Ever wonder what kind of impact a home purchase has on the local economy? Real estate costs, remodeling, buying new furniture, etc., all of those costs that go into buying an existing home, they have a direct impact on the local economy.

The National Assocation of Realtors conducated a study to find out just how much of an impact on the economy this purchase has. The NAR used the national median price of an existing home in 2008 for this research ($198,100), and here’s what they found:

Each home sale at the median price generates $63,101 of economic impact. This number is made up of the following…

Real Estate Industries: $17,829
Commissions, fees and moving expenses, or income to real estate industries, associated directly with the purchase are about nine percent of the median home price ($198,100).

Furniture/Remodeling: $5,331
Average furniture and remodeling expenses following an existing home purchase are right around $5,000, based on a Harvard Joint Center for Housing Studies figure (Improving America’s Housing 2003. Measuring the Benefits of Home Remodeling. Harvard Joint Center for Housing Studies Report: R03-1).

Mutliplier: $11,117
The Multiplier Effect accounts for the fact that income earned in other sectors of the economy as a result of a home sale is then re-circulated into the economy. The National Association of Realtors’s macroeconomic modeling suggests that the multiplier is between 1.34 and 1.62 in the first
year or two after an autonomous increase in spending.

What this means is that each dollar increase in direct housing activity will increase the overall GDP by $1.34 to $1.62.

New Housing: $28,825
Because existing home sales have historically been associated with new construction at a ratio of eight to one, we add in one-eighth of the new home price (the 2008 median new home price is $230,600, per the Census Bureau) to approximate the value of this construction being added to GDP.

The existing home price is not directly added to the economy because the home was produced or constructed in the past. Only the value-added service related to the sale of an existing home is included. When a new home is constructed, the entire price is added to the value of GDP because it is new production.

Total Economic Impact
So, the total Economic Impact of an existing home purchase =
$17,829 (Real Estate Industries) +
$5,331 (Furniture/Remodeling) +
$11,117 (Multiplier) +
$28,825 (New Housing),
for a grand total of $63,101.

Local Economic Impact Higher
The 2008 national median home price used in this study is about $82,000 less than the local median price of existing homes in Whatcom County ($280,000 in August). This tells us that the local economic impact of purchasing an existing home should be significantly higher than the $63,101 number found in this study.

Thanks to Rick DeLuca for the summary of this NAR study.

I recently had the chance to talk with Business Editor Dave Gallagher at the Bellingham Herald about the importance of pricing homes right the first time, and what tends to happen when sellers start off asking too much (the home ends up staying on the market for much longer; sellers see greater price reductions when the home finally does sell).

You can read Dave’s article here.

Moral of the story: make sure you price your home right the first time. If you don’t, it could cost you.

Local real estate numbers are now in for August. Here are a handful of stats and my analysis for the Whatcom County housing market in the month of August, which I’ve paired with month-to-month and year-to-year comparisons.

Active Listings, Pending Sales and Closed Sales
We’re seeing less listings on the market than we have in years past. Current local active residential listings are down by about 11% from the same period one year ago.

I recently commented on the trend of rising pending home sales on the national level, and we’re noticing that same trend here at home as well. Local pending sales numbers are up 14% for the month, and they are up 8% for the year over the same period last year.

However, not all of those pending sales are turning into closed sales. Closed sales are down 10% for the month and down 15% for the year, which may be attributed to a growing number of transactions missing their closing date deadline (I’ll talk about this more later).

The graph below shows the trends in the number of Whatcom County homes for sale, the number that have sold, and the number that are pending, from June 2008 to August 2009.

Median, Average Home Prices Down

Whatcom County’s year-to-date median home price has fallen 5.3% from last year. It now stands at $265,000, compared to $280,000 this time last year.

The average price of homes for sale in Whatcom County has also dropped from this time last year (down 2.5%), from $448,000 to $433,000. As you’ll notice, the average home price is significantly higher than the median home price, as average prices are skewed upward by the higher priced homes on the market.

The following graph shows the discrepancy between the average price of homes for sale and the average price of homes sold in Whatcom County, for the past 14 months.

Condos
Condominium pending sales continue a downward trend both for the month (down 23%) and the year (down 35%). Closed condo transactions also remain slower: down 50% for the month of August and down 50% year to date.

Local Price Reductions = Rising Affordability Levels
Fortunately for buyers, price reductions have put local housing affordability levels at their highest levels in decades. Add attractive interest rates and an $8,000 tax credit for first time home buyers, and what we get is a situation that is enticing buyers back into the market (as seen in the rising number of pending home sales, both on the national and local levels).

Common Transaction Delays and Disruptions

On the downside, many local transactions are missing their closing date. Last minute demands from lenders are common and final underwriting reviews are causing delays. Inexperienced appraisers are gumming up the works as well. For those of you who are planning to take advantage of the $8,000 first time homebuyer credit, plan ahead and allow for delays.

The Road Back to a Balanced Market
Our market will need a string of months of positive sales growth if we are to get back to a truly balanced market. That is because inventory levels still place us squarely in a buyer’s market, with a 10.1-month supply of homes for sale (meaning it would take about 10 months for our current inventory levels to sell, were no new listings to be introduced to the market).

Prices will continue to correct down until we are back in a balanced market, which is characterized by a four to six-month supply of homes. Fortunately, we have already seen evidence of local prices stabilizing in the last few months. And, with the amount of activity we’ve seen in the last three months, we may have reason to believe that a balanced market is not too far away.

Here’s a short video (from WA Homeowners) explaining how first-time home buyers can receive up to $8000 toward the purchase of their new home:

Deadline to take advantage of this federal government tax credit? November 30, 2009.

You can also find more info on this program here.

Here’s the final installment of The Washington State Bar Association’s info on the real estate process. This section provides some helpful insights on wrapping up the homebuying/selling process.

Closing the Sale
The final stage in the purchase of real estate is called closing or “settlement.” This sometimes complex procedure occurs when the parties submit the final documents required to complete the sale according to terms of the purchase and sale agreement. Money and documents are usually exchanged at the time of closing, and the function may be attended by the parties and their lawyers.

Escrow Services
Mortgage brokers, private escrow or title insurance companies, and lawyers usually provide escrow services. Under Washington state’s limited-practice rule, certified nonlawyers can prepare and complete certain court-approved forms for use in closing a loan, extending credit, and the sale or other transfer of real property.

Escrow services by a neutral third party are essential to the proper closing and recording of instruments and delivery of monies. It should be remembered, however, that escrow agents obtain information and take their instruction from the parties; they do not guarantee or protect the rights of either party in assuring that documents are consistent with purchase and sale agreements or either party’s understanding of the transaction.

The escrow agent must prepare and obtain approval by the parties of “truth in lending” and “closing” statements as required by the federal Real Estate Settlement Procedures Act (RESPA). These forms and disclosures are required to advise borrowers of the cost and interest rates in the transaction. You may wish to have your lawyer review the documents and explain the content and consequences.

The Deed
One of the most important instruments for closing is a deed, which transfers ownership of property from the seller to the buyer. There are several types of deeds, such as “warranty deed,” “special warranty deed,” “bargain and sale deed” and “quitclaim deed.” The type of deed affects the buyer’s rights against the seller. The manner in which the buyer’s name appears on the document is also important, since it may affect the form of ownership and the tax liability of the owner.

Filing Documents
All documents of ownership of real property and those reflecting a security interest in real property should be recorded (officially filed) in the county where the property is located. This procedure is necessary to protect one’s ownership of property.

To be eligible for recording, the documents must meet certain statutory requirements. For example, the document must contain a legible and correctly stated legal description and an official acknowledgment (notarization) of the signatures. All documents pertaining to your transaction should be kept in a secure yet accessible location, such as a safe-deposit box. These important papers may be useful when preparing tax returns or if planning to sell that property.

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Hopefully this information has been helpful to those who are new or unfamiliar with all the details involved in buying or selling a home. Thanks again to the Washington State Bar Association for putting this info together.

Recent national housing stats show an upward trend in the number of pending home sales (where the contract has been signed but the transaction has not closed). This article from the National Association of Realtors points out that this trend has actually been going on for the past six months.

West up; Northeast and Midwest down
According to the NAR, July pending home sales across the country were 12.7 percent higher than the same period in 2008, and they were also at their highest point since June 2007. Regionally, this trend is being buoyed by pending home sales in the West (up 12.1% from June, and 20% above this time last year), as pending home sale numbers in the Northeast and Midwest saw month-over-month decreases.

Tax credit motivating first-time homebuyers
As the article points out, a significant contributor to this trend is the high number of first-time home buyers who are entering the market to take advantage of the $8,000 tax credit available to them. As this deadline looms, that could have an impact on the high number of pending home sales we’re now seeing.

Future sales indicator
Pending home sales are often used as an indicator of future home sales. While all pending home sales may not close, this index is generally seen as a reliable indicator of housing market activity. More pending home sales means more buyers are in the process of closing on a home, so this is certainly encouraging news.

Inman News, a great resource I use regularly, also reported on this trend. You can read their article here.

Local stats should be in soon. So stay tuned to find out if this trend is occuring here locally as well.

Here’s the next installment of The Washington State Bar Association’s info on the Real Estate Process. This section provides some helpful insights into the different types of Financing Agreements available.

Financing Agreements
Banks, savings and loan associations, mortgage or insurance companies, some credit unions and other institutions are in the business of lending money to finance the purchase of real estate. Some financing, such as FHA-insured and VA-guaranteed loans, is insured by the federal government and may offer lower financing charges or extended terms of repayment.

As an alternative to a conventional lending institution, a buyer may find a seller who is willing to finance the transaction. Under these arrangements, a seller receives a promissory note from the buyer and uses a mortgage, deed of trust, or similar instrument to secure payment and guarantee performance.

Other financing options, such as the use of a land sales contract, assumption of the seller’s mortgage, graduated payment plans, and adjustable-rate loans may also be worth investigation.

Specific terms and requirements for loans vary widely and are influenced by money market conditions, the quality of the borrower’s credit, income sources or assets, and other factors. Loan costs can also vary, and may include service charges, appraisal fees, survey costs, title insurance, escrow and legal fees.

If financing is required to complete a transaction, a buyer should be sure the purchase and sale agreement specifies that requirement as a condition of the purchase. Furthermore, the buyer usually has the responsibility for finding a financing commitment by a certain date.

The agreements used to secure a debt with real property are usually lengthy and complex. Such agreements affect the payment of money to a seller, a lender, or both, and establish a security interest in your real property or home. Even with a “standardized” form, legal advice may be necessary to fully understand the details, obligations and legal consequences of the documents. It may also be necessary for your lawyer to tailor certain items to meet your requirements.

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The last segment of this information from the WA State Bar Association will cover the process of Closing the Sale… Stay tuned!