Smart Real Estate Investing

The government reported new homes sold at an annual rate of 1.21 million homes in March, up 13.8 percent from a revised 1.07 million pace in February.

New home sales posted the biggest jump in 13 years in March, but sales got a boost as builders cut prices to cope with higher mortgage rates and a growing backlog of houses.

That easily topped forecasts for a 1.1 million pace from economists.

The jump, the biggest since a 16 percent rise in April 1993, came even as mortgage rates hit an average 6.32 percent last month for 30-year fixed-rate loans, up from 6.25 percent in February.

The mortgage rate was the second-highest for any month since 2002. Rates have risen further since, climbing to 6.53 percent in the most recent weekly survey.

With rising mortgage rates driving up the cost of financing home purchases, most economists have been looking for real estate to cool off in 2006 after several years of record sales.

But economist Bob Brusca of FAO Economics said last month's drop in new home prices is a sign that the demand for new homes isn't nearly as strong as the jump in sales would suggest.

It was also noted that the report showed an unusual drop in prices from both February and a year earlier, which could be a sign that home builders are cutting prices to move a large supply of new homes now.

Many of the new homes sold in March were probably built in a stronger real estate scenario.

And unlike existing homes, where sellers can live until they get an acceptable price, builders can't live in these houses unless they have a lot of family. By and large they must finance them at rising interest costs.

In fact, about one builder in five has reported a jump in cancellations of new home orders, according to a recent industry survey. And Wednesday's report showed that there were 553,000 new homes for sale in March, up 25 percent from a year earlier.

Meanwhile, average prices fell 7.1 percent from February to $279,100, after topping $300,000 for the first time in the February revised figures. The median price, which reflects the point at which half the homes sell for more and half sell for less, also fell 6.5 percent to $224,200.

And while month-to-month declines in home prices are not unusual, more significantly, prices also fell from a year earlier: a 2.2 percent decline in median prices and a 3.6 percent fall in average prices over that time.

Still, Wednesday's big jump in sales came after existing home sales also showed an unexpected increase last month.

New home sales, while a fraction of the overall real estate, are more closely watched since they're more of a leading indicator of conditions in the housing market.

Existing home sales are recorded at closing, typically a month or two after a purchase agreement, while new home sales are tracked based on when contracts are signed.

According to a study released, the wealthy want their homes soon and they want them big.

The very wealthy want pretty much what everyone else wants in a home – just more of it.

The study surveyed members of 500 households with net investable assets of at least $5 million -- the median was $28 million, the top half percentile or so of the population.

It was found that wealthy Americans usually pay cash for their house, typically a seven-figure, stand-alone on a good-sized lot in an upscale suburb. The homes tend to be oversized and one of the reasons is that their owners want spots in them for every need.

That means separate media and game rooms, quarters for family members no longer inhabiting the house full-time and guest rooms for more casual visitors.

With most of their purchases, newly monied Americans at first tend to be conservative spenders. Home buying is an exception to this pattern. In the early stages of wealth, up to 10 years after individuals became very rich, they apparently display a bit of reluctance to spend money and it is a lot easier rationalizing spending a lot for a house.

And they continue to pour money into their houses after purchase, between $100,000 to $250,000 in taxes, upgrades and maintenance every year. Upgrades account for about $50,000 of that total with kitchen renovations the most popular remodeling job, followed by baths and landscaping.

In addition, they are looking toward the future and they don't want to spend their last months or years in an institution. The home amenity of the future figures to be a home-suite medical care facility, where aging moguls can be nursed in the comfort of their home.

Home Buyers

Congressman Chaka Fattah joined with the Federal Home Loan Bank of Pittsburgh to unveil "First Front Door," which offers more than 6 million dollars in grants for lower-income first time home buyers.

The grants, up to $5,000 for each qualified home buyer, are available through participating area banks. The grant program from the FHLBank of Pittsburgh will assist in down payment and closing costs for more than 1,200 home buyers.

The Congressman, joined by FHLBank's, Deputy Director of Community Investment, Eric Dickerson, announced the grant program at Germantown Settlement, 5538 Wayne Avenue, in Philadelphia's Germantown neighborhood. Joining in the kickoff announcement was Emmanuel Freeman, President and CEO of Germantown Settlement.

Fattah noted that the grant money is available across a three-state area, so he urged Philadelphians to take advantage of the program right away.

"There's 6 million dollars on the table, available to first time home buyers. The $ 6 million is first come, first served. We want as many of them as possible to buy homes in our region," Congressman Fattah said. "First Front Door provides a compelling reason for those who are renting to seriously consider home ownership."

Residents are leaving high-priced areas in the Northeast and West Coast for more affordable places in the Sun Belt.

It has been reported that the movement of Americans from north to south is trending as strong as ever. And, it seems, housing prices are driving the trend. The net out-migration of residents is from high-priced northeastern and West Coast cities to more affordable housing areas in the Sun Belt.

Metro areas with biggest net migration -- 2000-2004

Metro area Average annual net loss Annual rate per thousand
New York 211,014 11.4
Los Angeles 117,780 9.3
Chicago 63,249 6.8
San Francisco 60,984 14.7
Boston 41,851 9.5

Source: Census Bureau

Moving on in
Metro areas with biggest net gains in domestic migration -- 2000-2004

Metro area Average annual net gain Annual rate per thousand
Riverside-San Bernardino 81,460 23.0
Phoenix 48,598 13.9
Tampa 36,395 14.6
Atlanta 31,026 6.9
Dallas 17,119 3.1

Source: Census Bureau

Many are surmising that housing values are so different around the country that it's impacting migration.
Some people are cashing out housing and moving to cheaper areas. Others who don't own homes are moving so they can afford to buy one."

That makes losers out of metro areas like New York, Los Angeles and Chicago, and makes Dallas, Atlanta and Phoenix, where housing has been much more affordable, into big net gainers.

Loss leaders
Of the 25 largest metro areas, the New York region lost the most people, with an average annual net outflow of 211,014 residents from 2000 through 2004. That calculates to an average loss of 11.4 people per thousand per year. The median house price in the New York area last year was $427,600, about twice the national median. (See correction.)

Los Angeles, where home prices averaged $568,400, had a net domestic outflow of 117,780 during the same period, 9.3 per thousand a year. The net out-migration from the San Francisco metro area ($718,700) was even stronger, averaging 14.7 per year for a total of 60,984.

Many Angelenos relocated to the "Inland Empire" of Riverside-San Bernardino-Ontario, about an hour-plus east of LA. Housing prices there were a big draw; the median home cost $392,300, nearly $175,000 less than LA. That helped the area record a net influx of 81,460 people, for an average annual rate of 23 per thousand. The Riverside metro area was the No. 1 gainer in the U.S., both in total numbers and in rate and is now the 13th most populous in the United States, surpassing such better-known metro areas as St. Louis, Cleveland and San Diego.

Other areas fattening up on domestic migrants include Phoenix, where the median house cost $268,400, with a gain 48,598, Tampa ($223,000) at plus 36,395 residents and Atlanta ($170,200) with an influx of 31,026. Only seven of the top 25 largest metro areas were net winners; 18 had a net outflow of domestic residents.

Among the states, New York had the highest out-migration – 182,886 – and its average per thousand of 9.6 trailed only the District of Columbia, which averaged 18.1.

As for net gainers, the Sunshine State leads the pack.

Florida Real Estate has been a sponge for migrants. It has attracted more residents than any other state, a net gain of 190,894 (a lot of them retiring or relocating New Yorkers), but Nevada had the highest average annual increase per thousand, 23.3.

Is Florida peaking?
There is some evidence that retirees may be starting to shy away from the storms and flood problems that Florida has endured the past few years, especially with real-estate prices there going through the roof. Anecdotal evidence suggests that some retirees are moving to areas in Tennessee, Kentucky and western North Carolina that are considered safer, cheaper and less crowded.

Soaring prices in some Florida cities could slow or reverse the net migration there.

Migration seems to be at least somewhat independent of economic conditions. In Massachusetts, for example, out-migration has occurred at more than a 50 percent higher rate the past few years than in the decade before, according to Perry. Yet the state suffered much more economic distress in the 1990s than it has in the 2000s.

Like virtually every other post-war trend, the attitudes and behaviors of baby boomers is crucial, because of the sheer size of the group.

Many of the net losers in this domestic dance have still gained population due to immigration from foreign lands. New York, for example, is one of the six states - others are California, Florida, New Jersey, Illinois and Texas - that in 1990 acounted for three-quarters of all immigrants living in the United States.

But by 2000, those states could only claim two-thirds of all foreign born U.S. residents, a sharp decline. These are still the 'gateway states, but 22 other states are seeing significant growth of immigrant populations.

If that trend continues, the net-migration loss states may find it even harder to hold onto their populations.

The key to becoming a millionaire is to own your own home, rather than to rent one.

The key message by David Bach, best selling author, is that you simply cannot get rich by renting.

"It's so hard to share that with people who are renting, but it's the truth," he said "The average renter in America today is poor. They're worth less than $5,000. The average homeowner is worth over $172,000. So, what we're seeing in this country is a real separation between the rich and poor. In order to have wealth in America, you have to own a home."

Following are the financial advantages of homeownership


Tax savings
"People say real estate is location, location, location. It's not. It's taxes, taxes, taxes," says Bach. "When you buy a home, you get a mortgage deduction. The government is subsidizing your home purchase. That's why so many more Americans are buying homes."


Tax-free profits
"When you buy a home, you're able to go out and purchase a home and have a gain of over $250,000 tax free, if you're single. Married, you get up to half a million dollars in tax-free profit. That's the only investment that the government gives you where you can buy something, sell it and have tax-free gains."


Leverage other people's money
"When you buy a home, the bank will loan you all the money. You go into a bank to borrow money to start a business, no way. They're probably not going to give it to you," says Bach. "You go to borrow money to buy a home, they say, 'Here you go. Here's a check.' "

Homeownership myths


Need a big down payment
"That's the biggest myth," "Forty-three percent of Americans who bought their first home last year did it with no money down. This is not an infomercial. The banking industry has changed … There are 10 million renters out there that the banks say could qualify for a home mortgage today and they could qualify, in many cases, with no money down."


Must pay all debts first
"Again, wrong,". "The bank will loan you money with credit card debt, the bank will loan you with less than perfect credit. In fact, the banks have programs now that will help you, if you're what's called a sub-prime borrower, they'll even work with you to get your credit up."


It's cheaper to rent
"There are certain markets where it may be cheaper to rent. Long-term, it's never going to be cheaper to rent your home," he says. "If you rent right now in this country at $1,500 a month, over the next 30 years, you will actually spend over $540,000 on rent. That's assuming your landlord was nice and didn't raise the rent. If they raise it by 5 percent, you'll spend over $1.2 million on rent over the next 30 years. And guess what? You've got zero to show for it. If you buy a $200,000 home, the mortgage payment would be the same. However, at the end of 30 years, you would, in fact, own your home free and clear, the home would be worth $1.2 million. If you backed out the mortgage payments, you're ahead by $740,000."

With recent reports about a slump in the housing market, lots of Americans are on the fence about whether to buy or rent right now. But it is said that "real estate is not national. It is local. The only real estate that matters is the market that you're in, the street that you live on, the building that you own."

In mostly anonymous postings, agents are reporting big problems on the real estate scene.

If the secret worries of real estate professionals are any indication, home prices could be heading for a swoon.

When recently given the opportunity to blog about market conditions, real estate agents almost uniformly described them as bad – and getting worse.

Normally, brokers and agents tend to sugarcoat the news; they don't want to affect consumer confidence, however since these were anonymous postings, they had a way to really share their thoughts.

Most responded with tales of high inventories, slow sales and languishing prices.

Here's a sampling of their comments:


"Portland, Oregon is mixed . . . more inventory, sitting longer. . . . Sellers no longer king." Posted by anonymous.


"Minneapolis/St.Paul . . . 15 houses per buyer. If we had buyers. Huge inventory in every price range. More foreclosure properties coming on daily." Posted by anonymous.


"East Central Florida Coastal area inventories up four times year to year and sales down 75%." Posted by Ramon Rivera (Not all bloggers craved anonymity).


"Some Realtors, Mortgage Brokers & some clients have been more testy than in months previous. Something is in the air." Posted by S. Crowe.


"Northern Ca. Let's not beat around the bush here. There is a slow down!! Home prices are not going up. Sales are down." Posted by anonymous.

There could be an element of self-selection, with agents suffering a slowdown more inclined to vent. But usually, comments from posters tend to be very diverse, with no clear consensus. This round of blogging has been conclusive; no one said the housing scene is great for sellers.

Stat support
Statistical evidence of a housing slowdown appears almost daily. On Tuesday, the Census Bureau reported that March housing starts were down to their second lowest monthly pace in the past year.

So far prices have not suffered any notable decline - the median home price nationally in the fourth quarter was up 13.6 percent from 12 months earlier, according to the National Association of Realtors.

Still, NAR chief economist, is on record predicting price appreciation will drop to the mid-single digits. And NAR has recorded an uptick in inventory, though not enough to be troubling.

NAR spokesman, characterizes conditions today neither as a seller's nor a buyer's paradise. "Probably, balanced is a better word," he says. "There has been a steady rise in inventory since last fall, but, broadly speaking, it's still a little tight."

Rates are going up
What argues against any big fallout is that, absent a serious economic crisis in which unemployment spikes or wages plummet, real estate prices do not fall very far or very fast.

But this time markets have to contend with rising mortgage rates - the average 30-year mortgage rate, at 6.49 percent, is now near a 4-year high, lowering home affordability.

That will have a bigger impact in ‘hot’ areas, where many buyers would not have been able to afford their purchases without resorting to financing through low-downpayment, low-interest ARMs (30 percent of recent sales or more in some areass). As rates rise, some could face close to a doubling of monthly mortgage payments. And if their home value has fallen, they could wind up underwater, owing more than their house is worth.

How much potential for disaster there exists can be debated. According to Lereah, the next few years will feature a stable, more balanced, healthier real estate scene.

Even some of the are not totally bearish. One poster wrote, "Northern CA - oddly enough, higher priced inventory (luxury homes) still moving."

Another one opined, "Wilmington, NC, ... still active, except on barrier islands, where inventory of $300-500K condos over-supplied. . . . good to great condition, well-priced properties move quickly."

Still, these shaky endorsements come nowhere near the unbridled optimism of a year or two ago.

Martha Stewart-style homes go on sale in Cary, North Carolina.

Fans of Martha Stewart now have the opportunity to live more like her...three home designs based on four of the "Domestic Goddess's" own residences are now on the market at a development in North Carolina.

KB Home, the Los Angeles-based home builder, and Martha Stewart Living Omnimedia, recently unveiled three model homes of their co-branded development, called Twin Lakes, located in Cary, North Carolina, outside Raleigh.

Several sold the first day on the market.

The homes' exteriors draw themes from various Martha residences, in Maine, suburban New York and the Hamptons. All three designs will come in a variety of sizes and floor plans.

Their interiors will feature many a favorite Martha touch, such as wainscoting, crown moldings, oversized dining areas and built-in window seats.

In addition, buyers can order their homes with "Martha's Choices," options of her favorite colors and fittings, such as floor coverings, door knobs, cabinet pulls and faucets, and well as china and home decorations.

Even Martha's gardener will get in on the act, creating a variety of landscape designs to match the style of each home.

The plan is for the community to grow to a total of 650 homes on 150 acres. Floor plans range in size from 1,550 square feet to more than 4,000 and are priced starting at $220,000 and topping out at $550,000.

Already on the docket are plans for another development outside Atlanta to be called Hampton Oaks.

It is reported that higher rates reduced mortgage applications for first time in three weeks.

U.S. mortgage applications fell for the first time in three weeks, as a near four-year high in interest rates dissuaded consumers from taking out home loans.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.50 percent, up 0.01 percentage point from the previous week, its highest level since the week ended June 14, 2002 when it reached 6.53 percent.

The 30-year fixed-rate mortgage, the industry benchmark, was also substantially above its 2005 low of 5.47 percent in late June of 2005 and above last year's high of 6.33 percent in the week of Nov. 11.

The MBA's seasonally adjusted purchase mortgage index fell 4.7 percent to 417.7 from the previous week's 438.2.

The index -- considered a timely gauge of U.S. home sales -- was also below its year-ago level of 474.5.

The group's seasonally adjusted index of refinancing applications decreased 6.6 percent to 1,532.4 compared to 1,640.8 the previous week. A year earlier the index stood at 1,899.6.

The refinance share of mortgage activity decreased to 36.0 percent of total applications from 36.6 percent the previous week. It was the lowest refinance share since the week ended July 30, 2004 when it reached 35.8 percent.

Historically low mortgage rates have fueled a five-year housing boom, helping support the U.S. economy's recovery from recession despite uncertain business investment.

Analysts differ on whether there is a housing bubble, but most agree that the market is cooling off from its record run.

Fixed 15-year mortgage rates averaged 6.17 percent, up from 6.15 percent. Rates on one-year adjustable-rate mortgages increased to 5.97 percent from 5.96 percent.

The MBA's survey covers about 50 percent of all U.S. retail residential mortgage originations. Respondents include mortgage bankers, commercial banks and thrifts.

These days, when it comes to homebuying, you're doing more of the work. But buyer's agents still claim the same fat fees from sellers when deals close -- generally half of the typical 6 percent commission, or $15,000 on a $500,000 house.

Traditional realtors are trying to keep it that way, new realtors are starting to chip away at commissions in the form of buyer's rebates at closing time.

As the CEO of one firm says, "finding the house is probably 75 percent of the work, why not give [buyers] 75 percent of the commission?"

Today, according to the National Association of Realtors, 77 percent of home buyers start their search on the Internet at sites such as Realtor.com. Other sites provide comparison home value estimates and information about town and neighborhood facilities. Offerings include realestateabc, Zillow.com and HomePages.com.

With their clients doing much of the grunt work, the new "rebaters" are happy to take less for the services that the buyers still require – such as scheduling appointments with listing agents, preparing documents and guiding clients through closings.

Some agents never leave their offices. Buyers find listings themselves, but they don't accompany the buyers on their visits.

One of the main duties of a traditional buyer's agent is to drive clients around to listings. Some agents like to take the taxi driving out of the buying experience. That results in a big saving in time and effort.

Some firms return three-quarters of the buyer's agent's share to clients, some rebate two-thirds of their commissions, some kick back one percent of the home's selling price (about one-third the commission) to buyers.

For many buyers, it's found money. For the brokers, it means a much more productive business model. One agent can do several transactions a week, while traditional agents do several transactions a year.

Traditional realtors "hate the new business model.... it threatens their livelihood." They believe they will be blackballed from the industry and that other agents wouldn't show houses to their clients.

It is said that although these companies provide heavy rebates , they have a not-so-secret weapon – greed. If listing agents get an offer, they want to do a deal – that is, after all, the only way the seller's agents get paid. And, the rebate has no effect on their end of the commission; they keep their entire share.

Some even refer clients to traditional full service brokerages. They accept the deals that include a rebate for clients. The industry's little secret is that any agent will give a rebate but they won't fess up to it. It is apparently easy to find an agent anywhere in the country who will be more than willing to do all the hand-holding a client can want and still kick back the one percent.

Not all realtors are eager to pass along savings. Some have benefited from the efficiencies of technology without lowering their commission rates. And they are doing that during years of soaring home prices, which also raises their profits.

Agents can service more clients and it is being seen that the more sophisticated and established brokers, ones able to harness technology are prospering more than ever.

It is now being said that the future is already here; it's just unevenly distributed.

With air starting to leak from the U.S. market, savvy speculators are now looking to Europe and South America.

Last year, one 50-year-old former IT executive had an enviable problem. He made a small fortune flipping a dozen properties in Phoenix's Maricopa and Pinal Counties. But he couldn't figure out where to reinvest his bounty.

Trouble was, after a two-year stretch during which Phoenix-area home prices jumped more than 60 percent, Gasic worried about a looming slowdown, and his confidence in the U.S. economy began to sour.

So where does a bubble-wary real estate player turn?

The answer may be --in San Rafael, Argentina. Last November, capitalizing on Argentina's devalued currency, 120 acres of farmland was snapped up for just $140,000. The region's soil and climate are ideal for growing grapes for malbec wine--a Bordeaux varietal that's catching on outside of South America. The land would apparently sell for five times as much in Chile.

Although the six-figure bet doesn't look so radical, when you consider that more and more U.S. dollars are moving into foreign real estate. According to a research firm , Americans invested $12 billion in foreign commercial real estate ventures last year, almost double the amount spent in 2004. Meanwhile, global cross-border investment hit a record $475 billion in 2005.

What's driving the growth? Investors in many countries where prices have peaked are scouring the globe for better returns, according to a U.K.-based brokerage firm. As the American markets have slowed, they're betting on locations they wouldn't have imagined a few years ago. Finding property abroad is also easier now because of the Web, where buyers can skim listings and contact sellers instantly.

Vacation homes and investment properties show double-digit growth in 2005.

Most Americans seem to think that homes are still a good buy. So they bought second homes, both as vacation properties but especially for investment purposes, in record numbers last year.

There were 3.34 million second home sales in the United States last year, up 16 percent from 2005, according to a report released Wednesday by the National Association of Realtors (NAR).

Nearly 40 percent of all home sales were for second homes, up from 36 percent the year before -- 27.7 percent of all home purchases were for investment (compared with 23 percent in 2004) and 12.2 percent were bought as vacation homes (13 percent in 2004).

It is said that the baby boom generation is driving second home sales -- they're at the peak of their earnings, interest rates remain historically low and boomers want to diversify investments.

Vacation homes cost more than homes bought for investment. The median price paid for a vacation home was $204,100, up 7.4 percent from 2004, while investment homes cost a median of $183,500, up 24 percent.

The buying of investment properties continues a trend that started with changes in tax laws in 1997. Previously, when homeowners sold their primary residences, the only way to avoid capital gains taxes was to roll over gains into another, more expensive home. Now, couples can claim a $500,000 exemption on sales of primary residences, enabling them to downsize into less expensive houses and apply the difference to second home purchases.

It is also said that vacation homes once constituted the majority of second home purchases, but the soaring real estate market has attracted more Americans to real estate investing.

Technically, many of the homes bought for investment cannot be classified as "second" homes, since many investors have purchased multiple properties. About 4 percent of home owners own three or more properties.

Typical buyers
The NAR report said that the profile of typical vacation home buyers was that they were 52 years old with earned income of $82,800. Their getaways were usually either within 100 miles of their primary residences (47 percent) or more than 500 miles away (43 percent).

Investment home buyers were, on average, a little younger (49 years old) with slightly lower incomes ($81,400). The biggest contrast was that investment buyers usually shopped much closer to their primary residences; the median investment home purchase was just 15 miles away.

The biggest consideration for vacation home buyers was that the properties should lie near recreation facilities such as beaches, mountains or golf courses. Midwesterners purchased more vacation homes than residents of any other region; they accounted for 33 percent of al sales. Southerners bought 30 percent of all vacation properties, Westerners 20 percent and Northeasterners 17 percent.

Southerners bought more for investment (38 percent of all sales), with 24 percent each accounted for by Midwesterners and Westerners and just 15 percent by residents of the Northeast.

Vacation-home sales will remain strong for the foreseeable future given the fact that baby boomers are favorably positioned in terms of affordability, as well as being at the stage in life when people are most interested in making that kind of a lifestyle purchase.

It is also said that investment homes purchases, however, may drop, as stagnant prices and rising interest rates will discourage buyers.

Home ownership is getting tough for working class
The low- and middle-income families see rate of home ownership falling even as overall ownership rates rise.

The rate of home ownership for low- to moderate-income families with children is lower than in 1978, even as the overall rate of home ownership increases, according to a study from the Center for Housing Policy released Wednesday.

It has been found that only 59.6 percent of working class families owned their homes in 2003, the most recent year for which figures were available, down from 62.5 percent in 1978.

Meanwhile, home ownership in the overall population has risen to 68.3 percent in 2003 from 65.2 percent in 1978.

Reportedly, this translates into 2.3 million children who would be living in owner-occupied housing if the rates had remained the same.

Working class families have been defined as those whose earnings range from $10,700, or the equivalent of working 40 hours a week at minimum wage, and up to 120 percent of the median income in their area.

The study cites a combination of factors for the divergent trends, including soaring housing costs that have overshot wage increases, higher health care bills and a rise in the number of single parents.

The Center for Housing Policy, the research arm of the National Housing Conference, a housing affordability advocacy group, advised that the trend likely has persisted since 2003 in the face of sharp increases in real estate prices and more modest gains in earnings, particularly among low wage jobs.

Closing cost scams

You always thought those mysterious fees at closing were a total scam and you were right!

Here's what is suggested you can do to avoid paying through the nose.

Technology has magically lowered the price of buying everything, even airline tickets. But home buyers now pay eight times the closing costs they paid 40 years ago.

Mystery charges and buyer exhaustion
Ever bought a house? Then you know what it's like to be confronted, while making the biggest financial transaction of your life, with a bundle of fees you don't quite understand. They're enumerated on what's called your HUD-1 document, the mortgage settlement statement you get the day you close, as required by the Department of Housing and Urban Development.

The charges listed include mysterious things like title insurance, settlement fees, appraisal fees, processing fees, document-preparation fees and others, as well as charges paid by the seller, like your broker's commission. Many do not spend a lot of time on their HUD-1, at least not until it is too late, because all those fees can seem like warts on the side of an elephant, a few hundred or maybe a few thousand dollars out of a transaction that runs into the hundreds of thousands.

Together, though, these fees add up. Americans spend $110 billion a year buying and selling houses, not including the cost of the homes themselves. And while technology has magically lowered the cost of buying everything from airline tickets to stocks to wedding gifts, real estate purchases remain stubbornly expensive. Home buyers now pay eight times as much in closing costs as they did 40 years ago.

Regulators have begun to ask why. The Department of Justice sued the National Association of Realtors last fall, claiming that its rigid rules for home listings artificially inflate commissions. And state insurance commissioners in California, Colorado, Florida, Maryland and Ohio have recently uncovered what they say are networks of sham title insurance companies set up to hide illegal rebates to banks, builders and realtors in exchange for steering business their way.

It is said that the current system doesn't work at all. Real estate fees are much higher than they'd be if the market worked properly.