Paybacks are a .......................Necessity!

The 2007 upgrade cost versus return value numbers are out and they both reflect a strong indication of where good money is spent to increase the worth of your home and what type of immediate dollar amount they yield. As one may imagine, these vary in certain parts of the country. Specific exterior projects returned a higher recovery rate in the Pacific Northwest if they were based on eco friendly products but also because the northwest saw one of the best real estate overall value trends in the nation. While the South, Midwest and West saw decreases in overall value, the Pacific Northwest saw modest gains as did NY, NJ and Connecticut. The cost recuouped also varied by condition of the rest of the house, the value of similar homes nearby and the values in the overall community. Further, the value of return also differentiated on whether a cost was a replacement or an addition.

Nationally, most of the projects that saw the best dollar for dollar returns were exterior in nature with the exception being a minor kitchen remodel. Home office remodels, on the other end, have never returned more than 58% of their investment value in the decade plus of the survey information. On the positive side, wood deck additions recovered over 85% of their cost nationally and kitchen remodels actually returned nearly 88% of their investment.

To pinpoint the returns for the Midwest, we looked at Indiana, Illinois, Ohio, Wisconsin and Michigan. The best returns for projects were lower than the national numbers but were no doubt skewed by the decline in the overall market. In the midwest region minor kitchen remodels returned over 78% of cost immediatly while deck additions returned over 72% of their outlay. Master suite remodels returned 63% of their cost in the five state region.

In other remodels, the cost versus returns were as follows: attic to bedroom conversion - 71%; Basement remodel - 62%; Bathroom remodel - 52%. Addition returns in the midwest were as follows: Sunroom - 53%; 2nd story addition - 65%; extra garage bay addtion - 57%; full bath addtions - 59%.

One other significant factor of note....the upscale home return numbers were different in some cases based on the specific amenity. Decks, master suites and fiber cement siding replacement all returned 3-5% more per project than on the median priced homes.

While this discussion is always helpful in deciding what to spend money on in your home, we also remind our clients that the most important factor is 'quality of life' when determining how to allocate our financial resources on your real estate investments. If it makes you happy AND you intend to stay in your home for an addtional period, the return on monies spent is always more intangible in a positive way.

Questions? Comments? Greg@GregCooper.com or 317.848.GREG (4734)

SO you think we've got it bad? Say hello to the state of pain....California.

California's October home sales slide 40%
Median resale home price falls 9.9%; housing starts off 28%

The rate of sales for single-family, detached resale homes plummeted 40.2 percent in California in October compared to the same month last year, while the median price dropped 9.9 percent the California Association of Realtors trade group reported Wednesday. The California Building Industry Association reported that total housing starts in the state fell 30.9 percent from January through October in California compared to the same period last year. Leslie Appleton-Young, chief economist for the association, said in a statement, "We expect further weakness in sales over the next few months as the liquidity crisis plays out." The group's Unsold Inventory Index was 16.3 months in October, indicating that it would take an estimated 16.3 months to exhaust the supply of for-sale homes at the October sales pace. The index stood at 6.4 months in October 2006.

A for-sale inventory of about six months is considered to indicate a market that is roughly in equilibrium, with a supply greater than six months generally indicating a buyer's market. "Financing issues have dogged entry-level buyers since early 2007, but they spilled over into the middle- and upper-tier markets in the last few months," said William E. Brown, president for the Realtors group. "The decline in sales at the upper end of the market contributed to a significant decline in the statewide median price as even well-qualified borrowers had difficulty securing financing."

The median price of an existing, single-family detached home in California was $497,110 in October, down 9.9 percent from the revised $552,020 median price in October 2006.

The 10 cities and communities with the highest median home prices in California during October 2007 were Newport Beach, at $1,575,000; Santa Barbara, $1,275,000; Cupertino, $1,033,000; Danville, $1,017,500; Los Gatos, $1,005,000; San Carlos, $927,500; Redwood City, $912,000; San Ramon, $835,000; San Clemente, $832,500; and San Mateo, $829,500.

The 10 cities, city areas and communities with the greatest median home price decreases in October 2007 compared to 2006 were Palm Springs, down 64.6 percent; Los Banos, down 27.7 percent; Elk Grove, down 27 percent; Galt and Stockton, down 26.1 percent; Antioch, down 25.3 percent; Merced, down 25.1 percent; Salinas, down 25 percent; and Walnut Creek and Wildomar, both down 24.9 percent.

The California Building Industry Association, in a separate announcement on Wednesday, reported that housing starts, as measured by building permits issued, dropped 28 percent in October compared to October 2006. There were 7,726 building permits issued for housing units in the state in October, according to the report.

Housing starts, as measured by building permits issued, dropped 46.3 percent in that market area from January through October this year compared to the same period last year, while falling 39.3 percent in the Bakersfield and Oakland areas, 35.1 percent in the San Diego area, 30.1 percent in the Sacramento area, 27.9 percent in Stockton, 23.5 percent in Modest, 20 percent in Los Angeles, 17.2 percent in Visalia-Porterville, 16 percent in Santa Ana-Anaheim-Irvine, and rising 5.6 percent in Fresno.

Considering Indiana has felt about a 9% drop October 2006 to October 2007 in resale units, we're certainly not feeling the pain that our friends to the west are.

QUESTIONS? COMMENTS? As always you can find me at Greg@GregCooper.com or
317.848.GREG (4734).

FALLING... The sales rate for previously owned single-family homes dropped to its lowest level in about 10 years, and the price of resale single-family homes, condos and co-ops dropped 4.2 percent year-over-year in September, the National Association of Realtors reported today. The trade group also reported that the for-sale inventory of single-family homes reached 10.2 months in September, which was the highest level since February 1988 when it was 10.3 months.

The inventory is a measure of how many months it would take to exhaust the for-sale supply of resale single-family homes at the current sales rate. Total housing inventory, for single-family homes, condos and co-ops reached 10.5 months in September, which is up 43.5 percent compared to a 7.3-month inventory in September 2006. The seasonally adjusted annual rate of existing single-family, condo and co-op sales dropped to 5.04 million in September, down 19.1 percent compared to September 2006 and down 4 percent compared to Wall Street expectations of a 5.25 million rate. The adjusted annual rate is a projection of a monthly sales total over a 12-month period, adjusted to account for seasonal fluctuations in sales activity. It was the lowest rate for combined resale single-family and condo/co-op sales since the National Association of Realtors began reporting the property types together in 1999. The September single-family rate of 4.38 million was the lowest since January 1998, when it was 4.18 million.

The median sales price of existing homes dropped 4.2 percent to $211,700 and the average sales price dropped 3.2 percent to $257,800 in September compared to the same month last year, the Realtor group reported. It was the largest year-over-year drop in the monthly median price since October 2006 when the median price fell 4.3 percent.

Mortgage-market problems disrupted sales and prices, the National Association of Realtors reported, though prices rose in the Northeast and Midwest.
Existing-home sales for the third quarter reached an annual rate of 5.42 million, slightly higher than the group's expectations of a 5.38 million annual rate for that quarter.

SO....what's it all mean? Many of us in the real estate industry have October 31 marked on our calenders for reasons other than Halloween. It's the day of the next Federal Reserve meeting and most likely the day we'll see another interest rate cut. The only issue now is whether it's 25 or 50 basis points (1/4 or 1/2 reduction in the prime). Since major economic recessions have routinely followed significant downward trends in the housing market, one could make a good case for a half point reduction. All eyes will be on the Fed Governor's meeting on 10/31. Whatever they decide will be a major factor in our country's economy in 2008.

Here's another thing it means: The pent up demand for homes is getting pushed closer and closer to the edge of action. There will come a day soon when moderating prices and falling rates will shove the indecisive buyer back into the market. Whether that's in the 1st quarter of '08 or beyond are still to be determined. When it happens, those that have bought real estate in the trough that we're in now will be very pleased by their decisions.

AS ALWAYS you can reach me at 317.848.GREG (4734)
or Greg@GregCooper.com

Art in the streets....
Scenes from the Carmel, Indiana International Arts Festival 9.22.07.

The festival started Saturday morning with a Chinese Dragon Dance and parade. Over 200 vendors exhibited and sold their art from paintings to sculpture. There were musical stages and great food served througout the weekend. This was the festival's 10th year and 2nd since moving back into Carmel's Arts and Design District.














Random thoughts for the week actually related to the real estate business....

The Interest Rate cut has NOT yet helped everyday mortgage rates to a significant degree. The short explanation is that there are far too many other factors pushing rates up right now for it to help. If inflation stays in check, look for another potential 1/4 point rate cut next month when the Fed meets again.

Indianapolis August Home Sales stats are in.....and it's not good news. The 11 county metropolitan area sales were down over 18% with Hamilton County getting hit the hardest with a 21% drop from a year ago. Prices have moderated and it is a great time for someone looking in the long term to make a tremendous purchase.

Nationally the numbers aren't as statistically bleak but still very disconcerting. New-homes sales tumbled in August to the lowest level in seven years, a stark sign that the credit crunch is aggravating an already painful housing slump. Sales of new homes dropped by 8.3 percent in August from July, the Commerce Department reported Thursday, driving down sales to a seasonally adjusted annual rate of 795,000 units. That was the lowest level since June 2000, when sales clocked in at a pace of 793,000.

Covering old ground but....IF YOU ARE A HOME SELLER you must ask yourself two critical questions:

1) Do I have the motivation to sell? Are you willing to moderate your price to meet the demand of the market?

2) Am I willing to recognize the equity I'll be building on my new home as a result of the slow market? Those moving up now should see great value growth in their new purchase as a result of buying in a challenged market.


As always you can email me with questions at GREG@GREGCOOPER.COM or call me @ 317-848-GREG (4734).

You just never know who you'll run into at the Starbucks in Carmel, Indiana.

As I walked across the parking lot to my car, I vaguely recognized the figure standing about 20 feet away. While he was slouched and shaking a bit from his illness, Muhammed Ali was as pleasant and approachable as any public person could be. Having no shame about interrupting his day, I walked up and introduced myself. He smiled and graciously agreed to a picture. His wife was inside getting coffee as they traveled from their home in Michigan to Lousiville on a family matter. We took several photos of which this is the only one that I actually look reasonable enough to post (scary thought). Muhammed playfully put his fist to my chin and smiled for the first one, then realizing I had the 'you've just met an international icon' stupid grin on my face, I retreated to a very basic side by side. As we did this a bus load of High School students stopped nearby and began to pile out. Several of the teen agers recongized him and came over as to visit. As he began the first of numerous new photo ops while being hugged by the cute 17 year old females, he looked at me and in a whisper said "Can't disappoint my fans." His huge grin told the rest of the story. I laughed out loud, thanked him again, and backed away. Even though his body is failing him...his mind is still there in full force.

Random thoughts actually pertaining to the real estate business......

1) Interest rates are coming down. Look for the Fed Chief Bernacke to lower rates at least a quarter discount point next week and maybe as much as a half to combat the national housing market problems. Between the rates falling and the lower demand/increasing inventory, there are great buys to be made in the housing market right now.

2) Two critical questions every home seller must ask themselves in order to successfully navigate the market. First do you NEED to sell? If you don't have the stomach the adjust your price to meet the sliding market, you should give serious thought to postponing your move. Having said that, if you're a move up buyer, the timing is still good. If your current home is worth 3% less than a year ago but you'll buy something else up the price ladder at a less value also, you will still be pleased with your decision over the long haul. That's what real estate is now....a long term investment. Flippers had best be following the CYA strategy in this market because it's tricky.

Secondly, as a seller do you have the equity to sell? If you bought a home a year ago with little down, you probably don't have the position to sell in this market. Reconsider your timing or the possibility of leasing the home if the risk is acceptable.

We have acutally had to decline certain potential homes to sell with people who wanted to list with us because they were simply not in a postion to recognize a sale in our current market. If someone bought two years ago at the peak of the market and has their home mortgaged above what they actually paid for it, we probably can't help them and yes, you cannot believe how often this occurs.

On that note, a recent title company survey on the closings they conducted across the USA in 2006 revealed some startling data. Of all of the closings, over 38% were done with ZERO money down by the purchasers. That means that most of those buyers were upside down in the equity in their homes from the day they closed. Is there any wonder why we have the delinquency rates we do right now relative to mortagages? Is it any surprise that lending criteria will get tighter as the next 12 to 18 months rolls by?

What you see is not always what you get. Online home shopping presents its own unique set of challenges.

It's so easy to shop online for just about anything these days. You can use Google, Froogle, Yahoo, or any of the shopping search engines to find everything from recliners to shoes, airlines tickets to t-shirts. More than 85 percent of home buyers start their search for a house online as well. The only problem is that things on the Internet are not always what they seem.

That's not such a big deal when it comes to a $60 pair of shoes. But it can be quite problematic when you're talking about a house priced at $350,000. Based on the e-mail I've received over the last couple of years, I've come up with a list of six mistakes home buyers make when shopping online for real estate, and the mortgage they need to pay for it:

Mistake #1: The house you see online is the house you get.If you saw a house advertised on television, you'd wonder exactly what you were buying for your money. But find a house online and that skepticism goes away. Some buyers feel confident enough to make an offer for a home they've seen only online.
What's that about? If I was writing the description for a property I was trying to sell, I'd make sure it sounded as fabulous as possible. The only point of writing that description would be to get a prospective buyer through the door. So when you see a photo of a house online that looks interesting make an appointment to see the property in person. That way, you'll know what you're buying is real.

Mistake #2: A beautiful photo, virtual tour or video means the house is in perfect condition.There are things you can see in a photo, virtual tour or video -- and then there's everything you can't see. Clearly visible is the décor. But the structural and overall physical condition of the property may not be as apparent. Don't assume that a fresh coat of paint is simply covering a dingier coat of paint. Instead, when you walk through the property, keep your eye out for red flags, such as water stains, bad smells, a freshly painted basement (which could be hiding mold or moisture stains), doors that don't shut, and cracks bigger than 1/8 inch wide.

Mistake #3: Assuming the neighborhood is as nice as the video tour.If a seller has created a video or taken a series of snapshots of the exterior of the home, it's possible you'll get a feel for what the neighborhood is like. Again, don't assume that what you're seeing is real. Savvy buyers will spend time walking the streets of a neighborhood, getting to know the housing stock, local store owners, recreational opportunities and schools. There's no substitute for using a little shoe leather.

Mistake #4: Believing that a fabulous Web site means you're dealing with reputable professionals (agent, title company, lawyer, home inspector, etc.).
It takes about $50 and a few hours to put up a fairly impressive-looking Web site. Maybe the company behind that Web site is reputable -- and maybe it isn't. But if you just go by the graphics and design of the Web site without checking to see who the folks are behind the beautiful pictures, you won't know who you're dealing with.
Whether you're looking for a real estate agent, title company, real estate attorney, home inspector or other player in the real estate industry, you should take the time to do your due diligence and find out everything you can about the individual and the company he or she works for. Real estate agents, brokers, attorneys and title agents are all licensed by the state. You can start with the agency or department that licenses these professionals in your state, and then use an Internet search engine to dig up more information, such as complaints or lawsuits that have been filed against the company or individual. Don't forget to pay a visit to the professional's office. You can tell a lot about someone depending on where they work, and how long they've been in business.

Mistake #5: Believing a written description of a property or neighborhood is accurate if you read the same thing in enough places.
It doesn't matter how many times you read the same description of a property, you won't know it's real until you've been there and seen it in person. Remember, just because an agent says the condo has a "lake view" doesn't mean you'll have a full water view. It might mean that if you stick your neck out the window and turn, you'll see a sliver of water.

Mistake #6: Believing the interest rate you'll get at the closing is the same that you've seen online.
One of the most popular mortgage scams is the "bait and switch," and it's even easier to get away with it on the Internet. Here's how it works: You'll see a great interest rate online and when you call to follow up, you'll be told either that the rate has expired (at which point the lender will try to sell you on a more expensive loan) or that you've qualified for it. If you've "qualified" for the rate, you'd better check your mortgage documents thoroughly at the closing to make sure the rate you thought you were offered is actually the rate that is on the papers you're signing. Once you sign the papers, it's a lot harder to get the lender to live up to his or her initial mortgage commitment. (Of course, you'll have a stronger case if you have that rate quote in writing.)

The hits just keep on coming. A tight market still means incredible opportunity in Indiana.....

While the foreclosure rate has edged up, what it really translates into is great values that will pay off significantly in years ahead.


From the Indianapolis Star August 21, 2007:

Manufacturing-related job losses are playing a big role fueling Indiana's foreclosure rate, which now ranks among the highest in the nation, experts say.

Indiana, Ohio and Michigan have all been hit hard by cutbacks and plant closings, and together the three states account for 20 percent of the nation's home foreclosures. Many of those workers affected were homeowners.
"If you have economic problems and little equity to fall back on, it all feeds on itself," Tom Dinwiddie, a spokesman for the Indiana Bankers Association, told The Times of Munster.
Peter Novak of the Greater Northwest Indiana Association of Realtors said the fallout of yearslong subprime lending is being felt both locally and nationally. Analysts estimate nearly 2 million adjustable rate mortgages will reset to higher rates nationwide in the next year or so.
Indiana has one of the highest homeownership rates -- about 75 percent -- but it also has the second-highest foreclosure inventory rate.
Novak said some home buyers think they will be able to afford a house through an adjustable rate mortgage, but when the rates increase some are unprepared for the larger bills.
"An adjustable rate is cheaper the first years so homeowners hope their personal outlook will be better in the future and unfortunately that's hardly true. Lots of time they're in the same situation and probably worse," he said.
Low rates of appreciation on real estate values coupled with affordable housing and high loan-to-value loan ratios also are major factors in Indiana's high foreclosure rate, Novak said.
Indiana ranked 44th in the most recent measure of one-year price growth by the Office of Federal Housing Enterprise Oversight. Hoosiers also use more down payment assistance programs, which reduce or eliminate cash down payments.
Home buyers need to be smart about what they can afford, Pamela Stalling, executive director of the Consumer Credit Counseling Service of Northwest Indiana.
"The reality is we need jobs to keep people in these homes," Stalling said. "And they need to be educated on making wise decisions about if they can afford it now or years down the line."

Real Estate and the dog days of summer. Let's face it...the real estate market is a tough place right now. For those of us who love what we do, we're in it for the long haul. It just doesn't change the reality that nationally and locally we're in a very difficult time. That translates several ways. First, nearing the bottom of the trough, it is a good time to buy. There are exceptional opportunities out there that will pay huge dividends down the road as an investment but you must have vision. Selling right now takes backbone and the courage to make smart, strategic decisions. There is no logic to the market. Some homes that are not, at first glance, competitive sell quickly. Good homes that should sell, sit. Should one attempt to market their home at this point in time? First and beyond that always translates into personal need. If your circumstances dictate a move, then do so in an intelligent, aggressive way. This is no time for greed so if you need to sell, be practical.

Long term rates edge down. For a change last week, long term rates came down to more attractive levels. Long-term mortgage interest rates were down Friday, and the benchmark 10-year Treasury bond yield slipped to 4.68%. The 30-year fixed-rate average fell to 6.23 percent, and the 15-year fixed rate sank to 5.91 percent. The 1-year adjustable held steady at 5.51 percent. The 30-year Treasury bond yield was down at 4.87 percent.

Is the stock market surge over the last 9 months really that surprising? Face it, with real estate numbers slumping all over the U.S., it's not rocket science that since last fall the markets have set record highs. Investors wanted a place to put their money and it wasn't going to be in the real estate market. Watch this carefully over the long haul. When we see a trend that has money consistency leaving the markets for real estate, we may be on our way back up in property value and demand. The last few weeks have demonstrated volatility in the stock market based on one major issue: credit. From the sub prime mortgage problem which is now in the 2nd inning of a 9 inning game to the more recent "A minus" lending downturn, there is a significant credit issue with our housing market that will affect us into 2008.

Property tax issues will remain for a number of Indiana counties through the early part of 2008. Most people think that as Governor Mitch Daniels suspended property taxes to the 2006 level, we were out of the tax nightmare. Wrong. We've suspended our problems, not fixed them. Those reassessments will be back in early 2008 shortly before the 2007 taxes kick in. This whole thing is still very much in flux. From the inside we're hearing that Marion County's problems may be solved by a 1/3, 1/3, 1/3 solution. That is a 1/3 higher residential tax than '06, some form of a consumption tax that will cover 1/3 of the previous tax increase and finally 1/3 higher assessments on business locations that saw virtually NO increase in valuation in the previous numbers. Stay tuned......

National Housing Numbers eyeing the future?
According to First American's CoreLogic which tracks national real estate trends,

"House-price acceleration -- the rate of change in home prices, whether up or down -- is also moderating after 18 months of decline, evidence that downward price trends at the national level are nearing bottom.

Further, prices were still rising in eight of the 10 markets identified by CoreLogic as the highest risk. The highest-risk markets were: Detroit-Livonia-Dearborn, Mich. (-.46 percent appreciation); Warren-Troy-Farmington Hills, Mich. (1.21 percent); Memphis, Tenn. (6.63 percent); Youngstown-Warren Boardman, Ohio-Penn. (4.8 percent); Dayton, Ohio (4.42 percent); Grand Rapids-Wyoming, Mich. (1.55 percent); Toledo, Ohio (1.66 percent); Cleveland-Elyria-Mentor, Ohio (4.89 percent); Indianapolis-Carmel, Ind. (-3.5 percent); and Akron, Ohio (6.14 percent).

Prices continued to rise in all 10 markets identified by CoreLogic as those with the lowest risk: Sarasota-Bradenton-Venice, Fla. (2.51 percent appreciation); Orlando-Kissimmee, Fla. (4.19 percent); West Palm Beach-Boca Raton-Boynton, Fla. (3.97 percent); Ft. Lauderdale-Pompano-Deerfield Fla. (5.57 percent); Washington, D.C.-Arlington-Alexandria, Va. (3.51 percent); Virginia Beach-Norfolk-Newport News, Va. (9.18 percent); Richmond, Va. (7.12 percent); Bethesda-Gaithersburg-Fredericksburg, Md. (2.45 percent); Salt Lake City, Utah (12.96 percent); and Honolulu, Hawaii (7.87 percent)."

PLEASE PASS THIS ON. This is a redundant note that I'm sending to every member of the Indiana General Assembly including the Governor. This would be the perfect place for the "can you hear me now?" cliche...if it weren't so painful. This is an open letter from the CEO of the Indiana Association of Realtors with a rather stunning admission in paragraph four.

"In some (Indiana) counties over 40% of closed transactions are foreclosed properties."

Let's hope someone is listening.

July 13, 2007
Dear IAR Member:
As more counties have completed the property assessment process and mailed tax bills, the flaws in the current property tax system have once again been brought to light. I wanted to take a minute and update you on my perspective on the situation, as well as what your Association is doing to address it.
Some of the tax increases were expected due to the elimination of the inventory tax, the implementation of the assessment process known as trending and other factors, but the magnitude of the increases has been higher than anticipated. Urban areas have been particularly hard hit.
IAR has been in daily contact with the Governor, his staff and leadership in both the House and Senate for the past several weeks, urging immediate action. Our two-part message has been to convey the seriousness of the situation for our markets statewide and to reinforce our long-standing policy goals found in this Property Tax Reform Guiding Principles document.
I don’t need to tell you all the tenuous nature of the residential market. Many counties continue to report declining market activity, and perhaps more distressing, foreclosure rates of an extreme level. In some counties, over 40% of transactions are foreclosed properties. Instead, I would like to spend the rest of the letter outlining our goals in order to help prepare you for conversations with your clients and elected officials.
Short term, we have advocated a restructuring of the rebate that is now in place. Rather than spread those dollars over all taxpayers, it makes more sense to target them to those seeing the largest increases. We think the State could offset increases in excess of 20-25 percent with the dollars currently set aside for the circuit breaker. Local government has a role to play in the short term, as well. The State has given local government the ability to adopt an income tax, a tool that could provide substantial, lasting relief. Urge your local unit of government to use that tool.
Long term, meaningful and lasting reform MUST happen. It also must be rational. One of the most frustrating aspects of our property tax system is its complexity. Discussions of levies, rates, circuit breakers, assessed value, trending, homestead credits, homestead deductions, gross this and net that can make one’s head spin.
The media is often unable to cover the debate in a meaningful way, and elected officials at all levels use the complexity to avoid blame and confuse the issue.
Here are my thoughts on how to ensure the viability of our markets and ensure economic opportunity for homeowners, investors and businesses alike:

1. Eliminate township level assessments, move to county assessment
The wild and inequitable inconsistencies in assessments, documented by the Indiana Fiscal Policy Institute study supported by your Association, remain part of the problem and are a contributing factor to the unacceptable increases we are seeing now. Assessment responsibility should fall on the County Assessor.

2. Update technology and adopt a uniform data system statewide
The State must enforce 21st century data and appraisal practices in assessment offices statewide, as well as effectively monitor and evaluate results. Should the State find the standards and/or results lacking, they should act to correct practices and equalize assessments where necessary.

3. Modernize the local government structure
Indiana has the third most units of local government in the nation. We have the third most townships at 1,008, the third most sub-county governments at 1,575 and the fourth most municipalities at 567. Many of these elected officials effectively answer to no one and spend taxpayers’ money with little or no oversight. Eliminating them will simplify local government and provide a much clearer picture to taxpayers as to who exactly is spending their property taxes and what they are buying.

4. Reduce reliance on property tax
This is perhaps the most difficult piece of the reform puzzle. There are two choices. Since about 75% of the property tax dollar goes to education and public safety, dramatic cuts would need to be made in those services to achieve substantial savings. Such dramatic cuts are not generally supported, as they would have an adverse affect on the quality of life and economic development potential of the state. The second choice is to provide local governments with alternative sources of funding. This is the more viable long term solution, and IAR will continue to advocate for broad based taxes such as sales and income as a substitution for property taxes.

We also need to understand that the call to reduce reliance on property taxes carries risk for our industry. Two specific examples come to mind. Some legislators have mentioned a real estate transfer tax as a substitution for property taxes. Others have mentioned broadening the sales tax base to tax services, including real estate services. In both cases, the housing market would be harmed, and IAR will remain vigilant on your behalf to insure that these ideas do not gain traction.
In closing, feel free to share these thoughts with your local and state elected officials. It is crucial, after more than three decades of trying and failing, to finally reform Indiana ’s property tax system. Homeowners and all other property owners are counting on it.

Sincerely,
Karl F. Berron
CEO
Indiana Association of REALTORS®

Of Vanishing Neighborhoods and Growing Opportunities.

"Let me tell you how it will be
There's one for you, nineteen for me
'cause I'm the taxman,
yeah, I'm the taxman

Should five percent appear too small
Be thankful I don't take it all
'cause I'm the taxman,
yeah, I'm the taxman"

--George Harrison

Marion County's tax nightmare may be Hamilton County's boom. That's right....Washington Township - Marion County's massive tax woes may end up becoming a benefit for Hamilton County. After a short time of having the full impact of the new propety taxes in place, the calls are already coming in from individuals who are seeking relief. There are many areas of Indianapolis affected but one that seems to have been hit especially hard is the Meridian Kessler/Broad Ripple area. More precisely, the Washington Township geography that sits in the Indianapolis Public Schools district. Since school taxes account for 55% of the property tax total, IPS revenue requirements are significant to those who live in its jurisdiction. Now, many of these homeowners are contemplating moving north of the Marion County line.

In looking at just a few examples, it's easy to see why people are fed up. In Carmel's burgeoning Arts and Design District, a $150,000 home recently sold will pay $1680 total in property taxes in 2007 for the tax year 2006. A similarly priced home at 5600 north in Marion County's Washington Township will now pay $3940 for essentially the same square footage. While no one seems to have been fully aware of the consequences of last year's legislative actions regarding taxes, the results will end up being devastating. In shifting a portion of the tax burden from business to residential, the goal was to be pro business and encourage future growth. The timing was not well thought out. I suspect it will end up being a moment that haunts us for years to come.

For starters, the psychological impact of the tax increases is already in the minds of the consumers. You can't close that Pandora's box. Then you move on to the practical side where prospective purchasers can no longer qualify for homes based on how much higher the monthly tax bills will be. Finally, there's the burden to the sellers who must credit back all taxes due to purchasers at a potential closing on the sale of their home, possibly in the thousands of dollars.

We must also look into the crystal ball. Taxes this much higher will decrease demand and subsequently reduce value. As this occurs, homeowners will be petitioning tax authorities for lower assessments based on comparable sales, thus reducing revenues even further. Then the cycle starts all over again with a need to raise rates to make up for the decreasing total revenus based on a lower overall tax base. It's an ugly prospect that will take years to resolve, if at all.

To conclude, a word about relevance. If I hear one more person tell me we pay so much less in taxes compared to our neighboring states, I may commit a felony. While that may be factual, it is a TERRIBLE argument for our current state for this reason: You cannot raise taxes on a given area/property 60-80-100% or more in such a short time and not destroy their value. Raise any property's taxes by 100% in one year and then tell a prospective purchaser that it's still much lower than what Illinois pays and watch their response. Watch it as they turn and walk away from buying because of the radical change from a few short years ago. This is a mess not soon solved. In every mess there's opportunity....and Hamilton County may just be positioned to take advantage of the brewing storm to the south.

Here Comes The Other Shoe.......

It's been several years since the Indiana State Supreme Court ruled on behalf of a small number of Lake County Indiana tax payers that the previous system of assessed valuation was unfair. As thousands of Hoosiers pay their tax bills over the coming weeks, we will all be asking how the system can STILL be this off base.

First, virtually none of the hundreds of homes that have sold in the last year that I have reviewed are being taxed at their recent sale value under the new bills (which is the actual point of having the state assess by MARKET VALUE). While not all counties have a defined example, it appears the new distribution of tax burden is going to become a major pressure on those who pay property taxes in Indiana. We have heard examples through our partners in the lending and title business that a number of real estate transactions have fallen apart at the closing table as the new tax burdens became clear to prospective buyers. Many municipalities in Hendricks County have had 50% increases in taxes from the last tax year. For many home owners, that is a painful increase. For some, it is a catastrophic one.

Here are a couple of examples from Hamilton County that have come to light. A $325,000 home previously taxed at $2410 for the entire year will be paying just over $3000 per year due on July 1 of 2007. Remember the headlines about a 'rebate check' we were supposed to receive to blunt the extreme shift in residential taxes? From the tax bills we have seen there is no mention of a rebate, only that the credit passed by the legislature has been assigned half to the Spring and half to the Fall of each tax bill. Think there may be some confusion on this issue?

The result of all of this could be a new round of foreclosures in the state of Indiana. People who were close to the edge before are going to get unceremoniously shoved over the cliff if their taxes increase 40-50%. The last thing Indiana's economy needs right now is a hammer to the value of it's home owners. This scenario, if it plays out as it seems, will be a nightmare for Indiana tax payers and real estate owners. It will blunt the first time home buyer market with higher payments, it will suppress most potential equity growth and essentially send the overall real estate market into dormancy. It would ensure that the current slow market we are in would last well beyond 2008.

I hope we're all wrong about these bills....that there's something more to them that will change their net affect both this year in years ahead. The message to our legislators should be loud and clear: Fix this mess NOW! If not that boot may be coming down hard on all of us who have believed in the American dream in the Hoosier State.

Denny Crane says
'Who wants to be a Travel Agent?'

Welcome to my metaphor. Inspired by nearly a week of reading my new favorite blogger, Rich From Copywrite, Inc. (linked on the left side of the page), this piece is motivated by change. For my purposes, I'm speaking to the change in doing business or owning real estate. The manner of conducting a real estate sale is about to be swept away into an entirely new paradigm like a number of businesses have been in the recent past.


On ABC's Boston Legal, William Shatner, aka Denny Crane, constantly pops into scenes tossing out the painfully embarrassing, yet somewhat obvious line. In the real estate business, Denny would again be loudly asking the obvious of those of us helping to orchestrate real estate transactions and those who own real estate as an investment.

"C'mon.....who wants to be a travel agent?"

Why? Because those who conduct the business of Real Estate and those who own real estate are in the midst of a titanic shift in the process, much like the travel industry saw several years ago. For my skewed context here, there is no irony lost on the character of Crane, played by Shatner in his commercial endorsement role to PRICELINE.com . 10 years ago, the travel industry was respected, successful and storming ahead with it's service to people in every form of travel based need. America was increasingly affluent, mobile and loved to be on the move. That year, 1997, Priceline.com introduced itself to the traveling public in the form of William Shatner through a stream of wacky commercials that pushed us to point and click to find the cheapest air fares (and later in classic brand extension hotel rooms and rental cars). A decade later the travel industry has laid off thousands of workers. Essentially it's become a shadow of it's former self. Many other service industries are experiencing that as well along with the products they represent, like real estate.

Old school agencies who broker travel have basically been redefined to an Internet based business that fills a niche of customer service. The difference is there is no need to have legions of people seated at a desk to actually place the orders. There are some direct service agencies, but they are a small minority serving certain business and other pigeonhole clientele. To be fair, the change wasn't necessarily any fault of the travel industry and the huge numbers of it's successful representatives other than they never saw it coming. Who did? Can any of say we knew how the Internet was going to absolutely flatten so many businesses by the immediate accessibility it provides?

Well it's coming again to the business of real estate...this time precipitated by the current down turn in the Real Estate market. Anthony Robbins, motivational speaker and infomercial guru has written that 'things don't change when conditions are comfortable....change occurs when pain is present.' If that's the case, change is a full blown tidal wave heading directly for us. Dropping values due to foreclosures, excessive new homes supply, a sub prime mortgage fallout and other secondary factors are the norm today and it will affect most all of us. Falling equity in homes has driven the discount service brokerage movement in the past year and they will continue to gain strength (much to the chagrin of many of my colleagues). They will not, however, replace the affect of the most successful brokers but rather will feed upon those individuals who continue to try and charge a premium fee for less than top shelf service. It's the classic Wal Mart - Nordstrom example. The middle is disappearing to be replaced by the most cost effective (discount) and the very high end.

Real Estate brokers and their companies must learn to do things differently. The effect of the current market downturn will demand that. Watch the numbers in the winter of '07-'08. The quantity of Realtors in this country is going to take a major nose dive (not all would think that's bad, I know). Likewise, the manner in which we all make investment decisions about real estate is also going to change. Dwindling demand for 'vinyl village' types of homes and increasing demands for prime locations will be highlighted. In our area, lots and neighborhoods with character (water front, heavily wooded, golf course) will be the most coveted for more than aesthetic reasons. At this moment they are the only locations selling at a premium and as the public becomes more and more aware of this as a business issue, their demand will rise even faster. The days of buying something slick, shiny and new just for those reasons will soon be a secondary decision. Consumers will be forced to look at the investment first which is not how many decisions have been made in the past. Consumers who blindly buy property for any reasons other than investment first will quickly become the 'travel agents' of the real estate marketplace. I can almost hear Denny Crane's thoughts on that......as painful as they may be.......