It’s been a while since I’ve just laid it all out there for you. The market data, that is.

I did this several times last year. Back then I was predicting that prices were going up during 2009…and I was right! (Just had to say it.)

Here are some of the most telling stats.

1) Prices

Prices are dropping in the first months of the year. I believe that some of that price drop has to do with the fact that you can’t get FHA financing on most condominiums, due to a change in policy last October. I believe that prices will level off and start going up by April, when people will begin to scramble for the $8,000 tax credit again.

In the chart below, look for the green line that is right on top of the orange line. That is 2010, right on top of 2009.

If you did not see it, review my article on the impact that interest rates have on price reductions.

2) Number of Sales

Now this is interesting. The number of sales is going down while the prices are going down, too. Does that mean that nobody is buying houses, despite the lower prices? Actually, it means two things. First, the number of sales always goes down for the first two months of the year. People came back from the holidays, rubbed their eyes, blinked and got down to the business of buying/selling. Those folks that got started in January/February closed in March. Happens every year. See below. Watch for sales numbers to go up in March and April.

Second, it means that people in March are going to start reacting to the lower prices and will start rushing in the market.

3) Market Distress

This is a really great way to see what is actually selling. Everybody has been talking about an impending wave of foreclosures. I have not seen it yet and we probably won’t. The banks want to sell homes at a regular pace. They don’t want to flood the market so that prices go down further!

Notice in the charts below that short sales (“pre-foreclosed homes”) are a smaller percentage of the market of “active listings”, but they make up a minority of homes that actually close. So, while I am happy to help my clients find short sale listings, I am careful to interview the listing agent to see if they have the knowledge and gumption to get through the bank’s process.

4) Interesting Note

Have a look at this chart of annual sales for just 85003. Interesting how much that can fluctuate from just one sale, there in the middle. Fewer sales to average out the numbers. However, also note that  the average sold prices have been much higher than other parts of town. Lesson: historic neighborhoods have kept their value!

Interesting stuff. It’s good to grab these snapshots.  If you want more information in more specific areas, please let me know.

….in other words, even if prices are going down, interest rates are likely go up later this year and undermine any price drops.

How does that work? (Thanks for asking.) Here’s how.

Prices are going down for now, but interest rates are going up.

This is totally different from last year when prices were still dropping AND interest rates were also dropping.

If you look at this chart you can see that prices were climbing last year, but they are dropping thus far this month. Let’s hope it stays that way before people start scrambling for the $8,000 tax credit! However, don’t expect it to. Prices went up last fall when people were buying in time for the tax credit.

Look very closely for the emerald green 2010 line at the lower left. It is almost hidden because it is laying right on top of the orange 2009 line.

While it looks like prices are going down, just know that prices usually go down the first couple months of the year until folks start really gearing up their searches.

Further, interest rates are expected to go up by March and interest rates make a huge difference in your monthly payments.

For instance, if you buy a $100,000 house at 5.5% interest, your monthly payment (before taxes and insurance) would be $568. The same house at 6% interest would cost $600 per month.

That extra $32 per month is $384 per year or $11,520 over the life of the loan!

Another way to look at it is that in order to have the same payment every month that you had at 5.5% interest, you could only afford a house that costs $95,000 at 6% interest.

So, what does this mean? It means that you want to consider getting in to the market before interest rates go up.

It also means that you probably want to act before both prices and interest rates go up. That is the worst case scenario!

Give me a call. I’m more than happy to help you navigate the market: 602-456-9388.

Y’all may see me quote the Cromford Report a lot to talk about trends in the real estate market, or when I make the case that prices are actually going up.

Well, you can get a free subscription to the Cromford Report by following this link. It will take you to a page of charts for Phoenix, which show current market status.

But before you go there, I want to point out couple things:

1) Notice how the number of Active Listings has dropped? That means the supply is dropping and pushing prices upward.

2) That is why you see the number of sales per month drop. That, and the fact that there are so many short sales on the market now, which take forever to close!

3) Notice also the difference between the square foot price that homes are listed at and where they are actually selling. I’m still seeing huge drops in price after the appraisers come look at the house. The sellers are being forced to lower their prices. This is great for you if you are a buyer.

Anyway, if you want to geek out on data like I do, and more, you can get that free subscription.

According to more information from the FHA today, loans with case numbers assigned on or after April 5, 2010 will have increased premiums for home loans and refinance transactions.

So, this means you need to have an accepted offer by that date, which means you need to start looking no later than the beginning of March.

The premium is the charge that you pay when you close on your house in order to insure against default. (See yesterday’s post.)

The changes are as follows below:

Upfront premiums

1. Purchase money and full credit qualifying refinances will be 2.25% (It now stands at 1.75%)
2. Streamline refiancing (all types) will. be 2.25%
3. HOPE for Homeowners (delinquent mortgagors) will be 2.00%
4. Home equity conversion will be 2.00%

Annual premiums (what you pay on your monthly bill, also known as PMI) will remain unchanged and are as follows for loans over 15 years:

1. Loan to Value of less than or = to 95% is one half of a percentage point (or 50 BPS).
2. Loan to Value of less than 95% is 55 BPS.

To put in common English: We have some time before the higher premiums kick in so you need to start looking seriously soon. Rates and mortgage insurance premiums are at an almost all time low, but will almost certainly be higher by March.

Source: Dan Hlavac

If you are a first-time home buyer, you may be affected by an increase of fees to secure an FHA-backed loan.

The FHA does not make the loan. It just insures that you, the buyer, won’t default on the loan. With so many defaults recently, they have had to pay out a lot. Like any insurer, if they have to pay out more, you, the customer, have to pay more to get insured.

This is how it works: typically, when you get an FHA-backed loan you only have to pay 3.5% down. But you have to pay up to 1.75% of the loan amount in the form of an insurance premium against default. That amount is about to go up to 2.25% for reasons outlined in this Wall Street Journal article.

But there is more. You may also be limited in the future to how much of the closing costs the seller can pay for you. Currently, the seller can pay up to 6% of the buyer’s closing costs. The FHA may reduce that to 3%, as they believe that the 6% rule encouraged people to pad prices of homes too much.

Also, if you have a credit score of under 580, you are likely going to have to front 10% of the loan, rather than the typical 3.5%.

Finally, there is also talk of increasing the 3.5% down payment to 5% sometime this year.

All of this is because the FHA is backing many loans across the country and is fearful that it needs to do more to prevent

I asked one of my mortgage broker friends, Dan Hlava of Met Life, if this is effective immediately. He tells me that, yes, all of this is true, but that it is not something to be alarmed about for the average buyer. It really depends on your score. “Met Life does not lend under a credit score of 620, so that 10% down part of it does not apply to us.”

As for the premium, the average person with a reasonable credit score is not going to see a higher insurance premium. However, in those instances where your credit score is lower than 600, that is when you are going to see higher costs.

According to Nova Home Loans broker Jeannie Bolger, “This is not going to happen tomorrow. But if the FHA does change the guidelines, it will likely happen sometime over the summer.”

The moral: if you are thinking of buying a home this year, this is another reason to do it sooner rather than later.

Other reasons:

1) Interest rates will probably start going up in March.

2) People will be flooding the market again looking for the $8,000 tax credit.

3) There will not be a flood of new foreclosures entering the market.

Call me if I can help!

Regular contributor of topic ideas of my blog, John Bennett, sent me this Newsweek article that explores how the generation raised in this recession might live differently.

Unlike in previous recessions, a more frugal life outlook might hold this time because the economics of the world, in general, will force Americans to save more, spend less and make different decisions about consumption.

According to the article, “the personal savings rate has more than quadrupled from its 2008 low to the current rate of 4.5 percent.”

This is amazing to me. Back when I worked at the Concord Coalition, a federal deficit reduction advocacy organization lead by Senators Paul Tsongas (D) and Warren Rudman (R), we watched in horror as the American average savings rate went in to negative territory. Meanwhile, the Japanese and Germans had a strong, consistent personal savings rate.

This had an impact on our federal budget deficit, as the amount people saved impacted the price of bonds and (in a complicated way that I’m not very good at explaining) the deficit that we funded with those bonds.

The article also predicts that we are entering “a new age in which young graduates can’t expect to do better than their parents—and one in which Wall Street is perceived as being able to continue business as usual while Main Street struggles.” Heck, I’m already there. I doubt that I will do as well as my parents. Although that might come from my personal choices to try to save the world, rather than anything else. Yet, over-all, the number of kids who do better than their parents is dwindling.

It creates an interesting set of ideas to think about as the Baby Boomers pass on. First, the Generation X-ers will be living off what their parents leave them, which, in the aggregate, will be more than any other time in history. Yet, there may not be much left after the Baby Boomers live longer, spend more on health care and then, finally, when we have to find a way to pay off all of the debt accumulated in our massive federal debt.

What does this mean for the housing market? I think in the 15-20 year time horizon, you can expect that many large homes will be left to the next generation by Boomers. Unless there is a continued influx of immigrants who improve America’s productivity level (not just service jobs), those homes might just sell for less and be worth less.

On the positive side, however, the Recession Generation is learning something that the eco-friendlies in the Boomer generation have been saying for decades with little response: live smaller. Dry your laundry on a line, compost, reuse things that break, live in a smaller, more energy efficient home.

When I lived in Bosnia, many folks did these things without thinking about it –even in 2007 when I went back to visit. An economist would say that it was because they had a lower standard of living and had to do these things because they had no other choice. This is true. Yet, the frugal part of life there never left me feeling that my standard of living was all that bad. In fact, it made me feel better about my lifestyle and my impact on the environment in many ways.

I hope we get a little of that New Frugality in America and it sticks.

My number-crunching Realtor-mentor, Leif Swanson did his annual good/bad analysis of the year.

This is really interesting, especially in light of dire predictions for 2010.

REAL ESTATE UPDATES: GOODBYE 2009 – HELLO 2010!

2009 was hot & cold depending upon price and if you were a seller or buyer.

The Bad News:
* Property prices dropped 31 percent in 2009, bottoming out in early April. Some cities fared
better than others. See the attached “Comparison of 2008 & 2009 Data” sheet to see how your
city performed.
* The average sales price in 2009 was $170,000, down from 2008’s $248,000.
* Foreclosures dominated the real estate market, accounting for 55% of 2009’s sales. Short
sales accounted for 25% of all active listings, but only 14% of all sales.
* Homes priced above $350,000 remained hard to sell.
* Vacant properties accounted for 82% of all sales in 2009.
* Loan modification programs failed to materialize. It was too late for many homeowners.

Good News? How about these facts:
* Although the average sales price in 2009 was lower than 2008, by the 4th quarter, the average
sales price went up to $174,100, a 2.4% increase.
* Phoenix was the best in the nation on home price change in the 4th quarter at plus 1.3%.
* Home & condo sales in 2009 were much higher than last year. Almost 55 percent better! In
fact, 2009 was the 3rd best sales year ever (over 92,400 sales). December 2009 was the 2nd
highest sales December ever.
* Affordability was the name of the game in 2009. How can anyone complain about prices
below $100/square foot?
* Interest rates dropped significantly in December 2008 and hovered around 5% all year.
* Pending sales are still strong going into January 2010 despite national news to the contrary.
* Over 9,900 pending sales right now! And over 670 sold properties so far in 2010.

But they are still historically low. So, don’t panic.

I am constantly reminded by old-timers that rates in 1981 were as high as 14%. Back then people would do seller carry-backs, which meant that the seller of the house would actually act as the lender. If you were the buyer, you would pay the seller every month for some number of years and then you were expected to pay off the loan. That usually meant that you would find financing in that time or get your rich uncle to pay it off for you.

It makes me wonder why we don’t do more seller carry-backs. Probably because people don’t know how to make them work. With all of the people who have foreclosed on homes, you would think there would be a market for that kind of thing. If your credit is a mess because you lost your home, you could still get a house by making a deal with the seller.

My friend Dan at Met Life regularly sends me updated interest rates that they offer.

You can see that rates are moving up a little. As I’ve said in previous posts, watch for these to climb higher in March. For now, you can still do really well with a new loan. Give Dan a call or shoot me an email for more information.

According to the Phoenix Business Journal, the Plaza Cos. has sold Phoenix Biomedical Plaza to the University of Arizona Foundation for $9.85 million. Evidently, they sold it at a loss, which is great for the UofA medical campus’ future growth.

This just points more and more to what I’ve been saying: downtown Phoenix will have over 20,000 students –as ASU predicts– in the next 5 years and the Garfield neighborhood is going to be the coolest little urban neighborhood this side of Berkley.

NEWS
I’m hearing from my mortgage broker friends that there is a very good possibility that rates will increase in March 2010.

WHY IT IS HAPPENING?
With the Fed buying fewer Mortgage Bonds and wrapping the program up entirely at the end of March, any improvement in rates may be modest at best.

In fact, last week the Fed purchased just $9.3B in Mortgage Backed Securities.  This is down sharply from their recent purchases averaging around $15B, and down from highs of $25 to $30B over the Summer.  Their total purchases are now $1.11 Trillion out of the $1.25T allotted for the program.

This leaves $140B remaining in purchases over the next 12 weeks before the program ends.

WHAT IT MEANS FOR YOU
So, if we have you on a track to get in to a home this year, remember that increased interest rates are more costly than increases in home prices.

If interest rates go from 5% to 6%, that is an increase of $63 per month on a $100,000 home.

Please contact me if you’d like more information. If you have been working on your credit score, or otherwise been getting things lined up for a purchase this year, we may want to take this development in to account and make a plan for you.