Here is the most recent housing market update video:
4.5% Interest Rates Hurt Housing
June 10, 2009 By 2 Comments
In the last two weeks we’ve seen interest rates on 30 year fixed mortgages move from 4.5% to 5.5% (or higher) that’s a big OUCH. This full interest rate point swing has meant that almost overnight, buyers lost well over 10% of their buying power. Another way to look at it is housing just got 10% more expensive.
While everyone was thrilled to see 4.5% interest rates, myself included, from the very outset I had concern about what this means for housing long term.
The short term benefits are large and obvious:
- Huge surge in refinancing and purchases
- Large demand for housing has helped stabilize housing (to some extent)
- Housing affordability hit new highs
- Buyers and refinancers locked in phenomenal rates (and most did 30yr fixed mortgages)
The long term drawbacks are also large and ominous:
- We may have set an artificial price floor on housing: now that it is suddenly so much more “expensive” from a payment basis, will there be even further pressure on prices?
- Buyers who didn’t lock (I know several personally) got hit over the side of the head by the huge (and quick) run-up in rates
- A lot of buyers will sit on the fence hoping that rates fall down again (which they may or may not)
- Homeowners who locked in a 4.5% rate will never want to move. ever. I predict that many of these homeowners will be far more hesitant to move in the future, thus lowering housing sales in the years to come.
- Sub-5% now becomes the magic number which buyers think they can get (or should get) since it was available for a few months. This means historical rates in the 6% & 7% range will look horrible. They won’t remember that these record low rates were during the worst economic downturn since the Great Depression… they’ll just remember that they were available.
Who knows what tomorrow will bring, but I will be interested to see what happens to our Pending Sales numbers in the weeks & months to come.
Q&A: Is NOW the Right Time for Me to Buy a Home?
March 11, 2009 By Leave a Comment
This is a very common question I get asked by prospective buyers given our current economic situation and the conflicting information they get from news, friends, family and coworkers.
Below is a list of questions to ask yourself as a guide to help you decide if now is a good time to buy for you.
1. How stable is my job/job field?
With the ever-changing economy as it is, you may want to gauge the stability of your current job/employer in addition to taking a look at how stable the job market is in your field. If you’re going to make a long-term investment, you need to make sure you have a reasonable expectation of long-term financial stability.
2. Do I have 3+ months available cash reserves/liquid assets?
Having 3+ months cash reserves as a budget is a good safety net in case of emergency or unforeseen events-i.e. job loss, heath issues, family emergency.
3. Do I have the minimum down payment?
MOST loans require the buyer to have a minimum down payment of 3.5% of the purchase price of the home. There are some exceptions, however, such as gift money from a family member and some special programs offered by cities and neighborhoods or governmental organizations. Check with a qualified lender as to the down payment required for your loan.
4. Will I be in this home for at least 4-5 years?
It is a good idea to look at how the home you want to buy will be able to meet your needs in the next few years i.e. will you outgrow your home due to life events (i.e. marriage and kids) or is there a chance that you will need to adjust location due to drive time to work, daycare, family or even relocate out of state? In times like these where the housing market is much more volatile, the near-term direction of the housing market is uncertain and the costs to purchase and sell a home are substantial and so it doesn’t make sense to put that much money into a home if you’re expecting a move in the next few years.
5. Will I have the funds for all the costs of homeownership?
Owning a home includes more costs than just monthly mortgage payment. Many homeowners want to decorate and furnish their new home. It is truly amazing how quickly little things add up. Plus, there are the costs of monthly utilities, occasional repair/maintenance items which pop up, and of course, the costs of snow & lawn equipment or service!
6. When something breaks, who will fix it?
You are your own landlord now-are you, your friends or family handy? If not, you will need to hire a contractor or handy man to fix what breaks and to do any improvements.
7. What is my current living situation?
If you are renting, make sure you know what, if anything, it will cost you if you break a rental lease. Also, keep in mind your moving timeline if you are looking to buy a “short sale” property, it may be months before you get a response back from the bank regarding your offer, and there are no guarantees that offer will move forward. Each situation is different and it is important to discuss your situation with your agent so that he/she can assist you in the transition.
8. How’s my credit?
There are interest rate penalties for buyer’s with lower credit scores and there may be some qualification hitches along the way. In some cases it may be 3-9 MONTHS before you can get approved for a loan if you have problems on your credit report that need to be fixed. It’s important to get pre-approved (not just pre-qualified) very early on in the process.
9. Can I find a home that fits my lifestyle?
Buying a new home=buying a lifestyle. If you aren’t around much, buying an association maintained property might work well for you, or depending on your level of activity, you way want to buy in an area where there are many walking/biking/running paths. Other lifestyle issues include: distance to school for kids, proximity to grocery stores, gas stations, shopping, work, etc. It is important to make a list of your wants and needs to help you narrow down your search.
Q4 Lender Mediated Report & City Level Data Released
January 27, 2009 By 2 Comments
Today I am pleased to announce the release of the Foreclosures and Short Sales in the Twin Cities Housing Market: Q4 2008 Update. This is the 4th installment of quarterly reporting of lender mediated sales and their impact in the Greater Minneapolis/St. Paul area, which I co-author with the musically, intellectually, politically and statistically talented Jeff Allen. 2008 reports from quarters 1, 2 and 3 are also available.
Here’s how to know if buying a foreclosure or short sale is right for you.
This quarter’s report continues to show the same trends we’ve seen all of 2008, mainly an increase in the market share of lender mediated MLS listings both for sale and those that sold in the quarter. Traditional sellers are very seasonal and so while the fact that 46% of sales and 42% of new listings in Q4 were lender mediated is very notable, it is somewhat inflated by the seasonality.
While some trends have certainly continued from previous quarters, we have seen a new trend develop as well: the Q2-Q3-Q4 period showed a relative peak of new lender mediated listings coming on, and Q4 showed our first drop in both lender mediated new listings inventory for sale at quarter-end. Prior to Q2 2008 we saw dramatically more new lender mediated listings each quarter since 2006, while the Q2-Q4 period demonstrated a stop to that growth, at least for now. There’s no way to know whether this near-term peak will turn out to be the long-term peak of this market activity or simply a stepping block to higher volume in 2009 but the fact that this trend is solid for 3 straight quarters is certainly an optimistic indicator.
Hennepin County, who publishes their sheriff sales online for a rolling 12 month period, reported 550-700 sheriff sales each month for all 2008, with a significant trend down since July 2008. November and December’s relatively low number of foreclosures may be at least partly attributable to Fannie Mae and Freddie Mac’s decision not to take foreclosure actions from Thanksgiving through the end of January (it was extended). While Hennepin County is only one of 13 counties in the RMLS’s definition of the Twin Cities, it is by far the largest in terms of foreclosures and is a good (but not complete) indicator of what is going on in our market on the foreclosure side of things. Keep in mind that the Lender Mediated report that Jeff Allen I produce includes foreclosures AND short sales while this data is only sheriff sales, which is a middle-step in the foreclosure process. Most homes take 6-8 months after the sheriff sale to get listing on the MLS.
But Wait! There’s Much More!
I’m glad you kept reading… this is where it gets really good. For the first time in the Twin Cities, and I believe the first time anywhere in the country, we are able to release city/area level lender mediated sales information. While the metro-wide reports are very helpful, they do not adequately explain what is happening in individual communities throughout the area. Some communities are barely impacted by these listings, while other communities find that well over 50% of their recent sales and current inventory for sale lies in foreclosures and short sales. It also demonstrates using actual market sales information that the higher the proportion of lender mediated sales you have in an area, the more “pain” the traditional sellers in that community suffer as well, in terms of more significant year-over-year median sales price decreases.
As every expert in this field has said, this housing market is very localized and these new reports help give a better glimpse into how true that statement really is. While this information is very helpful, it can sometimes be misleading as well. We are working with smaller sample sizes when we get down to the local level and in many communities there simply was not enough data to accurately report what is happening, so we didn’t publish data in those communities. In the communities we did publish, there is the occasional “huh?” moment where the data reported simply doesn’t match up with the daily experiences in the market. This could be because of the low sample size, which allows individual listings to have a major impact on the results, or it could be because what is selling today is different than before… i.e. some communities have very few Traditional Seller townhouses and condos selling but many single family houses selling so the Median Sales Price actually is higher this year over last year. It isn’t that prices increased, but that the “typical” house selling this year is at a higher price point. Unfortunately there wasn’t a reasonable way for us to take those kind of events into account and so we leave that interpretation to you. Take a look at price per square foot as another good indicator of value changes… while this too can be skewed in some cases, it seems to be reporting numbers that FEEL more accurate to me in terms of change year over year than the Median Sales Price sometimes suggests.
