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September, 2010 Newsletter

+++++++++++ September 1, 2010 +++++++++++++++++++

Introduction: Sales Post Sharp Declines
Mortgage Rate Update: Rates Continue to Ease
This Month's Tip: Reverse Mania

Introduction: Sales Post Sharp Declines

Welcome to the September edition of the Home
Buyer's Newsletter. Home sales in the month of July were
challenged, to say the least.

Existing-home sales were sharply lower in July following
expiration of the home buyer tax credit but home prices
continued to gain, according to the National Association of

Existing-home sales, which are completed transactions that
include single-family, townhomes, condominiums and co-ops,
dropped 27.2 percent to a seasonally adjusted annual rate of
3.83 million units in July from a downwardly revised 5.26
million in June, and are 25.5 percent below the 5.14 million-unit
level in July 2009.

Sales are at the lowest level since the total existing-home
sales series launched in 1999, and single family sales –
accounting for the bulk of transactions – are at the lowest level
since May of 1995.

Lawrence Yun, NAR chief economist, said a soft sales pace likely
will continue for a few additional months. “Consumers rationally
jumped into the market before the deadline for the home buyer tax
credit expired. Since May, after the deadline, contract signings
have been notably lower and a pause period for home sales is
likely to last through September,” he said. “However, given the
rock-bottom mortgage interest rates and historically high housing
affordability conditions, the pace of a sales recovery could pick
up quickly, provided the economy consistently adds jobs.

“Even with sales pausing for a few months, annual sales are expected
to reach 5 million in 2010 because of healthy activity in the first
half of the year. To place in perspective, annual sales averaged
4.9 million in the past 20 years, and 4.4 million over the past
30 years,” Yun said.

In new home activity, sales of new single-family houses in July 2010
were at a seasonally adjusted annual rate of 276,000, according to
estimates released jointly pn August 25th by the U.S. Census Bureau
and the Department of Housing and Urban Development. This is 12.4 percent
(±10.8%) below the revised June rate of 315,000 and is 32.4 percent
(±8.7%) below the July 2009 estimate of 408,000.

The median sales price of new houses sold in July 2010 was $204,000;
the average sales price was $235,300. The seasonally adjusted estimate
of new houses for sale at the end of July was 210,000. This represents
a supply of 9.1 months at the current sales rate.

There are a couple of significant numbers here: Obviously, first
and foremost the drop in sales. Also, inventory appears to be rising
again. In new homes, for example, the supply rose from 7.6 months
in June to 9.1 in July. This is usually a result of 2 factors--a
lower volume of sales as well as more new homes being completed.

We are not sure what it will take to move this market. Mortgage
interest rates are at a 60-year low, prices are down 10-40% from the
peak in many markets. In 12 years of producing the web site and
this newsletter, we have never said "this is the time to buy," but
we firmly believe that if you are in the market to buy a home and
are not actively looking now, the chances for disappointment in
the near future are pretty high. We think that when the change
comes, the rise in both rates and prices will be as swift as was
the decline.


Mortgage Rate Update: Rates Continue to Ease

A couple of years ago, if anyone had suggested that we would be seeing
mortgage rates for 30-year loans under 4.5% for a fixed mortgage, they
would likely be carried away for hallucinating. Not only have rates
dropped that low, they continue to ease, virtually on a weekly basis.
For the month of August, 30-year fixed-rate mortgages dropped from
an average of 4.54% to an average of 4.36%, according to mortgage
company Freddie Mac. 15-year mortgages declined under 4% during the
same period, averaging 3.86 at the end of the month.

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: Reverse Mania

Although the Real Estate run-up of 2004 to late 2007, where prices
rocketed upward at historic rates and levels in most areas of the
country was unsustainable, a leveling, at least was expected by
many analysts. Few, however, forecast the severe snap-back that
we have experienced in the last two years. As is often the case,
though, in many instances of severe run-ups, the fall-back goes far
beyond what might be expected. When the pendulum swings, it often
swings back to its starting point and then beyond.

As we look out at the Real Estate market in a majority of the country
moving through the second half of 2010, we see what only can be
described as a "reverse mania." Where the prevailing mantra of
the first mania (the Real Estate bubble) was "Buy, buy, buy! Don't
be concerned about the price, Real Estate ALWAYS goes up. Mortgage
as much a you can, you won't lose!" The reverse of that thinking
now pervades the public consciousness: "Hold off. Prices are still
going to fall. Interest rates are low, but they may go lower. Real
Estate is a shaky investment." How much changes in only a few short

Yes, it is true that prices have fallen. In some areas, the drop has
been nothing short of precipitous. There are pockets of the country
where home prices have declined 30%, 40% or more. We have seen many
properties that are listed for sale at levels comparable to prices in
2002. Yet, the market is beyond stagnant. The July sales numbers,
referenced in the introduction above, were challenging to say the least.
In talking with a number of Realtors in August, last month's activity
was no better.

In the same way that positive spin fed positive spin, which caused the
market to surge upward, negative spin is feeding negative spin,
causing the market to erode. Unfortunately, the excesses of the
run-up (mortgages written for people who could in no way afford them)
are fueling the downturn as short sales and foreclosures find their
way to the market. In some neighborhoods, more than 50% of the sales
and listings are either foreclosures or short sales.

The big question, then, is when does it end? Just as unsustainable
price increases had a start and end point, so will equally unsustainable
price decreases have an end point. Desire for housing will not stop.
Individuals and families will still need a place to live. Babies will
be born, families will increase in size, there will always be a desire
for something new or different. Unemployment will ease, the economy
will improve and consumer confidence will rise again. The swings in
the cycles were obviously a lot more harsh than normal this time, but
cycles usually find their way back to the long term trend line.

So where does a buyer go from here? To some degree, it probably depends
a good bit on your time frame and your finances. If you are looking
long-term and will be mortgaging the house, this may be an ideal time
to begin to look for a home in earnest. If you are a short-term buyer
and will not need a mortgage, it may make sense to keep your finger on
the pulse of the market to see how it trends going forward. Obviously,
even with the deep drops in market values, there still is the possibility
of further exposure. For those with a long-term window who are not
looking for a home, it may become something they regret in the future.

Next Month's Tip: Buying Foreclosures:

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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