October, 2006 Newsletter
+++++++++++ October 1, 2006 +++++++++++++++++++
Introduction: Sales and Prices Decline
Mortgage Rate Update: Rates Decline
This Month's Tip: Developing a Mortgage Strategy
Introduction: Sales and Prices Decline
August saw declines in both the level of sales of existing
homes as well as, for the first time in 11 years, a decline
in the median price of homes in the U.S. The National
Association of REALTORS reported that sales dropped .05% in
the month of August at a level that was 12.6% lower than one
year ago. In addition, they reported that prices had fallen
for the first time in 11 years, dropping from a median price of
$229.000 in August, 2005 to $225,000 in August, 2006. Although
this is being touted as a "normal correction" we believe that
it may be a little to early to make a final determination. There
are too many variables in the economy, in interest rates and in
sales volumes to determine the trend. In addition, inventories
continue at a level that has not been seen for over 13 years,
leaving the possibility of further price erosion.
On the new home side, sales of new one-family houses in August,
2006 were at a seasonally adjusted annual rate of 1,050,000,
according to estimates released jointly on September 27th by
the U.S. Census Bureau and the Department of Housing and Urban
Development. This is 4.1 percent (±15.5%) above the revised
July rate of 1,009,000, but is 17.4 percent (±11.0%) below the
August, 2005 estimate of 1,271,000.
The median sales price of new houses sold in August, 2006 was
$237,000; the average sales price was $304,400. The seasonally
adjusted estimate of new houses for sale at the end of August
was 568,000. This represents a supply of 6.6 months at the
current sales rate.
Mortgage Rate Update: Rates Decline
One potential saving grace in the decline in sales volumes and
prices is the continuing decline in long-term interest rates,
which may help to blunt the effect of a falling market. Mortgage
rates continued their downward trend in the month of September, with
30-year fixed-rate mortgages dropping to an average of 6.31% after
beginning the month at an average of 6.44, according to mortgage
company Freddie Mac. 15-year fixed-rate averages had a similar
trend, beginning the month at an average of 6.14% and ending at
an average of 5.98%, the first time that average was under 6.00%
since the beginning of March.
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: Dealing With a Changing Market
Although no one can truly predict the extent of the downturn
in housing, it is fairly obvious that we have entered a
cycle that is trending downward--in activity for certain
(5 months of declines in a row) and possibly in pricing
(see the introduction above). For those who have followed
the market closely, this turn is no big surprise. As is so
often the case, when an investment--whether the stock market,
precious metals or real estate--takes a "moon shot" and sees
an unusual spike in value, that investment frequently comes
back to earth--sometimes with a soft landing and sometimes
with a hard one.
The jury is still out as to whether our landing here in
North America will be an easy one or a difficult one, but
there is little denying that, at least for the present, the
Real Estate maarket is in a state of flux. Sales are down
from previous months and years and inventories are at some
of the highest levels in history. For a prospective homebuyer,
there are a number of questions that should be asked, including:
What action should I take, if any? What are the potential
advantages (and disadvantages) of buying now (or later)? How
can I prepare myself to take full advantage of the situation?
What action should I take now?
This depends, to a great degree, to the level of your motivation
in the purchase of a home. If you NEED to buy a home, for
example, if your present home has sold and you must make a move,
or if you are relocating for a new job, then you will have little
choice. If this is your situation, see the section below on how
to prepare to take advantage. Want to buy a home, but it's not
imperative? You may be able to capitalize on the situation, but
under no circumstances should you leap into a purchase simply
because you "MUST have a house" (but in reality only want a house).
It is in the initial periods of market changes that the worst
mistakes are made, such as wildly overpaying for a property.
To overpay when a house is an absolute necessity is one thing,
but to pay way too much when it isn't a requirement can be a
Take a good clear look at your buying situation. In reality,
it is not all that difficult to make a distinction between
buying because of need and buying because of want. It is
important, though, not to confuse one for the other and
delude yourself into thinking that you must have a house
when you really only want one.
What are the potential advantages and disadvantages of
buying now--or later?
One of the first advantages of buying now is the fact that
interest rates, at least for the present, have dropped from
the levels seen this summer. According to mortgage company
Freddie Mac, 30-year fixed rate mortgages, for example,
have dropped from an average of 6.80% towards the end of July
to an average of 6.40% towards the end of September. If house
prices are also moderating in your area, this can be a twin
advantage--price and interest rate. Although it will vary
from area to area, we are starting to see some sellers
that are becoming a good bit more realistic about what their
homes are truly worth--and are becoming more flexible in
their pricing. This is especially true with some of the new
home builders, who are adding incentives (plus price cuts) in
an effort to move inventory. In other areas of the country
(and in pockets of some other locations) many sellers are,
frankly, continuing to live in a dream world, still thinking
that somehow the calendar still says October, 2004 instead
of October, 2006 and the market is still peaking. With these
variances in market, it is imperative that you are familiar
with what is happening in the specific market in which you
are interested. If you are looking at an area where prices
have not moderated, and you do not have to make a move now,
it may make sense to wait a bit to see just what happens
with the trend in the coming months.
How can I prepare myself to take advantage of the situation?
Here is where it is crucially important to be not only market
savvy but also prepared to move (or NOT move) as the situation
demands it. First and foremost is to know current market
prices for the neighborhood in which you have an interest.
"Current prices" means today--not a year ago, not six months
ago, not even 90 days ago. You need to know what actual
selling prices are now--meaning the last week and the last
month. These sale prices are the only true indicators of
the health of the local market. Once you have a good feel for
current prices, then make comparisons to 3-6-9 months in the
past. What is the trend? Are prices going up, going down
or are they treading water? It is only with this data in hand
that you can make an intelligent decision on a particular
Where can you find this pricing information? Your Real Estate
Agent, if they are representing you as a Buyer's Agent, can
develop a Comparative Market Analysis (CMA) for you, showing
properties that have sold (and closed), those that have contracts
pending and those that are currently on the market. In addition,
there are resources available on the internet that can give a
fairly accurate feel for market pricing. We have some additional
informtion on these topics on the site:
CMA's--Comparative Market Analysis
Setting a Value on a Home
If the market is stagnant--or going down in price--your
negotiation position will obviously be enhanced. Not only
are sellers more open to considering a lower price, they
generally will be more receptive to contract stipulations--
for example, repairs called for by a home inspection.
The key here is to take advantage of your position as a
buyer now, rather than, like some sellers, to think that
you are still in a market that may have actually ended many
It all boils down to information. Arm yourself with as
much market and pricing information as possible so you can
explore all of your options--whether it is buying now or
later--and to make the very best deal possible for yourself.
This includes house, price and mortgage.
Next Month's Tip: Give Your Budget a "Tune Up"
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