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Pending Home Sales on a Roll, Up for Sixth Straight Month

Contract activity for pending home sales has risen for six straight months, a pattern not seen in the history of the index since it began in 2001, according to the National Association of Realtors®.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in July, increased 3.2% to 97.6 from a reading of 94.6 in June, and is 12.0% higher than July 2008 when it was 87.1.The index is at the highest level since June 2007 when it was 100.7.

Lawrence Yun, NAR chief economist, said the housing market momentum has clearly turned for the better. “The recovery is broad-based across many parts of the country. Housing affordability has been at record highs this year with the added stimulus of a first-time buyer tax credit,” he said. “Other buyers are taking advantage of low home values before prices turn higher. Nationally, the typical mortgage payment now takes less than 25% of a middle-income family’s monthly income to buy a median priced home, with payment percentages so far in 2009 being the lowest on record dating back to 1970. As long as home buyers stay within their budget, mortgage payments will be very manageable,” Yun said.

NAR estimates that about 1.8 to 2.0 million first-time buyers will take advantage of the $8,000 tax credit this year, with approximately 350,000 additional sales that would not have taken place without the credit. Buyers have little time to act because they must complete the transaction by November 30, 2009 to qualify for the credit. Unless extended, contracts signed but not completed by that date will not be eligible- it is taking approximately two months to complete home sales in the current market.

The Pending Home Sales Index in the Northeast declined 3.0% to 78.8 in July but is 4.7% higher than July 2008. In the Midwest the index slipped 2.0% to 88.1 but is 8.1% above a year ago. In the South, pending home sales activity rose 3.1% to an index of 103.8 in July and is 12.0% above July 2008. In the West the index jumped 12.1% to 112.5 and is 20.0% above a year ago.
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said Congress needs to keep the momentum going. “Even with a good recovery taking place, the market is not yet back to normal. With a gradual absorption of inventory, we are on the cusp of a general stabilization in home prices,” he said. “To ensure that housing has a broad stimulus to the overall economy and stays on sound footing, we’re encouraging Congress to extend the tax credit into 2010, and to expand it to all buyers of primary residences. The faster we stabilize home prices, the fewer families will face foreclosure and the quicker credit can be extended to other sectors of the economy,” McMillan said.

NAR’s Housing Affordability Index (HAI) stood at 158.5 in July, below the peak set in April but is still 36.0 percentage points higher than a year ago. The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income.
Yun expects existing-home sales to rise through the fourth quarter. “Unless the tax credit is extended, no one should be surprised to see home sales drop in the first quarter of next year,” he said. “However, the fundamentals of the housing market and the economy are trending up, and we expect home sales to generally pick up in the second quarter of 2010. The buyer psychology may be shifting from, ‘Why buy now when I can purchase later,’ to ‘I don’t want to miss out on a recovery.’”

 

The Meredith Mortgage Team

FotoFlexer_Photo Give First-Timers the Direction They Need By G.M. Filisko | October 2009

Nervous. Arrogant. Cautious. Excited. Although these words seem contradictory, they sum up today’s first-time buyers. “First-time buyers are many things at once,” explains Paul Gorney, a sales associate at Sudler Sotheby’s International Real Estate in Chicago. “They’re scared to pay too much, excited to get a ‘good deal,’ and confused because of the number of homes and the situations in which sellers are selling, such as short sales and foreclosures. “First-timers need serious guidance,” he says. That guidance is especially critical for buyers who are trying to beat the Nov. 30 closing deadline to qualify for the federal first-time home buyer tax credit. (At press time, it was unclear whether the credit would be extended.) Here’s how to overcome three false assumptions that can derail first-timers. 1. “The housing market is weak.” First-timers have likely read every stitch of news about how homes aren’t selling. The trouble is that’s simply not true in many entry-level markets. “First-time buyers need to understand the environment they’re competing in,” says Dana Graham, CRS®, a sales associate at Prudential California Realty in Palos Verdes, Calif. “In my market, homes for first-time buyers priced under $800,000 are hotter than a $2 pistol. A few months ago, one had 21 offers.” Graham turns that fact into a positive. “If there are so many other buyers,” he tells first-timers, “you’re not dumb to be buying now.” 2. “I need to see all the options.” Many buyers proceed with excessive caution because of the endless inventory and their desire to find the perfect home. That can lead to paralysis by analysis, says Kathleen Alexander, ABR®, CRS®, a sales associate with Keller Williams Realty Boston Metro. Like Graham, Alexander uses facts to get buyers off the fence. “I make sure they’re armed with all the data they could possibly desire—which homes have sold in which areas and for how much—and I explain how to interpret the data,” she says. “I want them to have a firm grasp on the market. That takes away a lot of the hesitancy.” Graham stresses today’s low interest rates. “I tell them that rates now are late-1950s type rates,” he says. “They have nowhere to go but up. If they go to an entirely plausible 7.5 percent—which is still low—prices would have to go down by about another 20 percent to make up for the difference in their monthly payments.” Don’t forget to remind them about the first-time home buyer tax credit deadline. “I tell buyers the tax credit is truly $8,000 they’ll get back when they file their taxes,” says Sam DeBord, associate broker at RE/MAX Connected in Seattle. “If they normally get a tax refund, they’ll get an additional $8,000. It’s a gift from the government to get them started as home owners.” (Note: There are income limits; buyers should consult a tax professional.) 3. “I’ve found a bargain!” It’s true that affordability is at record levels today, but many buyers need help putting price into perspective. “They think they can get a really, really nice house for $50,000, but the average home in our market is $150,000,” says Craig Frooninckx, e-PRO®, GRI, a sales associate with DPR Realty LLC in Phoenix. “They perceive that there are really great deals, which is true. But a lot of homes in our area are stripped of all their fixtures. While a home may be listed for $60,000, buyers are going to need $40,000 in cash to replace the plumbing and restore the kitchen and bathrooms.” That can be hard for buyers to accept; Frooninckx often has to ferry them around so that they can witness the homes’ condition themselves. “We have to look at the really low-priced homes for them to realize they don’t want to do all that work,” he says. “Then I say, ‘Give me a shot at showing you a couple of houses I think you’ll like.’” Before you take on any first-time buyers as clients, do some due diligence. “I make them come in for a chat to make sure they’re serious and can qualify financially,” Graham says. “It’s a litmus test. If they’re not willing to spend an hour or two to talk about their needs and financial situation, they’re not serious.”

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Jumbo Freeze Might be Thawing
October 15, 2009 by Robert Freedman · 4 Comments
Filed under: Economics, Mortgage Financing
By Robert Freedman, senior editor, REALTOR® Magazine
It’s still early but there are signs the availability of jumbo financing might be improving—although underwriting standards probably won’t ease any time soon. That means the days of creditworthy borrowers having a tough time getting financing for an amount over the conforming loan limit might be ending but they’ll still have to come up with a significant down payment and be prepared to show lots of documentation, like three years worth of tax returns instead of the customary two.

NAR Chief Economist Lawrence Yun says lenders are slowly getting back into the game because the climate of dread is lifting: Wall Street analysts and business executives have recalibrated their performance scenarios to reflect the greatly improved conditions among lower-priced homes (thanks to the home buyer tax credit and steeply discounted pricing). That in turn is creating a virtuous cycle as the improved scenarios help relax concerns over the economy, pushing up equities, which in turn creates the wealth that further increases confidence.

In other words, the improving lower-end housing market and the rising stock market are helping to push big financial services companies back into the business of loaning money rather than hoarding cash. As a result, it’s not just safe agency loans that lenders are willing to make (Fannie, Freddie and FHA) but also non-conforming jumbo loans. That helps further the narrowing of the interest rate spread between comforming and non-conforming loans.

I spoke with Las Vegas luxury home sales specialist Kenneth Lowman yesterday and he says the jumbo market has a long way to go before it’s back to where it needs to be, but, importantly, big loans are being made again. Earlier this year, that wasn’t so clear-cut.

“We recenty did a jumbo loan in record time,” he says. It was for a home listed at a couple of million dollars—obviously not an everyday deal for most salespeople—but it closed in just 22 days. Six months ago, he says, that never would have happened.

Yun predicts that financing for jumbo loans, second homes, and commercial real estate will show marked improvement by the middle of 2010. By late 2011 or early 2012, we might even see more non-agency, private-label loans securitized by Wall Street.

Yet the mortgage market by then will surely be different than it was during the housing boom, and in a good way. Buyers will be far more careful about staying within budget and lenders will be far more cautious about making loans to buyers who aren’t staying within budget.

Yet there remains a big concern: inflation. Although prices remain stable because of continuing slack in the economy (high unemployment, excess business capacity), once the enconomy starts growing again federal budget deficits will create inflationary pressure. The main way to head that off, says Yun, is for the government to produce a credible plan for getting the deficit under control.

Hear some more from Yun in an audio podcast he recorded earlier this week, mainly to talk about the need for Congress to extend the tax credit, and in his latest video interview, below, in which he talks about home-sale trends.

Buyers who are considering the purchase of a condominium should inspect the health of the home owner’s association before they close.

The seller should provide the buyer all financial documents relating to the association in time for an attorney for the buyer to review them before closing.

Here’s some advice from Leonard Baron, professor of finance at San Diego State University, about the information that the seller should consider:

  • Does the association budget include money for operating expenses such as water, lights, elevator maintenance, and landscaping?
  • Is there extra money set aside in a reserve fund for long-term maintenance? If there is an outside reserve study, that should be provided. If not, there should be adequate money in the reserves right now to cover 50 percent of the estimated cost of repairs over the next 30 years.
  • Do the condo’s expenses exceed revenues due to a high foreclosure rate or other reasons that owners’ debts go unpaid?
  • If there is a shortfall, does the association have a plan besides cutting back on services for making it up?

All the leading indicators say housing is definitely on the mend, economists reported in advance of the official release of several pieces of good news expected this week.

Bloomberg News surveyed 53 economists and asked them where they expected the numbers to fall. Here are their predictions:

  • Construction starts in September are expected to hit a 610,000 annual rate, the most since last November.
  • Sales of existing homes likely rose to a two-year high.
  • Because of fear of a relapse, the Federal Reserve is predicted to leave interest rates low for a few more months.
  • Building permits, a sign of future growth, probably rose to a 590,000 annual pace, also the highest level since November, the Commerce Department is likely to announce.

Here’s what we’ve been sharing with our/your clients! For those of you we are not yet working with, this is relevant information for you to communicate effectively to your clients… 

 

 

Since the Fed began purchasing mortgage bonds and intervening in the mortgage markets, interest rates on fixed rate mortgages have dropped a full percentage point below where they would be otherwise. Take out the Fed’s subsidy, and mortgage rates are likely to drift back up by at least one percent. 

 

To put it in perspective: A one percentage point increase in mortgage rates – from 5.25% to 6.25% – would cost an extra $127 per month and $45,730 in interest over the life of a $200,000 fixed rate 30 year mortgage. This is exactly what could happen in 2010 once the Fed stops buying mortgage bonds.

 

The way mortgage companies set their interest rates is by figuring out the price that Fannie Mae and Freddie Mac are willing to pay them for the mortgage. Fannie and Freddie set their price by figuring out what investors on the bond market are willing to pay them for the Mortgage-Backed Securities (mortgage bonds) that they issue. When the Fed stops buying mortgage-backed securities, the demand for these bonds will be much less, and mortgage rates will go higher.

 

Fed officials have been signaling for some time that their unprecedented interventions in the mortgage markets may come to an end or even be reversed once the economy begins to improve.  While we don’t believe the Fed will start selling mortgage bonds right away, we do believe that rates will start drifting higher in 2010 once the Fed stops purchasing mortgage bonds.  After all, it’s not every day that the Fed spends a whopping $1.25 trillion to subsidize mortgage rates.

 

Take out this enormous subsidy, and the average person with a $200,000 mortgage who refinances or buys a house stands to lose $45,000 over the life of their home loan.

 

Let us help you, help your clients get off the fence!  The window of opportunity to buy and refinance is here!  It’s NOW!  While home prices and rates are “artificially low”.  Lower interest rates = more home affordability.

The Meredith Mortgage Team closes loans clean and on time!  We dazzle our clients with the best service in the mortgage business….hands down!

Prediction: Homes Sales to Rise 11 Percent Sales of existing homes will rise 11 percent in 2010, and sales of new homes will climb 21 percent over this year, Mortgage Bankers Association Chief Economist Jay Brinkmann predicted in a speech Tuesday at the organization’s annual meeting. “We still see a concentration in the lower end of the market,” Brinkmann said. “The entry level homes are in demand.” Brinkmann also predicted further declines in existing home prices, with the median falling to $164,200 in the first quarter of 2010. David Stevens, commissioner of the Federal Housing Administration, concurred, adding that mortgage rates will rise to 5.6 percent by the end of 2010, though not enough of an increase to discourage a 12 percent increase in mortgage applications next year.