floor bathroom in an older home that doesn’t have one will draw more buyers,” Gaylord says. “Realtors see hundreds, if not thousands, of homes every year with their buyer clients and can provide valuable insight into what projects and improvements will make a difference with buyers in your area.”

Results of the report are summarized in the December 2007 issue of Realtor Magazine. To read the full project descriptions, access national and regional project data, and download a free PDF containing data for any of the 60 cities covered by the report, visit www.costvsvalue.com.

© 2007 FLORIDA ASSOCIATION OF REALTORS

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33,000 Subprime Mortgage Homeowners Help By FHASecure

WASHINGTON – Dec. 3, 2007 – U.S. HUD Secretary Alphonso Jackson announced that more than 33,000 borrowers, to date, have refinanced their subprime home loans with FHASecure, a government-insured foreclosure avoidance initiative created in September. An additional 20,000 are in the pipeline for approval this month, bringing the total to more than 53,000 in a four-month period.

“FHASecure is providing tens of thousands of families with a powerful incentive to obtain affordable and safe home loans,” Jackson said during his keynote address to the Office of Thrift Supervision’s National Housing Forum. “Homeowners finally have an opportunity to save their American Dream without risking their financial future, and they’re taking advantage of it everyday.”

FHASecure enables homeowners who have a history of on-time mortgage payments under their original interest rates, but missed payments after their rates reset, to refinance into FHA’s mortgage insurance program. Families with high-cost mortgages and an on-time payment history also continue to refinance through FHASecure.

HUD’s Federal Housing Administration (FHA) is on target to insure over 240,000 FHASecure home loans in fiscal year 2008, nearly two and one-half times the number served in fiscal year 2007. Since the creation of FHASecure three months ago, FHA has received more than 113,000 refinance applications from families whose loans are current or past due.

FHA refinancing has increased 125 percent over the past year, and is expected to increase further next year. FHASecure saves the average subprime homeowner about $400 a month, or $30,000 over the expected life of the loan.

For more information about FHASecure or to find the nearest FHA approved lender, phone 1 (800) CALL-FHA (225-5342) or visit www.FHA.gov.

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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New Home Sales: Up For Month, Down For The Year

WASHINGTON – Nov. 29, 2007 – October new home sales stats released by the Census Bureau and HUD today were up – 1.7 percent higher than September sales; however, new home sales were down 23.5 percent compared to those one year earlier in October 2006.

Sales of new one-family houses in October 2007 were at a seasonally adjusted annual rate of 728,000, according to estimates.

The median sales price of new houses sold in October 2007 was $217,800, a drop of 13 percent compared to October 2006; the average sales price was $305,800. The seasonally adjusted estimate of new houses for sale at the end of October was 516,000, which is an 8.5-month supply at the current sales rate.

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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Florida’s Home Sales Slower In October

ORLANDO, Fla. — Nov. 28, 2007 – Disruptions in the mortgage market and tightening credit continued to impact Florida’s housing sector in October. Statewide, sales of existing single-family homes totaled 9,165 last month while 12,846 homes sold in October 2006 for a decrease of 29 percent in the year-to-year comparison, according to the Florida Association of Realtors® (FAR).

While the latest market outlook from the National Association of Realtors’® (NAR) expects conditions for the mortgage industry to improve in the coming months, it predicts that the impact of the credit crunch will continue to be felt through the end of this year, leaving home sales fairly flat. Keeping the current housing market in perspective, 2007 will be the fifth highest year on record for existing-home sales, according to NAR Senior Economist Lawrence Yun. “It appears raw inventories are stabilizing, but the housing supply is a bit inflated now because the sales pace does not reflect underlying market conditions – sales were dampened by the mortgage cancellations,” he says.

Florida’s median sales price for existing single-family homes last month was $222,100; a year ago, it was $242,700 for an 8 percent decrease. The median is the midpoint; half the homes sold for more, half for less. In October 2002, the statewide median sales price for single-family homes was $140,900, for an increase of 57.6 percent over the five-year-period, according to FAR records.

The national median sales price for existing single-family homes in September 2007 was $210,200, down 4.9 percent from a year ago, according to NAR. In California, the statewide median resales price was $530,830 in September; in Massachusetts, it was $340,000; in Maryland, it was $295,121; and in New York, it was $213,600.

Sales of existing condominiums in Florida also decreased last month, with a total of 2,819 condos sold statewide compared to 3,508 in October 2006 for a 20 percent decline, according to FAR. The statewide median sales price for condos last month was $192,400, down 8 percent from October’s 2006’s condo median price of $209,500. NAR reported the national median existing condo price was $221,700 in September 2007.

Last month, interest rates for a 30-year fixed-rate mortgage averaged 6.38 percent, according to Freddie Mac, just slightly higher than the average rate of 6.36 percent in October 2006. FAR’s sales figures reflect closings, which typically occur 30 to 90 days after sales contracts are written.

Among the state’s larger markets, the Daytona Beach Metropolitan Statistical Area (MSA) reported 497 existing homes sold last month compared to 665 homes sold a year ago for a 25 percent decrease. The market's median sales price for homes was $184,600; it was $215,800 in October 2006 for a 14 percent decrease. A total of 61 existing condos changed hands in the MSA last month, down 25 percent from the 81 condos sold the previous year. The existing condo median sales price in October was $218,800; a year ago, it was $236,500 for a 7 percent decrease.

“This is a beautiful place to live, with great beaches and a convenient location,” says Jalene Stockhausen, president of the West Volusia Association of Realtors and a salesperson with Bill Mancinik Realtor. “And this is a great time to buy a home. It’s one of the best investments you can make for your future and the future of your family. From a buyer’s perspective, now there’s an opportunity to choose from a variety of housing options, plus mortgage rates remain low.”

Among the state’s smaller markets, the Gainesville MSA reported a total of 175 homes sold in October compared to 208 homes a year ago for a 16 percent decrease. The existing home median sales price was $198,200; a year ago, it was $225,600 for a 12 percent decrease. A total of 38 existing condos sold in the MSA last month compared to 40 condos the previous October for a 5 percent decrease. The market’s existing condo median price was $156,000; a year ago, it was $162,500 for a decrease of 4 percent.

J. Parrish, vice president of the Gainesville Alachua County Association of Realtors and president of Coldwell Banker MM Parrish Realtors, points out that the area’s friendly, laid-back lifestyle and college-town amenities attract new residents. “The Gainesville area has a strong and stable underlying economic foundation,” he says. “The University of Florida and other governmental entities really drive the local economy and offer great job opportunities.”

© 2007 FLORIDA ASSOCIATION OF REALTORS

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Florida’s Consumer Confidence Dips 2 Points

GAINESVILLE, Fla. – Nov. 28, 2007 – Florida’s consumer confidence dropped two points to 77 in November, a new University of Florida study finds.

“The growing pessimism about U.S. economic conditions seems to be among all income levels,” says Chris McCarty, director of UF’s Survey Research Center at the Bureau of Economic and Business Research. He says the decline in Florida’s housing market has increased consumers’ financial insecurity.

Survey respondents were particularly pessimistic about U.S. economic conditions over the next year. That component of the index fell 11 points to 62, in contrast to the index measuring perceptions of U.S. economic conditions over the next five years, which rose two points to 80.

“Florida consumers seem to understand the gravity of the fallout from the housing crisis and resulting credit crunch, but they still believe in the long-term viability of the U.S. economy to turn this around,” McCarty says.

The housing slowdown creates indirect effects, McCarty says, beyond hurting Floridians who cannot sell their homes and those who have lost their homes to foreclosure. Lenders who resold loans or packaged mortgage debt in elaborate securities now face a backlash from investors, many of whom are international, creating a shortage of credit, which previously fueled not only home loans but many other kinds of spending from corporations buying other corporations to individuals buying cars, McCarty says.

“We expect the housing market to bottom out by the second quarter of 2008 at which time existing home prices will be low enough that some prospective buyers will make purchases,” McCarty says. “However, 2005 prices are years away.”

This month’s drop in the overall confidence rate follows a two-point rise in October.

“We were a bit perplexed by the rise in confidence last month,” McCarty says. “It now appears that rise was a reaction to a short-term decline in gas prices early in October. Now that gas prices have gone up, as expected, confidence is at the same level as in September.”

Of the three remaining components making up the index this month, one fell, one rose and one remained the same. Perceptions of personal finances a year from now fell four points to 86, while perceptions of personal finances now compared with a year ago rose two points to 71. Perceptions of whether it is a good time to buy big-ticket items remained unchanged at 84. Perceptions of personal finances showed a small improvement among low-income households, but a slight decline among middle and upper-income households.

The research center conducts the Florida Consumer Attitude Survey monthly. Respondents are 18 or older and live in households telephoned randomly. The preliminary index for November was conducted from 475 responses.

Consumer confidence is designed to help predict buying patterns by measuring the mood of consumers toward purchasing. Although other economic indicators also predict buying patterns, consumer confidence tends to be available sooner. The index is benchmarked to 1966, so a value of 100 represents the same level of confidence for the year. The value of the index is in comparing changes over time rather than looking at an isolated month.

© 2007 FLORIDA ASSOCIATION OF REALTORS

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Expert Shares Tips For Mastering 1031 Exchanges

WASHINGTON – Nov. 26, 2007 – Why bother becoming an expert on 1031 exchanges? For starters, using a like-kind exchange instead of selling the property outright will almost certainly save your seller big bucks in taxes, says Jim Miller, vice president and southwest regional manager of IPX 1031 in Phoenix.

In addition, 1031 exchanges are a great estate-planning tool because heirs can receive a stepped-up basis and have any deferred taxes on the property forgiven by the Internal Revenue Service.

But be careful that you don’t try to count the sofa as part of the relinquished property’s value, Miller told a group attending the Realtors® Land Institute class on 1031 exchanges during the recent 2007 Realtors Conference & Expo in Las Vegas.

As the name implies, like-kind exchanges must be of similar property, so a sofa or other furnishings in a condo held for investment and rented out couldn’t be counted as part of the property value when it’s exchanged since furnishings are personal property.

“If the personal property is valuable enough, you can do a separate exchange for other personal property, but if it’s just a small amount, take the value of the furnishings as a boot and pay the taxes on it,” Miller said. “It probably isn’t worth paying an attorney to do a second exchange.”

What’s the boot?

The term “boot” refers to any non-like-kind property that is exchanged, Miller said. Boot, which is most often in the form of cash, can result when the value of the piece of real property being relinquished is greater than the value being acquired.

“Receiving a boot in a like-kind exchanges doesn’t disqualify the exchange, it only introduces a taxable gain to the transaction,” Miller said. Only the gain that results from cash and unlike property is taxable.

These amounts cannot exceed the amount of the gain recognized if the property was sold in a taxable transaction.

How to calculate the gain

To calculate taxable gain, a property seller should begin with the price of the relinquished property and then subtract the adjusted basis of the property. This amount is the realized gain.

The adjusted basis is the purchase price of the relinquished property plus any capital improvements to the property, less any depreciation. The basis amount carries over to become the basis of the replacement property.

While 1031 exchanges cannot be used for residential property that is used as a primary residence or a vacation home that is used by the owners for more than 14 days per year, it provides a great strategy for deferring taxes on highly depreciated properties.

Source: REALTOR® Magazine Online

© FLORIDA ASSOCIATION OF REALTORS

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HUD Takes On Housing Assistance Oversight For 30,000 On Dec. 1

WASHINGTON – Nov. 26, 2007 – Nearly 30,000 residents affected by the 2005 Gulf Coast hurricanes will receive housing assistance from the U.S. Department of Housing and Urban Development (HUD) rather than the Federal Emergency Management Agency’s (FEMA) rental program on Dec. 1.

“Thousands of hurricane victims still need help,” says HUD Secretary Alphonso Jackson. “That’s why earlier this year we decided to extend the rental housing program, but for FEMA to hand it over to HUD since we are in the long-term housing business.”

Families who have been contacted by a local public housing agency will see no break in rent payments.

HUD works with approximately 375 public housing agencies (PHA) and 12,000 landlords who will be implementing and managing the temporary rental assistance under the new Disaster Housing Assistance Program (DHAP) now run by HUD. HUD will deploy nearly 20 staff members to cities where the largest numbers of displaced families are currently living.

Individuals who believe they may be eligible for the DHAP program but have not been contacted should calls HUD’s toll-free referral center immediately at (866) 373-9509 Monday through Friday from 9:00am to 7:00pm EDT, 9:00am to 1:00pm EDT on Saturday and Sunday.

HUD also requires landlords and PHAs participating in DHAP to meet basic housing quality standards, as it does for all its programs. PHA’s must conduct limited inspections of units to make sure there are no serious health and safety problems.

Starting March 1, 2008, the level of rental assistance will be gradually reduced. Residents will pay a small portion of the housing cost, which will begin at $50 per month in March and incrementally increase each month thereafter until the program concludes on March 1, 2009. Seniors and the disabled whose primary source of income is Supplemental Security Income or other fixed income that make them eligible to receive assistance under existing HUD programs will be protected.

In January 2008, HUD will begin working with FEMA to transition remaining eligible families out of travel trailers and into rental housing in the private market.

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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Americans Believe Buying A Home Still A Good Financial Decision

LAS VEGAS – Nov. 16, 2007 – Americans remain convinced that buying a home is a good long-term investment – just one of the findings from the 2007 National Housing Pulse Survey, released during the National Association of Realtors® (NAR) annual Conference & Expo.

The survey measures how affordable housing issues affect consumers. This year’s results show that nearly nine out of 10 consumers believe that buying a home is a good financial decision. Fifty-nine percent of respondents also agree that now is a good time to buy a home; that number is higher (64 percent) in areas of recent home price declines.

“Owning a home continues to be a good, long-term investment, and most consumers understand that,” says NAR President Pat V. Combs. “This new survey clearly shows that people believe in the value of homeownership and know that owning a home is one of the best ways for most families to build a nest egg.”

This year’s survey shows that Americans are more concerned about obtaining a mortgage and having enough money for downpayment and closing costs than they have been in five years of polling. Nearly six in 10 respondents believe it’s difficult for people in their area to obtain a fair and affordable mortgage. More than eight in 10 say having enough money for downpayment and closing costs are obstacles for homebuyers in their area, up 17 percent from 2005. Sixty-three percent also think the mortgage approval process is an obstacle, up 13 percent since 2005.

“Buyers in the conventional market can still obtain mortgages at very favorable rates,” said Combs. “In addition, NAR is advocating for FHA modernization; changes to this program will help many more first-time buyers become homeowners.”

Of those surveyed, more than one in five homeowners have some type of variable-rate mortgage, including interest-only (15 percent), adjustable-rate (6 percent) and a balloon or other large payment due in the next five years (2 percent).

These homeowners feel more strain from their monthly mortgage payment than those with fixed rates. In fact, more than half of those with variable-rate mortgages say they feel a significant or slight strain, whereas fifty-three percent of those with fixed-rate mortgages feel little or no strain at all. Despite these findings, only five percent of respondents say they are very or fairly worried about being able to make their mortgage payments over the next year.

When it comes to challenges facing the mortgage market, Americans are split on the need for more federal government oversight. Forty-seven percent believe the federal government should take a more active role, while 45 percent believe oversight is the private sector’s responsibility.

While 32 percent of those surveyed perceived the rate of home foreclosures in their area to have increased over the past year, 39 percent report the rate has remained about the same; 6 percent believe the foreclosure rate has decreased in their area. When asked how big of a problem foreclosures were in their area, 38 percent of respondents said foreclosures were a very big or moderate problem, but the majority, 51 percent, said foreclosures were only a slight problem or not one at all.

“Realtors are in the business of helping people into homes, and we want to make sure they can afford to stay there,” Combs says. “NAR believes that one foreclosure is one too many, and we are working with government agencies, lenders and consumer groups to protect home buyers and sellers in the real estate transaction and beyond.”

The lack of affordable housing continues to be a greater concern than jobs, crime, terrorism or the environment. Nearly seven in 10 survey respondents are concerned about the cost of housing in their area. In the short term, more than half of survey respondents believe home sales and values in their neighborhood will remain about the same in the next three months. Only one-fourth of those surveyed believe sales and values will continue to decrease, while about 10 percent believe they will rise.

NAR’s Housing Opportunity Program conducted the 2007 National Housing Pulse Survey. The telephone survey was among 1,000 adults living in the United States in October 2007. The study has a margin of error of plus or minus 3.1 percentage points.

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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Roll Tape On Property Tax Reform

Do you have questions about the new property tax reform amendment approved by Florida lawmakers? Get your answers directly from FAR Vice President of Public Policy John Sebree, who explains in video format how the proposed property tax reform amendment helps Realtors and homeowners. Please click here to see the 10-minute video posted on FAR’s Web site, floridarealtors.com

Still have a few questions? Call FAR’s Office of Public Policy in Tallahassee at 850-224-1400.

NAR Survey: Commercial Practitioners Make Big Money

AS VEGAS – Nov. 14, 2007 – A survey of National Association of Realtors® (NAR) commercial members showed that more than 51 percent earned $100,000 or more in 2006 – 18 percent earned $250,000 or more; 33 percent earned between $100,000 and $250,000; and 24 percent earned between $50,000 and $100,000.

Results were announced during this week’s National Association of Realtors Conference & Expo being held in Las Vegas. Members of the Realtors Commercial Alliance were surveyed in the summer of 2007.

Land sales was the top commercial specialty among respondents. The top six specialties cited by respondents as their primary specialty were:

1. Land sales (19 percent)
2. Office leasing (11 percent)
3. Multifamily building sales (11 percent)
4. Retail building sales (10 percent).
5. Office building sales (8 percent)
6. Industrial building sales (8 percent)

Commercial practitioners belong to many groups

Forty-three percent of Realtors Commercial Alliance members said they belonged to a commercial affiliate of NAR. Many survey respondents also hold membership in other real estate specialty organizations. Among respondents:

• 31 percent were members of the International Council of Shopping Centers
• 10 percent were members of the National Association of Industrial and Office Parks
• 9 percent were members of the Appraisal Institute
• 9 percent were members of the Building Owners and Managers Association

The commercial segment continues to be dominated by men and by practitioners working in independent companies. Seventy-four percent of respondents were male and 79 percent said their company was not affiliated with a large national or regional brand.

The Realtors Commercial Alliance is an NAR division dedicated to serving the needs of Realtors practicing in the commercial arena. There are currently 75,000 RCA members. The membership survey was presented at a commercial research meeting held as part of the Realtors Conference & Expo.

Commercial Real Estate Index to launch

Also at this week’s convention, NAR announced it would be teaming up with the Society of Industrial and Office Realtors, on the analysis of SIOR’s Commercial Real Estate Index. The index is a measure of SIOR members’ assessment of market conditions.

NAR will continue to release its own quarterly Commercial Leading Indicator, a measure that forecasts commercial market activity on the basis of job growth, manufacturing, purchasing power and other quantitative factors.

Source: REALTOR® Magazine Online

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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Modest Recovery For Existing-Home Sales In 2008

LAS VEGAS – Nov. 14, 2007 – A modest recovery for existing-home sales is expected in 2008 as the impact of the credit crunch subsides, while pending home sales indicate near-term stability, according to the latest forecast released at the National Association of Realtors (NAR) Conference & Expo this week.

Lawrence Yun, NAR chief economist, said the housing market will improve from a steady unleashing of pent-up demand, and from a wide abundance of safer mortgage products. “The level of pent-up demand reaching the market next year is a bit uncertain, and it is possible for even higher home sales activity than we’re forecasting if buyers regain their confidence about the long-term benefits of homeownership,” he said. “Over the near term, home sales are likely to be fairly flat as the lingering impact of the credit crunch filters through the system through the end of the year.”

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in September, rose 0.2 percent to a reading of 85.7 from an index of 85.5 in August. It was 20.4 percent lower than the September 2006 level of 107.6. “Even with relatively low fourth quarter sales, 2007 will be the fifth highest year on record for existing-home sales. The median existing-home price in 2007 will have fallen by less than 2 percent from an all-time high set in 2006,” Yun said.

The PHSI in the Midwest rose 5.4 percent in September to 82.3 but is 14.4 percent below a year ago. In the South, the index increased 1.5 percent to 99.3 but is 19.7 percent lower than September 2006. The index in the West slipped 0.1 percent in September to 80.5 and is 25.6 percent below a year ago. In the Northeast, the index dropped 10.1 percent in September to 69.5 and is 23.1 percent below September 2006.

Existing-home sales are projected at 5.67 million this year, edging up to 5.69 million in 2008, in comparison with 6.48 million in 2006 – the third highest year on record. Existing-home prices are expected to decline 1.7 percent to a median of $218,200 for all of this year and hold essentially even in 2008 at $218,300.

“Some markets are still going strong, such as Austin and Raleigh, while others are showing early signs of recovery, like Denver and Boston. However, a vast portion of the nation’s mid-section is underpriced in relation to income, and prices in some markets could rise notably with good local job gains,” Yun said. “At the same time, a significant rise in foreclosures in some areas could delay the recovery.”

New-home sales will probably total 796,000 in 2007 and 693,000 next year, below the 1.05 million last year; no real improvement is seen for new homes until 2009. Because builders have rightly made drastic cuts in production, housing starts, including multifamily units, are forecast at 1.35 million this year and 1.14 million in 2008, down from 1.80 million in 2006. The median new-home price is estimated to drop 1.6 percent to $242,500 in 2007 before rising 0.4 percent to $243,600 in 2008.

“Contrary to perceptions, conventional mortgages are widely available at favorable interest rates for the bulk of home buyers,” Yun said. “The pricing and availability of jumbo mortgages has improved, and FHA loans for home purchases – up 58 percent in the third quarter – are replacing subprime mortgages to serve the needs of low- and moderate-income buyers.”

The 30-year fixed-rate mortgage should rise slowly to the 6.6 percent range by the end of next year, although cuts in the Fed funds rate will help short-term interest rates.

“Home buyers in it for the long haul nearly always come out ahead in building wealth. Given the leverage in purchasing a home, the average return on a 5 percent downpayment over 10 years is usually three to five times greater than stock market returns,” Yun said. “When people compare investment returns, they often overlook the power of leverage in the housing market.”

He said a $10,000 downpayment on a median-priced home, at a typical appreciation rate of 5 percent, would be worth $110,000 after 10 years. That same amount invested in the stock market for the same amount of time, assuming 10 percent annual appreciation, would be worth $23,600. “That’s why housing is the best long-term investment most families ever make – the longer you own, the better your investment,” Yun said.

Growth in the U.S. gross domestic product (GDP) is seen at 2.1 percent in 2007, down from a 2.9 percent growth rate last year; GDP growth is projected to improve to 2.8 percent in 2008.

The unemployment rate will probably average 4.6 percent for 2007, unchanged from last year, but edge up to 4.9 percent in 2008. Inflation, as measured by the Consumer Price Index, is likely to be 2.8 percent both this year and in 2008, compared with 3.2 percent in 2006. Inflation-adjusted disposable personal income is forecast to grow 3.5 percent in 2007, up from 3.1 percent last year, and then ease to 2.4 percent in 2008.

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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UF: Florida Population Growth Slows But Still Remains High

GAINESVILLE, Fla. – Nov. 8, 2007 – According to the University of Florida (UF), Florida’s population growth slowed considerably last year as the housing boom went bust, but it remained relatively strong and likely will stay that way for the next few years.

“There have been a number of news articles lately focusing on the idea that population growth has fallen off the table top in Florida and practically come to a standstill, and that simply isn’t true,” says Stan Smith, director of the UF’s Bureau of Economic and Business Research, who led the research. “Florida has a strong economy and adds jobs every year. That is a major factor in last year still being a big year for population growth, even though it was less than in the previous three years.”

The estimates released this week show the Sunshine State’s population grew by 331,000 between 2006 and 2007, compared with 431,000 between 2005 and 2006; 402,000 between 2004 and 2005; and 448,000 between 2003 and 2004, Smith said. Florida’s total population was estimated at 18,680,367 as of April 1, 2007.

Based on recent trends, Smith said he expects Florida to add about 300,000 residents a year during the next two to three years unless there is a recession.

“The housing boom certainly contributed to Florida’s growth in those earlier years, and the housing bust contributed to the slowdown this last year,” he says. “When economic conditions are tough, it’s much harder for people to sell their homes in New York, Ohio, Michigan or some other state and move to Florida.”

Today’s increasing number of foreclosures, large inventories of unsold houses and the decline in housing prices in some cities contrast starkly with the flourishing construction industry, huge numbers of home sales and flurry of people buying homes simply to make a quick profit that characterized the last few years, he said.

But Florida’s healthy job market and the continued movement of retirees and foreign immigrants to the state helped bolster population growth last year.

“Job growth has been higher in Florida than the national average,” Smith says, adding that the largest increases in jobs during the past year have been in leisure and hospitality services, education and health service. “You also have to factor in Florida’s climate, with its relatively warm winters, which continues to attract people from the Northeast and Midwest from one year to the next.”

Although less significant than employment, retiree migration stands to become increasingly important in the future.

“Over the next 20 years as the baby boomers reach retirement age, the probability is high that many of them will want to move to Florida,” Smith says.

Florida, with its large foreign-born population, also has grown because of the increase in U.S. immigration during the past decade because many newcomers move to places where they already have a network of family and friends, Smith says. Typically, Florida attracts about 8 percent or 9 percent of the nation’s immigrants in a year.

“What is considered a slow year for population growth in Florida would be considered a fast year for most states,” he says. “Between 1990 and 2000, no county in Florida lost population, which is unusual considering that typically 30 (percent) to 40 percent of the nation’s counties lose population during any particular decade.”

Flagler, the state’s most rapidly growing county, has ballooned by 88 percent since 2000, from 49,832 to 93,568; followed by Sumter, which increased 68 percent from 53,345 to 89,771, and Osceola, up 54 percent from 172,493 to 266,123.

Contributing to Flagler’s growth is its location between Jacksonville and Daytona Beach, which is attractive to retirees as well as to commuters. Boosting Sumter County’s population gains are spillover from Orlando to the southeast, as well as the booming Villages retirement community, which covers parts of three counties. Third-ranked Osceola County has drawn a sizeable population of Puerto Rican immigrants in recent years.

Counties with the biggest increases in absolute numbers were Orange County, which grew by 209,259 between 2000 and 2007, followed by Miami-Dade with an increase of 208,513 and Hillsborough with an increase of 193,913. Monroe was the only county in Florida to lose population between 2000 and 2007, declining by 602.

HUD creates Blueprint For Affordable Housing And Historic Preservation

WASHINGTON – Nov. 7, 2007 – Historic preservationists and affordable housing advocates are often at odds when it comes to developing strategies to preserve older housing while providing affordable housing opportunities for working families. In fact, there is a prevailing myth that the cost of historic preservation actually prices many working families out of many urban neighborhoods.

The U.S. Department of Housing and Urban Development and the Advisory Council on Historic Preservation have announced a blueprint that seeks to challenge this myth and employ historic preservation as a tool to preserve historic homes and keep them affordable in the process.

HUD and the ACHP held a symposium of national experts on affordable housing and historic preservation policies and unveiled a policy road map to potentially offer a promise of affordable housing in urban neighborhoods.

“Historic preservation and affordable housing are not two separate worlds,” said HUD Deputy Secretary Roy A. Bernardi. “Historic preservation can be a powerful tool to fuel the preservation of affordable housing too.”

In 2004, HUD published “Preserving America,” a how-to guide designed to help local communities utilize federal assistance to promote historic preservation by stimulating “heritage tourism,” economic development and job growth. Panelists provided their comments on new guidelines from various viewpoints and perspectives. The speakers represented economic development, HUD community development grantees, state historic preservation offices, and the banking and development sectors.

This week’s symposium kicks off a national dialogue that will include other federal agencies, state organizations, public interest groups, and the private sector as part of HUD’s America’s Affordable Communities Initiative (AACI). The initiative works with over a hundred state and local governments to cut red tape and reduce regulatory barriers.

The Latest Version Of Property Tax Reform: How It Works

TALLAHASSEE, Fla. – Nov. 1, 2007 – The Florida Legislature, caught in a game of “chicken,” approved a measure that will appear before voters on the Jan. 29, 2008, ballot. With time working against them, lawmakers agreed on a measure that scaled back earlier initiatives, and even current reforms pushed by the House.

What the current amendment includes:

Homestead exemption

The homestead exemption increases. The current $25,000 homestead exemption remains; but a second $25,000 exemption is added for home values between $50,000 and $75,000. The second $25,000 exemption does not apply to school taxes, however, which translates into a lower-than-expected savings of about $240 per homesteaded owner. The portion of a home valued between $25,000 and $50,000 will still be taxed at all levels. FAR fought to include this taxable portion in order to maintain fairness for smaller cities and counties with lower median home values.

Portability – Moving up

Property tax savings portability (money saved over time on property taxes because of yearly increase limits through Florida’s Save Our Homes amendment) applies to homesteaders (homeowners with a homestead exemption) moving anywhere within Florida. Up to $500,000 of accumulated savings, applied to taxable value, may be transferred when one home is sold and another is purchased, with the transfer applying to all taxes, including the school portion. Homeowners have two years after they sell a home to buy a new one and transfer the savings.

If buying a more expensive home, a homesteader calculates savings by subtracting the assessed value (taxable value) from the just value (market value). The amount (savings over time) is then subtracted from the just value on the new home purchased. In most cases, the $50,000 homestead exemption will also be subtracted.

Example: Susie currently owns a home and has lived there for a long time. The house’s just value is $500,000, but because of Save Our Homes, the assessed value is only $200,000. Susie buys a new house for $700,000. The following year, she’ll pay taxes on only $400,000, however, because she’s “porting” $300,000 in value to her new home. After factoring in the new homestead exemption of $50,000, her total assessed value would be $350,000.

If buying a less-expensive home, the calculation changes and is based on the percentage of tax savings rather than a dollar amount. If the assessed value on the original home was 50 percent of the just value, for example, the homesteader would transfer that percentage to the new home, or have a new assessed value that is 50 percent of the new home’s just value. The percentage system was created to keep homesteaders from effectively eliminating their property taxes altogether by moving from a high-cost area of Florida to a low-cost area – a change that could severely hurt smaller rural economies.

Example: Susie currently owns a home and has lived there for a long time. The house’s just value is $500,000, but because of Save Our Homes, the assessed value is only $200,000. Susie buys a new town home for $300,000. She’ll pay taxes only on $120,000 because when buying down in value, she’ll keep the same ratio (40 percent) of assessed value to just value that she enjoyed in her old home. After factoring in the new homestead exemption of $50,000, her total assessed value would be $70,000.

Also, portability is retroactive to Jan. 1, 2007 – so everyone who bought this year and moved from an established homestead will be able to “port” their savings for next year. Since yearly tax values are based on ownership as of Jan. 1 each year, portability would not affect this year’s tax bills, which most homeowners have already received; but the savings will be applicable to next year’s tax bill.

Non-homesteaded property tax cap

A win for FAR and an important piece of the amendment is a 10 percent annual assessment cap on non-homestead property. Similar to Save Our Homes, this cap limits the assessed increases of commercial, rental and second home property taxes to a maximum amount of 10 percent per year starting in 2009, protecting against high spikes in taxes from year-to-year.

While property values will not rise 10 percent every year, FAR believes the cap offers some relief and protection to properties in high-value markets and waterfronts from unpredictable tax increases. The Constitution mandates a tax reassessment to just value upon transfer for non-homestead residential properties of nine units or less, but allows the Florida Legislature to determine how reassessment will occur for commercial and higher-unit residential properties. However, implementing legislation passed during the Special Session provides for reassessment of these properties upon a change in ownership or use.

Tangible personal property exemption

Under the amendment, the Tangible Personal Property (TPP) exemption for businesses is $25,000. The Legislature estimates that this tax – paid to local governments on items such as shelving, desks, computers, and other office equipment – will exempt about 1 million of Florida’s 1.2 million businesses that currently pay it. The amendment also drops the requirement to file for the TPP tax.

Work not done

While the proposed amendment will save property owners as much as $12 billion (depending on the portability amount used), FAR will work for greater relief measures. The association also has serious concerns about a challenge to the constitutionality of portability.

Earlier versions of property tax reform included provisions to help first-time homebuyers, a move missing in the current version. With that protection gone, FAR considers it possible that it will be challenged under the U.S. Constitution along with the entire Save Our Homes property tax system. If that happens, it could bring everyone back to the table yet again.

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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Consumer Confidence Increases In Florida

GAINESVILLE, Fla. – Oct. 31, 2007 – A weak housing market doesn’t deter Floridians. Consumer confidence in the state rose three points in October, with much of the increase attributed to low-income households.

Consumer confidence among Floridians rose to 80 in October, while the September index was revised downward to 77. The index includes five components, and three showed improvement this month. Perceptions of personal finances now compared to a year ago fell a point to 70, but expectations of personal finances a year from now rose four points to 90. Expectations of U.S. economic conditions over the next five years fell two points to 78, but perceptions of U.S. economic conditions over the next year rose six points to 75. Perceptions of whether it is a good time to buy big-ticket items rose four points to 85.

“Consumer confidence in Florida is now very close to the national number of 80.9 as measured by the University of Michigan,” says Chris McCarty, the survey director. “The source of the rise in Florida appears to be low-income households (those living on less than $30,000 annually). Confidence among that group had been quite low at 66, but rose in October to 75. Middle and upper income households remained the same at 81.

“The rise in confidence among low-income households appears to be driven by improved personal finances now compared to a year ago and expectations about improvement over the next year. There was a very large increase in perceptions among low-income households that it is a good time to buy big-ticket items. That component rose 18 points to 86 among low income households.”

McCarty is not sure why Florida’s lower-income households believe things are getting better, but he speculates that they think the housing slowdown may be over soon.

“Respondents may have already factored in the ill effects of housing and are anticipating improvement,” McCarty says. “They may also be looking toward property tax reform from the Florida Legislature as a source of relief. Although gas prices declined briefly in October, they are up again and all signs are that they will increase. Next month’s consumer confidence will be telling.”

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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Consumers Less Confident In October

WASHINGTON – Oct. 30, 2007 – The Conference Board Consumer Confidence Index, which has been declining since August, fell further in October. The Index now stands at 95.6 (1985=100), down from 99.5 in September. The Present Situation Index decreased to 118.8 from 121.2 in September. The Expectations Index, which gauges attitudes about future conditions, declined to 80.1 from 85.0.

Says Lynn Franco, director of The Conference Board Consumer Research Center: “Consumer confidence posted its third monthly decline and continues to hover at two-year lows (Oct. 2005, 85.2). Further weakening in business conditions has, yet again, tempered consumers’ assessment of current-day conditions and may very well be a prelude to lackluster job growth in the months ahead. In addition, consumers are growing more pessimistic about the short-term future and their rather bleak outlook suggests a less than stellar ending to this year.”

Consumers’ assessment of present conditions weakened further in October. Those claiming conditions are “good” decreased to 23.4 percent from 25.7 percent. However, those saying conditions are “bad” decreased to 16.3 percent from 17.8 percent. Overall, consumers were less upbeat in their appraisal of the job market. Those saying jobs are “hard to get” increased to 22.6 percent from 22.4 percent. Those claiming jobs are “plentiful” decreased to 24.1 percent from 25.6 percent in September.

Consumers’ short-term expectations eroded further in October. Consumers expecting business conditions to worsen in the next six months rose to 13.8 percent from 11.9 percent. Those anticipating business conditions to improve declined to 13.7 percent from 15.7 percent.

The outlook for the labor market was also less optimistic. The percent of consumers expecting more jobs in the months ahead was virtually unchanged at 13.5 percent, while those anticipating fewer jobs increased to 20.1 percent from 18.7 percent. The proportion of consumers expecting their incomes to increase in the months ahead declined moderately to 19.6 percent from 20.0 percent.

The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS. The cutoff date for October’s preliminary results was October 23rd.

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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Florida Legislature Passes Property Tax Reform In Time For January Ballot

TALLAHASSEE, Fla. – Oct. 30, 2007 – It’s voters’ turn: The Florida Legislature passed property tax reform and a proposed amendment will appear on the January ballot. The amendment offers moderate relief for homeowners and slight relief for commercial property, but it does not go as far as an earlier House proposal. To become law, the proposal must still receive 60 percent of the votes in the Jan. 29, 2008, election.

The vote went down to the wire. Had the House and Senate not agreed by today, it would have been too late to get it on the January ballot, postponing any kind of tax relief.

“We are pleased the Legislature understood that missing the deadline for a January vote of the people was not an option,” says the Florida Association of Realtors (FAR) President Nancy Riley. “Tax reform is necessary to stimulate our economy. To put tax relief off to November 2008 would have been devastating to our state.”

The discussion included a number of considerations and not all made it into the final version. A complete breakdown of the individual considerations and how they fared in the final tax proposal is available in chart format at www.floridarelators.org under “What’s New.” Highlights of the passed legislation include:

• Double the homestead exemption, but only for homes valued at more than $75,000 and not for school taxes

• Allow owners of homestead property to transfer up to $500,000 in Save Our Homes benefits, including school taxes, to a new home

• Impose a 10 percent assessment cap on non-homestead property for the next 10 years. The cap does not apply to school taxes. After 10 years, voters will have the option to restore the 10 percent cap

• Allow businesses to exempt $25,000 in taxes paid on computers, office equipment and other personal property

With the deadline at hand, lawmakers had to quickly agree, and the final package represents a product that everyone could accept. The House, however, emphasized repeatedly that it would continue to work on property tax reform during the Legislature’s regular session next year, an opinion echoed by FAR.

While in favor of portability, FAR worries about including a portability provision without also adding some kind of relief for first-time homebuyers, a move promoted heavily but one that did not make it into the final version. Without any kind of first-time homebuyer protection, the U.S. constitution’s “right to travel” provision could be the basis of a court challenge.

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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HUD Settles With Six Builders Over RESPA Violations

WASHINGTON – Oct. 30, 2007 –The U.S. Department of Housing and Urban Development (HUD) announced settlements with six major U.S. homebuilders over RESPA violations. According to HUD, complex business arrangements through the company’s captive title reinsurance company shielded payments for business referrals.

Combined, the $1.4 million settlement payments in these six agreements with other settlements involving captive title reinsurance bring the total amount of negotiated settlements in the past year and a half to $4.95 million. The recent companies include:

• $466,000 settlement with Pulte Homes Inc., and its captive title reinsurance company Marquette Title Insurance Co.

• $456,000 settlement with KB Home and its captive title reinsurance company Westview Co.

• $261,000 settlement with Beazer Homes USA Inc. and its captive title reinsurance company Security Title Insurance Co.

• $66,000 settlement with Meritage Homes Corp., Meritage Homes of California Inc., Meritage Homes of Nevada Inc., Meritage Homes of Arizona Inc., and their captive title reinsurance company Meritage Paseo Crossing LLC

• $84,000 settlement with The Ryland Group Inc. and its captive title reinsurance company Cornerstone Title Insurance Co.

• $52,000 settlement with Technical Olympic USA Inc. (TOUSA Homes) and its captive title reinsurance company Universal Land Title Inc

“There’s no legitimate purpose for captive title reinsurance when it comes to single-family homes,” says Brian D. Montgomery, HUD Assistant Secretary for Housing and Federal Housing Commissioner. “It’s increasingly clear to us that these complicated business arrangements serve no other purpose than to hide referral fees and kickbacks which are expressly forbidden by law.”

Captive title reinsurance is a practice where a title insurance company transfers a portion of the risk and title premium to a company owned by the builder, lender or real estate broker referring business to the title insurance company. In HUD’s view, any captive title reinsurance arrangements in which payments are not bona fide and exceed the value of the reinsurance are a violation of RESPA.

There is particular concern when these arrangements involve an entity that is in a position to refer business to the primary title insurer. According to HUD, there is also strong evidence these arrangements are designed to generate referral fees when there is a history of few or no claims paid by the reinsurance company. The companies cooperated with HUD in reaching these settlements. In addition to the settlement payments, the companies agreed not to enter into any new captive title arrangements and to cease writing new captive title reinsurance business.

This is the third round of settlements at the federal level involving the recipients of payments made by title insurance companies to captive companies for reinsurance. The settlements come in the wake of two rounds of settlements that HUD reached with five major homebuilders and one lender for a total of $3.55 million.

The Real Estate Settlement Procedures Act was enacted in 1974 to provide consumers advance disclosures of settlement charges and to prohibit illegal kickbacks and excessive fees in the home buying process. Section 8 of RESPA prohibits a person from giving or accepting anything of value in exchange for the referral of settlement service business.

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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