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July, 2006 Newsletter

+++++++++++ July 1, 2006 +++++++++++++++++++

Introduction: Resales Decline, New Sales Increase
Mortgage Rate Update: Rates Increase Again
This Month's Tip: Are We Entering a Buyer's Market?

Introduction: Resales Decline, New Sales Increase

Welcome to the July edition of the Home Buyer's Newsletter,
brought to you by the
Home Buyer's Information Center.
Sales of existing homes experienced a minor decline in May with home
prices rising near normal rates, according to the National Association of Realtors®.

Total existing-home sales – including single-family, townhomes, condominiums
and co-ops – eased 1.2 percent to a seasonally adjusted annual rate of 6.67
million units in May from a pace of 6.75 million in April, and were 6.6 percent
below the 7.14 million-unit level in May 2005.

David Lereah, NAR’s chief economist, said conditions are mixed around the country.
“There’s now a clear pattern of slower home-sales activity in many higher cost markets,
which are more sensitive to rises in interest rates, and higher home sales in moderately
priced areas which have experienced job growth,” he said. “Although mortgage interest
rates remain historically low, the uptrend in interest rates this year is affecting those
buyers who are at the margins of affordability.”

In new home transactions, sales of new one-family houses in May 2006 were at a
seasonally adjusted annual rate of 1,234,000, according to estimates released jointly
on June 26th by the U.S. Census Bureau and the Department of Housing and Urban
Development. This is 4.6 percent (±13.1%) above the revised April rate of 1,180,000,
but is 5.9 percent (±10.8%) below the May 2005 estimate of 1,311,000.

The median sales price of new houses sold in May 2006 was $235,300; the average
sales price was $294,300. The seasonally adjusted estimate of new houses for sale
at the end of May was 556,000. This represents a supply of 5.5 months at the current
sales rate.

Our take on the numbers: Again, mixed signals in the sales figures. It is obvious,
though, that things are a bit slower than normal, especially for this time of the
year. The biggest concern should be the "supply" of homes, both new and used.
These are at some of the highest levels in recent memory, meaning that it will
take a good while (even if the market remains steady) to sell through the
inventory that is currently on the market. We are addressing the potential of
this market in this month's newsletter with the article titled "Are We Entering A
Buyer's Market?"


Mortgage Rate Update: Rates Increase Again

Although there was a small decline during one period in the month of June,
overall mortgage rates continued to climb through the month. According to
mortgage company Freddie Mac, average rates for 30-year fixed-rate mortgages
stood at 6.78% after beginning the month at an average of 6.67%. There was a
similar trend in the 15-year fixed-rate average, which rose from 6.23% to 6.43%
during the same period. Rates are generally higher than they have been at
any period since 2002.

Although the FOMC rate increase to 5.25% on June 29th will not directly
affect long term (15-year and 30-year fixed-rate mortgages), it will likely have
an effect on adjustable rate-mortgages. Adjustables now are very close in
rate to fixed-rate products, so it is important to do some very close
comparisons when evaluating mortgages.
For current average mortgage rates, see the
rates page.

For more information on mortgages, visit the
Mortgage Section

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This Month's Tip: Are We Entering a Buyer's Market?

If there is one phrase that most adequately describes the
Real Estate market in most of North America in the last
3 to 5 years, it would be "seller's market." More prevalent
in some areas than others, but in general the advantage has
been on the side of the house seller rather than the house
buyer. We touched on the possiblility of a change in this
situation and the potential emergence of a buyer's market
in a newsletter a few months back. Now, more and more signs
are pointing to that shift that we saw the beginnings of in

The status of a Real Estate market's health--and whether or
not it represents a buyer's or a seller's market--is determined
largely on supply and demand, which in turn is influenced by
a number of underlying factors, some of which include:

* Interest rate environment
* Level of current housing activity
* New home building activity
* Overall level of housing inventory

A "seller's market" generally occurs when demand for homes
outstrips supply, when mortgage interest rates are advantageous for
buyers and when desire for home ownership and interest in home
buying are running high. In contrast, a "buyer's market" takes hold
when there is much more supply of housing than there is demand,
when interest rates are high or rising and when home buying interest
is either flat or declining. There is more and more evidence that this
is the direction that most areas of North America are now headed.

A buyer's approach, obviously, should be quite different when dealing
with a buyer's market (where they have an advantage) and a seller's
market (where the seller is largely in control). The key is to make the
most out of the advantages that a buyer has when the market begins
to shift.

The first and most important advantage is in negotiation. When the market
is in the throes of a hot, seller's market, a buyer's negotiation advantage
is blunted at best and non-existent at worst. In those types of markets,
competing--and often escalating--bids frequently become involved. It's not
how much less than the listing price you will be able to pay, it's how high
OVER the listing price you must go in order to secure the property. Great
for sellers, but no so advantageous for buyers.

As a market trends to a buyer-oriented one, though, the tables are
reversed. Instead of multiple buyers vying for one property, you may see
multiple properties trying to entice a single buyer. And the quickest way
to get a buyer's attention, after all, is price. Although it usually takes a
bit of time for the reality of a buyer's market to sink in--meaning sellers
will often continue to ask high prices for a while, even when their properties
are not selling--eventually the market "wakes up" and prices become
more realistic.

In addition, as properties remain in the market longer (more houses with
less buyers equates to longer sales times), sellers are more likely to
have a receptive ear to offers that may be below where they wanted
to be. This is especially true if the seller is motivated and wants
to move on. As properties close (actually sell) for these more competitive
prices, it influences the future listing prices of homes entering the market.
These price movements are simply the nature of a buyer's market.

Taking Advantage

As a buyer, it is important to take full advantage if we do trend fully into a
buyer's market. Taking advantage usually means you will save money
(because of more competitive prices) but also that you may have more
flexibility in your purchase:

+ In many areas, there will be lots of homes to look at--don't rush into a
contract on the first house you see.
+ Take your time. Markets don't turn on a dime--they trend. You won't
miss out.
+ Arm yourself with a CURRENT CMA--Competitive (or comparative)
Market Analysis.
+ Negotiate firmly. Don't cave in at the first counter-offer unless it is
right in your range.
+ If the price isn't right, be prepared and willing to walk away. Other
homes will be available, perhaps one that even better fits your needs
and budget.

Summing Up

Signs are definitely pointing to a buyer's market in many areas of North
America. If this is the case in the area in which you are interested,
don't let the opportunity pass you by. You can use some of the articles
on the Home Buyer's Information Center website as tools in your
preparation and purchase.


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

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

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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