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September, 2011 Newsletter

+++++++++++ September 1, 2011 +++++++++++++++++++


Introduction: Existing and New Sales Decline
Mortgage Rate Update: Rates Lowest in History Then Rise
This Month's Tip: Take Advantage

Introduction: Existing and New Sales Decline

Welcome to the September edition of the Home Buyer's Newsletter.

Existing-home sales declined in July from an upwardly revised June
pace but are notably higher than a year ago, according to the
National Association of Realtors®. Monthly gains in the Northeast
and Midwest were offset by declines in the West and South.

Total existing-home sales, which are completed transactions that
include single-family, townhomes, condominiums and co-ops, fell 3.5
percent to a seasonally adjusted annual rate of 4.67 million in July
from 4.84 million in June, but are 21.0 percent above the 3.86 million
unit pace in July 2010, which was a cyclical low immediately following
the expiration of the home buyer tax credit.

Lawrence Yun, NAR chief economist, said there is a tug and pull on the
market. “Affordability conditions this year have been the most favorable
on record dating back to 1970, but many buyers are being held back
because banks are offering financing to only the most highly qualified
borrowers, ignoring a large share of otherwise creditworthy buyers,”
he said. “Those potential buyers represent the difference between an
uneven recovery and a much more robust housing market that could
stimulate additional economic activity and create jobs.”

In new home activity, sales of new single-family houses in July 2011
were at a seasonally adjusted annual rate of 298,000, according to
estimates released jointly on July 23rd by the U.S. Census Bureau and
the Department of Housing and Urban Development. This is 0.7 percent
(±12.9%) below the revised June rate of 300,000, but is 6.8 percent
(±13.5%) above the July 2010 estimate of 279,000.

The median sales price of new houses sold in July 2011 was $222,000;
the average sales price was $272,300. The seasonally adjusted estimate
of new houses for sale at the end of July was 165,000. This represents a
supply of 6.6 months.


Mortgage Rate Update: Rates Lowest in History Then Rise

In the month of August, mortgage rates dropped to the lowest level in
the history of mortgage company Freddie Mac's record keeping. As of
August 15th, 30-year fixed-rate mortgages averaged an unbelievable 4.15%
after beginning the month at an average of 4.39% (and declining from a
2011 high of 5.05% in April). Rates rose to an average of 4.22% in the
last period of August. 15-year fixed-rate mortgages also declined to
a low of a 3.36% average mid-month before rising to 3.44% in the period
that ended on August 25th.

Does the drop followed by a rise mean that we've bottomed out? It would
be convenient to believe that, but we have had several periods in 2011
where rates declined to a new low, rose for the next couple of periods
only to drop again. The only advice here is to keep a sharp eye on the
rate trend, since it can reverse fairly quickly and could catch a buyer
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: Take Advantage

If there are 3 themes that we seem to highlight on a number of our newsletters in the last couple
of years it would be these:

1) Sales activity down
2) Home prices down
3) Mortgage rates decline

Looking back on our newsletters in this time frame, those phrases appear quite frequently in the
monthly recap of sales activity and mortgage rates. And, they seem to be appearing with even
more frequency thus far in 2011.

When you step back and take a clear-eyed view of the situation, you quickly see a major disconnect:
with prices down (in some areas approaching 50% from the peak) and with mortgage rates at the lowest
level in decades, the third phrase should shout "sales activity skyrockets!" rather than the reverse.

Once again, we find ourselves in an emotion driven market rather than a rational one. Just as the
real estate market (and prices) mushroomed 5 years ago (with absolutely no tether to reality),
emotions are driving the market (and prices) in exactly the opposite direction today. As we wrote
a year ago today:

"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."

For good reason, potential home buyers are gun shy as they approach the market. They see buyers
who purchased homes in 2005 through 2008 watch as the values of their homes get absolutely flattened
in a number of areas. Let's look at some realities, though.

First, let's compare buying versus renting. In 2005 and 2006 especially, we watched home buyers
pay a multiple of 2, 3, even 4 times for home ownership compared to what they could rent a similar
property for. In dollar terms, rentals that could be secured for $1000 per month would cost $2000,
$3000 or more per month when purchased when all factors (principal and interest, taxes, insurance
and maintenance and repairs) were included. In ANY market this makes absolutely no sense. Add
in declining home values to the equation and you have an economic disaster. If you make the same
renting versus buying comparison today in many localities, you will find that the dollar figures
will be much closer. Perhaps a $1000 rental may cost a total of $1500 when all purchase factors
are included, meaning that when you consider mortgage deductions and the possibility of some
future appreciation, buying may be the better option.

Second, let's look at potential exposure. Yes, we have seen properties that were selling for
$200,000 in 2006 selling for half that--$100,000--today. Obviously, $100,000 in original value
has vanished. Going forward, though, does it make sense to fear the same exposure? Does anyone
actually believe that this property could fall to a value of $0? Of course there CAN be additional
price erosion, but the level of that exposure is nowhere near where it was a few years ago.

The intent here is not to recommend that potential buyers rush out and buy a home immediately.
It is, however, a good idea to look at your options and, if the pieces fall into place to your
satisfaction, take advantage of the current environment of low prices and exceptionally low
mortgage rates.

Next Month's Tip: Establishing Your Timeline

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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