Real Estate Information Archive

If you are trading up or simply ready to buy, there has never been a better time.  Buyers are in control of the market.  There is an oversupply of quality homes.  Sellers are motivated and interest rates are at historic lows.

·       Interest Rates last week were 4.54% from 4.46% the week prior.  Wow!

 Comparison of prior markets     

 ·       Average Interest Rate for 2009 was 5.04%.

·       Average Interest Rate for 2008 was 6.03%.

·       Average Interest Rate for 2007 was 6.34%.

This chart shows the change in weekly interest rates from January of 2008 forward based on the Freddie Mac Primary Mortgage Market Survey of approximately 125 lenders. Freddie Mac’s survey is generally viewed as the best indicator of interest rate trends.

Given the historic and unprecedented action by the US government this weekend in taking over Fannie Mae and Freddie Mac, we want to make sure you, our readers, know what is going on and how this affects you.  Fannie Mae and Freddie Mac have been placed into conservator-ship immediately.  This amounts to a government take-over of the two companies.  To promote market stability, the companies will be allowed to buy more mortgages through the end of 2009.  However, starting in 2010 the number of mortgages they own will gradually be reduced at a rate of 10% per year, eventually stabilizing at a much lower size.

The US Treasury will ensure that each company maintains positive net worth by buying their stock as well as providing a new lending facility to serve as an "ultimate liquidity backstop."  This facility will expire on December 31, 2009.  This morning, the companies are expected to resume normal business operations.  The U.S. government assumes control over the Board and management.  Current Fannie Mae and Freddie Mac CEOs are being replaced, but will stay on through a transition period.   All lobbying/political activity by the companies will cease.

What does this all mean?  These actions will provide stability to the market that many experts think will be the turning point in the housing crisis.  Interest rates will fall (they already have) and there will be plenty of money for mortgage financing.  We may see a mini refinance boom as borrowers take advantage of rates we haven’t seen in a while.  We will likely see some financing guideline changes in the future, but it is just too early to tell what these might be.  So far rates have fallen 1/2% and our mortgage broker experts expect rates to continue to drop. Yippee.

Ever wondered how FHA comes up with those goofy loan limits every year? 

In many counties across the nation the loan limit is $200,160 but hardly anyone knows where FHA gets that number.  It's a government-backed program so you gotta figure there's some contorted math going on somewhere.

FHA first takes the Freddie Mac loan limits that are announced each Fall, currently at $417,000, then multiplies that number by .48 (why that number, I have no clue) to get, you guessed it, $200,160.  This is for "low cost" counties, meaning that 95% of the homes are below the median home price for the area.   In "high cost" areas, the multiplier is .87, meaning the FHA limit is $362,790.

This is the traditional method of how FHA sets loan limits, this is not the temporary method used now to calculate the "Jumbo" FHA loan, using 125% of the median sales price of the area, which allegedly expires at the end of this year.

But Austin didn't get any boost from the temporary FHA limit, as our median home price was too low to enjoy the benefit.

But our local real estate, lender and builder associations gathered data and presented it to FHA that said the numbers they used indicated that home prices were much higher than the old number and, voila!, new loan limits.

The loan limit in the Austin area is now $288,750, whereas earlier this year we were stuck at $200,160.  That's a huge difference and opens up a whole new pool of buyers and still only 3% down.

Now you know

Buying smart in Austin just got a little easier recently following the signing of the Housing and Economic Recovery Act of 2008 by President Bush.

There are significant benefits in this act aimed at helping Austin home buyers, such as a repayable first-time home-buyer tax credit. Majority opinion is that first-time buyers are very important to the health of the housing economy because their home purchases help to stimulate sales up the price points. Through the home-buyer tax credit, buyers who are purchasing for the first time or who haven’t owned a property in the last three years can now qualify for a tax credit equal to 10% of their home purchase price, up to $7,500.

Further qualification requires that the home purchase be made between April 9, 2008 and July 1, 2009. The credit phases out if the buyer’s income exceeds $75,000 for an individual or $150,000 for a couple filing jointly and it must be paid back over a 15 year period in equal installments. The credit can be claimed on the buyer’s 2008 tax return even if the purchase is made in 2009 (it’s important to note that this is a tax credit and not a tax deduction). Please seek the advice of your professional financial advisors.

Another component of the housing bill includes much needed FHA modernization which aims to adjust loan limits so that they are more in sync with current home values. The bill allows Fannie Mae and Freddie Mac to serve more home-buyers by raising loan limits in high cost areas above the standard conforming limit to 115 percent of the median house prices and up to 150 percent of the conforming loan limit.

The Housing and Economic Recovery Act is expected to play a critical role in strengthening the housing market and overall economy. The last time Congress passed legislation like this in the 1970s, the housing market saw a significant increase in activity. Using history as a guide, Lawrence Yun, chief economist of the National Association of Realtors believes the Housing Act could represent a boost of 10% in the number of homes sold.

We predict that the passing of the Housing and Economic Recovery Act will mark the beginning phase of the next ten-year housing cycle in which prices in the more affordable markets such as Austin will only continue to appreciate (affordable refers to homes priced at or below a market’s median housing price). Contributing to rising prices is population growth, the impact of Generation Y, inflation, and growth management. Austin homes in the more affordable price ranges have already started to adjust and the new housing legislation will continue to boost this positive momentum. Increased sales in the more affordable markets will set a new foundation for housing, helping to stabilize the overall real estate economy.

We noticed a strange story coming out of Washington a few weeks back: Fannie Mae and Freddie Mac -- the huge companies that buy most conforming loans from local lenders -- agreed to tougher standards for appraisers.

Under the deal worked out with New York state attorney general Andrew Cuomo, the big loan buyers agreed to create a "New Home Valuation Protection Code" which has three baseline requirements:

• Mortgage brokers will be prohibited from selecting appraisers
• Lenders will be prohibited from using "in-house" staff appraisers to conduct initial appraisal, and;
• Lenders will be prohibited from using appraisal management companies that they own or control.

At first all of this may seem like technical gibberish, but the benefits to borrowers -- and to lenders -- are huge. Cuomo is effectively removing potential points of conflict, opportunities where appraisers can be pressured to over-value properties.

As a borrower you want a conservative appraisal to prevent overpaying for a property. As a lender you also want conservative appraisals to avoid loans which are too risky -- say the loans most likely result in late payments, no payments and foreclosures.

Fannie Mae and Freddie Mac are government-sponsored enterprises -- GSEs -- former federal agencies that are now private companies overseen by the Office of Federal Housing Enterprise Oversight (OFHEO). Under the deal with Cuomo, Fannie Mae and Freddie Mac will require lenders to follow the new appraisal guidelines -- and this is where it gets interesting.

Since the National Bank Act was enacted in 1864, the federal government has exclusively regulated national banks, credit unions and savings and loan associations. States have had little or no say under this arrangement, but now Cuomo has opened a kink in the federal monopoly.

Cuomo, a former HUD Secretary under President Clinton, has effectively found a way for states to impact federally-regulated lenders. This is a clever bit of legal magic, but it's also something more: With us it raises the question in light of today's massive foreclosure levels:

We want to know why didn't federal regulators enact such obvious standards before the mortgage marketplace came apart?

According to CNN, the House is expected to consider and pass the amended bill as early as tonight, which could put the bill on the President’s desk as early as Friday.

The bill temporarily increased the size of loans that may be purchased by Fannie Mae and Freddie Mac, raising the current level of $417,000 to reportedly up to $730,000 in the highest cost regions of the housing markets. The bill also increases the size of loans the Federal Housing Administration could insure.

We couldn't have asked for a better Holiday treat than the one we got on this week: the lowest 30-year fixed-rate in over two years. That's right. If you have been waiting patiently to “time the market”, now’s the time. Here's your chance to save anywhere from $5,000 to $7,500 or even more on the mortgage financing for a new home. This is a tremendous opportunity to cash in on the lowest rates since October 2005.

Here's why you should act now:

• Monday saw the lowest 30-year fixed interest rate in over two years. However, each time this interest rate reached previous low points, both last year and earlier this year, it began increasing and didn't stop, climbing over 0.50% in the months that followed!
• Fannie Mae and Freddie Mac tightened guidelines, announcing new Loan-Level Price Adjustments. As mention in a prior blog, in the first quarter of 2008, most borrowers who have good credit, but have FICO scores below 680, will now be forced either to pay more points at closing or incur a higher interest rate

The amount that a buyer could be forced to pay, even if they've never been late on a payment, could be as much as 2.00% in points or an interest rate that's 1.00% higher than the going rate.

On a $250,000 home loan, a buyer could have to pay up to $5,000 in order to receive normal market rates! Buyers choosing the higher interest rate, under the worse case scenario, would stand to lose over $7,500 in just the first three years of the loan.

Choosing to wait could cost you money both in the form of higher market rates and points. This could well be the greatest holiday present you could treat yourself to this year!  As Cousin Eddie said to Clark Griswold in Christmas Vacation….”It is truly the gift that keeps on giving”.