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Archive for May, 2010
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Monday, May 31st, 2010Post-Tax Credit Buyers May Save Money
Thursday, May 27th, 2010Missing the tax credit deadline might have seemed like a big mistake to some home buyers, but waiting could have been the smartest thing to do.
Interest rates have fallen so dramatically since April 30th that the typical purchaser of a $350,000 home, financed with a $280,000 mortgage, would have saved a bundle by waiting until May.
At April’s average rate of 5.34 percent, a home buyer would have locked in a 30-year fixed rate loan with a monthly payment of $1,561.82.
The same borrower could have snagged a 30-year fixed rate loan at a rate of 4.625 percent in May and paid $1,439.59 per month.
That’s a $1,467 annual savings. Over 30 years, it’s a $44,003 savings, dwarfing the tax credit.
Source: Informa Research Services (05/26/2010)
Lock in Super Low Rates Today, Not Tomorrow
Wednesday, May 26th, 2010Borrowers eager to lock in a very low-rate mortgage should apply in the next day or two, says Bankrate.com mortgage analyst Holden Lewis.
Rates haven’t been this low since the 1950s, he says, adding that rates are unlikely to fall further.
“You can float, but that’s not a smart strategy. It’s like asking for another card when you have 19 in blackjack. Stand and take your chances,†he advises.
Source: Bankrate.com (5/26/10)
Plenty of Reasons to Buy a New Home Even After the Tax Credit
Wednesday, May 26th, 2010May 24, 2010 – Even though the home buyer tax credit expired on April 30 and won’t be renewed, there may never be a better time to buy a home than today, according to the National Association of Home Builders (NAHB). Many outstanding opportunities still exist for home buyers, but they may not be around forever.
“The home buyer tax credit was just one of many factors motivating Americans to buy homes,†said NAHB Chairman Bob Jones, a builder and developer in Bloomfield Hills, Mich. “But buyers can still take advantage of today’s low interest rates and competitive prices to get a home they may not have been able to purchase just a few years ago.â€
Besides mortgage interest rates that have been hovering at near-record lows, homes in many markets have become more affordable. Prices have moderated from the highs of the housing boom that occurred in most of the country, especially in major markets where they had increased significantly.
Today’s new homes are also built to be much more energy efficient than homes constructed a generation ago, making them more affordable to operate. New homes are designed to support modern lifestyles with open floorplans, flexible spaces, improved safety features, and low-maintenance materials.
Consumers who are thinking about buying a home should not count on interest rates or prices staying at current levels, however. Mortgage rates are sensitive to market conditions, and even a slight increase can push monthly payments beyond a family’s budget. As the country recovers from the recession and people stabilize their financial situations, NAHB economists expect that home prices will begin to increase by 2011.
NAHB’s home buyer brochure “Opportunity Knocks for Home Buyers†describes many of the opportunities in today’s market, as well as the long-term financial benefits of homeownership. It provides examples of how interest rates affect monthly mortgage payments and the typical federal tax savings over the first five years of homeownership. The brochure can be downloaded from NAHB’s web site at: www.nahb.org/homebuyerbrochure.
The home buyer tax credit is still available for eligible home buyers who had a signed sales contract by the April 30 deadline and who close by June 30, 2010, as well as for qualified members of the military, foreign service and intelligence communities, who have until April 30, 2011, to sign a contract. For more information, go to www.federalhousingtaxcredit.com.
This Maybe Your Last Chance to Get This Great of a Deal
Friday, May 21st, 2010Mortgage Rates Continue to Drop
Falling rates on U.S. government securities helped push mortgage rates down to the lowest level so far this year.
The average rate on a 30-year fixed loans declined this week to 4.84 percent from 4.93 percent a week ago, reported Freddie Mac.
Also, 15-year fixed loans fell to 4.24 percent from 4.30 percent; five-year, adjustable-rate mortgages declined to 3.91 percent from 3.95 percent; and one-year ARMs fell to 4 percent from 4.02 percent.
Source: Pittsburgh Post-Gazette (05/21/10)
Eye on the Economy for May 13, 2010
Thursday, May 20th, 2010
Output and Job Growth Precede Housing Recovery
Employment in April increased by 290,000 jobs at a seasonally adjusted rate. On top of an upward revision for March of almost 70,000, this marked the fourth month of job growth and the largest increase since March 2006.
The added jobs in April included 80,000 in professional and business services, 45,000 in leisure and hospitality and 44,000 in manufacturing as well as the Census Bureau’s addition of 66,000 temporary decennial census workers in April and 48,000 in March.
As is typical at the beginning of a recovery, the gains on the employment front were not registered in the unemployment rate, which increased to 9.9% as news of hiring brought discouraged job seekers back into the market.
NAHB is forecasting that employment will continue to move to higher ground throughout 2010 and 2011, though not necessarily at April’s torrid pace. The unemployment rate is nearing a peak and by year’s end is expected to be around 9.3%.
Employment stability and job growth are keys to a housing recovery, alleviating the fears of existing workers that they will lose their paycheck and significantly improving the financial wherewithal of re-hires — both of which will boost the confidence of households that it is now safe to consider buying a home.
Gradual improvement in the employment picture provides the final ingredient needed to spur demand and launch a full-scale housing recovery as relatively low mortgage interest rates and house prices keep affordability at attractive levels.
Construction employment, in the meantime, has been turning in a mixed performance, with 10,900 residential construction jobs lost in April, up from 10,100 job losses in March, but a 15,400 increase in April’s non-residential construction jobs. The overall unemployment rate for construction climbed 1% to 20.3% in April.
The Economy Continues to Advance
Real gross domestic product (GDP) grew at a healthy 3.2% pace in the first quarter, the third consecutive quarter in which the U.S. economy was on the mend. Personal consumption expenditures, investment — primarily in rebuilding inventories and in equipment and software — and exports were the major drivers of growth.
Residential construction, which provided a lift to GDP growth in the third and fourth quarters of 2009, was a minor drag in this year’s first quarter, reducing growth by 0.3%. Though down from the fourth quarter’s 5.6% growth rate, the economy is still expanding at a strong enough pace to create jobs faster than population growth is adding to the labor force, a trend that is expected to continue.
The employment situation will also improve as companies see the opportunity to increase output. In the early phase of a recovery, productivity growth is customarily high as businesses meet rising demand by getting more work out of their current employees, such as retail clerks who were previously waiting on an average of two customers an hour are waiting on five as business picks up.
Companies can also bring back on line or speed up idle or underutilized machinery. However, as the recovery continues, these opportunities become harder to find and firms must then hire more workers in order to increase output, reducing productivity growth.
What is occurring now is following this familiar pattern. Productivity growth in this year’s first quarter fell to a rate of 3.6%, down from 6.3% in last year’s fourth quarter, which was down from 7.8% in the third quarter. Nonetheless, first quarter growth still exceeded the post-World War II average of 2.3% leading into this recession and the 2.8% for the 10-year period prior to its start.
Residential Construction Story Is Still Mixed
The slow but steady improvement in construction activity is showing up in the data for the value of construction put in place, including the seasonally adjusted annual rate of single-family construction rising 1.6% in March from February and 17.2% from a year earlier.
In sharp contrast, multifamily construction continued its dramatic slowdown in March with a 6.3% decline from February and a precipitous 58.1% drop from a year earlier.
Though down 3% from February, remodeling expenditures for improvements in March were up 8.1% in the first quarter from a year earlier.
The combination of a growing economy, slow improvement in single-family home building, stabilization of multifamily construction and continued expansion of the remodeling market will enable residential construction to once again emerge as a net contributor to the economy.
Rays of Hope for Real Estate Financing?
A pivotal question remains: Are lenders beginning to consider lending to real estate a good proposition once again?
The Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices at Selected Large Banks released in April suggests that there is light at the end of the tunnel. The latest survey showed that only 2% of the banks were tightening on prime mortgage lending, down from a peak of 74% in the July 2008 survey, and 5% were tightening on non-traditional (Alt-A) mortgages, compared to a peak of 90% in the Octover 2008 survey.
At the same time, net tightening for commercial real estate loans fell from a peak of 87% in the October 2008 survey to 13% in the current survey.
Interest rates for conventional 30-year fixed rate mortgages continue to hover in the 5% range, where they have been for most of the year. Most recently, mortgage rates have been benefiting from the flight to U.S. debt instruments resulting from concerns over Greece and other countries in the Euro currency union. Further, even with the Federal Reserve no longer purchasing mortgage-backed securities, investor demand for mortgages continues to be strong, keeping rates low.
A Break in Lumber Prices?
After eight weeks straight of price increases for framing lumber in which the Random Lengths composite price rose from $303 per 1,000 board feet in early March to $367 in late April, a 21% increase, prices fell in the first week of May to $358. This may be the first indication that lumber supply is beginning to increase to meet the rise in demand and to take advantage of higher prices.
Reports indicate that logs are flowing out of southern forests once again and that some sawmills have increased production. Also, several fingerjoint moulding and panel plants in Chile that had been damaged by the February earthquake have resumed production and shipments to the U.S., while others are slated to come back online over the next several weeks.
The lumber market in May is also seeing a reduction in export fees and higher quotas for Canadian lumber exports to the U.S. as a direct result of higher prices in March and April, under the Softwood Lumber Agreement (SLA). Based on continued high prices in April and May, all quotas and export fees on Canadian lumber will be eliminated for the month of June, with the exception of an extra export fee imposed on some provinces for a previous violation of the agreement.
The one remaining impediment to a greater supply of lumber and lower prices is a shortage of trucks to transport the material. Beyond that, lumber prices still could be on a roller coaster as export fees and quotas are adjusted each month according to the SLA formula based on previous weeks’ prices.
Buy Now Before Home Prices Go Up!
Wednesday, May 19th, 2010Housing prices are expected to increase 12.4 percent between 2010 and the end of 2014, predicts MacroMarkets, which surveyed more than 100 analysts and market strategists.
Those interviewed didn’t all see the housing market in the same light. Joseph LaVorgna, a economist at Deutsche Bank predicts that home prices will rise 37 percent by the end of 2014.
On the most bearish end, both Anthony Sanders, professor of real estate finance at George Mason University, and investment adviser Gary Shilling, president of A.Gary Shilling & Co., expect prices will decline 18 percent.
Source: The Wall Street Journal, James R. Hagerty (05/19/2010)
Spacious and Roomy Laundry Rooms are Now a Must Have
Monday, May 17th, 2010Convenient and comfortable laundry rooms are an increasingly popular feature among home buyers.
Tom Byrne, president of Rockville, Md.-based Chadsworth Homes Inc., says they are more popular than such features as studies and media rooms.
“In the past few years, 30 percent of the homes we build … have a laundry room with granite countertops, a single-level kitchen-style faucet, and the laundry tub will be an undercounter sink,” Byrne says.
Stephen Melman, director of economic services for the National Association of Home Builders, concurs.
“These rooms are becoming larger and more multifunctional, with organizers, a table for folding, ironing stations, and windows with a view,” Melman says.
Source: Washington Times, Carisa Chappell (5/14/2010)
Lead Paint Rule’s Opt-Out Provision Ends July 6
Sunday, May 16th, 2010The EPA has gone forward with its proposal to eliminate a provision to its Lead: Renovation, Repair and Painting rule that previously allowed owners of older homes to opt-out of the lead-safe work practices mandated by the rule if no children under six or pregnant women resided in their home. An amendment that makes this rule change official was published in the Federal Register on May 6, with an effective date of July 6. This means that after July 6, 2010, renovations in all 78 million pre-1978 homes could be subject to the new work practice standards as stipulated in the rule. This is despite EPA’s own estimates that a significantly smaller portion of homes — more like 38 million — still contain lead paint.
The new rules also require a post-renovation notification to be presented to the home owner. This means that the remodeler must give the property owner and/or residents a copy of the post-renovation checklist or similar form. Importantly, the EPA has also extended the expiration date for any certified renovator who completed his or her training before April 22, 2010. The new expiration date is July 1, 2015.
One more thing to keep in mind: the EPA has previously given notice that it is writing another rule to require more complex dust-wipe or clearance testing, effectively requiring remodelers to fill the role of lead-paint abatement workers. If approved, this rule would become effective in July 2011.
Eye on the Economy, May 5, 2010
Monday, May 10th, 2010
| Some Good News on the Housing Front The home buyer tax credit finally started showing an impact in March, when existing single-family home sales rose 7.3% to a seasonally adjusted annual rate of 4.68 million. That was a 16.6% increase over the sales pace a year earlier. Sales were up both monthly and annually in all four Census regions.New single-family home sales also rallied in March, jumping a near record 27% from February’s sales pace of 324,000 to a seasonally adjusted 411,000, up 24% on a year-over-year basis. The South showed the biggest gain — 43.5% — and the Northeast was the second most robust region of the country for sales, coming in at 35.7%, although rebounding from an unusual low in February.While the approaching expiration date for the home buyer tax credit accounted for much of the bounce back, unseasonably harsh winter weather in February added some pent-up demand to the housing market in March. In order to qualify for the home buyer tax credit, buyers had to sign sales contracts by April 30 and they are also required to meet a closing deadline of June 30. Since new home sales are reported when a contract is signed, April new home sales should be robust. Existing home sales are recorded at closing, so they should see a lift from the tax credit through June. To the extent that some prospective home buyers have moved their purchases forward to qualify for the credit, new home sales after April and existing home sales after July are likely to experience some leveling off. At that point, the reviving economy, low mortgage rates, affordable house prices and new job growth will take over as the forces driving home buying activity. In the meantime, adverse credit conditions will continue to serve as a speed bump in the housing recovery as buyers grapple with tighter credit standards and builders attempt to overcome major impediments to obtaining and renewing acquisition, development and construction (AD&C) loans. Builders also continue to face intense price pressure and competition from foreclosure and short sales. Appraisers are using distressed sales in their valuations of newly built properties without properly adjusting for the run-down conditions of many previously owned homes that have been languishing on the market. Pressure from banking regulators can further encourage “low ball†appraisals. For builders, unfortunately, poor appraisals often can result in lost sales. |
| Housing Starts Continue to Rise Adding more good news to the current housing scene, housing starts rose in March for the third consecutive month. March total starts were up 1.6% from February, up 20% from a year earlier and up 31% from their cyclical low of 479,000 in April of last year — even though single-family production declined to 531,000 units, down marginally from 536,000 in February.The decline was technical in nature, resulting from a decline in the Midwest following a considerable jump in residential construction activity in that region in February. Even so, single-family starts in March were up 47% on a year-over-year basis, and taking the Midwest out of the picture, they were up 6.9% for the month.Single-family building permits in March jumped 5.6% from February and 51% from a year earlier, and were at their highest level since August 2008. Builders are obtaining permits at this point to rebuild their inventories — which at 228,000 in March were at their lowest level since early 1971 — and because they are adopting a positive view of future demand. Multifamily starts, on the other hand, appear to be bouncing along at the bottom. March’s 95,000 starts were just above the first-quarter average of 92,000 starts. Multifamily permits, although from a decidedly low level, have shown an upward bent. This may be an early indication that some financing is becoming available for a limited, but growing number of projects. [return to top] |
| Some Positive House Price Reports House prices have generally stabilized on the national front. In many markets house prices are either stable or increasing. In others, prices are continuing to adjust downward in reaction to to distressed properties and/or poor near-term economic prospects.As of February, the S&P/Case-Shiller seasonally adjusted 10-city price index rose 1.1%, the ninth monthly increase in a row. However, the 20-city index fell 1.1%, its first decline in nine months. Nonetheless, both the 10-city and 20-city indexes were still up from a year earlier (by 1.4% and 0.6%, respectively).The LoanPerformance Home Price Index produced by First American CoreLogic showed a similar result, with house prices up 0.3% in February from a year earlier. Excluding distressed sales, the index was up 0.6%, the first year-over-year increase for the index since December 2006. March median new home prices rose on a year-over-year basis for the third month in a row, up 4.3% ($214,000 versus $205,100). Despite foreclosed home sales and short sales, median existing home prices edged up 0.6% in March from a year earlier ($170,700 versus $169,700), the first year-over-year rise since July 2006. [return to top] |
| Inflation Remains Tame The Consumer Price Index (CPI), although up 2.3% in March on a year-over-year basis from February’s 2.1%, was down from its recent peak of 2.7% in December 2009. Meanwhile, core inflation (prices excluding food and energy prices) rose a modest 1.1% in March, down from 1.3% in February and 1.8% as recently as December 2009.However, building material prices, which fell during much of the housing recession, have experienced upward pressure of late. Prices for single-family construction in March were up 2.7% from a year earlier and multifamily prices were up 3.0%. These prices have risen five months in a row. With much of the world, along with the United States, in a recovery mode, many of these prices are likely to continue to rise.Nonetheless, overall prices in March were still below their peak levels of September 2008, with single-family materials construction prices down 2.0% and multifamily prices down 3.8%. Also, some of the sharp price increases recently for materials such as lumber reflect temporary supply shortfalls that are likely to be reversed quickly in the next few months. [return to top] |
| The Financial Markets Remain Steady Although it is difficult for builders to obtain financing, home buyers who can qualify for a mortgage continue to face very favorable interest rates. For the past six months, mortgage rates have hovered around 5%. Despite the Federal Reserve’s withdrawal of support from the mortgage market at the end of March, the Freddie Mac 30-year fixed-rate mortgage rate has risen only about 0.1%.Following its recent meeting, the Federal Open Market Committee (FOMC) issued a press release indicating that economic conditions “are likely to warrant exceptionally low levels of the federal funds rate for an extended period,†keeping its target federal funds rate in the 0.0% to 0.25% range.Level mortgage rates and the approaching home buyer credit deadline have increased demand for mortgages. April purchase applications returned to their October 2009 high, when the first-time home buyer tax credit was in effect. Demand for government mortgages (FHA and VA) have been on the rise since the beginning of this year. [return to top] |
