We track local and national home price and sales information on a regular basis and the most recent reports seem to provide more evidence that the home market has bottomed out and could be headed for a recovery.

The National Association of Realtors (NAR) report dated July 23, 2009 shows existing home sales were up 3.6% in June to an annualized pace of 4.86 million. This is the highest level since last October and is the third monthly increase in a row. The inventory of homes for sale is dropping with 3.82 million available at the end of June, representing a 9.4 month supply at the current sales pace, down from a 9.8 month supply in May and 14.9% below a year ago. In addition home prices are declining less sharply. The national median price in June was $181,800 which is 15.4% below June 2008 but is a 5.1% increase over the May median price of $173,000.

NAR President Charles McMillan, said that “Despite some of the challenges, the housing market continues to demonstrate signs of recovery. The temporary first time home buyer tax credit is clearly helping people make decision but it is taking longer to close transactions and many would be beneficiaries may not be able to take advantage of the credit before the December 1 expiration date. As a consequence, consumers need the expertise of Realtors more than ever to navigate both the obstacles and opportunities in today’s market.”

One of the problems which seems to be having an affect on the recovery is the new Home Valuation Code of Conduct. A June survey of NAR members shows 37% experienced at least one lost sale as a result of the new appraisal code, with seven out of ten reporting an increased use of out-of-area appraisers. Seventy percent of NAR members said consumers were paying higher fees, while 85% report a perceived reduction in appraisal quality. Lawrence Yun, NAR chief economists said, “Clearly the process needs to be revised, but the most logical approach is to use appraisers with local expertise, industry designations and access to local data and use apples-to-apples comparisons with nearby home sales. In many cases, normal homes are being compared with distressed homes sold at a discount, which often are in subpar condition – this is causing real harm to both buyers and sellers.”

The news on mortgage interest rates continues to be good as rates have trended lower in recent weeks. According to Freddie Mac, the national average commitment rated was 5.4% in June compared to 6.3% in June last year.

The Pending Home Sales Index is also a report issued by NAR. The most recent one shows a sustained upward trend, rising for four consecutive months with very favorable housing affordability and the first time home buyer tax credit boosting activity.

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You may have seen the report from Forbes magazine that rated Fort Collins – Loveland in the top ten in an article ‘Where to Live Cheaply’. Most of the categories covered average salary, unemployment, crime and culture but to make the list we had to rank highly on affordable housing. Housing affordability takes into account the median income needed to qualify for a mortgage on a median priced existing single family home. HUD has calculated the 2009 median family income for Larimer County at $75,200. Using a qualifying ratio of 25% of income for mortgage principal and interest and a 20% down payment along with our median home price of $211,500., the qualifying income needed to purchase the median home is $46,112. Comparing this to the median income of $75,200 gives us an affordability index of 163.1. The higher the index, the more affordable the housing. The national figure in May was 171.6 so we compare very favorably. To put it in perspective, the national affordability index in 2006 was 107.6, in 2007, 115.8 and 134.9 in 2009. Obviously the slump in housing prices and the low mortgage interest rates have made housing affordable for many who were not able to buy in recent years. The index is a general gauge of conditions and affordability is lower for first time home buyers with smaller down payments and less income.

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A couple of weeks ago we wrote about ‘jumbo’ mortgages and the spread premium, which has been as high as 2 points over conventional, conforming mortgage loans. This, coupled with a limited availability of financing for the jumbo loans (over $417,000) has really affected the sale of homes priced about $500,000. During the next week, we received calls from a couple of local banks – First National and Capital West – who say they have financing available for these mortgage loans at interest rates about one half point above conventional financing. The funds are limited and they are based on 75% loan to value but hopefully it is an indication that this funding is starting to get more competitive which will help the sale of higher priced homes.

Local housing sales continue to improve on a month over month basis with total June closings up 29.2% from last month. We can normally expect an increase in June sales compared to May but last year the increase was just 13.9% and the year before that it was 5.8% so we are on the right track. Unfortunately, compared to the previous year, sales are still way off with June recording another double digit decrease compared to last year. Typically the peak month for closed sales is July but with only 360 homes sold last July, we have our first opportunity for an increase in sales, compared to the previous year, since August 2007. That’s right, almost two years of declining sales and this year is setting up to be one for the history books. With 1,294 closed sales in the first six months, we are on a pace for less than 2,500 sales for the year, the lowest level since 1990 when we closed 2,296 home sales.

After showing a 5.9% increase in the average selling price in May, the average dropped sharply in June and was 4.6% below last year. This moved the year to date figure from a 1.1% decrease to a 2.1% decrease however the median price is still showing a 0.7% increase at $211,500. The 108 average days on the market for June sales was the best this year, compared to 117 days last month but higher than the 103 days recorded in June last year. Even with higher sales, the inventory of homes for sale at the end of June dropped slightly to 2,006 compared to 2,032 last month. With a total of 2,746 sales over the last twelve months the current inventory is equivalent to an 8.8 month supply which continues to edge into the buyer’s market category, particularly with homes priced above $300,000.

One of the biggest problems in getting more activity in the higher price ranges is the current market for mortgage loans over $417,000. These are called ‘jumbo’ loans and are not backed by Fannie Mae or Freddie Mac and the secondary market is adding a large penalty / premium to these loans. Before the recent ‘crisis’ in the mortgage lending business, these loans were readily fundable at a premium of 0.5 to 0.75 over conventional mortgage loans. This premium has been as high as 2.0 recently and is currently about 1.5 to 1.75 higher. As an example, a $600,000 home purchase with an 80% loan to value has a mortgage of $480,000. With a ½ point premium over the current conventional rate of about 5.25% this loan used to be at 5.75% requiring a principal and interest payment of $2,800 per month. With a premium of 1.5 the rate is now 6.75% requiring a payment of $312 more per month or nearly $4,000 per year. There are not that many buyers in this price range to begin, and those that are seem reluctant to pay this penalty. There are signs that this premium will continue to drop and there are other blended products that also serve to reduce the interest rate but we need to get more competitive mortgage financing in the higher price ranges to drive the move up market.