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May, 2005 Newsletter

+++++++++++ May 2, 2005 +++++++++++++++++++

CONTENTS:
Introduction: Resales near record, New home sales rise
Mortgage Rate Update: Rates Peak then Fall
This Month's Tip: Interest Only Mortgages
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Introduction:Welcome to the May edition of the Home Buyer's
Newsletter, brought to you by the
Home Buyer's Information Center.

Existing-home sales rose to near-record levels in March with
a continuation of strong home price gains, according to the
National Association of Realtors®.

Total existing-home sales – including single-family, townhomes,
condominiums and co-ops – increased 1.0 percent in March to a
seasonally adjusted annual rate* of 6.89 million from an
upwardly revised pace of 6.82 million in February. March
sales were the third highest level on record, and were
4.9 percent above the 6.57 million-unit pace in March 2004.
The record was a sales rate of 7.02 million in June 2004,
followed by 6.98 million in November 2004.

David Lereah, NAR’s chief economist, said economic improvements
have been supporting the housing sector. “With mortgage
interest rates remaining historically low, gains in the
labor market and economic growth appear to have lifted
the confidence of home buyers,” he said. “There’s no
question there is a strong demand for housing from a
growing population.”

The national median existing-home price for all housing
types was $195,000 in March, up 11.4 percent from March
2004 when the median price was $175,000. The median is
a typical market price where half of the homes sold for
more and half sold for less.

Sales of new one-family houses in March 2005 were at a
seasonally adjusted annual rate of 1,431,000, according
to estimates released jointly on April 26 by the U.S. Census
Bureau and the Department of Housing and Urban Development.
This is 12.2 percent (±14.3%)* above the revised February
rate of 1,275,000 and is 12.7 percent (±15.2%)* above the
March 2004 estimate of 1,270,000.

The median sales price of new houses sold in March 2005 was
$212,300; the average sales price was $281,300.
The seasonally adjusted estimate of new houses for
sale at the end of March was 433,000. This represents a
supply of 3.6 months at the current sales rate.


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Mortgage Rate Update: Rates Peak then Fall

After a number of weeks of rising interest rates,
mortgage rates began to retreat a bit late in the month
of April. 30-year fixed-rate mortgages, according to
mortgage company Freddie Mac, which began the month of
April averaging 5.93% fell to an average of 5.78%
in the period that ended April 28th. 15-year fixed-
rate mortgages showed a similar decline, beginning
the month at an average 5.48% and ending at an
average of 5.33%. Is this decline over? Many
analyists see the lower rates as a direct result
of less than stellar economic performance. Indicators
that will be releases during the month of May should
indicate whether or not the economy is in a temporary
"soft patch" or in a more broad period of decline.
These economic indicators will determine, to a large
degree, the future trend of mortgage rates.

For current average mortgage rates, see
Mortgage Rates

For more information on mortgages, visit the
Mortgage Section

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This Month's Tip: Interest Only Mortgages

There have been numerous changes in the mortgage industry
in the last couple of years, but none that have had the impact
of interest only mortgages. Although they go by a number of
different marketing names, it is hard to miss the advertising for
these types of loans since they are aggressively marketed on
television and radio as well as in newspapers and perhaps most
predominately on the internet.

Are they, though, a good deal for the home purchaser? Like so
many options in life, the answer to that question is "absolutely
yes", "definitely no" and just about every variation in between.

What is an interest only loan? How does it differ from a normal
mortgage?

An interest only mortgage is just that--a loan where your payment
consists only of interest, unlike a normal mortgage payment which
consists of both interest (the cost of the loan--what you are paying
the lender to "use" their money) as well as principal (you are paying
down the loan balance on a monthly basis). In an interest only loan,
if you finance $200,000, you will still owe $200,000 on the home
5 years later. You have made a payment on a monthly basis, but that
only services the debt. You have not yet reduced the principal.

WIll my payment be lower?

That one is easy to answer. Yes, absolutely, since none of the
payment will be allocated to reducing your balance by paying down
the principal. Be aware, though, that the interest only feature is
typically only in effect for a set amount of time--this may be a year
or two or longer--but eventually you will begin paying down the
principal. At this time, obviously, the payment will increase.
This increase may be a moderate one if rates remain low or a much
more substantial amount of increase if interest rates increase
appreciably.

Are interest only loans for everyone?

Emphatically, no, they are not for everyone. There are those who
can benefit from interest only plans and those who would be making
a huge mistake choosing such a loan. For example, if you are
fairly certain that your income will be seeing a sizeable increase
in the future and you will be able to sustain the jump in the
payment, this may be a good option. You enjoy the lower payment
during a period of lower income and move to a higher payment when
it will not be a financial burden. Not sure of income potential
or believe that your income will only see a moderate increase?
Stay away. Likewise, if you are reasonably sure that

1) Price appreciation in the home will be good, and
2) You will need to move in the near future

then an interest only loan may make sense. Be aware, though, that
if prices do not increase steadily and you need to sell the home before
beginning to pay against the principal, you may find yourself in
the very undesirable position of being "upside down" in the home.
This means that you owe more money on the house than you can
generate in a sale. In this scenario, you will not only realize no
funds from selling your home but will need to dig into your savings
to pay money at closing for selling expenses. For example, on the
hypothetical $200,000 home, you may need $12,000-15,000 to cover
the selling costs. This very well may overshadow any gains you
may have made by selecting the interest only loan.

Important considerations

Interest only loans have become the hottest new mortgage product
(even though the concept is not new) available today. Unfortunately,
they have become popular, to some degree, for the wrong reason.
Since these loans provide a lower payment, they usually allow a
buyer to qualify for a larger mortgage (and therefore a more
expensive house) then they normally could (and perhaps should)
afford. Taking advantage on an interest only loan simply to buy
more home may make today's more affordable payment a budget-
buster in the future.
Next Month's Topic: A Smart Approach to Pricing

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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.

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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