Clark has a special tip for those who are interested in buying distressed real estate.

Banks are demolishing the credit scores of would-be bidders on short sales and foreclosures by running credit checks to decide if they'll be allowed to bid. Furthermore, The San Francisco Chronicle reports that people are also being told if they don't do a mortgage with the bank, then the bank won't even entertain their offer.

Don't let a bank force you as would-be bidder to allow them to run a credit check on you. Agents, beware of this abuse of your buyers and pushback if necessary.

Banks claim they're doing this to make sure they're not wasting time with a potential buyer who's not credit worthy. Well, again, that is not your problem. Don't let the bank make it your problem and push you to the point where you don't qualify because you have all these inquires on your credit.

Short sales are gaining traction among lenders because of a new federal incentive. In essence, the government has agreed to absorb a part of the loss that a bank sustains whenever they do a short sale.

"In May, the Treasury Department said it would offer a streamlined framework for short sales and incentive payments of $1,500 to homeowners, $1,000 to loan servicers and $1,000 to second-lien holders," The San Francisco Chronicle reports.

Just 18 months ago, the term "short sale" was not widely known. Today, it's gaining some currency as more and more short sales get done, but it's still a misunderstood concept.

Short sales are when you need to get out of a house and you get the lender to agree to take market value on the sale -- instead of what you actually owe on it. You'll take a hit of about 120 or 130 points on your credit score for doing one.

Are banks doing this as a charity effort? No, it's cheaper for them to do a short sale versus a foreclosure. Some of the biggest lenders now have "war rooms" with specialists to process short sales. Certain lenders even take requests for short sales electronically nowadays.

Our associate producer Joel started looking to buy a home last winter. He immediately began honing in on short sales, much to Clark's dismay. The consumer champ knew that banks were notoriously incompetent when it came to processing short sales.

Naturally, Clark urged Joel to steer clear of them. But being a young man, Joel completely ignored Clark! So much of the market was short sales that it would have been very hard to ignore them in his search.

Joel was right in this case; he bought a short sale for $89,000 with a 15-year loan at 4.375 percent. The property had last sold for $155,000. So his patience was rewarded, but it took the better part of a year. And that's now made Clark himself reconsider the short sale as a viable option for struggling homeowners. It's for real this time!

Newly released housing data shows that foreclosures were at a record high during the last three months. It seems that the wave of embargoed foreclosures the banks were holding back have finally hit the market.

This new wave of foreclosures is generally among more expensive homes. In the past, it had been at the lower end of the pricing scale. That means both hazard and opportunity is on its way.

Clark thinks we'll see another attempt in Congress to allow workouts, as they do in commercial lending. This effort has failed in the past. But now with the rich losing their homes, there's a greater possibility they'll exert their influence in Washington D.C. and get it passed.

Yet workouts (aka "cramdowns") are not just freebies; there is a market cost to them. That cost comes when lenders have to factor in the risk of losing money on a workout, thereby driving up their mortgage rates. There is no free lunch for anyone!

The market overall still has awhile to go before things get healthy. Look for intensified opportunity to buy foreclosures in 2010. The best opportunities will be in discretionary home purchase categories like vacation homes and second homes.

The Federal Reserve has announced its intention to scale back support for the mortgage market. No doubt that realtors and sellers are upset by this move. But it's a necessary step to heal the housing market.

Dow Jones reports there are almost three million homeowners who are 90 days delinquent, but have not yet been foreclosed on. Of course, it's only a matter of time before the axe falls. This will only flood the market with more foreclosures.

The key takeaway here is that if you are looking to buy a home as an investment, as a primary residence or as a vacation home, the opportunity to steal a deal is likely to get even better in 2010. The expiration of the $8,000 first-time homebuyer credit is another step in removing artificial support for the housing market.

This is one train you don't have to worry about leaving the station without you aboard it.

Meanwhile, Clark feels housing is not likely to fall much further in price. So if you're sitting in your house fretting over the market, it's important to know that you're only in trouble if you're trying to sell right now. Otherwise, hang tight and wait it out for the next seven to eight years until we get out of this cycle.

MONEY-SAVING MOMENT: New mortgage rates are just about the lowest they've ever been. The average 30-year fixed is around 4.97 percent and the average 15-year loan is at 4.4 percent.

Remember, these kind of marquee rates will go to those who have great credit, equity in their homes and who really know how to shop around for the best deal. (Editor's note: Rates accurate as of Sept. 24, 2009.)

Now is the time to take advantage of this opportunity because the Federal Reserve will be gradually reducing its support for the housing market. That will raise mortgage rates to where they would otherwise be. In fact, the Fed's artificial support may be gone as early as March.

The good news is that even those who are upside down in their homes can take advantage of this latest interest rate bonanza. The Making Home Affordable program has a special refinance provision for those who are up to 125 percent upside down.

Meanwhile, those in ARMs that are favorable right now may be tempted to sit out these great rates. But if you think you'll stay in your house beyond the period when your rate resets, you should take advantage of these new low mortgage rates.

Just don't be one of those people who doesn't refinance because it's a royal pain. Refinancing today can put a lot of money back in your pocket in the long run. To prepare for the paperwork requirements, dig out your tax returns; your last 2-4 pay stubs; and be sure to have a clean credit report and a solid debt-to-income ratio.

In recent weeks, Clark has been talking a lot about the $8,000 first-time homebuyer tax credit. You don't actually have to be a first-time homebuyer to qualify; you simply must not have owned a principal residence during the three-year period prior to purchase.

There's still hope, however, for those who don't meet that loose criteria. Clark anticipates that December and January will be an extraordinary time to buy.

The reason behind his prediction is that the first-time homebuyer credit only provided artificial support for home purchasing. Much like people stopped buying cars when Cash for Clunkers ended, very few people will be purchasing houses when the $8,000 tax credit runs out on Nov. 30.

And, of course, autumn's procession of holidays and the arrival of winter always slow housing activity.

In other tax credit news, the consumer champ wants to get the word out about the federal subsidy of COBRA set to expire on Dec. 31.

The feds will pay for roughly two-thirds of your health premium once you get laid off. It's just there for the asking. That can be a great help when you consider that typically COBRA costs to an individual are your employer's premium plus two percent.

It's amazing how much our show has become influenced by Washington, D.C.'s involvement in capitalism. It's hard for Clark as an avid free marketer to stomach the fact that so much of the show is now driven by his response to D.C. financial policy.

Here's yet another example. The housing industry is at the trough on Capitol Hill trying to get the $8,000 first-time homebuyer credit either extended beyond Nov. 30 or expanded up to $15,000.

Now the New York Times reports that 4 out of 10 houses sold this year were sold to people taking advantage of the credit. Free money is a good thing, right? Well, not exactly. This is taxpayer money and it creates a false support under our housing market.

First, you have the feds guaranteeing 90 percent of mortgages in the country via loans owned by Fannie Mae, Freddie Mac, the FHA or the VA. Second, you have the feds giving out this first-time homebuyer cash for people to go out and purchase a home. False support all around!

The fact is that we overbuilt way too much. It will take awhile for the housing market to get healthy again. We have to decide if we are going back to a free market system or if housing should become a longtime ward of the taxpayers. Is it fair for those who own a home to subsidize others who want to purchase one at this point in time?

ING Direct is helping to restore the private mortgage market with a new 5/1 ARM at 3.99 percent. That rate is good on loans up to $750,000, which should be a boost to those in jumbo loans.

Did you know that the federal government now writes some 90 percent of all loans? You may think you're dealing with a private lender, but that private lender turns around and sells its loans to federal entities like Fannie Mae and Freddie Mac. Or else you're talking about a VA or FHA loan to begin with.

This is not a scenario for long-term health in the mortgage marketplace.

As you probably know, ING Direct is an online-only bank that can offer some innovative deals because of its unique business model. Their 3.99 percent offer is a little lower than the market at this time, but there are some other more compelling reasons why this deal is so remarkable.

First, the closing costs with ING are much lower than with a traditional bank. Second, the size of the loan is the real clincher. This is first real initiative since the banking crisis began over a year ago to provide real money at decent rates for those in jumbo loans. Jumbo loans are defined as anything over $417,000.

Other requirements for this particular ING loan include having a down-payment or equity of 25 percent. For many people, that's not realistic. But it's a way for ING to insulate itself from risk of default.

Finally, you must make bi-weekly payments. That is, you must make half a payment every 14 days. This will actually get you out of debt quicker, and it's not a rip like so many other bi-weekly payment plans!

Of course, after 5 years, the loan will adjust and you'll likely have to get out of that ARM.

But for now, Clark hopes other competitors follow in ING's footsteps and continue to open up the private loan market again.

The disparity in closing costs around the nation really proves that all real estate is local.

A new BankRate.com survey shows that $2,730 is the national average. But a state like Nevada can be as little as $2,236, while the average in Texas is a whopping $3,855.

You should know what is typical in your state. And if you have an upcoming closing, don't worry about what any one line item fee amounts to. You want to instead concentrate on the total dollar amount of fees.

And what about no closing cost refinances? Clark has long been a fan of these, but they're getting harder to find and the spread on the rates is higher.

If you plan to stay put in a house, it's often smarter to take a lower interest rate and just pay the closing costs upfront. If you can make it up in 30 months, you're better off opening your wallet at the closing table.

Mortgage rates are down again after the lows of late spring. Right now, 15-year loans will save you as much as three-quarters of a point over a 30-year loan. 15-year loans are running about 4.5% or lower right now. (Editor's note: Rates accurate as of Aug. 31, 2009.)

Of course, you'll need to have good credit and a substantial amount of equity in your home.

Let's say you only have good credit but no equity. You still may be able to refi through the MakingHomeAfforable.gov program -- even if you owe up to 125% of your home's current value.

The biggest problem right now is that it takes longer to get loans closed and you may see more junk fees. Good rates are a mirage if a bank can't execute your refi or they fee you to death in the process.

Speaking of fees, the giant banks continue boosting theirs on savings and checking accounts. You may see a monthly fee of $6-$12 if you have a low balance. That's when you should consider firing your bank and using a smaller bank or credit union.

Ditto for the low CD rates from the giant banks. The online banks, meanwhile, may give you up to 2% on a 1-year CD and 1.5% on a savings or money-market account.

Looking for a better deal? Clark has two other options for you. Costco has a new special deal on savings for its members. And AAA motorists are eligible for another such deal.

A few caveats, though. First, don't go for 5-year CDs with their current terrible rates. Visit MoneyAisle.com to let the banks compete for your CD business.

Second, do not put more than $235,000 in any account. That will help ensure you're well under the $250,000 limit of FDIC protection. This is especially important for businesses, non-profits, charities and wealthy individuals.

Finally, Clark is sad to say he's read the number of banks in severe financial trouble has risen by a gigantic number. More than 400 banks are reportedly at risk now. But the list is kept secret by the government so it doesn't become a self-fulfilling prophecy. Again, heed the FDIC limits to stay safe.

MONEY-SAVING MOMENT: Business Week has compiled a list of cities where it is cheaper to own a home than to rent.

This is a major reversal from historical precedent. In the past, you had to own for a long time before it was considered a better decision -- from a strictly dollars and cents perspective -- than renting.

But because of the housing slump, below is a list of the markets where the opposite is now true.

1. Detroit
2. Pittsburgh
3. Rochester, N.Y.
4. Memphis
5. Tampa
6. Cleveland, Tenn.
7. Dayton, Ohio
8. Columbia, S.C.
9. Orlando
10. Dallas-Ft. Worth

CLARKONOMICS: There's a lot of talk about how the market seems to be finding a bottom as values begin to stabilize. But Clark thinks this may just be wishful thinking.

The consumer champ believes the market still needs more time to stabilize for several reasons.

During the bubble, we built between 2 million and 10 million more housing units than our country needed.

In addition, demand for housing has dropped as people who might have bought a home didn't. They've either moved back in with their families or students of college age have moved back home after finishing school.

And looking forward, even though economists may say the recession ended in such-and-such a month of 2009, it doesn't yet bode well for housing because jobs are a lagging indicator of economic recovery.

Yet in the midst of all this caution, there is real opportunity. The housing market remains fantastic for investors; those who want a retirement or second home; those who want to be a landlord and on and on.

We're now at the point where 13% of all mortgages are in default. Of course, not every single one of those will become a foreclosure. But that's still a very high number by historical standards.

Most of the financial distress has migrated from houses that were bought by speculative buyers to owner-occupied homes where people have had hours cut, lost a job or had an ARM that adjusted with a crushing payment.

The opportunity for someone in a position to buy is outstanding. There are a meaningful number of Americans who still have secure jobs, some savings and the stomach to take a risk.

The most promising types of homes Clark has seen are in second-home communities that are 2-3 hours drive from a large metro area. Waterfront property is also hot as well.

Clark has been intrigued by the idea of pre-fabricated housing since 1986. The pre-fab movement has long been championed by high-end architectural publications like Dwell magazine.

Pre-fab has a couple of advantages over traditional stick-built housing that's built onsite. It allows for more architecturally rich designs and more energy-efficient building.

The now defunct Cardinal Industries tried to do a lot of pre-fab manufacturing in the eastern United States. However, their look was too "cookie cutter" and the company never took off.

Zeta Communities is one start-up in San Francisco that's now building zero-energy townhomes. These townhomes use solar energy, among other types of green energy, and also create power that can be sold down the grid. And the cost? $250,000, which is actually cheap in the San Francisco area!

Clark believes zero-energy pre-fabricated homes are very much a part of our future. It used to be that no one cared about the costs of running a home -- they just cared about what the home cost. But that was then and this is now.

Census Bureau data continues to show that there's a steady stream of Americans leaving the suburbs and moving back to the city.

This is a reversal of the exodus to the suburbs that started after World War II. As the suburbs spread further and further out, they began segmenting into inner ring suburbs, outer ring suburbs and the far flung exurbs.

Today's "back to the city" movement presents some interesting opportunities for your wallet. In fact, inner ring suburbs are likely to see the largest appreciation in value, in Clark's estimation.

When buying in an inner ring suburb, it's a given that the neighborhood may have lost some of its appeal over the years. Therefore, try to find a neighborhood that's located adjacent to an area that's still on the up and up and looks poised for more growth.

Clark often looks at the cars in a neighborhood, or renovations and additions to homes, as other meaningful indicators of a neighborhood that's likely to gain in value.

Of course, there are never any guarantees in life!

A small number of real estate markets around the country have seen activity firm up with multiple bids on houses. This has been especially true in the bubble states where values fell the furthest.

Does that mean recovery is coming in the market at large? Don't bet on it just yet.

Remember that all real estate is local at heart. New numbers Clark saw in The Washington Post indicate that there will be an ongoing buying opportunity for first-timer homebuyers and real estate investors through the end of 2010.

But here's the disturbing news. There are now over 1 million homes in the U.S. in which people are delinquent on their mortgages, but the banks have not foreclosed. The banks may not have enough staff on hand or else they simply don't want the houses.

Our associate producer Joel is stumbling through the home-buying process as a first-timer. He found a shortsale listed at $99,000 and bid $71,000 for it. The bank came back 4 months later and countered by asking for $138,000!

Clark's advice to Joel is to focus on foreclosures instead of shortsales. Also, be persistent if you hit a brick wall in the process. An answer of "no" to your offer should just be seen as a temporary answer.

For investors, the rules are a little different now. You will need to come to the table with cash. At least 50% of your offer should be in cash to increase your likelihood of being taken seriously. Know that buying a distressed condo could have a potentially greater return than a single-family home at this time, which is a very unusual circumstance.

And what if you are one of the 1 million homeowners in trouble yet you want to stay in your home? Seek free or low-cost housing counseling through a local affiliate of the National Foundation for Credit Counseling at NFCC.org.

Modular homes may be the wave of the future if Warren Buffett has his way.

The nation's top dog investor is pouring his money into the i-House, an ultra-affordable, ultra-energy efficient home that's built in pieces in a factory and later assembled onsite.

Tradition holds that most homes in America are stick-built at the worksite, rather than being prefabricated. But the current housing crisis means that tradition is being upset.

Modular factory-built homes can be far more interesting architecturally because they're built with computer-aided design. We're not talking about single-wide or double-wide mobile homes here; rather, modular homes are championed by thinking man's architectural publications like Dwell.

And talk about the savings on your monthly energy bill! You can heat and cool the i-House for around $30/month!

There have been so many attempts to do factory-built modular housing in the past. But most people have never gotten away from fears about local zoning. Buffett's support may help create a new day in cheap, green housing.

Did you buy your house in 2000 or even more recently? The Washington Post now reports that you stand a chance of losing money if you were to sell today. In fact, more than 6 out of 10 people are selling for less than what they paid for their homes.

That means there's enormous opportunity for buyers.

Clark has been following our youngest producer Joel's quest to buy a home. In late winter, Joel put a bid on a short sale. He expected to get a response within a week; it took 3 months for the lender to even acknowledge his offer, and they countered with a price that was greater than the original listing price!

Meanwhile, those selling non-distress real estate are finding that it's hard to gain any traction in a market awash with foreclosures. And consider that the recent moratorium on foreclosures in the aftermath of the presidential election is set to run out soon. We'll soon be seeing a new wave of foreclosures as the ban lifts.

Joel is now looking to put a bid on a foreclosure. As a first-time homebuyer, he'll qualify for $8,000 in federal money, in addition to local money from his county. Even the Federal Home Loan banks have their own offers of "gimme" money. (Editor's note: You don't have to be a first-time homebuyer, actually. You only need to meet certain qualifications. Check with your lender for more details.)

And when will the housing market finally recover? Clark doesn't have a specific timeline to share, but he is noticing that the latest thinking suggests in-town and close-to-town markets will recover faster than suburban and exurban markets.

Have you heard the term "shadow inventory" recently? Shadow inventory pertains to houses that are falling into a "no man's land" after banks foreclose on them.

Here's the scoop: The nation's banks have not been staffed adequately to deal with the vast number of foreclosures throughout the country. Even as the banks ramp up their REO (real-estate owned) departments, they're still falling behind. As a result, it's believed that more than half a million properties are falling by the wayside.

That's the shadow inventory.

According to a recent San Francisco Chronicle report, there are an estimated 600,000 foreclosed homes of this sort right now. The banks aren't getting them ready for sale and they're certainly not maintaining them in any way.

Neighborhoods suffer greatly from shadow inventory. Unused houses tend to attract vandals, squatters and a host of other troubles.

But as an investor, shadow inventory is a source of great opportunity. As these houses sit and go unmaintained, there will be many that have nothing fundamentally wrong with them; they just simply look and smell awful. That means no one else wants them and you can swoop in to steal a deal.

On another note, Clark believes that until the banks come to terms with their shadow inventory, we can not truly call a bottom in the real-estate markets around the country.

Meanwhile, a recent RealtyTrac study analyzed foreclosures in 4 states and found that 70% of them were not showing up in the MLS. Either they've gone into the shadow inventory or the banks put them up for sale as REO but without any agent representation in the MLS.

So how can you tap into shadow inventory as a first-time homebuyer or an investor? Go to the websites of individual banks and look for a link to their listings. You used to have to hunt around for this kind of info, but now you'll usually find it linked directly on their homepage.

This gives you the ability to potentially ferret out a bargain before others get it through an agent and the MLS.

Does that mean you don't use an agent? No. If you a hire a buyer's agent, you need to have a written agreement stating that they only represent you on properties they show you. You don't want a blanket agreement where you owe them commission on any property you buy -- even if they have nothing to do with locating it.

Do you like the mountains, the beach, the lake or another resort area? Vacation homes and second homes are one area of housing that is providing more opportunity than any other right now.

The National Association of Realtors reports that sales of second homes have collapsed. This is a major reversal from recent history, when vacation homes were a big part of the excessive speculative buying and building.

Of course, there's a big "if" here in Clark's advice about the second-home market. This advice only pertains to you if you're in a financial position to afford it!

You've got to understand that second homes are not investments; they're a lifestyle choice. The only reason to own a vacation home is to live in it and/or enjoy it at your leisure.

However, sometimes what begins as a lifestyle purchase can wind up being an investment.

For example, Clark and his brother bought a vacation condo in Park City, Utah back in the 1980s. They bought in a building that was hit by a trifecta of trouble. The lending bank, the builder and many of the owners all went into foreclosure. This was a risky move on Clark's part, but he and his brother were later able to sell for an obscene amount of money during the peak of the real estate bubble.

The consumer champ does not recommend trying to time the market like this, but sometimes all the stars just line up.

CLARKONOMICS: There is just so much opportunity in buying foreclosures and other distressed real estate at this point. But a few words of caution are also necessary.

The condo market in particular has a lot of hazards. For example, when you buy a condo, you're buying an obligation and a commitment in a condo association. Do not buy in a building that has been recently constructed. You want to look for established condo buildings that have been there 6 years or longer. With established buildings, you know that most people are paying their condo fees.

In fact, you should never buy early in any new development. If you do and the builder goes belly up, you could be living next to scarred earth that's been homogenized for development and looks just awful.

Meanwhile, in more heartening news, February data shows that the sales of existing homes went up 5% year over year.

Are you looking for foreclosures or distressed property in the single-family home market? You want to look for several things: An established neighborhood that's 10 years or older; a neighborhood where it's mostly owner occupied -- not rental; and a house that is structurally sound with cosmetic damage only.

For years, the size of the average American home has been getting larger and larger while family size has been declining.

But now USA TODAY reports an abrupt change. As of last year, the average size of a new home was roughly 15% smaller than it was the year before. The square footage dropped from 2,629 to 2,343, according to Census data.

Americans have reached a point where they're saying, "Do we really need that many bedrooms?"

Of course, our spending has been reduced in so many areas. But the pivotal expense in our lives still remains housing. Having housing expenses that are too large can really eat up your budget. It can put a big crimp in your lifestyle: You can't build any reserve savings, you can't afford to send your children to private school, you can't put money aside for your children's college, etc.

Simply put, buying too much house is an unproductive use of American capital in Clark's estimation. This is not, however, a knock on builders. And of course, this message is not for everyone. Some people desire a bigger house; it's absolutely key to them -- and if they can afford it, so be it.

CLARKONOMICS: There's frightful news about housing everywhere you turn. Existing home sales have dropped to a 12-year low. Meanwhile, almost half of all homes sold across America in January were foreclosures. That's a startling statistic.

The home construction market is also in disarray. Housing starts are down 60% from just a year ago. Then there are the drops in the Case-Shiller home price index. Las Vegas is down 33%, Miami 29% and San Francisco 31%. The least-affected cities include Denver and Dallas, which are both only down 4% year over year.

Out of this ugly scenario comes the possibility of real opportunity. During the worst excesses of the housing bubble, the relative cost per month to rent was just a tiny fraction of what it cost on a monthly basis to buy. Yet now The Wall Street Journal reports the relative affordability of renting vs. the cost of buying is once again coming into synch.

That makes this a great time to buy a house, according to Clark.

Remember, the only important long haul factor for housing is supply and demand. Builders have stopped building, and that sets the stage for the excess in the market to be soaked up. Opportunists will be a necessary part of the correction. They start the healing by coming in and establishing a pricing floor that creates the stage for recovery.

Of course, "inertia bias" dictates that psychologically we feel home values will always be in decline -- because that's the way things are now. But that's not the case. Most of the bad news (and the decline) has already happened -- though it may not be over yet in every market.

In his latest book Clark Smart Real Estate, Clark dedicated page after page to explaining the difficult process of figuring out if you have the best possible rate when you go for a mortgage or refinance.

The industry has made it particularly hard to comparison shop in this arena. But TransUnion's new website, TrueCredit.com, aims to level the playing field with a tool called the Mortgage Simulator.

For $10, you can buy a month of service that allows you to get a true indication of the rate you should get on a traditional 15 or 30-year fixed mortgage or refinance. TransUnion takes info such as the location of the house; the purchase price; the amount of your down-payment; your income; and your credit score into account.

Clark acknowledges that it's historically been tough to get the best deal. He's had lenders try to cheat him every which way in his real estate dealings.

Finally, mortgage rates are very favorable right now. You have real opportunity if you have a good credit score and want to refinance.

Last week, Clark explained how the banks were petitioning the government to be allowed to write-off a big chunk of consumer credit card debt. He was certain this measure would be adopted, at least on an experimental level at first. However, the banks' request has been denied by the government.

That means if you are facing impossible debt, your options remain the same: default or bankruptcy. Many people are doing both as delinquency rates rise and bankruptcy looks set to hit an all-time high in 2009.

Moving on to something positive, the government has belatedly rolled out its plain English disclosure statement for when you're shopping a mortgage or refinance.

Lenders have fought such a proposal for years; there's simply too much money to be made when people are ignorant about their loan terms. Of course, there is a lot of shared responsibility here. Many people didn't want to hear about what a lousy loan they were getting into.

But going forward, HUD is making its good faith estimate form available, along with a settlement statement. (Editor's note: Both links are pdf files.)

Clark loves disclosure in capitalism. After all, how can you make good choices if the info is not made available to you in a simple way? One caveat here, though: The banks have a year before they're required to start using this disclosure form. That gives them plenty of time to try to get it killed! Stay tuned…

Clark was recently asked by someone if he thought it was a good idea to buy real estate online -- without having seen the property. The Los Angeles Times recently reported that more and more governments are doing Internet foreclosure auctions of this type.

Here's the problem: The Internet gives the false impression that you have access to every bit of info and every tool you need to determine real estate value. But as a real estate investor of 30 years, Clark says that you should never "buy by remote control." You've got to know the community, the neighborhood and the even the street where you plan to buy.

The penny-pincher has heard secondhand that one of his friends is thinking about buying real estate site unseen on eBay. He can't wait to see him and say, "Don't do it!"

You've got to know your market.

For people just starting out in life, it's becoming more difficult to afford a place to live. Bunking up with several roommates is becoming more common around the country. It's tough. Clark talked to flight attendant who had two children recently. When her home flight base was closed, she had to transfer to to another one in a different city, her only recourse was to share an apartment with 15 other attendants. She said that everyone had their own bunk bed, taking up all the rooms in the apartment. But this was the only way to make it affordable.

An architect in San Francisco came up with a design for a 250 sq. ft. condo -- roughly one-tenth the size of a typical house in America. That's smaller than a typical bedroom in a modern house. But by using intelligent design, it may not be roomy, but it's functional. But here's the kicker. How much do you think these condos sell for? $279,000 - $330,000. Most places in America, you can buy a whole house for that kind of money. But still, if you think about affordable options, this is a good start. The Habitat for Humanity homes Clark helps build use computer aided design to utilize every inch of available space. This allows them to build 4 bedroom, 2 bath homes with only 1000 square feet. The upshot is, if we can live with less, we can make places for people that are decent and affordable.

CLARKONOMICS: Clark is not a man who's afraid of the condo market. He knows the value of a condo typically fluctuates like an EKG -- up and down in rapid cycles. Single-family homes, by contrast, tend to rise slowly but steadily over time, barring a bubble market. The problem is that people usually buy condos the wrong way. They own them for short periods of time and then can't get the value they paid when they resell.

Because of general market malaise, lenders are increasingly getting spooked about making loans for condos. New rules and requirements are being established that reflect the fear. It's getting tougher to refinance a condo loan or get one in the first place. Some lenders have even begun redlining -- that's where they take whole zip codes and refuse to make loans in them regardless of credit score.

Other lenders won't make loans in condo communities where there are more than 25% rentals. Some owners have become unwitting landlords so they can meet their monthly payments. Yet if a condo association allows a high percent of rentals, the condo community won't be exempt from future financing.

Compounding the problem are new Fannie Mae and Freddie Mac guidelines. Lenders are being required to make a decision about whether or not a condo association has solid books before making a loan. The practice hurts lenders who may want to sell out their loans out of portfolio, and Clark says it will have a further chilling effect on condo lending.

The pendulum swung too far with irresponsible lending; now it's swinging too far the other way. It all creates a hardship for those condo owners who want to sell. The good news is that there's great opportunity right now to buy a condo for cash or if you're able to get a loan. Condos go through phases of incredible pessimism followed by ill advised optimism. Right now we're in a pessimistic cycle, so look for the deals and pounce. Do you smell what Clark is cooking?

Google has launched an interesting service that could be a real boon to house hunters and celebrity star gazers. Their "street view" function (be sure to click the street view tab) allows you to type in a street address and see high-quality pictures of houses and whole neighborhoods. You can even "walk" or "drive" up a street by using the mouse to scroll around!

Talk about a testimony to Google's immense wealth. They're sending photographers all over the country to take digital photos of every house, and then they're marrying it to the existing Google maps technology.

Not every street is mapped as of yet. Once you type in an address, you know it is mapped if a thumbnail image of the property pops up.

Think about the value of this service in the real estate world: You can get the inside scoop on a house and see real pictures -- not the staged ones you may see at an agent's site.

Remember when people would buy a map of the stars' homes in Los Angeles and spend the day driving around looking at their residences? Now you don't have to go to L.A. to gawk at the homes of the famous and near-famous. You can do it from the comfort of your living room using ZabaSearch.com to determine street addresses and this new Google Maps function to actually see them!

Clark wants to share some information that could impact those in the housing market as potential buyers of distressed real estate and those trying to sell a home in a neighborhood that has foreclosures.

In economic terms, we're beginning to hear that "capitulation" has come. What that means in plain English is that banks have sobered up and are dropping their prices on REO (real-estate owned) properties, according to The Wall Street Journal.

Previously, the banks had been asking unrealistic prices that were comparable to the outstanding loan balances on foreclosed properties. No wonder they didn't get any bites!

So it may be worth your while to make another offer on REO property right now. The banks are more likely to be humbled after sitting with that house in inventory for this long.

On the other side of the ledger, capitulation means that you should probably have a new target price in mind if you're selling in a foreclosure-riddled neighborhood.

Think about it this way: If REOs sell after banks come down in price, then those lower sale prices become the comps you're competing against in the area. It's incumbent on you as a seller to photograph the sad, rundown foreclosures so that buyers can see exactly why they sold for less than your house. That way you can justify asking a higher price for yours.

Meanwhile, Zillow.com is reporting that roughly 30 percent of people who bought during the last 5 years are upside-down in their homes. Zillow also has a new feature that allows you to see national home value trends on an interactive map of the United States.

Of course, talk of lower home values comes with Clark's usual caveat: Don't worry if you're not selling right now. None of this impacts you. In fact, you can use the decline in home values to contest your property taxes. Check with your local tax assessor for details on entering a dispute.

Yesterday, Clark reviewed some changes that are coming in the housing market because of new housing laws.

This lobbyist-laden bill is already befuddling some. One provision in the housing rescue bill even has a subsidy for railcars. Kudos to syndicated financial columnist Kathleen Pender for digging that tidbit out of the more than 700 pages of rules.

Here are some more key provisions, most of which become effective in October:

• Reverse mortgages will now have a 2% maximum on fees (1% for mortgages above $200,000) -- with a cap at $6,000. This is good news for "house rich, cash poor" seniors contemplating a reverse mortgage. It should reduce the number of people getting ripped off with huge fees.

• Interest rate rescue for those in jumbo loans is on the way. Fannie Mae and Freddie Mac will be allowed to buy loans up to 115% of the local median home price. That means access to lower interest rates for those in loans above $417,000.

• There will be new protection for active military and veterans against foreclosures. Lenders will be required to wait 9 months -- instead of 90 days -- before beginning proceedings. Plus, there are new rules on interest rate adjustment. For too long, banks had unwittingly violated laws on interest rates for military. Visit Military.com to learn your rights.

• Vacation homes will be the subject of new scrutiny. No more loopholes about avoiding capital-gains taxes by living in a vacation or rental property as a primary residence for 2 years before selling it. Now you may owe tax on a portion of the gain, based on the years you didn't live there full-time.

The housing market woes continued unabated while Clark was on vacation. We've now seen the greatest drop in home values since records were kept. But there are some bright spots. Dallas, Charlotte, Portland and Seattle are among the cities that are doing OK with housing.

The typical housing value in Miami is down 30% from its peak. Phoenix is down 26%, and Las Vegas is down around 30%. New stats also show that every 1 in 8 people in Alt-A loans -- typically those who are one step below having solid credit -- are going delinquent.

Meanwhile, Clark is upset about taxpayers having to bail out private investors in Freddie Mac and Fannie Mae. Most Americans don't know the first thing about Fannie and Freddie. They're the "money" behind the scenes that allow you to buy a home. The unfortunate reality is that their political connections may buy them taxpayer-funded bailouts. Private gain, public risk; it's just not right.

In related news, Clark wants to break down some key points of the new housing rules that Pres. Bush recently signed:

• If you're delinquent on your primary home, you'll be potentially eligible for a workout -- funded by taxpayers -- in the fall. This voluntary measure allows lenders to write down loans to current market value plus 10%. So let's look at the example of a $150,000 home that's now worth $120,000. The lender would mark it down to $120,000; take a further haircut to $108,000; and then write a new loan for that amount. The homeowner must then split the profits with taxpayers upon eventual resale.

• As a first-time homebuyer, you can get a $7,500 credit courtesy again of taxpayers. This also is a loan, which you as a borrower get interest-free. You pay it back over time interest-free, and it is retroactive for those who bought from April 9, 2008 onward. There's also an oddball loophole that allows non-first-timers to qualify for the credit. Former homeowners who recently have been renting for a couple of years may be eligible.

• Down-payment assistance programs will no longer be legal beginning in October. These programs allowed builders to raise the price of a house, say, from $100,000 to $105,000. Then the builder would make a $5,000 donation to a supposed charity. That charity would in turn give you $5,000 toward the home. The end result was that it looked like you had a $5,000 down-payment when you really did not. But the rate of foreclosure involved here was extremely high.

These new housing rules are more than 700 pages long. Look for more info tomorrow on other provisions that affect upper-middle and high income earners with some gotchas.

Some of the largest banks in our nation made aggressive marketing moves to get people locked into what Clark calls "the dumbest mortgage products ever." We're talking about option payment loans, also called negative amortization loans or Pick-a-Payment loans.

Thankfully, Washington Mutual and Wachovia are both moving away from these loans. Clark recalls negative amortization loans were popular in the mid-1980s and led to a wave of bank collapses and foreclosures during that decade.

With a negative amortization loan, your balance actually goes up over time. That's because you're given the option to pay whatever you want. The unpaid balance each month simply gets added on to the tail end of the loan. When home values drop, you're suddenly quite upside down in your home.

Clark recalls the first time he took a call about a negative amortization loan in 2000 or 2001. A woman called up to ask about an offer she received for a 30-year mortgage at 1 and seventh-eighths percent. But that's only what the monthly payments were based on; her loan balance would continue going up month after month. Ultimately, this is poison for your pocketbook.

There's a simple rule of thumb Clark tells people to follow when shopping for a mortgage: See what you qualify for when it comes to a traditional 30-year fixed rate loan. Then back off and go house shopping at only 90% of what you'd be approved for. So if you qualify for a $200K mortgage, don't look at houses above $180K. This will give you some financial wiggle room over the years.

People have mistakenly thought that stretching to buy a home creates wealth. But it's like more like a rubber-band -- stretch it too far and it will break.

Mortgage disclosure statements are so complex that even the educated don't know what they're signing. The American Enterprise Institute has drawn up a mortgage cheat sheet (and definition of terms) that you can use as a plain-English disclosure when getting a loan. (Editor's note: The first link is a pdf file.)

For almost the last 50 years, we Americans have lived according to the "freeway exit" rule: We've driven out as far as necessary until we reach a point where the houses are affordable. This worked well to bring people into the middle class lifestyle for nearly 3 generations.

But right now, Clark believes we are at a time when we're turning back inward. People don't want the long commute or to have to deal with a yard on the weekends. There's a boomerang effect among baby boomers that are now empty nesters. Meanwhile, people who came of age in the last 10 years are becoming "new urbanists."

These new urbanists have a car but feel disconnected from the suburbs and crave the interaction of a city. Of course, today's high gas prices provide a direct economic incentive for new urbanism.

If Clark is right about people turning back inward, that means price appreciation will dwindle in the distant suburbs. In-town neighborhoods will have the greatest increase in value, followed by close-in neighborhoods. In some extreme cases, suburban homes may not even keep up with the inflation rate.

There are also some serious implications for public transportation here. In short, cities like Dallas, Houston, Atlanta and Charlotte have growth corridors that could support more of it. This is separate from the issue of energy.

The price of gas will not necessarily trend upward forever like the headlines proclaim. But even if energy prices decline, Clark still thinks that in the long run you may want to look closer in if you're thinking of real estate as an investment.

Finally, some great news for consumers in the housing market! For ten years, the real estate industry has done its best to keep the power of the internet away from its potential customers. The National Association of Realtors (NAR) and its affiliates have been engaging in anti-competitive practices, conspiring to fix commission prices on real estate sales. Well, they've finally backed down. This is going to make a big difference in how you will buy and sell property in the future.

Before the internet, the only way to know which homes were for sale was to find an agent with a Multiple Listing book, a monthly publication that listed all the available properties in a particular market. It was like a closely guarded secret. But the internet broke open that secret. Non-traditional players jumped into the game and began offering discounted services, or menus of services, letting the consumer pick only those which were necessary. The NAR did all it could to shut down these non-traditional companies. But very soon, real estate commissions will be allowed to float with the free market, and you as a consumer will be empowered. Sellers will be able to pick and choose the specific services they need to sell a property, and buyers will have online access to all available listings - regardless of commission rate. This is a long overdue victory.

That said, experienced agents will still be in demand. Houses with unusual or unique features will still require special marketing techniques. Some buyers will still need talented agents to help them navigate through the purchase process, or to fully understand their specific market. But not everyone needs this level of expertise. The free market now offers you a choice, and for Clark, this is cause for celebration!

A lot of Americans are afraid to buy homes right now. It's no wonder that people are skittish about jumping from renter to owner when you think about the constant barrage of "housing crisis" headlines. Clark wants to offer some "tools of trade" so you have a better feel for when you should venture into the marketplace.

First off, the foreclosure rate (through March 2008) is up about 60% over a year ago. The numbers got ugly during August of last year and peaked in March. 700,000 people were put out on the street during that month alone.

Right now people are even frightened to touch foreclosures -- along with "people problem" houses. But that's a mistake. If you can buy well below fair market value, that will protect you on the downside.

Looking for a sign for some guidance? Wait until the rate of foreclosures declines for 4 consecutive months. It's going to be like waiting out a fever that has peaks and valleys. You want to see that fever has broken substantially before you buy. Clark will let you know on the air when that happens.

They say all real estate local, but there are some unprecedented national trends that helped foster the housing slump. First, there was the idiotic lending that created more of a demand for housing than is natural. Second, the Federal Reserve had artificially low interest rates that created further demand. (Yes, Alan Greenspan is a human being, not a god!) Finally, there were bubble markets in the spec states of Florida, California, Arizona and Nevada.

The bottom line is that even though the cycle is still playing out, there's already opportunity out there for you.

One final note: Loan underwriters Fannie Mae and Freddie Mac have set up penalty systems for those who mail back the keys and walk away from a foreclosure. Fannie Mae will penalize you for 5 years, Freddie Mac for 7 years. With Fannie, however, you may get out of the penalty box after 36 months if you have certain extenuating circumstances.

So just because you go into foreclosure, it does not mean you'll never be able to buy a house again.

Are you a Countrywide borrower who fell delinquent? Are you worried that they may have cooked the books about how much you owe? A federal judge has ruled that an investigation of Countrywide on this allegation can continue. Florida, Georgia, Ohio and Pennsylvania are among the states probing the nation's largest independent mortgage lender. There's a lot of smoke surrounding Countrywide on this one, so Clark thinks there's got to also be some fire. But really this is just a sideshow with what's gone on in the mortgage marketplace.

A recent Wachovia internal memo leaked to the media claimed the bank would discontinue its option-payment loans program. Such loans -- also called negative amortization loans -- were being pushed under the Pick-A-Payment tag. But the internal announcement now seems to have been premature. You should avoid the Pick-A-Payment choice at all costs because the balance on the loan actually rises over time. Here's how it works: If you borrow $100K at 6%, the bank only calculates the interest as if it were at 1%. The other 5% goes straight to your balance every month. Wachovia has been pushing the Pick-A-Payment plan, but that hasn't been a smart business move; negative amortization loans only increase the likelihood of default. This really highlights the lack of common sense in the housing market.

Clark is amazed that the federal government has not pushed for meaningful disclosure in mortgage lending. There were proposed rules about 3 years ago to demand full, plain English disclosure when you sign a mortgage. But the banks and brokers went berserk and showered Capitol Hill with money to get the proposal stifled. Don't hold your breath waiting for a change in policy -- instead check out a disclosure form developed by the American Enterprise Institute. We got into mess because so many people did the wrong thing. What we need is somebody to stand up and make sure we do the right thing going forward.

CLARKONOMICS: Think the economic news in the housing sector is abysmal? There just might be a money-making opportunity in it for you. By now you've probably heard that the average price of a house is down 11.5% over last year. Of course, some areas like Charlotte, N.C., actually saw an increase! But the majority of places are seeing values on the wane. Miami and Las Vegas are among the hardest-hit areas. Then there's the news about foreclosures. The rate that properties are being foreclosed upon is not keeping pace with the rate that buyers are snatching them up. There's more supply and less demand. So there may be opportunity here for investors. Banks are over-run with REO properties and the Dare To Be Great believers who got burned are out on the sidelines. The worst-case scenario is that you might buy now and prices could drop even more. But who cares if you're in it for the long haul? Remember Clark's rule of thumb: Buy 20% below fair market value for homes and 30% below fair market value for condos. Just be wary of buying investment property in areas like Michigan and parts of Ohio where economic growth is not happening because of declining population, decreasing job availability, high taxes or strong unions.

CLARKONOMICS: Clark recently heard bits of sobering news on the banking and housing fronts. First, the feds are providing $200 billion in bailout money to try to keep banks afloat. It's disturbing to Clark that banks which made bad bets are being propped up by taxpayers. Zombie banks should be allowed to fail as the marketplace dictates. But the feds are probably heeding the unwritten "too big to fail" rule. We'll have to see how it all plays out.

In our own financial lives, the equity we have in our homes is the lowest it's been since the Great Depression; it's now less than 50% for the first time ever. As part of trying to prop up the housing market, you can now borrow more from conventional sources. This means people with jumbo loans can refinance into conventional loans that may carry lower interest rates. This may affect you if you live in California, Colorado, Florida, Hawaii or through the Northeast. See a complete list of the affected areas.

Finally, all the ups and downs of the market mean that there will be both winners and losers. The big winners are first-time homebuyers and some investors who can steal a deal from builders or on REO (real-estate owned) property. Some Europeans are even taking bus tours of foreclosures here in the United States. They're looking to leverage the Euro's strength against the dollar to buy properties at a fraction of their original cost. There is one caveat for the first-time homebuyer: You should put something down -- at least 5% -- in order to get a decent loan.

Several just-released home market stats highlight how stinky the real estate market has become. In the latest session of Clarkonomics, Clark explains how the current market situation is turning some of his long-standing advice on its head. New stats show that home prices in 10 major metro areas are down 8.5 percent from a year earlier. That's the worst number since stats have been kept. Meanwhile, the Commerce Department reports that sales of new homes have dropped 27 percent -- the worst since record keeping began 44 years ago. Finally, the National Association of Realtors reports that overall home sales are down 13 percent over the last year. Add it all up and there's no denying that the new home market is in much worse shape than the used home market.

If you read Clark Smart Real Estate, you know that Clark spoke about people putting too much focus on foreclosures; and about how buying used is a better deal than buying new. But that's not the case anymore. Right now, you're better off getting a new home -- preferably one that's an REO (real-estate owned). When a lender takes a house back, they drive it into the toilet because they're not in the business of property management. So REOs quickly morph into overgrown, smelly houses that deteriorate into crummy shape. That's when you can steal a deal, hopefully somewhere in the range of 20 percent below market value. Of course, you'll have a lot of cosmetic work to do.

Congress is currently cooking up some temporary props for the housing market. There's talk of giving people in jumbo loans (above $417K) the chance to refinance at standard rates, not jumbo ones. Keep your credit score as high as possible in preparation for when/if this legislation goes into effect.

In the latest session of Clarkonomics, our favorite penny-pinching guru offered tips for homeowners looking to maximize their resale value in an increasingly tough market. The latest data shows that housing sales are definitely down, but not as much as you'd think. Some 5 million people (at an annual rate) closed on homes last month across the nation. But from the headlines, you'd think that number should be zero. Prices are definitely around 5 percent down, but all real estate is local. Areas such as Tampa, Miami, San Diego and Detroit are down over 10 percent, while Las Vegas, Phoenix and Los Angeles may be down between 15 and 20 percent. Yet if you're in Atlanta, Charlotte, Dallas, Portland or Seattle, you'll find that home values are fairly stable. Also, keep in mind that widespread housing recovery probably won't come until 2009.

So what should you do if you're trying to sell your home? First off, consider owner financing if you own your home free and clear. You'll take on the role of being the bank, and you may get a better price and a quicker sell, plus a higher rate of interest back from the buyer. But beware that you have to get between 15 and 20 percent down to protect yourself. Second, be realistic about your listing price or you'll scare people away. Finally, try doing a FSBO (for sale by owner). Just know that sellers will come looking for a real steal, so be aggressive in sticking to your pricing. It might be better to hire an agent.

Clark was recently heartened that the U.S. House voted to enact truth-in-lending laws in the mortgage business. This was a bipartisan effort to avoid a federal bailout of those who are in foreclosure. But now some banks are fighting to get a veto from Pres. Bush or stop this bill in the Senate. Certain unethical lenders are opposed to fiduciary responsibility, which means that the broker would have to do what's in your best interest -- not what will put huge kickbacks into his or her pocket. Banks are also opposed to letting people income qualify based on the maximum monthly payment amount. They'd rather qualify you on the teaser rate. But we have a real problem when 1 in 5 homeowners are delinquent on their loans.

Prospective homeowners need more information to make educated choices. The American Enterprise Institute has drawn up a mortgage cheat sheet (and definition of terms) that you can use as a plain-English disclosure when getting a loan. No surprise that the mortage industry also opposes this kind of disclosure! But Clark is also disappointed that Bush is opposed to such disclosures. Clark wants to see legislation that bans brokers from putting you into bad loans for kickbacks; adopts a clear language form like the one from the AEI; ban lenders from putting people into loans based on teaser payments alone; and eliminates all pre-payment penalties.

A lot of people in real estate love doing 1031 Exchanges. If you're not familiar with the term, 1031s allow you to sell an investment property and roll your gains over into a new investment property -- rather than paying taxes on your capital gains. There are certain rules governing 1031s. The money must go directly into the hand of a qualified intermediary. You have 45 days to identify a new property, and you have 180 days to actually acquire that property. But there have been a lot of problems with 1031s because some qualified intermediaries are running off with the cash. Now The Washington Post reports that the IRS is retroactively disallowing some 1031s as a precaution.

Clark's real advice is to not do a 1031. People are so obsessed with avoiding tax that they lose sight of the bigger financial picture. For example, right now the max tax you'll pay when you sell a property is 15 percent. That's the best deal we've had in years. With the Democrats likely to get into office in 2008, most of their candidates are talking about capital-gains taxes of 28 percent. So doing a 1031 now to defer paying 15 percent when you'll later pay 28 percent is not "Clark Smart." Instead, just harvest your gains and pay your taxes! Clark knows everyone will tell you the opposite. But he believes the tax rates are only likely to go higher. This is best it's ever been; it's probably not going to get better -- only more expensive.

Orphan subdivisions are a topic that Clark spoke about frequently in the late 1980s and early 1990s. Now there's reason to be concerned about them again. Throughout most of the country, developers buy up land and put in streets and utilities before selling off to builders or developing new homes themselves. People often wanted to be early buyers in these burgeoning developments when the housing market was going strong because they could get better deals. But now the danger is that builders are going broke and abandoning developments midstream. Clark's fond of saying that you should only live in a swim or tennis community if you can swim in the pool and play tennis on the courts. Anybody can woo you with a four-color brochure that has pictures of a pool, a clubhouse, and other amenities that are supposed to be built. But it's all smoke and mirrors until you see it for yourself.

These orphan subdivisions will be a problem especially in the South and West as developers go insolvent and dump their projects. Nothing good comes of it even when the lenders come in and take over. Lenders really aren't in the real estate development business. One of the worst scenarios that Clark has seen involved a large development of more than 1,000 high-end home that were two-thirds of the way built when the builder went belly up. The insurance company that took over sold the land to the highest bidder, who in turn built townhouses and starter homes. That made the home values of the existing owners plummet. Now imagine the lender can't find anyone to step in at all. You could be living next to scarred earth that's been homogenized for development and looks awful. So Clark has a simple rule when it comes to orphan subdivisions: Buy at the tail end of a build, never at the start of a development. Don't be a speculator -- unless you get an absolutely phenomenal deal.

The rate of delinquencies on mortgage loans is on the rise now that people who got adjustable-rate mortgages in the mid-1990s are being hit hard by interest-rate resets. This is a cyclical problem and it will probably continue through mid-2008 until it settles down again. Money magazine reports that calls to foreclosure counselors are up 1730 percent as people face massive increases in their monthly payments. Clark has advised people to call their lenders early and often if they're having trouble with their payments. Many folks have been complaining that the lenders don't want to hear it. Yet the mortgage lenders one by one are coming around and developing some workouts. A workout means that the lender will modify the terms and conditions of your loan to make payments possible for you moving forward. The lender gives up a lot of money on paper, but you win because you avoid foreclosure and can protect your credit rating throughout the process.

The Los Angeles Times reports that people who make the best candidates for mortgage workouts are those who made every payment on time before their interest-rate reset blew them out of the water. Lenders won't be inclined to help those who haven't been able to make payments from the very beginning of their loan. The second situation when you may be able to get a workout from a lender is if you've made timely payments and suddenly lose your job. Lenders will usually help you out for three months, but it's difficult to work things out any longer than that. Keep in mind that not every lender is willing to do a workout. But the smart ones will embrace workouts so they don't wind up paying to foreclose on a house they don't really want. HSBC, which was one of the big lenders of weirdo exotic loans, has been trying workouts. HSBC's model involves reset your interest rate based on a calculation of your basic expenses and how much other income is left to pay the mortgage. So Clark's advice stands. Call your lender persistently if you're in trouble. You do not, under any circumstances, want to just bury your head in the sand!

When it comes to buying a second home or a vacation home, it's best to know the cycles of the market where you want to buy. There are certain times of year that are better to buy than others -- and it's all based on your desired location. The best times of year are generally the opposite of peak season. For example, try looking between the summer and the fall if you want a vacation home in a mountain state that has winter ski activity. But conversely, midwinter is the best time to buy in the Great Lakes, the Northeast or Canada; hardly anyone else will be looking and you may meet up with a desperate seller. So if there's a particular lake, ski resort, beach or mountain that you want to own on, study the rhythms of the local market and know when to strike. Knowing the calendar could save you tens of thousands of dollars.

In the latest session of Clarkonomics, Clark discussed how the housing market may not always be as bad as it seems. Much of the country is in a difficult situation, but it's not a dire one. The states that are in absolutely dire shape (because their bubble markets popped) include California, Nevada, Arizona, Florida, parts of Washington D.C., Michigan, Ohio and Indiana. The rest of the 40 odd states are experiencing sluggish sales with home values sliding slightly and an oversupply of houses. Most people who bought in 2005, 2006 or earlier this year financed 100 percent and are in weirdo exotic loans. That's the true picture of what's going on -- though it makes better headlines to say the sky is falling.

Some people are frightened by a new statistic that says the rate of houses closing once they go to contract has slipped from the traditional 97 percent to a hair under 90 percent. On the one hand, it's a huge change because the number of deals not closing has tripled. But on the other hand, nine out of 10 houses under contract still will go through. One thing Clark has noticed is that there's a window of opportunity right now if you're interested in a new home. New home sellers are sitting on a wounded duck. They're carrying large construction loans and bleeding money every month when deals fall through. They just want to get out with their shirts on. Clark's latest book, Clark Smart Real Estate, talks about why used homes are a better buy than new ones. But right now there's a strong possibility that you might find the opposite is true. Just one caveat about buying new in the bubble market states: It's not clear when the bottom will come and we're probably not there yet. So make sure you plan to own for a minimum of seven years in those markets to make it worth it. Otherwise, don't buy yet -- wait until the deals get better late next year.

The question of who's going to rescue the two or three million families who are facing foreclosure is the hot potato that everyone's tossing around right now. Going into foreclosure affects more than just the people who are thrown out on the street; the average home value in a neighborhood that has foreclosures drops one to 1.5 percent. President Bush has been talking about a proposal to help out. The Federal Reserve is putting pressure on the banks to come up with workouts such as changing loan terms and stretching out payment plans. All of this will help some, but many families will still be in over their heads. That's because a lot of loans may have been securitized, or bundled together into a collateralized debt obligation (CDO) and sold off by a mortgage company. The rules of the CDOs usually state that the loan terms can't be modified.

The best solution would be to help people avoid getting into loans they can't handle. To that end, the state of Illinois has come up with a plan that Clark really likes. The Chicago area is facing major foreclosure problems, so the state is now requiring candidates seeking loans with pre-payment penalties and adjustable rates to go to independent counseling and learn about the dangers of their choices. The mortgage lenders, meanwhile, are going berserk over this new rule, and they're trying to have it thrown out because many of them want to continue ripping people off with exotic loans. Clark gets worried when he hears presidential candidates talking about federal bailouts to solve the foreclosure problem. Wouldn't it be better if people were educated not to make the wrong loan choices from the start?

We've all be hearing about how tough it is to sell a home right now. Clark's read a number of articles that give some advice to sellers that he's been championing for years. Before you go to market, you should hire an inspector to carefully vet your home. Then fix whatever it is that needs repair, and have the inspector's report and your receipts available for prospective buyers to examine. As a seller, you have to psychologically try to get inside the head of a buyer. Even though a buyer may consider a used home, they still want it to be perfect like a doll house. Imagine that a corner of your roof needs repair and you don't spend the money to fix it. When their inspector finds it, the buyer is more likely to blow the potential repair cost out of proportion and make a lower offer on your house accordingly.

What should you do if you're upside down in your home -- that is, you owe more on it than it's worth? Some lenders will permit you to do a short sale, where you sell your property for a lower value before it financially takes you (and the lender) under. This idea came from the government's FHA program, which would allow people to sell for less than they owed on a property and walk away clean without going into foreclosure. Now private industry is learning from the government's short sale idea. Remember that the average foreclosure costs a lender $70,000, so they don't really want to foreclose. A short sale could be a win/win option for everyone.

How should you deal with a builder who doesn't honor the terms of your warranty after you close on your home? For the past 15 years, Clark has been advising people to picket the builder at their developments. You used to have to call your jurisdiction to find out how to go about picketing, and make sure that you never said slanderous things about the builder's character. But today instead of physically picketing, people take their ire online. Business Week did a report on homeowners who have set up gripe websites. Some builders have even fought back by trying to put clauses in their contracts that aim to silence you if you do business with them. That's an infringement of free speech. A builder who is afraid of the truth is not someone you want as a business partner.

Clark knows that building a house is difficult and involves a lot of micro-management with all the day laborers and subcontractors. He advises people not to close on their home until all the contractual items are complete. If you're getting pressure to close anyway, consider hiring a lawyer to withhold money in escrow to cover any outstanding issues. This practice, known as retainage, is a standard set at 10 percent in the commercial market. Just remember that once a builder completes your house, you're yesterday's news. The only reason they have to care about you is their reputation. So consider taking your battle online if need be.

It's no secret that the nation's housing market is in bad shape. Foreclosures in California are at an all-time high, and the market is equally hurt in Nevada, Arizona and Washington D.C. How did we get in this mess? Well, after 9/11 people became nesters and saw their homes as safe harbors. The tech bubble in the stock market had just burst and people psychologically started clinging to "real" estate in the tangible form of their homes. The home improvement industry enjoyed a surge in popularity as a result. But in the middle of it all, the standards for home lending fell apart. People with bad credit who had no money got horrible loans with low teaser payments that were like ticking time bombs. After two years, there was a huge increase in the mortgage payment and they could no longer afford it. Foreclosures started to become more common. There was a false demand for houses, and speculators bid up the prices. Also, all speculative buyers used to have 30 percent down. But that requirement was relaxed during this time, too. Clark says he knew we were in trouble when he started hearing about people buying houses they'd never seen and property in states they've never visited.

Thankfully, the teller window is now closed for people with bad credit and no money down; those who can't document their income; and those who want to buy on spec with no money down. Clark thinks this a good thing. He's just amazed that now the feds are starting to make noise about wanting to ban these kinds of lending so late in the game. Capitol Hill wants to make it so that when you take out a loan, you have to get an explanation of all the details in plain and simple language. But the funny thing is that the feds aren't considering making hard-and-fast rules -- just some proposed guidelines. Well, the American Enterprise Institute beat them to the punch by drawing up a mortgage cheat sheet (and definition of terms) that tell you exactly the right questions to ask of your lender. Clark really likes the AEI's version because it helps homebuyers avoid getting ripped off. He also thinks it's so much easier to understand than the feds' guidelines.

It's no secret that right now it's a tough time in the housing market for sellers and a confusing one for buyers. If you're selling and you have a lot of foreclosures in your neighborhood, you've probably noticed the value of your home declining. And if you're buying, you're facing a variety of exotic weirdo loans with adjustable interest rates, option payments and more. But relief may be around the corner in a market phase called capitulation. Look at markets like Denver, Salt Lake City, Houston and Southern California. These are all places that suffered through a bad real estate depression, but recovered and thrived. How did they make a comeback? Well, the ultimate measure of whether or not a real estate market will thrive is job growth.

It's also important to remember that the mortgage market is not a monolith and some segments are already in good shape. For those with decent credit seeking a conventional 15, 20 or 30 year loan, the rates are now lower than they were just a few weeks ago. What it comes down to is that a lot of speculative markets had bubble growth and it will take time for them to unwind. So if you're considering buying a home before the year is out, you may want to just wait a little bit longer until 2008. Likewise if you're in a cold climate, once winter comes there will be more opportunity, according to Clark. Think of the push toward capitulation like a baseball game; right now we're in the third inning of a nine-inning game, Clark says.

There are now new rules about mortgages in place after all the problems with the "fake-a-bake" loans that poisoned the marketplace. "Liar's loans" (also called Alt-A loans) will now be stopped. "Liar's loans" got their name because you didn't have to prove anything about your financial situation to the lender. You paid a little higher interest rate and the lender just gave you a wink and a nod to whatever you said about your bottom line. Meanwhile, there are new laws for sub-prime loans now in place. In the past, lenders had fake opening rates so that people could qualify initially, but then they would reset at a higher rate forcing homeowners into foreclose. In fact, one in five loans made to people with damaged credit is now in delinquent status. So now, thankfully, the banks have to actually qualify people based on what the rate will become after the low introductory period.

Clark would like to have seen the regulators do even better by saying that people would have to qualify based on what the highest possible rate could be -- but the banks would have balked at that model. The result of the new regulations is that people will be qualifying for smaller, less expensive homes now. This is a good thing; people are not helping themselves by being forced into foreclosure and being put out on the street. Lenders now have to make sure that the loan makes sense for the customer. Another alternative is the one presented by Bruce Marks and the Neighborhood Assistance Corporation of America. The NACA makes loans to people only after they've saved money for a year to demonstrate that they can handle their mortgage. It's almost like being on probation. Say for example your rent is $800 and the home you want to buy will have a monthly payment of $1,200. You've then got to save $400 every month to prove yourself ready for a loan from Marks' organization. NACA rates are often three-quarters of a percent below the standard rate.

Are you buying a new house and worrying about what to do with your old home? Clark knows what it's like to have two houses and two mortgages -- it's a burden he once carried for 14 months. But what if there was a way to avoid the double payout headache? Clark recently read a story in Money magazine about a Southern California homebuilder who has started a trade-in program. You can trade your old home in and buy your new house in the same day. There are no real estate commissions on the sale of your home, which is important because they don't pay you market value. Rather, they offer a little more than 90 percent the value of your home. But you get the certainty that you're out from under having to make payments on two houses.

There's no way to gauge if this practice will pop up elsewhere in the country. What we do know is that a lot of homebuilders are desperate right now to unload their product. On a related note, the National Association of Homebuilders reports that there are offers available from a small number of builders that have a long-term guarantee. That means that if you're stuck with your house on the market for too long, the builder of your new home will buy your old one at somewhere below fair market value. The trade-in plan is obviously more to the advantage of the consumer. The downside for the building company either way is that they have to be financially strong enough to carry your home until they can sell it off.

Home builders across the country have taken a big hit, according to some brand new statistics. D.R. Horton -- one of the nation's largest home builders -- has reported order cancellations approaching 40 percent and price cuts that are significant on buying new homes. It is completely a buyer's market in the new home market. By comparison, the used-home market is much healthier. Yet sellers have a very pessimistic mindset, thinking they won't be able to sell their home anytime soon. That belief is not entirely unfounded; a house will now sit on the market for an average of nine months before it's sold. So if you want to sell soon, you'll probably have to take less money for your property than you thought. That's the reality of the market. Recovery is on the way, but it's not forecasted to arrive until 2009 or 2010. At that point, we should see what's called equilibrium, where you have roughly equal numbers of willing buyers and anxious sellers. Right now we have more anxious sellers than willing buyers. It's going to take time to unwind the speculative fever that drove prices up unnaturally in a lot of bubble markets, such as California, Arizona, Nevada, Florida and Boston. So if you are a buyer, it's a pretty good time for you even though interest rates have gone up.

The real estate market around the country is in the doldrums. The number of homes for sale increased in May, which is unusual, since most people prefer to move in the summer. If no other homes went on market, it would take 9 months to sell all the homes currently out there! Plus, the cost of a mortgage is more expensive than it was, with interest rates rising. In reality, it's not that homes aren't selling - 6 million a year change hands - it's just not a good time to be a seller. If you're a buyer, there will be some real deals as people slash prices. Home prices are down about 2% from a year ago. To balance this, builders are reducing the number of homes they're building, and people are choosing not to put their homes on the market right now. If you simply have to sell, one thought is to do what lots of people are doing, and rent the place out while you wait for the market to stabilize. This isn't an option for many condo owners, as some have rental restrictions, and the rent you would get generally doesn't cover the cash outlay per month. So now is the time to buy condos, since the market has fallen out under them. In general, the real deals on single family homes will be coming this fall and into 2008, as we move out of the prime summer selling period. This winter will be especially friendly for buyers...but not for sellers.

When you are shopping around for a home loan, watch out because you can be ripped off for thousands if you’re not careful. In some instances brokers write in exorbitant fees that come out of your pocket. Sometimes the lender pays a kickback to the mortgage broker if he writes a higher than necessary interest rate for you too. If you do not shop the mortgage market you stand the chance of getting ripped off. You should comparison shop multiple lenders. You want to pay 0 points as well. These are hidden fees that you shouldn’t have to pay. If your points are 0, then look at the interest rate and the closing costs. One other thing to check out is that there is no prepayment penalty. You have to play tough though so you don’t get confused by the mumbo jumbo and sign something you shouldn’t.

To say that homes are “on sale” right now is not silly. The statistics are fantastic if you’re a buyer, and dismal if you’re a seller. The number of homes that are sitting unsold on the market are up about 30% from a year ago. That’s a huge increase in available inventory, putting you in a position to drive a hard bargain. Over a third of houses have had price cuts in the asking price. Sellers are becoming increasingly desperate to move the house. Markets that are really hurting include Seattle, California, Washington D.C. and Baltimore. The psychology has shifted. When a market is in turmoil, either running up or down in value, that’s when opportunities exist if you do the research. The National Association of Realtors is expecting home sales to decline 5 percent this year for existing houses. For new homes, sales are expected to drop 20 percent. So, do your homework, know your market and you may just steal a deal.

Traditionally in real estate, it was common that sellers who could afford to would take back owner financing on their property. In other words, they would be the bank or a partial bank for the sale of their home. It hasn’t happened in the past seven years or so because it wasn’t profitable to take back the note. But now that mortgage rates have moved back up, it’s potentially more profitable to finance the purchase from the buyer than it is to take the proceeds. For the buyer, closing costs drop to a fraction with a seller financed loan. It’s not all coming up roses though. Clark has done owner financing many times in the past, and he’s had a good history with it. The risk is always that the buyer doesn’t pay. Clark had one buyer who didn’t pay and he had to foreclose on the property. So, you don’t do this unless you’re getting a substantial down payment from the buyer. Don’t lend people more than 80 percent of the purchase price. That way, if a deal goes south you still have 20 percent of the property and you can turn it around. Secondly, you cannot allow people to get slack on rent. Make sure your buyer knows that you will use the full extent of the law to get your money. Also, establish limits on when pre-payments are allowed. Clark allows pre-payments only on the anniversary of the note. That way the calculations are easier.

Clark talks about various real estate markets and which ones are the most affordable for what you want. Listen now! Don't forget to turn off your pop-up blocker first.

We are moving into a very unusual time in the housing market. The number of unsold homes on the market has increased 500 percent in the past year. In fact, the amount of available homes is the highest it’s been in seven years. That’s why it’s super important that you not buy a new home until you’ve sold the one you’re in right now. It’s especially dicey for condo owners right now. So many condo complexes have been built that existing owners are having terrible problems selling them. On the other hand, if you are thinking of buying, you can get some great deals. There are going to be some steals in the condo market, but you need to wait just a little longer.

The number of unsold homes sitting on the market has jumped almost 50 percent on the past year. The sale of single family homes is down 3 percent while condo sales are down 11 percent. And that’s just in the past few months. If you are trying to sell your home, this is a bit discouraging. But it really depends on where you are. If you on either coast, in a beach area, or in Washington DC and Florida, you could be in for some frustrating times. People are mostly renting in these bubble markets, so selling a home is even tougher. But the sky is not falling, so don’t fret. Even in a time when supply outruns demand, prices don’t drop like a rock. They just hang around, and that’s what you should do. As for buyers, opportunities are plentiful in these bubble areas, especially if you are looking at a condo.

New data out shows that mortgage delinquencies are going to be bad in 2006 and worse in 2007. People bought homes with interest only loans in huge numbers this year and now they’re having trouble making the payments. People are already calling their mortgage companies asking for leniencies, according to Fitch, which rates commercial mortgage services. Fitch has just put out a report showing delinquencies going up about 15 percent. About one in 100 homes is in foreclosure right now and about 5 percent of homes are in delinquency. So, people are going to face some serious difficulties in the coming years. Now is the time to eliminate as many problems as possible. If you sense that making payments will be difficult, you need to reconsider your path. Another issue is the fact that floating mortgages readjust. If you’re thinking of staying in a home for a number of years, go ahead and refinance into a fixed rate loan or an ARM that is fixed for at least five years. There are decent deals out there. But the greatest worry is for people in what are called “option payment mortgages.” Overwhelmingly, these people are not able to pay enough each month to keep the loan amount from rising. Do not worry about your credit card bills if you don’t have enough money to pay your mortgage. Your mortgage comes first! You may trash your credit, but you’ll keep a roof over your head. Food on the table is next. And credit cards are last, despite how many calls you get from creditors or collection agencies.

Homebuilders are offering incentives to get people to buy their homes because it’s become such a tough market out there. Builders are paying closing costs or giving people money to buy furniture to get them to buy. It’s a complete change from the spring when builders could get whatever they wanted for their properties. About 60 percent of builders have to offer incentives these days and some of them have climbed as high as $20,000. Builders are looking for certainty these days because they don’t want to pay lots of interest on a home that is complete. It won’t be a hot buying time until about March of next year, so it’s a great time for you to buy. As for used homes, you know if a home is in good shape thanks to the inspection. The home is already in an established area and you get a much better deal on used property. With a new home the risks are higher because the problems don’t show up until later on.

Clark’s next book, Clark Smart Real Estate, is slated to come out next year, and the section on financing has grown by leaps and bounds. That’s because financing a house is such a difficult and risky task these days. The Department of Housing and Urban Development proposed regulations that would require mortgage companies to tell you the truth about every fee and charge on your bill. But banking lobbyists worked the halls of Congress and got them to turn HUD away. You need to cut through the clutter when you’re getting a mortgage because companies will try to rip you off. That is especially true for black borrowers. Recent investigations show that lenders rip off black homebuyers more often and other groups. It’s disgraceful and wrong. If you are black, you need to know about this and be prepared. Lenders are telling you that your credit is not sufficient enough to get a loan and you have to take on a high-risk loan with higher rates. So, before you buy a home get copies of all three of your credit reports and your credit score, so you are prepared. You can do that for free now at annualcreditreport.com.

You may have noticed home getting larger and larger over the years. We’ve gone nuts when it comes to the size of houses we’re building, and builders are giving us exactly what we want. But to every trend there can be a counter reaction or reversal in trend as a result. Take Texas, for example. Everything is big in Texas. But right now, people in Dallas are actually starting to buy smaller homes. They want these smaller homes because it’s less maintenance, lower bills and a better-structured home. But one builder has had trouble convincing banks to help him subsidize these homes because it bucks the trend. His customers prefer an 1,800 square foot house rather than a 3,000 square foot house. But he finally convinced them, and now it’s a trend. In fact, Matt Holly apparently can’t find enough land to build all of these small houses. When you buy a house, don’t base it on pizzazz. Instead, look at the quality of the home in general.

Real estate agents, in fear of losing money, have been engaging in anti-competitive practices in states such as Texas, Oklahoma and Kentucky. In those states, agents are trying to make it a crime for people to use “a la carte” real estate services or to use discounted commission services. Agents have felt threatened by the continual drop in commission, which has dropped from about 7 percent to 5 percent. But with advancing technology, people don’t have to accept traditional ways of doing business. Many are using the Internet help to buy homes on their own or to hire agents for limited help. It’s causing a civil war inside the real estate industry. Some agents are going with the flow and are offering limited service for a lower commission, while others want fixed commissions and anything else is illegal. Why not let the customer decide? Some people still want the full service agents, but others do not. Making it against the law is simply corrupt, though. The Texas Real Estate Commission is the latest group trying to do this, and Clark thinks it’s ridiculous. States should not be allowed to interfere in the free market and should be penalized if they do.

Money Magazine has done an analysis on how much money people are borrowing for their houses and it’s pretty eye-opening. The amount of money taken out on home equity lines of credit went up over 40 percent in the past year. In four years, the amount tripled. That means people have been taking the equity in their homes and throwing it away. Having equity in your home is how you create wealth. But if you treat your home as a piggy bank, you’re basically taking money out of your future security. It’s like mortgaging your future. Secondly, one in four houses bought last year in the U.S. were second homes. There is nothing wrong with buying a second home. It’s a great move, if you can do it. But many people are buying these places because they think the home’s value is going to go up. The truth is that a home’s value can go down too. And it takes a lot of money to maintain a second home. So, buy real estate for the right reasons.

As more and more companies incorporate technology into their business models, the middleman or woman who connects consumers to that business seems to be weeded out. It’s happened in the travel industry, the alcohol industry and now the real estate industry, and it’s opened up choices for consumers in a great way. It’s also causing tension among people in these industries, and the latest battleground is Texas. The Texas Real Estate Commission is trying to make it a crime for consumers to use a discount real estate broker. The group is trying to force people to use only full commissioned brokers as a way to eliminate discount brokerages and Internet services. It’s completely unlawful and will just delay free market capitalism in that state. It should be up to consumers to decide what kind of broker they want to use - not the government.

Clark gets a lot of calls from people about whether to buy a warranty on their homes. When you buy a used home, you’ll get lots of pitches about home warranties that are supposed to pay for unexpected repairs. Unfortunately, the L.A. Times has found that buying these warranties is very risky. Many people regret buying warranties, according to the report. Yet, people still buy them in droves. Sales are up significantly since the ‘90s, in part to protect against unexpected catastrophes. But the L.A. Times reports that most of these outfits are interested in selling warranties, not paying for repairs. The only good time to buy a policy is if you’re selling a used home and you want to give the buyer some assurance. Look at it as a sales expense. But for most consumers, there are so many limitations and exclusions that it’s just not worth it. In addition to the $300 to $500 for the policy, you must pay more money for each service call. And often times the company claims you are at fault for damage and won’t pay. You’re better off putting that money each year into a savings account and saving for a rainy day.

What are the chances that you could buy a home today and it will be worth less in two years? A new study out by PMI Mortgage insurance researches this very question and claims that there is a 16 percent chance - on average - that your home could decline in value in two years. It depends, in part, on where you live. And, the Boston metro area has the largest probability for a decline in home values. Homes in the Boston area, which includes some of New Hampshire, are expected to decline in value by 53 percent in the next two years, accordin got the survey. Other at-risk areas include San Jose (a 53% chance of decline), San Francisco and Oakland (48%), San Diego (43%), Providence, R.I. (40%), Sacramento (37%), New York City (36%), L.A., (36%) and Detroit (27%). The least risky areas include Pittsburgh, Buffalo, Rochester, Oklahoma City and Indianapolis. So, there is definitely a decline in some markets, but it’s not yet a collapse. Get the full list by clicking here. So why is it happening? Well, there are a handful of areas where home values have outstripped family income. Add to that the fact that people have gotten ahead of themselves in terms of the type of homes they’re buying. According to the National Association of Realtors, people buying homes "on spec" or as second homes accounted for more than 35 percent of all houses sold last year. One in four homes bought last year were for investment purposes only, which always means the market is ahead of itself. People see real estate as the safe place to put money. But, it's important not to get caught up in the excitement of buying. Real estate should be a long term proposition. If you’re not planning to “flip” the house, look at it as something you would keep for a minimum of five years. And, before you buy, take a look at the PMI survey to find out what risks you might be encountering.

The once-overheated housing market is no longer overheated. In fact, builders are feeling a bit fearful about sales in many communities around the country. Builders have had to cut the price of homes in the L.A. area by as much as $70,000 in order to sell them. When the market shifts, people who aren’t having much luck selling their homes pull their homes off the market. But it’s different for a builder. They must move that house. So, they try to find the right mixture of sales incentives and features to keep houses moving through the pipeline. Several years ago, builders in many hot areas didn’t have to offer any incentives. But it’s all changing now. According to the National Association of Homebuilders, one in three realtors are offering optional items for free. These include flat screen televisions, finished basements and bonus rooms. So, if you’re considering buying new construction, make sure you survey the area you’re interested in and work on an offer with lots of builders. If you’re trying to sell a home that is in a new construction area, just make sure you start with an aggressive price before the market softens anymore. As for the used home market, you tend to get a lot more square footage for your money. Clark prefers used homes because the areas are usually already built up. And remember that if you’re thinking of building in a new development and you’re promised a swimming pool or tennis community, don’t believe it. Builders often promise things that are never delivered when the community is finished. So, until you see it, don’t believe it – and don’t pay for it!

There is a large shift going on in the world of real estate that means much more options for you and your home. The market is splitting up into various sectors that span the range of do-it-yourself sales to full-service agent help. Real estate agents are still key to making the real estate market work. But people are finding what works for them. The market share of companies that offer alternatives is growing quite quickly, and the days of non-negotiable transactions are over. In fact, the average commission on real estate transactions is a little more than five percent today, and you can thank the Internet for that. In a lot of cities, about one-third of home sales are taking place on the Web. That is a very scary prospect for agents, who used to be in complete control of real estate listings and information. So, what are real estate agents afraid of? In the Northeast, they are terrified of Foxton’s, a European real estate agency that pays its agents salaries instead of strictly commission. Foxton’s agents get about 3 percent, compared to the typical 6 or 7 percent that regular agents get. There are some agents in the Northeast who will not show a Foxton’s listing because they get a smaller cut of the deal. But there are also agents who are more forward thinking about their services and the real estate industry in general. They’re willing to take a lower commission for fewer services. Some even have prices lists with a la carte services. For example, you handle the open houses but the agent takes care of the listing. There will be more and more of this coming our way because the Internet has democratized information. Traditional real estate agents will try to fight this movement, but it’s going to happen regardless.

When Clark gets a call from a listener about buying a home, he always asks how long the person plans to own the home. It’s even more important to ask that question about condominiums because most people buy them as transitional or short-term thing. The truth is that in order to make it a smart decision, you should look at the purchase of a home as a five-year deal. That’s because the transaction costs for buying and selling the home are so high that you want enough appreciation in the home to make it worth it. But a detailed analysis in the Wall Street Journal shows that the five-year rule is not valid in certain markets around the country. It’s in areas where housing values have gone up so much that they have outstripped peoples’ incomes. In those markets, the study shows that people need to own their home a minimum of seven years, if not a decade. The states include Washington D.C., California, Rhode Island, Massachusetts, New Jersey and New Hampshire. History has shown that in areas where real estate values shoot up, they typically fall hard after that period is over. The higher they go, the harder they fall, as the saying goes. So, if you’re in a growth market, consider owning a home for at least a decade. The cities to focus on are Boston, Denver, Seattle, L.A., New York, San Diego and San Francisco. Over time, the longer you’re in real estate, the safer you’ll be.

Clark read a story this week about how the number of people in real estate clubs is growing. These are groups that promote the idea of buying up real estate so they can sell it and make money. Its members want to make money as real estate investors, and there is a real frenzy to “get rich in real estate.” It’s a symbol that Clark needs to issue a warning. Think about what was going on five years ago. All over the country, people were joining stock investment clubs and day trading seminars. People were watching CNBC and waiting to jump in on IPOs. It was the stock craze gone mad. Then, the stock market crash of 2000 hit and people lost interest. Now, people have decided that real estate is a sure thing. The idea that real estate is a can’t lose, get-rich-quick thing is bogus. Over time, real estate can provide real financial security. But it will take time. In many markets, real estate values have gone up so much that they are no longer affordable for most people. If you live in an area where values have gone up, you’re probably struggling to make payments. The worst thing you can do is to borrow against your home to take a vacation or buy a boat. You need to earn some equity in the home. Equity is what you own versus what you owe to the bank, and it’s something we all should strive for.

For the last two years, Clark has talked about being careful in overheated housing markets. It has gotten extreme in Boston and New York, where people are paying more than a million dollars. The average price for a condo is over $1 million; prices were only half that five years ago. Other places where the costs are equally dramatic are South Florida and Las Vegas. This is the most overheated housing market in the USA. How do you protect yourself? Time in the market is your best ally. Think about how long you are willing to own. The longer you are willing to own, the less risk you face in real estate. When people can no longer afford to pay, the market adjusts. If you overpay at the front end, but can stick it out, you lower your risk in housing costs. Consider the stock market, which has gone nowhere this year. People have taken some set backs, but the stocks will come back. Nevertheless, people must have an exit strategy. The real wealth now is in real estate and real estate appreciation. There is big money in this area.

Almost one in four homes in the United States is purchased by single females today, according to the L.A. Times. Married couples now represent just a little more than half of the market. For men, it’s about one in 10. So women are really ahead of men when it comes to buying homes by themselves. There are some things to think about if you’re thinking of buying a home on your own. First of all, you should have the right goal and objectives in mind. Many people will say they want a home or condo for two or three years as a “starter home.” But that means you have to be very lucky in terms of what happens with home values. The transaction costs going in and coming out are about 10 percent each way. So, you need a 20 percent gain in home value just to cover the costs. That’s been normal the past six or seven years, but it’s not normal. The rate to expect is that of inflation or just a little more. Clark would like you to look at owning a home for a minimum of five years. If you aren’t going to be there that long, Clark recommends that you rent. A short-term home purchase is often not worth it if the values aren’t there. That is the cycle of ownership, and it is singles who tend to hop around from town to town. The only exception would be buying a “fixer-upper” to live in and repair. If you live there for at least two years, you can turn it around and pocket 100 percent of the profit tax-free.

If you are considering buying a house, Clark urges you to have your own inspection. First-time homeowners often skip the inspection because they think government workers have somehow inspected the house. Although they have, these kinds of inspections are not enough. Think about when a hospital, school or office building is erected. There is a construction manager who makes sure things are being done as they should be. You want someone who does the same thing for you. It's especially important if you're having the house built. And be sure that you don't hire an inspector that your real estate agent recommends. Recent reports show that 70 percent of people hire the inspector recommended by their real estate agent. Agents only suggest inspectors they know will not kill their deal, and that is not in your best interest. You want someone who will kill the deal if the house is not in good shape. Two sites that offer great referrals are ashi.com and nibil.com. NIBI requires that its inspectors carry Errors Inspectors Insurance. This means that if they mess up, they are responsible for it. You also want someone who is CABO certified, which means they are code current. Spend some additional money when buying a house and get an inspection. It's worth it. And before you sign a contract with a home builder, make sure you inspect the contract. Some builders forbid you from hiring an inspector and that wording is included in the contract. So, if you see it in there, give that builder the boot.

Over the last 10 to 20 years, we have had steadily rising home values that have surpassed the rate of inflation. This has caused a tremendous amount of foreclosures, meaning about 1 in 60. So far this year, the number of foreclosures is up 56 percent compared to last year. The main reason is that people are applying for mortgages they can’t afford. As a result, foreclosures in the high end of the market now equal those in the moderate and low-end markets. Houses really deteriorate when they are foreclosed on, and the owners or mortgage companies don’t maintain their properties. The Wall Street Journal found that in northern California alone, high-end foreclosures are up 1600 percent in one year. That’s a huge increase! The upside is that foreclosures present an opportunity for people to buy cheaper houses, especially at the higher level where one can purchase mansions at a steal!

The federal government has started a program called the “American Dream Down Payment Initiative,” and it could mean free money for you. If you’ve never owned a home, you are potentially eligible for a grant of up to $10,000 toward the price of a home. You can buy either a quadplex, a condo, co-op or mobile home. You must be a first-time homeowner, and you must me income eligible. That means you can’t earn more than a certain amount, usually $40,000 to $50,000. The program has a limited number of slots available, and it will be a little while it goes into effect. But it’s a terrific idea. PHAs and LHAs, public housing authorities and local housing authorities will administer the program. Hud.gov has information about the program. But you’ll want to get in early because the money is limited. And remember, it’s a grant not a loan. You don’t have to pay it back. Why is this a good thing for taxpayers? People who own a home have more of a stake in their community and tend to do more to keep it clean and fight against crime. Therefore, the value of the homes increase and the quality of life is much better for everyone.

More and more people are shopping for homes on the Internet and making bids on homes sight unseen. Some are actually buying houses online without ever seeing them. According to the Personal Journal, people were thrilled with how it worked out. But Clark is stunned with that news, and he wants to discourage you from looking at real estate that way. Do you buy a car without looking at it and test driving it? Even though cars and homes may look the same, they are not. The way a home has been maintained and lived in makes a huge deal. If you’re relocating to a new city, Clark would love for you to go rent there first. Then you can decide whether you want to buy there. You’re not getting a feel for where you would be most happy living. And there are always gotchas in terms of crime, school, commute and taxes, which you can’t determine out of town.

Homebuilders are facing a huge burden because the cost of materials has escalated dramatically. Plywood, steel, aluminum and asphalt are all going way up in price. So, builders have come up with an idea in new home contracts that you may not know about. Let’s say you are buying a home for $200,000. When you get to closing, they spring it on you that you actually owe $235,000. They’ll cite a clause in a hidden subsection of the contract that gives the builder the right to pass on to you any materials costs above the expected total. It’s called an “escalation clause,” and it’s something many builders are adding to their contracts. According to the LA Times, the No. 1 request coming into the National Association of Homebuilders is for language to use in contracts for escalation clauses. This is why you should NEVER EVER sign a builder’s contract! They are very one-sided and you cannot control the outcome. And, don’t ever negotiate with a builder’s representative without have an agent working for you. Be prepared to negotiate a cap for what you agree to pay. If it goes beyond a certain amount you get your money back and can walk away. Having a construction attorney review the contract for you is smart, too.

What do you have a right to expect when you purchase a home? Clark prefers used homes, and it’s a much less risky purchase. But most people like buying new homes, even though a new home can cover up a host of illnesses that can manifest over time. But if you want to buy a new home, you want to have at least three inspections done while the home is being constructed. When you close on that home, it’s a done deal and you’ll get nothing more out of most builders. About one in six homes are being built by “production build,” where large numbers of homes are built at once. These builders are trying to gain more market share on a national basis and are doing so by offering 2-year warranties on everything in the home. Granted, there are times when you won’t have any problems with the construction of a home. But this is great news. People love the idea of the “dream home,” and it’s not a money decision. But if you want to make money in real estate, used homes are where it’s at.

Clark has expressed with anxiety that a few places around the country are headed for real estate bubbles? Are you facing a bubble that is about to burst? Well, there trends you look for to determine if you are in harm’s way, including areas that have had rapid spikes in value in recent years. These include parts of New England, California, Minneapolis, and many spots in Florida. If you’re buying in an area that has had rising rates, it can get ugly. In the Washington D.C. area, people have put homes on the market and within hours they have several bids - each higher than the last. Home values are up as much as 15 percent in the past year and about 60 percent over the past three years. Economist Robert Samuelson did an analysis of what happened the last time there were big run-ups in home values. The hangover effect was pretty harsh. Home values in Houston dropped more than one-fourth after the bubble burst. Prices dropped in L.A. by about 20 percent over a seven-year period. Does that mean it will happen to you? Not necessarily. But it increases the likelihood that prices will deflate. So, how do you protect yourself? Just remember that time is your ally. Take Boston, L.A., or Houston. These are places where values either flattened or declined in the ‘80s. But over time, those values went back up. Salt Lake City became one of the hottest housing markets in the country after years of decline. So what’s the lesson for today? Don’t buy a home in an ultra high market unless you plan to be there at least five years. That may sound backwards because people like to buy up homes in a hot area and then sell them right away. It’s called “speculative fever.” But that eventually stops. Real estate values eventually go up over time. That’s just the way it goes. It’s a safer investment.

Clark had a call recently from the mother of a 19-year-old who had gone to the mall to shop and left with his eye on buying a new home. While he was shopping, he stopped by a house selling kiosk and was pre-qualified for a mortgage on the spot. It’s a growing business, according to the Boston Globe. The one mentioned in the paper was called the “American Dream Home & Loan Center.” And you’ll probably see hundreds of these one-stop shop kiosks in the next few years. They have real estate agents, financial experts and fancy monitors that show you houses that might fit your parameters. The idea is to make buying a house almost an impulse purchase. Clark would rather you do a little more research before you pick out your dream home on a screen. If you don’t shop the market, how do you know you’re getting the best deal on a loan? Look at lots of houses after you have pre-qualified for the money you’ll need. You may need four to six months to clean up the errors on your credit report, so don’t rush things.

Clark gets a lot of questions from people who want to buy a home. The first question he asks them is how long they plan to live there. And, he will say, if they don’t plan to live there five years or more, they should rethink buying a home. When you buy a home, you pay about 10 percent in transaction costs. The same is true when you sell a home. And you need to stay there at least five years to break even on those costs. But there may be a new way to meet your needs if you can’t live there that long. It was a pilot program that now is available in several states. What happens is you pay an insurance premium that is 1.5 percent of the value of home you want to protect. You pay the fee upfront and it buys you “downside protection.” That way, if there is a sudden downturn in the home values and you have to sell, the insurance picks up the loss. The program is called “The Neighborhood Reinvestment Corporation,” and it will be available through participating lenders. Lenders will have individual information on it. And, as lenders start to participate we will have more information on the site. Now, if you are planning to be there five years or longer, short-term spikes and falls will not affect you. Over time, home values rise just above the rate of inflation in states and regional areas. We don’t know how the market will respond to this, but we’ll see.

Interest rates on mortgages have taken a huge dip, creating a second chance for people who would still like to refinance their mortgages. About a third of the refinances that were done last summer and fall were “no-cost refis.” This means you accept a higher interest rate in exchange for paying no closing costs. And, right now you can get a 15-year no-cost refinance for about 5 percent. That’s if you have a good credit score. If you have to do a 30-year loan, the rates aren’t as great but they’re still good at about 5.625 or 5.75 percent. So, if you have a mortgage rate of 6 percent or above, you have the opportunity to put additional money in your pocket without a risk. And, if you plan to be in your house for 3, 4 or 5 years, you might want to consider doing a 5-1 ARM. That’s when the rate is fixed for five years. And right now, 5-1 ARMs are between 3.875 and 4.25 percent. That’s a great deal. These are also great opportunities if you’ve been skating on thin ice with a LIBOR loan. Although it's a pain to pull together all of the paperwork and do this again, it's definitely worth it. You will save several thousand dollars a year, after all.

Clark saw a report today on household wealth. For most Americans, the greatest source of wealth is their home. Right now, nearly 70 percent of Americans own a home. So, we have a significant number of people who are renters but would like to own a home. Real estate is a way for us to create wealth over time, and it’s really the first building block to getting there. We’ve had years and years of home prices increasing at beyond the rate of inflation. Last year, the average home price increased eight percent. But that doesn’t happen everywhere. In Clark’s zip code, prices went down 6.2 percent. But over time, the overall effect is that real estate increases at a natural rate greater than inflation. And, when you live in a home for more than a certain time, the gains on the home are yours tax-free. And, if you’re not seeing a steady increase through the years, the FHA has something for you, too. With the support of the President, the FHA is planning to offer “no-down payment loans” for buying a home. Right now, 10 percent of people who have FHA home loans are in financial distress. So, if you eliminate down payments entirely, that percentage will most likely rise. Looking at the other side of the coin, 90 percent of people are doing okay. With a normal home loan, that figure rises to 96 percent. So, there is a long-term advantage. What does long term mean? If someone plans to live in a home for less than three years, you’re better off renting. There are so many fees associated with buying and selling that you need a decent amount of time in the home to cover those costs.