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December, 2005 Newsletter

+++++++++++ December 1, 2005 +++++++++++++++++++

CONTENTS:
Introduction: Existing Home Sales Cool, New Sales Up
Mortgage Rate Update: Rates Dip after 10 Weeks of Increases
This Month's Tip: Owning a Home Free and Clear
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Introduction: Existing Home Sales Cool, New Sales Up

First off, a Happy Holiday Season to all of our readers
and visitors to the Home Buyer's Information Center.
May the season bring the very best to you and yours!

Sales of existing homes eased in October with a moderate
decline in both single-family and condo sales, according
to the National Association of Realtors .

Total existing-home sales – including single-family,
townhomes, condominiums and co-ops – were at a seasonally
adjusted annual rate of 7.09 million units in October,
down 2.7 percent from September’s pace of 7.29 million.
Sales were 3.7 percent above the 6.84 million-unit level
in October 2004.

David Lereah, NAR’s chief economist, said markets are
getting into better balance between demand and supply.
“We are returning to more balanced markets between home
buyers and sellers, one that places buyers on a more
even footing. Housing activity has peaked and is coming
down a bit, and we expect further cooling in the coming
months. We feel confident that housing is landing softly
as rates continue to rise.”

The national median existing-home price for all housing
types — including single-family, townhomes, condominiums
and co-ops — was $218,000 in October, rising 16.6 percent
from October 2004 when the median price was $187,000.
The median is a typical market price where half of the
homes sold for more and half sold for less.

Total housing inventory levels rose 3.5 percent at the
end of October to 2.87 million existing homes available
for sale, which represents a 4.9-month supply at the
current sales pace.

On the new home side, sales of new one-family houses in
October 2005 were at a seasonally adjusted annual rate
of 1,424,000, according to estimates released jointly
on November 29th by the U.S. Census Bureau and the
Department of Housing and Urban Development. This is
13.0 percent (±17.7%) above the revised September rate
of 1,260,000 and is 9.0 percent (±18.2%) above the October
2004 estimate of 1,306,000.

The median sales price of new houses sold in October
2005 was $231,300; the average sales price was $286,500.
The seasonally adjusted estimate of new houses for sale
at the end of October was 496,000. This represents a
supply of 4.3 months at the current sales rate.

The huge dichotomy between the existing home sales
and new home sales further clouds the market. It remains
to be seen how one segment of housing (existing homes)
could be down fairly dramatically while another segment
(new construction) could be at a record pace. Obviously,
it will take another month or two to discern a clearer
trend.


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Mortgage Rate Update: Rates Dip after 10 Weeks of Increases

After 10 straight weeks of increases, mortgage rates
dipped a bit in the period that ended on November 23rd.
According to mortgage company Freddie Mac, the average rate
for a 30-year fixed-rate loan stood at 6.28%, a decline from
the 6.37% average the week before. 30-year fixed-rate
mortgages began the month of November at an average of
6.15%. 15-year fixed-rate mortgages trended in the same
direction, with the period ending November 23rd averaging
5.81%, compared to the prior week period average of 5.90%
after beginning the month averaging 5.60%. Does this one
week decline indicate a change in trend or just a short
term anomaly? Much will depend on how the economy fares
early in December, with a great deal of emphasis on the
strength or weakness of the holiday retail season.


For current average mortgage rates, see:
Mortgage Rates
For more information on mortgages, visit the
Mortgage Section

++++++++++++++++++++++++++++++++++++++++++++++

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historical lows. Getting the best rate for your mortgage means
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Loan Center



++++++++++++++++++++++++++++++++++++++++++++++

This Month's Tip: Owning a Home Free and Clear

If you look at many of the mortgage programs available in the
market today, you might think that the philosophy that dictated
that one of the primary goals of a home buyer is to pay off their
mortgage as quickly as possible is a concept that is long ago dead
and buried. Interest only loans, negative amortization loans,
40-year loans, mortgages that give a home owner the choice of
paying little or nothing against principal, or worse, loans that
allow the buyer to watch their principal amount increase monthly,
all seem focused on the exact opposite tact. Rather than paying
off a mortgage as quickly as possible, the goal of these loans
seems to be to keep a mortgage as LONG as possible. Obviously,
the existence of these loans is a direct result of prices that
have gone into the stratosphere in the last few years, but you
have to wonder--"Does no one want to own their own home?"

Yes, the meteoric rise in the use of these types of "creative"
financing is due to the price increases in many areas of North
America. In some areas, these increases go far beyond
appreciation rates ever seen before, sometimes doubling and
tripling in some areas in 5 years or less. Incomes, meanwhile,
have increased at rates nowhere near these Real Estate price
appreciations. In some industries, real incomes have stagnated
or even declined a bit while housing prices--for purchase--have
soared. As a result, the only way to make housing affordable
has been to get increasingly more "creative" and lean less
on traditional mortgages, since there is virtually no way that
the average home buyer can afford to purchase the average
priced home in the areas that have seen the biggest jumps in
prices. The upside of this situation is that many more
buyers are now able to own a home who would not be able
to purchase under normal mortgage financing terms. The downside
is that some of these buyers will never be able to pay off their
home. This can be a real danger to their future financial well
being.

One of the most basic tenets of retirement planning has been that you
will want to enter your retirement years free of a mortgage payment,
unless you have been assured that your income will be equal to or
greater than your income while working. In most situations, obviously,
this would be a pretty rare occurrence. A free and clear house leaves
a retiree with two options, both of them positive:
1) Remain in the house with much lower expenses since the biggest
component of housing costs--the mortgage--has been eliminated, or
2) Sell the house and use the proceeds (the 100% equity) to pay
expenses going forward--renting, independent or assisted living,
etc.
Those who enter retirement with huge outstanding mortgages can
take advantage of neither of these options. In many cases, it
will mean that they will need to either postpone--or perhaps
eliminate--any thoughts of retirement.

For those in their twenties or thirties, this may not be an
immediate concern, but we see many within 10 or 15 years of
retirement taking on huge, long-term mortgages that they will
likely never be able to pay off. Even younger buyers, those
in their forties for example, who take on 40-year mortgages
or loans in which their payments do not even cover the principal
portion of the loan (where the balance rises each and every
month) could be in for a nasty surprise as they make preparations
for their later years. By eliminating what traditionally has
been a bullwark of rational retirement planning--a free and
clear home--they may be putting themselves into a difficult situation
unless they want to continue working full-time. Combine this situation
with evaporating (or disappearing) pension fund and the potential
instability of social security and the retirement prospects of many--
at all ages and incomes--may be severely challenged.

How, then, to combat the ever increasing problem of skyrocketing
prices, at best moderate income gains, and a red-hot housing market?
There are a few alternatives, but for some they may be a little
difficult to accept.

First, consider purchasing a less expensive home. Instead of
taking your qualification to the maximum with a creative financing
program, secure a traditional mortgage, where you will begin to
gain equity quickly. The shorter the mortgage term, the quicker your
equity position will improve.

Second, if you have an acceptable mortgage where you are making
strides toward increased equity, do not be a "serial refinancer."
Even though you may lower your payment a bit or "cash out" some
equity, you are doing damage to your long term financial picture
since your balance will, in most cases, increase and, since you are
beginning a new loan, you start again at "0". A new 30-year loan
means 360 more monthly payments, even though you may have made
numerous payments on the previous loan.

Third, if you have not yet purchased, you may want to consider
renting. Obviously, to many, "renting" is a dirty word in today's
Real Estate environment. Historically, home buyers have almost
always fared better than renters in the long term. Unfortunately,
though, we are very possibly in a new situation where, in many
areas of the continent, home sale prices are experiencing huge
increases while at the same time, rental prices are stagnent or
actually falling. We've seen studies where renters, due to much
lower monthly costs, will not only due better than purchasers in
the short, medium and long term, but in some cases do MUCH better.
Although these renters will not have the advantage of a paid off
home, with efficient investing they can enjoy much better financial
rewards than someone who is still shackled with a heavy mortgage
balance.

Fourth, in areas where prices have gone through the roof, you
may want to wait for prices to stabilize or decrease. Obviously,
there is no guarantee that either will happen--prices may continue
to rise, but at what rate and for how long is fairly questionable.
Obviously, waiting is a gamble, but if you can economically rent
while "waiting it out" this may well serve your purposes.

Summing Up

One of the happiest moments of your life will probably be when
you purchase a home, especially your first. With effective planning
and a little restraint when you do purchase that home, you can enjoy
one of life's other happiest moments--when you pay off the home and
it finally is "yours!"

Next Month's Tip: Cosmetic Improvements: Big Rewards
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The Home Buying Checklist

Many of our visitors have said that one of the most valuable
aspects of the Home Buyer's Information Center is the
Buying Checklist, where they can make sure that all
the bases have been touched. You can find the checklist
here:
Home Buyer's Checklist

As always, if you have suggestions for improving the
site, or topics you would like to see addressed in
this newsletter (or, if you have used the Home Buyer's
Information Center to successfully purchase a home),
drop us a quick line here:
Home Buyer's Information Center Feedback

A special thanks to all those who have written to let us know
that they have found the Home Buyer's Information Center a
helpful resource in their buying process.

Have a great month and good luck in all your endeavors!

The Team at the Home Buyer's Information Center

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