Smart Real Estate Investing

Mortgage rates rise for first time in 3 weeks
Average 30-year fixed-rate rises to 6.35% from 6.32% in the prior week.

It is reported that mortgage rates rose for the first time in 3 weeks this week.

As per a survey, the average rate on 30-year fixed-rate mortgages rose to 6.35 percent for the week ending March 30, up from the prior week's 6.32 percent. In the year-ago period, the 30-year mortgage averaged 6.04 percent.

The average rate on 15-year fixed-rate mortgages edged up to 6.00 percent from 5.97 percent last week. A year ago, that loan averaged 5.58 percent.

Five-year adjustable-rate mortgages averaged 6.02 percent, up from 5.96 percent the prior week. The five-year loan averaged 5.43 percent last year.

One-year adjustable-rate mortgages averaged 5.51 percent, up from 5.41 percent from the week before. At this time last year, the one-year loan averaged 4.33 percent.

It is also reported that the rise in rates this week was, as was expected, but the it was a little surprising that it was implied that there would be more tightening in the future.

That raised the expectation that inflation may be more of a threat than was previously thought, and that kind of thinking promotes upward pressure on mortgage rates like we saw across the board this week.

It's the height of the spring home-buying season and many of the shoppers are families looking to upgrade to bigger or better homes. These house hunters have a different set of issues to confront than first-time buyers.

The biggest one: They can't afford to buy the new one before they sell the old, and timing is tricky.

If they sell the old house before they buy...
Most buyers can't afford to own two properties at once.

But if they sell first, they face the prospect of having to move before they have taken possession of the new place.

When real estate is hot, many buyers prefer to make certain the old home is sold before they commit to the new one. The reasoning is that once they absolutely have to find a place, they'll shop very hard.

If they buy the new house before they sell the old one...
Even scarier, perhaps, is that they could end up carrying the costs of owning both homes for a while.

It is advised that buyers have to be extra cautious in pricing the old home; they have to sell it as quickly as possible. They can't overprice it. They should get at least some offers within 30 days. If they don't, they have to be willing to look at the price point again."

In other words, they may have to be prepared to take less for the house to get a deal done.

There are a couple of ways that may be able to deal with the juggling act

Contigency sales Many buyers attempt arrangements with sellers to make the new purchase contingent on the sale of the old one. If the buyers can't sell their home within a period of time, the purchase is cancelled.

Sellers don't like these such arrangements, of course, and are more likely to accept them in slowing markets than hot ones.

But no matter what, asking to buy on a contingency hands the seller a bargaining chip. That can translate into paying more for the property.

Bridge loans It seems that no matter how you go about it, buying one home when you're selling another will cost you money. Either there'll be pressure to accept a lower bid for your old property or you'll be scrambling to find a new one and wind up spending more than you want. What you need is to be able to do is find the best buy on a new home while your old one fetches the highest price the market will bear.

Enter the bridge loan, also known as a swing loan, which can give buyers the time they need to make the best financial decisions.

A bridge loan is just what the name implies; it's a loan that spans the gap between the time you buy a new home and you sell the old one.

Bridge loans come in two flavors. The first kind gives you the money to pay off an existing mortgage and to pay down on the new house. You make no payments on the bridge loan, just on the new home. When you sell the old home, you pay off the bridge loan, including interest.

In the second kind, you keep your first mortgage and borrow against the equity in the first home to make a down payment on the second. Let's say your old home is worth $220,000, the new one costs $300,000, and you owe $100,000 on your existing mortgage. That means you have equity of $120,000. You're putting 20 percent down on the new home, which is $60,000.

You can use the bridge loan to pay at least part of the down payment.

In both cases, you're paying interest on two mortgages, but one is deferred until you sell.

Consumers may be under the impression that high fees can make bridge loans costly. But it is said that, that's not so and that interest rates on bridge loans are the same as on regular mortgages, and fees, such as for recording mortgages, should only add a few hundred dollars to the transaction expenses.

The costs are because banks feel secure; the loan is cross-collateralized by the two properties, so it shouldn't cost any more.

A bridge loan can pay off because borrowers are not forced to sell their homes short, at lower prices.

In an up market, that may add thousands of dollars to the selling price, offsetting the added mortgage interest and fees.

The "danger years" for homeowners

Delinquencies peak the third and fourth years of mortgages.

Millions of mortgage borrowers are entering their "danger years," when delinquencies peak and owners risk losing their homes.

It is reported that although borrowers are often told that the first year is the hardest, delinquencies have historically reached their highest points during the third and fourth years of mortgages.

There are a few forces at play: After years of strained budgets, borrowers may have little in savings to draw on to handle a crisis; this is also the period when major repairs begin to crop up; finally, many home buyers go through life changes, including starting a family.

The number of Americans affected by the coming danger years could be huge. It is further reported that half of all mortgage loans are three years old or less. Nearly $3 trillion in mortgages originated in 2002, $4 trillion in 2003 and $3 trillion again in 2004. Many were refis, but there were also record totals of new purchases as well.

In addition, many of these transactions involved risky loans, such as interest-only ARMs and no-down payment loans.

A recent report found that the median new home buyer put down just 2 percent in 2005. Forty-three percent put down no money at all. And according to SMR Research, some 25 percent of loans were interest-only, do nothing to reduce the debt on the house.

Lenders used to offer interest-only loans to only the best credit-quality prospects and that is no longer true.

Adjustable rate loans accounted for nearly half, by dollar volume, of loans issued in 2004 and 2005. Because interest rates have risen and are expected to increase further, those loans will adjust upward and monthly payments will be higher.

With a $200,000 loan adjusting upward from 4 percent to 6 percent, the monthly bill would increase to about $1,200 from $955.

It was found that many consumers severely underestimated what their payments would be when they adjusted. Some didn't even know how to calculate what their payments would amount to.

Most homeowners are safe
It has been pointed out that 35 percent of all homeowners carry no mortgages at all and another 50 percent have traditional fixed-rate loans, which leaves only 15 percent of all homeowners at risk.

It i also pointed out that some who have opted for nontraditional mortgages are affluent and choose these products to free up cash for more lucrative investments. The risk to these financially savvy individuals is low; most can pay off their mortgages any time.

Furthermore, those who bought a few years ago when real estare was hot, may already be in safe territory, as the value of their homes has grown enough that they now have enough equity to ride out financial storms.

Out-sized gains in housing prices lately has probably helped keep delinquencies as low as they've been.

But even if the percentages of borrowers who may go into default remains modest, even an increase of a few percentage points can add up to millions of households.

Big price gains are ending
And housing seems to be headed, if not into a decline, at least into a period of much more stable, slower growth. The median home is predicted to inch up by only a few percent in 2006, according to NAR. In many markets, prices may fall. Home buyers cannot count on increasing home equity to bail them out of tight situations.

It is recommended that most mortgage borrowers convert to fixed rate loans as soon as practical. Consumers have enough uncertainty in their financial lives.

People are banking on everything turning out right for them. That they won't lose their jobs, that they won't run into unexpected expenses. They're betting that the housing market will continue to appreciate.

Few people recognize it for the gamble that it is.

Home sales posted their biggest jump in two years in February, a trade group said Thursday in a report that showed surprising strength in housing.

It is reported that existing homes sold at an annual rate of 6.91 million in February, up from a revised 6.57 million pace in January. The 5.2 percent rise was the biggest gain since a 5.9 percent jump in February 2004.

Economists had forecast a drop to an annual pace of 6.5 million last month.

The surprise pickup in February sales may have been due partly to favorable circumstances in January, as the report is based on when a sale closes, not when a contract is signed.

The trade group's statement said the warmest January on record may have helped to spur sales, while a brief dip in mortgage rates that month also probably helped.

The average rate on a 30-year fixed-rate mortgage fell to 6.15 percent in January from 6.27 percent in December and 6.33 percent in November. Rates have risen above 6.25 percent since the January dip.

Meanwhile, home prices dipped in February from January but rose from a year earlier.

The median price edged down to $209,000 from $210,000 in January. Half of homes sold for more than the median and the rest for less.

The average price also slipped to $256,000 from $260,000. But both price readings were ahead of year-earlier levels, when the median price was $189,000 and the average was $249,000.

It is stated that housing is simply returning to a normal market, where annual home prices will rise a little faster than the overall rate of inflation.

Rising home values have helped drive consumer spending in recent years, as home owners have used refinancing and home equity loans to unlock pull cash from their homes.

But while there have been numerous reports showing the real estate market cooling from the record pace set in 2005, predictions of a bursting of a real estate bubble have so far proven premature, if not inaccurate.

Reverse mortgages

What good is a real estate boom if you don't want to sell your house? With a reverse mortgage, seniors can cash out without moving out.

As real estate prices in large parts of the country have more than doubled during the past five years, homeowners have found plenty of ways to cash in on their new riches.

Many are trading up to an even bigger house or borrowing against their bloated equity to remodel the kitchen, buy a vacation home or consolidate debts.

But for one group, these paper riches are just that. If you're retired with no plans to downsize and no desire to add loan payments to your budget, how can you benefit from your real estate wealth?

Enter the reverse mortgage - a loan that lets homeowners age 62 and older take money out of their home and never have to move out or worry about paying it back.

Think of a reverse mortgage as the mirror image of a traditional mortgage. When you borrow to buy a house, your monthly payments whittle away at your debt and build up your equity over time.

With a reverse mortgage, you gradually take that equity out and increase your home's debt. The bank doesn't collect the principal and interest until you or your heirs sell.

Although reverse mortgages still represent only a small fraction of home loans, demand for these once obscure financial products has grown exponentially. Last year more than 43,000 homeowners took out a reverse mortgage. In 1990 about 150 did.

Today real estate rich retirees are taking out reverse mortgages to pump up their income, fund home improvements or refinance debts. Still, these loans are not without serious drawbacks -- complexity and high costs among them.

You can find lots of reasons to take out a reverse mortgage, and many others to walk away. Here's how to sort out your choices.

Why Go in Reverse?
With a reverse mortgage, it's possible to withdraw roughly half the value of your home.

A 70-year-old owner of a $200,000 house, for example, could take out $113,000 at today's rates or opt for a $700 monthly payment for life. You don't need good credit, a high income or ample savings to qualify.

How much you can borrow comes down to four factors: the value of your house, where you live, current interest rates and your age. (Younger homeowners qualify for smaller loans because a longer life span means more years for interest to accrue -- and more risk that the bank will lose money.) For an estimate of what size loan you could qualify for, go to reversevision.com.

Consider the loan for these three goals.

MONTHLY INCOME A reverse mortgage means a regular check to supplement your pension, investments or Social Security -- a small one for life or a bigger one for just a few years.
Similarly, you might consider drawing down your home equity early in retirement so that you can put off taking a pension or Social Security and collect richer payments when you do.

A CREDIT LINE The most popular and potentially least expensive way to take out a reverse mortgage is through a line of credit. You pay interest only on the money you withdraw, and the amount you can tap in the future keeps growing as you age.

DEBT MANAGEMENT If you bought a home late in life or had to dip into home equity to fund big expenses like college tuition, you could very well find yourself still paying off a mortgage deep into retirement. Refinancing into a reverse mortgage can erase that monthly payment.

Why Think Twice?
While there are many benefits to putting your mortgage in reverse, there are two big reasons not to.

THE PRICE TAG You could be charged as much as $10,000 to take out a $200,000 reverse mortgage after you cover the 2% lender's origination fee, 2% mandatory mortgage insurance and miscellaneous costs such as title insurance, an appraisal and even repairs. You'll also owe 0.5% of the loan balance in mortgage insurance premiums every year.

You may consider these fees a small price to pay for the ability to hold on to your home and preserve your standard of living. (And the costs may not seem so bad compared with the 5% to 6% brokerage commission you'd have to pay if you sold your house.)

But if you think you may downsize in a couple of years anyway or will need to move to an assisted-living facility, a reverse mortgage probably isn't your best option for cash.

Because these loans have sizable up-front costs your time frame is critical. Instead, consider a cash-out refinancing or home-equity loan to tide you over until you sell.

THE FUTURE Someday your mortgage has to be paid off, either in cash or when the house is sold. Although mortgage insurance ensures that you or your heirs won't owe more than your house is worth, it's entirely possible to drain your home's equity, leaving your children with little or nothing.

One reason is that when the loan comes due, the bill is for what you borrowed plus fees and interest, and rates on reverse mortgages are not fixed. The annual rate, recently 8.3%, is the rate on a one-year Treasury bill plus 3.1 percentage points and 0.5 points for insurance. Over the life of the loan, your rate can't rise more than five points. At today's rate, a homeowner who borrows $100,000 would owe $222,000 in interest and principal in 10 years.

If leaving your home or money to the next generation is important, think twice. "I recommend talking to your children before your go through with a reverse mortgage," says Patricia Houlihan, a certified financial planner in Reston, Va. Another option for cash is to sell the house to your children and rent it back.

How to Shop for a Loan
If you decide a reverse mortgage is right for you, you have still more decisions to make, including what loan program to use. The U.S. Department of Housing and Urban Development's home-equity conversion mortgage (HECM) is the only reverse mortgage insured by the federal government, but loan values are capped based on typical home prices in your area. If you own a valuable house, you may be better off with a loan from a private lender.

When you shop, you have one thing going for you: Because reverse mortgages are so confusing, you have to meet with a counselor before you can apply. That person will spell out the pros and cons, as well as the alternatives.

To find a counselor and learn more about these loans, contact the AARP Foundation's Reverse Mortgage Education Project (800-209-8085; aarp.org/revmort). When choosing a lender, stick with specialists affiliated with the National Reverse Mortgage Lenders Association (reversemortgage.org).

Counseling means that closing on your reverse mortgage could take up to three months, but considering that this loan could provide financial security for a lifetime, it's worth the wait.

New financial instruments are being launched to let you wager on the direction of home prices in major cities.

There's finally going to be a viable way to cash in on the housing price boom -- or to guard against its decline -- without going through the messy business of actually buying and selling properties.

New derivatives are now available which, will enable investors to take a position on the direction of home prices either for the nation as a whole or for 10 major cities to start, including New York, Los Angeles and Chicago.

Only the housing which, represents some $20 trillion in assets, cannot be speculated on easily.

Home Price Indexes which, have been developed about 20 years ago claim to be the most accurate measure of the residential real estate.

The new derivatives may mostly be used as tools that large, institutional investors can use to reduce risks. Mortgage bankers, for example, could hedge against falling real estate prices that would increase their exposure to delinquencies and foreclosures.

Although the main customers will be institutional, there is a surprising amount of interest on the part of retail consumers.

By direct investment: Investors could buy futures in housing prices and profit if home prices continue to increase (if the investor goes long) or if they fall (if the investor goes short).

By locking in home equity: Home owners intending to sell within a year or two can go short in home price futures. If the price of their house drops, that can recapture the loss on the investment.

Such hedging strategies should get easier. Home owners will eventually be able to buy home equity insurance that will protect against loss from falling home prices. Homeowners already have fire or storm insurance to protect them against losses, why not protection against losses from home price decreases?

Linking the price of a home to the index: A seller could peg the price of the home to the index by making it a multiple of the index for the city. A nice house in a prime neighborhood in Chicago, for example, might be listed at a constant 1,000 times the Chicago index value of 500, rather than simply at $500,000. Then as the index goes up and down, the home price changes as well. Both buyers and sellers would have confidence that the selling price was fair at the time of purchase.

Might not these derivatives make housing prices volatile? Real estate already is volatile and risky – like the stock market and the risk is increasing. The impression that real estate only goes up is wrong. We need hedging for both sides.

An index of U.S. home builder sentiment fell in March to its lowest level in nearly three years in response to rising mortgage rates and softening demand, the National Association of Home Builders disclosed.

The NAHB/Wells Fargo Housing Market index slid to 55, seasonally adjusted, from February's downwardly revised 56. It was the lowest since April, 2003, when it came in at the same level.

Today's [reading] provides the latest evidence of a predicted and orderly cooling process for the nation's single-family new-home market, which easily hit record highs in 2005, according to NAHB President, a home builder in Statesville, North Carolina commented in a press release.

The index was also below its year-ago level of 70.

The confidence level, however, remained above the midpoint that indicates the majority of builders still see conditions as positive in their markets. Readings above 50 indicate more builders view their market conditions as favorable, rather than poor.

NAHB Chief Economist noted that the confidence gauge has remained within a narrow two-point range for four consecutive months following a retreat from its peak in the middle of last year.

He attributed March's decline to eroding affordability conditions, as well as a gradual withdrawal of investor demand in some areas.

Rising interest rates and high rates of home-price appreciation have raised the bar for homeownership to beyond what some families can reach.

Overall construction sentiment fell signaling a "predicted and orderly" cooling of new-home market.

After the highest number in January in decades, new construction falls but still beats estimates.

Home building slowed in February, according to a government report Thursday, but the decline was not nearly as much as expected.

Housing starts, which is when digging for a foundation begins, slowed by 7.8 percent to an annual rate of 2.12 million in February, down from January's huge 2.3 million revised rate.

But economists were looking for an even bigger decline to 2.03 million new starts.

The number of building permits, which are needed before excavation begins and are seen as a sign of builder confidence, fell to a 2.15 million annual rate in February, down from 2.22 million in January.

Economists had called for 2.11 million permits.

This big decline is coming off an extraordinary number in January and was apparently natural. This bodes pretty well for housing activity, it's a very good level. Although it doesn't mean housing activity isn't slowing.

A drop was expected in February simply because January's numbers were so high, a surge attributed to builders taking advantage of unusually warm weather.

Housing starts for February are 4.8 percent lower than this time last year, but building permits are 2.5 percent higher.

Housing starts are the more closely watch figure, and the year-over-year decline, coupled with low inflation numbers that should support the housing by keeping interest rates from rising much further, suggest the real estate is coming in for a soft landing rather than a crash.

Mortgage rates have hit their highest level in nearly four years, and that has a direct impact on home affordability...and home prices.

The average rate on a 30-year fixed mortgage stands at 6.37 percent, up from 5.58 percent last summer.

It is said that it's indisputable that demand in the housing market has declined in the past few months. It's very clear that rising interest rates figure very large in that decline.

Rising rates had already begun to take their toll in the fourth quarter of 2005, when the 30-year mortgage averaged 6.22 percent.

71 of the 299 largest U.S. housing markets were "extremely overvalued" at year's end, up from 62 markets a quarter earlier.

Rates have a direct affect on affordability. For example, a jump in interest rates from 6 percent to 7 percent on a 30-year loan adds about 10 percent to a monthly mortgage bill. A homeowner who financed a loan of $200,000 at 6 percent would pay about $1,200 a month. At 7 percent, the bill would come to $1,330.

As rates rise, homebuyers who were already stretched may start demanding lower prices. Low rates had offset unaffordability in past years.

California and Florida accounted for 18 of the 20 most overvalued states, with Naples, Fla. leading the way. A median home in Naples now costs $367,100, nearly double what the study's authors estimate it should.

Undervalued markets are much less common and tend to be priced only slightly below where they should. They're especially common in Texas; eight of the top 10 are in the Lone Star State. College Station leads the way -- homes there cost 22.7 percent less than what the authors estimate they should fetch.

Factors beyond the control of real estate agents will drive down their commissions over the next few years.

The most crucial of the 10 factors are:

The recent launch of web sites that perform many of the traditional agent functions. These new sites will provide such services as free home appraisals, neighborhood information and advice to sellers on how to market their properties. They have prompted the popular press pose tough questions: Do you need a Realtor? and Do you need to pay 6 percent? And on the buy side, the Internet has become the de facto sales agent.

The Department of Justice antitrust lawsuit against the industry's main trade association. The legal issues facing the National Association of Realtors have turned a spotlight on the industry -- and its commission structure. The DoJ charges that realtors collude to prop up commission rates through such anti-competitive actions as "boycotting" discount broker's listings and lobbying state legislatures to enact regulations against unbundling of services.

The departures of some industry veterans for firms that practice new business models such as discount brokerages or fee-for-service models. Have they recognized that change is coming and want to be in the vanguard?

Reaction
Many of the responses were more measured. One blogger wrote that it was all about choice. "A buyer may choose a broker just to be the first to know when a property hits the market or even BEFORE it hits the market. Agents know these things, not machines. A seller may choose one who has a reputation for getting the best price quickly (great marketing/sales skills)."

Many bloggers emphasized the skills and knowledge that experienced brokers bring to transactions and concluded that consumers are willing to pay for expertise.

But another comment pointed out that the industry is filled with brokers who merely attended an 80-hour class to receive their licenses. Vast number of people became agents during the past few years. How much in the way of expertise or experience do they provide to their clients?

One blogger cited the tendency for agents to show properties that paid them the highest commissions and said that because a flood of details on homes, including photos, are available on-line, that more consumers will begin to realize that not all brokers always act in the client's best interest. These consumers will then start to bypass the entire system and advances in information technology will give them the tools to do so. That's why, wrote the blogger, the market will change this time around.

Skeptic
High prices make sellers nervous. When the stakes grow, they need the reassurance of dealing with an experienced pro.

That brings up the question, however, of why you have to pay twice as much or more in many instances for an experienced pro's service today than you paid 10 years ago, simply because home prices soared.

And, if the industry is truly competitive, why don't experienced pros offer to lower their rates in order to win more listings?

If sellers can get the same level of service and pay less for it, why wouldn't they opt for the discount agent?

To say that it's been a seller's housing market is the understatement of the year.

Homeowners looking to sell in most parts of the country haven't had to wait around very long for a suitable offer, and those in the best markets have seen their homes swooped up in a matter of days, even hours.

In early 2003, in fact, 21 percent of all houses went into contract less than one week after going on the market.
On average, houses sold in just five weeks – nearly half the time it took throughout the 1990s.

As interest rates creep up, buyers' budgets creep down and markets return to more normal levels, sellers will discover that it takes a little more work (and patience) to unload their homes.

Many already have.

While there is little you can do to change the laws of supply and demand, you have some control over whether your house sits or sells.

Here are the most common reasons houses don't sell, in order of importance.

The price is not right - Even in the best of markets, setting your price too high is a mistake -- unless you really don't want to sell your house. Starting too high is the worst thing you can do. Why? Because your greatest opportunity for selling your house is immediately after it goes on the market. That's when the majority of serious buyers will see the house. Even if you lower the price to reflect the market, you'll have fewer people coming through than if you'd just priced it right to begin with. In fact, it's not until after you bring the price down below the market – something few sellers want to do – that interest will pick up again.

To make matters worse, say real estate agents, the longer a house sits the harder it is to sell. Everyone thinks there must be something wrong with the house if it hasn't sold.

To drum up new interest among buyers, sellers sometimes pay for extra advertising or offer to, for example, pay for closing costs as a way to get buyers' attention. In markets where people don't have a lot of cash, paying for closing costs or buying down interest rates with points up front can put you at a huge advantage.

The house is in the wrong place
When markets are good, buyers are more willing to buy on the outskirts of an area or turn a blind eye to busy streets, bad views and other problems. But when markets cool down, it's these spots that suffer the most.Short of moving the house, there is not much you can do if it is in the wrong location. But while in the house you can take care to make sure you don't over-improve your property relative to the ones around it.

If you have a $300,000 house in a neighborhood of $100,000, be prepared to lower the price or let it sit.

Buyers can't get past the front door
Realtors say that getting buyers to take a look inside a house is the biggest challenge of selling a house. Once they've stepped through the door buyers are more likely to consider a place.

For this reason, a little time and money spent on curb appeal will go a long way. Trimming the grass, washing the windows and planting a few flowers may be all it takes.

In the case of houses whose best features are inside or out back, take good interior pictures and put 360-degree tours online.

Sellers sometimes get buyers to look past their homes' imperfections with creative extras by offering decorating allowances, and paying for cleaning service and landscaping.

Too much chintz and tchotchkes
Less is more when it comes to attracting buyers.

Put all of those pictures of your family and other personal treasures away. It distracts buyers and makes it harder for them to picture themselves in the house."

Also, take down distracting curtains and put on a fresh coat of paint. Buyers sometimes get scared if they wander through a house and think they're going to have to do a lot of painting.

Mortgage rates were mixed this week, with the 30-year rate dipping slightly and one- and five-year rates posting slight gains.

It is reported that the average rate on 30-year fixed-rate mortgages fell to 6.24 percent for the week ending March 2, down from the prior week's 6.26 percent. In the year-ago period, the 30-year mortgage averaged 5.79 percent.

The average rate on 15-year fixed-rate mortgages remained unchanged at 5.89 percent from last week. A year ago, the loan averaged 5.33 percent.

Five-year adjustable-rate mortgages averaged 5.97 percent, up slightly from 5.96 percent the prior week. The five-year loan averaged 5.17 percent last year.

One-year adjustable-rate mortgages averaged 5.34 percent, up from 5.32 percent from the week before. At this time last year, the one-year loan averaged 4.14 percent.

On net, the latest economic news had little effect on mortgage rates this week. The forecast calls for rates on 30-year fixed-rate mortgages to increase about one-quarter of a percentage point by the end of the year.

Record sales in 2005 of homes costing more than $1 million have been reported.

Luxury homes sales soared across the United States in 2005, according to a report released Thursday by Coldwell Banker, one of the largest real estate brokers in the nation.

Total sales of homes costing $1 million or more reached $55.9 billion, up 24 percent, compared with $45.1 billion in 2004.

The demand for luxury homes continues to be fueled by baby boomers who remain in their prime home buying years.

Among states, California led the charge -- at nearly $31 billion in luxury home sales, it had six times the volume as Florida, the next highest ranked state.

The states reporting the largest percentage increases in luxury home sales were Kansas, up more than 300 percent, and Idaho, up 189 percent.

Among cities, sales of luxury homes in Paradise Valley, in Arizona, spiked 251 percent, but Los Angeles led all other towns in total sales volume with $2.8 billion.

It is reported that despite recent signs of a slowdown, '05 appreciation was double historical average.

Average U.S. home prices climbed 12.95 percent in 2005 despite rising mortgage rates in the second half of last year. Despite recent indications that a slowdown may be forthcoming, house price appreciation during 2005 continued to hover at near-record levels

Home values appreciated 2.86 percent during the fourth quarter from the third quarter of 2005, at an annualized rate of 11.4 percent.

Prices have posted double-digit increases on record home sales amid low interest rates and increased buying of second homes for vacation, retirement or investment.

"It is said that while (price) deceleration continues in some areas, appreciation generally is still extremely strong....mortgage rates climbed significantly during the second half of last year, but the effect of that increase on price appreciation so far appears to be limited.

Last year's rate of appreciation is about double the historical average of 6.4 percent, according to Bankrate.

Recent reports on new and existing home sales, however, point to a long-anticipated slowing. The risk is that consumers will start feeling less confident when their home equity growth ebbs, and proceed to curb the spending that has been a major economic driver.

For the first time since the third quarter of 2003, OFHEO said, one of the regions in its index showed a four-quarter price decline. Prices in Burlington, North Carolina, fell about 1 percent between the fourth quarter of 2004 and fourth quarter of 2005.

Still, four-quarter home price gains reached all-time highs in 26 areas such as Orlando-Kissimmee, Florida, and El Paso, Texas.

The housing market appears at a crossroads, with sales slowing but prices in many regions steadily rising.

Price appreciation should moderate this year, particularly with the inventory of unsold homes heading north, he said.

The numbers are in line with an earlier report from the private sector. The National Association of Realtors (NAR) said last month that the median home price in the United States jumped 13.6 percent last year, thanks mostly to big increases over the first three quarters.

By the fourth quarter, the pace of the increases had slowed, NAR said in its report on Feb. 15. Half of homes sold for more than the median price and the rest for less.

Buying power seen shrinking
Sales of existing homes slid 2.8 percent in January to the slowest pace in almost two years and the fifth straight monthly drop, the NAR said Tuesday. Meantime, the number of houses on the market hit a high last seen in 1998.

As sales slow from all-time peaks, prices should tail off along with consumer confidence and spending, according to economists.

Fixed mortgages rates are still historically attractive at about 6-1/4 percent on 30-year loans. If rates moved higher suddenly, closer to 7 percent, that would be a severe drag on consumer buying power.

Flatter national growth in the low single digits over the next couple of years will most crimp spending by recent buyers that have not yet built up much home equity, he said.

Analysts stress that while home prices may slump in some coastal areas that posted the greatest increases this decade, the expectation on a national level is for a leveling of prices rather than a decline.

Arizona posted the greatest gains by a wide margin last year. Prices jumped 34.9 percent during the period, more than 8 percentage points above the rate in second-placed Florida.

Price growth along the East Coast from Maryland to Florida was the highest since OFHEO launched the house price index in 1975. Prices in the region leaped 17.8 percent in the most recent four quarters, OFHEO said.

Home prices rose at the slowest rate in the East North Central division, which includes Michigan, Wisconsin, Illinois, Indiana and Ohio.