In reading the headlines this morning, you’d think that last month’s Existing Home Sales figure signaled more trouble ahead for the housing market.Quite the contrary.

Beyond the attention-grabbing headlines is the real story;  the one that shows — once again — that housing market fundamentals are coming back into balance.

As home values tick lower, it appears, value buyers are stepping in and snapping up supply.  It’s true that the number of homes sold fell to its lowest levels in 12 years, but we can’t ignore the fact that the number of homes available to buy fell, too.

• Banks have put the brakes on foreclosures
• Economic uncertainty is reducing job-related relocations
• Builders have all but stopped building new homes

The national housing supply is as low as it’s been in more than a year.

Based on the current rate of sales activity, the national housing supply would be 100% sold in 9.6 months — a two-month improvement from the high point set in June 2008.

Demand for homes is expected to rise, too:

• The Federal Reserve is trying to hold mortgage rates low
• Fannie Mae is opening its checkbook to real estate investors
• The stimulus package is granting tax credits to first-timers

So, it’s not that the headlines are wrong; it’s just that they’re incomplete.

In looking at all of the data and not just one sliver of it, we can find hope. Falling supply plus rising demand leads home values higher and that’s the basis for a recovery.

(Image courtesy: Wall Street Journal Online)

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One popular housing theory is that –  before a bona fide housing recovery can begin – the cost of owning a home versus renting one must return to historical levels.

If that belief is a truth, a national return to rising home prices may be in store for 2009.

Falling home prices coupled with falling mortgage rates, too, have dropped the relative, after-tax cost of owning a home to 125% of the cost of renting a home.

This is the exact 18-year historical average and not since 2001 has the gap been this small.

As reported by the Wall Street Journal, though, the study has some flaws.  For example, the data doesn’t account for ongoing home maintenance costs, nor does it consider real estate tax bills and insurance policies.

But, combining a relatively low cost of ownership with the government’s $8,000 tax credit for first-time home buyers is likely to convert long-time renters into never-before homeowners.

This, too, is thought to be a key element of the housing recovery.

In many markets (but not all), home prices are expected to edge lower through 2009.  Provided mortgage rates stay low, the cost gap between owning and renting will shrink even more.

(Image courtesy: Wall Street Journal)

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As part of the stimulus package passed last week, Congress authorized a temporary increase to conforming loan limits in certain high-cost parts of the country.”High cost” is defined by a regions’ median sales price.

With the temporary increase, a greater share of Americans can now qualify for Fannie Mae- and Freddie Mac-backed loans, usually the least expensive source for mortgage money.

Higher loan limits can be good for the housing market and the broader economy for two reasons:

1. Cheaper money can spur new home demand, supporting home values.
2. Higher loan limits render more homeowners refinance-eligible, freeing up cash for spending, saving, or investing.

The complete county-by-county loan limit list is available on the OFHEO website.

Of the 3,232 U.S. counties, 10 percent are considered ”high-cost”.  Residents of these areas can expect the same low rates offered to the rest of the country, but with a slight premium.  Be sure to ask your loan officer about how it works.

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Traders brushed off Tuesday and Wednesday’s passage of the American Recovery and Reinvestment Act and the President’s mortgage relief plan, respectively.It showed how unsure markets remain about the stimulus package and its probable impact on the economy.

As a result, mortgage markets worsened last week, albeit slightly. It marked the 4th week out of five in which mortgage rates rose.

However, there were a few notable new items for American homeowners and home buyers last week:

1. The signed-into-law stimulus package includes a first-time home buyer tax credit
2. Additional banks joined the “no foreclosure” movement
3. Fannie Mae re-opened guidelines so that real estate investors can own and finance 10 properties, up from 4

Taken separately, these points aren’t especially noteworthy. Together, however, they’re very important.

In reducing the number of homes for sale while, in turn, spurring demand for them, last week’s policy shifts should provide key support against falling home values nationwide.  More buyers competing for fewer homes tend to make prices go up, after all.

This week, we’ll see if buyers are responding.  Two housing-related data points are released.

On Wednesday, it’s January’s Existing Homes Sales report.  After soaring 6-plus percent in December, economists expect another big increase.  This makes sense because falling prices make homes more affordable and banks are getting more efficient with selling foreclosed properties.

Then, on Thursday, the New Home Sales report hits the wires.  It’s expected to show little or no change.

As for mortgage rates, expect the same unpredictability we’ve seen since the start of the year.  As Wall Street comes to terms with the various stimulus plans and the fate of our nation’s largest financial companies, money will flow in and out of securities markets with fluidity and speed and that includes mortgage-backed bonds.

Rates should carve out a wide range this week. If you’re not currently floating, consider locking in to avoid the risk of higher monthly payments.

(Image courtesy: Wall Street Journal)

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Everything old is new again.

Conforming mortgages are limited by loan size, based on “typical” housing costs around the country.  The current conforming limit on a single-unit property is $417,000.

In 2008, as part of the Economic Stimulus Act of 2008, Congress authorized conforming loan limits increases in “high-cost” areas around the country.  In Los Angeles County, for example, a mortgage could be as large as $729,750 and still be considered “conforming”.

Those temporary increases rolled back effective January 1, 2009, to a maximum of $625,500.

However, as part of the American Recovery and Reinvestment Act of 2009 signed into law this week, conforming loan limits in high-cost areas have been returned to their elevated levels of 2008.

You can see the text on the bottom of page 111 of 407.

Changes to conforming loan limits impact everyone with a stake in real estate, even if their neighborhoods are not considered “high-cost”.  This is because conforming mortgages offer the widest selection of home loan products, and often at the lowest rates.   The widespread availability of conforming mortgages helps to support home sales nationwide as well as providing ample refinancing options for people that need it.

Lenders have yet to pick up the change, but are expected to shortly.  Once they do, more homeowners will be eligible for cheap home financing.

To lookup your neighborhood’s conforming loan limits, visit the HUD Web site.  Or, if you have specific questions related to your home or an upcoming purchase, contact me directly anytime.

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In Mesa, Arizona, Wednesday, the President presented the Homeowner Affordability and Stability plan, a multi-pronged effort to support the housing market.The story made the front page of nearly every newspaper in the country.

The president’s plan is sweeping:

• Incent mortgage servicers to work with at-risk homeowners before delinquency starts
• Let homeowners with good credit but little equity refinance to today’s low rates
• Fund Fannie Mae and Freddie Mac to support mortgage markets

It’s a broad plan with many positive angles, but for now, we can’t forget that it’s just a plan.  Although the White House shapes and influences housing policy, Congress, Loan Servicers, and the Federal Agencies must still implement and execute it.  Until that implementation occurs, these reforms exist only on paper.

It’s a key aspect of the speech that’s not getting coverage.

One thing we learned during the stimulus package debate was that just because the President wants something to happen doesn’t mean that it will.  There are always details to be worked out and that’s one reason why the Homeowner Affordability and Stability Plan couldn’t go into effect immediately.  There are still loose ends to tie and details to define.

According to its website, the White House lists March 4, 2009 as the plan’s effective date.  Until March 4, therefore, nothing in Wednesday’s speech is guaranteed.

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The American Recovery and Reinvestment Act of 2009 was signed into law Tuesday here in Denver, Colorado.  Also Tuesday, stock markets fell near their November 2008 lows.The two moves are related.

With each new stimulus; with each potential jumpstart of the economy, Wall Street questions whether the federal push will be enough to make an impact.

Traders ended undecided on that issue today, but resolute in something else — that whatever change the stimulus bill will bring, it’s not going to come fast enough to help.

The sell-off in equities was a boon to home buyers.  For the first time since early-December, mortgage markets gave a sustained rally, extending gains from the 8:30 AM market open through the 4:00 PM market close.

Conforming mortgage rates were down on the day.  Longer-term, though, this pattern won’t likely last.  Not only will the stock market regain its balance and draw dollars back, but, more importantly, the stimulus bill contained verbiage increasing the national debt ceiling by 53.4 percent. Government debt is often financed by printing more money and this leads to inflation, the enemy of mortgage rates.

For now, the stimulus plan is helping mortgage markets, albeit indirectly. If you’re shopping for home loan, consider locking quickly.  When markets flip — and they always do — it figures to be sudden.

(Image courtesy: Recovery.gov)

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In anticipation of a strong, government-led stimulus plan, mortgage markets improved with fervor early last week only to fizzle with equal speed as efforts fell short of expectations.Neither the Fed, nor the Treasury nor Congress gave markets what they wanted.

Between Monday and Friday, mortgage markets were essentially unchanged, ending a 4-week slide.  From day-to-day, however, rates were quite volatile.

The biggest shift of the week occurred late-morning Friday, in advance of the early-market closing.  As the terms of the Congress’ pending stimulus package became more clear, the piling-on of national debt suddenly spooked Wall Street, re-igniting traders’ fear of inflation.

It’s strange, in a way, because the final package represented fewer dollars than originally announced and markets had all week to come to terms with the government’s three-pronged response to economy.

Nevertheless, traders saved their angst all for the last 90 minutes of the week.  Fears of inflation led to a sudden and massive sell-off in all types of bonds, including the mortgage-backed kind.  Bond sell-offs are linked to higher mortgage rates, of course, and that caused mortgage rates to spike Friday afternoon.

This week, the selling is expected to continue but hope for reversal to lower rates is possible.  It all depends on the news and it changes every day.

• Tuesday: Will GM and Chrysler’s viability plans be rejected?
• Wednesday: Will the Fed’s January meeting minutes show fear of depression?
• Thursday: Will Congress and the Treasury have clarified their respective stimulus plans?
• Friday: What will the Cost of Living index say about inflation?

There’s news to make mortgage rates move up or down every day this week.  Unfortunately, unlike in the past when it was very clear what sort of news was good for rates or bad for rates, right now, it’s not so apparent.  There are so many expectations cooked in to the market already that it’s hard to know what traders expect.

What we do know, though, is that markets are on edge and that can be dangerous for a mortgage rate shopper.  Rates may fall by a lot this week on the right type of news.  Or, they may rise by the same.  We can’t know for sure but we can know that — historically — rates remain low.

If you haven’t joined the Refi Boom yet, this week may be one of your last chances. One bad bounce on Wall Street and we’re back to 6 percent.

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Consumer Confidence fell this month for the first time in three months, reflecting Americans’ concern for the economy, housing, and the financial system.The reading isn’t much of a surprise given our collective exposure to a near-constant stream of negative news. Before long, the reports become a self-fulfilling prophecy.

Despite falling confidence, however, the housing industry appears to be reviving.  Sales of existing homes are on the rise and an increasing number of homes are under contract to sell.  And, if these statistics seem out of place, consider the external forces that are accompanying this “down” economy:

• In some markets, home values have plummeted to early-2000 levels
• Government intervention has brought mortgage rates to near-5 percent
• Congress is pledging key support to housing and mortgage markets

These points can’t be captured in confidence surveys which, by comparison, ignore facts and focus on Big Picture behavioral questions like “Do you think you’ll be better off a year from now?” and “What’s your attitude toward buying major household items?”.  It’s useful information for economists, but not so much for home buyers.

Anecdotally, a lot of the country’s housing markets have already started their recovery.  Couple that with the natural momentum of Spring Buying and the stimulus package’s proposed first-time home buyer tax credit and you can clearly see the disconnect.

Just because confidence is down doesn’t mean that home prices will be, too.

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With Congress reaching agreement on a $789 billion stimulus package for Americans and the President expected to sign it into law, the clock may be ticking for this year’s home buyers and homeowners.The package contains two benefits related to housing.

The first provision is fairly well-known.  It gives first-time home buyers an $8,000 tax credit provided they purchase a home between January 1, 2009 and August 31, 2009.

This is a true tax credit.

To reduce misuse and abuse, however, the $8,000 credit is contingent on home buyers holding property for at least 3 years.  If the home is sold in fewer than 3 years, the tax credit must be repaid to the government.  It’s also worth noting that the date range applies to closings and not sales agreements.

Closings must occur within these 8 months to be eligible.

A second noteworthy feature in the package is that the stimulus package gives existing homeowners incentive to “green” their homes.  With available tax credits for energy-efficient windows and doors, furnaces and insulation, homeowners can claim larger tax deductions based on home improvement, up to $1,500.

But, just because the government provides housing-related tax benefits doesn’t mean you should just act on them blindly. Tax liability is a highly individual item and you may be ineligible for any number of reasons.  Be sure to discuss your plans with a qualified accountant before committing to a plan.

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