10 Questions for . . . Fernando Pagés Ruiz, Contractor

In this installment of 10 Questions for . . . , Senior Editor Daniel DiClerico speaks with Fernando Pagés Ruiz, contractor and author of Affordable Remodel: How to Get Custom Results on Any Budget. Here, Ruiz talks about the upside of the economic downturn, details common remodeling pitfalls, and offers tips for slashing winter heating bills.

How has the credit crunch impacted the remodeling industry?
We had been in a kind of remodeling frenzy. People could justify the expense of remodeling with the rising value of their homes and the fact that it was relatively easy to get money through a second mortgage. Now that justification is over.

Even in good times, the best returns on remodeling investments were only around 90 percent, according to Remodeling magazine's annual "Cost vs. Value" reports. How many mutual funds do you know that advertise to customers that they'll get back 90 cents on every dollar invested? So remodeling was never an investment, and it more obviously isn't now. The motivation for remodeling should simply be that you plan to live in the house and you're spending money to make it how you want it.

Should home sellers be more motivated to make improvements?
If you're selling your house, the idea of getting it into the best selling shape makes tremendous sense, given the intense competition out there. Again, you won't necessarily get the dollars back, but you'll be able to move your house, whereas the neighbor who hasn't done any updating or maintenance may not.

Can homeowners negotiate lower costs on their projects?
It's a time to find good deals because many contractors who were used to doing a job for 40 to 60 percent over cost will now do it for 20 percent over cost. But depending on the contractor, negotiating can be a good or a bad strategy. You may end up with half a project if the contractor is in distress and looking for some cash flow and agrees to do the job for half the price of what he knows it will take. Chances are he won't be able to finish that job. So it is also a time to be careful.

So how do you protect yourself against the project-half-finished outcome?
In remodeling, the advantage always goes to the one with the most information. That's usually the contractor. And contractors know more than they let on. The only way to balance that is to become educated. I tell people it should take six to nine months to develop a plan and get to know the products. By the time you talk to your contractor, you should be able to tell if he knows his stuff or not. And you should definitely know more about your project than he does. You should be a very smart consumer by that point.

What other mistakes do homeowners make?
Starting the work all over the house. This is usually a guy thing, the do-it-yourselfer who starts jumping around doing this and doing that until he finally runs out steam and the house is a mess. You need to start with an overall plan, even if you're going to complete the work in stages. With the plan in place, you can segregate the house into sections and proceed from start and finish in an organized, logical manner.

Can you offer any rules of thumb for determining when a project goes from a DIY-friendly one to pro-required job?
Anything that has to do with safety. If you need to put in new gas lines, for example, it's a good idea to call in a plumber.

Manufacturers have made some projects easier, like tiling a laminate floor or installing a ceiling fan. But leave the skilled work to the professionals, like trim carpentry. If you want your cabinets installed correctly, there are a bunch of things a trim carpenter will know that you won't.

10 Questions for . . . Michael Thomas, Aging in Place Expert

In this installment of 10 Questions for . . . , Senior Editor Daniel DiClerico speaks with Michael Thomas, FASID, CAPS, an interior designer and a coauthor of Residential Design for Aging In Place. Here, Thomas (shown below) talks about the past and future of the aging-in-place movement and offers tips for making your home more accessible in only a weekend.

How do you define aging-in-place design?
Aging in place is about creating homes that are safe and secure but, more important, it's about creating homes that will allow someone to remain as independent as they possibly can regardless of their abilities.

What's the history behind the aging-in-place movement?
It goes all the way back to Franklin Roosevelt, who most people today know had polio. But at the time very few people realized he had the crippling disease. Around 1938, Roosevelt desired a retreat he could escape to from the spotlight of the White House, a smaller home where he could, in his own words, become the independent person he longed to be. As the recorded architect on the building, which he would call Top Cottage, FDR was able to specify things like zero thresholds between the doorways and lower windows, which allowed him to gaze outdoors from his wheelchair. FDR might not have invented aging in place, but he was among the first to apply its principles.

Seventy years later, why is aging in place just reaching the mainstream?
From FDR, fast-forward to the end of World War II, when returning soldiers started having families. Baby boomers were the largest group of Americans born in a particular time, 76 million between 1946 and 1964. Younger boomers are now starting to turn 50, and older ones are into theirs sixties. This generation is living healthier lives and is beginning to contemplate where they're going to be for the rest of their years and decades. On top of that many of them are taking care of an aging parent themselves and don't necessarily want to think about alternatives such as assisted-living centers and nursing homes. So between the baby boomers and their elders, we have somewhere in the order of 100 million people in need of aging-in-place-environments. The tipping point is still four or five years out, but it's coming on fast.

Is it a challenge getting clients to think about getting old?
Yes, but the way we get them to accept it is by making aging in place as transparent as possible. It's often just a matter of perspective. For example, level thresholds (or a "curbless shower," like the one shown) facilitate access and they also just plain look good. So emphasizing the aesthetic value is very persuasive. Or take wider doorways: They enhance accessibility, also make a space look larger, and make it easier to get in and out with a suitcase, a baby carriage, or a wheelchair.

What other key principles can be applied throughout a home?
It starts with nonslip floors. Whether the surface is tile or stone, it needs a nonslip finish, because as we age, the potential to do real damage when we fall goes way up. In the kitchen, having multiple counter heights creates the ability to stand or sit. Raising the dishwasher up off the floor about 12 or 18 inches means someone with back problems or arthritis doesn't have to bend over to load the dishes. In the bathroom, lowering the counter and cabinets will allow someone to shave or apply make-up while in a seated position.

Taller toilets are another key. Low-rise toilets, whose seats are 15 to 16 inches above the floor, became popular in the mid-90s, especially at the higher end. But using them puts more stress on the body, because your rear actually ends up lower than your knees. So-called comfort-height toilets, which are 17 to 19 inches off the ground, are much more preferable. If you're stuck with low-rise toilets, there are aftermarket products—basically little blocks that raise the toilet seat—but they compromise the transparency I spoke of earlier because they're so conspicuous.

What are some quick projects that can be done in a weekend?
It's a good long list—anything that creates the sense that we're still in control of our lives.
* Change doorknobs to lever-style handles and swap out knobs for handles on kitchen and bathroom cabinets.
* Add more light in a space, not only the general room illumination but also task lighting.
* Remove nonessential doors, such as those in hallways. If you have doors that have to stay but you want to create a wider accessibility, you can buy offset hinges that will allow the door to move into room and create better accessibility.
* Take up area rugs from the floors, like the welcome mat at the entryway. Unless they're perfectly flat, these rugs create a stumbling hazard.
* Eliminate one or two pieces of furniture. If someone in the home is getting to point where they need a walker, having more open space will permit them to move more comfortably.
* Choose chairs with arms that extend to the edge of the seat are easier to lift yourself up out of.
* Use remote controls for more than TVs. They can also operate blinds and window coverings and turn on and off lights.

New home stories on ConsumerReports.org! Cooktops and ovens, ranges, slow cookers, wine cellars, and more

The December 2008 issue of Consumer Reports is now on sale and online. The latest issue contains the following stories related to the appliances you use at home and some timely advice on dealing with the current economic downturn:

Cooktops and ovens: We test the latest cooking technology.

Ranges: Find the best electric or gas model for your home. (See how we test ranges, right.)

Slow cookers: Ratings of more than a dozen of these countertop appliances.

Wine cellars: Keep your favorite wine in tip-top condition with a wine chiller.

Weathering the financial crisis: Expert advice for home sellers and buyers.

Can the housing crisis impact the 2008 presidential election?

This blog doesn't usually delve into the political arena, but there's an interesting item today in the Notions on High and Low Finance blog by Floyd Norris, the chief financial correspondent of The New York Times and The International Herald Tribune. In the story, Norris looks at the impact the U.S. housing crisis is having on the 2008 presidential election. His interpretation of economic data and election polls makes for a good read.

We can't tell you how to vote in next week's election but can offer some expert financial advice if you're buying, selling, or remodeling a home. Read "How to Protect Yourself in Today's Rocky Real-Estate Market" for all the details. Also visit our updated recession-survival guide, which offers belt-tightening tips for getting through tough times.

If the candidates' plans for health care will factor into your choice for president, check out "Two Prescriptions for America's Ills," which covers McCain's and Obama's proposals for the U.S. health-care system.—Steven H. Saltzman

Buzzword: Brickor Mortis

What it means. This buzzword, derived from rigor mortis, comes to us from Great Britain, where many homes are made of brick and wordplay often takes a macabre turn. With the housing market in some areas across the pond in tough shape, brickor mortis—describing the paralyzed state of home sales and purchases—is said to be setting in at a swift pace.

Why the buzz? England and the United States of America are said to be two countries divided by a common language. We now also share something else: a glut of unsold homes. In January 2008, 32 percent of London residences on the market had been for sale for three months or longer. By August, that figure was up to 51 percent. One silver lining in the trend: the divorce rate in England and Wales is at a 26-year low, according to a BBC report, prompting speculation that plunging house prices might be keeping couples together.

Whether or not U.S. divorce rates follow a similar trajectory remains to be seen. But brickor mortis seems to have set in here, too. On September 17, the U.S. Department of Commerce announced that housing starts for August were fewer than expected, sinking activity to a 17-year low. "Builders understand that there is still a substantial amount of unsold inventory to be worked down," noted Sandy Dunn, president of the National Association of Home Builders, in what could be considered the understatement of the year.

If you are selling or buying a new home, be sure to read our special section on real estate, which tells you the best way to price your home and lays out the right projects to do before you sell your home.

You'll likely get the best return if you spruce up the outside of your home by adding a deck, new energy-efficient windows, or new siding, according to a 2007 nationwide survey of real-estate professionals conducted by Remodeling magazine.—Daniel DiClerico

Essential information: Learn how to get your house ready to be sold from a professional stager. And use our Home Improvement Guide interactive for advice on products and materials for any area of your house.

Q&A: Should I have my home tested before I put it on the market?

Should we test our older home for radon, mold, and lead before trying to sell it? Would this help us stand out in a tough market?

We spoke with three regional vice presidents of the National Association of Realtors—each with more than three decades of experience selling homes in up and down markets.

"Buyers want to get their own tests, and they tend not to believe the seller's tests," says Mary Davis, a real-estate agent in River Edge, New Jersey. John Veneris, a real-estate agent in Downers Grove, Illinois, adds that home buyers should "wait until the general inspection to resolve any problems."

Robert Bailey, a real-estate agent in Santa Cruz, California, suggests that before homeowners put their house on the market, they get an idea of what problems exist by doing a general and pest-control inspection, along with a visual inspection for such problems as mold. (Keep in mind that mold-testing kits proved generally ineffective in Consumer Reports testing. Lead and radon kits fared better although quality varied in some cases very widely between brands.)

But time and money invested in home repairs and regular maintenance can pay off when it's time to sell. Water damage and cracks in the foundation won't go away and could be a deal breaker. A general professional home inspection is not required, but recommended as part of the selling process. And a property condition disclosure form is required in 44 states and the District of Columbia, according to NAR spokesman Walter Molony.

Buyers should be aware that Alaska, Arkansas, Kansas, Vermont, West Virginia, and Wyoming do not require this form, but federal law mandates that any seller of a house built before 1978 must disclose if lead paint was used as an interior or exterior finish.—Kimberly Janeway

Essential information: Find out why staging your home might help close the deal and how to get the most for your house in a soft market.

10 Questions for . . . Barb Schwarz, Professional Stager

In this installment of 10 Questions for . . . , Associate Editor Kimberly Janeway interviews Barb Schwarz, staging guru and CEO of Stagedhomes.com. Schwarz explains staging and how it helps to sell houses.

Who coined the phrase “home staging”?
I invented the industry 36 years ago. I had an interior design business and then went into real estate in the early ‘70s and was shocked at the way the houses looked. I started thinking about decorating houses to sell them. I used my theatre experience to set the scene. Staging is preparing your home so that the buyers can imagine living there with their own things. But most people have too much stuff and they don’t think to put it away. I’ve taught more than one million realtors and decorators about staging via my seminars.

But don’t potential buyers like a house that’s neat but lived in?
Just because you lived in a home one way isn’t the way you sell it. A home becomes a house, then a product to get top dollar. That’s why you do the staging—so the buyer doesn’t look at the stuff, but looks at the space.

What does a stager actually do?
First, I chat on phone with the potential client and then visit the home. I bring my credentials and pictures of my work. I take notes and photos and then I’ll write a proposal. I work on full homes, vacant homes. I have inventory for rent. Usually in lived-in homes you don’t have to buy or rent anything. Staging includes cleaning, packing up stuff, rearranging and moving furniture from one room to another, displaying art, and maybe even painting rooms.

Packing up stuff? What happens to the stuff?
The homeowners might have to get portable storage or box it up and put it in storage and get rid of it for now. Or they can have a garage sale or give things to charity.

Tell me more about staging. What are the steps?
1. Get it clean (stager arranges this or owner does it)
2. Make it clutter-free (seller or stager does it)
3. Use color wisely. Put soft colors, neutrals, on the walls and floors. This expands the size of the room. No red bedrooms, no purple. Put the punch in accessories.
4. Compromise. When you can, put the money in something that’s in poor condition, such as replacing a vinyl kitchen floor that’s in bad shape. But if the bathroom counter is pink, diffuse it and go retro by hanging black hand towels, putting up a new white shower curtain, and painting the walls white.
5. Creativity. Staging is not about spending money. I can stage homes with a ball of rope and a pair of clippers. Angle the bed so that it opens walls and makes the room look bigger. Use nice sheets and pull back the bedspread to show off the sheets.
6. Communication. What is each room communicating to the buyer? Do we have to change the message? Is the room calm, peaceful?
7. Commitment. The seller has to be committed and say they can do this and not be afraid of changes.

A saintly appeal to help sell homes

In a sluggish housing market, homeowners clear clutter, rearrange furniture, and replace kitchen appliances in hopes of enticing buyers. But some sellers bury a statue of St. Joseph in their yard to try to help close the deal. As noted on Snopes.com, people have been relying on the heavenly help for years.

"The statue surfaces every time we have a soft market," says Walter Molony, a spokesman for the National Association of Realtors. "I don't think anybody's analyzed whether this works, but there are people who really believe that it helped them."

Mary Ann Giacobbe, a real-estate agent in New Rochelle, New York, a suburb north of New York City, says she usually has a bag of statues on hand for clients who want one. "I don't care what religion you are, homeowners are doing it," says Giacobbe.

St. Joseph is the patron saint of the home and family, and although the practice of burying the statue is popular, even with non-Catholics, the origins of the tradition are unknown. The Catholic Church does not sanction this practice, according to Stephen J. Binz, the author of St. Joseph, My Real Estate Agent. "I was selling a home and it had been on the market for nine months, and I was desperate because I was carrying two mortgages," says Binz. "My Realtor, who was Presbyterian, suggested burying a statue and I thought it was superstitious and I didn't do it." Months later, Binz decided to devote prayer to St. Joseph and bury the statue upside down in his yard. Several days later the house was sold.

You can find St. Joseph statues online for about $5 and up, including kits that come with a burial bag. The Original St. Joseph Statue Home Sales Kit from the St. Joseph Statue Store is shown.

If you want to rely on more earthly efforts to help you sell your home in this rocky market, read our expert advice in "Buying, Selling, Remodeling" from the September 2008 issue of Consumer Reports.—Kimberly Janeway

Buzzword: Neighborhood Effect

What it means. This buzzword comes from Cambridge, Massachusetts, or more precisely, that neighborhood's Harvard University Joint Center for Housing Studies.

In the April 2008 paper "Good Home Improvers Make Good Neighbors," Kevin Park, a JCHS research assistant, defines neighborhood effect as "a situation where neighborhood conditions (including overall level of home improvement spending) impose costs and benefits or otherwise influence the behavior or actions of a homeowner. Similarly, the home improvement activities of an individual homeowner may impose costs and benefits on nearby property owners and thereby influence the general level of maintenance in the neighborhood." (Download a PDF of the paper here.)

In other words, upkeep is contagious, and the neighborhood as a whole benefits from homeowners' TLC.

Why the buzz? The housing market is still reeling—the foreclosure rate is climbing—and even the most optimistic economists aren't predicting a prompt recovery. Foreclosure is the heartbreaking result for homeowners who can't keep up with their mortgage payments. Herein lies the downside of neighborhood effect. Using a related buzzword, the Center for Responsible Lending refers to "subprime spillover," whereby a foreclosure on a home lowers the price of nearby single-family residences by 0.9 percent. The negative impact is cumulative—each additional foreclosure lowers values an additional 0.9 percent.

But that's the glass-half-empty view of neighborhood effect. Park's paper is largely about the positive impacts of home improvement. And as we observe in our August 2008 kitchen-remodeling special section, today's housing market actually makes it a good time to start a project: Contractors aren't swamped, and appliance retailers and home centers are offering more deals than ever.

Homeowners tend not to see past their property lines when calculating the return on investment of a project. But Park finds a "statistically significant effect of neighborhood home-improvement activity on home appreciation." Between 1996 and 2004, appreciation rates were 15 percent greater in neighborhoods where people spent a lot on home improvement than in low-spending ones.

So the next time your neighbors kick up a fuss over your ongoing renovation, or you over theirs, remember the concept of neighborhood effect.—Daniel DiClerico

Essential information: Use our new Home Improvement Guide interactive, which provides buying advice and more for appliances, tools, and building materials for every area of your home.

U.S. housing prices continue slide

What happens when there’s a glut of houses for sale? Beyond the agita unsold homes might cause their owners, one of the obvious results is that prices fall—something sure to spark joy among potential buyers out there.

There’s an 11.2-month supply of homes for sale in this country, according to the National Association of Realtors. And, based on the latest S&P/Case-Shiller index of home prices, which tracks fluctuations in the value of residential real estate in 20 U.S. metropolitan areas, home prices are dropping nationwide. The S&P/Case-Shiller index for April 2008, released today, shows a more than 15 percent decline from a year earlier.

Speaking to The Wall Street Journal, Mark Zandi, chief economist and cofounder of Moody’s Economy.com, said that by next June prices will have dropped about 25 percent from their peak in 2006. (The median price of an existing single-family home in 2007 fell to $217,900, down from $228,200 a year earlier, according to The State of the Nation's Housing 2008 report from the Joint Center for Housing Studies at Harvard University.)

“I think it is going to take another year nationwide for us to work through all of our problems in the housing market, at least to make a significant dent,” Zandi said in an article in The San Diego Union-Tribune. “In some parts of the country, the market will remain depressed well into the next decade. It is going to be a slog.”

Essential information: If you’re planning to move, learn how to sell your home in a buyer’s market.

Protect Your Investment: Avoid shoddy home construction

A few years back, a Consumer Reports investigation found that 15 percent of new homes had serious problems and defects, requiring homeowners to spend millions of dollars on repairs. During that building boom, the fast pace of construction was a major cause of shoddy construction, according to experts interviewed for the story.

While today’s real-estate market has weakened significantly compared with the robust market of recent years, you still need to be on the lookout to avoid buying a flawed home. (Our exclusive interactive illustrates the problems to be wary of.)

Serious construction defects often present themselves in telltale ways, such as the deep cracks in a floor and an exterior brick wall shown here. (The owners of that home in Edmond, Oklahoma, ended up spending $60,000 to repair their new home.) If you see one or more of the following problems when you’re looking for a home or after you move in, hire a structural engineer to investigate.

Deep cracks in the foundation or basement walls can be signs that the foundation was laid on a poorly compacted base or improperly graded soil.

Sagging floors or leaning walls might be caused by a shifting foundation or structural problems with support beams. Sometimes problems can be associated with a poorly done renovation or addition that compromised key structural members.

Windows and doors that don’t sit well in frames or close properly could be the result of house-framing problems or even trace back to uneven settling of the foundation. If the beams, studs, and joists weren’t correctly sized or assembled, the whole house might not hang together well.

Wide cracks in interior walls could signal a foundation problem. Generally, though, fine cracks are cosmetic, the result of normal wood shrinkage when drying or even minor settling.

Water damage warning signs include mold, rot, and insect infestation in exterior walls; staining, swelling and discoloration on interior walls; and a musty odor. There are a number of possible causes, including improperly installed roofing; missing flashing around penetrations and joints; no moisture barrier in a climate that requires it; lack of a drainage space behind brick or siding; poorly installed windows and doors; holes in siding; plumbing leaks and trapped water-vapor condensation from moist air contacting cold surfaces.

Flooding and sewer and drain backups might result from poorly graded land or faulty sewer and water-main connections.

Switched hot and cold spigots could signal improperly installed plumbing.

Excessive heating or cooling bills might be a sign that air ducts are leaky or improperly connected. Be on the lookout if rooms don’t get cool enough or warm enough.

Electrical shorts that cause blown fuses or tripped breakers could point to an incorrectly installed electrical system. Other signs of electrical problems are outlets and switches that don’t work or are unexpectedly controlled or affected by electrical devices in other parts of the home.

Missing required permits indicates that building authorities have not performed the required inspections.

Take these steps if you think you have a serious problem with substandard home construction.

1. Hire a licensed engineer. The National Academy of Building Inspection Engineers can make a referral for a visual inspection. For a structural analysis, expect to pay $100 to $150 an hour.

2. Give the company a chance to fix the problem. You may have no choice anyway in states with “right to cure” laws. But don’t let warranties or statutes expire while you wait. Document your complaints with photographs, copies of written agreements and warranties, and a home inspection.

3. File complaints. Send your complaints to building and regulatory authorities in your state, such as a contractor-licensing board; your state and local consumer-affairs departments; and, if you suspect fraud or corruption, your state attorney general. Also contact the Federal Trade Commission.

4. Network. Contact Homeowners Against Deficient Dwellings or Homeowners for Better Building to contact other aggrieved homeowners.

5. Get legal help. As a last resort, contact a lawyer who specializes in construction-defect lawsuits. Your local bar association can help you find one.

Avoid these money mistakes

In “12 Money Mistakes That Could Cost You $1,000,000,” from our February 2008 issue, the Consumer Reports Money Lab examined several common financial blunders and explained how to avoid them. The Money Lab revealed these two home-related blunders:

UNDERINSURING YOUR HOME
Even with the recent retreat in home prices, if you’ve lived in the same house for 10 years, it’s likely to be worth 54 to 104 percent more than you paid for it, depending on where you live. But if you haven’t updated your homeowners insurance and disaster strikes, you could lose those gains.

All told, 55 percent of residential property in the U.S. is undervalued for insurance purposes, according to Castle Inspection Service, which conducts valuations for insurance companies. The average shortfall: 28 percent.

Using metropolitan-area home prices as tracked by the National Association of Realtors, we picked a $71,700, median-priced home in Elmira, New York., and an $865,000 house in the San Jose, California, area. We subtracted the value of the land, which is theoretically indestructible, and multiplied the remainder by that 28 percent shortfall. The Money Lab estimates insufficient insurance could cost $16,000 to $194,000.

Ask your insurer to reassess the replacement cost of your home and adjust coverage accordingly. Buy an inflation-guard endorsement. Make sure your policy would pay to rebuild to the current housing code where you live.

Also follow our expert cost-shaving advice to cut your insurance premiums:

Shop around. Prices vary from one company to another. Call insurers to compare prices, or check their Web sites. Your state insurance department may also list prices offered by major insurers.

Ask for discounts. Many companies will cut your rate by as much as 10 to 15 percent if you are over age 55. Some companies will also grant you discounts for smoke detectors, burglar alarms, or dead-bolt locks.

Reap rewards for loyalty. Some insurers cut premiums by 5 percent if you’ve been with them for three to five years. If you’ve stuck with the company for more than six years, you may be able to land a 10 percent discount.

Raise your deductible. Increasing your deductible from $500 to $1,000 should cut your premium by 25 percent.

Bundle your plans. If you use the same insurer for your homeowners and your auto insurance, you should be able to qualify for a discount of 5 to 15 percent on each policy.

OVERPAYING FOR YOUR MORTGAGE
The annual percentage rates on mortgages in a given area can vary by close to a percentage point. That might not seem like much, but over a 30-year term, it adds up to a bundle.

HSH Associates, which publishes mortgage data, told us the range on 30-year fixed-rate mortgages in New Jersey in November 2007 was 5.875 to 6.625 percent. We applied that to a purchase of a $299,000 home, assuming a 20 percent down payment and the resulting $239,000 mortgage. Over 30 years, the higher-priced mortgage would cost $360,000, while the lower-priced one cost only $333,000 in 2008 dollars.

Shop for the best mortgage rate by checking local banks, your credit union, big-lender Web sites, mortgage brokers, and mortgage-related Web sites.

Read “Remodeling: Best ways to pay for it now” for detailed information on how to pay for home-improvement projects.

Illustration by Carl Wiens

“Subprime” is the word of the year

Edging out an elite list of words and phrases, subprime—a risky loan, mortgage, or investment—has been selected by the American Dialect Society as the word of the year for 2007.

“When you have investment companies losing billions of dollars over something like bundled subprime loans, then you have to consider whether [a word is] important,” said Wayne Glowka, dean of Arts and Humanities at Reinhardt College and chair of the New Words Committee of the American Dialect Society. “You probably also want to think about paying off that third mortgage.”

Not surprisingly, in a year when the housing market plunged, subprime was not the only home-finance-related finalist. In fact, the 118-year-old ADS has added a new category of real-estate-industry words that include:

Exploding ARM: An adjustable-rate mortgage whose rates have risen beyond the borrower’s ability to pay.

Liar’s loan/liar loan: Money borrowed from a bank or other lender under false pretenses, especially in the form of a “stated income” or “no-doc” loan, says the ADS. These moves allow borrowers to exaggerate their actual income.

NINJA (No Income, No Job or Assets): A poorly documented loan made by a lender to a high-risk borrower.

Scratch-and-dent loan: A loan or mortgage that has become a risky debt investment, especially one secured with minimal documentation or made by a borrower who has missed payments.

You’ll find all the 2007 finalists here. This is the 18th year the ADS has named a word of the year; recent past winners include plutoed (2006), truthiness (2005), red state, blue state, purple state (2004), metrosexual (2003), and weapons of mass destruction/WMD (2002). Merriam-Webster named woot as its word of the year for 2007.—Steven H. Saltzman

Home-improvement spending takes a dip

The bad news keeps on coming for the nation’s beleaguered housing industry—just check out the latest housing figures from the National Association of Home Builders and the National Association of Realtors.

With fewer homes being sold and loans harder to come by, the remodeling sector in the United States is now taking it on the chin.

Home-improvement spending in 2007 is projected to decline for the first time since 2003, according to the Leading Indicator for Remodeling Activity (LIRA), published by Harvard’s Joint Center for Housing Studies (JCHS). In the third quarter of 2007, Americans spent $2 billion dollars less than the previous quarter, and U.S. homeowners are expected to spend about 2.3 percent less this year than last on remodeling, says the JCHS. By comparison, from 2004 to 2006, quarterly spending shot up by as much as $10 billion. (Click on the chart above.)

The LIRA is based on nine separate data sets, including retail sales and shipments of building materials. But the two driving forces behind the latest downward trend are the struggling housing market and the credit crunch. Home sellers and home buyers do much of the country’s remodeling, either to get a property ready to sell or to spruce it up after they move in. The other big spenders are homeowners who refinance their mortgage or take out a home-equity loan to make improvements.

“These numbers aren’t terribly surprising,” says Abbe Will, the JCHS researcher who crunched the data. “It will be interesting to see what happens over the next few quarters,” says Will. “But we don’t expect a turn around to happen any time soon.”—Daniel DiClerico

Essential information: If you’re planning a remodel at your home, you’ll want to get the most bang for your buck. Our kitchen-planning guide, for instance, is loaded with expert advice on getting the best deals without compromising quality. Must-reads include “Dream kitchens for less,” five common design problems to avoid, a rundown of the 10 products that get the most hype but aren’t worth it, and tips on how to pay for the work. Also use our exclusive design interactive and the QuickCost Kitchen Remodeling Estimator, powered by RSMeans (the CustomCost Estimator is available to subscribers), as you map out your project.

Tip of the day: How to sell your home

A look around your neighborhood will provide you with all the proof you need: Houses are taking a long time to sell. Indeed, according to the National Association of Realtors, sales of existing homes plunged 8 percent in September from August and have declined 19.1 percent from the September 2006 level. The NAR also reports that 4.40 million existing homes are on the market, a 10.5-month supply at the current sales pace.

Not only have sales slumped but prices are dipping, too. The national median sales price for existing homes of all types was $211,700 last month, down 4.2 percent from $220,900 12 months earlier.

if you're trying to sell your home in today's depressed market, read these expert tips from the Consumer Reports Money Blog.

No-fee mortgage: Can you really save?

Stop worrying and start celebrating,” read the newspaper ad for Bank of America’s No Fee Mortgage Plus, a loan that claims to do away with all application and closing fees. In mid-October, the bank’s Web site was touting a “Best Value Guarantee” and a “No fees. No worries. No, really.” process.

But how much the No Fee Mortgage Plus might save you depends on several factors, including where you live, the interest rate on the mortgage, and how long you expect to keep the loan.
 
The loan, available to customers who have at least one Bank of America account, offers some perks. The bank pledges to close the loan on a selected date or within 25 calendar days of a completed application, whichever is later. If it misses the mark, the bank will cover the principal and interest payment for the first month. Bank of America will also send you $250 if it approves your loan but you close your mortgage with another lender.

The loan’s main selling points, though, are the elimination of closing fees and private mortgage insurance.

Closing costs, which include origination and underwriting expenses, credit scores, third-party title insurance, appraisals, and application fees, can eat up a substantial amount of your cash at closing or add to the amount you borrow. They also vary widely by region. On a $200,000 loan, a New York City resident would pay an average of $3,830 in origination, closing, and title costs, while a resident of Indianapolis would pay $2,339, according to a survey by Bankrate.com. By eliminating those costs, No Fee Mortgage Plus can save you thousands at the close.

The loan also proves its worth over time if you put down less than 20 percent. Lenders generally charge a monthly insurance premium to protect against default, called private mortgage insurance, or PMI. No Fee Mortgage Plus doesn’t, and that could save as much as $20,000 on a $200,000 30-year loan with 10 percent down.

But Bank of America compensates for assuming those costs by charging higher rates on the mortgage, which over time will more than offset up-front savings. The rates in mid-August on its no-fee loans were as much as 0.375 percent above the national average, according to Keith Gumbinger, vice president of HSH Associates, a publisher of mortgage-loan information.

The Bottom Line
We put the loan to the test with a hypothetical purchase of a $250,000 home in our home base of Yonkers, N.Y. A Bankrate.com search provided us with 22 lenders willing to finance $200,000 in a points-free, 30-year, fixed-rate mortgage. Of those, Bank of America’s 7.0 percent rate tied for the highest. We compared it with one loan at 6.5 percent and estimated closing costs of $6,241. Bank of America’s loan would save us $2,040 if we were to keep the house for 5 years. But if we were to stay for 15 years, the competitor’s loan would save us $8,083. And if we were to hold the mortgage for 30 years, the no-fee loan would cost $24,427 more.

While the No Fee Mortgage Plus loan might not live up to its billing, it warrants a look if you are in the market for a short- term property or plan to put down less than 20 percent.—Greg Brown

This article first appeared in the October 2007 issue of Consumer Reports Money Adviser.

U.S. housing outlook remains bleak

"The ongoing housing correction is not ending as quickly as it might have appeared late last year.

"And it now looks like it will continue to adversely impact our economy, our capital markets, and many homeowners for some time yet. Even so, I believe we have a healthy, diversified economy that will continue to grow . . . .

"But let me be clear, despite strong economic fundamentals, the housing decline is still unfolding and I view it as the most significant current risk to our economy. The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth."

That grim assessment came from U.S. Treasury Secretary Henry M. Paulson Jr. during remarks he made today at  Georgetown University Law Center. (Read Secretary Paulson's entire remarks here.)

Paulson's comments about the slumping American housing market came the same day that RealtyTrac released its latest figures. Almost 244,000 foreclosure filings were reported in August 2007, a 36 percent climb from July 2007 and a 115 percent surge from a year earlier, reports RealtyTrac, the online foreclosure- property marketplace based in Irvine, California. (Foreclosure filings include default notices, auction-sale notices, and bank repossessions.) For detailed foreclosure information, click here.

Pending home sales decline

The National Association of Realtors’ Pending Home Sales Index sank to its lowest level since it debuted in 2001, falling 6.5 percent in August to 85.5, according to the real-estate-industry trade group. The index has dropped 21.5 percent from the August 2006 index of 108.9.

“Fewer contracts were being written because of mortgage availability issues, and a separate internal survey of our members shows more than 10 percent of sales contracts fell through at the last moment in August, primarily the result of canceled loan commitments,” said Lawrence Yun, senior economist for the NAR. “The volume of activity we’re seeing today is below sustainable market fundamentals because some creditworthy people are trying to buy homes but can’t because of the credit crunch.”

According to the NAR, the index is a leading indicator of the health of the housing sector; it measures the number of signed sales contracts for existing homes. An index of 100 is equal to the average level of contract activity during 2001.

Read the NAR’s release on the index here.

U.S. home sales continue to slide

The cooler weather of autumn is matching the ongoing chill in the U.S. housing market.

New-home sales dropped 8.3 percent in August to a seasonally adjusted annual rate 795,000 homes, the lowest level in seven years, according to the latest figures from the U.S. Department of Commerce. That number is significantly lower than the 830,000 expected by many economists, reports the National Association of Home Builders. It’s also a 21.2 percent slide from August 2006, when the seasonally adjusted annual rate was 1,009,000 units.

Sales of existing homes also fell in August, coinciding with a rise in mortgage availability, says the National Association of Realtors. Existing homes, which include single-family, town homes, condo, and co-ops, dropped 4.3 percent from July to a seasonally adjusted annual rate of 5.50 million units in August from 5.75 million in July. The plunge from the August 2006 rate of 6.31 million homes is a sharp 12.8 percent.

Existing-home sales fell throughout the country compared with a year earlier, as did the median price of a home in two regions:
• West: 21.7 percent decline in sales and a 3.8 percent drop in price.
• South: 12.7 percent sales decrease and a 0.7 percent price slide in price.
• Midwest: 10.5 percent fall in sales but a 3.1 percent gain in price.
• Northeast: 5.7 percent sales reduction but a 3.6 percent rise in price.

“The unusual disruptions in the mortgage market, including a significant rise in jumbo-loan rates, resulted in a fairly high number of postponed or cancelled sales, with many buyers having to search for other financing when loan commitments fell through,” said Lawrence Yun, senior economist for the NAR. “Lower sales contributed to a buildup of unsold inventory.”—Helen A.S. Popkin

Essential information: Read “How to sell your home in a down market” for advice on increasing the odds that you'll find a buyer for you house.

FTC warns against deceptive mortgage ads

In the wake of ongoing troubles in the subprime-mortgage industry, the Federal Trade Commission in June undertook a nationwide review of mortgage ads, focusing on promises of exceptionally low interest rates or small monthly payments. (For details on the FTC’s findings, click here.)

Following that review, the FTC on September 11 issued a warning to mortgage brokers and lenders that their ads might be deceptive or in violation of the Truth in Lending Act. The FTC was also addressing the many Web sites, newspapers, magazines, direct mailers, and unsolicited e-mail and fax companies that run or send out the ads for the mortgages.

“Many mortgage advertisers are making potentially deceptive claims about incredibly low rates and payments, without telling consumers the whole story—for example that these low rates and payments apply for a short period only and can go up substantially after the loan’s introductory period,” said Lydia Parnes, director of the FTC’s Bureau of Consumer Protection, in a statement. “Home ownership is the American dream, but it can become a nightmare for consumers who don’t have the information they need to understand the terms of their mortgage.”

The FTC is advising advertisers to review their ads and is informing companies running them about their potentially deceptive nature and providing guidance on identifying questionable claims.

For more information on misleading mortgage promotions, read the FTC’s “Deceptive Mortgage Ads: What They Say; What They Leave Out.”—Steven H. Saltzman

Housing-market slump continues

Home builders continue to lack confidence in the U.S. housing market, as reflected in the latest monthly National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released on August 15.

The overall HMI dropped two points from July 2007 to 22, its lowest level in 16 years. All three elements of the HMI declined in August. The index gauging current single-family home sales fell one point, to 23; the index of sales expectations for the next six months slipped two points, to 32; and the index measuring traffic of prospective buyers decreased three points, to 16.

“There is no question that problems in the subprime-mortgage sector have spilled over to other components of housing finance . . . delaying a revival of the single-family housing market,” said David Seiders, the NAHB’s chief economist. “We now expect to see home sales return to an upward path by early next year and we expect housing starts to begin a gradual recovery process by mid-2008. From there, the market will have plenty of room to grow in 2009 and beyond.”

The U.S. Department of Commerce on August 16 released its July 2007 figures for housing starts. According to the Commerce Department, 1.38 million units were started last month, a 6.1 percent drop from June and a 20.9 percent plunge from a year earlier. The seasonally adjusted annual rate of new-home construction is at its slowest since January 1997.

For more information on the HMI, click here. See the latest Commerce Department data here.

Foreclosure rate skyrockets in first half of 2007

The nationwide foreclosure rate in the United States for the first six months of the year stands at one for every 134 households. That’s a 55 percent increase over the same period in 2006, according to RealtyTrac, the online foreclosure-property marketplace. The Irvine, California–based company reported on July 30 that 925,986 foreclosure filings, which include default notices, auction-sale notices, and bank repossessions, had been made during the first half of the year. (The chart, left, shows the foreclosure activity for the last five quarters.)

Western states have the dubious distinction of topping the year-to-date foreclosure list. Nevada had 25,208 foreclosure filings, a rate of one for every 40 households. Colorado (34,287 filings, one for every 60 households) and California (189,560 filings, one for every 69 households) ranked second and third and were joined in the top 10 by Michigan, Florida, Ohio, Georgia, Arizona, Connecticut, and Indiana. Vermont reported the fewest filings—only 18, or one for every 17,075 households. You’ll find foreclosure information for every state here.

“Based on the rate of foreclosure activity in the first half of 2007, we could easily surpass 2 million foreclosure filings by the end of the year, which would represent a year-over-year increase of over 65 percent,” said James J. Saccacio, chief executive officer of RealtyTrac.

Essential information: If you’re one of the many U.S. homeowners having a difficult time selling your home in this tough housing market, follow this advice to increase the odds that you'll find a buyer.—Steven H. Saltzman

New-home sales slide again

Sales of new homes fell again in June, to a seasonally adjusted annual rate of 834,000, according to estimates from the U.S. Department of Commerce. That figure represents a 6.6 percent decline in new-home sales from May 2007 and a 22.3 percent drop from June 2006. The Commerce Department puts the number of new homes for sale nationwide at 537,000, a 7.8-month supply.

"Home builders continue to trim prices and offer large nonprice sales incentives,” said David Seiders, chief economist for the National Association of Home Builders, “but many prospective home buyers obviously are reluctant to sign on the bottom line.”

Essential information: If you're in the market for a new home, read  "Housewrecked" to avoid purchasing a new house with hidden defects. Also watch our exclusive interactive on the warning signs of shoddy homebuilding.

U.S. home sales drop again

A pattern is starting to form for sales of existing homes—and it’s not a good one. The National Association of Realtors reported today that existing-home sales in June dropped for the fourth month in a row, to a seasonally adjusted annual rate of 5.75 million units. Sales of single-family homes, town homes, condos, and co-ops slid 3.8 percent from May and 11.4 percent from June 2006.

“Home buyers have been getting mixed signals about the housing market, which is causing some of them to hesitate,” said Lawrence Yun, senior economist for the NAR. “Mortgage interest rates have risen recently, and tightening lending standards are continuing to hamper sales, but fewer risky loans will put the market on a healthier path. Although general buying conditions remain favorable for long-term home buyers, it appears some buyers are looking for more signs of stability before they have enough confidence to make an offer.” The national average commitment rate for a 30-year, fixed-rate mortgage was 6.66 percent in June, according to Freddie Mac, up 0.4 percent from May and about the same as the June 2006 rate of 6.68 percent.

“Two bright spots in the June report are a decline in housing inventory and a modest gain in home prices,” said Yun. “Although we’ve seen seasonal month-to-month price increases over the past four months, this is the first time in 11 months that the median home price is higher than the year-ago price.” The inventory of existing homes fell 4.2 percent in June, though that still represents an 8.8-month, according to the NAR, which also reported that national median sales price for all existing homes rose slightly, to $230,100 in June, up 0.3 percent from June 2006.—Steven H. Saltzman

Essential information: Read “How to sell your home in a down market” for advice on increasing the odds that you'll find a buyer for you house. And if you're considering buying a new home, check out "Housewrecked," which explains how to avoid purchasing a new house with hidden defects. Also watch our exclusive interactive on the warning signs of shoddy homebuilding.

Builders' confidence wanes as housing slump continues

Sales of new homes and existing homes are both suffering as the housing market continues its slide from the boom years of 2003 to 2005.

The latest results of the National Association of Home Builders/Wells Fargo Housing Market Index highlight the lack of confidence U.S. builders have in the new-homes market. The index lost four points from June and fell to 24 points in July. That's among the lowest results since the index started in 1985 and is the weakest since the start of 1991, when it sat at 20. (According to the NAHB, an index of 50 means that half of the builders surveyed have confidence in the market. Figures below that indicate lower confidence.)

"The bottom line is that the single-family housing market is still in a correction process following the historic and unsustainable highs of the 2003-2005 period,” said David Seiders, chief economist for the NAHB. “Builders are actively trimming prices and offering buyer incentives to work down their inventories, but meanwhile there is a large supply of vacant existing homes on the market, and affordability problems persist despite efforts to attract buyers."

Read more about the NAHB index here.—Steven H. Saltzman

Are new-home sales running out of gas?

When it comes to the declining housing market, it’s not just sales of existing homes that are suffering. Sales of new homes are hurting, too, according to data released on June 26 by the U.S. Department of Commerce.

In May, new-home sales dropped to a seasonally adjusted annual rate of 915,000. That figure represents a 1.6 percent decline from April and a 15.8 percent slide from May 2006, says the Commerce Department. The May downturn is the fourth decline in five months. The estimated number of new homes for sale nationwide stands at 536,000, a 7.1-month supply.

It should come as no surprise that some U.S. homebuilders are feeling the brunt of the sagging housing market. Lennar Corporation, one of the country’s largest homebuilders, announced its second-quarter results the same day the Commerce Department released its report. The Miami-based company stated that its revenues had declined 37 percent to $2.9 billion and that its stock had lost $1.55 per share. 

"The housing market has continued to deteriorate throughout the second quarter. The supply of new and existing homes has continued to increase resulting in declining home prices across our markets,” said Stuart Miller, president and CEO of Lennar. “We have continued to adjust pricing to meet today's market conditions. This has allowed us to carefully manage inventory levels; however, it has also resulted in lower margins and further impairments." In the statement released with the earnings report, Miller also said, “As we look to our third quarter and the remainder of 2007, we continue to see weak, and perhaps deteriorating, market conditions."—Steven H. Saltzman

Essential information: If you're considering buying a new home, be sure to read  "Housewrecked," which explains how to avoid purchasing a new house with hidden defects. Also watch our exclusive interactive on the warning signs of shoddy homebuilding. 

Glut of unsold existing homes expands

While the For Sale signs in your neighborhood might not be popping up like weeds, it's a good bet more of them are around—and they’re probably remaining up longer than they used to.

The latest numbers from the National Association of Realtors indicate that the supply of existing homes for sale has climbed to 8.9 months, up from 8.4 months in April 2007 and 6.5 months in May 2006—almost a 37 percent surge in 12 months. Nationwide, there are 4.43 million existing homes for sale, including single-family houses, townhouses, condos, and coops.

The NAR reports that the seasonally adjusted annual sales rate of existing homes was 5.99 million units in May, down 0.3 percent from 6.01 million in April. But the drop from a year earlier was more significant, when the annualized rate was 6.68 million homes. The rate is at its lowest point since June 2003.

“I think psychological factors are currently the biggest drag on the housing market, in addition to a disruption from tighter credit for subprime borrowers,” said Lawrence Yun, a senior economist at the NAR.

Certain factors would seem to point to stronger housing sales. The cost of homes is declining—the national median price in May was $223,700 in May, 2.1 percent below the $228,500 price in May 2006. What’s more, interest rates are not significantly higher than they were a year earlier, according to Freddie Mac: The national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.74 percent in mid-June, up from 6.63 percent in June 2006.

But, said Yun, “The market is underperforming when you consider positive fundamentals such as the strength in job creation, economic growth, favorable mortgage interest rates, and flat home prices. It appears some buyers are simply waiting for more signs of stability before they get serious about getting into the market.”—Steven H. Saltzman

Essential information: Read “How to sell your home in a down market” for some ways to increase the odds that you'll find a buyer for you house.

Americans remain optimistic about housing market

Here are some compelling, perhaps even telling, statistics: Fifty-five percent of American homeowners believe they could sell their home today for more than they could have a year earlier. And 74 percent feel they could sell their home within the next six months at the price they think it's worth. Those are just some of the results from a recent nationwide phone survey of 1,007 American adults by the Boston Consulting Group.

That apparent confidence in the housing market would seem to confirm the notion that fewer Americans are reading newspapers and watching the evening news. What else would explain the rose-colored-glasses optimism in the beleaguered housing sector, which, by many accounts, is in a major slump? Apparently many homeowners haven’t seen or heard the phrase “subprime-mortgage meltdown.”

"Americans believe their homes are still their best investment. They're positive about their homes' value and believe in a bounce-back in residential real estate overall," said Michael J. Silverstein, a senior partner at Boston Consulting who specializes in consumer spending.

Some other survey numbers:
• 85 percent of Americans think their house will be worth more in five years than it is now.

• 63 percent believe real estate remains a good or excellent investment.

Still, a dose of reality has crept into the picture. Sixty-four percent of Americans feel the drop in home prices is hurting the U.S. economy at least moderately. And 52 percent believe the housing slide will last two years or less, while 22 percent see it lingering for at least five years.—Steven H. Saltzman

Essential information: Read this recent blog entry if you’re planning to sell your home in this tough housing market.

Foreclosures and interest rates climb

No matter which image best describes the situation for you—a hissing stream of air exiting an ever-expanding hole in a balloon or, say, a small, steady leak in a dike that’s turning into a torrent—one thing is clear about the U.S. housing market: The news is negative.

On June 12, RealtyTrac, the Irvine, California–based company that releases a U.S. foreclosure report every month, announced that 176,137 foreclosure filings were made in May (they include default notices, auction sale notices, and bank repossessions). That’s a 19 percent hike from April and a surge of almost 90 percent from May 2006.

The May filings represent a nationwide foreclosure rate of one for every 656 U.S. households, according to RealtyTrac. Some markets are seeing significantly higher foreclosure levels. In Nevada the rate was one in 166; in Colorado it was one in 290; and in California it was one in 380 (a rise of more than 350 percent from May 2006). The states with the highest numbers of May foreclosures are California (39,659), Florida (21,704, and Ohio (13,214). (You’ll find foreclosure information for every state here.)

The recent climb in mortgage-interest rates is playing a key role in the housing-market downturn. The average rate for a 30-year fixed-rate loan jumped to 6.84 percent on June 13, says Bankrate.com, up from 6.47 percent just a week ago. 

See “Rising Rates Squeeze Consumers and Companies” in today’s New York Times for more information on how rising rates are hurting consumers and businesses. (The article’s coauthor, Pulitzer Prize winner Gretchen Morgenson, is an excellent writer, and her columns in the paper’s Sunday business section are always a good read.)

And read “How to sell your home in a down market” for some ways to increase the odds that you'll find a buyer for you house.—Steven H. Saltzman