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Special Section — Real Estate and Home Guide — The Altamont Enterprise, April 06, 2006

Is talk of a real-estate bubble a lot of hot air"

By Jarrett Carroll

Talk of a real-estate bubble can be heard in coffee shops, restaurants, and gas stations around the Capital District, and has recently garnered main-stream media attention as federal interest rates climb.

What is this real-estate bubble" Are we going to be affected here at home if the bubble burst" Will I still be able to afford to buy a new home, or sell my current home at a premium value"

These are all questions homeowners are asking themselves this year, especially with many citing rising interest rates, slowing property sales in 2006, and a record high for houses sold in 2005.

There has to be a bubble before it can burst, however.

"First of all, there really is no bubble in the Capital District," said David Phaff, from the Guilderland/Albany office of Realty USA and owner of AlbanyHomes4sale.com.

Phaff explained that tremendous double-digit value increases across the entire area would be needed before bubble status could be attained. He continued, saying that the Capital District is simply too small of a market compared to other areas around the nation for there to be bubble concerns.

When talking about national real-estate trends, California, Texas, or Florida must not be counted, according to Phaff, who said people go to those markets for different reasons and "it’s not the same" as here.

"While it’s been quieter"the market has not gone soft in any way, shape, or form," Phaff told The Enterprise. Properties may be remaining on the market longer, but overall sales are still on the rise, Phaff said.

Phaff is not the only one who thinks the housing-bubble theory is full of hot air.

Doug Duncan, a nationally recognized economist and chief economist of the Mortgage Bankers Association, wrote an article for Bankrate.com about the bubble theory.

"There has not been a single year since World War II in which house prices across the United States have declined; local markets, yes, but the whole United States, no," wrote Duncan. "Since there are more and more of us living in the good old United States, we will need more and more places to live. And the number of us is growing faster than the number of houses. Ergo, no bubble!"

The Capital District as a local market has never been a booming area, but, with talk of Tech Valley coming to the Hudson Valley and huge investments for university research sites, that may change.

"Those jobs haven’t arrived yet," said Douglas Engels, president-elect of the Greater Capital Association of Realtors. Engels called the technology jobs coming to the area "speculative," but added that, if and when they come, they will bring a positive impact to the area, especially to the rental market. Upscale apartments are becoming more prevalent and will be on the rise, said Engels, who called the Capital District a very strong rental market.

"We’re in an area that historically doesn’t go to the extremes," said Engels, who contrasted the Capital District with booming real-estate markets like Las Vagas, Los Angles, and Miami.

Engels said there is no bubble in our area and that the housing market is quite normal. Real-estate trends are plotted in 10-year periods so they "tend to go in chunks," he said, when it comes to assessing overall sales. In 1995, the housing market was much slower, according to Engels, and the spike in sales at the end of the 10-year period balanced it out.

"The market place in the first quarter [2006] is normal, not frenzied," Engels told The Enterprise. "We’re not a big population center or a big city."

Duncan’s interpretation of the bubble analogy is that current home prices or price increases would, if the bubble burst, be revealed to have been based on a false impression or expectation, and, when the surface was pierced, there would be a substantial fall in prices.

"The headlines go where the sensation is," said Phaff. "The closest bubble we have to here is Westchester County."

However, the Capital Region is beginning to gain national notoriety, with a report released by MSN Money last fall that named the Albany-Schenectady-Troy region as the seventh hottest housing market in the country.

"If you go 150 miles west it’s not like it is here. Syracuse, Rochester, Buffalo"It takes them six months to sell a house in the best of times," said Phaff.

It is the Federal Reserve’s interest rates that worry the real-estate savvy. On March 28, the Federal Reserve Chairman Ben Bernanke announced the 15th consecutive raise in the interest rates, bringing the short-term interest rate up a quarter percent to 4.75 percent, the highest its been since March 2001. The last major peak in the rates was in mid-2000 at 6.5 percent.

Many analysts expect the Reserve to increase the rate again when they meet in May.

"Yes, there will almost certainly be some communities in which [housing prices fall], perhaps because the biggest employer in the town closes down thus reducing jobs and demand. Is there any evidence that will happen across the United States as a whole" None," wrote Duncan. "The equity in their home is the single largest source of wealth for the median income family in the U.S. and it will remain so for the foreseeable future. No fear where bubbles are concerned."

Duncan offers several strategies to offset rising interest rates including interest-only mortgages, adjusting the kind or size of house to buy, or adjusting the amount of the down payment. When it comes to housing, demand will always grow faster than supply because of demographic factors like population growth, household formation rates, immigration, employment and income growth, according to Duncan.

"We like this market," concluded Engels. "We think it’s great for real estate locally."

Seeking relief as housing prices rise

By Matt Cook

ALBANY — With average home prices in the Capital District closing in on $200,000 in some places, the market can be intimidating for lower-income homebuyers looking to purchase their first house.

An Albany County Legislator is hoping to ease the burden a little bit.

John Frederick, a Democrat representing the county’s sixth district, has proposed legislation to provide partial tax exemptions to first-time homebuyers of newly-constructed or substantially-renovated homes.

Frederick admits the exemption, up to 50 percent off county taxes in the first year, isn’t a large amount.

"For me, it’s for those people who just don’t have enough to afford their first house," Frederick said. "This will help push them over the edge."

The exemption drops 10 percent each year after the first. Applicants are subject to income requirements by the State of New York Mortgage Agency.

According to New York law, Frederick said, local governments can adopt this exemption. The state just renewed the law through 2010. Frederick hopes the cities, towns, and villages of Albany County will follow the legislature in adopting the exemption for themselves, lowering the property tax load even more.

"I think it’s not just a problem in the county, house prices are skyrocketing everywhere," Frederick said. "Young people of moderate means are being priced out of the market."

Affordable housing

According to the Greater Capital Association of Realtors, the median sale price of a residential home in Albany County in February was $174,000, up five percent from the previous year. In the entire Capital Region, the GCAR says, the median sale price in February was $187,500, up 10 percent from 2005.

In Saratoga County, home sales have reached astronomical heights. In February, the median residential sale price was $254,000. That’s not nearly as high as some downstate counties, but much higher than Saratoga’s upstate neighbors.

Some municipalities have taken on the problem. Saratoga Springs, citing the need to maintain diversity in the city for both cultural and economic reasons, is currently trying to enact the recommendations of an Affordable Housing Task House. These include establishing an affordable housing trust fund, and reviewing the city’s zoning regulations to identify obstacles to the creation and renovation of affordable housing.

Locally, the supervisor of New Scotland is aware of the need for affordable housing in his growing suburb.

"Many of our seniors complain that they’d like to stay in town, but they can’t afford to," said Edward Clark. "Then we have the question of young families who want to move into New Scotland and be where they grew up."

The town is trying to encourage developers to construct lower-cost housing, but developers have no legal obligation, Clark said.

"It’s hard to provide incentives to them because that’s where most of the money is made," with more expensive homes, Clark said.

If the New Scotland citizens want laws requiring developers to construct some affordable houses, Clark said, he would consider it. In the meantime, he said, even in New Scotland, homes are still available to those with lower incomes, especially the older buildings in the village of Voorheesville.

"Not much new gets built for under $200,000," Clark said.

"Buy it as a home"

However, the market for young buyers is not as dire as it seems, said one local real estate broker.

With interest rates at a 30-year low, said Kevin Clancy, of Altamont’s Clancy Real Estate, mortgage payments for some may be lower than monthly rent payments, despite the real estate boom.

For example, he said, a client of his just went from a $600 monthly rent to a $300 monthly income by purchasing a home and renting out some of it.

In addition, Clancy pointed out, in the Capital Region, the ratio of median income to median home price is still within acceptable levels. Residents are paying an average of three times their annual income for their homes, which is slightly higher than the ratio for the past few years, but lower than the ratio was in the mid nineties.

Real estate can still be affordable, Clancy concluded, especially if buyers follow his advice: "Don’t buy a house as an investment. Buy it as a home."

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