February home sales were just about where we expected them to be: down 19.9% compared to a year earlier. The local closed sales in February were up almost 10% from January and an improvement from the 131 sales of February 2009 but we could not match the 2010 results which benefited from the federal tax credit. After a surprisingly strong January this leaves us with an 8.3% decrease for the year to date and we expect that this will probably get worse when comparing 2011 to 2010. In the first six months of 2010, fueled by the tax credit, we had a 23.6% increase in sales over the previous year so these next few months are going to be difficult to match.
There is some good news in the number of homes under contract which increased 34.5% from 246 at the end of January to 331 at the end of February. These are sales that should closing in the next couple of months.
The average selling price continues to hold up with a 1.4% increase in February and 4.7% for the year to date. The median price is up 1.4% to $220,000 for the year. Selling prices are obviously being helped by the low number of active listings on the market. There were just 1,392 at the end of February compared to 1,752 at the same time last year. When we deduct the under contract listings there are a net of 1,061 and with a demand of perhaps 1,600 homes over the next six months we have just a four month supply. Potential home sellers should be very aware of this supply figure and with the normal pick up in activity over the next few months, now is the time to have your home on the market. The average days on market for the homes that closed in February was 126, an improvement over the 146 for January closings but still higher than the 119 last year.
On another note, potential home buyers who have been planning to use FHA financing to obtain up to a 96.5% mortgage had better get moving. There are several changes being proposed that will severely impact borrowers. Among them:
· Credit score requirements are going up. A minimum score of 580 will be required for a 96.5% loan. With a score of 500 to 580 buyers will be required to put down 10%.
· The amount of a seller concession will be lowered from 6% to 3%.
· The cost of annual mortgage insurance will increase and borrowers with less than 5% down payment will pay more than those with higher down payments.
These FHA changes are just the tip of the iceberg. Along with the Obama administration proposal to phase out Fannie Mae and Freddie Mac it could make for some very significant changes in how home purchases are financed. Fannie Mae and Freddie Mac are tax payer owned having been effectively nationalized in 2008. Currently they guarantee nine of every ten new mortgages and have cost taxpayers more than $150 billion in bailouts. And, according to their regulator, the Federal Housing Finance Agency, they may need up to $350 billion more in the next three years. The elimination of government backed home mortgages will make it more expensive for borrowers and at the very least we can expect:
· Higher down payments
· Lower debt ratios
· Shorter amortization periods
These changes are only proposed at this point but if you are considering the purchase of a home, whether it is your first home or a new home; a bigger home or a smaller home, sooner would seem to be better than later!