Nationwide, home affordability has received a serious boost from the combination of falling home prices and falling mortgage rates. 

Today, because of the sagging economy, in most parts of the country, the cost of owning a home versus renting one is now very close to its historical average.

That said, though, near every major city, there are some neighborhoods in which home affordability and quality of life are stand-out.  Using real estate data from OnBoard Informatics, Business Week highlights these areas in a report it calls the "Best Affordable Suburbs". 

Now, the country's "Best Affordable Suburbs" doesn't list the nation's most affordable suburbs, but instead, a group of cities, towns, and villages in which the populace sits between five and sixty-thousand, and the economy, the schools, the lifestyle and the crime levels are all within a desirable range.

As concluded by Business Week, these are areas in which buying a home is a good value.

At the top of the list is Awake, Wisconsin, a suburb 20 minutes west of Milwaukee, prized for its outdoor lifestyle and healthy jobs market.  The complete 50-state listing is posted at Business Week's website.

In reading the headlines this morning, you'd think that last month's Existing Home Sales figure signaled more trouble ahead for the housing market. 

Quite the contrary.

Beyond the attention-grabbing headlines is the real story;  the one that shows -- once again -- that housing market fundaments are coming back into balance.

As home values tick lower, it appears, value buyers are stepping in and snapping up supply.  It's true that the number of homes sold fell to its lowest levels in 12 years, but we can't ignore the fact that the number of homes available to buy fell, too.

• Banks have put the brakes on foreclosures
• Economic uncertainty is reducing job-related relocations
• Builders have all but stopped building new homes

The national housing supply is as low as it's been in more than a year.

Based on the current rate of sales activity, the national housing supply would be 100% sold in 9.6 months -- a two-month improvement from the high point set in June 2008. 

Demand for homes is expected to rise, too:

• The Federal Reserve is trying to hold mortgage rates low
• Fannie Mae is opening its checkbook to real estate investors
• The stimulus package is granting tax credits to first-timers

So, it's not that the headlines are wrong; it's just that they're incomplete. 

In looking at all of the data and not just one sliver of it, we can find hope. Falling supply plus rising demand leads home values higher and that's the basis for a recovery.

(Image courtesy: Wall Street Journal Online)

One popular housing theory is that -- before a bona fide housing recovery can begin -- the cost of owning a home versus renting one must return to historical levels.

If that belief is a truth, a national return to rising home prices may be in store for 2009. 

Falling home prices coupled with falling mortgage rates, too, have dropped the relative, after-tax cost of owning a home to 125% of the cost of renting a home.

This is the exact 18-year historical average and not since 2001 has the gap been this small.

As reported by the Wall Street Journal, though, the study has some flaws.  For example, the data doesn't account for ongoing home maintenance costs, nor does it consider real estate tax bills and insurance policies. 

But, combining a relatively low cost of ownership with the government's $8,000 tax credit for first-time home buyers is likely to convert long-time renters into never-before homeowners.

This, too, is thought to be a key element of the housing recovery.

In many markets (but not all), home prices are expected to edge lower through 2009.  Provided mortgage rates stay low, the cost gap between owning and renting will shrink even more.

As part of the stimulus package passed last week, Congress authorized a temporary increase to conforming loan limits in certain high-cost parts of the country.

"High cost" is defined by a regions' median sales price.

With the temporary increase, a greater share of Americans can now qualify for Fannie Mae- and Freddie Mac-backed loans, usually the least expensive source for mortgage money.

Higher loan limits can be good for the housing market and the broader economy for two reasons:

1. Cheaper money can spur new home demand, supporting home values.
2. Higher loan limits render more homeowners refinance-eligible, freeing up cash for spending, saving, or investing.

The complete county-by-county loan limit list is available on the OFHEO website. 

Of the 3,232 U.S. counties, 10 percent are considered "high-cost".  Residents of these areas can expect the same low rates offered to the rest of the country, but with a slight premium.  Be sure to ask your loan officer about how it works.

There seems to be a misconception that jumbo loans – loans higher than the new higher conforming limit of $729,750 – are not available, or that the percentage rates for them are in the 7’s or 8’s.  This, I am happy to say – since the average price in the areas I serve is in excess of $1,500,000. – is no longer the case.

At a meeting I attended Friday, one of my mortgage friends was quoting jumbo rates as 5.75%, up to a $3 million dollar loan.  That, my friends, is phenomenal!  Bear in mind that, while the Government has passed legislation that the upper limit of “conforming” loans would again go up to $729,750, most lenders are still quoting the old lower limit of $625,500., while their bosses work out the details of the pricing of the new higher limits.

If the higher limit will be important to you, either for a purchase, or a refinance, it should only be weeks before it is in place – ask your preferred lender for details, or if you don’t have one, give me a call at 949-643-2100, or shoot me an email at Bob@BobPhillips.net, and I will be happy to refer you to the one I work with.

Everything old is new again.

Conforming mortgages are limited by loan size, based on "typical" housing costs around the country.  The current conforming limit on a single-unit property is $417,000.

In 2008, as part of the Economic Stimulus Act of 2008, Congress authorized conforming loan limits increases in "high-cost" areas around the country.  In Los Angeles County, for example, a mortgage could be as large as $729,750 and still be considered "conforming".

Those temporary increases rolled back effective January 1, 2009, to a maximum of $625,500.

However, as part of the American Recovery and Reinvestment Act of 2009 signed into law this week, conforming loan limits in high-cost areas have been returned to their elevated levels of 2008. 

You can see the text on the bottom of page 111 of 407.

Changes to conforming loan limits impact everyone with a stake in real estate, even if their neighborhoods are not considered "high-cost".  This is because conforming mortgages offer the widest selection of home loan products, and often at the lowest rates.   The widespread availability of conforming mortgages helps to support home sales nationwide as well as providing ample refinancing options for people that need it.

Lenders have yet to pick up the change, but are expected to shortly.  Once they do, more homeowners will be eligible for cheap home financing.

To lookup your neighborhood's conforming loan limits, visit the HUD Web site.  Or, if you have specific questions related to your home or an upcoming purchase, contact me directly anytime.

In Mesa, Arizona, Wednesday, the President presented the Homeowner Affordability and Stability plan, a multi-pronged effort to support the housing market.

The story made the front page of nearly every newspaper in the country.

The president's plan is sweeping:

• Incent mortgage servicers to work with at-risk homeowners before delinquency starts
• Let homeowners with good credit but little equity refinance to today's low rates
• Fund Fannie Mae and Freddie Mac to support mortgage markets

It's a broad plan with many positive angles, but for now, we can't forget that it's just a plan.  Although the White House shapes and influences housing policy, Congress, Loan Servicers, and the Federal Agencies must still implement and execute it.  Until that implementation occurs, these reforms exist only on paper.

It's a key aspect of the speech that's not getting coverage. 

One thing we learned during the stimulus package debate was that just because the President wants something to happen doesn't mean that it will.  There are always details to be worked out and that's one reason why the Homeowner Affordability and Stability Plan couldn't go into effect immediately.  There are still loose ends to tie and details to define.

According to its website, the White House lists March 4, 2009 as the plan's effective date.  Until March 4, therefore, nothing in Wednesday's speech is guaranteed.

(Image courtesy: Birmingham News)

The just in, the President's plan to assist homeowners in trouble with their loans.  Just announced by President Obama, hours ago, in Mesa, AZ..

Help for homeowners

The President’s strategy for economic recovery is a stool with several legs, as he’s said, and one of them is solving the foreclosure crisis.

"We must stem the spread of foreclosures and falling home values for all Americans, and do everything we can to help responsible homeowners stay in their homes," he said yesterday as he signed the American Recovery and Reinvestment Act into law.

Though communities across the country have been affected by the crisis, Arizona has been hit particularly hard -- in 2008, only two states had more foreclosures.

And President Obama is there today, in Phoenix, to unveil his "Homeowner Affordability and Stability Plan," which will help bring relief to homeowners and bring some order to the housing market.

The President will talk more about his plan a little later today. In the meantime, we’re sure you have a lot of questions, like, Am I eligible for assistance? Might I be able to modify my loan? When do I apply? We've put together an example sheet that will show you what options might be available to you, depending on the circumstances of your mortgage, as well as answers to some common questions (below).

 

Questions and Answers for Borrowers about the
Homeowner Affordability and Stability Plan

Borrowers Who Are Current on Their Mortgage Are Asking:

• What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?

Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan.   Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.

• I owe more than my property is worth, do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property.   For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify.  The current value of your property will be determined after you apply to refinance.

• How do I know if I am eligible?

Complete eligibility details will be announced on March 4th when the program starts.  The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history.  The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.

• I have both a first and a second mortgage.  Do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan.  Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage. 

• Will refinancing lower my payments?

The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan.  Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments.  Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate.  These borrowers, however, could save a great deal over the life of the loan.  When you submit a loan application, your lender will give you a "Good Faith Estimate" that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan.  Compare this to your current loan terms.  If it is not an improvement, a refinancing may not be right for you.

• What are the interest rate and other terms of this refinance offer?

The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment.  All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate.  The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender.  Interest rates may vary across lenders and over time as market rates adjust.  The refinanced loans will have no prepayment penalties or balloon notes.  

• Will refinancing reduce the amount that I owe on my loan?

No.  The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans.  Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe.  However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.

• How do I know if my loan is owned or has been securitized by Fannie Mae or Freddie Mac?

To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible to be refinanced, you should contact your mortgage lender after March 4, 2009.

• When can I apply?

Mortgage lenders will begin accepting applications after the details of the program are announced on March 4, 2009.   

• What should I do in the meantime?

You should gather the information that you will need to provide to your lender after March 4, when the refinance program becomes available.  This includes:

• information about the gross monthly income of all borrowers,  including your most recent pay stubs if you receive them or documentation of income you receive from other sources
• your most recent income tax return
• information about any second mortgage on the house
• payments on each of your credit cards if you are carrying balances from month to month, and
• payments on other loans such as student loans and car loans.

Borrowers Who Are at Risk of Foreclosure Are Asking:

• What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?

The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current.  By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

• Do I need to be behind on my mortgage payments to be eligible for a modification? 

No.  Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default.  This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.   

• How do I know if I qualify for a payment reduction under the Homeowner Affordability and Stability Plan?

In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits.  Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.

•  I do not live in the house that secures the mortgage I’d like to modify.  Is this mortgage eligible for the Homeowner Affordability and Stability Plan?

No.  For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible.  If you used to live in the home but you moved out, the mortgage is not eligible.  Only the mortgage on your primary residence is eligible.  The mortgage lender will check to see if the dwelling is your primary residence.

• I have a mortgage on a duplex.  I live in one unit and rent the other.  Will I still be eligible?

Yes.  Mortgages on 2, 3 and 4 unit properties are eligible as long as you live in one unit as your primary residence.

• I have two mortgages.   Will the Homeowner Affordability and Stability Plan reduce the payments on both?

Only the first mortgage is eligible for a modification.

• I owe more than my house is worth.  Will the Homeowner Affordability and Stability Plan reduce what I owe?

The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford.  Lenders are likely to lower payments mainly by reducing loan interest rates.  However, the program offers incentives for principal reductions and at your lender’s discretion modifications may include upfront reductions of loan principal.

• I heard the government was providing a financial incentive to borrowers.  Is that true?

Yes.  To encourage borrowers who work hard to retain homeownership, the Homeowner Affordability and Stability Plan provides incentive payments as a borrower makes timely payments on the modified loan.   The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt.  Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.

• How much will a modification cost me?

There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan.  If you wish to get assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a fee.  Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance. 

• Is my lender required to modify my loan?

No.  Mortgage lenders participate in the program on a voluntary basis and loans are evaluated for modification on a case-by-case basis.  But the government is offering substantial incentives and it is expected that most major lenders will participate.

• I'm already working with my lender / housing counselor on a loan workout.  Can I still be considered for the Homeowner Affordability and Stability Plan?

Ask your lender or counselor to be considered under the Homeowner Affordability and Stability Plan.

• How do I apply for a modification under the Homeowner Affordability and Stability Plan?

You may not need to do anything at this time.  Most mortgage lenders will evaluate loans in their portfolio to identify borrowers who may meet the eligibility criteria.  After March 4 they will send letters to potentially eligible homeowners, a process that may take several weeks.   If you think you qualify for a modification and do not receive a letter within several weeks, contact your mortgage servicer or a HUD-approved housing counselor.  Please be aware that servicers and counseling agencies are expected to receive an extraordinary number of calls about this program.

• What should I do in the meantime?

You should gather the information that you will need to provide to your lender on or after March 4, when the modification program becomes available.  This includes

• information about the monthly gross income of your household including recent pay stubs if you receive them or documentation of income you receive from other sources
• your most recent income tax return
• information about any second mortgage on the house
• payments on each of your credit cards if you are carrying balances from month to month, and
• payments on other loans such as student loans and car loans.


• My loan is scheduled for foreclosure soon.  What should I do?

Contact your mortgage servicer or credit counselor.  Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower's eligibility.  We support this effort.

The American Recovery and Reinvestment Act of 2009 was signed into law Tuesday in Denver, Colorado.  Also on Tuesday, stock markets fell near their November 2008 lows.

The two moves are related.

With each new stimulus; with each potential jumpstart of the economy, Wall Street questions whether the federal push will be enough to make an impact. 

Traders ended undecided on that issue yesterday, but resolute in something else -- that whatever change stimulus bill brings, it's not going to come fast enough to help.

The sell-off in equities was a boon to home buyers.  For the first time since early-December, mortgage markets gave a sustained rally, extending gains from the 8:30 AM market open through the 4:00 PM market close. Conforming mortgage rates were down on the day. 

Longer-term, though, it's not likely that pattern will last.  Not only will the stock market eventually find balance, but, more importantly, there was verbiage in the stimulus bill that increased the nation's debt ceiling by 53.4 percent. Debt, of course, is often financed with the printing more money and that leads to inflation.

Inflation is the enemy of mortgage rates.

So, for now, the stimulus plan is helping mortgage markets, albeit indirectly. If you're shopping for home loan, consider locking quickly.  When markets flip -- and they always do -- it figures to be sudden.

(Image courtesy: Recovery.gov)

Consumer Confidence fell this month for the first time in three months, reflecting Americans' concern for the economy, housing, and the financial system. 

The reading isn't much of a surprise given our collective exposure to a near-constant stream of negative news. Before long, the reports become a self-fulfilling prophecy.

Despite falling confidence, however, the housing industry appears to be reviving.  Sales of existing homes are on the rise and an increasing number of homes are under contract to sell.  And, if these statistics seem out of place, consider the external forces that are accompanying this "down" economy:

• In some markets, home values have plummeted to early-2000 levels
• Government intervention has brought mortgage rates to near-5 percent
• Congress is pledging key support to housing and mortgage markets

These points can't be captured in confidence surveys which, by comparison, ignore facts and focus on Big Picture behavioral questions like "Do you think you'll be better off a year from now?" and "What's your attitude toward buying major household items?".  It's useful information for economists, but not so much for home buyers.

Anecdotally, a lot of the country's housing markets have already started their recovery.  Couple that with the natural momentum of Spring Buying and the stimulus package's proposed first-time home buyer tax credit and you can clearly see the disconnect.

Just because confidence is down doesn't mean that home prices will be, too.

New Foreclosure Moratorium for Mortgage Loans

Date Posted: Wednesday, February 11, 2009

Today, Congress requested that all mortgage servicers institute a moratorium on foreclosures until details of Secretary of Treasury Timothy Geithner’s foreclosure prevention plan are finalized and available – likely within a couple of weeks.  

Many major lenders have agreed to follow this practice for all of the mortgage loans they own – in other words, those loans that do not require investor approval. They also are talking with investors in an effort to gain their agreement to follow this practice as well. 

Talking Points:

·                 Within the next couple of weeks, Secretary of Treasury Geithner is expected to announce his foreclosure prevention plan.

·                 Until that point, some lenders will not proceed with foreclosure sales on any of the loans that they own.

·                 Of course, the vast majority of the mortgage loans are owned by other investors (including Fannie Mae and Freddie Mac). Because lenders are bound by contractual agreements with these loans, they must work with the loan investors to determine how they will be able to support the moratorium request.

Questions & Answers:

How will customers know if their loan qualifies for the moratorium? Those borrowers who are scheduled to go to foreclosure sale will need to contact the phone number on their statements to determine if their sale can be stopped.

How long will the moratorium last? There is not an exact end date for this yet, as it is contingent on when the Secretary’s plan is announced, and the lenders can determine how to move forward. It would be advisable for customers scheduled for foreclosure sale to contact their lender once the Secretary’s announcement appears in the news, and they will provide additional guidance.

How long until we know if loan investors will support this initiative? Lenders are presently holding these discussions and hope to have an answer soon.

Does this apply to all customers, even if they have contacted us before? It applies to all mortgage loans that lenders own that are scheduled for foreclosure sale. This includes customers who may have contacted their lenders before.

A tip of my cap to my friend Matthew Frey, of Bankers Funding Company, for this article.

With Congress reaching agreement on a $789 billion stimulus package for Americans and the President expected to sign it into law, the clock may be ticking for this year's home buyers and homeowners.

The package contains two benefits related to housing.

The first provision is fairly well-known.  It gives first-time home buyers an $8,000 tax credit provided they purchase a home between January 1, 2009 and August 31, 2009. 

This is a true tax credit.

To reduce misuse and abuse, however, the $8,000 credit is contingent on home buyers holding property for at least 3 years.  If the home is sold in fewer than 3 years, the tax credit must be repaid to the government.  It's also worth noting that the date range applies closings and not sales agreements. 

Closings must occur within these 8 months to be eligible.

A second noteworthy feature in the package is that the stimulus package gives existing homeowners incentive to "green" their homes.  With available tax credits for energy-efficient windows and doors, furnaces and insulation, homeowners can claim larger tax deductions based on home improvement, up to $1,500.

But, just because the government provides housing-related tax benefits doesn't mean you should just act on them blindly. Tax liability is a highly individual item and you may be ineligible for any number of reasons.  Be sure to discuss your plans with a qualified accountant before committing to a plan.

His speech was much anticipated, but it was what Treasury Secretary Tim Geithner didn't say Tuesday that helped home affordability.

Mostly it was because of "safe-haven" buying on Wall Street.

Safe-haven buying is when investors move cash to the safest investments possible for fear of losing their money elsewhere. 

This existence of the pattern is evident in looking at yesterday's Dow Jones Index timeline.  Stock markets were down some in the morning.  Then, at 11:00 AM ET, in the moments immediately following the public release of Geither's speech as text, stock market plunged by about 2 percent.

As the speech was delivered live, markets fell by 1 percent more.

It's not that Geithner's speech was a bad one, per se.  It's just that Wall Street was looking for a detailed plan that included remedies for banking, housing, and the economy overall.  What it got instead was an outline for a plan and a frank discussion about the complexity of the economy. 

Stock markets had been bid up last week in anticipation of a bailout.  Yesterday's action was the subsequent sell-off because economic uncertainty continues to linger.

It all ended up being good news for mortgage rate shoppers, though.  When the dollars fled the stocks, they made their way towards safer, less-risky investments like mortgage bonds.  And, because mortgage-backed bonds set the "going rate" for conforming mortgages nationwide, the added demand yesterday caused mortgage rates to fall, making mortgaged homes less expensive on a monthly basis, relative.

For now, rates remain near the bargain levels set in early-January. As the Treasury clarifies its plan in the coming weeks, however, rates are susceptible to big swings.

(Image courtesy: The Wall Street Journal)

Friday, Fannie Mae rolled-back one of its least popular mortgage guidelines updates of the last 12 months.

Effective March 1, 2009, real estate investors can once again own and finance up to 10 individual properties.  The restriction reversal does come with new minimum requirements, however. 

Homeowners buying a 5th, 6th, 7th, 8th, 9th or 10th home must meet the following standards, as set forth by Fannie Mae:

1. 720 credit score
2. 25% downpayment for a 1-unit (30% for a 2-4 unit)
3. No mortgage delinquencies in the last 12 months
4. 6 months of reserves for each investment property

In other words, Fannie Mae is re-opening the lending spigot for real estate investors with good credit, a sizeable downpayment and ample reserves. 

According to Fannie Mae, the change rationale is that experienced investors can "play a key role in the housing recovery".  Until now, foreclosure auctions have gone at less than full speed because investors unable to pay cash have been halted by the existing 4-property Fannie Mae limit. 

Going forward, expect a more expedient foreclosure liquidation nationwide which should, in turn, provide further support for the housing market.

And lastly, not to be forgotten, homeowners with more than 4 properties can finally participate in the ongoing conforming mortgage Refi Boom. Until now, they've been stymied by the 4-property restriction, too.

Hello again. 

Below is the latest Orange County Market Report, as compiled by my friend Steven Thomas, of Altera Real Estate.  I have a comment at the end.

“OrangeCounty Housing Report:  Demand Takes Off                                                          February 5, 2009 

Steven Thomas, President,  Altera Real Estate
Quantitative Economics and Decision Sciences, B.A.

Even though the United States is waiting on the stimulus package, demand for OrangeCounty real estate is beginning to take off.  In the past two weeks, demand, the number of new pending sales within the prior month, increased by 24% to 2,671 pending sales, an increase of 674 homes.  Last year at this time there were 1,103 fewer pending sales, totaling 1,568. 

Two years ago there were 2,463 pending sales, 208 fewer than today.  After slowly increasing in demand during the first few weeks of the New Year, demand has surged and is following a course similar to 2007.  It will be interesting to see what happens to demand as the Obama stimulus package is passed in the coming weeks.  In the past two weeks, the total active inventory decreased by 41 homes to 11,519.  Last year there were 3,740 additional homes on the market, totaling 15,259.  Two years ago there were 464 additional homes on the market.  The current expected market time dropped from 5.39 months two weeks ago to 4.31 months today.  Last year the expected market time was 9.73 months and two year ago it was 4.87 months.  TotalOrangeCounty pending sales is at a much healthier level compared to the last couple of years.  Currently, total pending sales just eclipsed the 4,000 pending sale mark and now stands at 4,019.  Last year, total pending sales did not surpass the 4,000 mark until June. 

Last year at this time, total pending sales climbed to 1,969, 2,050 less than today.  Two years ago it was at 3,026, 993 fewer compared to today.  There has not been much of a change along the distressed property front.  The total number of distressed homes on the market, both foreclosures and short sales, dropped by 31 homes in the past couple of weeks and now stands at 5,073, 44% of the total active inventory.  63% of all pending sales are either a short sale or a foreclosure.  The expected market time for foreclosures dropped to the lowest level of the current downturn, 1.08 months.  Foreclosures are HOT and are selling almost as fast as they are placed on the market.  Many buyers looking for a deal are fooled into thinking that they can purchase a foreclosure at a massive discount, only to find that multiple offers are generated on foreclosures and the average sales to list price ratio is 101%.  That's right, on average foreclosures are selling for above their list price.  The expected market time for short sales also dropped to their lowest level of this downturn, 5.78 months.  Foreclosures and short sales have driven prices down to levels where affordability has improved tremendously fueling an increase in first time home buying and overall demand.  Lastly, the upper end market is still extremely stagnant and will remain so until the economy improves and something is done about jumbo financing.  Currently, jumbo financing begins at $625,500, has a much higher interest rate, and qualifying is a lot more difficult than conventional financing.

So, where is the real estate market going from here?  The real estate market is going to dramatically improve with the right stimulus package.  The Obama administration and Congress is feverishly working on a major stimulus package and should be passed within the coming week.  Let's examine some of what they are strongly considering:

• Reduce interest rates to at least 4.5%
• Increase the conventional loan limit for high cost areas from $625,500 back to $729,900
• Eliminate repayment of the $7,500 first time home buyer tax credit and make it available to all buyers

The Federal Reserve and the FDIC are working on programs to prevent foreclosure and increase loan mitigation.  Out in the real estate trenches, the topic of the day is "loan modifications."  The industry is acutely aware that all eyes are on decreasing the flow of foreclosures and finally putting a bottom under the housing market.  In terms of units, Orange County housing bottomed out between the fourth quarter of 2007 and the first quarter of 2008; just take a look at current demand compared to demand last year, 70% higher.  Pricing is a different story, and only with a bump in demand are we going to experience a true bottom in pricing.  With historically low interest rates, an increased conventional loan limit, a buyer tax credit, foreclosure abatement and other forms of stimulus, the end result will be an increase in housing demand and a high probability of reaching a bottom in pricing around mid-year.

The final whistle of the Super Bowl marked the beginning of the Spring real estate market.  Sure enough, there already was a considerable increase in demand.  From here, demand will continue to rise and will most likely receive an "Obama bounce" with the passing of the stimulus package.  With demand increasing and a return of the discretionary homeowner opting to keep their homes off of the market unless they really have to sell, we can expect the active listing inventory to remain flat or even slightly fall.  The expected market time will fall as well to levels not seen in quite some time.  The undercurrent of foreclosures and short sales will continue to fuel supply; but, depending upon the reach of the stimulus package, this flow may begin to ebb.  Up to this point, the OrangeCounty real estate market has been controlled by lenders (foreclosures and short sales).  However, it has come to the point that not only the Orange County real estate market, but the entire national real estate market, is in the hands of our government.  They know that the first step to turning around our economy is to stop the fall of real estate values and the flow of foreclosures and short sales.  Stay tuned... round one is going to be signed by President Obama within a week.” ( End of report.)

As I mentioned, I have one comment where I take slight exception to one small sentence in Steven's report.  He says that jumbo loans are at a "much higher" rate.  Fortunately, I have an excellent lender who is offering jumbo loans only slightly higher than conforming loans.  Give me a call ( 949-643-2100 ) or send me an email ( Bob@BobPhillips.net ) if you would like more information, or rates.  In the meantime, have a great day!

Employment figures released this morning show that the economy has now shed 3.6 million jobs since December 2007, included close to half that in the last 3 months alone.  The Unemployment Rate is now 7.6%.

But jobs aren't fading in every housing market equally.

As reported by Ajilon Professional Staffing, there are still areas around the country in which unemployment rates are low and job outlooks are strong.

Led by Madison, WI, Ajilon calls them "10 Cities For Job Growth in 2009" and they are:

1. Madison, WI
2. Washington, D.C.
3. Boston, MA
4. Richmond, VA
5. Milwaukee, WI
6. Pittsburgh, PA
7. Baltimore, MD
8. Seattle, WA
9. Houston, TX
10. Dallas, TX

There's no common denominator uniting the list -- cities are buffered by industries as varied as healthcare, energy, and technology.  However, it's worth noting that -- in each of these 10 towns -- housing markets seem to be performing above-average versus the rest of the nation.

Clearly, there's a link between jobs and housing.

(Image courtesy: Forbes.com)