Weekly Economic Summary - February 5, 2010

OVERVIEW ~ There was a great deal weighing on the markets during the week of January 25 through January 29:

the inquiry into the bail-out of the American International Group (AIG), exploring the possibility that there may have been irregularities in the decision to pay existing credit default swap contracts at full par;

the State of the Union address;

the Federal Reserve’s regularly scheduled FOMC meeting, to decide on where interest rates should go (nowhere, yet);

and the probable vote on whether to re-confirm Ben Bernanke as chairman of the Federal Reserve (which Congress did).

As the week began, the Dow Jones Industrial Average (DJIA) stood at 10,172.98, and the 10-year Treasury note yield was 3.597%. By week’s end, the Dow had declined to 10,067.33. Over all of January, the DJIA fell by 3.5%. The 10-year note, meanwhile, edged up to 3.611% on Jan. 29. And the Freddie Mac average rate for the 30-year FRM was 4.98%, one basis point below last week’s average rate.

FOCUS ~ The performance of the DJIA, and of stocks in general, is watched with interest every January. Generally, the stock market doesn’t do that well over the course of the year if it doesn’t get a good lift-off in January, and vice versa. This is more a superstition than a proven fact, but investors nonetheless pay attention.

Far more important just now, though, is the market’s current overriding theme, which is wrapped up in three questions, constantly asked, but still unanswered:

How much of the stock markets’ and credit markets’ strength in 2009 was caused by supportive governmental programs?

How much of that strength, on the other hand, resulted from an unassisted recovery in the markets themselves?

And how much will the market weaken when the government, stops supporting the markets?

The Fed, for example, has been buying up billions of dollars’ worth of mortgage-backed securities, thereby creating so much demand that the interest rates on these securities have remained very low. That has translated into low rates throughout the credit markets. Both Moody’s Economy.com and HSH Associates have predicted mortgage rates would be about half a percent higher without this governmental support.

This support is scheduled to stop at the end of March. Meantime, the markets may be reflecting the growing worries among investors.

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ECONOMIC INDICATORS

(As of 4:30 p.m. eastern 2/1/2010)

10-yr Treasury note…3.65%

30-yr Fixed-Rate Mortgage (avg)…5.39%

Spread between 10-yr note and 30-Year FRM…1.74%

Brent Crude Oil Future…75.10

Gold 100 oz Future…1115.30

Copper…309.15

Dow Jones Industrial Average…10185.53

S&P 500…1089.19

FTSE 100…5247.41

NIKKEI…10205.02

Mortgage Bankers Association Mortgage Applications Index ~ Week ending 1/22/10

Overall
513.0 (Up 9.1%; up 0.5%
the week prior)

Purchase Money Loans
213.7 (down 10.9%; up 4.4% the week prior)

Refinancing Loans
2260.4 (down 15.1%; up 10.7% the week prior)

Monday, February 8, 2010

This Month in Real Estate February 2010

This Month in Real Estate
February 2010

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Commentary

January began the new decade with indications that the economy is beginning to gain traction. Real GDP grew by 2.2 percent in the third quarter of 2009 and preliminary signals point to a continued positive trend for the following quarter. GDP is a measure of total products and services produced by a country and indicates the health of the country's economy.

A dip in home sales in December was due in large part to timing. First time buyers that would have liked to close in December but qualified for the tax credit bumped their timeline up in order to cash in. News of the credit’s extension reached many of them after their plans to close in December were set.

Interest rates are back below 5% and home prices are up compared to last year. The government continues to attempt to minimize the impact of troubled homeowners by continuing to improve its foreclosure prevention program and has also taken steps to help foreclosures buyers purchase faster.

Although the unemployment rate is expected to stay high as jobs increase modestly, experts expect the economy to continue to grow in 2010.

The Housing Market

Existing Home Sales

After a rising surge for three straight months, existing home sales slowed in December after first-time buyers rushed to meet the original November tax credit deadline and evidenced by first timers accounting for 51% of sales in November compared to 43% in December. “It’s significant that home sales remain above year-ago levels, but the market is going through a period of swings driven by the tax credit,” said Lawrence Yun, NAR chief economist. December sales of 5.45 million remain 15 percent above the 4.74 million-unit level last year.

Median Home Price

Existing-home price was $178,300 in December, 1.5 percent higher than December 2008 and 8.2 percent above its low in January 2009. It was the first year-over-year gain in median price since August 2007, attributable to an increase in the number of mid- to upper-priced homes in the sales.

Inventory

The supply of homes continued to shrink, falling 6.6 percent to 3.29 million, representing a 7.2-month supply at the current sales pace. Compared to a year ago, there are now 11 percent fewer homes on the market. This is the lowest level of competing homes on the market since March 2006.

Mortgage Rates

Mortgage rates have moved back to less than 5 percent, which have been categorized by industry experts like Freddie Mac chief economist Frank Nothaft as “near a record low.” This move that may help boost home loan demand and lend support to the housing market recovery. On January 28, the average 30-year fixed-rate mortgage was 4.98 percent.

Affordability

Affordability remains at record levels, supported by the lowest mortgage rates in decades, low home prices, as well as the first-time buyer tax credit. So far this year, the home price-to-income ratio has fallen well below the historical average of 25 percent. The ratio now stands at 15 percent.

Sources: National Association of Realtors, Freddie Mac

Government Action

FHA Tightens Lending Requirements

The Federal Housing Administration (FHA) insured almost 30 percent of all purchase loans and 20 percent of refinances from September 2008 to September 2009, up from about only 2 percent of all loans three years earlier. The influx of loans combined with falling capital reserves, which cushion against rising defaults, has led the FHA to announce several measures to strengthen its economic vitality.

On January 20, the FHA announced it will do the following:

1. Raise Insurance Fees - In exchange for FHA backing, borrowers pay an up-front premium. Previously it was 1.75% of their loan. It’s now risen to 2.25%.

2. Cap Seller Contribution to Buyer’s Closing Costs - Sellers can contribute a maximum of 3%,down from 6%, of the sales price to the buyer’s closing costs. The higher cap created risk by incentivizing homes to sell at a substantially marked-up price to compensate for contribution. 3% is still a significant proportion to closing costs.

3. Require Higher Down Payments for Poor Credit - Beginning this summer, borrowers with a credit score below 580 will need to make a down payment of at least 10%. The FHA will still provide a viable alternative to the 1% of FHA borrowers who fall in this category, whereas most lenders’ credit score cutoff is 620.

The good news is the FHA, an integral player in the market, has stepped up to protect itself so it can continue helping first-time buyers, those with less cash for a down payment, and those with less-than-perfect credit obtain home loans. Additionally, these proactive measures aim to protect the agency from needing taxpayer funds from the government.

Source: The Wall Street Journal

FHA to Help New Foreclosures Sell Fast

FHA has announced it will lift the 90-day seasoning requirement for one year. The FHA ‘s 90-day “seasoning” provision requires that a home sold to an FHA buyer must be owned for at least 90 days by the seller before closing. This is intended to prevent buyers from purchasing property from “flippers” at an overly inflated value.

In the current climate, quickly selling foreclosures has risen in importance while the prominence of “flippers” has dramatically decreased. Acquiring, rehabbing, and reselling a foreclosure often takes fewer than 90 days. Banks have been reluctant to sell foreclosures to FHA buyers if they would need to push closing back to meet the FHA requirement.

There are additional stipulations; for more, please visit the press release.

Quickly moving foreclosures out of the bank’s hands and into those of home buyers is an important step in stabilizing home prices, neighborhoods, and communities leading toward a healthy housing market.

Source: U.S. Department of Housing and Urban Development

Topics For Buyers & Sellers

Price it Right

Sellers who listed their home at the price originally recommended by their agent sold it:

38 days faster
For 2.25% higher
With 1 less price reduction

Compared to sellers who did not take their agent's recommendation.

Staging Stats

Compared to homes that were not staged, staged homes had:

more showings
a higher list-to-sell percentage

Other notable stats found include:

Only 1 in 3 sellers staged their home, even with all the commonly accepted advantages of staging.
Staging typically took between 2 - 6 hours to complete.
Including the cost of a staging professional and items purchased or rented, staging cost an average of $523.

Although it has advantages at all price points, staging was also found to be particularly important for homes priced over $600,000.

Source: Keller Williams Realty Research Study

Monday, January 11, 2010

This Month in Real Estate January 2010

This Month in Real Estate
January 2010

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Commentary

December closed out the year with further indications of a budding recovery, illustrating we’ve come far from the pessimistic outlook this time last year. Soft home prices, affordable financing conditions as well as the government’s tax break targeted at the housing market have contributed to providing the much needed boost to the housing market. Solid gains in home sale activity helps to pare down inventory to a healthier level, which in turn will likely bring more stability to home prices.

The most recent Federal Reserve meeting indicated a more positive outlook about our economic condition as they pointed to plans to reel in emergency programs. Mortgage rates, which have hovered around 5 percent for most of 2009, are starting to climb again. Economists expect these unprecedented rates to go back up as Fed’s program to purchase mortgage-backed securities expires in March and private investors are demanding higher returns.

According to Nar 2009 President Charles McMillan, “Even with price declines in recent years, the typical home seller saw their equity increase 27 percent.” NAR’s most recent Home Buyers and Sellers survey reported that 87 percent of survey respondents consider their home a good investment, and more than half see it as a better investment than stocks. This indicates that Americans still see homeownership as a source of steady long-term wealth accumulation.

Employment will continue to be closely watched and steps on the road to recovery will likely continue to come one-by-one. Although concerns remain, many experts are hopeful of a brighter year in 2010.

The Housing Market

Existing Home Sales - Up 44% from last year

Existing home sales surged a record-breaking 44 percent from a year ago, the highest annual gain since NAR started tracking the data in 1999. The strong gain can be attributed to first-time buyers who accounted for 51 percent of all home sales, the highest on record dating back to 1981, as they rushed to beat the deadline for the first-time buyer tax credit that was due to expire November 30. The previous high was 44 percent in 1991. Sales activity is at the highest level since February 2007 when it reached 6.55 million.

Median Home Price - Very favorable

Low home prices continue to add the extra boost to home sales. Existing-home price was $172,600 in November, 5 percent higher from its low in January. While still 4.3 percent down from a year ago, it is the smallest decline in two years. Distressed properties, which accounted for 33 percent of all transactions in November, continue to hold down the median home price, as they typically sell for 15 to 20 percent less than traditional homes.

Inventory - Lowest level in almost 3 years

The supply of homes is now at the lowest level in almost three years. The supply of existing homes for sale at the end of November declined 1.3 percent to 3.52 million, representing a 6.5-month supply at the current sales pace, down from a seven-month supply in October. Generally, a six-month supply is considered balanced. Compared to a year ago, there are now 15 percent fewer homes on the market.

Mortgage Rates – Inching Up

Mortgage rates have begun to inch back up as government support runs its course and interest rates rise. On December 24, the average 30-year fixed-rate mortgage was 5.05 percent, the first time it has gone above 5 percent since the end of October. According to Amy Crews Cutts, deputy chief economist at Freddie Mac, “Extraordinary resources have been put into keeping the rates down and supporting the mortgage market, and it’s hard to imagine that the rates can go much lower than they are.”

Affordability – Best since 1970s

Affordability continues to be at a record level thanks to unprecedented interest rates, low home prices, as well as the first-time buyer tax credit. So far this year, the home price-to-income ratio has fallen well below the historical average of 25 percent. The ratio now stands at 15 percent.

Sources: National Association of Realtors, Freddie Mac

Government Action

Residential Retrofit Program

Vice President Biden recently announced a program called “Recovery Through Retrofit.” In addition to creating energy performance labels, it will create national energy performance measures for existing homes.

It will provide the following:

1. Access to home energy retrofit information
2. Access to financing for retrofits
3. Access to trained professionals to perform the retrofit

The goal of the imitative is to create more energy efficiency in homes to benefit the country’s energy consumption. Retrofits include but are not limited to energy efficient heating, cooling, and water systems, insulation, roofing, flooring, windows, and solar panels.

Source: National Association of Realtors

Cash for "Clunky" Appliances

In efforts to vamp up energy efficiency, the federal government is implementing a rebate program for appliances. People can swap in their old appliances for new energy-efficient ones, saving electricity and saving on monthly bills.

A 20-year-old fridge can use three times as much energy as a new Energy Star-approved fridge. The age of your appliances impact your actual savings, so check into it before purchasing.

Important things to know:

1. Plans vary by state. Check out energysavers.gov for details.
2. Buy before it ends. Like the car rebate program Cash for Clunkers, this program has a set amount of federal money allocated to it. Once the $300 million is gone, the program will likely end. It is expected to run out quickly.

Source: The Associated Press

Government Calls for Increased Lending by Banks

According to the FDIC, lending has fallen for five consecutive quarters – even though banks have become profitable again and have started to repay government loans. Banks lent $600 billion less from September 2008 to September 2009, representing a 7 percent decline. Banks site a lack of qualified borrowers as the primary reason and point to the trend of decreased borrowing during recessions.

The goals of banks and the government appear to be in line now with each bank representative talking about getting aggressive with small business lending over the next year. Goals for 2010 small business lending include $5 billion for Bank of America and $4 billion for Chase.

As banks continue to be profitable, they can be expected to use the proceeds to repay the government as well as increase their efforts to make good loans. Small business owners should expect an increase in the amount of loans available during 2010 compared to 2009. Holding true to the trend in 2009, a good credit score and steady employment will likely continue to be important conditions of obtaining a mortgage.

Sources: The Washington Post, FDIC

Topics For Buyers & Sellers

Energy Savers for Buyers to Keep an Eye Out For

1. Begin with a right-sized home. If the home you buy is simply too large for you or your family’s needs or plans, you stand a good chance of wasting energy through excessive heating and cooling costs. If it’s too small, you’ll feel cramped and uncomfortable. It’s a big investment, so seek balance and buy it “right” from the outset.
2. Purchase ENERGY STAR appliances such as your TV, dishwasher, washer and dyer, and microwave. And especially the refrigerator, as it alone contributes about 10 percent of the energy use in a home. Also, unplug electronics not in use or turn off power strips to avoid phantom charges.
3. Install efficient lighting such as compact fluorescent (CLF) or LED bulbs in every fixture. Lighting accounts for about 6 percent of an energy bill each year.
4. Get an energy audit and have tests performed to identify ways of improving your efficiency. You can always upgrade your heating, ventilation, and air conditioning (HVAC) system as well as your thermal envelope, which includes insulation, windows, and doors and the seals or weather-stripping around them. Visit energy.gov/energytips for more tips

Making Home Maintenance Routine

Home ownership has its wonderful benefits, and as one of the single biggest financial assets many people own, preparing, planning, and making home maintenance a routine are important.

Personal finance experts recommend setting aside at least 1 percent of your home price each year in a separate account for maintenance and repair costs.

Automatically deducting the funds from your paycheck or automatically transferring it between accounts each month can make this easy. Some years homeowners will have less than 1 percent in maintenance costs or repairs and some years they will have more. When something big and unexpected happens; for example it’s finally time to replace the roof; this will provide the financial cushion to take care of it and the peace of mind knowing one of their biggest assets is well taken care of.

Source: MSN Money

Sunday, December 20, 2009

This Month in Real Estate December 2009


This Month in Real Estate December 2009 ............................................................................................................................................... Commentary Small steps to economic recovery continued last month. Among the positive readings was the report of a third quarter GDP growth rate of 2.8 percent, which followed four consecutive quarterly declines. This advance comes in well ahead of that of our Canadian neighbors, whose economy was once anticipated to be the first country out of recession, and by significant margin. Canada posted marginal 0.4 percent growth.Unemployment fell in November for the first time since April 2008. A strong rebound in home sales activity from year ago levels also points to a firmer stabilization. With the extension of the $8,000 federal housing tax credit into spring 2010, first-time buyers will now have an additional few months to purchase their dream homes. Expansion of the income restrictions now gives possibilities for higher earners to participate too. And the $6,500 tax credit now available to established homeowners with five consecutive years or more in their homes broadens the opportunity landscape. This in turn will allow the housing market more time to find a more solid footing on a sustainable recovery. Although economists continue to debate the overall shape of the recovery, it is widely agreed that the U.S. economy will take a long time to rebound. Unemployment is expected to remain high for several quarters and the number of underemployed is expected by some economists to remain a drag on growth prospects. On the brighter side, according to some economists, a slow and steady growth will likely fair better for the long-term well-being of the economy. Slower, sustained growth can help prevent dangerous asset bubbles, like the recent housing and technology bubbles, from growing and bursting. The Housing Market Existing Home Sales - Up 24% from last year Existing home sales recorded another strong gain in October with many buyers rushing to beat the deadline for the first-time buyer tax credit scheduled to expire at the end of November. Sales surged 10.1 percent to 6.1 million units over September sales of 5.54 million and are 23.5 percent above the 4.94 million-unit level seen last year. Sales activity is at the highest level since February 2007 when it reached 6.55 million. Median Home Price - Very favorable Low home prices are contributing to extremely favorable affordability conditions. Existing-home price was $173,100 in October, 5 percent higher from its low in January but still 7.1 percent below October 2008. Distressed properties, which accounted for 30 percent of all transactions in October, continue to hold down the median home price, as they typically sell for 15 to 20 percent less than traditional homes. Inventory - Lowest level in more than 2.5 years “We are getting closer to a general balance between buyers and sellers,” according to Lawrence Yun, NAR chief economist. The supply of homes is now at the lowest level in more than two and a half years. Total housing inventory at the end of October fell 3.7 percent to 3.57 million existing homes available for sale, representing a seven-month supply at the current sales pace, down from September’s eight-month supply. Compared to a year ago, there are now 15 percent fewer homes on the market. Mortgage Rates – Back at 4.78% Remaining at attractive levels for people looking to buy a home or refinance, historically low interest rates are boosting the market. Rates for 30-year fixed loans fell to 4.95 percent in October from 5.06 percent the month before. During the week ended November 25, rates again dropped to the low 4.78 percent reached in the spring. As the economy enters its recovery phase and concerns over inflation come back, mortgage rates are expected to go up. Affordability – Best since 1970s Unprecedented interest rates, low home prices, as well as the first-time buyer tax credit are lifting the housing market. All these factors combined are “adding to the buying power of the typical family, with affordability conditions this year at the highest on record dating back to 1970,” according to Lawrence Yun, NAR chief economist. So far this year, the home price-to-income ratio has fallen well below the historical average of 25 percent. The ratio now stands at 15 percent. Sources: National Association of Realtors, Freddie Mac Government Action New Fannie Mae Policies "First Look" In many markets dominated by distressed properties, buyers jumped off the fence in droves and as a result the number of homes for sale in the first tier of the market decreased significantly. When a new foreclosure becomes available for sale, it often is snapped up by investors with cash on hand, leaving the average home buyer looking for a place to live out of luck. Fannie Mae introduced a new “First Look” initiative to address this and aid in the stabilization of neighborhoods. During the first 15 days a Fannie Mae REO is on the market, only buyers who will live in the home and public entities committed to the best interests of the community may purchase it. Buyers will have 45 days to close, up from 30 days. Earnest money requirement may be reduced. This will hopefully give the average home buyer a greater chance of purchasing foreclosures and provide support to hard-hit neighborhoods, because owner-occupants are more invested in the long-term vitality of a community whereas investors typically are more invested in their monetary return from the property. Increased Credit Scores Fannie Mae is raising its minimum credit score from 580 to 620. This risk management measure will help protect Fannie Mae from future defaults and foreclosure by raising their standard and accepting less risky loans. While risk management is a sound and healthy approach for an entity that the economy depends on, this underscores the importance that potential home buyers check their credit report early in the process, allowing more time to clear up any errors. Earlier this year, Experian, one of three major credit-reporting bureaus, began exclusively providing complete credit report information when purchased directly from Experian or obtained from the government annual credit report. Source: National Association of Realtors FHA Signals Efforts to Manage Risk In an effort to secure its financial health, the Federal Housing Administration plans to require borrowers to have more “skin in the game” soon. Over the past three years, FHA’s market share has boomed from about 2 percent of all new loans to about 30 percent of all new loans this year and 20 percent of refinances. The escalading volume that the administration is currently handling calls for stricter requirements as evidenced by FHA’s capital ratios falling to nearly 0.5 percent well below the minimum of 2 percent. The agency is still analyzing the levels and time frames it wishes to tighten its standards but they expect to: Increase minimum down payments Increase minimum credit scores Increase insurance premiums Lower the amount of seller concessions As one of the major players in the mortgage market, the health of FHA is imperative to the housing market and flow of credit to home buyers, as well as to the health of the overall economy. Taking measures to safeguard the agency from needing a government tax payer-funded bailout is a notable risk management measure. According to a Keller Williams research study, the typical first-time buyer put down 3.5 percent this year. Those who want to take advantage of the tax credit before the April 30 contract, June 30 closing deadline may want to beef up their savings and check their credit report now in anticipation of any changes. Sources: National Association of Realtors, KW Research First Time Home Buyer Survey Topics For Buyers & Sellers First Time & Distressed Property Home Buyers What are other first time buyers doing? The tax credit extension and expansion in November has fueled new discussion about home buyers and the housing market in 2010. Here’s a look at first-time buyers in 2009. The median age is 28, significantly down from where it was in 2005 at 32. Location or Neighborhood was the No. 1 “must-have” for 36% of buyers. 2 out of 3 sellers paid at least part of the buyer’s closing costs. 76% used their own savings for the down payment. 1 in 4 had help from their family for the down payment. As elevated levels of distressed properties are expected to continue for the next few years, here is a glimpse of buying a distressed property: 27% of foreclosures* were purchased by investors. 47% of distressed* properties were purchased by first-time buyers. 89% of those first time buyers that purchased a distressed property were motivated by the $8,000 tax credit. 7 in 10 agents have seen an increase in multiple offers. Approximately 3 out of 5 agents discuss the differencesbetween buying distressed and traditional properties at the buyer consultation. * Distressed – Short Sale and REO, Foreclosure – REO Only	Contact me, Nicole Dion-LeBlanc your local real estate expert, for information about what's going on in our area. Newsletter Contents 1. Commentary 2. The Housing Market 3. Government Action 4. Topics for Buyers and Sellers

For a more detailed report with additional graphs and government action, please see the This Month in Real Estate PowerPoint Report. In an effort to reduce the impact on the environment, This Month in Real Estate PowerPoint Report is now also available in email newsletter format. Please consider the environment before printing.