Existing home sales fell in December, the month after a federal tax credit was slated to expire, according to a real estate industry report issued Monday.
The National Association of Realtors reported that existing home sales plunged 16.7% last month to a seasonally adjusted annual rate of 5.45 million units, down from the revised rate of 6.54 million in November. Still, sales year-over-year were up 15%.
It was expected that sales would decline from November to December, because November was slated to be the last month in which sales to first-time homebuyers could qualify for a federal tax credit of up to $8,000. Lawmakers have since extended that deadline through April 30, adding a new credit of up to $6,500 for some existing home owners who move.
"This is a huge blow, much bigger than we expected," said PNC senior economist Craig Thomas. "Unfortunately, we'll continue to see this kind of volatility as economic supports like the tax credit are taken away."
Homebuyers rushing to get the credit made for a tough month-to-month comparison for December, Thomas said, and the month also suffers from seasonal issues like bad weather and holidays.
For all of 2009 there were 5,156,000 existing-home sales, which was 4.9% higher than 2008's total. That was the first annual sales gain since 2005.
In November, the planned tax credit expiration helped existing home sales gain 7.4% -- and that followed a 10% surge the previous month.
Despite December's disappointment, PNC's Thomas thinks the tax credit will help recharge the housing market the way Cash for Clunkers boosted auto sales in the longer term. That market saw an artificial jump, then dipped when the policy was dropped and then eventually got stronger.
"Since Cash for Clunkers has been over, autos have seen stronger and more sustainable sales -- and that's a function of a better economy," Thomas said. "That means home sales are likely to follow."
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Price and inventory: The median price of homes sold in December was $178,300, a 1.5% gain over December 2008. That was the first year-over-year gain in the median price since August 2007. Distressed properties made up 32% of the houses sold during the month.
Total housing inventory fell 6.6% to 3.29 million existing homes for sale. That's a 7.2-month supply at the current selling pace, up from a 6.5-month supply in November.
Sales by property type: Housing markets suffered across the board. Single-family home sales fell 16.8% to a seasonally adjusted annual rate of 4.79 million in December from a pace of 5.76 million in November, but were 12.7% above the pace 12 months ago.
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Condominium and co-op sales fell 15.4% to a seasonally adjusted annual rate of 660,000 units in December, from 780,000 in November, but were 34.7% above December 2008's rate.
Sales by region: Total existing home sales fell the most in the Midwest, dropping 25.8% in December to a pace of 1.15 million. Still, that's 8.5% above a year ago.
The West fared the best of all regions, but sales there still fell 4.8% to an annual level of 1.38 million; sales in the South sank 16.3% to 2.01 million; and the Northeast fell 19.5% to 910,000.
Outlook: PNC's Thomas said existing home sales will start to tick up in the coming months, though they will see another drop when the tax credit expires on April 30. The market will also be susceptible to changes in Federal Reserve policy, which affect mortgage rates, he said.
"There are a few headwinds, and volatility obscures the true condition of the market," Thomas said. "We all want transparency amid a confusing time, but there [will be] improvement in the months ahead
Tuesday, January 26, 2010
Monday, January 25, 2010
3 people the homebuyer tax credit helped
The road to homeownership was hard for Valatisha Jacinto.
The Waco, Texas, schoolteacher had wrecked her credit struggling to pay for college, and later trying to support herself and her daughter on a teacher's salary. She knew she wanted to buy a home, and that meant she needed to clean up her credit
So she started attending credit-counseling classes run by NeighborWorks, a network of community-development and affordable-housing organizations. For several years she steadily worked on her debt.
That meant she was ready to act last February when President Obama signed the stimulus bill, which, among other things, authorized a refundable $8,000 tax credit for first-time homebuyers.
"My first question was, 'Do I have to pay this money back?'" she said. "When I found out I didn't, I said, 'Let me work even harder on my credit.'"
In March she bought a three-bedroom, two-bath home for $105,000. She took out a 4.9% FHA-insured 30-year loan, putting her monthly expenses, including property taxes and insurance, at just $830.
"I never thought anything that good would happen to me," she said.
She's not alone.
More than 1.4 million Americans have filed for the tax credit, according to the IRS. In fact, the program became so popular that Congress voted in November to extend and expand it. Now, the credit expires on June 30, for contracts signed by April 30, and there is a $6,500 refund available to some current homeowners looking to buy.
Congress created the incentive as part of the stimulus bill as a way to restart home sales. Because the real estate bust helped usher in the recession in the first place, legislators argued that healing the industry's ills would lead to recovery.
"I wouldn't have been able to afford my house without it," said Rob Logan, who bought his Ypsilanti, Mich., house for $71,000 in October. "It was one of the main reasons I started looking."
Logan has already spent most of his refund rehabbing his home, a foreclosure that was in far from perfect shape. There wasn't a single appliance left and the kitchen cabinets had vanished; the wiring was old and the floors cruddy.
The 28 year old, who works for a digital entertainment licensing company, corralled friends and family into helping, but he still had to pay out for parts and for a new kitchen. ("I never want to go back to Loews again," he said.) He figures he's spent about $7,000.
"The credit helped me pay for all my appliances and some plumbing and other maintenance," Logan said. "I was able to spend more of my saved money on a 20% down payment and that has made my mortgage more affordable."
Like Logan, many homebuyers shop til they drop during their first months of ownership. They make repairs, upgrade baths and kitchens, redecorate, and buy furniture, appliances and electronics. And that helps to stimulate the economy by keeping the Wal-Marts, Home Depots, Best Buys and Ikeas humming and contractors working.
The credit has also boosted home sales, according to the National Association of Realtors. Sales soared in October and November as first-time buyers rushed to take advantage of the tax credit before the original expiration date. More than half of all transactions were from these buyers during those two months, according to NAR, compared to the usual market share of about 40%.
For Chris Saliture, a Minnesotan, the credit was vital. "That's what got me started," he said. "I knew the incentive program was going on. I may still have looked, but this had an impact on what I could afford."
The 23 year old, who curates wine Web sites, is devoting the refund to a single purpose: a spiral staircase to connect the upper and lower floors. "It's a very interesting house," said Saliture, who bought the foreclosure for just over $100,000. "It's on three levels, but there's no interior staircase."
The house started life as a circa-1885 train depot, and it was later moved from its location alongside the railroad tracks onto a nearby lot in the St. Anthony section of St. Paul. As a result, the only way to get to the top floor is a metal exterior staircase that is 12-feet wide.
There is some hope that this good thing could live on after June 30. If the housing market and the economy is not in full recovery mode by late spring, there is already discussion about Congress extending the tax credit again, according to Jaret Seiberg of Concept Capital, a Washington-based research group.
"We believe this option is likely because housing is a key issue for many Democrats and Republicans facing re-election," he wrote in a research note. "And the $10 billion cost is relatively modest given the importance of the housing sector to the economy."
The Waco, Texas, schoolteacher had wrecked her credit struggling to pay for college, and later trying to support herself and her daughter on a teacher's salary. She knew she wanted to buy a home, and that meant she needed to clean up her credit
So she started attending credit-counseling classes run by NeighborWorks, a network of community-development and affordable-housing organizations. For several years she steadily worked on her debt.
That meant she was ready to act last February when President Obama signed the stimulus bill, which, among other things, authorized a refundable $8,000 tax credit for first-time homebuyers.
"My first question was, 'Do I have to pay this money back?'" she said. "When I found out I didn't, I said, 'Let me work even harder on my credit.'"
In March she bought a three-bedroom, two-bath home for $105,000. She took out a 4.9% FHA-insured 30-year loan, putting her monthly expenses, including property taxes and insurance, at just $830.
"I never thought anything that good would happen to me," she said.
She's not alone.
More than 1.4 million Americans have filed for the tax credit, according to the IRS. In fact, the program became so popular that Congress voted in November to extend and expand it. Now, the credit expires on June 30, for contracts signed by April 30, and there is a $6,500 refund available to some current homeowners looking to buy.
Congress created the incentive as part of the stimulus bill as a way to restart home sales. Because the real estate bust helped usher in the recession in the first place, legislators argued that healing the industry's ills would lead to recovery.
"I wouldn't have been able to afford my house without it," said Rob Logan, who bought his Ypsilanti, Mich., house for $71,000 in October. "It was one of the main reasons I started looking."
Logan has already spent most of his refund rehabbing his home, a foreclosure that was in far from perfect shape. There wasn't a single appliance left and the kitchen cabinets had vanished; the wiring was old and the floors cruddy.
The 28 year old, who works for a digital entertainment licensing company, corralled friends and family into helping, but he still had to pay out for parts and for a new kitchen. ("I never want to go back to Loews again," he said.) He figures he's spent about $7,000.
"The credit helped me pay for all my appliances and some plumbing and other maintenance," Logan said. "I was able to spend more of my saved money on a 20% down payment and that has made my mortgage more affordable."
Like Logan, many homebuyers shop til they drop during their first months of ownership. They make repairs, upgrade baths and kitchens, redecorate, and buy furniture, appliances and electronics. And that helps to stimulate the economy by keeping the Wal-Marts, Home Depots, Best Buys and Ikeas humming and contractors working.
The credit has also boosted home sales, according to the National Association of Realtors. Sales soared in October and November as first-time buyers rushed to take advantage of the tax credit before the original expiration date. More than half of all transactions were from these buyers during those two months, according to NAR, compared to the usual market share of about 40%.
For Chris Saliture, a Minnesotan, the credit was vital. "That's what got me started," he said. "I knew the incentive program was going on. I may still have looked, but this had an impact on what I could afford."
The 23 year old, who curates wine Web sites, is devoting the refund to a single purpose: a spiral staircase to connect the upper and lower floors. "It's a very interesting house," said Saliture, who bought the foreclosure for just over $100,000. "It's on three levels, but there's no interior staircase."
The house started life as a circa-1885 train depot, and it was later moved from its location alongside the railroad tracks onto a nearby lot in the St. Anthony section of St. Paul. As a result, the only way to get to the top floor is a metal exterior staircase that is 12-feet wide.
There is some hope that this good thing could live on after June 30. If the housing market and the economy is not in full recovery mode by late spring, there is already discussion about Congress extending the tax credit again, according to Jaret Seiberg of Concept Capital, a Washington-based research group.
"We believe this option is likely because housing is a key issue for many Democrats and Republicans facing re-election," he wrote in a research note. "And the $10 billion cost is relatively modest given the importance of the housing sector to the economy."
Thursday, January 21, 2010
Housing starts fall, but permits soar
Home construction fell in December, government data showed Wednesday, while the number of building permits issued in the month rose.
Construction of new homes fell to an annual rate of 557,000 during the month, down 4%from the revised November rate of 580,000, the Commerce Department said.
"While starts registered another weak month, they remain within a range that has held for more than a year," said Adam York, an economist at Wells Fargo.
Analysts said the drop in construction activity was due in part to the weather.
Temperatures were unusually high in November and "some homes that would have been started in December were instead started in November," Patrick Newport, an economist at IHS Global Insight, wrote in a research report.
Housing starts surged nearly 9% in November.
Picking the sweet spot in real estate
At the same time, many builders put new projects on hold late last year amid uncertainty surrounding the government's first time homebuyer tax credit.
As a result, applications for building permits plunged in September and October, which in turn depressed housing starts in December.
"Now that the credit will benefit almost all homebuyers, not just first-timers, and will run until June 3, [builders] are preparing for increased demand," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Indeed, the number of building permits issued during December jumped 10.9% to a seasonally adjusted annual rate of 653,000.
It was the biggest increase since June 2008 and surprised economists who had forecast a 0.7% decline in building permits.
Given the surge in building permits during December, "starts should now be expected to rebound strongly over the next few months," Shepherdson said.
Still, many builders remain worried about the strength and sustainability of a recovery in housing with unemployment at 10% and a large number of foreclosed homes still on the market, York said.
On Tuesday, the National Association of Home Builders said its index of builder confidence declined one point to 15 in January
Construction of new homes fell to an annual rate of 557,000 during the month, down 4%from the revised November rate of 580,000, the Commerce Department said.
"While starts registered another weak month, they remain within a range that has held for more than a year," said Adam York, an economist at Wells Fargo.
Analysts said the drop in construction activity was due in part to the weather.
Temperatures were unusually high in November and "some homes that would have been started in December were instead started in November," Patrick Newport, an economist at IHS Global Insight, wrote in a research report.
Housing starts surged nearly 9% in November.
Picking the sweet spot in real estate
At the same time, many builders put new projects on hold late last year amid uncertainty surrounding the government's first time homebuyer tax credit.
As a result, applications for building permits plunged in September and October, which in turn depressed housing starts in December.
"Now that the credit will benefit almost all homebuyers, not just first-timers, and will run until June 3, [builders] are preparing for increased demand," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Indeed, the number of building permits issued during December jumped 10.9% to a seasonally adjusted annual rate of 653,000.
It was the biggest increase since June 2008 and surprised economists who had forecast a 0.7% decline in building permits.
Given the surge in building permits during December, "starts should now be expected to rebound strongly over the next few months," Shepherdson said.
Still, many builders remain worried about the strength and sustainability of a recovery in housing with unemployment at 10% and a large number of foreclosed homes still on the market, York said.
On Tuesday, the National Association of Home Builders said its index of builder confidence declined one point to 15 in January
Wednesday, January 20, 2010
WHEN A HOME ENERGY AUDIT PAYS OFF
The government is expected to unveil a new program in the next couple of months that if approved may reimburse homeowners for up to half the cost of making their homes more efficient, but don't start shopping for new kitchens just yet.
Homeowners will get the most return for the money in simple upgrades like caulking the windows, putting insulation in the attic, and changing the light bulbs - not new windows, refrigerators or dishwashers.
The average American home wastes a lot of energy.
A complete energy retrofit - which could include caulking and insulation as well as new windows, appliances and boiler, could slice a home's energy consumption in half, according to Lane Burt, manager of building energy policy at Natural Resources Defense Council.
But getting all that work done might run into the tens of thousands of dollars. And any new federal program - which is still being drafted and is not guaranteed to become law - would cap the government reimbursements at $12,000, said Burt.
Homeowners need not despair. There are some simple improvements that are relatively cheap and can pay for themselves quickly.
Just adding the insulation, caulking and lights might run an average homeowner $5,000 to $7,000, he said. That could shave about 30% off a home's energy bill each month. And if the government picks up half the cost, the payback time for homeowners would be just a few years.
"It's a win-win-win," said Burt. "It creates jobs, it saves energy, and it saves consumers money."
Consumer watchdog groups back up Burt's claim.
"I don't know of anyone who's looked at them and said they are not a good idea," said Mark Cooper, director of research for the Consumer Federation of America. "The average consumer can save a big chunk of change by getting the work done."
What to look for
Experts say there are a few things to look for when getting an energy audit and retrofit work done.
First, find a contractor licensed by the Building Performance Institute or the Residential Energy Services Network. These contractors have been trained to first test a home and see how much energy it is losing, then make renovations on all the systems in the building.
As of now there are no incentives in the proposed program for do-it-yourselfers. That's partly because the program is designed to create jobs by putting out-of-work contractors back on the job. But it's also done to ensure the work is done right - a house that's sealed up too tight could rot from mold or trap too much carbon monoxide.
Second, hire an energy contractor using the same diligence you would with any other contractor. Call around for price quotes and check references. If you have any problems report them to your state's attorney general.
The big picture
The proposed program is part of a broader jobs initiative designed first and foremost to put people back to work.
The original proposal, which called for $23 billion to be spent on energy retrofits, was estimated to create over half a million jobs, according to CleanEdison, an association of green building professionals.
Those familiar with the proposal say the final bill may set aside $10 billion for energy retrofits. Still, it's a lot more than is currently being done - while some states have reimbursement programs, there is no federal plan. The original stimulus bill contained $5 billion for low income homeowners and money to retrofit federal buildings, but nothing for middle income Americans. The new proposal has no income restriction.
But in addition to creating jobs and saving consumers money, it also lays the framework for an energy efficient economy and achieving the 80% reduction in greenhouse gases most scientists say is necessary to avoid the worst impacts of global warming.
That's a target that can't be hit with building wind farms and solar plants alone.
Some 40% of all energy used in this country goes to buildings, mostly in the form of heating, cooling and lighting.
"You don't get an 80% reduction by 2050 without retrofitting nearly every building in the country," said Burt.
Homeowners will get the most return for the money in simple upgrades like caulking the windows, putting insulation in the attic, and changing the light bulbs - not new windows, refrigerators or dishwashers.
The average American home wastes a lot of energy.
A complete energy retrofit - which could include caulking and insulation as well as new windows, appliances and boiler, could slice a home's energy consumption in half, according to Lane Burt, manager of building energy policy at Natural Resources Defense Council.
But getting all that work done might run into the tens of thousands of dollars. And any new federal program - which is still being drafted and is not guaranteed to become law - would cap the government reimbursements at $12,000, said Burt.
Homeowners need not despair. There are some simple improvements that are relatively cheap and can pay for themselves quickly.
Just adding the insulation, caulking and lights might run an average homeowner $5,000 to $7,000, he said. That could shave about 30% off a home's energy bill each month. And if the government picks up half the cost, the payback time for homeowners would be just a few years.
"It's a win-win-win," said Burt. "It creates jobs, it saves energy, and it saves consumers money."
Consumer watchdog groups back up Burt's claim.
"I don't know of anyone who's looked at them and said they are not a good idea," said Mark Cooper, director of research for the Consumer Federation of America. "The average consumer can save a big chunk of change by getting the work done."
What to look for
Experts say there are a few things to look for when getting an energy audit and retrofit work done.
First, find a contractor licensed by the Building Performance Institute or the Residential Energy Services Network. These contractors have been trained to first test a home and see how much energy it is losing, then make renovations on all the systems in the building.
As of now there are no incentives in the proposed program for do-it-yourselfers. That's partly because the program is designed to create jobs by putting out-of-work contractors back on the job. But it's also done to ensure the work is done right - a house that's sealed up too tight could rot from mold or trap too much carbon monoxide.
Second, hire an energy contractor using the same diligence you would with any other contractor. Call around for price quotes and check references. If you have any problems report them to your state's attorney general.
The big picture
The proposed program is part of a broader jobs initiative designed first and foremost to put people back to work.
The original proposal, which called for $23 billion to be spent on energy retrofits, was estimated to create over half a million jobs, according to CleanEdison, an association of green building professionals.
Those familiar with the proposal say the final bill may set aside $10 billion for energy retrofits. Still, it's a lot more than is currently being done - while some states have reimbursement programs, there is no federal plan. The original stimulus bill contained $5 billion for low income homeowners and money to retrofit federal buildings, but nothing for middle income Americans. The new proposal has no income restriction.
But in addition to creating jobs and saving consumers money, it also lays the framework for an energy efficient economy and achieving the 80% reduction in greenhouse gases most scientists say is necessary to avoid the worst impacts of global warming.
That's a target that can't be hit with building wind farms and solar plants alone.
Some 40% of all energy used in this country goes to buildings, mostly in the form of heating, cooling and lighting.
"You don't get an 80% reduction by 2050 without retrofitting nearly every building in the country," said Burt.
Tuesday, January 19, 2010
LAST CHANCE TO REFI BELOW 5%
If you want to refinance your mortgage into a loan with a sub-5% interest rate, better hurry. Your window of opportunity is closing fast.
Lenders are still advertising rock-bottom interest rates, but for most borrowers, rates are rapidly rising into the 5%-plus category.
During the week of Jan. 7, the average 30-year, fixed-rate loan closed at 5.09%, according to mortgage giant Freddie Mac. That is significantly higher than the 4.71% it averaged at the beginning of the month, and experts say rates will go higher yet.
"Interest rates are up and they're not going to go down below 5% again," said Mark Zandi, chief economist for Moody's Economy.com, not for a while at least.
While homebuyers are still excited about these low mortgage rates, people who already have a loan and want to lower their costs are scrambling to lock in.
Refinancers act when the difference between the rate they're currently paying and the new one is at least a point or two wide, otherwise the costs of going through the refinancing wipes out any savings. In fact as rates rose in December, refinancings plunged, down more than 30%, according to the Mortgage Bankers Association.
A big reason for the jump is that a government program that has kept rates very low is winding to a close. The Federal Reserve has been purchasing mortgage-backed securities since early 2009, scooping up as much as $1.25 trillion worth. That has dampened rate increases by providing a ready market for the securities.
But the Fed's program lapses on March 31, when it cedes the playing field to private investors, who will almost surely demand higher rates. The Fed has already been slowing its purchasing, and that has corresponded with the recent rate increases.
As Treasurys go . . .
Not just mortgage rates have turned north. Treasury yields have as well, another indication that mortgage rates are headed skyward.
The yield on the benchmark 10-year Treasury has grown steeply over the past few weeks. It stood at 3.2% at the beginning of December and has soared to 3.84% as of Tuesday, a 20% jump.
Mortgage interest does not track Treasury yields in lockstep, but the two tend to mirror each other's movements.
Mortgage securities rates are always higher than Treasury yields because investors demand a premium above practically risk-free Treasurys.
The difference between mortgage rates and Treasury yields is usually somewhere near 1.7 percentage points, according to Keith Gumbinger of HSH Associated, a publisher of mortgage information. The current spread of about 1.2 percentage points is quite narrow.
That's bound to change, according to David Crowe, chief economist for the National Association of Home Builders. He believes mortgage rates will go up to about 5.5% by late summer. But other factors could push them into a larger-than-expected jump.
Economy bouncing back
For example, as the economy improves (it's hoped), businesses will expand production, hire new workers and open new sales outlets. All that requires borrowing in capital markets and the demand for lending will expand interest rates of all kinds.
A recovering economy also boosts corporate profits, making stocks a better bet for investors.
"Stocks tend to do better when the economy improves," said Stuart Hoffman, chief economist for PNC Financial Services. "Mortgage rates will rise to attract investment."
Hoffman's forecast is for rates to stay quite constant the rest of the winter and then elevate gradually during the spring buying season, the busiest time of year for home sales. He said they should hit about 5.5% by the end of June.
After that, the increases will slow, according to Hoffman, but still approach 6% toward the end of the year. He believes they'll cap at around 5.75% and are not likely to fall back to the 5% level again
Lenders are still advertising rock-bottom interest rates, but for most borrowers, rates are rapidly rising into the 5%-plus category.
During the week of Jan. 7, the average 30-year, fixed-rate loan closed at 5.09%, according to mortgage giant Freddie Mac. That is significantly higher than the 4.71% it averaged at the beginning of the month, and experts say rates will go higher yet.
"Interest rates are up and they're not going to go down below 5% again," said Mark Zandi, chief economist for Moody's Economy.com, not for a while at least.
While homebuyers are still excited about these low mortgage rates, people who already have a loan and want to lower their costs are scrambling to lock in.
Refinancers act when the difference between the rate they're currently paying and the new one is at least a point or two wide, otherwise the costs of going through the refinancing wipes out any savings. In fact as rates rose in December, refinancings plunged, down more than 30%, according to the Mortgage Bankers Association.
A big reason for the jump is that a government program that has kept rates very low is winding to a close. The Federal Reserve has been purchasing mortgage-backed securities since early 2009, scooping up as much as $1.25 trillion worth. That has dampened rate increases by providing a ready market for the securities.
But the Fed's program lapses on March 31, when it cedes the playing field to private investors, who will almost surely demand higher rates. The Fed has already been slowing its purchasing, and that has corresponded with the recent rate increases.
As Treasurys go . . .
Not just mortgage rates have turned north. Treasury yields have as well, another indication that mortgage rates are headed skyward.
The yield on the benchmark 10-year Treasury has grown steeply over the past few weeks. It stood at 3.2% at the beginning of December and has soared to 3.84% as of Tuesday, a 20% jump.
Mortgage interest does not track Treasury yields in lockstep, but the two tend to mirror each other's movements.
Mortgage securities rates are always higher than Treasury yields because investors demand a premium above practically risk-free Treasurys.
The difference between mortgage rates and Treasury yields is usually somewhere near 1.7 percentage points, according to Keith Gumbinger of HSH Associated, a publisher of mortgage information. The current spread of about 1.2 percentage points is quite narrow.
That's bound to change, according to David Crowe, chief economist for the National Association of Home Builders. He believes mortgage rates will go up to about 5.5% by late summer. But other factors could push them into a larger-than-expected jump.
Economy bouncing back
For example, as the economy improves (it's hoped), businesses will expand production, hire new workers and open new sales outlets. All that requires borrowing in capital markets and the demand for lending will expand interest rates of all kinds.
A recovering economy also boosts corporate profits, making stocks a better bet for investors.
"Stocks tend to do better when the economy improves," said Stuart Hoffman, chief economist for PNC Financial Services. "Mortgage rates will rise to attract investment."
Hoffman's forecast is for rates to stay quite constant the rest of the winter and then elevate gradually during the spring buying season, the busiest time of year for home sales. He said they should hit about 5.5% by the end of June.
After that, the increases will slow, according to Hoffman, but still approach 6% toward the end of the year. He believes they'll cap at around 5.75% and are not likely to fall back to the 5% level again
Wednesday, January 6, 2010
Homebuyers sign 16% fewer contracts in November
Homebuyers abandoned the market in droves during November: They signed 16% fewer sales contracts than the month before.
This marks the first decline in the National Association of Realtors (NAR) Pending Home Sales index, released Tuesday, after nine straight months of gains. The drop also exceeded analysts' expectations: A panel of experts from Briefing.com had forecast a 2% decrease.
"People took a breather," said David Crowe, chief economist for the National Association of Home Builders.
NAR chief economist Lawrence Yun blamed the fall on the scheduled end of the first-time homebuyers tax credit, which refunded up to $8,000 in income taxes for qualified homebuyers. The credit initially was to lapse on Dec. 1, but Congress extended it through the end of June.
Before that extension was announced, many house hunters were scrambling to sign contracts under the deadline. Once the credit deadline was pushed back, buyers felt less urgency to sign deals, which left November depleted.
"It will be at least early spring before we see notable gains in sales activity as homebuyers respond to the recently extended and expanded tax credit," Yun said.
This marks the first decline in the National Association of Realtors (NAR) Pending Home Sales index, released Tuesday, after nine straight months of gains. The drop also exceeded analysts' expectations: A panel of experts from Briefing.com had forecast a 2% decrease.
"People took a breather," said David Crowe, chief economist for the National Association of Home Builders.
NAR chief economist Lawrence Yun blamed the fall on the scheduled end of the first-time homebuyers tax credit, which refunded up to $8,000 in income taxes for qualified homebuyers. The credit initially was to lapse on Dec. 1, but Congress extended it through the end of June.
Before that extension was announced, many house hunters were scrambling to sign contracts under the deadline. Once the credit deadline was pushed back, buyers felt less urgency to sign deals, which left November depleted.
"It will be at least early spring before we see notable gains in sales activity as homebuyers respond to the recently extended and expanded tax credit," Yun said.
Tuesday, January 5, 2010
New and improved mortgage forms
"The main purpose is to give consumers the tools to be able to compare apples to apples," said Robert Grosser of Luxury Mortgage, a New Jersey-based direct lender. "All lenders must use a specific form and disclose fees in the same spots on the same forms." (See the new form.)
Until now, borrowers might have focused on interest rates or monthly payments to compare mortgages options. But fees play a big part in total cost, said Vicki Bott, HUD's Deputy Assistant Secretary for Single Family Programs
There are generally two blocs of fees.
One covers origination charges, what the lender receives for providing you with the loan.
The second bloc consists of settlement fees, for say, title insurance or an appraisal.
If borrowers accept the offers as outlined, lenders must issue the loans under the costs listed -- with little room for surprise.
If the mortgage originator provides services in the second bloc, it must stick to the original fees within 10%. If, for example, the lender tells you the title insurance it arranges will cost $2,000, the final fee for that cannot exceed $2,200. (If you decide you're going elsewhere for title insurance, you're on your own.)
"It truly drives accountability," said Bott. "It makes the lender say, 'What I quoted is what you get.'"
The estimate is not iron clad, and can be altered if there's a material change in circumstances. If the appraisal comes in lower than expected, for example, that could affect the mortgage rate, though the lender must quickly tell the borrower, according to Bott.
The new 3-page form has lines covering all the settlement fees, such as the origination fee and points charged up-front to reduce the interest rate. It also clearly lists the initial loan amount, the term length in years, the monthly payment, the initial interest rate, and whether that interest rate can rise plus any prepayment penalties or balloon payments.
There's also a "shopping chart" on the third page in which up to four different deals can be placed side-by-side and their costs easily compared.
Say two lenders both offer a 5% loan on a $200,000 mortgage that has a monthly payment of $1,074 a month. One lender may charge $5,000 for it and another just $3,000. The new form should make it simpler for consumers to recognize the better deal.
Housing outlook 2010
"It's definitely a step in the right direction toward simpler and straightforward key information on mortgages," said Alex Pollock, an American Enterprise Institute fellow who has developed and advocated for the use of a one-page mortgage form to better help consumers understand their obligations.
He does not, however, think the new form goes far enough.
"It focuses on the question of whether this is the best deal," Pollock said. "In my opinion, it's more important to ask if I can afford this mortgage. This might be the best deal I can get but I still may not be able to afford it."
Until now, borrowers might have focused on interest rates or monthly payments to compare mortgages options. But fees play a big part in total cost, said Vicki Bott, HUD's Deputy Assistant Secretary for Single Family Programs
There are generally two blocs of fees.
One covers origination charges, what the lender receives for providing you with the loan.
The second bloc consists of settlement fees, for say, title insurance or an appraisal.
If borrowers accept the offers as outlined, lenders must issue the loans under the costs listed -- with little room for surprise.
If the mortgage originator provides services in the second bloc, it must stick to the original fees within 10%. If, for example, the lender tells you the title insurance it arranges will cost $2,000, the final fee for that cannot exceed $2,200. (If you decide you're going elsewhere for title insurance, you're on your own.)
"It truly drives accountability," said Bott. "It makes the lender say, 'What I quoted is what you get.'"
The estimate is not iron clad, and can be altered if there's a material change in circumstances. If the appraisal comes in lower than expected, for example, that could affect the mortgage rate, though the lender must quickly tell the borrower, according to Bott.
The new 3-page form has lines covering all the settlement fees, such as the origination fee and points charged up-front to reduce the interest rate. It also clearly lists the initial loan amount, the term length in years, the monthly payment, the initial interest rate, and whether that interest rate can rise plus any prepayment penalties or balloon payments.
There's also a "shopping chart" on the third page in which up to four different deals can be placed side-by-side and their costs easily compared.
Say two lenders both offer a 5% loan on a $200,000 mortgage that has a monthly payment of $1,074 a month. One lender may charge $5,000 for it and another just $3,000. The new form should make it simpler for consumers to recognize the better deal.
Housing outlook 2010
"It's definitely a step in the right direction toward simpler and straightforward key information on mortgages," said Alex Pollock, an American Enterprise Institute fellow who has developed and advocated for the use of a one-page mortgage form to better help consumers understand their obligations.
He does not, however, think the new form goes far enough.
"It focuses on the question of whether this is the best deal," Pollock said. "In my opinion, it's more important to ask if I can afford this mortgage. This might be the best deal I can get but I still may not be able to afford it."
Monday, January 4, 2010
3 reasons home prices are heading lower
NEW YORK (CNNMoney.com) -- After four months of gains, home prices flattened in October. Worse yet, industry insiders think that they'll soon start to fall.
Prices have risen more than 3% since May, according to S&P/Case-Shiller.
But most forecasts predict price declines in 2010, with possible losses ranging from anywhere from 3% on up. Fiserv Lending Solutions, a financial analytics firm, forecasts that prices will fall in all but 39 of the 381 markets it covers, with an average drop of 11.3%.
"We've seen recent price stabilization because of low mortgage interest rates and the impact of the first-time homebuyers tax credit," said Pat Newport of IHS Global Research. "But there are really good reasons to think prices will now start going down."
There are three main reasons for the reversal: a coming flood of foreclosures, rising interest rates and the eventual end of the tax credits.
More foreclosures
For Gus Faucher, the director of macroeconomics for Moody's Economy.com, the huge number of foreclosures that remain in the pipeline is the big problem.
Moody's upped its estimate of defaults recently because of shortcomings of the government-led mortgage modification programs. Trial workouts are not being made permanent and completed modifications are redefaulting at high rates.
"There are going to be fewer [successful] modifications than we thought," said Faucher.
Even so, he added, much of the price decline has already occurred and Moody's forecast is for only another 8% drop. The worst-hit markets will be the ones suffering the most foreclosures, places like Arizona, California, Florida and Nevada. (See 7 tips for buying foreclosures)
Resetting option ARMs (adjustable rate mortgages) will also aggravate the foreclosure problem. These mortgages allow borrowers to pick their own payments, which can be so low they don't even cover the interest. Balances swell.
For many of the more than 350,000 option-ARM borrowers, it's time to pay the piper. Their loans will change into fully amortizing mortgages that will carry much higher monthly payments. A very large percentage of these homeowners will default, according to Shari Olefson, author of "Foreclosure Nation: Mortgaging the American Dream."
"We've still only seen the tip of the foreclosure iceberg," she said.
She also predicts more strategic defaults, people deliberately walking away from even fixed-rate mortgages as the value of their homes dips well below the amount they owe.
Olefson's forecast is for price declines of 5% to 15%, depending on the area, with a national median price drop of about 10% for 2010.
Rising interest rates
Also affecting prices will be higher interest rates. Some analysts, according to Newport, think rates for a 30-year mortgage will pass 6% next year as the government curtails housing market support.
The Federal Reserve has helped keep rates low through purchases of mortgage-backed securities. But that program is winding down and will end in March.
"The government is throwing everything at the market but the kitchen sink," said Peter Schiff, president of Euro pacific Capital. "It can't prop up housing markets forever."
Schiff is among the bigger bears. Though he gave no specific prediction, he thinks prices -- already down 29% from the peak -- are only halfway to the bottom.
The end of the tax credit
As a tool for supporting housing markets and prices, the tax credit for homebuyers is a two-edged sword. It reduces taxes dollar-for-dollar by up to $8,000 for new homebuyers and $6,500 for buyers who already own a home and should support home prices. But it ends at the end of April.
Many buyers will push their deals forward to get in before the deadline and then demand for homes could sink afterward.
One of the few bulls out there is NAR, whose chief economist, Lawrence Yun, is counting on the tax credit to provide temporary support for housing markets until the economy recovers enough to start fueling sales. He predicts price improvement in 2010 of more than 3%.
"The headwind we face is rising mortgage interest rates," Yun said, "but the compensating factors will be the homebuyers tax credit in the first half of the year and increased job creation in the second half."
Prices have risen more than 3% since May, according to S&P/Case-Shiller.
But most forecasts predict price declines in 2010, with possible losses ranging from anywhere from 3% on up. Fiserv Lending Solutions, a financial analytics firm, forecasts that prices will fall in all but 39 of the 381 markets it covers, with an average drop of 11.3%.
"We've seen recent price stabilization because of low mortgage interest rates and the impact of the first-time homebuyers tax credit," said Pat Newport of IHS Global Research. "But there are really good reasons to think prices will now start going down."
There are three main reasons for the reversal: a coming flood of foreclosures, rising interest rates and the eventual end of the tax credits.
More foreclosures
For Gus Faucher, the director of macroeconomics for Moody's Economy.com, the huge number of foreclosures that remain in the pipeline is the big problem.
Moody's upped its estimate of defaults recently because of shortcomings of the government-led mortgage modification programs. Trial workouts are not being made permanent and completed modifications are redefaulting at high rates.
"There are going to be fewer [successful] modifications than we thought," said Faucher.
Even so, he added, much of the price decline has already occurred and Moody's forecast is for only another 8% drop. The worst-hit markets will be the ones suffering the most foreclosures, places like Arizona, California, Florida and Nevada. (See 7 tips for buying foreclosures)
Resetting option ARMs (adjustable rate mortgages) will also aggravate the foreclosure problem. These mortgages allow borrowers to pick their own payments, which can be so low they don't even cover the interest. Balances swell.
For many of the more than 350,000 option-ARM borrowers, it's time to pay the piper. Their loans will change into fully amortizing mortgages that will carry much higher monthly payments. A very large percentage of these homeowners will default, according to Shari Olefson, author of "Foreclosure Nation: Mortgaging the American Dream."
"We've still only seen the tip of the foreclosure iceberg," she said.
She also predicts more strategic defaults, people deliberately walking away from even fixed-rate mortgages as the value of their homes dips well below the amount they owe.
Olefson's forecast is for price declines of 5% to 15%, depending on the area, with a national median price drop of about 10% for 2010.
Rising interest rates
Also affecting prices will be higher interest rates. Some analysts, according to Newport, think rates for a 30-year mortgage will pass 6% next year as the government curtails housing market support.
The Federal Reserve has helped keep rates low through purchases of mortgage-backed securities. But that program is winding down and will end in March.
"The government is throwing everything at the market but the kitchen sink," said Peter Schiff, president of Euro pacific Capital. "It can't prop up housing markets forever."
Schiff is among the bigger bears. Though he gave no specific prediction, he thinks prices -- already down 29% from the peak -- are only halfway to the bottom.
The end of the tax credit
As a tool for supporting housing markets and prices, the tax credit for homebuyers is a two-edged sword. It reduces taxes dollar-for-dollar by up to $8,000 for new homebuyers and $6,500 for buyers who already own a home and should support home prices. But it ends at the end of April.
Many buyers will push their deals forward to get in before the deadline and then demand for homes could sink afterward.
One of the few bulls out there is NAR, whose chief economist, Lawrence Yun, is counting on the tax credit to provide temporary support for housing markets until the economy recovers enough to start fueling sales. He predicts price improvement in 2010 of more than 3%.
"The headwind we face is rising mortgage interest rates," Yun said, "but the compensating factors will be the homebuyers tax credit in the first half of the year and increased job creation in the second half."
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