Mortgage rates dropped sharply this week, possibly improving the purchasing power of

Falling Rates Make Houses More Affordable

many home buyers. The 30-year fixed-rate mortgage, the most popular choice among buyers, averaged 4.39 percent this week, its lowest average for 2011, Freddie Mac reported in its weekly mortgage market survey. The 15-year fixed-rate mortgage and the 5-year adjustable rate-mortgage also both reached new historical record lows.

Rates mostly dropped across the board amid signs of a weakening economy, Freddie Mac says.

“Treasury bond yields fell markedly after signs the economy was weaker than what markets had previously thought allowing fixed mortgage rates to follow this week with the 15-year fixed and 5-year ARM setting new historical lows,” says Frank Nothaft, chief economist at Freddie Mac.

Nothaft also noted some improvement in the housing market, however. “There were indications that the housing market is firming,” he says. (see Pending Home Sales Rise in June)

Here’s a closer look at rates for the week ending Aug. 4:

30-year fixed-rate mortgages: averaged 4.39 percent, downfrom last week’s 4.55 percent average. A year ago at this time, 30-year rates averaged 4.49 percent.

15-year fixed-rate mortgages: averaged 3.54 percent, dropping from last week’s 3.66 percent average.Last year at this time, 15-year rates averaged 3.95 percent.

5-year adjustable-rate mortgages: averaged 3.18 percent this week, falling from last week’s 3.25 percent average. Last year at this time, 5-year ARMs averaged 3.63 percent.

1-year adjustable-rate mortgages: were the only ones on the rise last week, averaging 3.02 percent this week, which is up from last week’s 2.95 percent average. Last year at the time, 1-year ARMs averaged 3.55 percent.

Source: Freddie Mac (Aug. 4, 2011)

The cliché says that there has never been a better time to buy.  The hard data in the housing affordability index confirms that.  The affordability index, which takes into account median income, median home price, and mortgage rates, has been bouncing around in the 180 to 200 range since the beginning of this year – the highest reading since the index was first used in 1971.  

Yet, you still encounter consumers hesitant about taking advantage of possibly the greatest home buying opportunity of a lifetime. Should they buy now or not?

Let’s consider the situation in which a family earns $60,000, which is about the national average.  They are renting at $1000 per month.  They are considering buying a home that requires them to take out a mortgage of $170,000, which would be fairly close to the current national median home price.

At the current rate of 4.8 percent on a 30-year fixed rate mortgage, the monthly mortgage payment would be …(drum roll) … $891 per month.  That’s not all.  A measurable portion of the monthly mortgage payment is actually goes towards principal reduction on the loan balance.  For example, in the first year about $215 of the mortgage is for the principal payment, which in essence is a forced-disciplined savings imposed on the home buyer.  The remainder $676 ($891 minus $215) is the pure interest payment to the bank.  So the $676 monthly mortgage interest payment looks a lot sweeter than the $1000 in rent that was being shoveled out the door.  With each passing year, the principal portion gets larger while the interest portion declines because of a steadily falling loan balance.

That’s still not all.  A fixed rate mortgage means the monthly payment is fixed and will not rise for the term of the mortgage.  In this example, a person theoretically could be paying $891 in mortgage in the year 2041.  What would be the cost of living at that time? Food price? Gasoline price?  Also rent?

If rent was to rise by 3 percent a year, starting with the base $1000, the monthly rent will be $1344 in 10 years, $1806 in 20 years, and $2427 in 30 years.  If rent was to rise by 5 percent, then it goes to $1628 in 10 years, $2526 in 20 years, and $4321 in 30 years.  If monetary policy were to get of control, with too much money printing and inflation rose by 10 percent per year, then the rent becomes $2593 in 10 years, $6727 in 20 years, and $17,444 per month in 30 years.  Many economists are expecting 3% to 5% annual rent growth over the next two years based on recent falling trends in apartment vacancy rates.

When rents rise, there is also a tendency for home prices to rise.  Fundamentally, rent and home price would rise roughly in lock step – provided that home values do not contain bubbles and are back in line with their historical relationship to rents.  The chart below shows the rent (based on rental rent component of the consumer price index) and NAR median home price trend with the index set at 100 in 1980.  Well, today, home price and rent ratio are pretty much back to historically justifiable levels.  So it is reasonable to presume that any rent increase will also at some point lead to equal gains in home values.

If home values were to rise 5 percent (under rent growth assumption of the same) then the home value would rise to $178,500, translating into a gain of $8,500 in housing equity in the first year.  Subsequent cumulative gains over several years would be sizable, if the yearly 5 percent increases could be sustained.  Nationally the annual average home price increases have been at around 4 to 6 percent each year.  Even if by some strange event home value was not to increase one cent over  the next 30 years, the home would be owned free-and-clear by the 30th year.  (Or much sooner if the family makes additional principal payments)

One always has to mindful that all real estate is local.  One cannot simply pick up a home from Detroit and plop it down in San Francisco to get a fast price appreciation. Therefore local conditions, figures, rent growth projections, and analysis will significantly vary.

Moreover, homeownership cost entails not only mortgage, but the additional costs in terms of property taxes, insurance, and money needed for maintenance and remodeling, though there are cost savings such as the mortgage interest deduction and property tax deduction for tax purposes that were not considered.

What is most important from my perspective is whether the family likes the home they are about to purchase and whether the family is willing to stay well within their budget.  If these two criteria are met, then now may indeed be a good time to consider buying.

Daily Real Estate News, May 27, 2011

For the sixth straight week, fixed mortgage rates inched down, reaching new lows for 2011. The 30-year fixed-rate mortgage averaged 4.60 percent this week while the 15-year mortgage averaged 3.78 percent, Freddie Mac reports in its weekly mortgage market survey.

Meanwhile, the National Association of Home Builders reported this week that home affordability reached its highest level in 20 years, making the purchasing power for home buyers even better during this traditionally prime buying season.

Here’s a closer look at mortgage rates:

• 30-year, fixed-rate mortgage: Averaging 4.60 percent this week, it was down slightly from last week’s 4.61 percent average. Last year at this time, 30-year rates averaged 4.84 percent. The 30-year fixed rate mortgage hasn’t been under this week’s 4.60 percent average since early December 2010 when it fell to 4.46 percent.
• 15-year, fixed-rate mortgage: Averaging 3.78 percent this week, it also was down from last week’s 3.80 percent average. Last year at this time, the 15-year fixed-rate mortgage averaged 4.21 percent. It has not been under this week’s 3.78 percent average since late November 2010 when it fell to 3.77 percent.
• 5-year adjustable-rate mortgage: Averaging 3.41 percent this week, it was down from last week’s 3.48 percent average. A year ago at this time, the 5-year ARM averaged 3.97 percent.

Source: “Fixed Mortgage Rates Continue to Find New Lows,” Freddie Mac (May 26, 2011)

Get Ready To Sell Now

10 Important Tips to Sell Your Home Now

By BILL CARY, The Westchester, N.Y. Journal News, February 28, 2011

If you have notions of putting your home on the market, now is the time to begin preparing for a sale.

And, frankly, even if you’re not selling, a serious spring spruce-up may be just the thing for your tired-looking castle.

The trick is to make your home stand out.

Just remember: It’s always a good idea to check with the Better Business Bureau and call a few references before hiring anyone to do work in your home.

Put on a pretty face

If the outside of your house looks worn down, no one’s going to want to see the inside.

So paint the front door and pick a handsome new color for the exterior trim. Fix the old shutter make sure the path from the driveway to the front door is clear.

Get an honest friend to stand in the street with you and give you a frank appraisal of how the outside of your house looks from the curb.

Hire an agent

Now’s not the time to try to sell your house on your own.

More than ever, you need a real estate professional to help you price your house, to host open houses, to hire a professional photographer for brochures and, basically, to get the word out.

Also, having an agent is extremely convenient when someone wants a showing at a moment’s notice and you’re stuck at the office.

Fix it

And by “it,” we mean everything.

Repair any broken joints or cracks in walls or foundations. If you have stiff windows or doors, take care of them, too. Does the tub in the bathroom need to be recaulked? Now’s the time.

“You don’t want people walking into your house and have the doorknobs fall off,” says Steve White, the owner of Handyman Connection in Elmsford, N.Y. “If the little things are not done, people will think, what else is not done?”

Paint it

“Paint is the greatest single thing you can do and it’s the most cost effective,” says David Sanders of Sanders Properties in Nyack, N.Y. “Use light, cheery colors. People don’t want to walk into a dark, dreary room.”

This is probably not a weekend job for your husband and your teenagers. Spend the money and hire a pro.

Plant it

Get rid of leggy, overgrown foundation plantings and replace them with low-growing shrubs and perennials.

“Landscaping is a very cost-effective way of sprucing up a property,” Sanders says. “Some people buy a house before even going inside – or they decide not to. Like painting, new landscaping can really transform a property from dreary to really exciting.”

Pick up the trash

This is one of the easiest and most overlooked ways that people can make their properties look so much better, says Jon Feldman of G. Biloba Gardens in Nyack.

Consider hiring a guy with a truck to haul away all those little piles of leftover materials – wood from the deck you built three years ago, old swings from the swing set, etc, etc. – that you’ve tucked behind the garage or have piled in the backyard.

Pack it up

Why should potential buyers have to wade through your clutter?

“In good times or bad, the key is to eliminate clutter and make the house as appealing as it can be,” Sanders says. “Clean is what matters – and spare. Edit, edit, edit.”

Or maybe it’s time for an old-fashioned yard sale.

Ditch family photos

You’ve heard it from your real-estate agent, but we’ll say it again: Buyers don’t want to see three generations of family photos on the baby grand in the living room. They want to imagine their family in your house.

Get rid of all of little Johnny’s artwork and Grandma’s needlepoint, too. You can break it out again in your new home.

Freshen up

Nancy August, an interior designer in Piermont, N.Y., says she sometimes will just swap out all the hardware in clients’ homes for a fresh, bright look.

New hinges, doorknobs, drawer pulls and light switches will dress up every room. So will a few new lamps and light fixtures. A touch of new hardware can really perk up a tired bathroom.

Consider a full restaging

If you’re not good at this sort of home improvement and decorating, maybe it’s time to hire a professional stager to give your house a once-over.

“People don’t see their own house after living there a while and sometimes need a stranger to help them see what’s really there,” Sanders says.

Wendy Topper, the White Plains, N.Y., real-estate agent, says: “Everybody has their home arranged in a functional way. We tell clients to think about having it done in a decorative way.”

Home stagers can help cull your furniture and other possessions for a clean, spare look that will make your house seem bigger and brighter.

And they may have a couch and a club chair that look worlds better than yours.

The 30-year fixed rate mortgage averaged 4.95 percent this week, down from 5 percent the week prior, according to Freddie Mac’s weekly mortgage market survey. Last year at this time, 30-year rates averaged 5.05 percent.

The 15-year, fixed-rate mortgage also dropped for the week, averaging 4.22 percent, down from last week’s 4.27 percent. The 5-year adjustable-rate mortgage dropped slightly to 3.8 percent, compared to 3.87 percent the previous week.

“Low mortgage rates and home prices are sustaining affordability in the housing market,” says Frank Nothaft, Freddie Mac’s chief economist. The National Association of REALTORS® reported earlier this week that existing home sales rose for the third consecutive month in January and were at the strongest pace in eight months.

Source: “30-Year Fixed-Rate Mortgage Eases Just Below 5 Percent,” Freddie Mac

Spring Thaw - The Markets Warming Up

In the world of real estate, the going has been tough—and we have been going. These are the most challenging economic times that most of us have ever known. This has been a cold, long, and bitter economic winter in real estate. There are, how­ever, hints of spring. And, yes, we are so ready to warm up. Among the encouraging signs are:

*  Pending home sales. In late January, we reported the fifth monthly gain in six months.

*  Home sales. We anticipate 5.3 million sales in 2011.

*  Consumer confidence index. The Conference Board’s measure of consumer confidence dipped in December but was up again in January to levels not seen since spring 2010.

These are all indicators of what is going to happen. They’re consistently positive.

Beyond that, we have much to be thankful for. Think about how much worse the market would be without the U.S. Treasury’s actions to keep the economy flush and interest rates low. How would we have fared last year without the 2010 home buyer tax credit? What would it be like without a secondary market or the mortgage interest deduction? Where would we be without the NATIONAL ASSOCIATION OF REALTORS® advocating for property owners? The answer to all of these questions is that the market would be much worse. We would have a harder time making a ­living.

Our toughness and perseverance—combined with our strength as an organization—will help carry us through. We’re building on our strength by engaging in some serious listening. The NAR Leadership Team had its first Virtual Town Hall on Jan. 24. President-elect Moe Veissi, Vice President and Liaison to Government Affairs Vince Malta, Vice President and Liaison to Committees Elizabeth Mendenhall, and I responded to questions from members around the country. It was a true conver­sation. (To watch it at REALTOR.org, search for the term “Town Hall” and click on the link to NATIONAL ASSOCIATION OF REALTORS® Town Hall. You’ll need to log in to access the page.)

In March, we will make Home Ownership Matters Bus Tour stops in Chicago (March 4–6), Denver (March 17–20), and Portland (March 24–27). On the first day of each stop, NAR leaders will be meeting with and listening to local REALTORS®; if you live in the Chicago, Denver, or Portland area, please check with your local association for details and join our event. From there, at local home shows in each city, we’ll be sharing our key messages with consumers: The mortgage interest deduction matters, the secondary mortgage market matters, and Home Ownership Matters. Let’s keep it going—we are tough, and better days are ahead.

Now is a good time to buy real estate, according to data from Moody’s Analytics. Home affordability has returned to pre-housing bubble levels or even fallen below the average in many U.S. markets.

Housing Is So Affordable Right Now

In fact, housing affordability by the end of September had returned to or fallen below the average reached between 1989-2003 in 47 of the 74 housing markets that Moody Analytics tracked.

In September 2010, the ratio of home prices to annual household income had fallen to 1.6–below the historical average of 1.9 between 1989 and 2003. The ratio peaked in 2005 at 2.3.

“Based on incomes, this is as affordable as it gets,” says Mark Zandi, chief economist at Moody’s Analytics. “If you can get a loan, these are pretty good times to buy.”

Some of the most undervalued markets include Cleveland, Detroit, Las Vegas, Atlanta, and Phoenix.

But those cities also are facing high rates of foreclosures and more borrowers defaulting on their mortgages that could decrease values further in those cities before they start to improve, Zandi says.
In Phoenix, for example, “it’s become cheaper to buy than to rent,” Jon Mirmelli, a real estate investor in Scottsdale, Ariz., who rents out foreclosed homes, told The Wall Street Journal.

Homebuilder executives and economists predict a post-Super Bowl bounce in demand for residential construction as Americans turn their attention from football to another national pastime: house hunting.

The chief executive officers of six of the 10 largest U.S. homebuilders cited the potential of

New Home Sales Rise for the Spring Market

a sales comeback in the spring, traditionally their strongest season, during conference calls in the last four weeks. Housing forecasts from Fannie Mae and the Mortgage Bankers Association show the new-home market will begin a rebound that will last through at least 2012.

A revival in demand for new houses after record-low sales in 2010 may bolster a U.S. economy that’s 19 months into a recovery. Residential construction is a key factor in gross domestic product because it requires the manufacturing of home components such as stoves, cement, tile and furnaces. Richard DeKaser, an economist at Boston-based Parthenon Group, said he expects the homebuilding industry will this year make its first positive contribution to GDP since 2005.

“The spring market is going to be the first test of the proposition that there’s an underlying improvement in new-home fundamentals,” DeKaser said in an interview. “If we don’t see the needle move, it will be very discouraging.”

New-home sales probably will rise 20 percent to 385,000 this year, said David Crowe, chief economist for the National Association of Home Builders in Washington. Fannie Mae, the world’s largest mortgage buyer, projected an 18 percent gain, and the Mortgage Bankers Association estimated a 10 percent advance, according to forecasts posted on their websites.

‘Much Better’ Season

D.R. Horton Inc., the second-biggest builder by revenue, is “locked and loaded” to meet an upswing in demand, Chief Executive Donald Tomnitz said on a Jan. 27 conference call. The 62-year-old CEO, a former banker and U.S. Army captain not known for rosy predictions, said he is “anticipating a much better spring selling season” than last year.

The optimism couldn’t have come at a darker moment for the new-home market. The number of newly constructed houses sold per month fell to 20,000 in November, the fewest of any time in 47 years of Commerce Department data. The tax credit that boosted sales at the start of last year is gone, and cut-rate prices on foreclosures are drawing buyers to existing properties.

Tougher loan requirements by banks may also limit demand. At 2010’s end, lenders tightened mortgage credit standards by the most in three years, according to the Federal Reserve Senior Loan Officer Survey. Borrowing costs also are on the rise after the average rate for a 30-year fixed mortgage fell to a record 4.17 percent in November, based on data from Freddie Mac.

After Super Bowl

Spring is a popular time to buy because house hunters often want to have their home finished by July or August, before the start of the U.S. school year in September, said John Burns, CEO of John Burns Real Estate Consulting Inc. in Irvine, California. The weekend after the Super Bowl is traditionally when prospective buyers start looking, he said in an interview.

“If that’s a good weekend for the builders, then we’re going to have a good spring, and if we have a good spring, we’ll have a good year,” Burns said. “That’s the way it’s played out for years.”

In 12 of the last 14 years, the annual peak in new-home sales occurred in March or April, according to Commerce Department data. The exceptions were 2003, when the March start of the Iraq War captured Americans’ attention and caused people to delay house hunting, and 2009, when the tax credit that originally expired in November boosted demand later in the year.

Sales are counted by the Commerce Department at the time of contract, while homebuilders book revenue once the transaction is completed.

Good, Not Great

“The contracts the builders will be writing in the next few weekends will be a leading indicator of their closings for later in the year,” Burns said. “It’s probably going to be a good year — not a great year.”

Residential investment probably will increase 9.6 percent in 2011 after five years of declines, based on the median forecast of 30 economists at a Federal Reserve Bank of Chicago symposium in December. Housing starts likely will jump 17 percent to a three-year high of 688,000 in 2011, led by a gain in the construction of single-family houses, said Crowe of the National Association of Home Builders.

“The sales pace for new homes will improve as we move through the spring, unless something comes along to derail the economy,” said James Wilson, director of research for JMP Securities LLC in New York. “Demand seems to be coming back.”

Economic Contribution

The real estate market’s collapse reduced residential investment’s share of the economy to 2.2 percent in 2010’s fourth quarter, the lowest since records began in 1946, from a 55-year peak of 6.3 percent in the last three months of 2005, according to the Bureau of Labor Statistics. Housing that year was a larger contributor to GDP than national defense spending.

A rise in homebuilding will help boost jobs for workers who construct houses and also for people in industries supplying the appliances that go into them. About 430,000 residential building jobs evaporated after the housing crash began in 2006 — a 43 percent decline in four years — while appliance manufacturing jobs fell 17 percent in the same period, according to the Bureau of Labor Statistics. The overall economy lost 7.8 million jobs, or 5.7 percent of the workforce, after reaching a 2007 high.

The drop in values after the crash will create roadblocks for potential buyers who have their own properties to sell, said Thomas Lawler, a housing consultant in Leesburg, Virginia.

Price Decline

Home prices in December were 27 percent below the all-time high of July 2006, according to the National Association of Realtors. That has resulted in about a quarter of homeowners with mortgages owing more than their property is worth, according to CoreLogic Inc. in Santa Ana, California.

“Traditionally, one of the strongest parts of the new-home market is the trade-up buyer,” Lawler said in an interview. “A lot of people who would like to trade up don’t have equity in their homes.”

For those who are able to move, and can sell their current residence, new houses have a draw that existing homes don’t have, according to Parthenon’s DeKaser. They fulfill the dream of many people to build from the ground up, he said.

“That’s the strongest thing this segment has going for it — some people attach a premium to having a home that no one else has lived in, with all new walls and new floors,” he said. “Even if they can get an existing home for cheaper, they’re willing to pay the price for new.”

Bring Out The Drama

Sandra Fleishman, Washington Post, 02/05/11

There is debate among real estate pros about whether homes being shown to buyers should be vacant or if they should bear a lived-in appearance, even if they are empty. While some believe vacant homes appeal to buyers because they look bigger and enable house-hunters to better visualize their own belongings in the space, others say that adding strategically placed items can make rooms that are a little dated look more appealing.

Even when homes are unoccupied, practitioners often do not leave them empty, either rearranging some of the seller’s belongings or hiring a professional stager to bring in furnishings that showcase the property’s best features. A consultation with a stager can cost a few hundred dollars, and full-out staging can require an investment of a few thousand dollars per month.

Some stagers offer more affordable plans in which living rooms, dining rooms, and kitchens are staged, while bedrooms are left empty. Staged properties often sell more quickly, and pictures of staged homes are more appealing than empty rooms to buyers conducting online searches. Some practitioners include staging consultations in their basic commission and require sellers to cover staging costs, while others will increase their commission rates based on how much they spend on staging.

Sales of existing homes jumped in December, marking the fifth month of gains in the past

Sales Rise Again

six months, based on an industry report released Thursday.

Previously-owned home sales climbed 12.3% in December to an annual rate of 5.28 million, from 4.70 million in November, according to the National Association of Realtors.

That puts sales at the highest level since the homebuyer tax credit expired in June, said Stuart Hoffman, chief economist at PNC Financial Services Group.

The December rate came in much higher than expected. A consensus of experts surveyed by Briefing.com had forecast an annualized sales rate of 4.8 million. However, sales were down 2.9% from 12 months earlier and fell 4.7% in 2010.
Foreclosure glut threatens housing recovery

“December was a nice finish to the year, but looking at the bigger picture — home sales and prices have been scraping along the bottom for the last three years,” Hoffman said. “So, while we’re not digging a deeper hole — the housing market is still quite weak, and there are still more homes available on the market than there are likely to be buyers.”

The median price of all existing homes sold in December was $168,800, down 1% from a year ago.

Meanwhile, the inventory of homes on the market fell 4.2% in December to 3.56 million units. That’s enough inventory to last 8.1 months, and is down from a 9.5-month supply in November.

While that’s an improvement, Hoffman said that data doesn’t reflect the large number of foreclosures that could soon enter on the market.

“What’s hidden behind the curtain are potential foreclosures adding to those inventory levels,” he said. “Even as we have jobs growing, inventory is still large and more foreclosures are going to be coming on the market. Prices will go down and it’s going to continue to be very much a buyer’s market.”

That said, Hoffman expects sales to gradually improve — rising about 4% or 5% — by the end of 2011, as the employment picture improves.

“I do think there will be more sales in 2011, because job growth will support homebuyers,” Hoffman said. “We’re getting back to the underlying demand without the homebuyer tax credit, but housing is still not contributing much to the overall economic improvement in the economy.”