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By Seth Campbell Realty Group | Agent in Shrewsbury, MA
  • HUD Lifts Cap on FHA Origination Fees

    Posted Under: Home Buying  |  January 7, 2010 5:02 AM  |  1,570 views  |  4 comments

    The Department of Housing and Urban Development (HUD) has removed the 1 percent ceiling on loan origination fees for standard mortgages insured by the Federal Housing Administration (FHA).

    The Mortgagee Letter outlining the change was issued last week just days before the new Real Estate Settlement Procedure Act (RESPA) disclosure rules took effect on January 1, requiring lenders to clearing disclose borrowing costs.

    According to HUD, the sum of all fees and charges from origination-related services required as part of the good faith estimate “will most often exceed the specific origination fee caps set for government programs.”

    Without the cap, some consumer advocacy groups argue the fees charged to borrowers for government-backed loans could rise too much, but HUD says it expects competition among lenders to temper excessive increases.

    The new RESPA rule standardizes the good faith estimate provided to applicants detailing mortgage terms and closing costs, making it possible for the first time for consumers to compare fees charged by different lenders and shop around for the best possible deal.

    HUD says FHA will also be monitoring lenders to ensure the fees charged for origination services are “fair and reasonable.”

    The agency also stressed that the FHA commissioner still has the authority to set future limits on the amount lenders can charge borrowers for obtaining a government-insured loan and indicated that additional guidance on origination fees would be forthcoming

  • What’s ahead for home prices?

    Posted Under: Home Selling  |  January 6, 2010 5:32 AM  |  1,578 views  |  No comments

    In the second half of 2009, the housing market seemed to catch its breath after struggling to recover from the most severe downturn since the Great Depression. The first-time homebuyers tax credit and low mortgage rates lured buyers who’d been dithering and helped move the glut of foreclosures that has been dragging down home values. Sales began ticking up, and home prices stabilized after a three-year downward spiral.

    But the correction isn’t over yet. Credit is still tight, unemployment is high and more foreclosures are coming. Even with the extension and expansion of the tax credit to include move-up buyers and an upward trend in sales, home prices will continue to edge lower through next spring. The U.S. housing market won’t begin to look healthy again until at least 2011.

    The price picture
    From the beginning of the downturn in mid-2006 to June 30, 2009, the median price of an existing home nationwide fell by 30%, or 11% annualized, according to Fiserv Lending Solutions. The median home now sells for $174,000 — about what it sold for in 2003. Among the cities that Fiserv tracks, Detroit — victim of subprime lending and sky-high unemployment — suffered the most, with an annualized decline of 22% in its median home price over three years and a 33% plunge in the year that ended June 30. Detroit was followed closely by Las Vegas; Phoenix; Merced, Calif.; Miami; and Modesto, Calif. — all at the epicenter of the boom-bust quake.

    Over the past year, prices dropped 15% across the U.S. and rose in only two cities: Clarksville, Tenn. (up 1%), and Johnson City, Tenn. (2%), reflecting demand for homes by an influx of retirees to the Blue Ridge Mountains.

    But between the first and second quarters of 2009, the nationwide median home price rose slightly, by 1.4%, according to Fiserv. That’s the first such increase since 2006 and, says Fiserv chief economist David Stiff, “the first good news we’ve had.” But Stiff is quick to warn that one grace note doesn’t make a tune.

    Given that prices tend to stabilize about a year after sales begin to recover, Fiserv expects prices to bottom out in mid-2010. It forecasts that the median home price will have fallen by 7.5% in 2009 and will drop an additional 9.2% in 2010, to a level not seen since 2001.

    Sales have been picking up steam since April, and, in July they increased year-over-year for the first time since November 2005. The increase was driven by first-time buyers seeking to capture the $8,000 tax credit and by bargain hunters and investors lured by discounts of 15% to 20% from market value on foreclosed homes and short sales (properties sold for less than what was owed on the mortgage). Federal intervention in the credit markets helped shore up mortgage lending at super-low rates.

    Real Estate Tips for 2010
     

    In its most recent report, the National Association of Realtors said that sales of existing homes (including single-family houses, townhouses, condos and co-ops) rose 9.4% in September compared with the year before, with the strongest rebound in the Northeast (12%) and the weakest in the West (6%). Inventory fell by 15% from the year before, to just under eight months’ supply (the time it would take to sell the current inventory at the current pace of sales). That’s the lowest level in two and a half years, but above the four- to six-month supply that indicates a market balanced between buyers and sellers. The condo market still staggered under an 11-month supply.

    Strong buyers benefit
    Affordability is the outlook’s silver lining. Fiserv’s data show that, nationally, the ratio between median family income and the median home price has fallen to 2.8 — just under the long-term historical average of 2.9. Renewed affordability combined with historically low mortgage rates present an opportunity for homebuyers who have sterling credit, secure jobs and a plan to live in their home for many years.

    Eager to get a good deal, David and Kiara Powell of Minneapolis shopped for a home last summer. The couple, both 31, had been living in Kiara Powell’s condo, which she purchased near the top of the market in 2005. Because the condo market in Minneapolis is still glutted, says Cotty Lowry, the Powells’ agent, condo sellers who bought in 2005 or just before should expect to list their units for 80% of the original purchase price. Instead of taking the hit, the Powells chose to keep their condo as an investment property and rent it out.

     

    The Powells found their home on the day they began looking — a house with three bedrooms and two bathrooms on one-fifth of an acre. Built in 1926, the 1,898-square-foot home was smaller than they wanted, but it was completely renovated and overlooked a park on the shore of Lake Harriet. Plus, it was a 10-minute commute to their jobs downtown. They made an offer the next day.

    The seller had originally listed the home for $985,000 but had dropped the price four times over four months. The Powells signed a contract for $695,000. They made a substantial down payment and financed the purchase with a conforming first mortgage ($417,000), at a rate of 5.25%, and a line of credit for the balance. They closed and moved in August.

    The Powells benefited from the stagnating trade-up market, which in Minneapolis and many other metro areas has too much inventory, too few buyers and too many sellers who refuse to face reality. “They still believe their homes are special,” Lowry says. He points out, for example, that his South Minneapolis Lakes market has a glut of homes for sale priced between $600,000 and $1 million. In August, the National Association of Realtors reported that more than two-thirds of all sales were for entry-level homes, priced less than $250,000

    Fiserv’s Stiff says the trade-up market will remain weak for a long time because of stalled household incomes, high unemployment and the desire by many consumers to cut debt. He expects that the expansion of the homebuyers tax credit to include higher-income and trade-up buyers will shore up demand until the job market begins to recover, mostly by inspiring those intending to buy anyway to buy sooner. It would be nice if the tax credit also helped boost average prices (the greater the number of higher-priced homes that sell, the higher the median home price), but another wave of expected foreclosures may overwhelm any benefit.

    The face of recovery
    Although the credit markets and financial system remain troubled, the real fly in the ointment is foreclosures, says Mark Zandi, of Moody’s Economy.com. The greater the number of distressed sales, the greater the continued pressure on home prices. In September, just over 4 million of the 54 million first mortgages in the U.S. were in serious trouble. With a national unemployment rate already above 10%, more struggling homeowners will enter the red zone with the next surge of interest-rate resets on adjustable-rate loans.

    Relatively few borrowers will qualify for the government’s program of loan modification, and Zandi expects that about a third of those who do will default (many for a second time) within three years. Meanwhile, about a third of first-mortgage borrowers are underwater — owing more on their loan than their home is worth. That doesn’t necessarily mean they’ll end up in foreclosure, but it makes them vulnerable and potentially perpetuates the spiral of price declines. Zandi says the number of foreclosures won’t ebb until 2011.

    Fiserv doesn’t foresee a year-over-year gain in the median home price nationwide until mid-2011, and then it expects a bump of just 3.6%. In markets such as Seattle and Texas, which mostly avoided the speculative bubble and have relatively strong job growth, Stiff expects one or two years of above-average price appreciation, followed by a return to the historical average — an annual increase equal to a little less than the rate of inflation, plus one percentage point.

    In markets that experienced the biggest price declines over the past three years —  in Arizona, California, Florida, Michigan, Minnesota and Nevada — prices may rebound sharply, Stiff says, possibly even by double digits, as the bravest and most optimistic buyers and investors jump back in. However, constraints on mortgage lending because of stricter standards will limit the bounce, after which prices will relapse and flatten.

    All real estate really is local
    Nationwide, sales of existing homes have risen 9% in the past year. But the numbers vary — sometimes a lot — by region. The Northeast led the nation with a 12% boost in sales, followed by the South (11%), the Midwest (8%) and the West (6%), according to the National Association of Realtors.

    We looked at recent home sales in three metro areas. In Santa Barbara County, Calif., sales in the past year fell by 3%. In Omaha, sales increased by 15%. In Edison, N.J., about 45 minutes from New York City, sales fell by 10%. But in each of those areas, the fastest-selling homes had the best mix of location, condition, terms and price — and price ultimately trumped all. Smart sellers set prices below the competition from the get-go and avoid multiple price cuts.

    Loan rates will edge up
    Interest rates can only go up from here. The 30-year fixed rate for a conforming loan ($417,000 or less) hovered around 5% for most of 2009 — the lowest rate in 38 years. Jumbo rates fell to a four-year low (in early November, 5.3% for a conforming jumbo of up to $729,750 and 6% for a traditional jumbo). By mid-2010, conforming rates will rise to 5.5% or above and close the year at 5.75% to 6%, says mortgage analyst Keith Gumbinger, of HSH.com, a financial publishing company. Jumbo rates will be 6.25% or a bit higher by the end of 2010. Gumbinger’s forecast assumes that the economy will improve a bit and inflation will reappear.

    The wild card in that forecast: whether the Federal Reserve stops buying Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities in March, as planned. Gumbinger says the program has probably tamped down rates by about three-fourths of a percentage point. The Fed could carry on if it thinks the mortgage market hasn’t recovered enough, which would keep rates closer to current levels.

    By:

    By Pat Mertz Esswein of Kiplinger's

  • The 2000s Prove to be a Decade of Dramatic Developments

    Posted Under: Home Selling  |  January 5, 2010 12:55 PM  |  1,577 views  |  No comments

    In the first 10 years of the 21st century, the real estate market developed at a remarkable rate. Ten years ago, most homebuyers had never viewed a home online, and

    the top three marketing methods to sell a home were yard signs, newspapers ads, and open houses, the National Association of Realtors (NAR) said. In addition, nine out of 10 buyers in the 90s financed their purchase with a fixed-rate, 30-year mortgage. Clearly, a lot can change in a decade.

    “The real estate industry has seen tremendous change and evolution over the past decade,” said Vicki Cox Golder, NAR president. “Realtors have not only anticipated and adapted to the evolving needs of their clients and customers, but also have influenced industry trends and innovations that will carry us into the future.”

    In 1999, only 37 percent of buyers used the Internet in their home search, according to data from the NAR profile of homebuyers and sellers, but today, 90 percent of buyers are searching online. The real estate industry has

    responded, and real estate websites have evolved to give today’s buyer what they want. Instead of just property listings, these sites offer multiple photos, online videos, mapping features, and comprehensive neighborhood information.

    In the past 10 years, median home values have increased more than 25 percent to $172,600 in November 2009. While sales for detached, single-family homes decreased 4 percent in the last decade, sales of homes in suburban neighborhood increased 8 percent.

    Buyers, too, are changing. According to NAR, married couples represent 60 percent of all buyers today, down 8 percent from the beginning of this decade. However, single men and women have made up the difference. Single men purchased 10 percent of all homes last year, marking a 3 percent increase from 10 years ago, and single women now represent 21 percent of all homebuyers, a 6 percent jump from 1999.

    Still, some aspects haven’t changed. Just as it was in 1999, the median age for homebuyers last year was 39. Neighborhood quality, affordability, and convenience to work and school remained top priorities for buyers, and eight out of 10 recently surveyed consumers believe owning a home is an investment in their future.

    “Realtors have been around for more than 100 years, but one constant during that time has been the persistence of homeownership as the American Dream,” Golder said. “As the first decade of this century comes to a close, NAR stands ready to meet the many challenges and opportunities that lie ahead by helping our Realtor members better serve their clients and communities and ensuring that those dreams of homeownership remain possible for all who want to achieve it.”

    By Carrie Bay

  • Home Price Improvements Moderate, but Another Plunge not Likely: S&P

    Posted Under: Home Buying  |  January 4, 2010 6:26 AM  |  1,519 views  |  No comments

    Residential property values continued to show further stabilization with prices rising for the fifth consecutive month in October, Standard & Poor’s (S&P) reported last week. Despite the seemingly positive uptrend, thelatest S&P/Case-Shiller home price indices reveal that the pace of improvement slowed heading into the fourth quarter of last year, but S&P analysts say this doesn’t mean prices are moving toward a double dip.

    S&P said that although prices across the nation are still below year-ago levels, all 20 cities studied and both composites showed an improvement in the annual rates of decline. The annual returns of the 10-city and 20-city composites fell 6.4 percent and 7.3 percent, respectively, in October compared to the same month last year. This marks approximately nine months of improvement in these statistics, beginning in early 2009.

    Both the 10-city and 20-city composites of the study, which tracks the sale of the same houses over time, showed increases of 0.4 percent in the month-to-month readings, with only seven metro areas recording positive gains, compared to 11 the previous month.

    “The turn-around in home prices seen in the spring and summer has faded,” said David M. Blitzer, chairman of the index committee at Standard & Poor’s. “All in all, this report should be described as flat. Coming after a series of solid gains, these data are likely to spark worries that home prices are about to take a second dip.”

    But Blitzer cautioned that before jumping to such a conclusion, it should be noted that the one time a subsequent dip was recorded following an apparent price

    recovery – at the beginning of the 1980s – Fed policy was dramatically different from the “stable and consistent Fed policy we have today,” Blitzer said.

    In addition, he added, sales of existing homes – those included in the S&P/Case-Shiller home price indices – have been very strong in recent months, helping to work off the backlogged supply of houses for sale.

    Although the national housing market is showing signs of a gradual recovery, Blitzer also noted that housing starts remain weak, there is still the threat of another wave of foreclosures, and government programs aimed at bolstering housing industry are set to expire in the first half of 2010.

    S&P reports that as of October 2009, average home prices across the United States were at similar levels to those seen in the third quarter of 2003. From the peak in home prices in the second quarter of 2006 through the trough in April 2009, S&P says the 10-city composite dropped 33.5 percent and the 20-city composite fell a total of 32.6 percent. However, with the relative improvement of the past few months, the company says the peak-to-date figures for the composites through October 2009 are down 29.8 percent and 29.0 percent, respectively.

    Returning to the shorter-term view, while the two composites were essentially flat, seven of the cities in the study showed positive growth during the final month of 2009’s third quarter and two of those – Phoenix and San Francisco – were greater than 1.0 percent.

    San Francisco has reported seven consecutive months of positive returns, San Diego has reported six and Los Angeles and Phoenix are close behind with five.

    Looking at the annual statistics, both Minneapolis and Portland are no longer reporting double-digit declines, and Denver and Dallas are nearing positive territory with annual declines of merely 0.1 percent and 0.6 percent, respectively.

    Las Vegas remains the one market that has not seen a glimmer of hope since the bubble burst. There, prices have declined for 38 consecutive months, with a peak-to-trough nosedive of 55.4 percent.


    By: Carrie Bay

  • Finding your dream foreclosure

    Posted Under: Home Buying  |  December 29, 2009 11:04 AM  |  1,609 views  |  No comments

    By Amy Hoak of MarketWatch

     

    Buying a foreclosure is often appealing to buyers trying to stretch their dollars, but finding a good one can be a challenge.

    "The vast majority of the banks don't want us to advertise them as 'bank-owned' because it comes with a negative connotation," said Ryan Melvin, co-owner of More Realty Group in Las Vegas.

    That means no sign on the front lawn indicating the home is anything other than a traditional sale. A buyer probably won't find a property advertised as a foreclosure on marketing materials, said Melvin, who specializes in real-estate-owned properties, or REOs, those that have been reclaimed by a bank, typically after an unsuccessful foreclosure auction.

    Plus, in some markets, including Las Vegas, foreclosure inventory is actually down compared with last year as government programs attempt to keep owners in their homes and banks aren't putting as many homes on the market, Melvin said. That's making it harder for buyers to snag a foreclosure, and those paying with cash often win a bid over someone who needs financing.

    If you're considering the purchase of a home that is now owned by a bank, it's also important to know at the outset just how much work you're in for -- and how much it is going to cost you. Many foreclosures are in various states of disrepair; some of the fixes are cosmetic, but some can be extensive.

    Those looking for the best deal probably shouldn't rule out nonforeclosure properties, either, said Mark Goldman, a mortgage broker with Cobalt Financial Corp., and a real-estate lecturer at San Diego State University. Sometimes, people set their sights on bank-owned properties "like the word 'foreclosure' equals 'good deal,'" he said.

    That's not always true.

    Start searching
    One option for finding foreclosure listings: Go straight to the bank.

    Lender Web sites, such as those operated by Bank of America, Chase and Citibank, will list the properties the financial institution has reclaimed when borrowers defaulted. To find a list, simply do a Web search for REOs and the name of the lender. Contact information for the property's listing agents is usually provided for each entry.

    For a fee, other sites will hunt down properties for you. RealtyTrac.com, which helps people find foreclosure and pre-foreclosure properties, charges $49.95 a month, after a free seven-day trial. The company also recently launched BankHomesDirect.com, which charges $19.95 per month and lets people search just for REOs.

    Otherwise, you might want to enlist the help of a realty agent. Someone who works regularly with REOs might be able to track down the properties more easily than a traditional agent. Melvin is a member of the National REO Brokers Association, nrba.com, which has a searchable database of brokers on its site. There's also the REO Network, reonetwork.com, which connects buyers with those who specialize in selling REOs.

    Inspect thoroughly
    Lenders aren't held to the same disclosure requirements as sellers who have lived in the home, mainly because the lender hasn't occupied the home to notice leaks or other problems. For that reason, an inspection is crucial.

    "If there are lessons out of the last couple of years, it's certainly buyer beware," said Dan Steward, president of the home inspection company Pillar to Post, which has U.S. headquarters in Tampa, Fla.

    "We have all heard the stories of people ripping the copper pipe and wiring out ... people have literally gone to the light switch, disconnected the wire from the switch box and have pulled the wire through the drywall," Steward said. Some have ripped out toilets and kicked in walls or left water faucets running before they left the house, often out of anger.

    You don't need to be told the toilet is gone, but an inspector can tell if there is damage 20 feet down the water line because of the way that toilet was ripped out, he said.

    Other issues could pop up due to the property being vacant. Large banks will often hire a field service to cut the grass, shovel the snow and winterize a home, yet when homes aren't occupied, it's harder to catch small problems before they become big ones.

    "When we live at home or drive the car, if something is off we notice it. We notice it and we deal with it," Steward said. When a place is unoccupied, pests could become an issue. If you were living in a home, a nest of raccoons probably wouldn't be able to find a home in your crawl space -- not for long, anyway.

    A neighborhood environmental report might also be worthwhile, he said; it could reveal if the property was the site of a drug lab, for example. When a meth lab is operating in a home, air-quality issues can arise; when a home was used for growing marijuana, mold problems can result from the high humidity, Steward said.

    Write a clean offer
    The time it takes to complete the sale can vary from lender to lender. In some cases, the process goes smoothly, Goldman said. Other lenders are disorganized.

    "It really depends on who you're doing business with," Goldman said.

    But for your best chance at having an offer accepted and for a quick closing process, have everything in order before making the offer, said Duane Andrews, CEO of Clear Capital, a company that provides valuation products for the mortgage and lending sectors. That includes having the financing firmed up and writing a clean offer -- for example, asking for new oven racks as part of the deal could peg you as a demanding buyer who will be annoying to deal with, he said.

    "What this tells the seller is this guy is going to be a pain and they don't have time for this pain," Andrews said.

    Home affordability calculator

    In fact, most bank-owned properties are sold "as is," so if there is something you want fixed, it's best to just factor that into the price you're offering, Melvin said.

    Know what to expect
    But don't expect to bargain the listing price way down, Melvin added.

    Banks typically price their properties at a 20% to 30% discount anyway, he said. If the property has been on the market for a week or two, don't expect the bank to drop the price; if the listing is older, you might have more power, he said.

    Also, don't be surprised if the bank that is selling the property asks you to get an approval from its mortgage operation; you often don't have to take the loan from their company, but they may want to get a closer look at your finances to make sure you're a solid buyer, Melvin said.

    Above all, make sure to follow directions when submitting the offer, he said. That likely includes having an approval letter from the bank and the correct amount of earnest money.

    "Most listing agents will have instructions how we want buyers agents to submit the offer," he said. Delays can occur when instructions aren't followed exactly.

    By Amy Hoak of MarketWatch

  • Housing’s Modest Recovery Will Continue into 2010: PMI

    Posted Under: Home Buying  |  December 28, 2009 11:37 AM  |  1,586 views  |  No comments

    The residential real estate sector has begun to show modest signs of recovery. Will the trend continue into 2010? PMI Mortgage Insurance Co. has provided the industry with a forecast of what to expect as we move into the new year.

    According to the company’s housing and mortgage market outlook, 2009 will close with a modest increase in home sales under its belt. PMI says this will carry on into 2010 as a result of high levels of affordability, strong investor activity, and first-time buyers taking advantage of distressed sales and the renewal of the first-time homebuyer tax credit.

    There may be a temporary decline in sales after the new tax credit ends in April however, PMI says, as some sales that normally would have occurred later in the year are pulled forward in order to take advantage of the tax credit.

    New home sales, which have to compete with foreclosures, are projected to decline by 19.4 percent in 2009. PMI says sales should rise more strongly in 2010, as the job market finally starts to improve and credit markets function better – with existing sales climbing by 8.8 percent and new sales up by 29.2 percent.

    The continued oversupply of homes on the market still weighs on house prices, although the pickup in sales has tempered this, PMI explained. The company expects median existing home prices to fall by 12.6 percent by the

    end of 2009, but stronger sales and reduced inventory should allow prices to be about unchanged over the course of 2010.

    One of the most important unknowns for the mortgage market in 2010 is what impact the end of the Fed’s purchases of Fannie Mae and Freddie Mac debt and securities will have on mortgage rates. The purpose of the program was to support the mortgage market in the aftermath of the financial market meltdown and the conservatorship of the GSEs, PMI explained, and by doing so, the Fed’s aid has helped to lower mortgage rates, boost home sales, and keep home prices from collapsing.

    “Our expectation is that mortgage rates will climb by 25-50 basis points as the Fed ends its support”, PMI said in its report. The company says the increase will be toward the upper end of that range initially, as the market adjusts to having to provide all of the demand for GSE debt and securities.

    Eventually, however, PMI expects the increase to move down to the lower end of the range “as market participants recognize the safety of these instruments.” With yields on 30-year fixed-rate mortgages (FRMs) around 4.80 percent today, that suggests an initial rise to around 5.30 percent before hitting 5.75 percent by the end of 2010, the company said.

    This is likely to involve two discrete periods of increases, PMI forecasts – early in the second quarter when the Fed’s purchase program ends, and in the fourth quarter when market expectations of Fed tightening increase.

    PMI projects mortgage originations in 2010 to decline by about 14 percent, to $1.73 trillion, following a rise of more than 25 percent this year stemming from a jump in refinancings.

    Purchase originations should climb by 23 percent in 2010 to $865 billion as home sales continue to rise and home price declines finally end. Refinance activity, on the other hand is expected to drop by about one-third to $865 billion over the course of next year, PMI says, as mortgage rates rise.

    By Carrie Bay

  • Housing market in rocky recovery

    Posted Under: Financing  |  December 23, 2009 10:58 AM  |  1,569 views  |  No comments

    The housing market is in the midst of a rocky recovery, but it’s too soon to declare the end of the worst real estate slide since the Great Depression.

    Sales of existing homes picked up sharply last month and prices stabilized. But that’s because the market got a big boost from tax credits for first-time home buyers. It remains to be seen whether the momentum will carry over through next year after the program was extended through April.

    One clue may lie in Wednesday’s report on new home sales for November, which took an unexpected drop. For technical reasons, the tax break didn’t give new sales the same boost as existing homes. That’s because new sales are recorded when contracts are signed, while existing sales are logged when the sale closes. To get the original $8,000 tax credit, buyers had to close before Nov. 30, so new homes purchased in November likely wouldn't have closed in time to qualify.

    The housing outlook is further clouded by a big wave of foreclosures that’s expected to break in the next two years.

    “We have a tsunami of foreclosures — 3.5 million people who are 60 days delinquent, seriously delinquent, and probably another 3 million after that who are going to reach that stage,” said Yale University economics professor John Geanakoplos. “All six million of those will probably be kicked out of their houses.”

    The housing industry got some holiday cheer Tuesday as the latest monthly data showed the sales of existing homes in November posted the biggest gain in nearly three years. But when the impact of the Nov. 30 tax credit deadline wears off, the housing market could face something of a New Year’s hangover when the December figures are released.

    “Existing-home sales are likely to plunge in December,” according to Patrick Newport, U.S. economist at IHS Global Insight.

    Because it targeted first-time buyers, the impact of the tax credit was felt most heavily at the low end of the market. More than 70 percent of November sales involved houses priced under $250,000.

    To keep the housing recovery going, Congress last month extended the tax credit and expanded it. Under the second round, buyers who have lived in their current homes for at least five years can claim a credit of up to $6,500 on a new home if they sign a purchase agreement by April 30.

    The hope is that by next spring, the housing market and economy will begin showing sustainable growth without the help of the government. The risk is that the tax credit simply moves up future sales without creating new demand.

    That risk was highlighted by a separate report Wednesday showing that sales of new single-family homes unexpectedly fell to their lowest level in seven months in November. (New home sales account for about 5 percent of the housing market.)

    The Commerce Department said new home sales dropped 11.3 percent, the biggest decline since January, to a 355,000 unit annual rate. Still, there were some bright spots in the report. The median sale price for a new home rose 3.8 percent from October to $217,400, the highest level since May.

    A sustained housing recovery will depend on several factors, including a recovery in the labor market. Most economists expect the unemployment rate, currently at 10 percent, to remain close to that level for through next year. Without a paycheck, those jobless workers can’t get a mortgage.

    The housing market also faces a stiff headwind from the continuing high rate of foreclosures, which drives down prices and adds to the backlog of unsold homes as lenders put those properties back on the market. Foreclosure filings in the U.S. will hit another record this year, with an estimated 3.9 million notices sent to homeowners in default, according to RealtyTrac. A record 14 percent of homeowners with mortgages are either behind on payments or in foreclosure.

    “It looks like builders are having a real problem trying to compete with the depressed prices in the existing home market,” said Joel Naroff, president of Naroff Economic Advisors.

    Despite three government relief programs since the housing market collapsed in 2007, millions of families are expected to lose their homes over the next two years. Under the latest program launched in March, some 760,000 eligible borrowers have been offered modified loans, but only 31,000 of those trial plans had been made permanent as of last month, according to a report this week from bank regulators.

    Part of the reason for the poor showing is that mortgage servicers don't have adequate staff and systems to process the increasing number of trial plans, the report said.

    Lenders have also been slow to take more aggressive steps, such as cutting mortgage balances to reflect lost home values. Mortgages that were pooled and sold to investors have also created financial incentives for mortgage companies to drag out the process, according to Geanakoplos.

    “They are leaving (owners) in their homes longer and longer because (mortgage servicers) realize they can continue to keep their fees coming, even as the people sit there,” he said.

    Effective foreclosure relief is only one piece of the housing outlook puzzle. A sustained recovery will also depend on the cost and availability of credit.

    Mortgage rates remain below 5 percent, though they’ve been inching up in recent weeks. Those low rates have been engineered largely by the Federal Reserve through its program to buy $1.25 trillion in mortgage-backed securities. About two-thirds of that has already been spent. In its latest regular policy statement, the Fed included a reminder that the program is set to end next spring. It’s not clear whether rates will begin rising after the Fed stops buying mortgage-packed paper.

    Low mortgage rates have helped millions of homeowners reduce payments on their existing homes; roughly three out of four mortgage applications in the first two weeks of December were for refinancing, according to the Mortgage Bankers Association. That will help household budgets and shore up consumer spending, but it hasn’t spurred home buying.

    Consumer spending rose for a second straight month in November as incomes recorded their biggest gain in six months, the Commerce Department reported Wednesday.

    Falling real estate prices also have helped boost demand for homes by making homes more affordable. The median price of existing homes sold in November was $172,600, down 4.3 percent from a year earlier.

    The combination of cheap mortgage money and lower prices has pushed the so-called “affordability” index close to its highest level in nearly two decades, according to the National Association of Home Builders.

    As prices stabilize, lenders may become more confident about writing new mortgages, helping sustain demand after government incentives expire, said Richard DeKaser, an economist at Woodley Park Research. “I think that we’ll have the baton passed from the public to the private sector as lenders start to loosen up the purse strings," he said.

    By John W. Schoen
    Senior producer
    msnbc.com




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