The Key Fact Missing From Today's Existing Home Sales Headlines

In reading the headlines this morning, you'd think that last month's Existing Home Sales figure signaled more trouble ahead for the housing market.
Quite the contrary.
Beyond the attention-grabbing headlines is the real story; the one that shows -- once again -- that housing market fundaments are coming back into balance.
As home values tick lower, it appears, value buyers are stepping in and snapping up supply. It's true that the number of homes sold fell to its lowest levels in 12 years, but we can't ignore the fact that the number of homes available to buy fell, too.
Banks have put the brakes on foreclosures
Economic uncertainty is reducing job-related relocations
Builders have all but stopped building new homes
The national housing supply is as low as it's been in more than a year.
Based on the current rate of sales activity, the national housing supply would be 100% sold in 9.6 months -- a two-month improvement from the high point set in June 2008.
Demand for homes is expected to rise, too:
The Federal Reserve is trying to hold mortgage rates low
Fannie Mae is opening its checkbook to real estate investors
The stimulus package is granting tax credits to first-timers
So, it's not that the headlines are wrong; it's just that they're incomplete.
In looking at all of the data and not just one sliver of it, we can find hope. Falling supply plus rising demand leads home values higher and that's the basis for a recovery.

The Relative Cost Of Owning Versus Renting Is Back At Historical Norms
One popular housing theory is that -- before a bona fide housing recovery can begin -- the cost of owning a home versus renting one must return to historical levels.
If that belief is a truth, a national return to rising home prices may be in store for 2009.
Falling home prices coupled with falling mortgage rates, too, have dropped the relative, after-tax cost of owning a home to 125% of the cost of renting a home.
This is the exact 18-year historical average and not since 2001 has the gap been this small.
As reported by the Wall Street Journal, though, the study has some flaws. For example, the data doesn't account for ongoing home maintenance costs, nor does it consider real estate tax bills and insurance policies.
But, combining a relatively low cost of ownership with the government's $8,000 tax credit for first-time home buyers is likely to convert long-time renters into never-before homeowners.
This, too, is thought to be a key element of the housing recovery.
In many markets (but not all), home prices are expected to edge lower through 2009. Provided mortgage rates stay low, the cost gap between owning and renting will shrink even more.

The decline in home prices, the reduced number of home buyers, the $8,000 tax credit and the low interest rates may make the Spring of 2009 the best time in many years for first time home buyers.
(Image courtesy: Wall Street Journal)

How The Stimulus Bill Indirectly Lowered Mortgage Rates
The American Recovery and Reinvestment Act of 2009 was signed into law Tuesday in Denver, Colorado. Also Tuesday, stock markets fell near their November 2008 lows.
The two moves are related.
With each new stimulus; with each potential jumpstart of the economy, Wall Street questions whether the federal push will be enough to make an impact.
Traders ended undecided on that issue today, but resolute in something else -- that whatever change the stimulus bill will bring, it's not going to come fast enough to help.
The sell-off in equities was a boon to home buyers. For the first time since early-December, mortgage markets gave a sustained rally, extending gains from the 8:30 AM market open through the 4:00 PM market close.
Conforming mortgage rates were down on the day. Longer-term, though, this pattern won't likely last. Not only will the stock market regain its balance and draw dollars back, but, more importantly, the stimulus bill contained verbiage increasing the national debt ceiling by 53.4 percent. Government debt is often financed by printing more money and this leads to inflation, the enemy of mortgage rates.
For now, the stimulus plan is helping mortgage markets, albeit indirectly. If you're shopping for home loan, consider locking quickly. When markets flip -- and they always do -- it figures to be sudden.
(Image courtesy: Recovery.gov)

How Today's Mortgage Rates Impact Home Affordability

Comparing July's conforming mortgage rates to today's average rates, there's a 1.5 percent difference in favor of homeowners.
Rate drops like that make big differences in a household budget. Look at these before-and-after payments, based on rates from the chart:
$150,000 mortgage ($144 savings/month)
July 2008: $958 monthly
February 2009: $814 monthly
$250,000 mortgage ($240 savings/month)
July 2008: $1,597 monthly
February 2009: $1,357 monthly
$350,000 mortgage ($335 savings/month)
July 2008: $2,235 monthly
February 2009: $1,900 monthly
Of course, the other side of the story is that while mortgage rates fell in late-2008, the mandatory lender fees that accompanied them rose. That lessened some of the benefits of getting lower rates, but certainly not all of them.
According to recent housing data, buyers are back writing contracts and listed homes are selling quickly. Considering how mortgage rates have led monthly payments lower, maybe it shouldn't be much of a surprise.
There has never been a better time to buy. Rates are the lowest in 50 years, prices are lower than they have been in years, and there is not much competition for desirable homes. The only problem is for people who need to sell their home first. Maybe this is a good time to lose some money on the sale of your home and make even more of the purchase of your next home?

(Image courtesy: The Wall Street Journal) www.piedmont-mortgage.com