Recent News Update

The National Association of Relators announced that pending home sales in February showed the highest increase month-to-month since Octiber 2001. The magnitude of this 8% plus rise was a bit unexpected although in our area, sales have been strong for several months. Part of the reason why we are seeing these increases in contracts of sale is the expiration of the Home Buyer Tax Credit at the end of thsi month (new contracts have to be in place by April 30th and close by June 30th).
In addition, the overall economy shows signs of strengthening despite continued high unemployment. Interest rates last week were up somewhat significantly to 5.31% for a 30 year fixed loan under $417,000. Most analysts said the rise was NOT due to the cessation of the Fed buying mortgage backed securities but rather to the strength of the economy and the bullish news on jobs last Friday.
The FHA's new rules for government-backed mortgages went into effect yesterday (April 5th) and raised the amount charged upfront by the FHA for mortgage insurance. While this one-time fee (now 2.25% of the loan amount) can be financed, it does increase the closing costs or monthly payment of most buyers. The FHA did not change the reserve requirements for borrowers and left the minimum down payment at 3.5%.
Buyers are getting frustrated with the time it is taking to get price approval for short-sale transactions. I estimate that 40% to 50% of all short-sales fall apart due to this problem. The Obama administration announced new rules for short-sales this week but their effect may be minimal. Lenders usually can sell a home as a short sale for more money than as a foreclosure (I estimate a 40% loss on the mortgaged amount with the typical foreclosure and 25 to 30% for a short-sale) but lenders have few incentives to move quickly on either type of transaction.
Prices for previously owned homes continue to bum along what many feel is the bottom. We are seeing price increases in some segments of our local market (notably those below $800,000) while other segments and locations are still bumping along. For a sustained turn-around in teh market we will need to maintain low mortgage rates and have more good news on employment. There is pent-up demand out there as evidenced by Open Home attendance and web hits on listings. If we can tap into that demand, prices will rise and inventory will decline.
Inventory remains low in the entry and middle tiers of the market where multiple offers are again common. I expect a few months of decline in total sales after the Tax Credit expires due to buyers being pulled forward in time to qualify for the credit. However, if rates remain low (a big question mark to me) and prices stabilize or fal back abit, sales will continue at the present 5M per year nationwide pace.