A string of positive economic reports on the housing market over the past few weeks show the hangover from the first-time homebuyer tax credit is easing and demand for housing is slowly increasing. New home sales for August were of their lows from July and existing home sales rose a better than expected 7.6%. Perhaps the best news of the past week was the Commerce Department’ s report that new home construction surged 10.5% in August and 2.2% from a year ago. Many economists feel builders are beginning to anticipate a future shortage of housing when the economic recovery gets into full gear. Home prices also showed a 3.2% year-over-year increase in July according to the S&P Case-Schiller Home Price Index.

Mortgage rates remain just barely off their lows for the year but are still extremely attractive with the benchmark thirty-year, fixed-rate sitting at 4.25% with no points. The fifteen-year fixed also remains near historic lows at 3.75% with no points. Thirty-year government loans for FHA, VA and Rural Development are currently in the 4.25% to 4.375% range with no points. Rates have managed to stay low despite a month-long rally in the stock market thanks to continued weak employment and this month’s decision by the Federal Reserve’s Open Market Committee to leave rates unchanged and the return of European debt concerns.

On the local front, Rural Development funding has been restored and we are beginning to see a resurgence in first-time homebuyers entering the market and using the popular zero-down program to take advantage of low home prices, interest rates in the low 4% range and Rural Development’s lack of a monthly mortgage insurance component to purchase more home for the money than anyone would have thought possible just a few years ago. Those exceeding the $70,750 annual household income limit for Rural Development can still take advantage of this buyer’s market with FHA financing which only requires 3.5% down and has comparably low interest rates to Rural Development and no geographic restrictions. And let’s not forget one the most popular government loans for our area, VA Guaranteed, which allows for 100% financing, no income limits, no geographic restrictions and no monthly mortgage insurance.

Lastly, we have seen a steady increase in condominium purchases since early August when it became clear that BP had the Deepwater Horizon spill capped. While out-of-state second home buyers and investors were mostly taking a wait and see approach in June and July, we now see them returning in earnest to take advantage of rock bottom prices and all that Panama City Beach has to offer. The impact of the new Northwest Florida Beaches International airport and low-fare carrier Southwest is evident in the big increase in the number of buyers from Nashville, Texas and Northeast. The most encouraging thing about the current condo market demographic is that they are almost exclusively true second-home buyers who plan to use their unit as much as possible and allow their friends and families to use and enjoy when it is vacant. This sets the foundation for a sustainable condo market and steady price appreciation without the investors and flippers that brought so much volatility to the market in the past

Mortgage rates actually rose a bit this week for the first time in a couple of months. After bottoming out earlier in the week on renewed global economic fears, a string of positive economic reports had stocks rallying in the second half of the week creating a sell-off in US Treasuries. After falling to 2.42% on Monday, the yield on the ten year T-Note had risen to 2.72% by Friday afternoon causing a corresponding rise in the thirty year fixed mortgage rate from 4.125% to 4.375%.

The rally on Wall Street started on Wednesday when reports showing manufacturing activity in the US and China expanding. This was followed by upbeat reports on consumer spending and home prices and a better than expected report on August unemployment. The S&P Case Schiller Home Price Index showed that home prices have risen nationally by 3.6% over the past year and 4.4% in the second quarter. Perhaps the best news in recent days, however, was the unexpected jump in pending home sales in August. After a dismal July that reflected the end of the first-time homebuyer tax credit, the number of new contracts surprised everyone by rising 5.2% for the month.

There are some FHA changes coming down the pipe that I wanted to make everyone aware of. HUD, in an attempt to bolster FHA’s loan loss reserves, has altered their up-front and monthly mortgage insurance premiums for all case numbers assigned after October 4^th. The up-front premium will be reduced by .75% going form 1.75% to 1% of the base loan amount. However, the annual premium, that which is paid each month in the payment, will increase from .55% to 1.55%. This means that on a sales price of $100,000, the new up-front premium will be $965 ($100,000 X .965 X 1%) and the new monthly premium will be $124.64 (1.55% x $96,500 / 12). Compare this to the old formula ($96,500 X .55% /12) which would have yielded a monthly premium of $44.23. So borrowers will be paying roughly $80 more per month for their FHA mortgages on a sales price of $100,000 which will in turn reduce the amount of loan they will qualify for.

Lastly, Rural Development has announced they expect to have funding restored by the middle of this month so we no longer have to close with a conditional commitment.

After a week of miserable news on the housing market, including last Friday’s report that show May new home sales fell 33% and existing home sales off 2%, we got some much needed good news on Tuesday which showed a modest gain in home prices nationwide. The S&P Case-Schiller Home Price Index of twenty major housing markets showed prices gained by nearly 1% in May over the prior month and 3.8% from the year earlier. Despite the recent gains, however, home prices still remain some 30% below their peak. Some economists fear that, without the stimulus provided by the now expired first-time homebuyer tax credit, the housing market recovery could lose momentum but others argue that the overall effect of the tax credit has been overblown.

You certainly can’t blame interest rates for any housing market woes as Freddie Mac reported last week that rates for thirty-year mortgages had reached an all-time low. And did I mention that was last week? On Tuesday the yield on the ten-year T-note fell below 3% for the first time since April of 2009 driving rates on thirty and fifteen-year mortgages down to 4.50% and 4.00% respectively. Global economic worries over a possible China slowdown and European debt have investors jittery and looking for a safe haven in the form of US Treasury debt - thus pushing down yields along with interest rates. The Federal Reserve's Open Market Committee also reaffirmed last week that it intended to keep interest rates exceptionally low for a considerable period of time.

The bigger picture for the housing market remains this. Despite the tax credit hangover the market experienced in May most analysts agree that pent up demand for housing will ultimately stabilize the market. This is supported by a report from the Mortgage Banker's Association last week that showed most banks across the country were adding mortgage staff to deal with a possible surge in home financing over the next year. Rates remain extremely low and, though not rising as much or as fast as many would like, home prices are indeed improving. As long as the US economic recovery can weather exterior threats from Europe and China I expect the housing market to continue to improve over the second half of 2010 and foresee significant gains in 2011.

Mortgage rates remained at or near historical lows over the past week with benchmark thirty-year, fixed-rate at 4.75% with no pints and the fifteen-year, fixed-rate at 4.25%.Rates on FHA, VA and Rural Development loans are also all under 5.00%. Rate shave been held at bay by the usual suspects – European debt concerns, weak employment numbers and stick market volatility. The longer-term prognosis doesn’t see interest higher interest rates coming for some time. A research paper released by the San Francisco Federal Reserve on Tuesday argues that interest rates will remain low until 2012 thanks to high unemployment and low inflation.

Also on Tuesday, the National Association of Home Builders released their monthly builder confidence index which registered a surprise decline in June. The index came in at 17 after an unrevised reading of 22 in May. The sharp decline in builder confidence was attributed in part to the expiration of the first-time homebuyer’s tax credit but still came in well below the 22 reading most analysts were expecting. Yet the NAHB also noted that a shortage of housing could result if we see a turnaround in the jobs market that could, in turn, unleash a flood of pent-up demand for homes that builders may not be able to satisfy. To that end, the NAHB is supporting current legislation in Congress that would make $15 billion in loan guarantees available for private builders to meet such demand if it were to arise.

Lastly, it appears that more revisions to FHA are in the pipeline. Though a proposal to raise the minimum down payment requirement to 5% appears to now be dead, what is not dead is a proposal to raise the monthly mortgage insurance premium, or MIP, to 1% annually or higher in attempt to shore up FHA’s dwindling reserves. I will give a thorough update on all changes to the FHA program once they are finalized.

With more and more Realtors and customers expressing concern regarding the potential effects the Deepwater Horizon oil spill could have on our local real estate market, I thought I would offer up my two cents and what I have been telling anyone interested enough to listen. While I will not attempt to minimize the enormity and severity of this unprecedented environmental disaster, I will offer my reasons for why we on the Emerald Coast should fare far better than our friends in Louisiana, Mississippi and Alabama. We here in Bay and surrounding counties have several things in our favor that should keep the oil impacts to a minimum.

The first and most obvious reason Florida Panhandle beaches will not feel the full brunt of the spill is simply proximity. The sickening images of birds literally drowning in oil and reporters up to their knees in thick crude are coming from those areas in Louisianan closest to the site of the spill. The enormous amount of oil released before any semblance of a response could be mustered by BP or the Feds all has inevitably found its way to the barrier islands and Marshes of the Louisiana coast. Similarly, wind, rain and wave action along with sunlight and humidity gradually break down the oil and, over time and distance, work to turn the oil into a less lethal substance at least in the short-run.

Another reason why the impacts here will be less severe is that if there is any coastal barrier that could be considered optimal for oil impact it would be a sandy beach. The marshes and estuaries of Louisiana are the worst place for oil as once it is there it is nearly impossible to clean up. In Alaska, after the Exxon Valdez incident, much of the impacted coast was rocky and gravely and subject to much greater tides than hear in the Gulf making cleanup painstakingly difficult. Our minimal tides and pure sand beaches mean that if the oil does come ashore, it will be easily cleaned up and carted away and the beach re-nourished…just as we do after a hurricane. Only this time it will be BP paying for it.

Lastly, between the Alabama-Florida state line to the tip of Cape San Blas, there are only five passes into the Gulf that oil could potentially enter our bays. The largest and most immediately threatened is, of course, the Pensacola pass where boom is deployed and skimmers are already operating. After that there is only Destin Pass, St. Andrews, Crooked Island pass and the entrance to St. Joe Bay and all of these are considerably smaller and more manageable than Pensacola. I feel confident that, in part because we have had so long to plan and prepare, that boom and skimmers will keep the oil out of Choctawhatchee, St. Andrews, and St. Joe bays as well as Crooked Island Sound and there will be little or no environmental impacts in these areas.

Again, it is not my intention to minimize the effect this catastrophe is having on the region and our way of life. It will take years before the entire Gulf Coast recovers from this man-made tragedy. But if there is a silver lining, the Deepwater Horizon was not drilling just off our coast when it exploded and took the lives of eleven men. It was off the coast of Louisiana where the impacts have been greatest. Of course, none of our good fortune to this point will hold out forever if BP does not stop the flow of oil into the Gulf. We have been lucky to this point and still have a lot in our favor, as I have mentioned, but until the flow of oil is permanently stopped, we cannot know how much we will ultimately have to clean up.

Despite bouncing off their lows for May, mortgage rates remain below 5% with the benchmark thirty-year, fixed-rate coming in at 4.875% with no points and the fifteen-year, fixed-rate right at 4.25% with no points. A steep drop in the yield on the ten year Treasury note over the past several weeks has lead to some of the lowest rates of the past twelve months just in time for the summer buying season. Ongoing volatility in the equity markets combined with uncertainty over European sovereign debt has brought a level of fear back into the markets which have benefited US Treasury debt prices thus driving rates lower since a bond’s yield moves inversely to its price. Government rates are also very attractive with most thirty-year fixed on VA and FHA sitting around 4.75% and jumbos are still under 6.00% at around 5.875%.

There is some important news on the government lending front. First, Rural Development is finally back up and running after a two week hiatus that left many loans in limbo. RD is once again willing to issue “conditional commitments” subject to eventual Congressional funding but the secondary market investors are willing to purchase loans with the conditional commitments so we have no issue in closing them. The new RD guarantee fee has been raised from 2.041% to a rate not to exceed 3.5%. FHA also implements a new guideline this month that could have a real impact on FHA borrowers. After raising the up-front MIP from 1.75% to 2.25% in April, HUD has now restricted seller paid closing costs and pre-paids to just 3% of the sales price – down from 6% before. This means that, in addition to 3.5% minimum down payment contribution, it is very likely the borrower will no be paying additional cash at closing to cover the seller-paid shortfall.

Lastly, although the funding for the National Flood Insurance Program expired again on May 31^st, we are still able to close loans in a flood zone if we can show that the borrower has applied for flood insurance with their insurance provider and provide a one-year paid receipt for the coverage. This should mean business as usual with no disruption to closings on properties in a flood zone.

It is hard to believe but the sweeping regulation governing real estate appraisals known as the Home Valuation Code of Conduct or HVCC is already one year old. The controversial rule negotiated by New York state Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac along with their regulator the Federal Housing Finance Agency was designed to place a barrier between mortgage brokers, Realtors and appraisers with the assumption that those with an interest in seeing values manipulated would now be excluded from choosing the appraiser, ordering the appraisal or challenging the value determination thus eliminating inflated values and the subsequent fraud seen over the past decade. This all sounded very good on paper but was quickly met with concerns once implemented.

The biggest problem most cited by mortgage lenders and Realtors alike is the inability to choose the appraiser. Not in the sense of being able to use one’s appraiser buddy who has all his eggs in your basket and thereby may feel compelled to get to the needed value for fear of losing future orders. Rather, I refer to the inability under HVCC of simply being able to pick an appraiser familiar with the market and type of property. Because of the so-called ‘firewall’ between mortgage production staff and appraisers it became necessary under HVCC to utilize the services of Appraisal Management Company’s or AMCs. This is because the selection of the appraiser must be random and handled by a disinterested third party. Because the AMCs have no way of knowing whether it is a condo in southern Bay County or a farm or in northern Walton, they have no way of selecting an appraiser familiar with the area or with particular knowledge of the property type. The AMCs also have no way of selecting an appraiser based on experience or expertise. They most often base their criteria on who is the cheapest and who can get it done the fastest. This has lead to many of the most seasoned and experienced appraisers opting out of the AMC model or worse - leaving the industry all together. 

The inherit problems with the HVCC model are obvious. What we are often left with, unfortunately, is appraisals not making value and contracts falling apart. And while I respect the value opinions of 95% of the appraisals I see, the limited inability to challenge a value or even order another appraisal in some necessary instances is made nearly impossible under HVCC. My brother, who is also an appraiser in Alabama, and I often laugh when together that we are not even aloud to talk under HVCC guidelines - obviously a jest but indicative of how we both feel about our inability to discuss the value of a property under the rule. Again, I feel that the HVCC was well intentioned and I have certainly seen cases where top producing loan officers had appraisers in their pockets and had predetermined the appraised value before the placing the order. I know there have been abuses and I firmly believe they contributed, along with many other factors, to the housing bubble bursting. I do wish, however, that more thought had been put into the practical application of the HVCC. As with so many good intentions, the outcome is often quite different from the original vision set forth. If lenders, borrowers, Realtors and, indeed, appraisers are to be best served, a review of HVCC on its one year birthday is in order.

The National Association of Homebuilders reported this week that their “Housing Market Index”, a survey among its members to quantify builder sentiment about the housing market, rose three points in May to 22. While this is still well below the 50 mark which indicates builders feel optimistic about the housing market, it is the highest reading since August of 2007. It has not been above 50 since April of 2006. Meanwhile, the Commerce Department reported that new home construction soared in April – up nearly 41% from the same moth last year. The number of starts in April was also 5.8% higher than the previous month. The number of applications for new building permits actually fell for the month - down 11.5% from March. April 2010 applications were, however, still nearly 16% higher than the same month in 2009.

Now for the latest in the soap opera that has become Rural Development. After warning for weeks that the program would be out of funds sometime in May, we were all relieved last week when USDA issued a memo saying the program had been saved and that a new 3.5% Guarantee Fee would insure the solvency of the program and that loans in the pipeline could close as scheduled. Well, the emotional roller coaster continues as late last week USDA rescinded their earlier memo saying that funds were depleted and no new commitments, even conditional commitments, could be issued at this time. This means I have four files gathering dust in Marianna and four customers unsure as when they will be able to close. I will be sure and provide an update as this drama continues to unfold.

Mortgage rates remain very attractive with the benchmark thirty-year, fixed-rate at 4.875% with no points. As I said last week, continued uncertainty surrounding the European debt situation and the slide in the value of the Euro has kept investors rattled and rates have thus improved even further. Gold prices are setting records and bond prices continue to climb and this, combined with returned volatility in the stock market, should keep up the downward pressure on rates in the short-run.

As a flood of first-time homebuyers rushed to take advantage of the $8,000 tax credit the Rural Development program has been strained to the limit with a year’s allocation of funds expected to be depleted sometime tomorrow. There has been little interest in Congress to extend funding and it now appears that without a last minute vote to re-fund the program, Rural Development will be out of funds by week's end. This will leave lenders with only the ability to secure “conditional commitments” from Rural Development. The good news is there are still investors out there that will purchase loans with only a conditional commitment from RD. This means that loans currently in process that missed the deadline to secure funds will still be able to close – a relief for both lenders and the thousands of RD first-time buyers who were under contract prior to April 30^th but not yet closed. Now for the bad news. Any loan that misses the deadline and is forced in a conditional commitment will see their up-front Rural Development Guarantee Fee jump from 2.041% to 3.5%. This is because legislation in the House of Representatives is calling for the RD program to be budget neutral and the higher up-front fee will ensure RD is self-sufficient.

 Mortgage Rates continue to benefit from the increased volatility in the stock market as well as lingering concerns over European debt and the effects it could have on the US and global economies. The benchmark thirty-year, fixed-rate stands at 5.00% even and only a .25% point will by you down to 4.875%.  The fifteen-year fixed-rate stands at 4.375%. Jumbo rates are also beginning to feel the love as the once frozen secondary market for non-conforming loans is slowly beginning to thaw. The thirty-year Jumbo rate stands at 5.875%. So while some were pointing to a spike in interest rates in the second quarter of this year, it has, thus far, failed to materialize. Despite the $1 trillion bailout for Greece and the Euro, fears remain that the underlying global debt problem could domino into a financial calamity similar to the sub-prime mortgage crisis of 2008. Until those fears are quelled, the demand for bonds should keep yields and mortgage rates low in the short-run.

Breaking a four month string of declines, new home sales jumped 26.9% in March for the best improvement in a single month in forty-seven years. Sales were up in every region of the U.S. but were particularly strong in the South where sales of new homes increased by 43.5%. The report on new home sales followed closely on the heels of a stronger than expected report on existing home sales which showed a 6.8% increase in March. The seasonally adjusted annual rate of 5.35 million units reflected in the numbers represented a 16.1% increase over existing home sales in March of 2009. Analysts credit most of the surge in home sales to the first-time homebuyer tax credit as buyers rush to get in under the deadline.

Mortgage rates remain at historically low levels but have subject to increased market volatility of late with the benchmark thirty-year, fixed rate bounding between 5.125% and 5.375%. After touching 4% two weeks ago the yield on the ten-year Treasury note now stands at 3.76% which explains the quarter percent swing. While many are forecasting higher rates ahead, it is looking increasingly unlikely that we will not see a significant increase in rates in the next two quarters and possibly not until 2011. With the end of the homebuyer tax credit and other Federal stimulus measures drawing to an end, some economists point to a possible double-dip recession if employment growth and home sales cannot continue to improve on their own. Until the double-dipper theorists are proven wrong, I expect the Federal Reserve to keep interest rates extremely accommodative in the short-run.