Real Estate Column for Sunday, July 26, 2009
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.