By ANDREW JEFFERY

This post first appeared on Minyanville.

As a growing number of economists, pundits and real-estate professionals assure us the housing market’s worst days are over, prospective home buyers need a trusted advocate to make sure they don’t end up on the wrong side of someone else’s trade.

More often than not, that person will come in the form of a real-estate professional working on the buyer’s behalf and earning a commission for their trouble. Below are 5 simple questions you can ask to gauge whether a given candidate is looking out for your best interests - or his or her own.

But first, a word on terminology.

The terms “agent,” “broker” and “realtor” are often thrown around interchangeably. This isn’t exactly right. While laws differ from state to state, acquiring a broker’s license typically requires a series of courses on real estate practices, principals, finance, law, appraisal and the escrow process. A broker can use his license to form a brokerage, and the company can then perform services as a licensed entity.

In many states (like California) a licensed broker can not only conduct real estate transactions, but earn commissions for arranging mortgages and other types of real estate-related loans. For this reason, a brokers license offers the holder huge potential earnings power.

An agent is a step below a broker. While requiring a license, an agent is normally treated as an employee of the broker and thus the broker is responsible for the actions of the agents under his charge. If an agent screws up, his reputation (and license) as well as his broker’s is on the line. Agents can typically conduct the same transactions as a broker, but must do so under the supervision of their boss.

Finally, the term “Realtor” is used to specifically identify a real estate broker or agent who is a member of the National Association of Realtors, or NAR. The NAR is a nationwide trade group that collects member dues, lobbies in Washington and runs marketing campaigns urging Americans to buy homes. The NAR is conspicuous in its role as national housing cheerleader, as it’s chief economist Lawrence Yun has been predicting an imminent bottom in prices since early 2006.

1. Is it a good time to buy?

Of any question a buyer is likely to ask his broker (or agent), this may be the first. And the most important. The answer itself isn’t nearly as important as how the broker responds.

Any broker that says definitely that yes, this is a great time to buy, should be eyed with skepticism. Without knowing a buyer’s specific circumstances, understanding localized market trends and the underlying value of a specific home, saying it is a great time to buy is a sales pitch, pure and simple.

Brokers will often cite low interest rates, high levels of affordability, low replacement costs and home prices that have fallen precipitously from their peaks as reasons its never been a better time to buy. But ask yourself, all those conditions were true six months ago — was it a great time to buy then?

The proper response to this question from a responsible broker is to answer the question with a question, or questions. How much money have you saved? How long do you plan on owning the home? How much money do you make? How much is your other debt service? What are your contingencies if you lose your job? How is your credit? What are your other motivations for wanting to buy?

Only armed with answers to these and other questions can a broker — or a buyer for that matter — determine whether its the right time to buy.

2. Are home prices near a bottom?

As with the previous question, the answer should be in the form of a question. Where and when are you looking to buy? Do you want a move in ready home or one that needs some work?

While there is no crystal ball as to the direction of home prices in the near or long term, a broker should have a clear understanding of the dynamics effecting his or her local market. I hear ad nauseum here in California that home prices are stabilizing because demand is up, prices are down and homes are receiving multiple bids. But those are external symptoms of market machinations underneath the surface.

Foreclosure moratoriums put in place late last year limited the number of bank owned homes dumped onto the market. This constricted supply, and coupled with tax incentives, low interest rates and aggressive marketing from the NAR, led to a situation where in some areas, for some homes, demand outweighs supply. But that doesn’t mean the situation will persist — in fact, the smart money is betting it won’t.

This dynamic is far from ubiquitous, as most high end markets remain illiquid with prices tumbling into an apparent vacuum.

Real estate is, and will always remain, local.

3. How do you determine which homes to show me?

Not to beat a dead horse, but this question should be met with yet another series of questions. What size home are you looking for? Are schools important to you? How close do you want to be to public transportation? Do you care about being within walking distance to shops and restaurants? What style of home do you like? Do you want a yard?

A good real estate broker should be a blank slate, absorbing your preferences, desires and reasons for buying without injecting his own bias. Just because your agent loves a certain home and thinks its a great buy, doesn’t mean it fits your criteria. Don’t be afraid to tell your broker that you don’t like a particular home.

Brokers should show you a variety of homes, below, within and above your price range, to give you a sense of what is out there on the market. With prices still coming down in most areas, you may walk inside your dream house and decide its worth it to keep renting — and saving — for another year until prices fall to something you can afford.

Until you feel comfortable your broker is showing you everything that may fit your criteria, perform your own searches on the myriad free websites out there. Redfin.com is a great resource for the metropolitan areas it covers, while Trulia.com, ziprealty.com and even Realtor.com have excellent free search features.

4. What are my financing options? How much can I afford?

While real-estate brokers are often legally allowed to arrange loans, more often than not its a dicey legal proposition for the broker to sell you a house as well as a mortgage.

Nevertheless, brokers should be well-versed in available financing, rates, qualification requirements and whether sellers require a mortgage pre-approval letter to accompany any offer (these days, most do). If your broker doesn’t know the answer to a certain question, that’s OK as the rules change almost daily, but he should actively pursue the answer and report his findings back without too much delay.

Shopping around for the best loan terms can be a time consuming and confusing process, but it must be done. Gone are the days where Wells Fargo (WFC) always gave you the best rate, or your buddy down at Chase (JPM) could get you a great deal. Keep in mind most loans these days are originated to Fannie Mae (FNM) and Freddie Mac (FRE) guidelines, which means most big lenders offer similar loan programs.

All things being equal, choose a lender you feel you can trust (not just the one offering you the best deal) and always have a backup.

Lastly, never trust a broker to “tell” you how much you can afford. This decision, especially in an environment where home prices are likely to fall for the foreseeable future, should be one each buyer must make for himself.

Plans change, life doesn’t always follow the path you hope it does. Being conservative in what you can afford, leaving a cushion and planning for the unexpected are paramount in today’s uncertain market conditions.

5. Provide me with examples of a few closings you are the most proud of over the past year.

This question gives your broker a bit of an opening to sell himself, and will go along way towards helping figure out whose side he is actually on. If your broker launches into a a story about this cute young couple he helped get into the house of their dreams, move along, cute young couples rarely make savvy home buying decisions and are easy prey for aggressive brokers. Also pass if you hear things like, “I found this great house right when it came on the market, we jumped at it and got in before the other buyers had a chance to bid.”

Sellers, by and large, are still unrealistic about how much they can sell their homes for. This means that when houses come out onto the market, the asking price is nearly always above where it will actually go for. Be patient, make your broker work for his money.

Although there are situations where multiple bids will come in from prospective buyers, chances are this isn’t a house you want to buy. Most of this sort of activity is going on in areas with high levels of foreclosures. Now that the moratoria are lifted, banks will start flooding the market again come next month. All that great news about limited supply will become ancient history as prices plunge once again. The house itself may be great, but just because homes are “cheap,” doesn’t mean they won’t get cheaper.

A good response is one where a broker tells you a story of a buyer he worked with for months, go to know a few neighborhoods that fit all the pertinent criteria, and waited for the right house to come on the market. Many sellers will list their house at a “hopeful” price for the first 30 or 45 days, then drop it down to something more reasonable. Rarely will a house sold in the first couple weeks be a “steal” for the buyer.

Your broker should stress that patience, research and shrewd negotiating got his client a great home at a great price.

To be sure, there are other questions to ask of a prospective broker, but this is a good start. Finding a broker should be treated like a job interview, after all, even though the commission may not be coming out of your pocket, you, as the buyer, end up paying one way or another. Make sure your broker is worth his salt.

By ANDREW JEFFERY

This post first appeared on Minyanville.

Every month, it seems, Washington dreams up new and fantastic ways to funnel taxpayer money towards a growing list of undeserving recipients.

Now, in the latest attempt to coerce banks into modifying delinquent mortgages en masse, the Treasury Department plans to offer cash incentives to lenders who lower interest rates or forgive principal on second liens (so-called “piggyback” loans). According to Bloomberg, the new program aims to simplify the modification process and help struggling borrowers avoid foreclosure.

The subprime second lien was a highly profitable, nearly usurious loan product that proliferated during the housing boom. Once reserved for high-quality borrowers and those with sufficient equity in their homes, seconds became an easy way to jam borrowers into homes they couldn’t otherwise afford.

If a homeowner wants to take out a first mortgage for more than 80% of the home’s value, he or she is typically required to take out mortgage insurance, issued by firms like Radian (RDN), MGIC Investment Corp (MTG) and the PMI Group (PMI). For years, the cost of insurance — plus the required down payment — limited home ownership to those who, by and large, could afford to buy responsibly.

But as housing demand ballooned from 2002 to 2005, banks discovered they could just loan borrowers the down-payment money - and charge a hefty fee to do so. Without those pesky requirements — and by bypassing the sometimes strict credit guidelines of mortgage insurers — banks were able to open up their loan products to a whole new group of unqualified borrowers.

Second liens, by virtue of being subordinate to first liens, carry additional risk, and thus a higher interest rate. In other words, if a borrower defaults, the holder of the second lien has to wait until the first mortgage holder is made whole before getting paid.

And since seconds carried super-high interest rates, securities backed by this type of loan offered juicy returns for investors. It should come as no surprise that the second-lien market was dominated by Bear Stearns (now JPMorgan (JPM)), Countrywide (now Bank of America (BAC)), and Citigroup (C) (now in hock to Uncle Sam for a cool $300 million).

Now, the Obama Administration wants to give billions to not only the banks who wrote these loans, but the borrowers who accepted them. The program is destined for failure.

In fact, it’s already failed.

A little over a year ago, Fannie Mae (FNM) and Freddie Mac (FRE) introduced an initiative called the “HomeSaver Advance.” Under the program, borrowers behind on their mortgage payments could take out an unsecured line of credit to get current. Under this program, Fannie and Freddie lent out $462 million over the course of the next 12 months.

Now, based on current market prices, the loans are worth a whopping $8 million, or $0.017 cents on the dollar. Talk about throwing good money after bad.

The President’s initiative to modify seconds is no different: It takes a situation destined for foreclosure and simply prolongs the agony. This prevents the borrower from getting out from under his mountain of debt and starting anew. Meanwhile, homes become ever more dilapidated, and banks further delay their own days of reckoning.

The rationale for this program is obscure - though it does provide yet another way to hand taxpayer money over to the very banks who got us into this mess in the first place.

February’s Case/Shiller Home Price Index was released today, showing continued price declines across the country. According to Bloomberg, home prices slid 18.6% from the previous year — a steep drop to be sure, but less severe than January, which saw a record-setting 19% decline.

With recent “positive” news on existing home sales, new home sales and now confirmation with the Case/Shiller reading added to persistent low interest rates, greater affordability and a bounce in consumer confidence, many analysts are now saying the worst of our housing slump is now behind us.

We remain cautious, especially given the nuances of how these data points are collected and reported. For more on this topic, please see: Keepin’ It Real Estate: Beware The False Bottom in Housing.

Cirios Verdict: DEAL

San Francisco isn’t for everyone, but with the rental market still expensive relative to just about everywhere but New York, buying a condo or TIC (Tenant in Common) is a pretty viable option. It didn’t used to be, but low-end condo and TIC prices are falling, as overbuilding, lower rents and the general economic malaise is hitting developers where it hurts. No, not there. Their pockets.

As a result, some of the smaller units in older, renovated buildings are being offered at reasonable prices. To be sure, its likely they’ll keep getting cheaper, but some are starting to get interesting.

In particular, S1 listed on the CLEAR below is a lower unit in the same building, which sold for $440,000 after being listed at $410,000. And while we believe TIC and condo prices will keep sliding in the near term, prices will be supported as they come more in line with rents in the area.

Address: 3322 16th Street #6, San Francisco, CA 94114
Status: ACTIVE
List Date: 3/31/09
List Price: $469,000
Cirios Value: $485,000
List Price vs. Cirios Value: 3.4% under-listed.
For a complete Cirios Valuation, click here for our CLEAR report, or on the image to the right.

Have a home you’d like Cirios to use for our next House of the Week?
Make a comment below or email us!

The Top Ten Stories YOU Need to Read This Morning

10. Luckily, the FDIC has a lot of money.

9. When bad news is actaully good for GM.

8. Countrywide is no longer … and you thought that happened more than a year ago.

7. A flu from a pig is financial market news?

6. Rich VCs are feeling the housing pain too.

5. Swine flu to take down airlines?

4. Who says real estate writers can’t cheer lead like real estate agents?

3. Thain strikes back in an interview with the Wall Street Journal.  No word on whether he made the statement from his million dollar office.

2. Cartoon Characters question today’s economics.

1. What in the world does “Photo Op” mean?

New Home Sales in March came in higher than expected, even as prices fell from this month last year. According to Bloomberg, the Commerce Department reported that builders tallied sales last month at an annual pace of 356,000, down just slightly from February.

Inventories dropped to the lowest level in 7 years, while prices dipped to levels not seen since December 2003.

Without a doubt, lower inventories and sales activity that is becoming somewhat less abysmal than before is a good sign for homebuilders, who saw their stock prices jump today. Lennar (LEN) popped 14.99%, Hovnanian (HOV) rose 10.75% and Pulte Home (PHM), who recently announced plans to buy Centex (CTX), finished higher by 7.34%.

At the risk of being labeled perma-bears, while the news was cheered by most industry experts, that doesn’t mean builders will begin breaking ground any time soon on new developments. And since homebuilders make money by, well, building homes, the group still isn’t out of the woods. As prices keep falling in line with broader measures of home prices, building houses will remain a non-economic enterprise for the foreseeable future.

When will that trend reverse? While it’s anyone’s guess, a good sign would be when builders start buying finished lots that currently can barely be given away for free.

The Top Ten Stories YOU Need to Read This Morning

10. The future for banks is cloudy … riveting.

9. At least Japanese banks can tell the truth.

8. Positive spin of the day: New-Home sales decline but they beat economists forecasts.

7. How did it take this long to get to bankruptcy … oh yeah, we gave them  a ton of money.

6. Finally, a realistic way to make money as a homeowner.

5. Do you think Goldman is going to buy distressed assets from themselves?

4. Commercial real estate is in big trouble.

3. B of A final creates a money making idea.

2. The economy is hurting architects too.

1. Ford loses $1.4 billion - Wall Street’s response: Let’s pop some champagne.

Economic data is inherently backwards looking. Forecasts, estimates and any other prediction of the future is a stab in the dark likely based on an esoteric predictive model and a bunch of educated guesses. And of all the economic phenomena, the hardest of all to predict is the cusp, the turning point.

Nevertheless, despite the cards being stacked against them, bold economists are stepping out on the proverbial limb and saying the housing market is healing and more than three years of declines are running their course. Their analysis is based on looking at history, then some extrapolation of how millions of unique economic actions, geopolitical strife, global financial markets and unpredictable political feuds will play out.

The future, as they say, is yet unwritten.

Consider these two reports, both written in the last 48 hours:

From Bloomberg: Existing Home Sales Hover Near Average. “Sales of existing US homes in March stayed near a four-month average, and prices rose from February, a sign the housing recession has stopped getting worse.”

Now, from Housing Wire: (a great place for housing-related news and analysis) Delinquencies and Defaults Up, Up and Away. “Delinquencies and defaults are on the rise, due mainly to a handful of circumstances, including the backlog from recent foreclosure moratoria, a jump in unemployment and even a slight rise in marital spats. Prime loans 60+ days delinquent increased by 69.6% from November 2008 to January 2009.”

Which data do you think is more predictive of how the housing market will perform in the future?

Existing home sales - transactions that happened 20-50 days ago, meaning contracts were signed back in January or February; or a spike in defaults which will turn into foreclosures, bank owned properties and more homes on the market later this year?

We rest our case.

DO NOT believe the hype: The housing market is still in decline, any stabilization theories are fallacy.

By ANDREW JEFFERY

This post first appeared on Minyanville.

Simply put: There are too many homes in America.

Travel to the outskirts of Phoenix, California’s inland empire — or even suburban Washington, DC — and you’ll find scores of vacant homes, for-sale signs, and soon-to-be ghost towns. Sprawling Lennar (LEN) cookie-cutter developments, Pulte Home (PHM) condos jammed against freeway sound barriers, mostly vacant strip malls - these are not the relics of dynamic social progress.

There are many who believe that superfluous developments in the so-called exurbs must be razed for housing supply to return to anything like sustainable levels.

But few expect the bulldozers to reach the urban downtown. Just as the “subprime” mortgage problem began in areas where economic fundamentals fell hopelessly out of sync with home prices, so too will urban renewal rise from the ashes of these communities.

Take Flint, Michigan, a city looking to shrink itself just to stay alive.

This once-proud industrial town 65 miles north of Detroit is embracing a trend which may eventually spread to cities throughout the United States: In response to seemingly endless economic woes, government officials in Flint are considering hastening the town’s decline in order to rebuild anew.

The New York Times reports that city leaders have floated a plan whereby certain dilapidated neighborhoods would be razed to the ground, consolidating residents and businesses closer to downtown. The aim is to reorganize the population around fewer, more sustainable communities, thereby pushing run-down homes and empty lots to the outskirts of town.

While uprooting citizens is a prickly political topic, the county Treasurer and advocate of the shrinking of Flint grimly noted that “Not everyone’s going to win. But now, everyone’s losing.”

Foreclosures, the latest in a series of economic epidemics to sweep Flint, are causing formerly vibrant communities to turn to dust. Genesee County, of which Flint is the largest town, in addition to Indianapolis and Little Rock, Arkansas, are tackling the foreclosure issue with county land banks. These publicly-funded institutions buy unwanted properties and rehabilitate them before squatters and vandals can take over.

Contrast this government-led form of community development with the policies now operative at Wells Fargo (WFC), Citigroup (C) and Bank of America (BAC) to leave bank owned homes vacant and ripe for vandalism, and you have an example of government policy that can speed up the recovery of a local real estate market.

And while Flint’s situation may be unique in that it faces the twin headwinds of the auto industry’s demise and the ongoing housing market collapse, it’s root troubles are emblematic of towns across the country: Cities, expectant of growth that never came, supported development that proved unsustainable.

Myriad solutions have been proposed to solve this country’s housing nightmare, but the simplest, and indeed the most effective may be to simply reduce supply the old-fashioned way, with bulldozers.

By ANDREW JEFFERY

This post first appeared on Minyanville.

Residential real estate is about to get very weird.

In the coming months, housing-market data is likely to show price stabilization in many of the country’s hardest hit areas. Pundits, government officials and real-estate professionals will loudly proclaim the worst of our real estate woes are behind us. Back in reality, however, this data will simply reinforce the axiom that there are lies, damn lies, and statistics.

The lion share of home price declines have, thus far, been focused in low-end markets -areas where property values became the most detached from housing-market fundamentals. Even though the high end is now declining, sales activity is still heavily concentrated in the country’s most distressed markets.

Taking a look at the data below compiled by my firm, Cirios Real Estate — which depict sales transactions for the part of the San Francisco Bay Area between San Francisco and San Jose known as the Peninsula — one can see how rising home prices from 2003 to 2007 shifted sales transactions towards more expensive properties. This makes intuitive sense, and should naturally push up both average and median home prices.

Click to enlarge

Since the market peaked, however, notice how the percentage of sales of homes under $400,000 shot up to more than 50% of sales in the first quarter of this year, from as low as 9% in 2007.

Conversely, sales over $1,000,000 that accounted for almost a quarter of transactions in 2007 now make up less than 9% of total sales so far in 2009.

This heavy concentration of sales in low-end markets is skewing home price data to the downside, exaggerating the impact of depressed markets on broad measures of prices.

As the foreclosure epidemic spreads outwards to more well-to-do areas, and job losses force previously stable homeowners to sell into a weak high-end market, more expensive homes will begin to make up a greater percentage of total transactions. This dynamic — not an overall rise in property values — is likely to push up average and median home price measures.

In other words, high-end markets will be falling as price discovery rears its ugly head, while low-end markets are flat at best, as price declines reach exhaustion levels and investors step in to buy. High levels of supply and looming shadow inventory of foreclosures will prevent meaningful appreciation in these distressed areas for the foreseeable future.

Meanwhile, data will show a housing market on the rebound.

No doubt, banks like Wells Fargo (WFC), Citigroup (C) and Bank of America (BAC) will cheer the end of the real-estate slump. Real estate professionals will pound the table that now’s the time to buy (just like they said back in 2007). Government officials will proudly assert their mortgage-relief efforts were a success.

Nothing, however, could be further from the truth.