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September, 2008 Newsletter

+++++++++++ September 1, 2008 +++++++++++++++++++

Introduction: More Mixed Signals
Mortgage Rate Update: Rates Ease Slightly
This Month's Tip: Build Your Home Equity Quicker


Introduction: More Mixed Signals

Welcome to the September edition of the Homebuyer's

Existing-home sales rose in July to the highest level in five months, although sales
have hovered in a relatively narrow range over the past 11 months, according to the
National Association of Realtors®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops –
increased 3.1 percent to a seasonally adjusted annual rate of 5.00 million units in
July from a downwardly revised level of 4.85 million in June, but are 13.2 percent
lower than the 5.76 million-unit pace in July 2007.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in
Long Beach, Calif., said the up-and-down pattern may break soon. “We hope the new
tools in the hands of home buyers from the recently enacted housing stimulus package
will spark a sustained sales uptrend in the months ahead,” he said. “Buyers who’ve
been on the sidelines should take a closer look at what’s available to them now in
terms of financing and incentives. Given some of the inventory on the market, we also
strongly encourage buyers to get a professional home inspection.”

The national median existing-home price for all housing types was $212,400 in July,
down 7.1 percent from a year ago when the median was $228,600.

Total housing inventory at the end of July rose 3.9 percent to 4.67 million existing
homes available for sale, which represents an 11.2.-month supply at the current sales
pace, up from a 11.1-month supply in June. The rise in supply results from a sharp
increase in condo inventory; the single family supply declined.

In new home activity, sales of new one-family houses in July 2008 were at a seasonally
adjusted annual rate of 515,000, according to estimates released jointly on August 26
by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.4
percent (±11.6%) above the revised June rate of 503,000, but is 35.3 percent (±7.3%) below
the July 2007 estimate of 796,000.

The median sales price of new houses sold in July 2008 was $230,700; the average sales
price was $294,600. The seasonally adjusted estimate of new houses for sale at the end
of July was 416,000. This represents a supply of 10.1 months at the current sales rate.

The biggest factor in both of these reports is the amount of inventory in both resale
and new homes. Until the supply drops from the historically high levels that we are
seeing (11.1 month supply in previously owned homes and 10.1 months supply in new
homes), it will continue to be some time until the housing market begins a turnaround.


Mortgage Rate Update: Rates Ease Slightly

We saw mortgage rates ease slightly during the month of August, especially in
fixed-rate loans. According to mortgage company Freddie Mac, 30-year fixed-
rate mortgages averaged 6.40% in the period that ended on August 28th. The
average rate for this type of loan was 6.52% one month earlier. The trend in
15-year fixed-rate mortgages was similar, dropping from an average of 6.07%
at the end of July to an average of 5.93% at the end of August.

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: Build Your Home Equity Quicker

With so much talk recently about the erosion of home equity for many
homeowners (sometimes to zero equity or, worse, to negative equity)
it probably is a good idea to have a discussion on what a homebuyer
and homeowner can do to build their equity quicker and maintain it
once it is built.

First off, one of the primary goals of home ownership should be
the building of equity in the home. Equity is simply the difference
between the current value of a property and the balance of all mortgage
obligations. For example, if you have a home that is valued at $175,000
(based on an appraisal or a Comparative Market Analysis--a CMA, not on an
"I wish" number) and a mortgage balance of $147,000, you have $28,000
in equity ($175,000 minus $147,000 = $28,000). That $28,000, as long as the
market remains stable, is like money in the bank. As values increase and
mortgage payments reduce the level of debt, equity--that "money in the
bank"--also grows.

We've seen a strange phenomenon in the last few years when it comes to the
level of home equity that people have in their homes. Home prices have
appreciated at an almost unprecedented level, meaning individual homes
are worth more (and some are worth a great deal more). Mortgage interest rates,
on the other hand, are at historic lows, meaning that less of each monthly payment
is going to interest and more is going to principal, lowering balances quicker.
More value and less balancee quates to more equity in the average home, right?
Actually, the exact opposite is true. While values of homes are growing at
exceptional rates, so too are loans taken against that value. The home equity
loan (and credit line) business is booming. More and more people are using the
equity in their homes to finance home improvements, purchases, even pay off
outstanding credit card debt. Thus, home equity levels are at one of the
lowest levels in history. Instead of having more money in that "bank account"
we have less. Instead of building wealth, we are eroding it.

Why Equity in a Home is Important

Simply stated, the appreciation of equity in a home is one of the easiest and most
successful paths to wealth that is available to you. To a large degree, it is
almost painless--you make the mortgage payment that you would have to make anyhow
and the balance is reduced. The value of the home, meanwhile, is rising. Every
month, then, your nest-egg should be growing. The quicker you find yourself at 100%
equity--owing nothing on your home--the quicker the route to a comfortable
(or early) retirement, to less financial stress, to true (as opposed to fake) wealth.

How to Build Additional Equity

There are a number of ways to build additional equity in a home, some easier than
others but all effective.

1) Higher initial downpayment
2) Extra principal payments
3) Shorter mortgage term
4) Lower interest rate
5) Home improvements

Higher initial downpayment

The most obvious way to build additional equity is at the first opportunity--making
a larger downpayment at the time of purchase. This extra money is immediately
"banked" in the home, making it much less tempting to spend.

Extra principal payments

Making extra payments of principal (or just adding money to your monthly payment
designated to go to principal) has a double effect on your equity. First,
every dollar you send reduces your debt by the same amount.

Second, reduced debt means less interest paid, which means that each month more of
your payment goes to principal and less goes to interest.
NOTE: Although most loans allow it, be certain that your lender will accept extra
payments of principal.

Shorter mortgage term

The lower mortgage interest rates that we have seen recently means that for many
buyers, they are able to either initially secure a mortgage with a shorter
term or, if they are currently in a long term mortgage (such as 30 years), refinance
and get a shorter term. These shorter mortgage terms mean that you will be
paying down your principal much quicker and therefore gaining additional equity
at a much faster rate.

Home improvements

When you improve the quality or size of your home, you also increase its value
and thus your equity. Be aware, though, that although virtually all
home improvement projects will bring some return, some are much more advantageous
than others. For example, remodeling kitchens or bathrooms traditionally
have brought a greater return than adding leisure amenities such as pools or whirlpools.
To get the maximum equity enhancement, make certain that the kind of improvements
you are looking to do will raise the value appreciably.

Summing Up

Building additional equity in your home can be relatively simple yet extremely
rewarding. Not only can it bring a real sense of achievement, equity in your
home brings a wealth of options, most notably the fact that you are building a nest
egg with a minimum of effort. Explore the options to find the equity building plan
that best suits your needs and timetable.

Next Month's Tip: Preparations Times 3

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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