DEAN GRAZIOSI: DEAN GRAZIOSI REAL ESTATE – REAL ESTATE FEED BY DEAN GRAZIOSI

The end of the homebuyer tax credit incentive program contributed to an unexpectedly deep decline in May home sales.  The Commerce Department’s May home sales report showed that only 300,000 homes were sold in the month.  It was the first monthly decline in three months. 

Additionally, April sales were revised to 446,000 units and March sales were trimmed to 389,000 units.  To qualify for the Federal tax credit, first time homebuyers and qualified existing homebuyers had to enter into a purchase contract prior to April 30, 2010. 

Analysts had expected May sales to be in the 400,000 range.  When the Commerce Department’s report was released on June 23^rd, U.S. equity markets fell sharply.  The S&P homebuilders ETF fell 1.6 percent. The news preceded the Federal Reserve’s announcement that lending rates would remain near zero through 2011.

The median selling price of a home in May fell one percent below April selling prices.  Prices have fallen 9.6 percent in the 12 months prior to May.

The absence of the tax credit will cause many first-time buyers to be creative.  However, buyers that have saved and are able to generate the required cash for down payments are in a position to be aggressive and make great acquisitions.

The impact on the low-end housing market may be the most severe, but qualified buyers are in position to realize significant savings in the middle to high-end purchases.

The Mortgage Bankers Association (MBA) announced that its seasonally adjusted index of mortgage applications decreased 5.9 percent. The index includes both purchase and refinance applications.

The MBA’s purchase index fell for the sixth time in seven weeks.  The 1.2 percent drop left the index near the 13-year low.  The foreclosure rate continues to stay at unprecedented levels.  With 9.7 percent unemployment, the housing market will remain a buyer’s market for years to come. 

In addition to the slumping new mortgage application rate, the MBA reported that applications for refinancing had fallen 7.3 percent.  A new trend to simply walk away from the mortgage obligation is leaving lenders with large inventories of REO’s.  Buyers who are positioned properly stand to make significant profits in the REO marketplace. 

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The real estate market has really been thrown by a mutually conflicting picture. On the one hand are many people struggling to pay their dues for the mortgages they have. Some of them have already been told by their lenders that the lenders are going to foreclose. In fact, the foreclosure rates have touched new heights and are tipped to soar further. On the other hand are people who are looking at this as a huge opportunity to get the dream home they have been waiting so long for.

Further, the deadline for availing the tax credit of $ 8000 for first time homebuyer has been pushed back to June. There is more good news; there is tax credit, of around $6500, for existing homeowners who want to buy a new home. However, it has some pre conditions, like the period of stay in the current house and the annual income of the household. This should further boost the sales, which seem to be picking up due to the federal support and existing market situation.

Most of the dreams of the homeowner are fulfilled with the help of a mortgage loan. Since many cannot afford to own the homes with their own money, loans are the order of the day. Whatever the situation of the market, loan interest rates, terms and repayment schedules play a key role in purchasing a home. The only other important aspects would be the price of the house and amount of loan that can be financed by the lender. With the interest rate for a 30-year fixed term loan going down the 5 percent barrier (it is at 4.98 percent this week), good properties are available with wider choices and negotiable rates. It surely is a heady combination for those who have saved enough.

If you have enough savings and are sure about your future cash flow, drive a hard bargain and chances are that you will get the best deal in terms of property, price and interest rates. Some might wait a little longer to see what the second round of foreclosures, which were held back, brings to the table. With the announcement of the tax credit for step up consumers, there are ample opportunities to get the tax benefit. Although it’s a difficult call for some, it’s becoming relatively easy for other prospective buyers to find the home of their dreams.

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Unemployment and the abnormally high foreclosure rate continue to weigh heavily on a full-scale housing recovery, but there are signs of hope.  According to Lawrence Yun, chief economist of the National Association of Realtors, pending sales increased for the ninth consecutive month ion November.

Yun credits more determined short sale lenders, low interest rates and the extension of the 2009 Homebuyer Tax Credit with contributing factors.  The expansion of the tax credit bill to existing homeowners should spark even more sales.  Existing homeowners are still reluctant to carry two mortgages, but existing homeowners are helping to clear some of the abundant upscale housing inventory.

Yun also points to the availability of more qualified renters who are anxious to turn rent into equity and tax deductions.  Yun asserts that these buyers have been on the sidelines, waiting to find the bottom of the market.  The reality that they can now acquire more space than in the past ten years is certainly motivating a new wave of prospective purchasers.  With 15-year interest rates at the lowest rate since 1970, buyers are gaining confidence that the time is right.

Meanwhile, newly constructed home sales jumped by 6.2 % in November.  For existing sales, the northeast still remains the most stable area.  November existing sales increase by 20% in year over year comparisons.  The Midwest rose by 12 % and the south surprised with a 6% increase.  Only the west showed a November decline of 5%.

To add hope to a muddled picture, November layoffs decreased to 50,000 compared to 182,000 in November 2008.  With the Obama Administration aggressively tackling unemployment and willing to pump billions into employment initiatives, housing may begin to emerge in the spring of 2010.  That makes this a great time for investors to buy low with the idea of selling high in a relatively short time.      

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