Sunday, July 11, 2010

Mortgage Rates at 50 Year Lows and Houses Still are not Selling.

Mortgage rates are now at 4.5% for a 30 year mortgage and houses are still not selling.

As I wrote last year, the first time home buyer tax credit would simply force all the demand to occur during the tax credit period leaving a dead zone in its aftermath and I have once again been proven correct.

The thing that most troubles me is that normally, low interest rates tend to cause a house purchase boom as we saw back in 2001-2004. Of course this is the worse time to buy a house because house prices will rise sharply as financining, affordability and demand increase due to lower monthly payments.

When interest rates rise, most people avoid buying houses because affordability decreases due to a higher interest rate and higher monthly interest payment. It simply cost more money in financing to buy the same home. This normally causes house prices to drop so that affordability remains the same for buyers.

experts say, even though this is contrary to what most people do, to buy a house when interest rates are high and house prices are low. because you can refinance the house at a lower rate down the road while enjoying your lower principal payment.

They say to not buy in a low interest, high home price enviroment (circa 2005) because that is simply a bad financial choice even though that is when the house boom mania and quickly rising house prices entices everyone to get in on the action.

Now we have a situation with low interest rates, low house prices. Perfect time to buy?...........Right?......right?

What happens when interest rates start rising?

historically this would mean house prices have to drop even further in order for affordability to stay constant.

Ex. A $100,000 mortgage at 4.5% cost you $507 dollars a month. If interest rates rise to 6.5% the same $100,000 mortgage costs you $632 a month.

If someone can only afford a 507 a month payment then the house price must drop to $80,000 for affordability to remain the same.

The question is....
is now the best time to buy houses due to low interest rates and house it the worse time to buy because an inevitable rise in interest rates will cause house prices to drop even further.

I really don't know.

Saturday, July 10, 2010

Double Dip in House Prices Forcasted

Home values slide again in 2010, with few exceptions.
The final figures for the U.S. housing market's performance thus far in 2010 won't be officially released for several weeks. But a review of the best preliminary data available indicates that the recovery in home values that began in early 2009 has stalled. A second dip is clearly underway in some places, if not across the entire, a Seattle-based real estate data provider, is preparing to release figures for May and expects them to show a 1.7% decline in home values nationally through the first five months. The pain is spread unevenly across the landscape, with home values in cities like San Diego, Los Angeles and Boston rising 2% to 4% while prices in Las Vegas, Miami and elsewhere tumbled 6% to 7%.

New York-based data firm Radar Logic, which tracks values by sifting through housing transactions in the 25 largest U.S. cities, reports that through April 30 values were up 1.9%. It warns, however, that values may have merely received a boost from the spring season (home values typically have their best stretch as the weather warms) and the extension of the first-time-buyer tax credit that expired last month. Its index will likely hit new lows in the second half of the year, Radar Logic says.

In a report released last month, analysts at investment bank Goldman Sachs said their own review of housing data available at the time showed 2009's recovery in values had stalled. U.S. housing values will fall 3% in the coming year, with the heaviest blows dealt to Las Vegas, Portland, Ore., and Seattle, Goldman predicts. With an eye toward high home vacancy rates or rising mortgage delinquencies in these cities, the bankers projected values there would drop 4% to 12% in the coming 12 months.

Even if the darkest forecasts don't come true, the slippage so far this year is discouraging. Many homeowners had been hoping that home values would rise again this spring like they did in the spring of 2009 (they rose 8% between March 30 and mid-August, by Radar Logic's measure). That clearly hasn't happened during the most recent home-hunting season.

"Some metro areas did pretty well," says economist Stan Humphries, noting that Los Angeles, San Francisco and San Diego were up 3% or more through the end of May, and that Boston and Denver also were both up year to date. "It's an otherwise dreary backdrop," Humphries adds.

In the housing downswing that plagued the U.S. in the early 1990s, home values fell in real terms, but inflation rates ran between 3% and 5%, which helped camouflage the modest retreat. No such luck now. With Inflation running at just 2%, any slip in value greater than that is painfully apparent to homeowners.

"In nominal terms, we haven't had a price drop like this nationally since the Great Depression," says Humphries.

"I'm not sure you can even call this a double-dip, because I'm not sure we ever got out of the first dip," says Radar Logic Chief Executive Michael Feder. "Last year I think buyers moved in because prices were so low, but we've seen such a massive inflow of supply because of foreclosures and the big inventory of foreclosures to come. It's really affecting the comfort that buyers have in the prices they're paying."

Barclays Capital has estimated the number of homes in the hands of lenders, whether Fannie Mae, Freddie Mac or any of the large private banks, is approaching 500,000. More than 200,000 of those homes are in the hands of the government lenders.

"They're the fastest-growing seller of foreclosed homes in the country right now," notes Feder.

Alarmed by the 11 million or so mortgages that are reportedly delinquent, Feder and others have been lobbying government officials to consider alternative plans to rescue housing. Feder favors a plan that would allow Fannie, Freddie and other banks to convert their underwater mortgages to shared-appreciation mortgages that would carry lower monthly payments and give banks and homeowners shared equity stakes in the homes' future appreciation.

One way or another the market must clear, and as it has so often in the past, California appears to be leading the way. Los Angeles, San Diego and San Francisco have all had respectable years thus far. Part of the reason is that state law enables the parties involved to work through foreclosures in as little as 90 days.

"Contrast that with Florida, where getting possession can take several more months," says Humphries.

Prices in Miami are down 6.9% this year, according to Zillow.

5 Cities Facing a Double Dip
El Centro, Calif.
Average home price: $113,400
Down year to date: -2.3%

Las Vegas, Nev.
Average home price: $126,800
Decline year-to-date: -6.6%

Miami-Ft. Lauderdale, Fla.
Average home price: $152,300
Decline year-to-date: -6.9%

Orlando, Florida
Average home price: $123,200
Down year to date: -7.3%

Detroit, Mich.
Average home price: $85,300
Decline year-to-date: -8.9%

Housing Double Dip Appears To Be Underway
Stephane Fitch,
Jul 7, 2010

Wednesday, July 7, 2010


This is the most beautifully done, easy to understand video on the economy I have ever seen. It is a must watch for everyone.

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