February, 2008 Newsletter
+++++++++++ February 1, 2008 +++++++++++++++++++
Introduction: Sales, Prices Continue to be Soft
Mortgage Rate Update: Large Decline in Rates
This Month's Tip: Special Article: Good News?
Introduction: Welcome to the February edition of the
Home Buyer's Newsletter. This month we had scheduled
an article devoted to setting a timeline for the purchase
of a home, but the interest rate situation (as well as
the general economy) is having such a considerable impact on
the current picture that we have, instead, a discussion
on the potential outlook going forward entitled "Good
News?" The article devoted to establishing a timeline
will appear in the March edition of the newsletter.
As far as recent sales activity goes, the results were
not encouraging. Existing-home sales declined in December
following several months of stable activity, with total
sales in 2007 at the fifth highest on record, according
to the National Association of Realtors®.
Existing-home sales – including single-family, townhomes,
condominiums and co-ops – slipped 2.2 percent to a
seasonally adjusted annual rate of 4.89 million units in
December from a pace of 5.00 million in November, and are
22.0 percent below the 6.27 million-unit level in December
In new home activity, sales of new one-family houses in
December 2007 were at a seasonally adjusted annual rate of
604,000, according to estimates released jointly January 28th
by the U.S. Census Bureau and the Department of Housing and
Urban Development. This is 4.7 percent (±12.1%) below the
revised November rate of 634,000 and is 40.7 percent
(±7.8%) below the December 2006 estimate of 1,019,000.
The median sales price of new houses sold in December 2007
was $219,200; the average sales price was $267,300. The
seasonally adjusted estimate of new houses for sale at
the end of December was 495,000. This represents a supply of 9.6
months at the current sales rate.
An estimated 774,000 new homes were sold in 2007. This is
26.4 percent (±2.5%) below the 2006 figure of 1,051,000.
These are not good numbers. Obviously, the pain is not
over yet. What remains to be seen is the effect that lower
interest rates will have going forward (see the next story).
Mortgage Rate Update: Large Decline in Rates
Although there was an uptick in the period that ended
December 31st, mortgage rates have fallen faster and deeper in the
last couple of weeks, more than at any point in recent memory.
Although not tied directly to the FOMC's emergency rate
cut (or the subsequent 50 basis point cut the following week),
a wide variety of factors have contributed to the
decline. For the period ending January 31st, 30-year
fixed-rate mortgages averaged 5.68% according to mortgage
company Freddie Mac. This was an impressive .49% decline from
average rates at the beginning of January at 6.17% and
even more impressive when measured against the high point
of the last six months or so which was in the 6.75% range.
15-year fixed-rate loans fell to an average of 5.17%. Earlier
in the month of December rates had fallen to the lowest level
in nearly 4 years.
Such favorable rates may help to break the logjam of
available homes that are found in many areas. See the
discussion in this month's tip for more information
on the potentials for the market going forward.
For current average mortgage rates, see the rates page.
For more information on mortgages, visit the Mortgage
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This Month's Tip: Good News?
Although the Federal Open Market Committee's (the "Fed") emergency rate
cut on Tuesday, January 22nd has dominated the news for the last two weeks,
this will have not have a direct effect on the long-term rates that home
purchasers will be paying. Other factors, though, some of which may be
tied to the rate cut WILL be a stimulus for the rate picture going
forward. As an example, declines in the U.S. stock market, which caused
shifts into the bond market, had an almost immediate effect on mortgage
interest rates. In addition, fears of recession that began to take
center stage during the month had an effect on the interest rate
As we mentioned in the Mortgage Rate Update above, rates declined
at a speed that we don't think we've ever seen in the past. As an
example, 30-year fixed rate averages dropped from 6.14% at the beginning
of January to 5.xx% at the end, well over a half point decline in
30 days. 15-year fixed-rate mortgages had an equally impressive decline,
dropping from a 5.xx average at the beginning of the month to an average
of 4.xx% at the end.
Obviously, this is good news for anyone considering purchasing a home,
since mortgage interest rates are the biggest determining factor in
buying decisions. There will likely be additional benefits going forward,
one of the most important being the advantage that has been handed to
those who have adjustable rate mortgages scheduled to reset in the
near future. Being able to refinance to a lower rate than what was
available previously will mean, quite simply, that the foreclosure tide
may be significantly lessened. Foreclosures (and the threat of much
higher foreclosure activity) have had a definitive effect on the erosion
in the real estate sales market in the last few months. In some areas
of the country, inventory levels have jumped to levels never seen in the
past due to a large degree of foreclosures and pre-foreclosures. In most
areas, there is plenty of housing to choose from in the majority of price
ranges (depending on the locality).
So, does this mean we are in a great environment for buying a home as is
touted frequently by the "experts?" Our take would be a definite "maybe."
We say "maybe" because there are so many factors influencing supply and
demand (and thus pricing) that there is no absolute answer. Will rates
continue to fall? Will they instead bottom out or even begin an upward
trend? What about the psychology of buyers? In the last 18 months we have
gone from the pervading notion that "you can't lose when you buy Real
Estate" to one of "prices are falling like a rock!" Some professionals
are saying "there has never been a better time to buy" while others are
urging a wait and see attitude.
One of the biggest factors on determining whether or not it makes sense
to buy now is the state of housing inventory in the area in which you are
interested. Simply put, inventory is the number of houses that are available
for sale expressed in a "days supply." This means that if there are 1000
houses on the market in a specific area and the average number of homes
sold in the last few months has been 500 per month, there is a 2 month,
or 60 day, supply. This would be considered a seller's market where the
supply is considered on the low side. A stable market--neither a buyer's
market nor a seller's market--is usually somewhere in the 90-120 day supply
range (this can vary from area to area due to total inventory levels).
In the U.S., the supply of homes has been running in the 9 to 10 month
range, indicating a buyer's market. In some areas, inventories are running
double that or more, pointing to a severe buyer's market.
Does this mean that it is the time to buy? Unfortunately, there is no
easy answer here. All Real Estate is local, meaning that the situation
can vary widely from one area to the other. Have prices fallen enough
that there is a minimum supply in your area (for example, 90 days or
less)? Then this could be the time to make a move. Are supplies still
rising in your area (for example with a 1 year + supply)? Then chances are
good that there may be some additional price contraction before things
finally level out. A smart buyer will be keeping a close watch on sales
activity and pricing and be ready to make a quick move. This means getting
well acquainted with mortgage procedures so that if things are favorable
for a purchase the wheels are already in motion.
You can find more information about the entire mortgage process on the site here:
Next Month's Tip: Setting a Timeline
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
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.
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