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Sometimes an opportunity only comes along once in lifetime. There was a time not long ago when home ownership was not easily obtainable for a lot of people in Dane county because of quickly escalating home prices and the huge disparity between the cost of a home and the wages earned. Sometimes once in a lifetime that perfect storm comes along and with it comes an opportunity that would not normally be there. Sometimes out of the wreckage comes something good something that will allow people to have a special opportunity that might not always be available. With all the talk about how bad the Real Estate market has been over the last couple years we need to remember that sometime out of something bad comes something positive. It is important to keep in mind that real estate is a long-term investment in your future not just an investment with the hopes of material returns. It’s not always about the return on the dollar, even though over the past 10 years real estate has out preformed the stock market so there is always that chance of a return on dollars invested. Sometimes it is about investing in something much larger. Sometimes it is about investing in your future. Sometimes it is about putting down roots and helping to building a  neighborhood where you can call home. Sometimes it is about neighborhoods where you build relationships with the people living and working around you. The type of relationships where you and your loved ones learn to care about the people living and working around you. The type of relationships where your neighbors know they can count on you and you can count on them. Sometime you have more in the game then just financial returns. Sometimes it’s about investing in the people that choose to be your neighbors. Sometimes it is about relationships that last a lifetime. Home ownership is so much more than a simple investment it’s about something so much larger. Right now is that opportunities don’t let it pass you by. Find a home and invest in a neighborhood.

June 2006, when the housing market peaked, the prospect of a fiver national housing bust seemed unimaginable to most people. And yet here we are, with the latest Standard & Poor's Case-Shiller index showing that prices hit new bear-market lows, falling back to 2002 levels nationally and to 1990s levels in some battered regions.

Despite all the gloom, however, there are growing indications that it is a good time to buy. Mortgage rates, which fell to 4.55% for the week ending June 2, according to Freddie Mac, are near 50-year lows. Homes have become more affordable than they have been in years: According to Moody's Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average. A historic glut of homes, meanwhile, has created a buyer's market: There were about 15 million vacant homes in the U.S. last year, according to John Burns Real Estate ConsultingInc.—some 3.1 million more than normal.

Such conditions might not last long. Moody's Analytics predicts that the number of distressed sales will begin to fall in 2013, and that prices will begin to edge upward then. Home building is at a virtual standstill, so the supply overhang isn't likely to get much worse. Meanwhile, demographic indicators such as "household formation"—the number of new households each year—are on the rise, and promise to take a bite out of the glut in coming years.

The upshot: "While we might not see rapid growth in the next couple of years, there are a tremendous number of positive signs that could lead to a rebound," says Anthony Sanders, a real-estate finance professor at George Mason University.

The short-term outlook isn't encouraging. Job growth remains weak, foreclosure sales are making up more of the market, and economists are predicting that home prices will fall more in the coming months.

But the long-term benefits of homeownership remain very much intact. For now, at least, you can deduct the mortgage interest on your taxes—a big perk for people in higher tax brackets. You get to paint your walls any color you wish, without having to clear it with a landlord. And assuming you can buy a home for about the same price as you can rent one, buying will give you the ability one day to live rent-free. Come retirement time, a paid-off mortgage means your monthly expenses are significantly reduced, and you have a chunk of equity to play with.

So what might the next five years look like? Once the foreclosure mess begins to clear up, say housing economists, the traditional drivers of the housing market—demographics, affordability, loan availability, employment and psychology—should take over.

Here is a glimmer of what the future may hold: While overall home prices fell by 7.5% in April over the same period a year earlier, according to CoreLogic, a Santa Ana, Calif., provider of real-estate data and analytics, if you exclude distressed sales, prices were off just 0.5%. So if you are in a market that isn't battered by foreclosures, you may be close to a bottom already.

"The regular marketplace is hanging tough," says CoreLogic chief economist Mark Fleming.

Here is a look at five key factors that will govern local markets over the next several years:

Household formation fell during the economic downturn as a weak economy led some people to stay in school, double up with roommates or move in with family members. According to Moody's Analytics, the number of new households renting or owning a home dropped to 578,000 in 2008 from nearly 2 million in 2005, just before the peak of the housing boom.

But household formation increased to nearly 950,000 last year, says Moody's, and should average 1.2 million over the next decade.

That, combined with increased obsolescence and higher demand for second homes, should begin sopping up excess inventory in much of the country over the next two years, Moody's says.

"Whatever the excess supply of housing is, it is shrinking pretty fast," says Thomas Lawler, an independent housing economist.

Some of the uptick in household formation is likely to come from the leading edge of the echo baby boomers, who have been waiting for the economy to recover before striking out on their own, says William Frey, a demographer with the Brookings Institution. That is likely to fuel an increase in demand for both rental apartments and starter homes.

The portion of people moving across the country has fallen to the lowest level since World War II, he adds. That is a sign that many people have put their lives on hold because of the weak economy.

"When things do pick up, there will be this pent-up demand for everything involved with starting a household," Mr. Frey says.

Of course, when prices in healthier regions begin to rise, many would-be sellers who have sat on the sidelines could begin putting homes on the market, muting the price gains at first, says Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School. Even so, she expects home prices to stabilize and begin to strengthen over the next two or three years.

There also are some powerful demographic cross-currents worth considering. The first baby boomers turned 65 in January, an age when demand for new homes falls and many begin to think about downsizing. "The baby-boom generation pushed prices up as they got older," says Dowell Myers, a professor of urban planning and demography at the University of Southern California. But in the coming years, "boomers will start flooding the market on the supply side" with larger homes, while fueling new demand for smaller properties with more services and amenities.

Rising home prices made renting cheaper than buying in many parts of the country. But that dynamic has begun to change: Housing affordability, as measured by the ratio of median home prices to median household incomes, has fallen below pre-housing bubble levels in just over two-thirds of the country, according to an analysis of more than 380 metro areas by Moody's Analytics.

Renting is still cheaper than buying in most markets, but rising rents and falling house prices mean that, in some areas, this won't be the case for long. Buying a home is already cheaper than renting in Chicago, Cleveland, Detroit and Orlando, Fla., according to Moody's Analytics. In other markets, including Dallas, Las Vegas and Sacramento, Cailf., the equation is likely to soon turn in favor of homeownership if current trends persist, the firm says.

In Ann Arbor, Mich., where home prices fell 11.2% between 2007 and 2010, according to Fiserv Case-Shiller, housing affordability has risen well above historical levels, according to Moody's Analytics.

That is good news for home buyers such as Steven Upton, a 42-year-old photographer, who in June will close on four-bedroom brick house on 10 acres in an upscale community in Ann Arbor. Mr. Upton paid $400,000 for the home, which previously listed for $600,000. "It's a tremendous deal," he says.

Before buying a house, it is wise to compare rental prices for similar properties. To be ultraconservative, wait until the monthly outlays, including taxes and insurance, are equal. You also could factor in the tax savings of owning, which would make buying more attractive even if the gross monthly outlay is slightly higher.

The strength of the housing market depends largely on the economy. Rising incomes and increased employment tend to give more would-be buyers confidence and buying power. For now, job growth remains sluggish: On Friday the Labor Department reported that just 54,000 jobs were created in May, far below expectations.

But signs of how a stronger job market could fuel housing demand are evident in the Dallas metro area, which added 83,100 new jobs in the 12 months ending in April—the largest gain in the nation, according to the Bureau of Labor Statistics. Dallas never had a big housing boom or bust and has benefited from trade with Mexico, a strong telecommunications sector and a central location.

The opportunities for a job with more responsibility drew Duane and Linda Elmer to Dallas from Des Moines, Iowa, where Mr. Elmer was a banker for nine years. The couple has agreed to pay $415,000 for a four-bedroom, four-bath house with a Jacuzzi and pool. Their Des Moines home, purchased nine years ago for $410,000, is on the market for $390,000. "We are willing to take the loss for the opportunity to live in a more diverse community and to take a job with greater breadth of responsibilities," Mr. Elmer says.

Borrowers like the Elmers who are relocating for job opportunities are a big driver of home sales in nearby Plano, Texas, says Harry Ridge, a real-estate agent. He says such sales accounted for 20% of his business last year.

A similar influx of job seekers is fueling housing demand in the Washington area, where 25,700 new jobs were added in the 12 months since April 2010. Washington was the only one of the 20 cities tracked by Standard & Poor's and Case-Shiller that saw home prices rise both on a month-to-month and year-over-year basis.

Mortgage financing remains plentiful for borrowers with good credit scores and solid employment histories. But for borrowers who don't fit traditional lending standards, getting a loan can still be nearly impossible. In the first quarter, about 10% of banks tightened standards for nontraditional loans, according to the Federal Reserve. Meanwhile, higher down-payment standards are locking some would-be buyers out of the market. Just 35% of renters have the minimum 3.5% down payment needed for an FHA loan on the median-priced home in their market, according to a recent survey by Zelman Associates.

Credit is likely to remain tight for at least the next six months, says Clifford Rossi, a former Citigroup Inc. consumer-lending executive who teaches at the University of Maryland.

But conditions should improve over time, he says: "There's no question that it will gradually get easier."

That will be welcome news to borrowers like Greg Silver. The 50-year-old real-estate developer would like to buy a second home, but hasn't been able to secure a jumbo mortgage because his income consists of capital gains from sales of the properties he develops. Mr. Silver closed three sales in the past 12 months, netting him a total of more than $25 million, but didn't record any capital gains in 2008 and 2009. Sure, he could use some of that cash to buy a home outright, but he would prefer to mortgage it, get the tax deduction and keep his cash free for business purposes.

"It's a little devastating," says Mr. Silver, who is living in Greenwich, Conn.

The long-term case for buying over renting remains in force. Yet nowadays, "People are simply scared," says Aaron Galvin, chief executive of Luxury Living Chicago, which finds rental apartments for wealthy clients.

Mr. Galvin says he has seen a 30% increase in business in the last year, driven by would-be home buyers who can afford to purchase a property but are choosing not to do so.

The portion of Americans who believe homeownership is a safe investment dropped to 66% in the first quarter from 83% in 2006, according to Fannie Mae, the government-controlled mortgage company.

But it isn't clear whether the fear will result in a prolonged change in attitudes, as during the Great Depression, or have little long-term impact, as was the case for the housing bust that shook California and the Northeast in the late 1980s and early 1990s. Eighty-seven percent of people surveyed by Fannie Mae said they preferred owning to renting, though access to schools, control over one's environment and other quality-of-life issues now are seen as the key benefits of homeownership, with building wealth and other financial factors viewed as less important. In addition, 67% of renters surveyed by Zelman Associates said they planned to buy a home in the next five years.

Jeffrey Connor may be a bellwether for the future of the housing market. The 40-year-old finance director at a corporate law firm says he thought briefly about buying a house when he moved to Chicago from Washington in October. But he opted instead to rent a luxury two-story apartment in downtown Chicago for $3,559 a month. Mr. Connor says it will take substantial job growth and a sharp drop in foreclosures to convince him to buy.

"The market is clearly soft," he says, "especially when we consider it good news that the unemployment rate is hovering around 9% instead of 10%." Mr. Connor says he isn't worried about missing out on today's low interest rates and will consider buying once unemployment falls to 6%.

Other buyers are showing less willingness to wait for the absolute perfect time to buy. Doug Yearly, chief executive of luxury builder Toll Brothers Inc., told investors in May that "some of our clients, after waiting so long, are starting to move off the fence and into the market, motivated by attractive pricing, low interest rates and, most important, the desire to take the next step in their lives. The family with elementary-school kids and a puppy when the housing debacle began five years ago now has middle-school kids and the dog weighs 80 pounds."

Ruth Simon and Jessica Silver-Greenberg, On Saturday June 4, 2011, 2:47 am EDT

Is It Just Us?

Are we imagining the fact that there seems to be more natural disasters than ever? Blizzards, earthquakes, hurricanes and floods seem to dominate headlines. Certainly, these events have a major effect upon the economy. Case in point, even though the price of oil has dropped substantially from its recent peak, gas prices have not dropped as much because the recent floods in the nation’s midsection are threatening refineries. And the price of gas is very important to our economic well being. While certain stocks may benefit from $4.00 per gallon gas, the average consumer is hurt. When consumers are hurting this means they slow down their purchases of larger ticket items such as houses, cars, furniture and more. We are not even sure why the stock market keeps falling when oil prices recede and rallying when oil prices rally. We understand that a certain segment of the economy benefits from higher oil prices, and you can guess who. However, in the long run higher oil prices translate into slower economic growth.

An argument can be made that lower housing prices will hurt the economy today, but help the economy in the long run. How can that be? Well, let us present an excerpt from a Washington Post article summarized in the news section below: Young buyers “will be able to enter the housing market at bargain prices,” argues NAR economist Lawrence Yun. When home prices again rise, increases will parallel income gains, meaning that the relative burden of housing costs will remain roughly stable, Yun says. What a great time to be young–when purchasing a home is the most affordable it has been in over forty years! These low prices will hurt homeowners who are under water today but will set the stage for a much more robust housing sector for the next generation. In some respects, higher oil prices can help the economy in the long run as well. Higher oil prices may force us to come up with alternative energy sources more quickly, paving the way for energy independence. So, while we must acknowledge the pain that higher oil prices and lower housing prices are causing our population today, we also would be remiss in not looking at what could be a brighter future. That being said, the floods will recede and thus the refineries will no longer be threatened. If supply and demand come back into balance, we could see some easing of gas prices if the speculators would just start purchasing real estate instead of oil futures! Of course, we don’t expect any economic advisors to be taking our advice–but we can always dream.

The Markets. Rates continued their downward trend in the past week, equaling their low for the year. Freddie Mac announced that for the week ending May 5, 30-year fixed rates averaged 4.71%, down from 4.78% the previous week. The average for 15-year fixed decreased to 3.89%. Adjustables also fell with the average for one-year adjustables decreasing to 3.14% and five-year adjustables falling to 3.47%. A year ago 30-year fixed rates were at 5.00%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac, "Rates continued to decline this week following a mixed employment report. The economy added a healthy number of 244,000 workers in April, the most in 11 months, and the figures for March and February were revised up by 56,000 more jobs. However, the unemployment rate rose to 9.0 percent from 8.8 percent in March and was the highest reading since January. In addition, wages grew by only 0.1 percent, which was below the market consensus forecast. Households have been strengthening their balance sheets over the past year. The New York Federal Reserve Bank reported that the serious delinquency rate (90 or more days delinquent plus foreclosures) on home loans balances fell to 7.46 percent in the first quarter from a peak of 8.89 percent the same period last year. This suggests there may be fewer distressed sales later this year." Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Current Indices For Adjustable Rate Mortgages
Updated May 13, 2011

Applications for U.S. home loans surged in early May at the fastest pace in two months as rates dropped steadily during the month of April, an industry group said. The Mortgage Bankers Association said its seasonally adjusted index of home loan application activity, which includes both refinancing and home purchase demand, jumped 8.2 percent in the week ended May 6. "Rates dropped again last week as the Federal Reserve continued its asset purchase program," Michael Fratantoni, MBA’s vice president of research, said in a statement. "Over this four-week span, the refinance index has increased by about 18 percent. The MBA’s seasonally adjusted index of refinancing applications surged 9 percent, while the gauge of loan requests for home purchases climbed 6.7 percent. Source: Reuters Note: If you did not take advantage of the historically low rates last year to refinance–today is your second chance.

Housing’s troubles may have a silver lining. If you’re a homeowner, the steep fall in prices is calamitous. But if you’re a future buyer, it’s a godsend. What we’re seeing is a massive wealth transfer from today’s older homeowners to tomorrow’s younger homeowners. From year-end 2006 to 2010, housing values fell $6.3 trillion, reports the Federal Reserve. Assuming there’s no sharp rebound in prices — a good bet — that’s $6.3 trillion the young won’t pay. Up to a point, the lower home prices merely deflate the artificial “bubble.” But there’s evidence that the declines transcend that. The National Association of Realtors routinely publishes a housing "affordability" index, which judges the ability of median families to buy the median-price home at prevailing rates. By this measure, existing homes are the most affordable since the index started in 1970. Young buyers “will be able to enter the housing market at bargain prices,” argues NAR economist Lawrence Yun. When home prices again rise, increases will parallel income gains, meaning that the relative burden of housing costs will remain roughly stable, Yun says. He expects only modest increases in rates. Crises pass and have unintended consequences. The young just might catch a much-needed break from this one. Source: The Washington Post

Banks that spend the extra cash to rehab a foreclosed or REO property stand to sell the property much faster than a non-rehabbed REO, according to a new study by Field Asset Services Inc., a property preservation and REO asset management company. For the last two years, the company has analyzed the number of days on market for remodeled foreclosure or REO properties versus those that are not remodeled. In reviewing 17,252 properties across 13 states, researchers found that the average days on the market for REO properties that were not rehabbed was 222.8 days. On the other hand, properties that were rehabbed sold, on average, in 69.8 days. "When a home looks better, it sells faster," Javier Zuluaga, director of sales and marketing for Home Repairs and Remodeling (HR&R) LLC in Tempe, Ariz., told Inman News. However, the rapid number of foreclosures may be making it difficult for banks to keep up with the pace to do fix ups, which once were more prevalent, says Zuluaga. “Sometime around 2009, the banks simply said, ‘We are not going to put all this money into it. We are just going to get the properties cleaned up and if it is missing cabinets, it is missing cabinets–that’s just the way it is." Source: Inman News

When the housing crisis hit, everyone was in a panic trying to determine what was going to happen.  In retrospect, I don't believe that there was any one commentator or analyst who had it exactly right.  But that's neither here nor there.  This is about you, that is, if you rent.  You need to know A) What is a good investment; B)  When's a good time to buy in Madison?  C) How much can you afford to take on? 

Here's a simple equation to tell you whether you should buy or not:

ANNUAL RENT / PURCHASE PRICE = 3%  DO NOT BUY

ANNUAL RENT / PURCHASE PRICE = 6%  THIS MIGHT BE OKAY

ANNUAL RENT / PURCHASE PRICE = 9%  BUY A HOME!!

Madison, WI is NEVER a bad area in which to purchase a home.  Our market does not follow the extremes that the coastal metropolitan areas do when it comes to home values and pricing.  Additionally, the stability afforded to homeowners with the seat of our State Government as well as the University of Wisconsin-Madison and other large enterprises help to ensure a more-stable housing market than the rest of the nation traditionally speaking.

With interest rates reaching all-time lows, it's definitely a great time to buy a home!  If you or someone you know is searching for a home, please have them contact me and I'll see what I can do to help!

For more information on the calculations above, click here.

In the month of June 2010, Madison, WI the average sale price for single family homes rose 5.6% over those in May 2010 according to the Multiple Listing Service. May 2010 showed the lowest average home sale price of 2010 at $154,254.  As of noon today June 2010 closings were at an average of $162,911. 

Is this cause for celebration?  Possibly, but it is important to keep in mind that typically the first quarter of any given year represents the lowest average sale prices for homes in Madison.  Second quarter sales in recent years have DROPPED.  Historically, however, they've risen when the housing economy was healthy.  So the fact that 2nd quarter prices are averaging higher than first quarter is a promising sign.  Given the volatility of the global market, it is definitely too soon to tell.

Madison, Wisconsin will most-definitely remain a buyer's market for single family homes and condos for some time as the inventory is still significantly higher than five years ago. 

We will be providing more information on 2nd quarter closes here next week.  Stay tuned!

Want to know what the Madison Housing Market is doing?  We took a snapshot for you of average quarterly home sale prices from 2006-2010 broken down  by quarter.  Read below to see what's happening to the value of your home.

Single Family Home Average Sale Prices by fiscal quarter 2006-2010 for Madison, Wisconsin  USA. 
_{Information provided by MLS.}

	1st QR	2nd QR	3rd QR	4th QR
2006	$160,272	$148,829	$149,201	$153,335
2007	$164,655	$144,391	$151,711	$154,227
2008	$170,851	$141,395	$143,976	$139,901
2009	$177,771	$133,649	$128,102	$130,256
2010	$172,802	$129,291