Bucktown

There’s A Very Good Reason Why The New Home Sales Data Plunged In November

One day after November’s Existing Home Sales report blew away estimates, the Census Bureau’s related New Homes Sales report failed to impress.

A “new home” is a home that is newly-constructed; not bought as a resale.

In a lackluster showing, New Home Sales dropped 11 percent in November, falling to the lowest levels since April. Furthermore, the all-important “months of supply” climbed by a half-month to 7.9.

The press pounced on the figures and if you only read the headlines, you’d think that housing had cratered. Some of the angles were quite bold, even:

• Weak U.S. Home Sales Show Recovery’s Shakiness (Reuters)
• New Home Sales Plunge In November (CNNMoney.com)
• Housing Forecast : Off Life Support, Still In Critical Care (CBS News)

These headlines, although technically accurate, only tell half the story, however. The other half relates to November 30’s role as the original First-Time Home Buyer Tax Credit ending date.

See, different from home resales, when a contract is written on a newly-built home, the home is rarely finished. According to the Census Bureau, just 1 in 4 new homes are sold “move-in ready”. The other 3 of 4 are in various stages of construction when a buyer signs on the dotted line.

Some have yet to break ground, even.

Regardless, it’s at this date of signing that the Census Bureau counts the home as “sold” — not at the actual closing. This is the main driver of the November New Home Sales data dip.

First-time home buyers would have risked up to $8,000 in federal tax credits if they bought a newly-built home and it wasn’t ready for move-in by November 30, 2009. And it wasn’t until November 5 that the credit was officially extended.

Suddenly, first-timers representing more than half of last month’s Existing Home Sales isn’t so shocking. Buying new carried a lot risk.

There’s always more to the story than the headline. Sometimes, you have to dig deeper. Looking back over 10 months, the housing market is on a steady course of improvement. November’s New Home Sales data — although weak — is not terrible.

Despite what the papers might say.

Home Inventories Plummet, Foreshadowing Higher Prices By Spring 2010

Home resales are soaring.

For the 4th consecutive month, the Existing Home Sales report revealed what today’s buyers and sellers already know — there’s a lot of buyer activity right now.

Existing Home Sales surged 7-plus percent in November, posting its largest number of recorded sales in 33 months. Sales volume is up 44% higher versus last year.

It’s another example of the housing market in recovery.

There were other interesting statistics buried in the November data, too. According to the National Association of Realtors:

1. 51 percent of home buyers were first-timers
2. Distressed properties accounted for one-third of all sales
3. The median home sale price rose slightly

But of all the stats from the November Existing Home Sales report, perhaps the most important one is the one showing home supplies falling to 6.5 months. It’s nearly half of the home supply available last November.

The rapid run-off of inventory throughout 2009 is more than a trend at this point and suggests higher home valuations in 2010. Especially because mortgage rates are low, tax credits are available, and the press is giving housing positive coverage.

You shouldn’t feel rushed to buy, but you probably don’t wait too long, either. The best deals of 2010 may be gone before that Spring Buying Season even starts.

When It’s A Holiday Week, Mortgage Rate Shoppers Should Be Extra Vigilant

Mortgage pricing worsened Monday, driving mortgage rates to their highest levels since October.

The day’s action was drastic, too.

Some banks issued as many as 3 rate sheets Monday — each worse than the preceding and one reason why rates got so bad, so quickly, is because this week marks the beginning of mini-Vacation Season on Wall Street.

Between now and January 4, 2010, be prepared for big swings in pricing from day-to-day. Shopping for a mortgage could be a challenge.

The relationship between vacation days and mortgage rate volatility is rooted in how mortgage rates are “made”.

1. Conforming mortgage rates are based on the price of mortgage-backed bonds, a security that is sold on Wall Street
2. Mortgage-backed bonds can’t sell without a bond buyer and a bond seller agreeing to a specific sale price

So, during vacation week, when the total number of market participants are less, there are fewer opportunities for buyers and sellers to meet at a specific price. As a result, bond prices rise and fall with a higher velocity than on a “normal” day. Rallies and momentum plays are exaggerated, too.

Now, mortgage market action like this can work in your favor, or it could work out of your favor. Unfortunately, on Monday, rates moved out of favor.

This rest of this week is stacked with market-moving economic data. The data could be better-than-expected, or worse-than-expected. Either way, markets will react a little more feverishly than normal. Therefore, if you have a chance to lock a favorable rate, consider taking it.

Before long, the rate could be gone.

Keep Your Home Safe : The Consumer Product Safety Commission Recalls 50 Million Window Coverings

The U.S. Consumer Product Safety Commission has issued a recall on 50 million window coverings, specifically Roman and roll-up blinds. 8 million such products are sold annually.

According to representatives of the CPSC, the danger of Roman and roll-up blinds relates to stangulation — specifically of young children. The blinds’ design has led to 8 deaths and 16 near-strangulations this decade.

Despite the relatively small number of incidents as compared to the 125 million blinds sold since 2001, the Window Covering Safety Council is embracing the recall, offering safety tips and free retro-fit kits.

• Move cribs, beds and furniture away from window cords
• Keep window pull cords out of the reach of children
• Lock cords into position whenever possible — even if resting on a windowsill

The video from NBC News highlights the risk of Roman and roll-up blinds. Order your free retro-fit kit online.

Housing Starts Jump; Home Sellers Lament.

Housing Starts jumped last month as builders got back to business. It’s a telling sign for the economy, but bad news for next season’s sellers.

With more homes coming online, home prices may be slow to rise nationwide.

A “Housing Start” is a privately-owned home on which construction has started. In November, starts rose by nearly 9 percent while remaining within the same tight range we’ve seen since June.

More interesting that Housing Starts, though, is the accompanying data for Housing Permits. After a 5-month plateau, Housing Permits finally broke through, posting its largest number in 12 months.

This, too, bodes poorly for sellers.

Housing permits are precursors to housing starts so because the number of permits are higher today, we expect that the number of starts will be higher just a few months from now.

According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance.

More permits means more starts which, in turn, leads to a larger home inventory. And when home supplies grow faster than the home demand, prices fall.

Throughout the early part of 2010, low mortgage rates and federal tax credits should help hold demand high but if builders flood the market with new, quality product, sellers may find that they’ve lost some of their leverage.

For home buyers, the rise in starts is welcomed.

A Simple Explanation Of The Federal Reserve Statement (December 16, 2009 Edition)

The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that the U.S. economy “has continued to pick up”, that the jobs markets is getting better, and that housing market has shown “some signs of improvement” lately.

It’s the fourth straight statement in which the Fed speaks optimistically about the U.S. economy — a signal that the worst of the recession is likely behind us.

The economy isn’t without threats, however, and the Fed identified several, including:

1. Tight credit conditions for consumers
2. Reluctancy of businesses to hire new workers
3. Lower overall housing wealth

The message’s overall tone remained positive, however and inflation appears to be held in check.

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to honor its $1.25 trillion commitment to the mortgage bond market. That plan — due to expire at the end of March 2010 — should be noted by today’s homebuyers. Fed insiders estimate that the program suppressed rates by 1 percent through 2009.

Mortgage market reaction to the Fed press release is negative. Mortgage rates are rising this afternoon.

The FOMC’s next scheduled meeting is January 26-27, 2010.

Fannie Mae Gets Tough(er) On Borrowers. Again.

Fannie Mae raised the bar for mortgage applicants this past weekend. Getting approved for a home loan just got harder.

In its official announcement, Fannie Mae says the updates minimize long-term lending risks. If that’s the case, this won’t be the last guideline change Fannie Mae makes — especially with loans defaulting at an above-normal clip.

The immediate changes are major. The first pertains to credit scores.

Effective December 13, 2009, the bulk of Fannie Mae’s loans require a 620 credit score minimum. There are very few exceptions.

A second relates to loans with private mortgage insurance.

Homeowners whose loan-to-value exceeds 80 percent now have a choice:

1. Pay higher mortgage insurance premiums month-after-month
2. Pay a one-time fee paid at closing to compensate for higher risk

Both options result in higher consumer loan costs.

A third change concerns maximum debt-to-income ratio. Fannie Mae will no longer approve loans with debt ratios exceeding 45 percent except with very strong assets and very high credit scores.

In no case whatsoever may debt-to-income exceed 50 percent.

There are other changes, too, including the elimination of seldom-used mortgage products and additional risk-based fees for “expanded level” mortgage approvals. These updates affect just a small part of the population.

So, home prices are rebounding, mortgage rates are low, and — for 5 more months at least — there’s a federal tax credit for qualified buyers. You don’t have to buy a home now, but with mortgage guidelines sure to tighten in 2010, now may be a better time than later.

The best “deal” won’t matter if you can’t get qualified on your mortgage.

Tools For The Home : 16-In-1 Black And Decker ReadyWrench

When it comes to DIY projects, one socket size rarely fits all. So, for light jobs around the house, the 16-in-1 Black & Decker socket wrench can come in handy. Its official name is the ReadyWrench.

The ReadyWrench won’t replace a complete socket set, but because it features the 16 most popular socket sizes, it can simplify your work. The tool fits SAE sizes (5/16 inch, 3/8 inch, 7/16 inch, 1/2 inch, 9/16 inch, 5/8 inch, 11/16 inch, 3/4 inch) and metric sizes, too (8mm, 10mm, 11mm, 13mm, 14mm, 16mm, 17mm, and 19mm).

The head rotates to 45 and 90 degrees so the tool can be used for ratcheting in tight places, when needed.

The ReadyWrench comes with a lifetime warranty and is available at most hardware stores and on Amazon.com for $30. If you’re looking for an inexpensive, suitable gift for a DIY homeowner, the ReadyWrench could be your fit.

Strong Retail Sales Data Could Hamper Home Affordability

If you wonder what mortgage rates and home affordability will look like next year, today’s Retail Sales data may hold your answer.

Versus October, November’s ex-auto sales were up by more than 1 percent. Analysts expected the increase, but not an increase of this magnitude.

“Ex-auto” means that motor vehicles and parts are excluded from the data.

Home values are increasing in many parts of the country and household net worths are rising, too. Therefore, we can infer from the Retail Sales report that U.S. consumers are starting to feel better about their individual finances, and about the economy overall.

To homebuyers and rate shoppers, strong Retail Sales data may foreshadow higher rates for mortgages ahead. This is because sales data is a by-product of consumer spending and consumer spending accounts for more than two-thirds of the economy.

As spending increases, the economy tends to expand, drawing investment dollars into stock markets and away from bond markets — including mortgage-backed bonds, the basis for conforming mortgage rates.

Less bond demand leads to higher rates and, therefore, lower levels of home affordability.

Despite the Holiday Season momentum, however, 2009 will likely mark just the second time that Retail Sales data fell year-over-year since the government started tracking it 40 years ago. The other year was 2008.

But, if November’s Retail Sales is a reliable indicator of consumer sentiment overall, we should expect 2010 to rebound strongly. And when it does, mortgage rates should suffer.

The housing market is recovering, mortgage rates are still near all-time lows, and the government is offering an $8,000 tax credit to qualified buyers through April 30, 2010. If you plan to buy a home next spring, you may want to consider moving up your timeframe. Waiting may be costly.

Foreclosure Activity Falls For The 4th Straight Month

Since peaking in July 2009, national foreclosure activity has dropped through 4 consecutive months.

On a month-to-month basis, November’s foreclosure activity fell another 8 percent.

However, national foreclosure activity continues to be dominated by a minority of states.

As reported by RealtyTrac.com, more than half of November’s foreclosure-related activity sourced from just 4 states:

1. California


2. Florida


3. Illinois


4. Michigan

These are the same 4 states that topped October’s foreclosure activity despite three of them posting month-to-month declines last month.

The remaining Top 10 states in terms of total foreclosure activity include Arizona, Texas, Ohio, Georgia, Nevada and New Jersey.

If you’ve been actively looking at REO lately, you’ve likely noticed that true bargains are harder to find. This is because buyers of all types — first-timers, move-ups, and investors — are purchasing bank-owned homes aggressively and getting better at identifying the “best ones”.

But just because supplies are dwindling doesn’t mean you should just jump in. Buying foreclosures isn’t for everyone for two very strong reasons:

1. Homes are often sold as-is and may have “issues”


2. The closing process can be unpredictable

Therefore, if you’re thinking of buying a foreclosed home, be sure to talk with your real estate agent about potential problems before going under contract. Better too soon than too late.

There are still good deals in the foreclosure market, but based on November’s data, they may not last through the winter. “Distressed home” sales now account for 30 percent of home resale activity.

Next Page »