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October, 2009 Newsletter

+++++++++++ October 1, 2009 +++++++++++++++++++

Introduction: Existing Sales Decline, New Sales Up Marginally
Mortgage Rate Update: Rates Continue to Fall
This Month's Tip: Don't Overextend Yourself


Introduction: Existing Sales Decline, New Sales Up Marginally

Welcome to the October edition of the Home Buyer's Newsletter,
brought to you by the Home Buyer's Information Center.
<A HREF="http://www.ourfamilyplace.com/homebuyer/">The Home Buyer's Information Center</A>

Existing-home sales – including single-family, townhomes,
condominiums and co-ops – declined 2.7 percent to a
seasonally adjusted annual rate of 5.10 million units
in August from a pace of 5.24 million in July, but
remain 3.4 percent above the 4.93 million-unit level
in August 2008. In the previous four months, sales
had risen a total of 15.2 percent.

Lawrence Yun, NAR chief economist, said the tax credit
is working. “Home sales retrenched from a very strong
improvement in July but continue to be much higher than
before the stimulus. The first-time buyer tax credit is
having the intended impact of bringing buyers into the
market, allowing them to take advantage of very favorable
affordability conditions,” he said. “Some of the give-back
in closed sales appears to result from rising numbers of
contracts entering the system, with some fallouts and a
backlog contributing to a longer closing process, but the
decline demonstrates we can’t take a housing rebound for

In new home sales, Sales of new one-family houses in August
2009 were at a seasonally adjusted annual rate of 429,000,
according to estimates released jointly September 25th
by the U.S. Census Bureau and the Department of Housing
and Urban Development. This is 0.7 percent (±16.2%) above
the revised July rate of 426,000, but is 3.4 percent (±13.3%)
below the August 2008 estimate of 444,000.

The median sales price of new houses sold in August 2009 was
$195,200; the average sales price was $256,800. The
seasonally adjusted estimate of new houses for sale at
the end of August was 262,000. This represents a supply of 7.3
months at the current sales rate.

Although the decline in existing home sales and the very low
increase in new home sales might be considered a setback, the
drop in the inventory--the supply of homes on the market--is
a positive development. Until inventory drops to a workable
level, the chances of a sustainable recovery will be challenging.

Mortgage Rate Update: Rates Continue to Fall

Long-term mortgage interest rates continued to fall in the
month of September. For 30-year fixed-rate mortgages, the
average was 5.04% at the end of the month, according to
mortgage company Freddie Mac. This was a decline from the
average of 5.14% at the end of the month of August. Likewise,
15-year fixed-rate averages declined from 4.58% at the end of
August to 4.46% at the end of September.

September saw less volatility in rate activity, which may
mean the declines are nearing the bottom. As usual, overall
economic activity--or lack of it--will continue to drive
rate trends.

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: Don't Overextend Yourself

One of the lastng effects of the housing boom--and
bust--is the reidual effect of too many home buyers
overextending themselves. They paid too much money
for too much house with too high payments and the
snap-back has been severe. As the market begins to
improve, it is important to avoid the mistakes of
the recent past and to protect yourself in the future.

Few areas of American life indicate the belief that
"bigger is better" than the recent trend in housing.
Although family size has declined noticeably since the
1970s (an average of 3.11 persons per family to 2.59)
the size of homes has exploded, with the average new
home size increasing from 1400 square feet in the 1970s
to around 2500 square feet as we near the end of this
decade. Where it was once pretty common to have a
living room, dining room and kitchen in addition to
bedrooms, it is now not unusual to find living rooms,
family rooms, great rooms, dens, offices, even media rooms
all in the same home. And, we have more bedrooms today
than in the past. It is much less common to have
children of the same sex sharing a room than it was
25 years ago. 4 and 5 bedroom homes are becoming
more and more common, even with smaller families.

With the increase in home size has come a number of
positive features. More families, for example, can
have enough space for amenities such as home offices
for computer equipment, children have the opportunity
to have their own bedroom and there are more informal
areas of the home for relaxation.

These larger homes, though, can wield a two-edged
sword. Buying or building more home than you need
(size strictly for the sake of size) can have some
obvious--and some not so obvious--negative consequences.
Consequences which can cost time, money and aggravation
that may not be expected.

When we speak of "too much" home it is not that we
believe that there is anything inherently wrong with
large homes--if they are needed and if they are
affordable. It is our belief that "too much" is
simply buying far too big a home for your needs and
stretching your budget to the limits (or beyond) to
do it. "Too much" is living in a huge home and not
having enough money to furnish it or enough financial
resources to enjoy any time outside of it. It is the
"McMansions" and trophy homes we see popping up all
over North America, purchased by many buyers who
can just barely afford them. We watch budgets pushed
to the extreme just to afford vacant space in a larger
home. We see people "upgrade" from perfectly adequate
homes to mini-mansions and then watch them as they
have difficulty making ends meet.

Impacts: The Obvious

The most obvious impact, of course, is the additional
costs associated with a larger home. In virtually
every instance, a larger home will cost more to buy or
build than a smaller home if all other factors (e.g.
quality, condition and location) are equal. More
square footage means more money out of your pocket,
pure and simple. Higher costs will also equate to
more interest charges, and, of course, a higher
monthly payment.

Other obvious costs are additional heating and cooling
costs, additional costs for electricity, higher
insurance premiums, higher property taxes and more
upkeep, repair and maintenance costs throughout
the ownership period. These additional costs can
add 10%, 25%, 50% or more to your monthly housing

Impacts: The Less Obvious

One of the less obvious consequences is the need to
furnish and decorate all of the extra space found
in these larger homes. For some reason, many buyers
are unable to conceptualize the empty rooms that
will need furniture, window treatments and the like.
This is no small expense when you are starting out
from scratch. All of that extra space will mean
lots more expenditure, and since the extra space
will be "permanent" the extra costs will continue
as long as you own the home.

Another less obvious but important consequence
may not be even considered until years later when
it is time to sell the home, and that is the
resale value. As the population ages (and if
families continue to decrease in size), big
homes could become less popular than they are
today. This could mean that the premiums that are
being paid for large homes recently may have little
or no return in the future--the extra money spent would
be lost. This loss can be justified, to a great
degree, if the additional space is necessary.
But a large home of unnecessary size becomes not
only wasted space but wasted money--money hat is
lost during the ownership period and then again
when it comes time to sell.

One final factor that is rarely considered is the
way that these huge homes tend to decentralize
the family. With so much space to be "utilized",
we see more and more families spending more and
more time away from each other--even though they
are under the same roof. We've actually seen
2 members of a family communicate over the internet--
through instant messaging--while they are in the
same house!

Summing Up

Buying as much home as you need--and possibly a
bit more for breathing room--is a smart approach
to home ownership. Buying wasted size and space,
though, for whatever reason (ego, keeping up with
the Jones, fads, etc.) usually is a pretty poor
financial move. Even if you are able to recoup
the additional purchase expense of the home,
you will most likely never get back the money
wasted on unused and/or unneeded space that is
spent on utilities, furnishing, decoration, taxes,
insurance, etc., etc.

Next Month's Tip: Breathing Room


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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