Home sales rebound to highest level in 2 years

NEW YORK (CNNMoney.com) -- Sales of existing homes rebounded sharply in September to their highest level in two years, getting a strong boost from first-time homebuyers, according to a report released Friday.

Sales of previously-owned homes jumped 9.4% in September after falling for the first time in four months in August, said the National Association of Realtors. Year over year, sales of existing homes were up 9.2% in September.

"Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home," said Lawrence Yun, NAR chief economist.

Early information from a NAR report to be released next month suggests first-time homebuyers accounted for more than 45% of home sales in the past year.

September home sales hit an annualized rate of 5.57 million properties, up from 5.10 million units in August. A consensus estimate compiled by Briefing.com had forecast sales of 5.35 million units.

Prices still falling. Yun said the market is still underperforming as home values continue to decline.

The median price of homes sold in September was $174,900, falling 8.5% from a year earlier. The drop in prices has been led by an influx of distressed properties, which accounted for 29% of sales in September and include foreclosures and short sales.

"We're getting early indication of price stabilization but we need a steady supply of qualified buyers to meaningfully bring inventories down and return us to a period of normal, steady price growth and to fully remove consumer fears, which would then revive the broader economy," Yun said.

With more than 75 million home-owning families having more wealth tied to their homes than the rising stock market, Yun said economic growth without a recovery in their homes' value "will be one of the weakest in U.S. history."

The $8,000 tax credit that has helped first-time home buyers take advantage of the most affordable conditions since 1970, but the looming expiration date of the incentive could hold buyers back from entering the market, said NAR president and real estate broker Charles McMillan.

"Our read is that housing overshot on the downside because homes are selling for less than replacement construction costs in much of the country, and the home price-to-income ratio has fallen below the historical average," McMillan said.

In order for prices to return to normal, Yun says that total housing inventory would need to drop at the 7.5% pace seen in September, which represents a 7.8-month supply, the lowest in almost three years.

To help boost home prices and sales, lawmakers are considering extending the tax credit and expanding it to all but the wealthiest homebuyers.

While keeping the credit would help lift housing prices, senior economist at PNC Robert Dye says it would only be a temporary effect until the program stopped, as was seen with Cash for Clunkers.

"First-time homebuyers don't represent the bulk of the market and there is strength well beyond them," said Dye. "If economic indicators such as consumer confidence show improving trends, then experienced homebuyers will stay in the market and take advantage of [the low] prices" even without the credit.

Where the homes are selling. Regionally, the strongest market was the West, where sales climbed 13% to an annualized rate of 1.3 million. That was 5.7% higher than last year's rate. The median price of homes sold during the month was $219,000, down 15% from last year.

In the Midwest, sales were up by 9.6% to a pace of 1.25 million, which was 7.8% higher year-over year. Prices there have dipped 1% since 2008 to a median of $147,600.

Sales in the South were up 9% from August and 10.8% from last September to a rate of 2.6 million. Prices have dropped 7.6% to $153,500 in the past 12 months.

The Northeast reported a modest rise, with existing sales up 4.4% from August to a rate of 950,000. That was 11.8% from a year ago. The median price there was $234,700, down 7.6% from last year.






Source: http://money.cnn.com/2009/10/23/real_estate/existing_home_sales/index.htm

10 Ways to Prepare for Home Ownership

1. Decide what you can afford. Generally, you can afford a home equal in value to between two and three times your gross income.

2. Develop your home wish list. Then, prioritize the features on your list.

3. Select where you want to live. Compile a list of three or four neighborhoods you’d like to live in, taking into account items such as schools, recreational facilities, area expansion plans, and safety.

4. Start saving. Do you have enough money saved to qualify for a mortgage and cover your down payment? Ideally, you should have 20 percent of the purchase price saved as a down payment. Also, don’t forget to factor in closing costs. Closing costs — including taxes, attorney’s fee, and transfer fees — average between 2 and 7 percent of the home price.

5. Get your credit in order. Obtain a copy of your credit report to make sure it is accurate and to correct any errors immediately. A credit report provides a history of your credit, bad debts, and any late payments.

6. Determine your mortgage qualifications. How large of mortgage do you qualify for? Also, explore different loan options — such as 30-year or 15-year fixed mortgages or ARMs — and decide what’s best for you.

7. Get preapproved. Organize all the documentation a lender will need to preapprove you for a loan. You might need W-2 forms, copies of at least one pay stub, account numbers, and copies of two to four months of bank or credit union statements.
8. Weigh other sources of help with a down payment. Do you qualify for any special mortgage or down payment assistance programs? Check with your state and local government on down payment assistance programs for first-time buyers. Or, if you have an IRA account, you can use the money you’ve saved to buy your fist home without paying a penalty for early withdrawal.
9. Calculate the costs of homeownership. This should include property taxes, insurance, maintenance and utilities, and association fees, if applicable.

10. Contact a REALTOR®. Find an experienced REALTOR® who can help guide you through the process.

Thinking about buying a short sale?

Are you looking to buy a new home? Are you thinking that now's a great time to find bargains? Before you make an offer, it pays to know a little about the seller's situation.

If a home is being sold for below what the current seller owes on the property—and the seller does not have other funds to make up the difference at closing—the sale is considered a short sale. Many more home owners are finding themselves in this situation due to a number of factors, including job losses, aggressive borrowing against their home in the days of easy credit, and declining home values in a slower real estate market.

A short sale is different from a foreclosure, which is when the seller's lender has taken title of the home and is selling it directly. Homeowners often try to accomplish a short sale in order to avoid foreclosure. But a short sale holds many potential pitfalls for buyers. Know the risks before you pursue a short-sale purchase.

You're a good candidate for a short-sale purchase if:

* You're very patient. Even after you come to agreement with the seller to buy a short-sale property, the seller’s lender (or lenders, if there is more than one mortgage) has to approve the sale before you can close. When there is only one mortgage, short-sale experts say lender approval typically takes about two months. If there is more than one mortgage with different lenders, it can take four months or longer for the lenders to approve the sale.
* Your financing is in order. Lenders like cash offers. But even if you can’t pay all cash for a short-sale property, it’s important to show you are well qualified and your financing is set. If you're preapproved, have a large down payment, and can close at any time, your offer will be viewed more favorably than that of a buyer whose financing is less secure.
* You don’t have any contingencies. If you have a home to sell before you can close on the purchase of the short-sale property—or you need to be in your new home by a certain time—a short sale may not be for you. Lenders like no-contingency offers and flexible closing terms.

If you're serious about purchasing a short-sale property, it's important for you to have expert assistance. Here are some people you want to work with:

* Experienced real estate attorney. Only about two out of five short sales are approved by lenders. But a good real estate attorney who's knowledgeable about the short-sale process will increase your chances getting an approved contract. Also, if you want any provisions or very specialized language written into the purchase contract, a real estate attorney is essential throughout the negotiation.
* A qualified real estate professional.* You may have a close friend or relative in real estate, but if that person doesn’t know anything about short sales, working with him or her may hurt your chances of a successful closing. Interview a few practitioners and ask them how many buyers they've represented in a short sale and, of those, how many have successfully closed. A qualified real estate professional will be able to show you short-sale homes, help negotiate the purchase when you find the property you want to buy, and smooth communications with the lender. (All MLSs permit, and some now require, special notations to indicate that a listing is a short sale. There also are certain phrases you can watch for, such as “lender approval required.”)
* Title officer. It’s a good idea to have a title officer do an initial title search on a short-sale property to see all the liens attached to the property. If there are multiple lien holders (e.g., second or third mortgage or lines of credit, real estate tax lien, mechanic’s lien, homeowners association lien, etc.), it's much tougher to get that short sale contract to the closing table. Any of the lien holders could put a kink in the process even after you’ve waited for months for lender approval. If you don’t know a title officer, your real estate attorney or real estate professional should be able to recommend a few.

Some of the other risks faced by buyers of short-sale properties include:

* Potential for rejection. Lenders want to minimize their losses as much as possible. If you make an offer tremendously lower than the fair market value of the home, chances are that your offer will be rejected and you’ll have wasted months. Or the lender could make a counteroffer, which will lengthen the process.
* Bad terms. Even when a lender approves a short sale, it could require that the sellers sign a promissory note to repay the deficient amount of the loan, which may not be acceptable to some financially desperate sellers. In that case, the sellers may refuse to go through with the short sale. Lenders also can change any of the terms of the contract that you’ve already negotiated, which may not be agreeable to you.
* No repairs or repair credits. You will most likely be asked to take the property “as is.” Lenders are already taking a loss on the property and may not agree to requests for repair credits.

The risks of a short sale are considerable. But if you have the time, patience, and iron will to see it through, a short sale can be a win-win for you and the sellers.






* Not all real estate practitioners are REALTORS®. A REALTOR® is a member of the NATIONAL ASSOCIATION OF REALTORS® and is bound by NAR’s strict code of ethics.



Note: This article provides general information only. Information is not provided as advice for a specific matter. Laws vary from state to state. For advice on a specific matter, consult your attorney or CPA.

Obama bolsters program that insures home loans

More homebuyers depend on government-insured FHA loans and defaults are rising. Federal housing officials take steps to lower the program's risk.

NEW YORK (CNNMoney.com) -- With a growing number of homebuyers depending on government-insured loans, the Obama administration is taking steps to shore up the Federal Housing Administration program.

Rising demand and a slower-than-expected rebound in home prices are pushing one of FHA's reserve accounts below the 2% ratio mandated by Congress, said Commissioner David Stevens. The capital reserves are a cushion against expected losses in the program, which has suffered soaring defaults amid the housing collapse.

The FHA has skyrocketed in popularity during the mortgage crisis since it backstops banks if borrowers stop paying. Housing experts are growing increasingly concerned about the agency's ability to handle rising numbers of defaults.

The drop in reserves, however, will not require a taxpayer-funded infusion into the housing agency, nor an increase in insurance premiums that FHA borrowers pay, Stevens said. The capital reserves, which are determined by an independent auditor and reported to Congress in November, will rise above the minimum threshold within a few years as the housing market recovers.

The agency's overall reserves stand at more than $30 billion, a record level thanks to the large influx of premium-paying borrowers, Stevens said. It covers more than 4.4% of its insurance commitments.

"To be clear, the fund's reserves are sufficient to cover our future losses, so the FHA will not require taxpayer assistance or new congressional action," Stevens said.

Still, the agency is taking a number of steps to reduce the riskiness of the program, which allows borrowers to purchase a home with as little as 3.5% down. It plans to hire its first chief risk officer in its 75-year history and to increase net-worth requirements for approved lenders to $1 million, up from $250,000. Lenders will also be responsible for any losses resulting from fraud on the part of mortgage brokers.

The changes may eliminate some smaller FHA lenders and will likely weed out some of the riskier borrowers, Stevens said.

These moves, particularly hiring a chief risk officer, are important steps that need to be taken, said Howard Glaser, head of the The Glaser Group, a financial services analytics firm. The agency grew so quickly that it was difficult to monitor the quality -- and riskiness -- of the loans being made.

While the FHA may want to raise borrower premiums or tighten its underwriting standards if defaults continue to rise, Glaser said the agency's $30 billion reserve is enough to cover its current loss estimates.

"It's surprising they are doing as well as they are," said Glaser, a former Clinton administration housing official.
FHA propping up housing market

As banks have clamped down on mortgage lending, the FHA program has emerged as one of the few ways people can buy a home these days. Banks are more willing to make FHA loans because they come with a federal guarantee to cover losses if the borrower defaults. And borrowers can more easily qualify for FHA loans because they only need 3.5% down and can have lower credit scores.

As a result, demand for FHA loans has exploded. FHA loans now account for 23% of the market, up from 2% in 2006, Stevens said. Some 80% of first-time homebuyers go through the agency.

The agency, however, has also seen a spike in delinquencies amid the mortgage meltdown. Some 14.42% of FHA loans were past due in the second quarter, up .58 percentage points from the same period a year earlier, according to the Mortgage Bankers Association. Just under 3% of FHA loans were in foreclosure, up .22 percentage points.

Concerned about rising defaults, the agency has raised its standards for new borrowers. Only 7.5% of the portfolio has a credit score below 620, down from 50% two years ago. The average score is 690, versus 630 two years ago.

"The quality of the current FHA book is significantly better than anything seen in the FHA portfolios in recent years," Stevens said. To top of page




Tammy Luhby, CNN Money