Chance Gates' Blog

RISMEDIA, March 24, 2010—Buying a home is one of the biggest decisions an individual can make. So it’s understandable that one considering a home purchase may take their time to avoid rushing into such a large financial commitment. However, several factors might leave prospective home buyers who don’t purchase a property now wishing they had taken action sooner.

“Current market conditions have created a perfect storm of sorts that has made it an ideal time to purchase for first-time and trade-up buyers alike,” said James M. Weichert, president and founder of Weichert, Realtors. “Those who have the means and the desire to buy now but don’t, aren’t likely to see such a great opportunity again anytime soon.”

Specifically, Weichert offered three reasons why those who aren’t under contract to purchase a new home by April 30, 2010 might regret it.

1. They won’t receive a sizeable amount of money from Uncle Sam.

For the past two years, the federal government has offered a home buyer tax credit to help stimulate the economy. But that financial incentive is set to expire soon. First-time buyers who aren’t under contract to purchase a home by April 30, 2010 will leave the $8,000 that is available to them through the tax credit on the table. Meanwhile, repeat buyers will miss out on the opportunity to collect up to $6,500 from the government.

2. They might not lock-in on the historically-low interest rates.

Thanks to measures taken by the Federal Reserve including the purchasing of mortgage-backed securities, interest rates have remained historically-low for several years. With the economy beginning to show signs of recovery, it is widely believed that the government will soon put an end to these stimulus efforts.

If that happens, many economists believe we will begin to see a sharp increase in interest rates which could result in a much higher monthly payment for those who wait. For example, an interest rate increase of 1% on a 30-year fixed mortgage of $300,000 could cost a buyer $188 more a month or $67,000 more over the span of the entire loan.

3. They might miss out on record home price affordability.

Home price affordability is at its most optimal level in decades. As a result, those who wait to buy will likely pay more for the home they purchase than what that same home would cost right now. In fact, home prices have already begun to rise slightly in some markets. Instead of getting a better bargain, waiting to buy a home might net buyers a higher purchase price, less appreciation and less house for their buck.

“There is no time to waste for anyone who wants to take advantage of this great buying opportunity. Particularly for those who have a home to sell first,” added Weichert. “If you are prone to saying ‘what if’ and wondering what could have been, you will thank yourself down the road for buying now.”

For more information, visit www.weichert.com.

As a Reno-Sparks real estate consultant I welcome any questions or comments on the Reno-Sparks real estate market or any articles I post.  I can be reached at chance@ballad-company.com

RISMEDIA, March 20, 2010—(MCT)—As the spring real estate season kicks in and the tax credit deadline for sale agreements approaches, the government is ending a program that has kept interest rates low and housing-affordability levels high for months.

On March 31, the Federal Reserve will stop buying mortgage-backed securities from Fannie Mae and Freddie Mac, returning control of interest rates to private investors.

For months, industry observers have predicted that once government supports are removed, interest rates will rise quickly, pushing many of the first-time buyers critical to housing’s recovery out of the market.

In late summer and fall 2009, lured by fixed 30-year mortgage rates under 5% and the first $8,000 tax credit, which expired Nov. 30, first-timers pushed sales of previously owned homes to the highest levels in at least three years, reducing record inventories and braking price declines.

That tax credit was renewed Nov. 5 and expanded to buyers who had not purchased a property in five years, although the credit for repeat buyers is $6,500. The second credit expires April 30, is unlikely to be renewed, and remains the engine moving buyers.

“Not a single one has expressed concern about interest rates,” said Cheryl Miller of Long & Foster Real Estate in Blue Bell, Pa., acknowledging that “there is, I suppose, a false sense of security regarding rates remaining low.”

As the date for the Fed pullout approaches, analysts now generally agree that an immediate rate spike is no longer the likely result. “We think there will be a significant increase in private demand for mortgage-backed securities to take the place of the Fed,” said David Berson, chief economist at PMI Group in Walnut Creek, Calif. Not enough to offset the Fed’s departure, he said, with rates possibly increasing a quarter of a percentage point, “but a significant one.”

 Economy.com chief economist Mark Zandi said rates will “drift” higher in summer and fall, with the half a percentage point the Fed’s action cut working its way back in—mainly because investors believe the government would return if they got too high. For that reason, Philadelphia mortgage broker Fred Glick said, rates won’t change. “If the old buyers don’t come back, the Fed will intercede again to ensure rates during a continued slowly recovering economy will not go so high as to stymie a positive direction,” Glick said. Buyers of these securities “now see that the lenders have instituted rigorous standards to ensure that the Fannie Mae and Freddie Mac paper they are buying are very good loans,” he said.

On the other hand, said Holland, Pa.-based economist Joel L. Naroff, low rates are not sustainable, and “the only way to get the market to stand on its own is to get people to become realistic again about prices and rates.” Rates will likely rise, but “the level will still be historically low,” Naroff said.

When rates do rise, likely by year’s end, it won’t be because of the Fed’s action, but “natural macroeconomic forces” like a recovering economy and the high budget deficit, said Lawrence Yun, National Association of Realtors chief economist.

The possibility of renewed Fed intervention will likely prevent rate increases resulting from private investors demanding large risk spreads, said economist Brian Bethune of IHS Global Insight in Lexington, Mass. As a result, Bethune and IHS economist Patrick Newport believe, the rate will be at only 5.25% by the fourth quarter.

Many Fed officials have emphasized that “high unemployment and tame inflation warrant a continued promise to hold rates very low for a long time,” said Peter Buchsbaum, of Arlington Capital Mortgage in Horsham, Pa.

Some analysts expect the expansion to ease, “and I am sure the Fed does not want to extinguish the fragile recovery,” Buchsbaum said.

Treasury bond yields “did not move much after the Fed completed its $300 billion in purchases in November,” said Jerome Scarpello, of Leo Mortgage in Spring House, Pa., “meaning they were able to exit and not disrupt that market.” Rates will rise, he said, but not as high as the one percentage point others predict. “With unemployment high and foreclosures an issue, a significant rate increase can push home prices down,” Scarpello said, “and hamper the slight recovery we now have.”

(c) 2010, The Philadelphia Inquirer.

It is fun to read all the expert opinions on what they think is going to happen.  The question of the day is what do you think will happen to the interest rates when buying a house in the Reno/Sparks real estate market?

As a Reno/Sparks real estate consultant I always welcome any comments or questions on the Reno/Sparks real estate or any of the articles I posted.  You can email me directly at  chance at ballard-company.com

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RISMEDIA, February 26, 2010—(MCT)—Sales of new U.S. homes plunged 11.2% in January 2010 to a seasonally adjusted annual rate of 309,000, the lowest rate on record dating back to 1963, the Commerce Department recently reported.

The third-straight drop in sales on a month-to-month basis was unexpected. “The housing market remains very, very distressed,” wrote Dan Greenhaus, chief economist for Miller Tabak & Co.

“There may have been some weather-related issues playing havoc with the sales data but clearly, these results are extremely unnerving,” wrote Jennifer Lee, an economist for BMO Capital Markets. “There is nothing positive to glean from this report.”

U.S. stock markets fell after release of the report, which coincided with release of congressional testimony by Federal Reserve Chairman Ben Bernanke, who said the economy remains fragile and needs low interest rates for an extended period of time.

Data on sales for December 2009 were revised higher to a seasonally adjusted annual rate of 348,000, up from 342,000 previously reported.

Sales of new homes are down 6.1% compared with January 2009’s 329,000 units, which was the previous record low. The number of homes for sale rose 0.4% to 234,000 in January. At the January sales pace, it would take 9.1 months to sell that inventory, up from 8.0 months in December and the highest monthly supply since May.

Government statisticians have low confidence in the monthly report, which is subject to large revisions, and large sampling and other statistical errors. In most months, the government isn’t sure whether sales rose or fell. The standard error in January for instance, was plus or minus 14%. The government says it can take up to five months to establish a statistically significant trend in sales. Over the last five months, sales have been on a 362,000 seasonally adjusted annual pace, down from 382,000 in the five-month interval through December.

Sales had risen fairly steadily in the first half of 2009 before plateauing last fall. Seasonally adjusted sales have now fallen three months in a row.

With mortgage rates still very low and prices down, most analysts had concluded that the recent decline in sales was due to the impending expiration of the first-time home buyers’ credit in November.

As it happened, Congress extended the tax credit through June and expanded it to include repeat buyers. But the tax credit didn’t help sales in January. Sales of new homes are recorded once a sales contract is signed, not at closing. Some homes are sold before ground is broken on construction.

Details
Home builders had been slashing their inventory of unsold homes for more than a year to a 38-year low before January’s 1,000 increase. The number of homes for sale that are under construction fell to a record low of 100,000.

Builders have cut back on production of new homes, but they still face headwinds from unsold existing-homes as foreclosures continue to mount up. If a home isn’t sold before it’s finished, it’s taking a record 14.2 months to sell it after completion—a reflection of the mismatch between more expensively priced homes in the inventory and lower-priced homes that have been selling.

The median sales price of a new home sold in January was $203,500, down 2.4% compared with a year earlier. Cheaper homes were selling better than expensive ones: 47% of sales were for less than $200,000, up from 43% in December. Meanwhile, 38% of sales were for $200,000 to $400,000, down from 41% in December.

Sales were down in three of four regions: down 35% in the Northeast, down 12% in the West and down 10% in the South. January’s sales were up 2% in the Midwest, the government’s data showed.

(c) 2010, MarketWatch.com Inc.

Chance Gates does welcome any questions or comments on the Reno/Sparks real estate market or on any articles that may be posted.  Send your  emails  to  chance at ballard-company.com