Slump in home prices may soon be over

Since last summer, the median selling price for detached single-family homes in the Bay State has fallen 9 percent from a peak of $375,000 during July and August 2005 to $341,000 this past September, but two new forecasts suggest that the market correction in greater Boston and much of eastern Massachusetts could be nearing an end and that home prices could soon stabilize.

In its latest national housing market forecast, economists at the National Association of REALTORS® predict that the low point of the market will occur during the fourth quarter of this year. Their rationale is based on the fact that the current weakening in home prices “is not due to any major job cuts that force people to sell their homes at any price,” but rather that the softening in home prices has occurred as a result of the fact that artificially high demand for home buying – driven by buyers or real estate investors who were looking to flip properties to net a quick gain – has largely dissipated. With home prices falling, they reason, large numbers of non-owner occupied homes and condos have been put on the market over the past year, which has led to elevated inventory levels and, in turn, lessened pressure on prices.

By early 2007, NAR Senior Forecast Economist Lawrence Yun says demand will inevitably pick up as lower home prices and attractive mortgage rates draw buyers back into the market. Still, inventory levels remain high – for example in Massachusetts there was 11.2 months of supply in the residential market as of the third quarter of 2006, while a balanced market features 7.5 - 8.5 months of supply – so it could be several months before supply and demand are in equilibrium again. Until then, prices likely will remain flat, but should “quickly re-enter positive territory” once inventory levels ease, asserts Yun.
Source: Broker Agent News 11/06

Tips to Flip

The real estate “flipper” market may be stalling or dwindling in today’s economy, but some investors still want to give it a go. Pam O’Connor, CEO and president of Leading Real Estate Companies of the World, (www.leadingRE.com) formerly RELO, offers these quick tips on how to make the most of “flipping” in today’s market.

Hold onto the property longer:

Fix it up: The better it looks, the better the resale value.

Know your market: Research the city, neighborhood, etc. where you plan to make the investment purchase to see if the area is on the upswing.

Consider the area job market.

Profile buyers.

Enlist the help of agents.

Pay attention to neighborhood (a worse house in a good neighborhood is better than the best house in a bad neighborhood.)

Pay attention to appreciation.
Source: RISMEDIA, July, 2006

Legislation will increase access to FHA for potential home buyers

The U.S. House of Representatives has passed "The Expanding American Homeownership Act,” which will increase homeownership opportunities for millions of Americans by modernizing the Federal Housing Administration (FHA) and returning it to its traditional role as an important financing option in today’s housing market.

"I applaud the House for passing this far-reaching legislation and express appreciation for the leadership provided by Representatives Bob Ney, Maxine Waters, Gary Miller, and Patrick Tiberi,” said Housing and Urban Development Secretary Alphonso Jackson. "I expect the Senate to take similar action thanks to the efforts of Senator Jim Talent and the support of Senators Mel Martinez, Johnny Isakson, and Saxby Chambliss.”

"When FHA was formed in 1934, it was an historic event that made homeownership possible for people who had nowhere else to turn,” said Assistant Secretary for Housing-Federal Housing Commissioner Brian D. Montgomery. "We are now closer to another landmark - a modernized, flexible FHA that can respond to the needs of today’s low and moderate-income homebuyers who need a helping hand.”

The Expanding American Homeownership Act (H.R. 5121) will enable FHA to reach more prospective borrowers and allow millions more low- and moderate-income families to achieve the American dream of homeownership. Many of these borrowers currently have little choice but to pay subprime rates because FHA lacks the ability to offer an affordable financing option.

FHA was created in 1934 to give homebuyers access to reasonably priced mortgages under fair terms. Over the years, it has been able to help more than 34 million families become homeowners and now it needs to be able to adapt to today’s marketplace. This legislation will bring FHA into the 21st Century and offer hard-working Americans a variety of safe homeownership options at a fair price.

The Expanding American Homeownership Act will:

1) Eliminate the current statutory three percent minimum down payment, reducing a significant barrier to homeownership. FHA’s existing down payment requirement does not meet the demands of today’s marketplace, where most first-time homebuyers put down two percent or less. The "new” FHA would offer a variety of down payment options.

2) Create a new, risk-based insurance premium structure for FHA that would match the premium amount with the credit profile of the borrower. It would replace the current structure, in which there is standard premium amount for all borrowers, while still protecting the soundness of its Insurance Fund. FHA would have the flexibility to charge a lower premium for low-risk borrowers, and to charge higher-risk borrowers a slightly higher premium.

3) Increase and simplify FHA’s loan limits. FHA’s loan limit in high-cost areas would rise from 87 to 100 percent of the GSE conforming loan limit and in lower-cost areas from 48 to 65 percent of the conforming loan limit. This change is crucial in today’s housing market. In many areas of the country, the existing FHA limits are lower than the cost of new construction, eliminating FHA financing as an option for buyers of new homes in those markets. FHA has simply been priced out of the market in other areas, such as California, where FHA insured only about 5,000 home mortgages in all of 2005, down 95 percent from 109,000 in 2000.
Source: RISMedia July, 2006

Mortgage Interest Deduction is Under Attack

A Presidential advisory panel has proposed reducing or changing the mortgage interest deduction, which could result in a major drop in home prices.

Congress in the coming year is expected to consider major tax reform legislation. The President’s Advisory Panel on Federal Tax Reform has been meeting to develop recommendations and is considering reducing the mortgage interest deduction or changing it into a tax credit as a part of its deliberations.
Source: NAR, Realtor.org 2/06

Eminent Domain can be Used for Redevelopment

Supreme Court rules that local governments may seize homes and businesses for private projects.
In an important eminent domain case, the U.S. Supreme Court ruled that local governments may seize homes and businesses to make way for private projects that serve a public purpose by promoting economic development. The decision leaves it up to individual states to establish the rules that cities must follow when exercising eminent domain powers.
Source: NAR, Realtor.org 2/06

2006 Fannie Mae/Freddie Mac Loan Limits Announced

On November 29, 2005, Fannie Mae and Freddie Mac increased conforming loan limits on single family properties from $359,650 to $417,000, effective January 1, 2006. Next year's 16% conforming loan limit increase is the largest in 20 years. This loan limit increase reflects the October-to-October changes in average house prices, as published by the Federal Housing Finance Board, and complies with the Supervisory Guidance issued by the Office of Federal Housing Enterprise Oversight. Loan limits will also increase on other properties as follows:

• $533,850 for mortgages on two-family properties (up from $460,400);
• $645,300 for mortgages on three-family properties (up from $556,500); and
• $801,950 for mortgages on four-family properties (up from $691,600).

Under the Fannie Mae and Freddie Mac charters, loan limits in states and territories designated high-cost areas – Alaska, Hawaii, Guam and the U.S. Virgin Islands – are 50 percent higher than the amounts above.

Source: NAR/Realtor.org 12/5/05

FHA and VA Limits To Increase

As a result of the increase from $359,650 to $417,000 in the conforming loan limit announced by Freddie Mac and Fannie Mae on Nov. 29, the FHA floor limit will now automatically increase for those loans insured on or after January 1, 2006. The new FHA limit will be $200,160 which is 48 percent of the new conforming limit (i.e. $417,000).

The high cost limit will be increased to as high as $362,790, which is 87 percent of the new conforming loan limit. However, since under the FHA program there is no nationwide limit, HUD will have to compute the individual limits for 3223 counties nationwide. HUD is expected to publish a new mortgagee letter announcing the areas that will be affected before the end of December. The effective maximum VA no down payment loan limit will be raised to $417,000 on Jan. 1, 2006.

Source: NAR/Realtor.org 12/5/05

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