Small steps to economic recovery continued last month. Among the positive readings was the report of a third quarter GDP growth rate of 2.8 percent, which followed four consecutive quarterly declines. This advance comes in well ahead of that of our Canadian neighbors, whose economy was once anticipated to be the first country out of recession, and by significant margin. Canada posted marginal 0.4 percent growth. Unemployment fell in November for the first time since April 2008. A strong rebound in home sales activity from year ago levels also points to a firmer stabilization.
With the extension of the $8,000 federal housing tax credit into spring 2010, first-time buyers will now have an additional few months to purchase their dream homes. Expansion of the income restrictions now gives possibilities for higher earners to participate too. And the $6,500 tax credit now available to established homeowners with five consecutive years or more in their homes broadens the opportunity landscape. This in turn will allow the housing market more time to find a more solid footing on a sustainable recovery.
Although economists continue to debate the overall shape of the recovery, it is widely agreed that the U.S. economy will take a long time to rebound. Unemployment is expected to remain high for several quarters and the number of underemployed is expected by some economists to remain a drag on growth prospects. On the brighter side, according to some economists, a slow and steady growth will likely fair better for the long-term well-being of the economy. Slower, sustained growth can help prevent dangerous asset bubbles, like the recent housing and technology bubbles, from growing and bursting.
Existing Home Sales – Up 24% from last year
Median Home Price – Very favorable
Inventory – Lowest level in more than 2.5 years
Mortgage Rates – Back at 4.78%
Affordability – Best since 1970s
Sources: National Association of Realtors, Freddie Mac
New Fannie Mae Policies
In many markets dominated by distressed properties, buyers jumped off the fence in droves and as a result the number of homes for sale in the first tier of the market decreased significantly. When a new foreclosure becomes available for sale, it often is snapped up by investors with cash on hand, leaving the average home buyer looking for a place to live out of luck.
Fannie Mae introduced a new “First Look” initiative to address this and aid in the stabilization of neighborhoods.
This will hopefully give the average home buyer a greater chance of purchasing foreclosures and provide support to hard-hit neighborhoods, because owner-occupants are more invested in the long-term vitality of a community whereas investors typically are more invested in their monetary return from the property.
Increased Credit Scores
Fannie Mae is raising its minimum credit score from 580 to 620. This risk management measure will help protect Fannie Mae from future defaults and foreclosure by raising their standard and accepting less risky loans.
While risk management is a sound and healthy approach for an entity that the economy depends on, this underscores the importance that potential home buyers check their credit report early in the process, allowing more time to clear up any errors.
Earlier this year, Experian, one of three major credit-reporting bureaus, began exclusively providing complete credit report information when purchased directly from Experian or obtained from the government annual credit report.
Source: National Association of Realtors
FHA Signals Efforts to Manage Risk
In an effort to secure its financial health, the Federal Housing Administration plans to require borrowers to have more “skin in the game” soon. Over the past three years, FHA’s market share has boomed from about 2 percent of all new loans to about 30 percent of all new loans this year and 20 percent of refinances. The escalading volume that the administration is currently handling calls for stricter requirements as evidenced by FHA’s capital ratios falling to nearly 0.5 percent well below the minimum of 2 percent.
The agency is still analyzing the levels and time frames it wishes to tighten its standards but they expect to:
As one of the major players in the mortgage market, the health of FHA is imperative to the housing market and flow of credit to home buyers, as well as to the health of the overall economy. Taking measures to safeguard the agency from needing a government tax payer-funded bailout is a notable risk management measure.
According to a Keller Williams research study, the typical first-time buyer put down 3.5 percent this year. Those who want to take advantage of the tax credit before the April 30 contract, June 30 closing deadline may want to beef up their savings and check their credit report now in anticipation of any changes.
Sources: National Association of Realtors, KW Research First Time Home Buyer Survey
First Time & Distressed Property Home Buyers
What are other first time buyers doing?
The tax credit extension and expansion in November has fueled new discussion about home buyers and the housing market in 2010. Here’s a look at first-time buyers in 2009.
As elevated levels of distressed properties are expected to continue for the next few years, here is a glimpse of buying a distressed property:
* Distressed – Short Sale and REO, Foreclosure – REO Only
Contact Kim and Terra,
your local real estate experts,
for information about what’s going on in our area.
2. The Housing Market
3. Government Action
4. Topics for Buyers
For a more detailed report with additional graphs and government action, please see the This Month in Real Estate PowerPoint Report.
In an effort to reduce the impact on the environment, This Month in Real Estate PowerPoint Report is now also available in email newsletter format. Please consider the environment before printing.