Cyber Home Team

Changes at Fannie Mae, Freddie Mac could transform mortgage landscape

Tom — Thu, 24 Feb 2011 20:42:05 +0000

Reporting from Washington —

Fixed 30-year mortgage rates in the 5% range? Minimum down payments below 5%? Jumbo-sized home loans for high-cost markets at regular interest rates? Kiss them goodbye — possibly sooner than you might guess.

Take a snapshot of today's mortgage market conditions and frame it. It's highly likely you'll never see anything like these favorable combinations of rates and terms again. That's the inescapable conclusion emerging from the Obama administration's white paper on possible remedies for the two ailing giants of housing finance — Fannie Mae and Freddie Mac — along with events underway in the national economy.
The administration's long-delayed housing report, released Feb. 11, drew a mix of catcalls and mild applause. Apartment developers praised the report's emphasis on expanding opportunities for people to rent their housing as opposed to the idea that homeownership is something for everybody.

Big banks and their allies in Congress welcomed the prospect that Fannie Mae and Freddie Mac — which together account for about 60% of the mortgage market but have cost taxpayers a net $150 billion in bailout money in the last three years — will be heading into oblivion. Consumer and real estate industry groups lamented the phase-out of Fannie and Freddie, both of which supplied steady streams of mortgage money for decades, their recent crashes notwithstanding.

The report offered not only options for Congress to consider in winding down the two companies but also recommendations on more immediate transition measures to achieve a smaller federal footprint in the mortgage market. Some of these transitional steps require no congressional approval, and therefore are likely to affect borrowers and home buyers in the months ahead. Factor these changes into your timing for any loan application or purchase you're contemplating this year:

•Higher insurance fees on Federal Housing Administration mortgages — another quarter of a percentage point on annual premiums. That's vitally important to consumers with moderate incomes and assets, especially in the African American and Hispanic communities where FHA loans are the dominant route to homeownership. The report also hints at a possible increase in minimum down payments for FHA loans — currently just 3.5% — but provided no specifics. Congressional approval would be required for any change.

•Significant reductions in maximum loan amounts later this year for both FHA and conventional loans eligible for purchase by Fannie Mae or Freddie Mac, unless Congress votes to retain the current statutory $729,750 limit for high-cost areas before its expiration Oct. 1. Loans above each local market's limit — whatever the reduced ceiling turns out to be — will be considered jumbos and will come with higher interest rates from private lenders.

•Raising the fees Fannie Mae and Freddie Mac charge lenders to guarantee pools of their mortgages for resale to bond investors. Lenders will automatically pass those on to borrowers as a cost of doing business. The report also calls for raising down payment requirements at Fannie and Freddie to 10%.

•Retaining the controversial and costly add-on fees charged by Fannie Mae and Freddie Mac that can increase the expense of obtaining even a moderate-size mortgage by thousands of dollars. These add-ons extend to applicants with FICO credit scores of 800 and above who are making substantial down payments. The white paper actually applauded the imposition of these fees, calling them one of several first steps on the path to weaning consumers off reliance on Fannie and Freddie for mortgage money.

The administration not only wants to wind down the two companies over the coming several years but also to severely reduce the size of the FHA's role — cutting its market share from around 30% today to as low as 10%. Where will the buyers who depend upon the FHA for affordable financing turn when that sharp cut has been accomplished? That's not clear.

The white paper makes an oblique reference to a major issue bubbling on the back burner that could also push rates up: Regulators are debating what should be a "qualified residential mortgage" under the terms of last year's financial reform legislation. Loans that aren't qualified — in terms of down payment size and other criteria — will require extra investments by lenders when they pool them into bonds; that in turn could raise rates for nonqualified mortgages as much as 3 percentage points.

One proposal is to make 20% to 30% down payments the minimum to meet the qualified test. Under the worst-case scenario, you'll be charged significantly higher rates if you have only enough for a small down payment.

Bottom line: Get ready to pay more for mortgages, no matter what happens to Fannie Mae and Freddie Mac.

Distributed by Washington Post Writers Group.

Wells Fargo Says Credit Score of 500 OK

Tom — Mon, 21 Feb 2011 17:10:06 +0000

In a long-awaited shift, Wells Fargo is providing FHA mortgages to borrowers with credit scores as low as 500. The move comes after the National Association of Realtors® and FHA Commissioner David Stevens, among others late last year, criticized the country’s major banks for requiring credit scores as high as 650 in some cases before making loans. At NAR’s annual conference last year in New Orleans, Stevens said banks’ credit policies were out of sync with the FHA and artificially restraining home sales by as much as 20 percent. Under its new policy, Wells Fargo will accept borrowers with credit scores of 500 to 579 if those borrowers can make a down payment of at least 10 percent; gifted funds or other down payment assistance is not allowed. For borrowers with credit scores of 580 to 599, borrowers must put down 5 percent, with the same restriction on gifts and assistance funds. Borrowers with credit scores of 600 or higher can make a 3.5 percent down payment. The new policy took effect Jan. 15.

Home Price Stabilization Seen in Most Metro Areas during Fourth Quarter, Sales Up

Tom — Mon, 21 Feb 2011 17:08:35 +0000

Washington, DC, February 10, 2011

Home sales rebounded in 49 states during the fourth quarter with 78 markets – just over half of the available metropolitan areas – experiencing price gains from a year ago, while most of the rest saw price weakness, according to the latest survey by the National Association of REALTORS®.

Total state existing-home sales, including single-family and condo, jumped 15.4 percent to a seasonally adjusted annual rate¹ of 4.80 million in the fourth quarter from 4.16 million in the third quarter, but were 19.5 percent below a surge to an unsustainable cyclical peak of 5.97 million in the fourth quarter of 2009, which was driven by the initial deadline for the first-time buyer tax credit.

In the fourth quarter, the median existing single-family home price rose in 78 out of 152 metropolitan statistical areas² (MSAs) from the fourth quarter of 2009, including 10 with double-digit increases; three were unchanged and 71 areas had price declines. In the fourth quarter of 2009 a total of 67 MSAs experienced annual price gains.

The national median existing single-family price was $170,600 in the fourth quarter, up 0.2 percent from $170,300 in the fourth quarter of 2009. The median is where half sold for more and half sold for less. Distressed homes, typically sold at a discount of 10 to 15 percent, accounted for 34 percent of fourth quarter sales, little changed from 32 percent a year earlier.

Lawrence Yun, NAR chief economist, is encouraged by the trend. “Home sales clearly recovered in the latter part of 2010 and are helping to absorb the inventory, including many distressed properties. Even with foreclosures continuing to enter the inventory pipeline, they’ve been selling well and housing supplies have trended down,” he said. “A recovery to normalcy requires steady trimming of the inventories.”

Yun added, “An improving housing market and job growth will go hand in hand. The housing recovery will mean faster job growth.” He projects about 150,000 to 200,000 jobs will be added to the economy this year from an anticipated 300,000 additional home sales in 2011.

Yun further noted, “Better than expected sales and/or strengthening in home values can have an even bigger job impact as consumer spending would naturally rise from a housing wealth recovery affecting a vast number of American families.”

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said a very favorable affordability environment is a huge factor in the recovery. “Although job growth has been relatively modest and credit is tight, you can’t underestimate the impact of historically high housing affordability conditions,” he said.

“Mortgage interest rates recently hit record lows, median family income has edged up and prices in most areas have been stable following the correction from the housing boom. For people with good credit and long term plans, it’s hard to imagine a better opportunity than what we see today,” Phipps said. “Unfortunately the flow of credit is unnecessarily tight and is constraining the pace of the housing and job growth recoveries.”

According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage was a record low 4.41 percent in the fourth quarter, down from 4.45 percent in the third quarter; it was 4.92 percent in the third quarter of 2009.

“The healthier local housing markets are also experiencing favorable local employment conditions,” Yun said. Job growth is a major factor in price appreciation in metro areas such as the Washington, D.C., region, where the median existing single-family home price of $331,100 in the fourth quarter is 8.1 percent higher than a year ago; the Boston-Cambridge-Quincy area, at $346,300, up 4.2 percent; and Austin-Round Rock, Texas, at $190,300, up 4.1 percent.

Smaller metro areas sometimes see larger swings in price measurement depending on the types of properties that are sold in a given period. In such markets, full year price data can provide additional context.

In the condo sector, metro area condominium and cooperative prices – covering changes in 57 metro areas – showed the national median existing-condo price was $164,200 in the fourth quarter, which is 6.4 percent below the fourth quarter of 2009. Twenty-two metros showed increases in the median condo price from a year ago and 35 areas had declines; only 11 metros saw annual price gains in fourth quarter of 2009.

“Consumers in the hard hit regions of Nevada, Arizona and Florida were able to scoop up condos at absolute bargain basement prices,” Yun said. Median condo/co-op prices in affected metro areas include Las Vegas-Paradise at $60,700, Phoenix-Mesa-Scottsdale with a fourth quarter median of $68,900, and Miami-Fort Lauderdale-Miami Beach at $81,900.

Regionally, the median existing single-family home price in the Northeast increased 2.3 percent to $240,400 in the fourth quarter from a year earlier. Existing-home sales in the Northeast rose 15.0 percent in the fourth quarter to a level of 797,000 but are 22.8 percent below the surge in the fourth quarter of 2009.

In the Midwest, the median existing single-family home price rose 0.5 percent to $139,200 in the fourth quarter from the same period in 2009. Existing-home sales in the Midwest jumped 18.3 percent in the fourth quarter to a pace of 1.02 million but are 25.4 percent below the cyclical peak one year ago.

In the South, the median existing single-family home price edged up 0.3 percent to $152,400 in the fourth quarter from the fourth quarter of 2009. Existing-home sales in the region rose 11.4 percent in the fourth quarter to an annual rate of 1.82 million but remain 17.8 percent below the surge in the fourth quarter of last year.

The median existing single-family home price in the West declined 2.9 percent to $214,400 in the fourth quarter from a year ago. Existing-home sales in the West jumped 19.9 percent in the fourth quarter to a level of 1.17 million but are 14.2 percent below the cyclical peak in the fourth quarter of 2009.

“A good portion of the sales activity in the West has been driven by investors taking advantage of discounted foreclosures, with high levels of all-cash transactions,” Yun explained.

The National Association of REALTORS®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

# # #

NOTE: Data tables for both metro area home prices and state existing-home sales are posted at:
www.realtor.org/research/research/metroprice. For areas not covered in the tables, please contact the local association of REALTORS®.

There often are differences between NAR’s data and locally reported data because of differences in methodology, which may include the geographic coverage area, housing types, and Census benchmarking used in NAR’s model. More importantly, there is a parallel between the percentage changes over time that is typically seen even when using different methodologies.

¹The seasonally adjusted annual rate for a particular quarter represents what the total number of actual sales for a year would be if the relative sales pace for that quarter was maintained for four consecutive quarters. Total home sales include single family, townhomes, condominiums and co-operative housing. NAR began tracking the state sales series in 1981.
Seasonally adjusted rates are used in reporting quarterly data to factor out seasonal variations in resale activity. For example, sales volume normally is higher in the summer and relatively light in winter, primarily because of differences in the weather and household buying patterns.

²Areas are generally metropolitan statistical areas as defined by the U.S. Office of Management and Budget. A list of counties included in MSA definitions is available at: www.census.gov/population/estimates/metro-city/0312msa.txt.
Regional median home prices include rural areas and samples of many smaller metros that are not included in this report; the regional percentage changes do not necessarily parallel changes in the larger metro areas. The only valid comparisons for median prices are with the same period a year earlier due to seasonality in buying patterns. Quarter-to-quarter comparisons do not compensate for seasonal changes, especially for the timing of family buying patterns.
NAR began tracking of metropolitan area median single-family home prices in 1979; the metro area condo price series dates back to 1989.
Because there is a concentration of condos in high-cost metro areas, the national median condo price generally is higher than the median single-family price. In a given market area, condos typically cost less than single-family homes. As the reporting sample expands in the future, additional areas will be included in the condo price report.

First quarter metro area home price and state resale data will be released May 10 at 10 a.m. EDT.

REALTOR® is a registered collective membership mark which may be used only by real estate professionals who are members of the NATIONAL ASSOCIATION OF REALTORS® and subscribe to its strict Code of Ethics. Not all real estate agents are REALTORS®. All REALTORS® are members of NAR.

Information about NAR is available at www.realtor.org. This and other news releases are posted in the News Media section. Statistical data in this release, other tables and surveys also may be found by clicking on Research.

Interesting Article From Crain’s! More to worry about for the future

Tom — Mon, 21 Feb 2011 16:48:24 +0000

More than 2 million Chicago-area baby boomers begin turning 65 this year, unleashing a demographic wave that will last nearly two decades and transform nearly every part of the local economy.

“Just the sheer numbers mean huge changes in the way we have to think about housing, transportation, the workforce — everything,” says Randy Blankenhorn, executive director of the Chicago Metropolitan Agency for Planning.

The number of people 65 or older in the Chicago area will soar 65% to 1.7 million by 2030, estimates William Frey, a demographer at the Brookings Institution in Washington, D.C.

That’s less than the 78% increase expected nationally, thanks to immigration in Chicago. Still, about 1 in 6 people in the area will be 65 or older in 2030, compared with 1 in 9 today.

Few industries will escape the effects as a graying population puts the brakes on economic growth.

• Many retiring boomers will sell homes, increasing pressure on housing prices already depressed by the foreclosure crisis.

• They will need more medical care and rely on government insurance programs to pay for it, cutting into hospital profits and adding to the state’s Medicaid bill.

• Their incomes will drop by about half, and their discretionary spending will shrink by about one-third. They’ll spend more on prescription drugs but less on cars, appliances and restaurant meals.

• They’ll pay less in taxes, worsening the revenue crunch governments at all levels face, while they consume more government services.

• Their retirements will cascade through the workplace, leaving employers short of skilled workers.

For the first time since boomers appeared on the scene 60-odd years ago, long-term economic growth will decelerate dramatically in Illinois.

From 2020 to 2030, Illinois’ economy is expected to grow 1.4% annually, down from 2.4% this decade and 3% to 3.5% in the 1990s, when the boomers were in their prime, according to Moody’s Analytics Inc.

One reason: Growth in the labor force, necessary to increase output, will slow as boomers leave the workplace. Chicago’s labor growth will decline to 0.24% in 2020 from 1.03% this year, Moody’s estimates.

Productivity also will take a hit, as older, more experienced workers retire.

“Economic growth comes from increases in the labor force and productivity, and there will be decelerating growth in both,” says Sophia Koropeckyj, managing director of Moody’s Analytics, in West Chester, Pa.

‘HEALTH CARE IS A WINNER’

The trend will cut a wide swath through Chicago business, boosting some and battering others.

“As people age, consumption patterns change,” says David Hale, economist and CEO of Winnetka-based David Hale Global Economics Inc. “Health care is a winner. It’s a negative for real estate, except senior housing. Some people will move when they retire, which reduces retail spending.”

Positioned to profit are Walgreen Co., Abbott Laboratories, Sam Zell and the Pritzker clan. On the wrong side of the demographic shift are the likes of Sears Holdings Corp., Illinois Tool Works Inc. and Pulte Homes Inc.

Scott Powder, senior vice-president for strategy at Oak Brook-based Advocate Health Care, the area’s largest hospital chain, has been tracking the demographics for well over a decade.

“This wave is going to hit our hospitals in massive ways,” he says.

While it might seem that hospitals would benefit from a growing number of patients in need of expensive medical treatments for the ailments that come with old age, Mr. Powder figures Advocate’s profits will suffer. That’s because aging patients tend to shift from higher-paying employer-sponsored health insurance policies to the federal government’s Medicare and Medicaid programs, which pay hospitals less.

The number of Advocate patients on Medicare will rise from 40% today to more than 50% by 2020 — a shift that will cost Advocate $170 million annually, Mr. Powder estimates. That’s a big hit to Advocate’s bottom line, which was $663 million in 2009.

“We’ve got to find ways to make our cost position viable when a big chunk of revenue is covered by Medicare at Medicare rates,” Mr. Powder says. “We’ve got to increase productivity, reduce our fixed costs and better coordinate care.”

Advocate is looking to roll out more regional immediate-care centers and expand their capabilities, with doctors available around the clock, to reduce use of full-service hospitals with greater overhead. Advocate has been beefing up cardiac and cancer care for well over a decade. Now it’s focusing on neurological care, with plans to establish an Alzheimer’s institute later this year.

Deerfield-based Walgreen, the nation’s No. 2 retailer of prescription drugs, should prosper as more boomers hit 65. Drug spending rises 22% — to about $828 per year — after age 65, according to the Bureau of Labor Statistics.

But as the government and other health insurers look for ways to slash spending on drug coverage while serving more seniors, it could take aim at pharmaceutical-distribution costs. That might favor direct-mail pharmacies over Walgreen’s 7,600 drugstores.

Meanwhile, more big companies that provide health insurance benefits to retirees, such as Peoria-based Caterpillar Inc., already are pushing to drive down their own drug costs by negotiating exclusive deals with pharmacies that could pressure margins or reduce volume.

“As the baby boomers enter their peak prescription-use years and new medicines are developed for a variety of health conditions, more drugstores are needed to meet the demand,” a Walgreen spokesman says.

UPHILL CLIMB FOR AUTOS

Rick Hyland, 60, of Chicago, and wife Jeanne, 54, pick up their new Ford Explorer from the Al Piemonte dealership in Melrose Park. The new model was designed with seniors in mind.

Photo by: Erik Unger

At Ford Motor Co.’s plant on the South Side, the new Explorers rolling off the assembly line were redesigned with boomers in mind. A sport-utility vehicle, with seats higher than a car’s, will appeal to drivers who have had hip or knee replacements. It’s now built on a car frame, not a truck chassis, to ride more smoothly. Inside, the four-wheel drive selector is a simple knob with pictograms of mud, snow or desert instead of a button for “four-wheel drive low.”

“As you get older, you’re not willing to put up with as much,” says Amy Marentic, a Ford marketing manager in Dearborn, Mich. “Delivering a high level of ride and handling will make boomers much more accepting of it.”

Automakers face an uphill climb. Sales last year were 30% below peak levels, and the demographic trend doesn’t bode well for the industry. Spending on vehicles drops by one-third for those over 65, according to Bureau of Labor Statistics data.

“Boomers have been the lifeblood of the auto industry,” says Joe Barker, head of forecasting for IHS Global Insight in Northville, Mich. “As they get older, we expect them to scale back their auto purchases.”

Consumer-products companies also are adapting to the needs of aging boomers. Northfield-based Kraft Foods Inc. has been redesigning containers for coffee and dressings, making them easier to grip and open. (See sidebar, Page 11.)

But Kraft also is looking to emerging overseas markets for new customers to offset expected declines in the United States. Consumers over 65 spend 22% less on food overall and 12% less on groceries, including dairy products, according to the Bureau of Labor Statistics’ consumer spending survey.

DINING DOWN

Restaurants likely will take the biggest retail hit, as spending on dining out drops 36% after consumers turn 65. When seniors do eat out, they gravitate toward less expensive restaurants. The trend favors Oak Brook-based McDonald’s Corp. more than Chicago-based Morton’s Restaurant Group Inc., which operates high-end steakhouses around the country. Morton’s says it’s been working to broaden its appeal to younger customers with concepts such as dining in its bars.

Other retailers also will feel the impact. Spending on everything from clothing to dishwashers declines, particularly after age 75.

“Overall retail sales are probably going to drop or stagnate,” says John Melaniphy, president of Melaniphy & Associates Inc., a Chicago-based retail consultant.

By 65, boomers are likely to spend one-third less on clothing, which could hurt mall owners such as Chicago-based General Growth Properties Inc. Purchases of appliances drop even more, by 43%, which will pose a challenge for Hoffman Estates-based Sears, where appliances account for about 15% of its roughly $43 billion in annual sales.

Two things that could soften the blow for Sears is its repair business and a large base of Hispanic customers, analysts say. Sears declines to comment, and General Growth executives were unavailable last week.

Slowing growth in sectors like automotive and housing will ripple through to manufacturers that supply those industries. Glenview-based Illinois Tool Works, for example, derives 30% of its $15.9 billion annual revenue from automakers and construction companies.

An ITW representative notes the company gets half its revenue from overseas, where many markets don’t face the demographic dilemma that will dampen economic growth in the U.S.

REAL ESTATE’S FUTURE

No business will feel the impact of an aging population more than real estate. Several Chicago companies are looking to cash in on boomers’ need for housing and nursing care as they grow older. The supply of housing for senior citizens will have to grow 60% in the next two decades to keep up with demand, according to a forecast by the Washington, D.C.-based American Seniors Housing Assn.

Popular boomer burb Orland Park mapping out its plan for old age
Paul Grimes already is thinking about what Orland Park will look like in 10 years.
The southwest suburb, a popular destination for baby boomers in the 1970s and ’80s, will feel the impact as these residents begin reaching retirement age this year. Fourteen percent are age 55 to 64, the highest rate among large suburbs.
“These are folks that generally have money and are very engaged in community,” says Mr. Grimes, village manager. “That’s good. They don’t impact police and schools. Those are positives. We don’t want to lose them. We want them to stay here and spend their money.”
As the village maps out a new master plan, he’s paying attention to the amenities and services seniors value, like the popular dial-a-ride program that helps residents get to doctors’ offices or the mall. The town’s Sportsplex and recreation facilities have programs aimed at seniors.
“Those are areas where demand will pick up,” he says.
The village is focused on housing needs, as well. It’s pursuing a residential development near a downtown Metra station with apartments and condominiums for those who want to trade down from single-family homes.
“We want developments to become more pedestrian-friendly,” Mr. Grimes says.
Smith Crossing, a senior-citizen community, is expanding, while traditional new-home construction remains idled.
But as Orland Park ages, it could put additional strain on resources. The dial-a-ride program has been trimmed because of the recession. Senior services will compete with schools and other services desired by younger residents.
A rising senior population, with fixed incomes, may be reluctant to pay higher taxes for more services or to maintain schools after their children have grown.
“Seniors are very vocal about (taxes),” Mr. Grimes says. “But I’ve yet to meet a senior who isn’t willing to pay for a younger generation. They’re willing to invest. We just have to make it reasonable.”

John Pletz

After he left Motorola Inc. as CEO in 2003, Christopher Galvin, himself a baby boomer, began investing in real estate. Two areas that caught his eye were senior housing and medical-office buildings. Today, they account for half of Harrison Street Real Estate Capital LLC’s $2.3-billion portfolio.

“You’ve got an aging population that’s living longer, and they’ll have health issues,” says Christopher Merrill, co-founder of Harrison Street. “We saw great upside, as well as protection in a downturn.”

Chicago-based Ventas Inc. owns 187 skilled nursing facilities and 241 senior-housing facilities. It’s bulking up as the Boomers age. In October, it bought 118 properties from Louisville-based Atria Senior Living Group for $3.1 billion, making it the nation’s largest owner of senior housing communities. “We’re continuing to pursue acquisitions,” a spokesman says.

Vi, owned by Chicago’s billionaire Pritzker family and formerly called Classic Residence by Hyatt, focuses on high-end retirement communities with 19 properties nationwide.

“We anticipate the most significant period of growth, for the sector, will be between 2021 and 2039 when boomers reach 75-plus,” says Meg Ostrom, vice-president of sales and marketing at Vi.

Mr. Zell’s Chicago-based Equity Lifestyle Properties Inc., which operates RV parks and manufactured-home communities that cater to retirees, has been expanding as the population has grown older. It has doubled since 2004, to more than 300 communities, mostly in Sun Belt states. It is banking on boomers, who are the fastest-growing segment of the RV market, the company says.

Seniors also will change the traditional housing market as they look to sell larger homes in the suburbs and move to smaller, low-maintenance homes, condominiums or apartments. Many will leave the area for warmer climes.

But boomers selling homes will add to the existing glut of unsold properties and put more pressure on Chicago-area home prices, which have declined 29% from their 2006 peak.

“You’ll probably see a flat to continuing decline in housing prices,” says King Harris, who oversees housing research for Metropolis 2020, a Chicago-based civic group focused on regional growth issues. “I wouldn’t be an optimist.”

Selling pressure will be greatest in areas with higher proportions of soon-to-be-retiring boomers. Many of those are smaller wealthy enclaves — from Mettawa and Northfield in the northern suburbs, to Oak Brook and Burr Ridge in the west, and Olympia Fields and Palos Heights to the south.

The share of 55- to 64-year-olds in these communities ranges from 16% to 20% of total population. The median for the Chicago area is 11%.

When Frank Becvar was looking to move his family’s South Side funeral home a decade ago, Crestwood was an obvious choice.

Many longtime customers had left the Back of the Yards and Gage Park neighborhoods over the years for Crestwood and other southern suburbs. Remarkably, Crestwood didn’t have a funeral home, and its demographics appealed to Mr. Becvar, whose grandfather started the family funeral home in 1907 near 47th and Honore streets.

Crestwood is now the oldest Chicago suburb, with 29% of residents over 65, compared with a median of 11% for the region.

“A funeral home really doesn’t look for younger people,” says Mr. Becvar, a 64-year-old baby boomer himself.

The city of Chicago, because it’s the first stop for immigrants and poorer residents who tend to have larger families, skews younger, with 9% of its population over 65.

The youngest communities are farthest out, where young families trade long commutes for lower home prices, or in towns that already have seen gentrification. Some of the lowest rates of 55- to 64-year-olds are in East Dundee at 4% and North Chicago at 5%. Elgin, Aurora and Joliet also skew younger than the median.

Those who might want to sell are facing a weak market that has a long way to go before it recovers the ground lost in recent years. The number of single-family homes sold in Cook County last year was just one-fourth of the total in 2007, says Jim Shilling, a professor in DePaul University’s real estate department.

Signs of the looming housing-supply problem can be seen in elementary-school enrollments in Glenview and Orland Park, where about 20% of owner-occupied homes belong to people who will turn 65 in the next decade. In Glenview, some older residents who can’t sell their homes have begun renting them to young families with school-age children, contributing to an increase in enrollment that has puzzled school administrators.

In Orland Park, elementary enrollment is dropping as older homeowners hold onto their homes in a weak real estate market, reducing the normal housing churn that usually keeps headcount stable, Village Manager Paul Grimes says. “If they can’t sell their homes, they aren’t leaving,” he says. “We’re seeing that.”

Any recovery in housing depends on a rebound in jobs, Mr. Shilling says. “Whether Generation Yers want the houses that boomers are vacating, that will be driven by whether their incomes and jobs go up.”

The glut of unsold homes, exacerbated by a wave of retirees putting houses on the market, means the home-building industry will remain moribund for several years, predicts Mr. Harris of Metropolis 2020.

“We’re foreclosing 50,000 to 60,000 (homes) a year for the next two or three years,” he says. “Any new construction is out of the question.”

When construction comes back, builders will have to change their product offerings to match the desire of an older population for smaller homes.

“The number of McMansions people build is going to decline substantially,” says Perry Bigelow, owner of Aurora-based builder Bigelow Homes.

When the market does recover, Mr. Bigelow will begin building at the Reserves in Aurora, which will feature smaller, less-expensive homes on smaller lots and be aimed at aging boomers and younger buyers.

“Those are the only two buses on the road,” he says of the two groups. “Both still want a yard, but neither wants a lot of grass to cut.”

Builders will have to figure out how to make money on smaller, often less-expensive homes, favoring larger companies with greater scale. While costs also go down with square footage, builders will need higher volumes or higher density to maintain revenue. Already, some builders are working with municipalities to approve higher-density developments.

The aging of the boomers will hit the workplace hard, draining local companies of talent and valuable experience. About one-fourth of the 64,143 people who work for the state of Illinois will turn 65 in the next decade alone, though many will be eligible for retirement before then.

Some industries will be hit even harder. Two-thirds of the 4,800 pilots at Continental Airlines, which is merging with Chicago-based United Airlines, are boomers. Thirty percent of the pilot force will reach the new mandatory retirement age of 65 in the next decade. United declines to comment.

Employers will struggle to replace veterans and train new workers. Although younger employees are generally less expensive than the retirees they replace, the void created by the sudden exit of boomers could push up labor costs as employers bid against each other for a shrinking pool of qualified replacements, says Ms. Koropeckyj of Moody’s.

“We’re going to see some shortages in specific kinds of work — just look at companies that are losing 20% to 30% of their experienced workers in management positions over the next five years,” says Mr. Blankenhorn of the metropolitan planning agency. “How do you replace that?”

As boomers retire, they will also put pressure on government finances. Pension demands already are strangling state and local budgets. The increase in retirees will tighten the noose by shrinking revenues. Income taxes, the state’s primary revenue source, decline with incomes. Making matters worse, Illinois is one of three states that exempt retirement income from tax.

“It’s a double whammy,” says Richard Dye, a state budget expert and professor at the University of Illinois at Chicago’s Institute of Government and Public Affairs.

‘YOU’RE GOING TO SEE TAXES GO UP’

According to Illinois comptroller data from 2008, retirement exemptions shielded about $35 billion in income from taxation, costing the state about $1 billion. That figure is expected to climb steadily as boomers retire.

Chicago racing over the hill ahead of other big cities
Chicago is aging faster than some other big cities.
Over the next 20 years, its over-65 population will climb 65%, Brookings Institution demographer William Frey predicts. New York will see a 53% jump, and Philadelphia 57%. Los Angeles will record an 80% boost.
Aging forecasts for cities are limited, but a 2005 projection by the U.S. Census Bureau offers a state-by-state picture from 2000 through 2030.
By 2030, 18% of Illinoisans will be 65 or older, below the 20% figure for the U.S. The highest concentrations of seniors will be in New Mexico and Florida at 28% and 27%, respectively. Among the lowest are Utah at 13% and Texas at 16%.
Overall population growth — a combination of immigration and new births — can offset some of the effects of an aging population. Illinois will add one new resident for each one who turns 65, lagging the national rate of 2 to 1.
Faster population growth in some states will help their economies expand quickly enough to cope with rising numbers of retirees. Utah is the slowest-aging state, projected to get five new residents for every one who turns 65. Next are Texas and Nevada, where total population growth will exceed those turning 65 by 4 to 1.
States aging the fastest include Iowa, where eight people will have turned 65 by 2030 for every new resident. In Ohio, the ratio is 4 to 1, with New York and Wyoming next, at 3 to1.

John Pletz

So far, proposals to tax retirement income have failed in the Legislature. “No one’s really thinking about it yet,” Mr. Dye says. “They’re too worried about the (deficit) problem they have right now.”

Seniors also enjoy partial exemptions on property taxes, the lifeblood of schools, park districts and other local public agencies, which are under increasing financial pressure. To maintain basic services, many are likely to raise property taxes on homeowners who don’t qualify for the tax breaks seniors get.

“If more state and local money is going to meet pension obligations, schools deteriorate and attractiveness of the communities goes down,” Mr. Harris says. “So you’re going to see taxes go up.”

Sales tax collections will suffer as an older population cuts spending. Seniors not only spend less overall but shift more of their purchasing to medicines and medical devices, which are exempt from sales taxes.

Demand for government-funded services, such as public transit and nursing-home care, will increase. The federal government picks up most of the tab for medical care for the elderly through Medicare. But much of the bill for nursing-home care ultimately lands on Medicaid, which is funded in part by the states.

While poor kids and parents outnumber seniors in Medicaid by 14 to 1, the average annual cost for a senior is $10,072 in Illinois, compared with $1,721 for younger enrollees, according to state figures. Illinois’ spending on long-term care for seniors is projected to soar to $2.8 billion in 2027 from $1.8 billion in 2008, according to a study for the insurance industry by consulting firm Strategic Affairs Forecasting LLC in Silver Spring, Md.

“Twenty years from now, the first boomer turning 65 now will turn 85,” Brookings’ Mr. Frey says. “That’s what we need to be really concerned about.”

Perfecto Perales, from left, senior director of packaging research at Kraft Foods Inc., tests Miracle Whip jars with Shaina Rosenaur, John Albers and Meatta Kemokai in Glenview. Making containers easier to grip and open is a priority. “Forty percent of adults over 65 will have arthritis,” Mr. Perales says. | Photo: Stephen J. Serio

Kraft, other firms rushing to keep up with boomers

Inside a Kraft Foods Inc. research lab in Glenview, workers wearing gloves stiffened with rods to simulate the effects of arthritis are helping redesign Miracle Whip and Maxwell House coffee jars for older consumers.

Glass has been replaced by plastic, which is lighter and easier to mold into forms less likely to slip from the hand. A ring of foam around a plastic lid makes the jar easier to open. Others have wide mouths and lids that flip open instead of caps that unscrew.

“Forty percent of adults over 65 will have arthritis,” says Perfecto Perales, Kraft’s senior director for packaging research.

Next will be the look of the packaging. Blurry goggles help researchers experience the vision problems that come with age. There will be fewer, larger words and logos, with high-contrast colors to make them easier for older eyes to distinguish on the shelf in stores and at home.

Kraft and other consumer-products companies can’t afford to lose aging customers. People over 65 will account for 20% of the U.S. population by 2030, up from 13% today, according to Census Bureau projections.

Keeping up with boomers as they grow old is even more critical for Chicago-based Wilson Sporting Goods Co. The country’s largest generation is aging out of golf’s sweet spot: The bulk of money spent on the game comes from players 45 to 65. To hang onto them, Wilson is making new products like lightweight irons, with a mix of steel and graphite, that help compensate for some of the effects of aging.

The trick, however, is in the marketing, says Tim Calkins, a professor of marketing at Northwestern University’s Kellogg School of Management: “Companies want to be relevant to people as they age, but they don’t want their brands portrayed as older.”

Wilson learned that lesson the hard way five years ago when a line of clubs labeled “senior flex” didn’t do well. Newer versions are called “RL” for regular light.

“The challenge with the senior player is they want the benefits but don’t like to be called out as senior or hear about slow swing speeds,” says Tim Clarke, general manager of Wilson’s golf business.

The bigger problem for Wilson comes later, when the boomers are not just older but gone from the marketplace altogether.

“Twenty years out is a critical timeframe,” Mr. Clarke says. “With the boomer exit, if we don’t get backfill, we’ll have an industry in serious challenge.”

American Attitudes About Home Ownership

Tom — Tue, 15 Feb 2011 16:58:18 +0000

According to a NATIONAL ASSOCIATION OF REALTORS® survey of 3,793 adults conducted by Harris Interactive and released in January 2011, home owners and renters agree that home ownership benefits individuals and families, strengthens our communities, and is integral to our nation’s economy.

The vast majority of both home owners and renters say that owning a home is a smart decision over the long term. Even in today’s challenging economy, 95% of owners and 72% of renters believe that over a period of several years, it makes more sense to own a home.

Home owners are much more likely to be satisfied with the quality of their family and community life than renters. While more than half of owners (56%) are “very” or “extremely” satisfied with the overall quality of their family life, only about one-third (36%) of renters report the same levels of satisfaction. Also, 43% of home owners are “very” or “extremely” satisfied with their community life, compared with 30% of renters.

An overwhelming majority of home owners are happy with their decision to own a home. A full 93% of owners surveyed would buy again.

Most renters aspire to home ownership. The majority of renters (63%) say they are at least somewhat likely to purchase a home at some point in the future. Among them, young adults (18- to 24-years-old) have the strongest aspirations for home ownership.

The survey also confirmed that home owners and renters continue to have concerns about the economy:

In today’s market, many aspiring home owners face worries about job security and credit worthiness. Among renters who are “very” or “extremely” likely to buy a home in the future, three out of five consider confidence in job security or creditworthiness to be an obstacle.

Home owners and renters both believe that the mortgage interest deduction should not be targeted for change. 74% of owners and 62% of renters say it’s “extremely” or “very” important that the MID remain in place.

Given the strong public support of and aspirations for owning a home, we need to keep in place policies that support and encourage responsible, sustainable home ownership.

Resources You Can Use:
REALTORS® may share the data above with their clients and communities. For additional information, check out these resources:

FHA 203k Rehab Loans – The Solution to Homes With Property Issues

Tom — Mon, 10 Jan 2011 18:22:27 +0000

The other day I got a call from a Realtor who was working with some home buyers had pre-approved for their mortgage. They found the home they wanted to buy and they were ready to submit an offer, but there was just one problem. They were approved for an FHA loan, and the seller (or the listing Realtor) of the home they were interested in, specifically noted that only conventional offers would be considered. This is fairly common, but it is often the wrong advice. So I asked why they wouldn’t consider FHA, and the answer was because the home wouldn’t meet the FHA property guidelines. It turns out that the home is what might be considered a fixer-upper and the home was being sold “as is”. The owner was older and didn’t keep up with the maintenance, so there were a number of issues that would be red flags for an FHA appraisal, including a bad roof, water damage and mold. It is true that the FHA appraiser has to make sure that the property meets its minimum standards. At one time this was a very nit-picky process, but now it is mostly checking for health and safety related items that need to be fixed prior to closing. But the idea that these issues would be okay for a conventional loan is a myth. Conventional appraisers are now holding the property to a similar standard, and physical problems with the property are grounds for rejecting the loan. So getting a conventional loan on this property was not an option either.

If you look back a few years, conventional appraisals were more lenient. With home prices going up, the appraisal was pretty close to automatic, and as long as the value came in fine, a variety of sins were often overlooked. But the world has shifted, and appraisers are now making sure their backsides are covered on everything, and if there are any defects in the property they will be noted. The other big change is that underwriters are treating the appraisal as a key to part of the loan approval (that wasn’t the case when the market was booming and drive-by appraisals were the norm), so if the property condition will add to the risk of the loan, this is a big problem.

Fortunately, there is a solution for this problem – FHA 203K rehab loan. This program allows buyers to purchase a home which doesn’t meet the property guidelines, and builds the costs of any repairs or improvements into the loan. In many cases this is the only way to finance properties with more serious problems, but it can also be a way to upgrade and build the costs of remodeling into the loan (so you are only putting 3.5% down on the entire amount, not running up your credit cards or taking on another loan after closing).

Here is a quick overview of the FHA 203k rehab loan and how it works:

FHA 203k mortgages are available for owner occupants only – I get calls all the time from investors who want to buy a home and add the costs of repair into the loan. This isn’t going to work for their situation. The idea behind the FHA 203k is that this is a way to improve the housing stock and stabilize neighborhoods. The best way to do this is through home owners who have a vested interest in their own homes.

FHA 203k rehab loans are eligible for most residential property types and can be used for a variety of purposes – This loan can be used to buy and improve 1-4 unit properties, condos, town homes and even qualified mixed use properties. You can use the loan for a whole variety of uses, including:

· Health and safety repairs including any work necessary to meet FHA property compliance

· Work needed to bring the property into compliance with the building codes

· Correcting structural problems and structural alterations and additions

· Remodeling kitchens and baths

· Buying appliances

· Modernize the plumbing, heating, AC and electrical systems

· To put on a new roof, gutters, downspouts

· Painting and redecorating

· Flooring, carpeting and tile

· Anything to enhance energy efficiency

· Luxury items like a new pool are not eligible.

There are 2 types of FHA 203k rehab loans – The Streamlined program is for more minor, non-structural repairs and remodels. This is available for projects under $35,000 (this amount includes a 10% contingency reserve) and can be used for anything that doesn’t change the structure of the property. You can do a lot of work with this limit, and this is the most popular program. The other type of FHA 203k rehab loan is the consultant or full 203k. This can be used for major improvements, including changing the structure of the home, and you can use this for a complete gut rehab. You will need to have an approved HUD consultant to help you with this.

FHA 203ks use the same qualifying guidelines as any other FHA loan – this means 3.5% minimum down payment, more common sense credit qualifying guidelines and all the other consumer friendly features of FHA loans. The pricing on a 203k loan is a little higher than on the regular loans, but much cheaper than any other type of construction financing.

The FHA 203k loan is a single close loan – with conventional construction financing, you need to get two loans, one short term loan to pay or the construction, and an end loan when the project is complete. This means 2 closings and extra fees at each step. With this method you won’t know what your interest rate is until you are finished with the project and ready for the end loan. The FHA 203k is a single close loan, so The FHA 203k is a single close loan, so you know exactly where you are upfront. When you close on an FHA 203k loan, your loan amount is the purchase price plus the cost of improvements. With a streamlined 203k you usually will get half of the rehab money up-front (enough to buy materials and get the job started) and the second draw once all the work has been completed. The full 203k allows up to 4 draws.

The key to success with an FHA 203k is to get a good contractor who understands the program – with most loans we have to approve the borrower and approve the property. With the FHA 203k rehab we also have to approve the contractor and the work that is being done. This is usually where problems show up, when borrowers try to save money by going through someone who might not have the best credentials, but promises to do the work cheap. With the FHA 203k rehab loan, the first step is to pick the contractor and to have him turn in a detailed bid of what work will be done. This bid needs to be detailed, and specific, and break it down by both labor and materials. The appraiser uses this bid to determine what the value of the home will be once the work is completed. The contractor needs to be licensed and insured and be able to offer references showing he has completed similar projects before. If you find someone off of Craigslist who tells you he will do it cheap, but submits the bid on the back of a napkin (I’m not exaggerating, I’ve seen this), it isn’t going to be acceptable and will just draw out the time it takes to get the project together.

FHA 203k loans are available for purchase and refinance – most of these loans are used for purchasing a new home, but with the drop in home prices over the last few years, there are a lot of home owners who can’t sell under the present conditions, but need more room for their growing families. This won’t work for everyone, but in a lot of cases the 203k will be a way to expand their current home and improve the value.

With so many homes foreclosed, short sales, or like the one my clients were looking at, just not maintained well over the years, the FHA 203k mortgage is the best solution. It works for not only homes that need work in order to be able to get financing, but also for homes that need updating or if you want to build the costs of improvements and additions into the cost of the loan.

8 Reasons Why You Should Work With a REALTOR®

Tom — Thu, 06 Jan 2011 17:18:45 +0000

Not all real estate practitioners are REALTORS®. The term REALTOR® is a registered trademark that identifies a real estate professional who is a member of the NATIONAL ASSOCIATION of REALTORS® and subscribes to its strict Code of Ethics. Here are five reasons why it pays to work with a REALTOR®.

1. Navigate a complicated process. Buying or selling a home usually requires disclosure forms, inspection reports, mortgage documents, insurance policies, deeds, and multipage settlement statements. A knowledgeable expert will help you prepare the best deal, and avoid delays or costly mistakes.

2. Information and opinions. REALTORS® can provide local community information on utilities, zoning, schools, and more. They’ll also be able to provide objective information about each property. A professional will be able to help you answer these two important questions: Will the property provide the environment I want for a home or investment? Second, will the property have resale value when I am ready to sell?

3. Help finding the best property out there. Sometimes the property you are seeking is available but not actively advertised in the market, and it will take some investigation by your REALTOR® to find all available properties.

4. Negotiating skills. There are many negotiating factors, including but not limited to price, financing, terms, date of possession, and inclusion or exclusion of repairs, furnishings, or equipment. In addition, the purchase agreement should provide a period of time for you to complete appropriate inspections and investigations of the property before you are bound to complete the purchase. Your agent can advise you as to which investigations and inspections are recommended or required.

5. Property marketing power. Real estate doesn’t sell due to advertising alone. In fact, a large share of real estate sales comes as the result of a practitioner’s contacts through previous clients, referrals, friends, and family. When a property is marketed with the help of a REALTOR®, you do not have to allow strangers into your home. Your REALTOR® will generally prescreen and accompany qualified prospects through your property.

6. Someone who speaks the language. If you don’t know a CMA from a PUD, you can understand why it’s important to work with a professional who is immersed in the industry and knows the real estate language.

7. Experience. Most people buy and sell only a few homes in a lifetime, usually with quite a few years in between each purchase. Even if you have done it before, laws and regulations change. REALTORS®, on the other hand, handle hundreds of real estate transactions over the course of their career. Having an expert on your side is critical.

8. Objective voice. A home often symbolizes family, rest, and security — it’s not just four walls and a roof. Because of this, homebuying and selling can be an emotional undertaking. And for most people, a home is the biggest purchase they’ll every make. Having a concerned, but objective, third party helps you stay focused on both the emotional and financial issues most important to you.

10 Questions to Ask Home Inspectors

Tom — Thu, 06 Jan 2011 17:15:09 +0000

Before you make your final buying or selling decision, you should have the home inspected by a professional. An inspection can alert you to potential problems with a property and allow you to make an informed decision. Ask these questions to prospective home inspectors:

1. Will your inspection meet recognized standards? Ask whether the inspection and the inspection report will meet all state requirements and comply with a well-recognized standard of practice and code of ethics, such as the one adopted by the American Society of Home Inspectors or the National Association of Home Inspectors. Customers can view each group’s standards of practice and code of ethics online at www.ashi.org or www.nahi.org. ASHI’s Web site also provides a database of state regulations.

2. Do you belong to a professional home inspector association? There are many state and national associations for home inspectors, including the two groups mentioned in No. 1. Unfortunately, some groups confer questionable credentials or certifications in return for nothing more than a fee. Insist on members of reputable, nonprofit trade organizations; request to see a membership ID.

3. How experienced are you? Ask how long inspectors have been in the profession and how many inspections they’ve completed. They should provide customer referrals on request. New inspectors also may be highly qualified, but they should describe their training and let you know whether they plan to work with a more experienced partner.

4. How do you keep your expertise up to date? Inspectors’ commitment to continuing education is a good measure of their professionalism and service. Advanced knowledge is especially important in cases in which a home is older or includes unique elements requiring additional or updated training.

5. Do you focus on residential inspection? Make sure the inspector has training and experience in the unique discipline of home inspection, which is very different from inspecting commercial buildings or a construction site. If your customers are buying a unique property, such as a historic home, they may want to ask whether the inspector has experience with that type of property in particular.

6. Will you offer to do repairs or improvements? Some state laws and trade associations allow the inspector to provide repair work on problems uncovered during the inspection. However, other states and associations forbid it as a conflict of interest. Contact your local ASHI chapter to learn about the rules in your state.

7. How long will the inspection take? On average, an inspector working alone inspects a typical single-family house in two to three hours; anything significantly less may not be thorough. If your customers are purchasing an especially large property, they may want to ask whether additional inspectors will be brought in.

8. What’s the cost? Costs can vary dramatically, depending on your region, the size and age of the house, and the scope of services. The national average for single-family homes is about $320, but customers with large homes can expect to pay more. Customers should be wary of deals that seem too good to be true.

9. What type of inspection report do you provide? Ask to see samples to determine whether you will understand the inspector's reporting style. Also, most inspectors provide their full report within 24 hours of the inspection.

10. Will I be able to attend the inspection? The answer should be yes. A home inspection is a valuable educational opportunity for the buyer. An inspector's refusal to let the buyer attend should raise a red flag.

Source: Rob Paterkiewicz, executive director, American Society of Home Inspectors, Des Plaines, Ill.,

6 smart steps every new homeowner should take

Tom — Tue, 04 Jan 2011 20:21:59 +0000

What could be more exciting than taking the leap from renter to first-time homeowner? You can turn the key in a lock that no landlord has access to, read in a hammock in your own backyard and paint your dining room bright red. Some first-time homeowners get swept up in all the excitement and make mistakes that can jeopardize everything they’ve worked so hard to earn.

Don’t be one of those people: Take a few moments to ponder these seven practical concerns that will help ensure that your first home becomes the place of luxury and financial freedom you expected it to be.

Don’t overspend on furniture and remodeling
You’ve just handed over a large portion of your life savings for a down payment, closing costs and moving expenses. Money is tight for most first-time homeowners. Not only are their savings depleted, but their monthly expenses are often higher as well, thanks to new expenses such as water and trash bills and extra insurance.

Everyone wants to personalize a new home and upgrade what may have been temporary apartment furniture for something nicer, but don’t go on a massive spending spree to improve everything all at once. Just as important as getting your first home is staying in it, and as nice as solid maple kitchen cabinets might be, they aren’t worth jeopardizing your new status as a homeowner. Give yourself time to adjust to the expenses of homeownership and rebuild your savings; the cabinets will still be waiting for you when you can more comfortably afford them.

Don’t ignore important maintenance items
One of the new expenses of homeownership is making repairs. There is no landlord to call if your roof is leaking or your toilet is clogged (on the plus side, there is also no rent-increase notice taped to your door on a random Friday afternoon when you were looking forward to a nice weekend). While you should exercise restraint in purchasing the nonessentials, you shouldn’t neglect any problem that puts you in danger or could get worse over time, turning a relatively small problem into a much larger and costlier one.

Hire qualified contractors
Don’t try to save money by making improvements and repairs that you aren’t qualified to make. Your home is both the place where you live and an investment, and it deserves the same level of care and attention you would give to anything you value highly. There’s nothing wrong with painting the walls yourself, but if there’s no wiring for an electric opener in your garage, don’t cut a hole in the wall and start playing with copper. Hiring professionals to do work you don’t know how to do is the best way to keep your home in top condition and avoid injuring — or even killing — yourself.

Get help with your tax return
Even if you hate the thought of spending money on an accountant when you normally do your returns yourself, and even if you’re already feeling broke from buying that house, hiring an accountant to make sure you complete your return correctly and maximize your refund is a good idea. Homeownership significantly changes most people’s tax situation and the deductions they are eligible to claim. Getting your taxes professionally done for one year can give you a template to use in future years if you want to resume doing your taxes yourself. And remember, tax-preparation expenses are tax deductible, so whatever your marginal tax rate is, think of that as a discount on the cost of the service.

Don’t confuse a repair with an improvement
Unfortunately, not all home expenses are treated equally for the purpose of determining your home’s basis. The Internal Revenue Service considers repairs to be part and parcel of homeownership — something that preserves the home’s original value but does not enhance its value. This may not always seem true. For example, if you bought a foreclosure and had to fix a lot of broken stuff, the home is obviously worth more after you fix those items, but the IRS doesn’t care — you did get a discount on the purchase price because of those unmade repairs, after all. Only improvements, such as replacing the roof or adding central air conditioning, will help decrease your future tax bill when you sell your home.

For gray areas (like remodeling your bathroom because you had to bust open the wall to repair some old, failed plumbing), consult IRS Publication 530 and/or your accountant. And on a nontax-related note, don’t trick yourself into thinking it’s OK to spend money on something because it’s a necessary “repair” when in truth it’s really a fun improvement. That isn’t good for your finances.

Get properly insured
Your mortgage lender requires you not only to purchase homeowners insurance, but also to purchase enough to fully replace the property in the event of a total loss. But that’s not the only insurance coverage you need as a homeowner. If you share your home with anyone who relies on your income to help pay the mortgage, whether it’s a girlfriend or a child, you’ll need life insurance with that person named as a beneficiary so he or she won’t lose the house if you die unexpectedly. Similarly, you’ll want to have disability insurance to replace your income if you become so disabled that you can’t work.

Also, once you own a home, you have more to lose in the event of a lawsuit, so you’ll want to make sure you have excellent car-insurance coverage. If you are self-employed as a sole proprietor, you may want to consider forming a corporation for greater legal protection of your assets. You may also want to purchase an umbrella policy that picks up where your other policies leave off. If you are found at fault in a car accident with a judgment of $1 million against you and your car insurance covers only the first $250,000, an umbrella policy can pick up the rest of the slack. These policies are usually issued in the millions.

January home-maintenance checklist

Tom — Tue, 04 Jan 2011 20:17:11 +0000

The dead of winter is the time for the greatest vigilance in your home-maintenance routine. The most important job this month is to head off damage to your home from water and dampness from a number of sources:

• Groundwater and rain seeping into your home.

• Leaky pipes inside the walls.

• Pipes bursting from freezing and thawing.

Take a tour
After a winter storm, get outside as soon as you can. Walk around the house, checking for damage from wind and broken tree limbs. User binoculars if you can’t see your entire roof. Scan for loose or missing shingles.

Give special attention to vulnerable pipes — indoors and out — that are exposed to the cold, including hose bibs, pipes in outside walls, garden sprinkler lines, swimming pool pipes and pipes in unheated attics, basements and garages. A frozen pipe needs only a one-eighth-inch crack to leak as much as 250 gallons a day.

Take these steps to safeguard against damage from frozen and bursting pipes:

If practical, insulate any pipes exposed to the cold. Ask hardware-store personnel for the best materials for the job.
Seal any leaks that are letting cold air in, especially around dryer vents and pipes and where electrical wiring enters the house.
Search for uninsulated water supply lines in the attic, garage, basement and crawl spaces and in bathroom and kitchen cabinets adjacent to outside walls. During a cold spell, open cupboard doors in the kitchen and bathroom so the home’s heat can reach them. (Reminder: Put harmful household cleaners out of the reach of children.) Keep doors shut tight in the garage and outside closets and cupboards during freezing weather.
When temperatures drop below zero, open both hot and cold faucets a trickle to relieve pressure in the pipes.
Locate your home’s water shut-off valve; learn how to turn off the water quickly in case a pipe bursts.
If you’ll be gone in freezing weather, even overnight, ask a friend or neighbor to check on your house for broken or leaking pipes. Show him or her how to shut off the water.
Keep temperatures inside the house at 55 degrees Fahrenheit or above, night and day, even when you’re gone.
Promise yourself that when the weather improves you will add to the installation in the basement or crawl space and attic.

Leak prevention

Install small, battery-powered individual leak alarms, also called flood alarms, under the refrigerator, kitchen and bathroom drain pipes, dishwasher and laundry appliances and behind toilets. Cost: around $10-$15 each.
Check to make sure your sump pump is operating properly. If it has a battery backup, unplug the pump from the wall and test it.

Look for pests seeking shelter
Cold weather drives mice and insects into the walls of your home. Even unheated parts of the house invite these pests. Insects need only a crack to enter, and mice can get in through a dime-sized hole. Houseflies, particularly, pose a health risk because they can transmit disease.

Seal any cracks where pests enter.
Empty compost and garbage frequently.
Keep food covered and put away; keep counters clean.
Fix leaky pipes quickly.
Pour boiling water down bathroom and kitchen drains monthly, preventing the buildup of bacteria-laden sludge; scrub removable drain covers weekly.
Check basement, attic, crawl spaces and the back of cupboards and cabinets for mice droppings or holes. If you find evidence, install traps immediately or call a pest-control service.
Pick up and dispose of outdoor pet waste promptly; turn compost piles frequently.

Make an inventory
While you are putting away holiday gifts, seize the opportunity to make a quick home inventory.