Did We Just See The First 2 Signs Of A Housing Recovery?

Don't let the plunging median sales price fool you -- December's Existing Home Sales data has home sellers smiling.
Just one month after falling below the 5-million unit trend line, sales volume roared back by 300,000 homes in December, surprising housing analysts and making a case that this spring's Buying Season could be a competitive one.
Falling home prices helped fuel home sales. Nationally, the median sales price -- the point at which half of all homes sold for more and half sold for less -- was $175,400, down $32,000 from last year.
However, the most important part of December's Existing Home Sales report isn't making headlines.
At December's sales pace, it would now take 9.3 months to exhaust the existing home supply. Last month it was 11.2 months. This means that buyers are competing to purchase fewer homes which, in turn, puts upward pressure on home prices.
This is Supply and Demand at its most basic definition.
Economists have long said that the keystone of housing's recovery will be rebalancing in home supply. Coupled with the all-time low in housing starts, December's Existing Home Sales data signals future strength.

Fannie Mae pricing adjustments and paying points

In response to the higher mortgage default rates being experienced by Fannie Mae and Freddie Mac (the largest buyers of 30 year fixed, conforming mortgages), the formal announcement of “Risk Based Pricing” was established during 2008. Before this was announced, a 30 year fixed loan was basically the same price for any borrower with a credit score of 660 or higher and a loan amount up to 95% of the home value. But now, Fannie and Freddie require pricing “add-ons” using a matrix of credit score and loan to value percentages. This risk based pricing is MANDATED by Fannie and Freddie, and is required of ALL lenders originating a conforming 30 year fixed.

Sometimes the interest rate can be increased to cover these add-on’s without having to pay them out of pocket, but that is becoming increasingly difficult in today’s market. Investors have changed the way they create rate sheet options, and they offer very little in the way of what is called “premium pricing”, which used to allow options for closing costs or points to be covered in return for a higher interest rate. But in today’s environment, sometimes the add-on’s must be paid in the form of points – to either keep the rate and corresponding payments as low as possible, or sometimes because there simply is no other way they can be covered.

The bottom line is – consumers can’t just call a lender and say “what’s your rate and closing costs?” There are simply so many unknowns with the combination of credit score, loan to value percentages, property type, etc… that any reputable lender should be upfront, and be clear that any quote given is based on an assumption of certain parameters.
We are here to provide honest, straightforward advice. If we can be of any assistance to you, your friends or your family feel free to contact us. We will take care of you and your referrals in the same upfront fashion as we always have. www.piedmont-mortgage.com

Interactive Home Values Chart

An Interactive Chart For Home Values

The S&P/Case-Shiller Home Price Index is a popular measure of domestic home prices, released monthly.
The index reports on the largest 20 U.S. markets, painting a broad picture of real estate values nationwide.
Despite the Case-Shiller Index's two obvious flaws -- (1) it only counts repeat sales on single-family residences, and (2) it only includes 20 major housing markets -- the model is helpful in identifying broader real estate trends in our nation's largest cities.
But data is just data. Sometimes, it takes a good picture to bring it all home. Enter The New York Times.
On its website, The Gray Lady posted an interactive Case-Shiller graphic. For each of the 20 cities studied, users can compare how home values rose versus the national composite throughout the early part of the decade, and how values have fallen since.
Not surprisingly, of the 20 cities that showed stable growth pre-2006, nearly all are outperforming in the current real estate climate. From looking at it, it seems Charlotte has fared better than most if not all.

Mortgage Rates Are Falling But Loans Require More "Points"

Mortgage Rates Are Falling But Loans Require More "Points"
Another week, another screaming headline about mortgage rates falling to an all-time low.
Freddie Mac published its weekly mortgage rate survey Thursday and found that the "average" mortgage rate is now 4.96 percent, the lowest since the survey started in 1971.
But, if we look beyond the headline, we find that there's another part of the story worth watching. Mortgage rates are falling but the number of points required to lock those rates is not.
Lenders now require an average payment of 0.7 points to get the 4.96 percent rate from the headlines. That's up from 0.6 percent last week and 0.4 percent a year ago.
A "point" is a fee equal to 1 percent of the loan size.
Therefore, to get access to a 4.96 percent interest rate on a $200,000 home loan, today's lender would require an extra $200 versus last week and $600 versus last year. Today's mortgage borrower would be subject to a $1,400 closing cost in addition to the "typical" closing costs accompanying a purchase or refinance.
This is a period of historically low rates -- there's no doubt about that. However, the cost of getting access to low rates is increasing. The press doesn't always tell that part of the story and it's one more reason to look deeper than the headlines.

The rates here are the national averages. Rates in the Soputheast US tend to be below the national average, and by comparing 54 lenders in real time, we consistently are offering better than average rates. www.piedmont-mortgage.com

The slowing economy is good news for Home Buyers

After a weak holiday shopping season, annual retail sales declined in 2008.
It marks the first annual Retail Sales decline since the government started tracking the data 40 years ago.
It also gives credence to the notion that the U.S. economy is suffering through a deeper recession that previously thought. A pullback in spending -- especially during the shopping-heavy month of December -- highlights the cautious nature of today's American shoppers.
And in a strange sort of way, all of this may end up being good news for Spring home buyers.
Because Retail Sales are reflective of consumer spending, a dramatic pullback helps to keep the economy in slow gear, countering the inflationary impact of government stimulus and direct intervention. Inflation, you'll remember, causes mortgage rates to rise. It's absence, therefore, helps to keep mortgage rates low.
In addition, it's earnings season on Wall Street and weak corporate guidance has spurred a 6-day decline in the Dow Jones Industrial Average. As dollars leave the stock market, investors are parking them in the safer world of bonds. This includes mortgage bonds, of course, which further pressures rates lower.
As we're seeing, economic weakness -- to a point -- can be the friend of a person in need of a new home loan. For active home buyers or people entering the market this Spring, therefore, the timing may be just right.

When is a 5.0% mortgage really 3.6 Percent?

An oft-touted benefit of homeownership is its tax benefits. However, like most IRS-related items, understanding how the benefits work is not always clear.
In general, homeowners are entitled to two home-related tax deductions -- one for annual mortgage interest paid, and one for real estate tax bills paid.
Not everyone is eligible, though. Some of the exclusionary traits include total amount borrowed, and whether or not the home is a primary or secondary residence.
The official IRS publication is filled with notes and explanations but, in general, you can calculate your approximate mortgage interest tax deduction using the following math:
Sum your annual mortgage interest and real estate taxes paid
Find your tax rate on the IRS tax bracket schedule
Multiple your tax rate by the sum from Step 1
This is grossly simplified, but fairly accurate.
As an example, a homeowner paying a combined $20,000 in 2008 mortgage interest and real estate taxes, and who is in the 28% tax bracket, may be due $5,600 in tax credits.
The availability of mortgage interest tax deductions is one reason why loan officers make reference to "after-tax mortgage rates". An after-tax mortgage rate is effective interest rate, post-tax code, and can be calculated using the formula below:
(After-Tax Mortgage Rate) = (Mortgage Rate) * (1 - Marginal Tax Rate)
The same homeowner with a 5.000% mortgage rate, therefore, has an after-tax mortgage rate of 3.600%.
Because not every homeowner is eligible for home-related deductions, and because not every homeowner should claim them, talk with your personal accountant before making any tax-related decisions.

Rates lower, FNMA / Freddie Fees higher

With respect to mortgage rates, you can't always believe what you read in the papers. Or what you see.

A terrific example is the chart at right.

Published by Freddie Mac, it shows the 30-year fixed mortgage's "going rate" as reported by the nation's mortgage lenders. On December 30, 2008, that rate was 5.1 percent.

But 5.1 percent is only half of the relevant information. There's a mandated fee schedule that accompanies the Freddie Mac-reported rate survey.

Currently, the published fee required to get a 5.1 percent mortgage rates is 0.7% of the borrowed amount, or $700 per $100,000 borrowed. This fee is more commonly known as "points" and versus last year, it's nearly doubled from 0.4 points.

So, yes, conforming mortgage rates are low and they have fallen near all-time lows but there's more to the story than just the interest rate -- there are the fees that go with them, too.

Mortgage rates and loan fees often move in opposite directions so to get lower rates, consider paying additional points. Conversely, to face fewer fees, accept a higher rate. It's a trade-off and your loan officer can help you best understand the choices.

2009 predictions

Predictions For 2009? Keep 'Em To Yourself, and I will, too!

The New Year is not yet one week old but that's not stopping market "experts" from predicting what's in store for 2009.

The calls on housing and mortgage rates run the gamut:

Home prices have farther to fall
Home prices have touched bottom
Mortgage rates will dip
Mortgage rates will rise
Put it all together and it's clear that the experts have no better idea about the future than you or I. Their guesses are educated ones, but they're guesses nonetheless.

A terrific example of how poorly experts can predict the future comes from a Wall Street Journal performance analysis of 1,700 mutual funds.

In 2008, only one earned a positive return. That one fund represents zero-point-zero-six percent of all tracked mutual funds. Surely, the fund managers of the other 99.94% didn't expect to post negative returns on the year.

So, before you use predictions about the demise (or recovery) of the broader economy to make "personal economy" decisions, consider that the oft-quoted experts have a hugely better track record in analyzing the past than the future.

All we know for sure right now is that home prices are, in general, lower than at the time point last year, and mortgage rates are, too. By 2010, both could be lower still.

Or they may not.

Bottom line: if you need a new place to live, this is a great time to buy. If you sacrice your quality of living while hoping for lower prices or rates, you may only end up with lower quality of life!