WHY YOU'LL PAY MORE IN RENT THIS YEAR.

Rents were up last year and they're expected to continue rising. Who or what to blame depends on where you live. The culprits include rising home prices, condominium conversions -- even Hurricane Katrina.

If rent money is harder to come by, blame it on the hottest rental market in five years. The average rent climbed to $940 in the fourth quarter of 2005, according to real estate data firm M/PF YieldStar. And this year, it’s going to be even more expensive as rents recover from historically low levels.

"2006 should be the big price correction," for rents, said Greg Willett, vice president of research at Carrolton, Texas-based M/PF. "Everything is really underpriced in many markets around the U.S."

National apartment occupancy rose 1.6% to 95.2% in last year’s fourth quarter, the highest point since the fall of 2001. Rising home costs, coupled with an increase in new job creation, is creating a bigger pool of renters, Willett said. But in many areas, the number of apartments is dwindling, as building has failed to keep pace.

"Real estate is out of control here," said Jess Callahan, a 29-year-old Ft. Lauderdale yoga instructor and single mother looking for a two-bedroom rental for $1,000 a month or less. "I've been looking on and off for six months."

The condo-conversion crazeAt 99%, Ft. Lauderdale had the highest occupancy rate in the country in 2005’s fourth quarter; its average rent climbed 11.6% to $1,104. It joins other cities like Chicago, San Diego, New York, Las Vegas and Miami, where a significant number of apartments are being converted to condominiums.

Last year, condo conversions exceeded apartment construction for the first time in recent history, according to the M/PF report.

Not surprising, five of the nation's tightest apartment markets last year were in Florida, where the condo boom was in full swing. Renters in Ft. Lauderdale say it's virtually impossible to find an apartment in a decent neighborhood unless you're willing to live in converted garage apartment, or pay thousands in rent.

Kim Miller, an interior design assistant who is looking for a one-bedroom in nearby Hollywood. Fla., said, "If you don't have $900 or more a month, it's pointless to even look" in Ft. Lauderdale.

Apartment occupancy in West Palm Beach, Orlando and Miami also came in above 97%, as more apartments were taken off the market in the fourth quarter. With only 400 new units under construction, rents shot up in these areas 12.6%, 7.9% and 6.3% respectively.

Building constraints = pricy rentsThe three priciest rental markets were in some of the tightest markets with the biggest hurdles for new construction: New York City, San Francisco and Los Angeles. (To see a list of the 58 most expensive cities for renters, click here.)

Los Angeles was the nation's fifth-tightest rental market with an average occupancy rate of 97.8%, had an average rent of $1,421 in the fourth quarter, according to M/PF, in part because it takes developers as many as eight years to get a project built here.

Rents moved even higher in San Francisco, where 96.4% of the apartments surveyed were occupied at an average rent of $1,573. The highest rents were in New York City, which was 97.1% occupied at the end of last year, with an average rent of $2,400, according to real estate data firm, Reis Client Services. (MPF does not track New York City.)

Other cities where M/PF’s Willett expects to see big jumps in occupancy and rent this year include Austin, Texas; Las Vegas, Nev.; and Phoenix, Ariz, where apartment construction was lapped by demand. Jobs in these cities are growing at a fast pace and home prices are rising quickly, making the limited stock of apartments more appealing.

"The fact that home prices have climbed so much has widened that gap (between renting and owning) again,” Willett said. "This is the most optimistic I've seen (landlords) in a long time."
The Katrina effectRenters in Houston can thank Hurricane Katrina for boosting their rents. Due in part to the influx of evacuees last fall, Houston’s apartment occupancy rate jumped almost 5% to 94%, and rents climbed 3% to an average of $692. Atlanta, Dallas, Birmingham Ala., and Nashville, Tenn. also reported gains as relocations from Katrina began setting down roots.
A recent survey by the National Multi-Housing Council of large apartment owners showed that 42% had seen "modest" improvement in leasing as these new residents moved from hotels to apartments. While some of these new apartment residents could return home in the next year, analysts believe many will remain in their new homes.

"Probably somewhere around half of the people who spread out to new locations will end up staying in those locations," Willett said.

Want lower rent? Move to CincinnatiRents aren’t rising everywhere. Apartment landlords in Cincinnati, Ohio; Raleigh and Greensboro, N.C.; have been forced to lower rents as the job picture remains stagnant. And analysts are expecting further job cuts in Detroit, Pittsburgh and Atlanta, which may allow renters to call their own shots.

Still, economists say, the recovery in most of the nation's rental market has been fairly quick, and should last for the next couple of years.

"Three years ago, rents were going down," all over, said Mark Obrinsky, chief economist with the National Multi-Housing Council in Washington D.C. "Now rents are going up higher than the rate of inflation." And that, Obrinsky said, should spur some developers to begin building again.
In the meantime, however, property managers such as Dan Murphy of San Diego's 1,410-unit La Mirage apartment complex, know that they have the upper hand in negotiations and plan to hike prices.

"It's been very busy for us," Murphy said. "I'll probably up the rents a little bit each month.
Faced with such rising rents, Ft. Lauderdale renter Callahan said she'll just have to make do, either taking on a roommate, or getting a smaller place.

"I have three weeks to come up with something," she said. "I'll just have to settle for something I might not want, until I can find something I do want," she said.

(Courtesy of MSN Author - By Melinda Fulmer)

WHEN LOAN-TO-VALUE RATIO DROPS BELOW 80% - JUST ASK A LENDER

Have you ever wondered how your friends and relatives can afford to buy their nice houses and condos when you know they had hardly any savings for a down payment?

Unless they obtained a VA or FHA mortgage, they probably borrowed 90, 95, 97, 100, or even 103 percent of their home's purchase price, thanks to PMI. Private mortgage insurance enables mortgage lenders to make these high-risk loans with safety.

If the borrower defaults and the lender suffers a loss, the PMI insurer steps in to pay the top, or riskiest, portion of the mortgage, above the customary lender's maximum "safe loan" of 80 percent loan-to-value ratio.

Who can get a low or no down payment PMI mortgage?

Because PMI mortgages are risky for lenders, they require good income and good credit. There are two steps. The first step is to be approved by the mortgage lender. The second step is to be approved by the PMI insurer.

Most mortgage lenders refer their PMI business to one or two PMI insurers (there are only seven PMI companies in the nation). Because the originating lender knows the PMI qualification standards, after obtaining approval by the originating lender there usually is no problem obtaining PMI.

How much does PMI cost the borrower?

PMI payment plans vary widely among mortgage lenders. Some lenders include PMI in their loan interest rate at no extra charge. But PMI borrowers can be certain they won't obtain the lowest interest rate by making a low or no down payment. The 103 percent PMI mortgages even include closing costs.

Other PMI lenders charge a PMI fee at the time of loan closing, plus a monthly PMI premium, which varies with the amount of the insured mortgage. These fees range from $20 to $100 per month, sometimes more for larger mortgages. PMI borrowers should ask about alternatives for PMI payments, which can vary by lender, such as obtaining a second mortgage or a home equity loan instead of PMI.

How long is PMI required?

The answer to this question depends on the mortgage lender. At the time of loan closing, lenders are required to give borrowers a disclosure stating when the PMI premium can be cancelled.
If the PMI premium is included in the interest rate, without a specific PMI premium each month, the extra PMI cost lasts as long as the mortgage. To illustrate, suppose 6 percent is the market interest rate. But your lender might quote a 6.25 percent interest rate for a low or no down payment mortgage without any extra PMI charge.

However, most PMI lenders charge an up-front PMI fee plus a monthly PMI premium such as $100, sometimes more.

This monthly PMI charge will be required until the loan balance declines below a specified ratio. But this gets very tricky and deceiving. Some lenders require the loan balance to drop below 80, 78, or 75 percent loan-to-value ratio.

The problem is many lenders require these loan-to-value ratios to be based on the home's purchase price, without considering increased market value due to (1) improvements made by the borrower and/or (2) market value appreciation, currently at a 6 percent national average.
Smart PMI borrowers realize, after a few years of home ownership, their loan-to-value ratio is well below 80 percent and the mortgage lender no longer needs PMI protection in the rare event of foreclosure. But many lenders are reluctant to allow PMI cancellation because of the loss protection it offers lenders.

Federal law doesn't help PMI borrowers.

In 1998, Congress enacted the Homeowners Protection Act. It was supposed to protect PMI mortgage borrowers from nasty lenders who refuse to cancel unnecessary PMI premiums. But this ineffective law hasn't helped one PMI borrower yet and it won't help any until 2009.
Here's why. This law says PMI mortgages originated after July 29, 1999 must have the PMI cancelled when the loan-to-value ratio declines to 78 percent.

However, don't be fooled. Depending on the PMI home loan's interest rate, it will take 10 to 15 years for the loan balance to drop to 78 percent of the home's market value at the time of purchase.

The reason is this bad law does not take into consideration the home's rise in market value due to the borrower's capital improvements or the market value appreciation.

The adverse result is PMI insurers continue to collect the monthly premiums even when the loan-to-value ratio is well below a safe 80 percent.

"Good guy" lenders Fannie Mae and Freddie Mac will cancel PMI if you ask.

Fortunately, the nation's two largest buyers of home loans in the secondary mortgage market are "good guy" lenders. Their PMI policy is to order their loan servicers to cancel PMI, upon the borrower's request, when the loan-to-value ratio drops below 80 percent if the borrower has an on-time payment record for the last two years.

Fannie and Freddie own millions of PMI mortgages. While some of their loan servicers are very cooperative when asked by the borrower to cancel PMI, others can be extremely nasty. PMI borrowers who ask their loan servicer "who owns my loan" can rejoice if the answer is Fannie Mae or Freddie Mac.

How to request PMI cancellation.

If you think your PMI loan-to-value ratio is below 80 percent of your home's current market value, you can save hundreds or even thousands of wasted PMI dollars every year. But you must ask. If you are rejected, ask again. Ask, ask, ask, ask, ask until you get the answer you want.

If you have a cooperative mortgage loan servicer when you request PMI cancellation, you will be given the names of several approved appraisers you can hire to appraise your home's current market value. The appraisal cost will be around $350. But the money will be well spent if it enables you to cancel your PMI premiums.

What to do if your PMI cancellation request is refused.

If you are not among the lucky home loan borrowers whose mortgage is owned by Freddie or Fannie, if your request is rejected, you have little recourse to get your PMI cancelled. Unless your state's law regulates PMI cancellation, mortgage lenders can set their own unreasonable PMI cancellation rules.

But you have several alternatives. After you have an appraisal from an appraiser recommended by your loan servicer, if your loan-to-value ratio is below 80 percent, keep complaining up the loan servicer's "chain of command" until you reach the top person. Always be very polite, but persistent.

If that doesn't work to get your PMI cancelled, you can refinance with a lender who doesn't require PMI. However, refinancing can be a hassle.

Another alternative, suggested by readers, is to pay your monthly PMI premium each month under protest and then sue the loan servicer in the local Small Claims Court for a refund each month because the PMI is no longer necessary. The loan servicer is unlikely to show up and you will probably win a default judgment. After a few months of this, most loan servicers give up and cancel unnecessary PMI.

Conclusion.

PMI enables millions of U.S. home buyers to purchase their residences with little or no down payments. However, after a few years, PMI is no longer necessary when the loan-to-value ratio drops below 80 percent.

But many lenders refuse to cancel PMI because it costs them nothing and they feel more secure. That's when PMI borrowers should become aggressive to get rid of unnecessary PMI either by refinancing elsewhere or hassling their loan servicers to cancel expensive PMI premiums.

(Information courtesy of Robert J. Bruss - Inman News)

WEEKLY ECONOMIC NEWSFRONT

With both food and energy costs moderating, the closely watched Consumer Price Index posted a minuscule 0.1% increase in February after having jumped 0.7% in January, the Labor Department reported March 16. Excluding the volatile energy and food sectors, core inflation was also slight, rising by just 0.1% in February. The decline in inflationary pressures is important because the Federal Reserve has signaled it will look at economic reports before deciding whether to continue its current course of interest rate increases.

On March 15, the Federal Reserve said the economy was headed into spring with solid momentum, despite a cooling housing market after a red-hot, five-year stretch of record sales. The Fed said a strengthening labor market is translating into modest wage gains for the average worker throughout most of the 12 Federal Reserve Districts. Fed officials closely monitor wages -- as well as the prices of goods and services -- for insight into the nation's inflation climate.
U.S. housing starts fell 7.9% in February to a 2.120 million annual pace from 2.303 million units in January, the Commerce Department said March 16. Starts fell 23.5% in the Northeast, 11.2% in the South and 10.4% in the Midwest, but rose 7.9% in the West.

Spurred by weak auto sales, retail sales fell a larger-than-expected 1.3% in February, the first decline in retail demand since August, the Commerce Department said March 14. Analysts had forecast a 0.8% dip.

(Information Courtesy of Louise Rose, ELB Mortgage Brokers)

WEEKLY ECONOMIC NEWS

The trade deficit jumped by 5.3% to an all-time high of $68.5 billion in January, the Commerce Department reported March 9. Higher oil prices and rising imports of cars, auto parts and wines contributed to the record increase.

Worker productivity, a key determinant of rising living standards, fell 0.5% in fourth quarter 2005, the first time that has happened in more than four years, the Labor Department said March 7. Meanwhile, wages rose at a 3.3% pace over the same period, the fastest gain in a year. Analysts said the decline in productivity mainly reflected a temporary slowdown in overall economic growth caused by the hurricanes and surging energy prices.

Reflecting a big drop in demand for commercial and military airplanes, orders to U.S. factories for manufactured goods dipped 4.5% in January, the largest amount in more than five years, the Labor Department reported March 6. Excluding the volatile transportation sector, factory orders posted a 1.6% increase, the best showing in five months.

The number of Americans filing new claims for unemployment benefits unexpectedly rose for the week ending March 4 to 303,000. It's the first time this year that jobless claims have topped 300,000.

Interest rates for 30-year mortgages for the week ending March 4 jumped to their highest level since September 2003, Freddie Mac said March 9.

(Courtesy of Louise Rose, ELB Mortgage Brokers)

A BEHIND THE SCENES LOOK!

Tired of guessing where that warm air is leaking into your house in the summer and out of your house in the winter? You may not have X-ray eyesight but, with the use of residential infrared technology, homeowners can now get a sneak peek of what’s going on behind their walls.

Gaps in windows, doors or attic spaces can lead to serious hikes in your monthly heating or cooling bill. Likewise, moisture build-up in the walls and hidden roof leaks can often lead to mold or mildew damage, which if not detected early is a serious issue for many home buyers.

With thermal imaging cameras, however, trained technicians can pinpoint hidden spaces that are the culprits of serious heat or cooling loss and possible condensation build-up.

The test can even determine if your insulation is still working or even missing in places. Instead of ripping out and replacing all of the insulation or roof, infrared imaging identifies the problem to find the specific area that needs repair.

Thermographic images must be taken by a certified technician though. To find one in your area, visit www.natresnet.org/directory/rater_directory.asp..

AMERICAN HOME MORTGAGE ACCEPTANCE ECONOMIC UPDATE

Sales of new homes slid 5% in January to a seasonally adjusted annual rate of 1.233 million units, the slowest pace since January 2005, the Commerce Department reported February 27. The decline was bigger than expected. Even with the softening sales, new home prices were up in January with the median price climbing to $238,100, up 4% from December, but below the all-time high of $243,900 in October.

Sales of existing homes also fell 2.8% in January, the fifth straight monthly decline, to a seasonally adjusted annual rate of 6.56 million units, the National Association of Realtors said February 28. The median price for a previously owned home in January held steady at $211,000, the same as the December level.

The Commerce Department reported on March 1 that personal spending shot up by 0.9% in January, the strongest gain in six months. Incomes rose by a solid 0.7%, the best showing since September. The bigger rise in spending compared to incomes, however, kept the personal savings rate at a negative 0.7% in January. For 2005, the savings rate was a negative 0.4%, a level not seen since the Depression years of 1932 and 1933.

Reflecting concerns about short-term prospects for the job market, consumer confidence fell from 106.8 in January to 101.7 in February, according to the Conference Board's widely followed index issued February 28. Economists closely track consumer confidence because consumer spending accounts for two-thirds of U.S. economic activity.

(Information provided courtesy of Louise Rose, ELB Mortgage Brokers)