October, 2009

Last month, we saw that August existing home sales eased back slightly after four months of sustained growth, so we’ve been anxiously waiting to see what happened in September, and, it’s great news!

With the big jump in September, we can report that home sales have been up in five out of the past six months!

September’s existing homes sales are not only up compared to August, but they’re up compared to last year, also — 9.2 percent higher than September 2008.

NAR President Charles McMillan says that affordability conditions remain historically high and credits the first time homebuyer tax credit for the growth and says that the credit should be extended into next year.

The Existing Home Sales Report also shows that the current supply of houses is getting lower. September’s inventory fell 7.5 percent to 3.63 million homes available for sale, and that’s down 15% from a year ago. This means that Americans are buying houses and at this rate, home prices may soon start to go back up.

In The West, existing sales surged by 13%, compared to August. That’s also nearly 6% higher than this time a year ago. But prices in that area are still down. The median sales price in the hard hit West in September was down 15% compared to last year, which is still a lot better than the 25% we were seeing in mid-summer.

Next up let’s look to the South. Home sales there also rose in September, up by 9% over August, and compared to a year ago, sales are up again over 10% from September of 2008. And prices? Down just over 7% compared to a year ago.

Now let’s take a look at the sales gains in the Northeast. They experienced a 4.4% sales spike in September, compared to August. Those sales are up an impressive 11.8% above the same period last year but prices were down, exactly 7% compared to a year ago.

And ending up in the Midwest, sales rose nearly 10% in September over August, and again, the numbers were up compared to last year, by a healthy 7.8%. Although prices were down, but by a negligible 1% in the last year.

So what’s it all mean to you? Prices are lower than they were — but you can’t compare now to the prices of the real estate boom — and it’s clear that the numbers are making up significant ground on the dips of the summer. And as September’s impressive figures are telling us, homes are selling! This means fewer homes are for sale — inventory is down across the country.

And the lower inventory gets, the sooner we’ll be back to a normal real estate market. And from the way things went in September, the outlook is rosy.

The FHA is very focused on the credit quality and the strength of the fund, going forward, and it has changed policies to deal with this. The FHA has hired a new chief risk officer, brought in a new head of single family business, and the secretary, Shaun Donovan, has stated that there is nothing more important than insuring the quality of the FHA fund, going forward.
With over 30 billion dollars in capital, the FHA has not required any tax payer money. There has been no bailout required and the total combined capital ratio is over 4%. When compared to other industry players who participated in this mortgage market over the last decade, the FHA is only institution of its size that hasn’t needed special funds from the government, a bailout, or hasn’t failed. The FHA sees itself today in a far better position than any of the other participants found themselves at this time in the housing cycle.

A mortgage is usually the single biggest expense in most people’s monthly budget. So, it’s understandable that people want to spend as little on their mortgages as possible, which is why the lower interest rates can be tempting. But there are other things to take into consideration. Namely, you have to look also at your lifestyle and your personality.

The old-school, conventional fixed rate mortgages are still the most common. The biggest advantage: Peace of mind. Fixed rate mortgages appeal to buyers who want to lock in a rate they are happy with, and forget about it. It’s a great choice for people who want consistency in their budgeting and want to know all the time what their monthly payments will look like.

One question: would you prefer a 15 year, or 30 year mortgage? There are advantage to both options. Monthly payments on a 30 year loan are generally lower than on a 15 year loan. Those who opt for a 15 year loan build equity more quickly and pay less interest over the life of the loan.

However, whether it’s a 30, or 15 year note, getting a conventional mortgage often requires a big down payment — 20% or more!

If you don’t have that kind of cash in your savings account, then check out FHA loans. Guaranteed by the federal government, FHA loans are filled with incentives like rates and low down payments. Buyers who don’t have a lot saved for a down payment can put down as little as 3.5%. There are some restrictions, however, as to the types of properties you can buy because not all of them are eligible under FHA rules.

Now, for some people, the fixed rate route, is not the best route. For some people, ARMs, or adjustable rate mortgages, are the best option. They’re unpredictable, but that is not necessarily bad thing.

During the initial fixed period, the rate can be really low, meaning payments on that loan will be low. That fixed period generally lasts sometime between one and 10 years.
Many ARMs come with the option to convert to a fixed rate loan, for a fee. This might appeal to someone who enjoys watching rates going up and down and who will jump on a great fixed rate when the time is right.

These days, Balloon mortgages are rare, but if you look hard enough, you might be able to find one. In a balloon mortgage, the term is short, with a term of usually 5 to 7 years. The payments are low because they are based on a term of 30 year loan. They also carry a lower interest rate as well. But, there is substantial risk associated with balloon mortgages. The problem comes at the end of the term when the borrower needs to pay off the outstanding balance. And, the big question there is…what if property values have gone down? You might not be able to refinance.

There is usually an option to reset this type of loan, but it is not automatic and requires the borrower be in good standing at the end of the loan. It may also be a useful instrument for anyone who knows they are going to sell a property in just a few years, well before the loan has to be paid.

Now all these options can be confusing — talk to your REALTOR®, and explain your plans. Discuss your mortgage options – especially, how much risk is too much risk. This will help you be sure the mortgage you pick, is the right mortgage for you.