Real Estate Outlook: Existing-Home Sales Rise Again ~~ Take Advantage of Record Low Rates before They Rise

Hi, Jean Robb here. In late-December, the Congress voted to extend the FICA tax holiday through February 29, 2012 at a cost of $33 billion. The bill has been signed into law and implementation has begun. From Title IV of the bill's final form, the $33 billion price tag will be partially funded by home buyers and refinance households. The bill's section is titled "Mortgage Fees And Premiums". In it, Congress instructs Fannie Mae and Freddie Mac, and the FHA to take following specific measures :

Fannie Mae and Freddie Mac : Increase loan guarantee fees by 10 basis points or more versus current levels, and do not decrease other costs to compensate
FHA : Increase mortgage insurance premiums by 10 basis points

The extra fees amount to roughly $10 per month per $100,000 borrowed.
Fannie Mae and Freddie Mac have been instructed to start collecting the new,
higher guarantee fees effective April 1, 2012.


In the West, the median price grew to $205,200 in December from $200,600 and increased 0.3 percent from December 2010. What could the extra cost mean to you?

Take Advantage of Record Low Rates before They Rise
Posted By susanne On January 29, 2012

Low interest rates, as we all know, are making history. Last week, according to an article found on CNNMoney, “rates on both the 30-year and 15-year fixed loans fell to new records, at 3.89 percent and 3.16 percent, respectively, according to Freddie Mac.” The question, though, is how long will prospective buyers enjoy such low rates?
Even with these rates, sales are still sluggish, with the market flooded with family homes and investment properties. Doug Duncan, chief economist for Fannie Mae, suggests that “low and declining interest rates may cause homebuyers to hesitate: They may expect them to fall even further. On the other hand, rising rates, which often accompany an improving economy, can give potential homebuyers a reason to act—before rates and prices become less affordable.”
Potential buyers sitting on the fence waiting for the rates to go lower may be getting their reason to act: a recent action by Congress may be pushing those rates higher shortly. According to CNNMoney, “to pay for the extension of payroll tax cuts, Congress mandated an increase in fees for Fannie Mae and Freddie Mac loans. That could mean an increase in upfront costs for borrowers of about half a point, starting April 1. The new fee would add $500 for every $100,000 in principal.” Instead of an additional upfront fee, “borrowers could pay the fee as a higher interest rate, [adding] an additional one-eighth of a point to their rate,” according to Keith Gumbinger of HSH Associates. That amount might seem inconsequential, but when added to a $250,000 mortgage, the mortgagee could be paying approximately $225 more per year.

Andrea Szlavik of Prudential Fox and Roach in Collegeville states that “with a market filled with desirable listings, interest rates at historic lows, and a threat of rising rates, prospective buyers would benefit from getting off the fence and jumping into the present day ‘buyers’ market.’”

Real Estate Outlook: Existing-Home Sales Rise Again

Lawrence Yun, NAR chief economist, said these are early signs of what may be a sustained recovery. "The pattern of home sales in recent months demonstrates a market in recovery," he said. "Record low mortgage interest rates, job growth and bargain home prices are giving more consumers the confidence they need to enter the market." Regional increases were seen across the board, but had the largest increase in the Northeast which rose by 10.7 percent for the month of December. Next in line was the Midwest, rising 8.3 percent. The South and west followed suite, rising 2.9 and 2.6 percent respectively. This rise in existing-home sales has led to a dip in available inventory, which is welcome news for many sellers who are facing steep competition. NAR reports "available inventory has trended down since setting a record of 4.04 million in July 2007, and is at the lowest level since March 2005 when there were 2.30 million homes on the market."

Total housing inventory fell a staggering 9.2 percent in December to 2.38 million homes for sale. "The inventory supply suggests many markets will see prices stabilize or grow moderately in the near future," Yun said. NAR President Moe Viessi, broker-owner of Veissi & Associates Inc., in Miami, said more buyers are expected to take advantage of market conditions this year. "The American dream of homeownership is alive and well. We have a large pent-up demand, and household formation is likely to return to normal as the job market steadily improves," he said. "More buyers coming into the market mean additional benefits for the overall economy. When people buy homes, they stimulate a lot of related goods and services." Partially to blame for pent up demand has been the large amount of contract failures. The NAR says failures were reported by 33 percent of NAR members in December, unchanged from November; they were 9 percent in December 2010. Declined mortgages and depressed home values leading to loan values under appraised values are heavily at fault. A recent Government Accountability Office (GOA) found that the appraisal process needs more monitoring procedures. A recent NAHB survey shows that one out three builders have lost signed sales contracts because of flawed appraisals. NAHB Chairman Bob Nielsen says, "The current system is not working." He called for resolution of a flawed appraisal process. He says the current system "fosters price instability, puts more families in danger of default or foreclosure, and undermines the housing and economic recovery."
Published: January 30, 2012
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  1. The government was strategic about this tax as the consumer would never know it was there if we didn’t tell them. Banks have already adjusted their interest rates to compensate for this fee. It is a one-time fee that has made interest rates slightly worse. However, with today’s 30 year fixed rate at 3.875% we really can’t complain.

    Alex Varela
    Mortgage Banker


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