The New Rental Nation

Housing shifts away from home ownership.

Housing construction data for 2011 underscored the growing preference for renting homes instead of buying among American consumers. Permit applications to build apartments with five or more units increased by 80 percent in 2011. In comparison, building permit requests for single-family homes rose just 3.6% through the first eleven months of 2011. In November, single family housing starts increased only 2.3%.

While consumers are clamoring for apartments to rent, the number of first-time buyers continues to substantially lag behind historic averages. The normal proportion of first-time home buyers is about one-third of the market, and the new apartment construction data proves they have other priorities. Current demand is insufficient to maintain historical new home construction levels, and unfortunately it’s also insufficient to absorb the excess supply foreclosed homes.

The absence of first-time home buyers is the major factor in the growing inventory of foreclosed homes, many of which are at price points affordable to the majority of potential first-time buyers. First-time homebuyers absorb housing inventory. Current homeowners who sell their home in order to buy another one have no impact on the excess supply. According to an April, 2011 Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, the gap between first-time homebuyers and distressed property supply climbed to 12% in April, compared to just 3.5% in the year prior.

There are a variety of reasons for the drop off in first-time buyers. The most obvious and understandable is that the continuing decline in home values is scaring them off. Home values declined in 2011, and even some relatively optimistic economists expect further declines in 2012. A recent analysis of home prices over the past five years by Clear Capital determined that lower priced homes experienced average declines of 45% versus the national average of 39%. Since most first time buyers purchase lower priced homes, the decline is even more pronounced in their eyes.

One obvious factor in the decline of first-time home buyers is the high unemployment rate, which fortunately has shown some signs of dropping in recent months. However, surveys of potential first time buyers suggest this is not the only reason. Falling home values no doubt scare many potential first time buyers, and many experts predict that housing values will continue to decline. Goldman Sachs economists predict that home prices will decline by another 3% through the middle 2012 before leveling off. Other economists do not expect significant recovery in the housing market until 2020.

A December Yahoo! Real Estate study provided useful information in that regard. The biggest concern among potential new home buyers (36%) was fear about the cost of owning a home. It is somewhat surprising that this is a greater concern than falling home values or the weak job market. Monthly mortgage payments have dropped dramatically as a result of falling home values and mortgage interest rates, making homes more affordable today than they have been in decades. Concern about potential home maintenance costs may influence their thinking, but we believe that other factors must be at work as well. An understanding of all the factors that are keeping first time buyers out of the market could help policymakers shape policies that would persuade them to change their minds.

One reason most potential first time buyers are remaining on the sidelines is that the net cost of home ownership is much more than they had been lead to believe. Real estate brokers, mortgage lenders and consumer organizations such as ourselves have long touted the significant tax savings that homeowners receive as a result of the mortgage interest deduction. While the mortgage interest deduction reduces the net costs home ownership substantially for wealthier taxpayers with larger mortgages, a 2011 economic study determined that the vaunted home mortgage interest tax deduction doesn’t reduce the taxes of those with a moderate income much, if at all. Most potential first time buyers have moderate incomes. Many of them probably become discouraged after doing the math and learning that the mortgage interest deduction had very little impact on the cost of home ownership.

Many prospective first time buyers are in lower tax brackets and take the “standard” federal income tax deduction ($11,800 for a married couple in 2011) on their federal income tax forms, because they have few other tax deductions that would make itemization worthwhile. If they itemize their annual mortgage interest deduction (about $11,800 in mortgage interest and real estate taxes on a 4% thirty year $130,000 mortgage), they aren’t allowed to take the standard deduction, which is about the same as the mortgage interest deduction. The benefit of any net increase in tax deductions they may get if they bought a home and itemized their mortgage interest deduction is also less helpful to them than to a wealthier homeowner because they are in a lower tax bracket.

Some economists are predicting that the housing sector will not recover until 2020. We are unlikely to see a recovery in the housing sector before then until, or unless, we create meaningful home ownership tax incentives for the great number of potential first time home buyers who remain on the sidelines.

Other concerns expressed by 25% or more of those who feared buying a home included:

A majority of those surveyed (59%) still expressed a desire for home ownership. While this might seem encouraging, it represents a decline from previous surveys. The reasons that most renters aren’t currently trying to buy a home included:

Four of those five reasons are undoubtedly influenced by the current economy. Since long term debt (i.e. a mortgage) goes hand in hand with home ownership, it may be that some other factors are influencing their thinking regarding long term debt as well. For example, if the renters happen to have friends whose mortgages are underwater, it is likely that they have heard firsthand accounts about the emotional and mobility problems of those trapped with a mortgage they can’t afford to pay off.

Overcoming both the lack of home ownership tax incentives and the legitimate fears of potential first time buyers will be necessary to shorten the time line for the recovery of the housing sector. This will be critical for the entire economy, because the housing sector is such a critical part of the overall economy, and it typically leads the economy both into and out of recessions.

Policies to Promote Economic Recovery in 2012

Here are some of the key components.

Congress adjourned for the balance of 2011 on a contentious mood. After much posturing on whether or not to extend the payroll tax cuts House Republicans finally caved in just before Christmas. They agreed to a two month extension. The funding source to pay for the extension is an increase in fees charged to home buyers by Fannie Mae and Freddie Mac.

In January Congress will return to face a number of daunting challenges to a U.S. economy that is still teetering between a continuing recession and a slow recovery. Not the least of the problems is a huge deficit that’s projected to increase another $1 trillion in 2012 despite two significant failed efforts to find bipartisan compromise on deficit reduction. Congress will resume the deficit reduction debate in a contentious legislative environment during a Presidential election year.

Housing policy will be a key factor in the equation. Housing represents 15% of the GDP, and has a significant influence on U.S. employment and many other sectors of the economy. Many homeowners themselves have been hurt worse than many other parts of the economy, both because of foreclosures and underwater mortgages.

In the larger picture the growing deficit is a real problem. Without some long term plan that leads to a real reduction of the deficit, long term prospects for the economy are dim. Yet the stimulus programs of Presidents Bush and Obama, which substantially raised the deficit and were approved by Congress, helped avert a far worse short term economic decline. Even if Congress and the Administration could agree on measures that would quickly result in deficit reduction it is unlikely that a “cold turkey” approach will spark economic recovery.

In an economy that still remains weak such an approach is more likely to hurt the economy than help it. A more balanced approach that involves more gradual reductions in spending that would accelerate as the economy recovers would be a better approach. Modest and selective tax increases that are also tied to deficit reduction will help provide a path towards deficit reduction. They will also be necessary to get Democrats to buy in politically, and they should be carefully chosen so they do not themselves hurt our recovery.

On the housing side, efforts to reduce foreclosures and help underwater homeowners have no doubt helped, but support for those efforts by mortgage lenders has been disappointing. The most recent data on housing values in 20 major metropolitan areas revealed a 3.4% decline in values in October from the previous year, according to the S&P/Case-Shiller Home Price Index. As a result of the continuing decline in recent years, homes are more affordable today to more people than any time in recent history, yet there’s a dearth of first time buyers. This explains the 80% increase in requests for permits to build apartments with five or more units in 2011 at a time when single family building starts remain flat.

There are three solutions to the housing crisis; stop, maintain, and think big. First we must stop shooting ourselves in the foot. Extending the payroll tax cut is arguably a good idea in the face of a continuing weak economy, but funding it with revenues that will make it harder for the weakest part of the economy to recover is not. Increases in the guarantee fees that Fannie Mae and Freddie Mac charge lenders will be passed on to home buyers. That increases the cost of financing a home at a time when we need to reduce the cost of owning a home. High home ownership costs are the biggest fear of renters who have decided not to buy a home. We need to dramatically increase the number of first time buyers in order to reduce the surplus of unsold homes and stimulate a return to appreciation of home values. This would also help home sellers who are stranded for the lack of buyers and other homeowners whose homes are underwater. Worse, those new fees aren’t contributing to the safety and soundness of the housing finance system, which would provide long term benefits to the economy.

We must also stop efforts to undermine legislation that will prevent a recurrence of the mortgage crisis. For example, the financial reform law had abolished the practice of transient institutions gathering up mortgage loans that had been made in a variety of ways, packing them into securities, and then selling them without any retention of the risk.  This became a powerful incentive for institutions to make money by making loans to people who may or may not be able to afford them because neither the lender nor the packager of the securities has any interest in whether those loans are paid back. Mortgage lenders and other financial services firms are trying to repeal or water down this and other legislation, passed in recent Congresses that would prevent another mortgage meltdown and/or discourage other risky or unfair practices.

At the same time, it would be very unwise to curtail ongoing efforts to help reduce foreclosures and help underwater homeowners until we begin to see substantial signs of recovery in the housing sector. The Home Affordable Foreclosure Avoidance Program (designed to help streamline the short-sale process) and the Home Affordable Refinance Program (which helps underwater homeowners avoid foreclosure by refinancing their mortgage to make it more affordable) are mitigating the continuing decline in home values. The Federal Finance Housing Agency reports that there have been more than one million permanent loan modifications. However, there have also been more than 4 million foreclosures since 2008 according to LPS Applied Analytics, and another eight million home mortgages are at risk according to a recent Bank of America report. While these programs will continue to help they will not solve the problem. Only by increasing the demand for housing can we increase the value of American homes, which is the long term solution to the housing crisis. It is also the solution to liquidating the millions of foreclosed homes that continue to drag down housing values.

That is a tall order, and will require that we think big. The recent surge in apartment construction, combined with the decline in first time buyers, strongly suggests that we are heading in the direction of becoming a nation of renters. Policy options are limited by budget realities. A multiyear first time buyer’s tax credit would help assuage the biggest fear renters have of buying a home, which is the cost. Reinstating the previous $5,000 first time buyers tax credit would also help those for whom savings and finance is an issue. However, that’s not an option given current federal budget realities, nor is any other alternative that adds to the federal deficit.

The only remaining option is to restructure current home ownership incentives in a way that would make them more front loaded (i.e. more attractive to first time buyers and buyers of lower priced homes) while not adding to the federal deficit. That could be achieved by switching the federal home ownership tax incentives from tax deductions to flat rate tax credits that were neutral with respect to federal revenues. Currently, first time buyers benefit least from mortgage interest deductions because they are usually in a low tax bracket, which means the deductions aren’t worth nearly as much to them as they are to a homeowner in a much higher tax bracket. In addition, many potential first time buyers take the standard federal income tax deduction because they have relatively few deductions that could be itemized. They lose the standard deduction if they buy a home and itemize the mortgage interest deduction. In many cases the difference works out to be a very minor tax benefit from owning a home, perhaps about $25 a month in many cases. Compared to the significant risk of another 4-5% drop in values before home prices finally level off, the current mortgage interest deduction offers little incentive to most moderate income renters.

A flat home ownership tax credit, based on the annual mortgage interest paid, would level the playing field. Tax credits aren’t tied to income tax rates so the tax benefit of the credit would be the same across all income tax brackets. In addition, tax credits are computed after tax deductions so neither potential first time buyers or other taxpayers would lose the potential tax benefit of a standard deduction on their federal taxes. For example, if a first time buyer received a 15% tax credit on their annual mortgage interest payment of $10,000, they would receive a $1,500 annual tax credit, or about $125 per month, and they could still take the standard deduction. This is about five times the net home ownership tax benefit many would receive today. It would likely slow if not reverse the current national trend towards renting.

To achieve this policy change, consumer groups like the American Homeowners Grassroots Alliance need to join hands with business groups in the housing sector, including real estate brokers, home builders and mortgage lenders. All of us oppose reducing the tax incentives for home ownership. Yet many of those groups are reluctant to modify the current mortgage interest deduction formula in any way, even if changes would clearly result in a likely increase in first time buyers a recovery in h housing market.

A legitimate initial fear could be that a redistribution of home ownership tax incentives would hurt the construction or sale of higher priced homes as much as it helped bring many more first time buyers to the market. If a flat home ownership tax credit makes home ownership a sweeter deal for first time buyers, the rate of the tax credit would of necessity be less beneficial to higher income tax payers than the current formula for mortgage interest deduction. While that is true, AHGA believes that the impact would be minimal on wealthier homeowners and the values of higher end homes. They might come out ahead if the new tax policy sparked an appreciation in home values.

Housing values would rise as new home buyers entered the market. The sellers of those homes would no longer be stranded because of a lack of a buyer in some cases, or because their mortgages were underwater in other cases. As those sellers move up to nicer homes they would free up more stranded homeowners upstream from them. Even though the home ownership incentives would be less for higher income homeowners, they would still be substantial. They are accustomed to home ownership and are unlikely to switch to renting or curtail move up aspirations just because their home ownership incentives are somewhat less. With respect to the latter circumstance, most have savings in the form of home equity, investments, or retirement funds which gives them substantial flexibility when they decide to move up to their next home. It is difficult to imagine that a tax credit based home ownership incentive would have anything but the most minor impact, if any, on home ownership, home values, or buying patterns of higher income homeowners.

This kind of dramatic change to home ownership tax policy will take time to enact under the best of circumstances. It will require an incubation period among both homeowners and other stakeholders, and it will also require an incubation period among policymakers. For it to happen the process must start sometime, and AHGA believes that it has become clear that the time is now.

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You can do it – no excuses in 2012!

It's that time of year again, when you look at the scale or your credit card statement and realize it's time to make some changes in the New Year.

Whether you're vowing to drop the pounds once and for all, get your debt under control, or finally quit smoking, these tips from USA.gov can help you see your New Year's Resolutions through to the end.

Start by setting realistic and measurable goals. Creating a budget that's too restrictive or a diet that doesn't let you indulge in your favorite foods is setting yourself up for failure. Instead pick a goal that you can measure. If you're trying to lose weight, make it a simple goal, like walking 15 minutes three times each week. If you're trying to cut spending, try only getting your morning coffee twice a week instead of everyday. Realistic goals are easier to maintain over time.

If losing weight is your big goal for the New Year, start by creating a sustainable meal plan and workout plan and reward yourself when you meet your goals. Making small changes over the long haul will get you closer to your goal and make it easier to maintain your weight loss.

If you're resolving to get a better handle on your money this year, the Consumer Action Handbook is the place to find answers to your questions about credit cards, bank accounts, and managing debt. Learn to create a smart money management plan and get a handle on your finances. You can order a free copy or view it online in as a PDF.

If your resolution is to quit smoking, you can find help and support from SmokeFree.gov. You'll find a step-by-step guide to walk you through the phases of quitting and learn how to create a plan to be successful. You'll also find support from smoking cessation counselors that you can talk to via instant messaging or a telephone hotline.

No matter what your New Year’s Resolution is, you can start 2012 off on the right foot with this advice from USA.gov. You can also order a free packet of publications where you'll find more advice on having a healthy and happy New Year.

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Expanding Internet Sales Tax Collection could wreck the economy.

More and more homeowners are turning to the Internet for their holiday shopping and other needs. Many also have their yard sales online on sites such as eBay, Amazon and Craigslist. Others have parlayed their hobbies into profitable part time home-based businesses. For some of the home-based online business owners the decision has been a matter of necessity - a replacement for jobs that were lost or reduced income due to cutbacks in working hours.

The outcome has been a win-win for all homeowners, be they buyers, sellers, or both. Buyers save time, money, and cost of driving to the mall. Leaving your vehicle in the driveway also reduces air pollution, traffic jams, and reduces state and local transportation infrastructure maintenance costs. For some homeowners on a tight budget, buying used holiday gifts online meant their kids had a much merrier Christmas than would otherwise have been possible.

Unfortunately, state and local governments have become the Scrooges and Grinches of Internet commerce. They want to expand the collection of sales taxes on online products. In addition to the sales taxes that Internet buyers currently pay when they buy a product online from a merchant in their own home state, state and local governments want Internet merchants in other states to collect the appropriate sales taxes from out of state buyers as well. Sales tax rates vary considerably among the nation's 7,000+ state and local taxing authorities, so this could get complicated.  

That new requirement would be onerous for small home-based online businesses, and over thirty members of Congress have sponsored House Resolution 95, which states “That it is the sense of the House of Representatives that Congress should not enact any legislation that would grant State governments the authority to impose any new burdensome or unfair tax collecting requirements on small online businesses and entrepreneurs, which would ultimately hurt the economy and consumers in the United States."

On December 19, AHGA President Bruce Hahn and AHGA member Bill Farnham met with Congressman Bob Goodlatte (R VA) to encourage his cosponsorship of the legislation. Mr. Farnham runs a small online business from his home in Mr. Goodlatte's district. Even though Mr. Goodlatte has a rural Virginia district, there are thousands of small home based Internet businesses in his district. There are over 1,700 Internet sellers who sell over $10,000 annually on eBay alone, and it’s a good bet that many of them are home based as well.

Mr. Goodlatte's support is particularly important. He is the cochairman of the House Internet Caucus and a respected senior member of the House Republican leadership. His support on issues such as this will have significant influence on other legislators.  His support of House Resolution 95 would lend a prestigious cosponsor and make it harder for state and local governments to impose burdensome or unfair tax collection requirements on  small home based businesses. 

Mr. Farnham explained that most small online businesses operate on thin margins, and are already at a disadvantage in competing against big box stores. They have higher shipping, insurance, tax and regulatory and other administrative costs than their big box competitors, who often also benefit from state and local government subsidies such as property tax deferrals. Mr. Goodlatte was very sympathetic to our concerns, and he promised to give serious consideration to our request when Congress reconvenes in January.

His cosponsorship of House Resolution 95 would be good news for all homeowners and other consumers who shop or sell online. Imposing billions of dollars of additional sales taxes on consumers in this weak economy would have a devastating effect on the economy. Voters strongly oppose all online sales taxes anyway. A 2008 survey by Parade Magazine, asked readers: “Should Internet sales be taxed?” Based on 3,125 survey responses, 85% said no.

You can help stop the expansion of online sales taxes by urging your own Congressman to support House Resolution 95. You can reach all Congressmen through the House of Representatives switchboard (202.225.3121). If you need their names you can look them up by zip code on the  AHGA website’s Congressional lookup tool on the home page, and use the link that’s provided to send them an email urging their support as well.

The fine print is becoming more important, but don’t lose sight of other considerations.

Home insurance policies used to be fairly similar to each other in terms of what is covered and what is not. Most were based on standard policy language developed by the Insurance Services Office, a national trade association. However, insurers today are increasingly modifying terms of standard coverage in order to reduce their potential liability, according to a study that will be published in early 2012 by the University of Chicago Law Review. In some cases an insurer may also provide better coverage than the standard in some areas, but there is no correlation between the size of the insurer and how generous or restrictive the coverage in a particular area.

This makes it more important for homeowners to carefully examine the specific language of a homeowners policy before they buy. What may appear to be a bargain may be so mainly because it has far more weasel clauses in an area of coverage that is extremely important to the homeowner.

The majority of homeowners don’t even read their mortgage documents carefully. Today it is ever more important to read your insurance documents carefully, especially parts that cover the most likely areas where you’ll need coverage.

For example, the standard ISO policy language insures against "risk of direct physical loss to property." Today some insure only against "sudden and accidental direct physical loss." If you have water damage from a burst water pipe (which is not uncommon in older homes), and you were aware of minor drips from the pipe before it burst, it gives the insurer an excuse to weasel out of covering the losses because the failure wasn’t sudden but rather an existing ongoing problem. Similarly if an overhanging dead tree branch falls and penetrates your roof the insurer could argue that the damage was inevitable rather than accidental. There is some truth in that argument. Whatever the coverage, most homeowners would be better off just having the dead branch removed before it falls and save themselves the hassles with the insurer and the rate increases that would likely follow. In any event, homeowners should read the terms of coverage carefully with an eye for words and phrases that would enable the insurer to deny claims. If there are significant weasel words in areas of coverage that are likely to be needed, shop for another policy with fewer escape terms.

This additional due diligence doesn’t alter the need for other research on the homeowners insurance policy. The costs vary considerably, and there are ways to keep the costs down while making sure you get the coverage you need. The Insurance Information Institute recommends the following twelve steps to get the most value for your money:

1. Shop Around

It'll take some time, but could save you a good sum of money. Ask your friends, check the Yellow Pages or contact your state insurance department. (Phone numbers and Web sites are listed here.) National Association of Insurance Commissioners (www.naic.org) has information to help you choose an insurer in your state, including complaints. States often make information available on typical rates charged by major insurers and many states provide the frequency of consumer complaints by company.

Also check consumer guides, insurance agents, companies and online insurance quote services. This will give you an idea of price ranges and tell you which companies have the lowest prices. But don't consider price alone. The insurer you select should offer a fair price and deliver the quality service you would expect if you needed assistance in filing a claim. So in assessing service quality, use the complaint information cited above and talk to a number of insurers to get a feeling for the type of service they give. Ask them what they would do to lower your costs.

Check the financial stability of the companies you are considering with rating companies such as A.M. Best (www.ambest.com) and Standard & Poor s (www.standardandpoors.com) and consult consumer magazines. When you've narrowed the field to three insurers, get price quotes.

2. Raise Your Deductible

Deductibles are the amount of money you have to pay toward a loss before your insurance company starts to pay a claim, according to the terms of your policy. The higher your deductible, the more money you can save on your premiums. Nowadays, most insurance companies recommend a deductible of at least $500. If you can afford to raise your deductible to $1,000, you may save as much as 25 percent. Remember, if you live in a disaster-prone area, your insurance policy may have a separate deductible for certain kinds of damage. If you live near the coast in the East, you may have a separate windstorm deductible; if you live in a state vulnerable to hail storms, you may have a separate deductible for hail; and if you live in an earthquake-prone area, your earthquake policy has a deductible.

3. Don’t confuse what you paid for your house with rebuilding costs

The land under your house isn't at risk from theft, windstorm, fire and the other perils covered in your homeowners policy. So don't include its value in deciding how much homeowners insurance to buy. If you do, you will pay a higher premium than you should.

4. Buy your home and auto policies from the same insurer

Some companies that sell homeowners, auto and liability coverage will take 5 to 15 percent off your premium if you buy two or more policies from them. But make certain this combined price is lower than buying the different coverages from different companies.

5. Make your home more disaster resistant

Find out from your insurance agent or company representative what steps you can take to make your home more resistant to windstorms and other natural disasters. You may be able to save on your premiums by adding storm shutters, reinforcing your roof or buying stronger roofing materials. Older homes can be retrofitted to make them better able to withstand earthquakes. In addition, consider modernizing your heating, plumbing and electrical systems to reduce the risk of fire and water damage.

6. Improve your home security

You can usually get discounts of at least 5 percent for a smoke detector, burglar alarm or dead-bolt locks. Some companies offer to cut your premium by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police, fire or other monitoring stations. These systems aren't cheap and not every system qualifies for a discount. Before you buy such a system, find out what kind your insurer recommends, how much the device would cost and how much you'd save on premiums.

7. Seek out other discounts

Companies offer several types of discounts, but they don't all offer the same discount or the same amount of discount in all states. For example, since retired people stay at home more than working people they are less likely to be burglarized and may spot fires sooner, too. Retired people also have more time for maintaining their homes. If you're at least 55 years old and retired, you may qualify for a discount of up to 10 percent at some companies. Some employers and professional associations administer group insurance programs that may offer a better deal than you can get elsewhere.

8. Maintain a good credit record

Establishing a solid credit history can cut your insurance costs. Insurers are increasingly using credit information to price homeowners insurance policies. In most states, your insurer must advise you of any adverse action, such as a higher rate, at which time you should verify the accuracy of the information on which the insurer relied. To protect your credit standing, pay your bills on time, don't obtain more credit than you need and keep your credit balances as low as possible. Check your credit record on a regular basis and have any errors corrected promptly so that your record remains accurate.

9. Stay with the same insurer

If you've kept your coverage with a company for several years, you may receive a special discount for being a long-term policyholder. Some insurers will reduce their premiums by 5 percent if you stay with them for three to five years and by 10 percent if you remain a policyholder for six years or more. But make certain to periodically compare this price with that of other policies.

10. Review the limits in your policy and the value of your possessions at least once a year

You want your policy to cover any major purchases or additions to your home. But you don't want to spend money for coverage you don't need. If your five-year-old fur coat is no longer worth the $5,000 you paid for it, you'll want to reduce or cancel your floater (extra insurance for items whose full value is not covered by standard homeowners policies such as expensive jewelry, high-end computers and valuable art work) and pocket the difference.

11. Look for private insurance if you are in a government plan

If you live in a high-risk area -- say, one that is especially vulnerable to coastal storms, fires, or crime -- and have been buying your homeowners insurance through a government plan, you should check with an insurance agent or company representative or contact your state department of insurance for the names of companies that might be interested in your business. You may find that there are steps you can take that would allow you to buy insurance at a lower price in the private market.

12. When you’re buying a home, consider the cost of homeowners insurance

You may pay less for insurance if you buy a house close to a fire hydrant or in a community that has a professional rather than a volunteer fire department. It may also be cheaper if your home’s electrical, heating and plumbing systems are less than 10 years old. If you live in the East, consider a brick home because it's more wind resistant. If you live in an earthquake-prone area, look for a wooden frame house because it is more likely to withstand this type of disaster. Choosing wisely could cut your premiums by 5 to 15 percent.

Check the CLUE (Comprehensive Loss Underwriting Exchange) report of the home you are thinking of buying. These reports contain the insurance claim history of the property and can help you judge some of the problems the house may have.

Remember that flood insurance and earthquake damage are not covered by a standard homeowners policy. If you buy a house in a flood-prone area, you'll have to pay for a flood insurance policy that costs an average of $400 a year. The Federal Emergency Management Agency provides useful information on flood insurance on its Web site at FloodSmart.gov. A separate earthquake policy is available from most insurance companies. The cost of the coverage will depend on the likelihood of earthquakes in your area. In California the California Earthquake Authority (www.earthquakeauthority.com) provides this coverage.

If you have questions about insurance for any of your possessions, be sure to ask your agent or company representative when you're shopping around for a policy. For example, if you run a business out of your home, be sure to discuss coverage for that business. Most homeowners policies cover business equipment in the home, but only up to $2,500 and they offer no business liability insurance. Although you want to lower your homeowners insurance cost, you also want to make certain you have all the coverage you need.

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The Supreme Court will Consider an Important Real Estate Case