this month in real estate april 2009

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  • 1.RESEARCH This M h i R l E Thi Month in Real EstateReleased: April 9, 20099Commentary. 2 The Numbers that Drive Real Estate3 Recent Government Action. 9 Research for Buyers and Sellers.14-Courtesy of Mike Walker

2. Commentary Affordability, low rates, desire to buy provide hope for the U.S. housing market Housing affordability now stands at its best level since 1971. This greater affordability helped boost home sales in February. Especially strong was the activity attributed to first time home buyers, who represented half of newFebruary first-time home purchasers this month. The $8,000 tax credit helped move many of these first-time buyers out of their rentals and into their own homes.In light of weakening global economic indicators and a poorly functional financial system, the U.S. government and Federal Reserve remain proactive, with the Federal Reserve alone purchasing and holding up to an additional $750 billion of agency mortgage-backed securities and $100 billion more in housing agency debt. The Fed moves are designed to provide greater support to mortgage lending and housing markets.While Whil economists expect continued softness i the overall housing market, encouraging buyer signs abound iidf in hll h i k ib i bd given the historically low mortgage rates and the availability of distressed properties. There are localized opportunities for savvy investors and for those buyers who are qualified, willing, and ready to buy on the cheap. And with rates at historic lows, the question for many borrowers becomes, how long will the good times last? The Fed's actions and mounting federal deficits could weaken the dollar and spur the aforementionedFed s inflationary trend, which could send interest rates back up. In addition, the first-time home buyer tax credit expires at the end of November. Prominent economists maintain that low rates should be available for quot;at least the next several months.quot; But if fears of inflation cause investors to shun Treasurys, the Fed's impact on long- term interest rates could be short-lived.2 3. The Numbers That Drive Real Estate-Courtesy of Mike Walker 4. Home Sales - In MillionsThe annual rate for a particular month represents what the total number of actual sales for a yearwould be if the relative pace for that month were maintained for 12 consecutive months.fpffExisting home sales rose 5.1% in February, reversing losses in January. Favorable market conditions and government-granting incentives are gaining traction in attracting a larger wave of first-time home buyers, who accounted for half of all home sales last month. More robust activity is expected in the next few months. A recent House Hunt survey revealed that the U.S housing market appears to be showing early signs of emerging from the worst real estate market in three years.5.10 4.99 4.95 4.904.944.93 4.92 4.85 4.544.954 954.744.72 4.49 Annual Rate of SalesFeb Mar Apr May Jun pyJulAug Sept Octg pNovDecJan Feb Data released on March 23, 2009 4 Source: National Association of Realtors 5. Median Home PriceIn Thousands The national median home price continues to overcorrect. Home prices stood at 2003 levels in February at $165,400, which translates to a 16% decline from a year ago. Given the downward distortion in price comparisons due to distressed sales, its important for owners to keep in mind that this doesnt equate to a similar loss of value for traditional homes in good condition, said Lawrence Yun, NAR chief economist. Regionally, the West is showing signs of recovery with stronger-than-expected sales gains. gains California is in the lead with median listing prices starting to rise for the first time in three years.$137 $143$156 $166$181 $198$218$214 $196 $165200020012002 2003 20042005 2006 2007 2008 2009 Median home price as of February every year (Data released on March 23, 2009)5 Source: National Association of Realtors 6. Inventory - Months SupplyNumber of months it would take to sell all the homes on the market at the current rate of salesContinuingly improved affordability conditions and lower interest rates are expected to attract more potential home buyers and help reduce inventory. According to Move Inc., approximately 1 in 4 (23%) Americans expect to buy a home in the next five years.The months supply of homes has fallen to less than 10 months this year in comparison to double-digit levels for most of last year. In February, 3.8 million existing homes were available for sale, representing 9.7 months of supply at the current pace of sales. sale 97 sales11.3 10 911111110.910.610 10 109.79.7 9.49.7 Monthly InventoryFeb Mar Apr May Jun py Jul Aug Sept Octg pNovDec Jan Feb Latest data release: March 23, 20096 Source: National Association of Realtors 7. Mortgage Rates30-Year Fixed After the Fed announced that it would expand purchases of mortgage-backed securities and Treasury securities, applications for both purchase and refinance loans jumped 32%. Last month, mortgage rates averaged around 5%, down from 5.1% in February and 6 % a year ago. Buyers continue to enjoy lower mortgage rates as weekly rates fell to 4.78 percent ijlkl f ll 4 8 in the first week of April. With rates at historic lows, uncertainty remains as to how long these low rates will last. Increasing federal deficits due to massive government spending could weaken the dollar and prod inflation, which could send interest rates back up.5.25% 5.16% 5.15%5.12% 5.10%5.07% 5.03% 5.01%5.04%4.96% 4.98%4.85% 4.78%Average W kl Mortgage RatesA Weekly M tRt 1/8/2 1/15/ 1/22/ 1/29/2/5/2 2/12/ 2/19/2/26/3/5/2 3/12/ 3/19/3/26/ 4/2/2 2009 2009 20092009/2009 /2009 /2009/2009 /2009/2009/2009 /2009/2009 7 Source: Freddie Mac 8. Affordability - % of IncomeThe percentage of a median familys income required to make mortgage payments on a median priced home Quality buyers are continuing to take advantage of stimulus incentives and favorableaffordability conditions as evidenced by increasing sales last month. Exceptionally lowhome prices and mortgage rates continue to give them more buying power. Accordingto NAR President Charles McMillan, With the drop in interest rates, a median-incomefamily can afford a home costing $20,000 more than a year ago for the same monthlymortgage payment.14% 20% 19% 19%18% 19%20% 23%22%18%200020012002 2003 200420052006 2007 2008 2009 Affordability as of February every year. Calculations assume a 20% down payment.8 Source: National Association of Realtors 9. Recent Government Action- Courtesy of Mike 10. Government Teams Up with Investors to Purchase Toxic AssetsThe Treasury Department recently released the Public-Private Investment Program to ensure that lending continues to flow to households and businesses. This program is intended to mend the balance sheets of banks which are filled with toxic assets due to losses incurred during the housing market implosion.The government will come together with private investors to purchase the loans from the banks at discounted prices. The government and investors will only have to put up a fraction of what the assets sell for and the FDIC will insurelh t tf ti f h t th t ll f d th ill i the remainder. Investors and the government will own the assets as an investment in hopes of making money because they believe fear has driven prices below their actually worth.yIf this initiative works, banks will have a greater ability to extend more new loans. Banks could have more flexibility in originating loans that the government typically does not guarantee, including loans greater than $729,000, also referred to as jumbo loans. Banks creating more new loans in the higherl fdt j blBk til i th hi h price points could ultimately translate into upper price home sales regaining momentum and the eventual return of a healthy housing market.10 Source: Washington Post, 11. The Federal Reserve Pulls Out the Stops to Get the Housing Market Back on TrackThe Fed illustrated that, even with the federal funds rate nearly at zero, it still has more tricks to pull out of its hat by taking unprecedented steps toward supporting mortgage lending and the housing market. Along with purchasing $300ppggggg g pg billion in Treasury securities, the Fed promised an additional $750 billion on top of the $500 billion it has already committed to purchasing mortgage-backed securities.When the Fed first announced that they would purchase these securities a few months ago, interest rates fell by 1%. After the most recent announcement, rates fell b f ll by nearly a quarter of a percent from 5.03% on March 12 to 4.78% on April f tf5 03% Mh t 4 78%A il 2 Some banks are extending loans at around 4.5%.Estimated Payment on a $200,000 Mortgage InterestMonthlyRatePayment8.5%$,$1,5386.5%$1,264 4.5%$1,013Monthly Payment = Principal and Interest Portion Only11 12. Banks Permanently Banned from Practicing Real EstateIn 2001, the Federal Reserve Board and the U.S. Treasury Departmentissued a proposed regulation to allow national bank holding companies andfinancial subsidiaries to engage in real estate brokerage and management. Sincethis presented a clear conflict of interest, annual bills were passed to prevent banksfrom doing so On March 11, President Obama signed into law the Omnibus so.11Appropriations Act that permanently bars banks from entering the real estatebrokerage business.This act is notable because banks in the real estate business could createan uncompetitive environment that is ultimately against consumer interests, sincebank employees would not have the same fiduciary relationship with consumersthat independent real estate professionals have. pp 12 Source: Realtor Magazine 13. New Website to Help Struggling HomeownersThe U.S. government recently unveiled a consumer website to inform strugglinghomeowners of the types of government resources available to them. On this site,themsitehomeowners can find the