Gradual improvement in the housing market continues at a steady pace without government support. Six months after two consecutive years of tax incentives for buyers; starting in July 2008 with a $7,500 repayable first-time buyer tax credit, extending to a $8,000 nonrepayable first-time buyer tax credit in January 2009, and ending in June 2010 with the expanded credit to repeat buyers; the market has shown remarkable improvement from the initial drop this past July. With mortgage rates remaining near historic lows and home prices having generally stabilized, economists are expecting further strength in 2011.
Consumers are showing some signs that they're feeling better: a significant boost in the food and services industry implies they are eating out more, vacations are back on the rise as spending on travel and tourism increased 8% in the third quarter, and household net worth has risen notably thanks to a strong stock market even as they continue to shrink their debt.
As the economy improves, current stimulus efforts by the government and the Federal Reserve Board are expected to gradually wind down, which typically means rising interest rates. Meanwhile, buyers continue to benefit from historically favorable buying conditions and sellers enjoy increased stability in the market.
The uptrend in existing home sales activity continued through December, increasing by a substantial 12.3% from a month ago. This marks the fifth monthly increase in the past six months and indicates a recovery that's gaining a firmer footing. While home sales remained 2.9% below the level seen last year, the market's upward momentum, despite the absence of the tax credit, is a welcoming sign.
Home prices softened in December: median home prices edged down slightly to $168,800, 1% below the year-ago level. Contributing to this is a larger share of distressed homes sales which accounted for 36% of sales in December. This is compared to 33% in November 2010 and 32% in December 2009. Prices continue to hold steady and mortgage rates remain historically low, offering favorable buying opportunities.
Inventory- Month's Supply
The surge in home sales and a shrinking inventory pared down the month's supply to 8.1 months. This is down 1.4 months from November but remains 0.9 months above last year at this time. While still at a relatively high level historically, months of inventory has declined steadily from its peak of 12.5 months in July and is now back to pre-tax credit expiration levels.
Source: National Association of Realtors - December housing data released Janurary 20.
Mortgage rates are inching up but remain historically low. This trend continues to support home buying, as it translates to significant savings for buyers. As overall economic recovery remains on track, rates are expected to rise to keep inflation in check.
30 year fixed
15 year fixed
30 year average for a 30 year fixed rate mortgage
Source: Freddie Mac, Rates as of Feb 7 .
This Month's Video
Topics For Home Owners, Buyers & Sellers
'Anti-Flipping' Waiver Extension
In 2003 the Federal Housing Administration (FHA) feared that flipping homes was the cause of the skyrocketing home prices throughout individual neighborhoods. Because of this, the FHA no longer approved property loans that were resold within 90 days of the original purchase, with the exception of foreclosures owned by government sponsored enterprises (GSEs) such as FHA, Fannie Mae, and Freddie Mac. The anti-flipping rule is designed to help protect the FHA's mortgage insurance program and federally chartered financial institutions from losses.
In February 2010, the FHA initiated a one-year suspension on the regulation that prevented “flippers” from purchasing single-family homes and releasing them into the market within 90 days. Since then, the FHA says it has insured 21,000 loans that had exchanged hands within the previous 90 days. The loans are worth more than $3.6 billion and would not have qualified for financing before suspension. An analysis of these loans suggest they do not present a greater credit risk than other loans, which lent support to the suspensions extension.
The government sent a notice to banks in mid-January of 2011 in which it announced the extension of the waiver through the end of the year. According to FHA Commissioner David Stevens, the purpose of the extension was to accelerate the resale of REO properties in neighborhoods where there is a high rate of foreclosure. This will facilitate the purchase of homes that have recently been "flipped." As a result, foreclosed properties will be moved off the market faster, reducing the amount of vacant homes in neighborhoods throughout the United States.
Limitations considered by the FHA consist of the following:
20% Rule. If resale is higher than 20% of the original price, one must show proof of justified price. For example, if a $200,000 house is purchased and the resell price is $245,000, the house must undergo additional underwriting guidelines, which is considered a double appraisal.
Title Hold. No simultaneous closings are allowed when the seller holds a property. In other words, back-to-back, same-day closings to an FHA end-buyer is prohibited.
Short-term Funding. Investors must come up with short-term funding of the 30-to-60-day variety if their desire is to buy/fund and in order to sell to an FHA end-buyer.
Previous Flips. A property cannot show signs of prior flipping activity. If so, the FHA has the right to object.
Transactions at Arm's Length. Transactions must show no identity of interest between the buyer and the seller or other parties that participate in the sale of a property.
Overall, this will help lower holding costs for investors/flippers allowing them to continue flipping more properties. In return, this will help bring more desirable homes to the market for first-time home buyers.