August, 2009 Newsletter
+++++++++++ August 1, 2009 +++++++++++++++++++
Introduction: Sales on Upswing
Mortgage Rate Update: Rates See-Saw
This Month’s Tip: Laying the Groundwork
Introduction: Sales on Upswing
Sales on Upswing
Existing-home sales rose for the third consecutive month with inventory easing and home prices declining less sharply in June, according to the National Association of Realtors®.
Existing-home sales – including single-family, town homes, condominiums and co-ops – increased 3.6 percent to a seasonally adjusted annual rate of 4.89 million units in June from a down wardly revised pace of 4.72 million in May, but are 0.2 percent lower than the 4.90 million-unit level in June 2008.
Lawrence Yun, NAR chief economist, is hopeful about the gain. “The increase in existing-home sales occurred in all major regions of the country,” he said. “We expect a gradual uptrend in sales to continue due to tax credit incentives and historically high affordability conditions. Despite the rise in closed transactions, many Realtors® are reporting lost sales as a result of new appraisal standards that went into effect May 1 of this year.”
Total housing inventory at the end of June fell 0.7 percent to 3.82 million existing homes available for sale, which represents a 9.4-month supply2 at the current sales pace, down from a 9.8-month supply in May. Raw inventory totals are 14.9 percent below a year ago.
“This is another hopeful sign – if we can keep the volume of sales above the level of new inventory, prices could stabilize in many areas around the end of the year,” Yun said.
On the new home side, sales of new one-family houses in June 2009 were at a seasonally adjusted annual rate of 384,000, according to estimates released jointly on July 27 by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.0 percent (±13.2%) above the revised May rate of 346,000, but is 21.3 percent (±11.4%) below the June 2008 estimate of 488,000.
The median sales price of new houses sold in June 2009 was $206,200; the average sales price was $276,900. The seasonally adjusted estimate of new houses for sale at the end of June was 281,000. This represents a supply of 8.8 months at the current sales rate.
Mortgage Rate Update: Rates See-Saw
Mortgage rates were up and down over the last month. 30-year fixed-rate mortgages averaged 5.25% at the end of the month after beginning the month at an average of 5.32% then dipping to as low as 5.14% according to mortage company Freddie Mac. This continues the recent trend, where we have seen 30-year rates vary between a low of 4.78% and a high of 5.59% in the last 90 days. Going forward, many experts do not see a definable trend–either up or down–in the near future, so those who are in the market for a home (and a mortgage) need to keep a close watch on the market.
For current average mortgage rates, see the rates page.
For more information on mortgages, visit the Mortgage Section
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Laying the Groundwork
For many, the purchase of a home is one of the most stressful periods of their life. For others, though, the process is much less daunting. Obviously, buying a home will never be as easy or as uncomplicated as buying an appliance, but the differences in experiences between those that are stressed and those that are largely not can be traced to differences in preparation. Those who spend the time necessary to adequately lay the groundwork for the purchase almost always find considerably less stress and aggravation than those who proceed through the process completely– or partially–unprepared.
As with many things in life, the first bit of groundwork is a financial one. It makes no sense whatsoever to proceed in a home purchase direction without being familiar with a couple key points:
+ What is your current financial health?
+ How much home can you comfortably afford?
These financial investigations become the foundation of your home buying experience. They help to prevent disappointment later on or finding yourself “stuck” in a house that is simply unaffordable.
What is your current financial health?
To he honest, for a few years recently this was much less an issue than in the past. A large part of our current economic mess is due to the fact that tens of thousands of people with virtually NO financial health ended up in homes that they could not afford. Fortunately, those days are pretty much over now and your financial strength WILL be an issue in your purchase process. Simply put, if you cannot afford the home, you likely will not be able to buy it. Credit scores and histories, income levels and expenses are once again becoming an issue in the mortgage process.
How much home can you afford?
Again, standards of affordabiltiy that were in place for decades were thrown out in recent years and we are paying the price in diminished real estate values due to the unprecedented level of foreclosures. Although there will often be variables, the time-tested ratios frequently used for conventional mortgages likely make sense here. These stipulate that your monthly mortgage expense (which includes princial and interest as well as property taxes and insurance) whould never exceed 28% of your total monthly gross income. Likewise, your mortgage expense plus any other monthly debt obligations (car payments, credit car payments, student loans or other loans) should not be in excess of 36% of that total monthly income. These ratios, obviously, do not guarantee that you will be able to make the payments, but they tilt the odds strongly in your favor.
Groundwork on market conditions
Once you are comfortable with the amount of home you can afford, you will need to educate yourself on the current state of the market in the area in which you are interested. The easiest, and possibly the most effective, way of handling this educational process is by using the services of a good buyer’s agent. Since they deal with market conditons on a daily basis, a buyer’s agent can bring you into focus on exactly what the situation is in your chosen area. Are sales strong or weak? Are prices rising, falling or stagnant? What is the prognosis for the near future? Armed with this information, you are better prepared for the negotiation phase later.
With financial and market groundwork done, you can proceed to the house comparison and selection process. For many buyers, this is unewisely their FIRST step, and why many stumble here as they go forward. They may be looking at far more house than they can afford or they botch the negotiations when they get to that point. If you are prepared, this is generally the most exciting part of the entire process since you begin to see, and compare, actual homes that fit your needs, wants and budget. It is also the doing where you can narrow the field down to a single house you would like to purchase.
More information on the site: Finding a Home
Now your preparation and groundwork will come full circle–back to financial matters as you negotiate your way to a purchase. Just because a home is listed for a specific price is no guarantee that it is a FAIR price–or even in the realm of reality. Sellers will frequently “take a shot” to see what the market will bear and unprepared buyers can end up paying thousands (or tens of thousands) more than was necessary. Overpaying for a property is a mistake that keeps haunting you long after the settlement date since the monthly mortgage payments will be based on that inflated price.
Getting a fair price is much easier if your preparation includes a CMA– a Comparative Market Analysis. Your agent can develop this for you which will show you the exact prices that homes are selling for in the neighborhood in which you are interested. You can then make a comparison, taking into account size and condition, between the home you want to buy and what those around it are actually selling for.
Like most things in life, prepartion is frequently the best pathway to success. The size, scope and expense of a house purchase makes this preparation process a crucial part of the equation. Not being properly prepared too often results in buying the wrong house (or too much house) for your needs or paying too much for the property. Either of these mistakes will likely cause havoc with your financial well being and comfort.
Next Month’s Tip: Don’t Forget Resale
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 here.
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 here.
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