Affordability At Record Highs for Home Buyers!

Rates Rise A Bit After Fed Meeting, Affordability At Record Highs for Home Buyers!

Mortgage rates held steady during the first half of the week, until Wednesday's Fed meeting. As expected, the target for the Fed Funds rate remained unchanged, close to a level of zero. Heading into the announcement, the biggest question for investors was whether the Fed would begin to purchase Treasury securities in addition to mortgage-backed securities (MBS) to help support the financial system. Hoping for a decisive plan, many investors were disappointed that the Fed merely indicated that it was ready to purchase Treasuries if "evolving circumstances" justify the action. Yields on Treasury securities rose significantly after the announcement, and in order to compete for investors, mortgage rates moved higher as well.
Also applying upward pressure on mortgage rates, a large fiscal stimulus plan moved closer to passage during the week. An $819 billion fiscal stimulus package passed a vote in the House, and the Senate is expected to consider its $900 billion version next week. The combined government spending for this new package, along with the TARP program, the MBS purchase program, and a proposed bank cleanup plan, will total trillions of dollars. An enormous amount of new debt will be issued to pay for all the government programs, and interest rates offered on all bonds may need to increase to attract investors. One positive note is that foreign investors continued to show strong demand for US bonds during the week.

In the housing sector, December Existing Home Sales rose 7% from November. Inventories of unsold homes dropped to a 9.3 month supply from 11.2 months in November. According to the National Association of Realtors, lower prices persuaded many buyers to step in. Existing Home Sales cover more than 85% of total home sales, so this report was very welcome news for the housing market. December New Home Sales didn't perform as well, dropping 15% from November. This window of low interest rates and current supply level of homes, could make today one of the best opportunities to buy real estate that we may see for some time.

Has the Market Hit Bottom Yet?

Has the Market Hit Bottom Yet?

LAS VEGAS – The sluggish housing market will likely hit bottom in 2009 before picking up slightly by year's end, economists said Tuesday in a Housing Economic Outlook press conference at the International Builder Show. Chief Economists David Crowe of the National Association of Home Builders, David Berson of the PMI Group, and Frank Nothaft of Freddie Mac offered up their forecasts for the housing market for 2009. (Read the latest commentary from Lawrence Yun, NAR’s chief economist.)Berson had a more sobering forecast, saying that it would likely take 2 to 3 years for housing prices to stabilize and the market recovery to begin. The housing market currently lacks a much-needed spark: more than 1.5 million empty homes are for sale in the United States (new homes make up about a third of that inventory), housing starts are at record lows (200,000 for single family homes this year; off the 1-1.3 million pace for starts), consumer confidence is dwindling amid rising unemployment and loan delinquency rates, and skyrocketing foreclosures are driving housing prices down leading to excess inventory, the economists say. "It's making it very difficult for builders to sell homes when they have fixed costs to recover," Crowe said. To counter, builders have reduced prices, added amenities to homes at no extra cost to buyers, and more than 80 percent are using incentives to try to move the high inventory. "We do expect 2009 to be the bottom," Crowe said. Housing starts will likely fall another 20 percent and new home sales will drop 14 percent, he predicted. Signs for a TurnaroundBut there's some good news within all the dim reports, the economists say.
Mortgage rates are at historic lows. Long-term mortgage rates last Thursday were reported at the lowest in the 50 years they’ve been recorded - 4.96 percent.

Households are growing. The Echo boomers – children of the baby boomers -- are getting ready to buy homes, ready to make up a big demographic of buyers, which will lead to a higher number of households.

Housing prices have fallen and affordability is at its best levels since the 1970s, Berson said. Despite a tightening on credit in recent months, Nothaft said mortgages are ample for those who have a down payment, decent credit score, qualified underwriting, and a conforming loan balance. Credit standards are moving back to what they were 10-20 years ago – it just means once you graduate from college you might not be able to buy a house right away. --

By Melissa Dittmann Tracey for REALTOR Magazine



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Tax Credit Changes Could Unleash Home Sales

Tax Credit Changes Could Unleash Home Sales

If all home buyers become eligible for a tax credit without a repayment feature, it could result in an additional 555,000 home sales, enough to meaningfully draw down excess housing inventory, the NATIONAL ASSOCIATION OF REALTORS® says. An evaluation of options for a home buyer tax credit by NAR shows wide ranging implications and benefits. A full credit to all buyers means an additional 2.22 million households would meet the income requirements for purchasing a home, but only one in four of those households would actually make a purchase.Under the current $7,500 first-time home buyer tax credit, which must be repaid over 15 years, 264,000 households meet the purchase requirements. Using the same assumptions, with plans to hold their home for a median 10 years, it would mean only 66,000 additional sales.Lawrence Yun, NAR chief economist, said NAR is advocating a tax credit for any home purchase meeting qualifying underwriting standards. “A home buyer incentive is critical to help reduce housing inventory and stabilize home prices,” he said. “The bigger the incentive, the faster housing can help pull the economy out of recession. The cost to the Treasury would be far less than the additional costs of a prolonged recession with insufficient housing stimulus.”Analysis of other options shows that if only first-time buyers are eligible and the repayment feature is dropped, it could mean an additional 202,000 home sales. If extended to all home buyers but the repayment feature is retained, the gain would be 181,000 home sales.NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said a flexible approach to the tax credit would have added benefits. “A home buyer tax credit also should be allowed to be used as a part of downpayment. This would instantly add an equity cushion for homeowners – a vested financial interest provides the foundation for sustainable homeownership, which helps improve economic stability,” he said.NAR estimates only 25 percent of newly eligible households would become homeowners, and does not capture the effect of increased trade-up buying activity. As such, these projections may understate the full impact of a home buyer tax credit.Source: NAR