The Big Question - How Are Housing Prices Performing?
In the past week we gave some perspective regarding how housing prices have performed in the long run. Despite the recent precipitous drop in prices, housing as an investment performs strongly when you look at the big picture. On the other hand, we can’t ignore the fact that prices have fallen significantly in the past year and the overall economy is not likely to recover until home prices stop dropping. So, the big question is, when will home prices stop dropping? With so many foreclosures on the horizon, there may seem to be no end in sight to the current cycle. Once again, let’s add some perspective.
Remember, a few years ago when it seemed that home prices would not stop rising? Everyone was outbidding each other to get the next property. Of course we knew that home prices could not skyrocket forever because people would not be able to afford to purchase. The same applies here. Home prices can’t just keep dropping. As prices become lower, affordability will go up and more Americans will purchase real estate. Recent record low rates will help move that date forward as well. Even more important, as buyers come back to the market and prices stop falling, lenders will be more confident in lending in a stable price environment. This is why price stability is so important to our overall financial recovery. When will this happen? Watch existing home sale statistics as we ring in the New Year, as they will be the most important indicator of whether buyers are returning to the game.
Weekly Interest Rate Overview: The Markets.
Mortgages continued their assault on record lows as they dropped for the ninth week in a row, although the rate of decline has slowed in the past few weeks. Freddie Mac announced that for the week ending December 31, 30-year fixed rates averaged 5.10%, down from 5.14% the week before. The average for 15-year fixed fell to 4.83%. Adjustables were mixed with the average for one-year adjustables decreasing to 4.85% and five-year adjustables rising to 5.57%. A year ago 30-year fixed rates were at 6.77%. "Rates for 30-year fixed-rate mortgages fell for the ninth straight week and represented a third consecutive all time record low since Freddie Mac’s survey began in April 1971," said Frank Nothaft, Freddie Mac vice president and chief economist. "Since the end of October of this year, these rates have declined by about 1-1/3 percentage points, or a reduction of approximately $173 a month for a $200,000 loan. As a result, the number of refi applications for conventional mortgages jumped over 500 percent between the weeks ending on October 31st and December 26th. Lower rates and falling house prices are also making homeownership more affordable to potential homebuyers. For instance, house prices fell 18 percent over the 12-month period ending in October, according to the S&P/Case-Shiller® 20-city composite index. Every city posted a second consecutive month of decline in October. From its peak set in July 2006, the composite index is down 23.4 percent."
Current Indices For Adjustable Rate Mortgages Updated January 2, 2009
Daily Value
Monthly Value
Dec 31
November
6-month Treasury Security
0.27%
0.74%
1-year Treasury Security
0.37%
1.07%
3-year Treasury Security
1.00%
1.51%
5-year Treasury Security
1.55%
2.29%
10-year Treasury Security
2.25%
3.53%
12-month LIBOR–WSJ
3.844% (Nov)
12-month MTA
2.053% (Nov)
11th District Cost of Funds
3.125% (Oct)
Prime Rate
3.25% (Dec)
$7500 Tax Credit Still A Great Reason For First Time Homebuyers
First-time homebuyers in 2008 can take an income-tax credit on their purchase, thanks to passage in Congress earlier last year of the first-time home buyer tax credit. The definition of first-time homebuyer is generous. To get the credit, the homebuyer cannot have owned a home in the previous three years. The home must be a principal residence and purchased between April 9, 2008 and July 1, 2009. The credit is equal to 10 percent of the purchase price, up to $7,500. Single taxpayers with modified adjusted gross income up to $75,000 and couples with MAGI up to $150,000 will qualify for full credit. Singles with MAGI up to $95,000 and couples with MAGI up to $170,000 will get a reduced amount. Those with higher incomes don’t qualify. If the amount of tax a homebuyer owes is less than the amount of the credit, they get to keep the difference in the form of an IRS refund. The homebuyer must begin to repay the credit in two years in increments of about $500 a year over a 15-year period for those who received the full credit Homebuyers who sell their home before the credit is repaid must pay off the loan with any profits. If they sell the home at a loss, the loan is forgiven. Source: Chicago Tribune
USDA Offers 102% Financing For Many HomeBuyers Across The US In Every County In Every State
More buyers in search of home loans are turning to an obscure program operated by the United States Department of Agriculture. The program allows no-money-down purchases. In fact, including a mortgage insurance policy, a borrower can seek up to 102 percent. To be eligible, buyers can’t have income that exceeds 115 percent of the median county income. The loans are restricted to low-density areas, generally towns of no more than 25,000 residents. The loans are made by private lenders, then insured by the government. Some home builders are promoting the use of this program. "It’s one of our main tools right now," says John Bargnesi, vice president for sales of Scottsdale, Ariz., home builder Meritage Homes. Source: The Wall Street Journal
Demand For Commercial Real Estate Down Due To Shrinking Employment
Shrinking employment is reducing the demand for commercial real estate, and the Urban Land Institute, an industry trade group, is predicting that the bottom of the commercial market is still six to 12 months away. "There is a psychological component to all this," said Robert Gardner, managing director of real estate consulting firm Robert Charles Lesser & Co. "Exuberance on the upside is being compounded on the downside and markets will overshoot in the other direction." Financing is almost impossible for developers to obtain in many parts of the country, even for modest projects. “The mega deal is done” at least for now, Gardner said. "Usually some markets perform better than others," said Delores Conway, director of the Casden Economic Forecast at University of Southern California, "but demand is weak everywhere." Source: Los Angeles Times
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