June 2008      

In this issue of Home Base:

Justice Department Slaps the Realtors

Anticompetitive market restriction banned as DoJ sends a message.

On May 27, the U.S. Department of Justice (DoJ) scored a victory for American homeowners as it forced the National Association of Realtors (NAR) to rescind industry rules that reduce the dissemination of home sellers’ listings to prospective buyers over the Internet. NAR makes the rules for its members’ Multiple Listing Services (MLS’s). The MLSs are supposed to disseminate the listings widely over the Internet through the websites of its broker members, and in some cases directly to consumers over the MLSs’ own websites.

The American Homeowners Grassroots Alliance praised DoJ for its proposed settlement of its antitrust lawsuit against NAR. The settlement requires NAR to stop denying American homeowners access to Internet-based residential real estate brokers who compete with traditional brokers. AHGA agrees with DoJ’s assessment that the settlement will enhance competition in the real estate brokerage industry, resulting in more choice, better service, and lower commission rates for consumers. The longstanding antitrust case against NAR has been perhaps the most visible of a long series of similar antitrust violations by real estate institutions, including state real estate trade associations and multiple listing services (MLS’s).

“This is a great victory for American homeowners,” observed AHGA President Bruce Hahn. “This decision will enable technology to deliver the kinds of savings that it has in many other economic sectors. We hope that other real estate institutions will see the writing on the wall and forgo efforts to deny American homeowners unrestricted choice in the selection of real estate services in the future. The efforts to restrict competition by NAR and other real estate institutions have not reflected the views of most real estate brokers and agents, and have unfairly sullied their reputation in the minds of consumers. The vast majority of very capable real estate brokers and agents do not fear competition from new business models and do not support restricting them anyway.”

This case dates back to September 2005, when DoJ filed a civil antitrust lawsuit against NAR, challenging policies and related rules that obstructed real estate brokers who use innovative Internet-based tools to offer better services and lower costs to consumers. One way that brokers use the Internet to provide brokerage services to their customers is through a type of Internet real estate site, known as a VOW (virtual office website). VOWs allow a broker’s customers to search real estate listings themselves instead of relying on a broker to conduct searches for them.  Delivering listings via the Internet enables customers to control their search process and educate themselves about the real estate market in their area on their own schedule.  These VOWs have allowed brokers to be more productive, and some VOWs have passed these efficiencies on to consumers in the form of lower commission rates to home sellers and rebates to home buyers.

One of NAR’s rules required MLSs to withhold their listings from VOWs. Another prohibited customer referrals through VOWs. DoJ said that the policies prevented consumers from receiving the full benefits of competition, discouraged discounting, and threatened to lock in outmoded business models. 

Under the terms of the settlement, NAR will repeal its anticompetitive policies and require affiliated MLSs to repeal their rules that were based on these policies. Also under the agreement, NAR must enact a new policy that guarantees that Internet-based brokerage companies will not be treated differently than traditional brokers.  Under the new policy, brokers participating in a NAR-affiliated MLS will not be permitted to withhold their listings from brokers who serve their customers through VOWs.  In addition, brokers will be able to use VOWs to educate consumers, make referrals, and conduct brokerage services.  Real estate brokers may not be excluded from MLS membership because of their business model. 

 “American homeowners owe a great debt of gratitude to DoJ for its persistence on behalf of consumers in this case and in many other cases at the state level,” said AHGA’s Hahn. “Were it not for the efforts of DoJ and the Federal Trade Commission (FTC), American homeowners would have far less choice in real estate services today.” Beyond the actual terms of the settlement, the decision is important for the message it sent. After spending large sums of money and several years trying to beat the lawsuit, it was NAR who capitulated in the end. NAR and other real estate organizations now know that DoJ is serious and willing to take them before a judge. More information on DoJ’s efforts to preserve competition in the real estate industry can be found on the Antitrust Division’s Competition and Real Estate Web site at http://www.usdoj.gov/atr/public/real_estate/index.htm.
 
Hopefully, the message will not be lost. In May, DoJ also announced a lawsuit against Consolidated MLS, a multiple listing service in Columbia, S.C. owned by local real estate brokers. The suit charges that Consolidated MLS requires that members maintain an office in the area served by the MLS. This makes it difficult for many brokers with Internet-centric business models, such as discount brokers who often serve multiple market areas and/or who may have home-based businesses. The MLS also refuses to circulate the types of listings the homeowners typically use when they engage a discount broker, who may only charge a few hundred dollars instead of the typical 6% commission, although they said they will end the boycott. Perhaps the leadership of Consolidated MLS will decide to reconsider its position in light of the recent experience of NAR.

Real estate business groups have lost almost all of the lawsuits when they have pitted themselves against DoJ and/or the Federal Trade Commission and consumer groups. On the other hand, they have done much better when they join in on the side of American homeowners. Most recently both AHGA and the North Carolina Association of Realtors opposed a substantial increase in the real estate transfer tax, which was soundly defeated in May, as were similar earlier measures in other states which were opposed by both state real estate associations and AHGA.

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Rent, Swap or Stay? – Save with a Home-based Vacation

High gas costs and the weak economy are causing more homeowners to reconsider expensive summer vacations, and many are learning that vacation home rentals can help them save money.

Swank hotels have many tempting amenities, but they are expensive and many of the extras that aren’t included in the room rates are also very expensive. To save money, many are renting homes in their vacation destination. This year’s vacations are likely to be shorter and closer to home, according to a national survey conducted by Ipsos Public Affairs. The survey revealed that 33% of Americans intend to take vacations this year. Of them 48% intend to cut costs through such steps as taking shorter trips and/or staying closer to home.

Families with children will usually find home rentals less expensive than hotel rooms, especially when the rental cost of a larger home is divided between two or more couples. Additional savings arise because many of the meals can be prepared in the home. Resort hotel restaurants may be convenient, but they are also usually very expensive. There are far more choices, many of them less expensive outside of the hotel compound.

To save more money, many are also driving to closer vacation destinations. While gas prices have increased dramatically it’s still a lot cheaper than airline tickets, especially when there are multiple passengers involved. It takes longer to get there, but it’s a lot less hassle than airports have gotten to be.

In 2007, 16 million adult Americans rented a vacation home or villa and 29% of those travelers reserved it online, according to Henry Harteveldt, vice president and principal analyst for Forrester Research. A Google search for vacation home rentals at xyz location will typically turn up hundreds of home rental brokers and individual landlords. The latter are often more willing to negotiate on price and more willing to be flexible in other areas. For example, some may be willing to rent the home for only part of a week, or to allow pets, especially if their bookings are a little slow. Many individual landlords often know the area well and will take the time to recommend things to do, restaurants, etc.

You’ll need to do a little more work to find a good rental home. Some rental vacation homes may be new, well maintained, and in excellent neighborhoods. Others, not so much. Recommendations from friends who have stayed in a vacation rental home are very helpful. Absent such a resource, pictures of the home and surrounding neighborhood can be helpful. You can Mapquest the location to get an idea of where it is in relation to attractions in the area, and go to Zillow.com to get an estimate of its market value, which will give you some sense of how nice it is likely to be.

Nice rental homes in many desirable vacation destinations are often booked far in advance. On the other hand, if you decide to try at the last minute, landlords are often very flexible on prices and terms if they haven’t yet rented their vacation home for next week.

The key to a successful vacation home experience is to plan ahead and get details. Find out what is or isn’t included – things such as bedding, cooking utensils, etc. If they aren’t provided that may not be a problem if you’re driving to the location, but it can be expensive and getting them a waste of vacation time if you arrive without them and have to buy them. You may also want to know if the home has in-house laundry facilities, off-street parking, cable TV service, a DVD player, and/or high speed Internet access. Couples with young children might want to find out if they have a high chair or other kid-friendly features.

Cancellation penalties and lease terms are also important, so get everything in writing. Unlike hotel reservations, there is usually a stiff penalty for cancellations on rental vacation homes. If you’re renting a beach house, what happens if a force 5 hurricane is predicted for that beach during the week of your planned visit? It is also a good idea to ask how long the landlord has owned the property. If they’ve had it for five years, they have probably learned how to treat their guests well. If they bought it two years ago, they may be among the over 5 million homeowners with subprime or other loans at risk of foreclosure, and you could arrive only to find the house boarded up, in which case your deposit will only be a distant memory.

Another option is house swapping. This can save even more money, but the trick is finding a responsible party in a spot you want to go to who wants to come to your area around the same time. There are a number of U.S. and international intermediaries who help in the process. They include www.HomeXchangeVacation.com, www.OnlineHouseTrading.com, www.homeexchange.com, www.1sthomeexchange.com, www.homexchangevacation.com, www.exchangezones.com, www.intervac.com, www.4homex.com, www.homeforexchange.com, www.TheVacationExchange.com, and many more.     

The terms of home exchange services vary greatly, and many specialize in target audiences, including teachers, retirees, singles, and many more categories. The geographic focus and market shares also vary greatly, so there’s really no substitute for some refined Internet searches and spending some time. Many also have rental vacation homes in their inventory.

To participate in a home exchange, usually you must be a member of a home exchange agency or network, which requires that you make your home available to other parties. The level of service provided varies and typically costs $30 - $300 a year. In a traditional exchange you swap your home for someone else’s at the same time. There are also home trades which are also an exchange, but not necessarily at the same time or with the same family. The larger exchanges offer as many as 10,000 homes worldwide.

It’s best to start the process several months before you plan to travel. It’s very important to make sure there is mutual understanding regarding the terms of your swap and the expectations of both parties, including getting answers to the same questions you should ask if you were renting a vacation property. In some cases the exchangers include cars in the deal.

The other option, and the least expensive of all, is to take your vacation from your own home. Most of us haven’t seen all the interesting places and sites within a daytrip of their home. Overnighters can extend your range considerably and make more time available to enjoy the location. Pack a picnic lunch and/or camp out at a state or national park, or stay with old friends in the area, and the cost of the trip goes down even more. You can also spread out the vacation – two or three overnights spread over the summer, with a daytrip or two in between, can provide a week’s worth of vacation to multiple destinations at the lowest possible cost.

So don’t let the economy get you down. There’s a way for most all of us to enjoy a nice vacation this summer, no matter how thin our wallets may be.

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On the Brink of a Major Housing Rescue Package?

With the U.S. Senate poised for quick action on its version of a Housing rescue package, soon after returning from the Memorial Day recess, could the legislation soon become law?

Maybe, and maybe not. The House of Representatives previously passed a major reform package by a large margin, and the Senate counterpart, which contained many similar provisions, passed out of the Senate Banking Committee with substantial bipartisan support just before the recess. Even if the Senate passes its measure by a substantial margin, which is quite possible, significant obstacles remain. They include Senate-House rivalries and a potential Presidential veto in an increasingly partisan environment as the next election grows closer.

Lenders initiated foreclosure proceedings on 1.5 million U.S. homes in 2007, up 53% increase over 2006. With even more homeowners at risk today, this legislation is badly needed now. Below are the details on the House and Senate bills, followed by our , thoughts on how the politics of the issue might play out.

The House bill, the American Housing Rescue and Foreclosure Prevention Act (H.R. 3221), combined several mostly bipartisan bills, including measures to modernize the FHA and reform the Fannie Mae and Freddie Mac. The former would provide badly needed liquidity to mortgage markets now, and the latter would strengthen the regulation and oversight Fannie and Freddie.

The mortgage refinancing package expands the FHA program to enable at-risk homeowners ton refinance into affordable lower-cost government -insured mortgages they can afford to repay. Only primary residences are eligible – not second homes or investor-owned properties. Lenders would have to agree to take significant losses by reducing the loan principal and homeowners would have to share any profit from the future resale of a refinanced home with the government. Higher refinancing fees would be used to establish a new FHA reserve to cover possible losses from defaults on these government-backed mortgages, and reduce the risk of government losses through the program. The package also provides $230 million for homeowner financial counseling.
 
The GSE Reform component, in addition to strengthening regulation of Fannie Mae and Freddie Mac, and the Federal Home Loan Bank system, also raises the GSE loan limits for single family homes in high cost areas. This should help lower the interest rates on larger mortgages. It also contains provisions to create a new fund to boost the nation’s stock of affordable rental housing.  VA home loan limits would also be increased in high cost areas.
 
First-time homebuyers would receive a refundable tax credit that works like an interest-free loan of up to $7,500 (to be paid back over 15 years) to spur home buying and stabilize the market.  The credit will begin to phase out for taxpayers with adjusted gross income in excess of $70,000 ($140,000 in the case of a joint return). There would also be a temporary increase in state mortgage revenue bond authority to allow for the issuance of an additional $10 billion of tax-exempt bonds to refinance subprime loans, provide loans to first-time homebuyers and to finance the construction of low-income rental housing. A temporary increase in low-income housing tax credit would stimulate the construction of affordable housing alternatives.        
 
The right of states and cities to regulate the foreclosure process and the treatment of foreclosed property was reinforced, clarifying that this legislation does not preempt State foreclosure laws for national banks or federally chartered thrifts. The Congressional Budget Office estimated that 500,000 homeowners are likely to benefit from the program, although about 1/3 will be likely to eventually default on their new mortgage, at an estimated government cost of $1.7 billion over five years.

The Senate Banking Committee’s measure, passed by a 19 to 2 margin, would also authorize the FHA to allow at-risk borrowers to trade mortgages with escalating monthly payments for more affordable loans backed by the federal government. Like the House bill, it would also create a new regulator which would have the authority to set limits on the massive portfolios of Freddie and Fannie, based on a safety and soundness standard. Approximately $500 million a year of their profits would be dedicated to a new fund for low-income rental housing, beginning after the third year. Profits from the first three years would be earmarked in order to cover the cost of the FHA program and reduce potential losses. The Senate bill would also help about 500,000 homeowners.

Neither bill is expected to be a total panacea. Many homeowners are already in foreclosure and others are in such precarious financial straits that it won’t be possible to help them at a cost the federal budget could bear. Still, if the effort only slows what is becoming an accelerating decline in home values, and allows home values to level off until incomes catch back up to where conventional mortgages are affordable to many more consumers, it will have also prevented potentially several million foreclosures and much pain and suffering.

The politics are likely to get complicated, even if the Senate bill passes by a wide margin. The Senate and House will have to reconcile differences, and this creates a number of challenges. Egos of key leaders are involved, and a compromise measure could upset the chemistry that enabled either measure to pass in its respective chamber. Partisanship is always at its worst in Presidential election years, and it is likely to create intense pressure on moderates in both parties to conform to their respective party’s line.

President Bush will be a critical factor in the debate. As a lame duck, he doesn’t have to worry about how his response affects his popularity, but as the leader of the Republican Party he needs to be concerned about how his positioning will affect Senator John McCain’s Presidential bid, as well as the prospects for Senate and House candidates. It’s become clear at this point that the Administration’s well intended Hope Now program has fallen way below its expectations, and the housing market has continued to deteriorate at an even more accelerated pace. Key senior Administration officials have indicated that they clearly appreciate the gravity of the challenge, and they will likely be voices for compromise within the Administration. If the issue gets heavily politicized, as is very possible, it will make compromise all the more difficult.

Lets all hope now for a quick and favorable resolution of the differences between the House and Senate Housing recovery bills, and for flexibility on the part of the Administration in the process.

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Despite the Gloom, Most are Happy Homeowners

Surprisingly, in our slumping real estate market and economy, most homeowners are happy with their homes and with home ownership.

According to a May 11 survey from Housing Predictor, over 2/3 of those responding to their online poll were “happy” with their homes. Despite the general good mood, 81% of those surveyed believe Congressional efforts to address the growing number of foreclosures and steep drop in housing values will fail. An earlier Housing Predictor survey revealed a gloomy outlook for housing recovery despite the current good mood.

While home sales are at historic lows in many parts of the country, the bad news may be temporary. In terms of future plans, 73% of those responding are planning on buying a home in the next 2 years. Of those, 36% plan to buy within the next 6 months, 21% within one year and 16% within a time frame of no more than 2 years. Another 14% plan to buy between 2 and five years and 13% more plan to buy some time after five years.

Despite the 57% who plan to buy within a year, in the April survey, 53% said the economy is headed for a depression. More than two-thirds believe that it will take at least two years for the real estate market to improve. The breakdown for the timing of a housing recovery varied widely. One tenth think a recovery will start in 6 months while 21% think it will take longer than 3 years. The most frequent estimate was 2 years, the opinion of 31% of the respondents. 

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This Months’ Money-saving Tips

Gas is now over $4.00 a gallon in most areas, so let’s reduce our spending on it.

The first step is to find the cheapest gas. GasBuddy.com, an umbrella website for 180 regional subsites tracking about 170,000 gas stations in the U.S. and Canada, provides updates on actual gasoline prices at stations near your zip code through its network of 1.4 million registered members/spotters. GasPriceWatch utilizes 170,000 consumer spotters combined with information from retailers to keep station prices up to date. Other sources for current gas prices in your area include Mapquest, MSN, and AAA. In addition to accessing that information from your PC or notebook, much of it is also available through GPS systems and smart phones.

Another step is to reduce the amount of driving. Doing errands or shopping on the way to or from work will help. So will multitasking. Before your next trip to the store, ask yourself if there are other stops you can make on the way to save another separate trip. If you have the space in your refrigerator and kitchen cabinets then buy a few more days’ worth of groceries the next time you go to the supermarket. This will cut down on the number of trips. 
Staying within speed limits will improve mileage, particularly at highway speeds. It will also eliminate the cost of speeding tickets and the attendant increases in auto insurance
 
Consider car-pooling to work if you can, or telecommuting a day or more every week if your employer will let you. Some companies also allow workers the option of four ten hour day work weeks, which cuts down on use of gas in commuting by 20%. Not only are more consumers moving to fuel efficient cars, many are replacing or supplementing cars with motor scooters, which today usually also have convenient step through designs, more comfortable suspensions, automatic transmissions, and good sized cargo compartments. Scooters often get 50+ miles per gallon – in some cases close to 100 mpg. According to the Motorcycle Industry Council Q1, 2008 scooter sales were up 25% from a year earlier.

There can be indirect savings as well. If you reduce your annual auto mileage you’ll want to update your car insurance company, since car insurance rates are calculated in part on the amount of miles you drive every year. If you are being squeezed by high gas prices you can also reduce your auto insurance costs further by raising your deductibles.

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