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2009-04-17 17:47:17

Signs the Bottom is Near


Anyone who has ever enjoyed the beach, lake or riverfront knows that the bottom is murkiest when it’s disturbed. Silt swirls around, making it difficult to get one’s bearings about the depth of the water.
Buying a home today is like plunging into the water with no idea where the bottom is – but the same holds true. The bottom is where it is murkiest.
The tidal wave of bad news in March 2009, following 19 months of economic recession, has made the water cloudy indeed.
Jobs have been lost faster and deeper in this recession than any in recent history, at a sobering 8.1 percent unemployment rate, with a projected high of over 10 percent before sinking down again.
Foreclosures are up like crashing waves, and expected to remain above average highs for the next two years as the last of the resetting Alt-A and ARM loans make their way through the system.
But a few oysters have been dislodged that may hold some pearls for the housing market, as well as other parts of the economy.
The Federal Reserve is recognizing that banking troubles and consumer fears are impacting housing even in the healthiest of markets. 
To keep mortgage interest rates attractively low, the Fed plans to purchase $750 billion in agency mortgage-backed securities, bringing the total purchase of said securities to $1.25 trillion.
“The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets,” the Fed announced on March 18, 2009. 
This announcement, along with other initiatives in the works, should make home buying very attractive again.
While the waters are far from clear, some home buyers may be slow to stick their toes in, but for others, a murky bottom is nothing to fear. They know the bottom is there, even if they can’t see it.
Here are a few reasons why the bottom is near:  
Homebuying Incentives Multiply
The Housing and Economic Recovery Act of 2009 (Public Law 110–289) and approved in February offers generous incentives to homeowners, lenders and home buyers.
They include:
The Home Buyer Tax Credit
An $8,000 tax credit available to first-time homestead home buyers who purchase after January 1, 2009, and before December 1, 2009. This credit does not have to be repaid, and is taken as a deduction at income tax time.
New FHA, Fannie Mae and Freddie Mac Loan Limits
The bill increases loan limits to an amount equal to 125% of the 2008 local area median home price, or $271,050 for FHA, and $417,000 for Fannie Mae and Freddie Mac. Conforming and FHA new existing loan limits have been raised to $729,750 in most areas of Southern California as a result of the stimulus plan.
Neighborhood Stabilization
Division A, Title XII of the bill provides $2,000,000,000 in additional funding for the Neighborhood Stabilization Program (NSP). The NSP helps provide grants through the Community Development
Block Grant program (CDBG) to aid local neighborhoods decimated by foreclosures.
Bernanke Turns Positive
Ben Bernanke, chairman of the Federal Reserve, made headlines mid-March when he made a rare appearance on “60 Minutes,” and forecasted that he believes the U.S. recession will end “probably this year.”  Although he warned that the nation’s 8.1 percent unemployment rate will rise in the short term, other analysts believe the unemployment rate will top out at about 10 percent.
To put this figure in perspective, unemployment at the height of the Great Depression, when there weren’t social programs such as unemployment insurance, was at 25 percent.
The U.S. has experienced recessions  (see: in which unemployment rates were higher than it is currently.  In 1982 and 1983 the unemployment rates were 9.7 and 9.6 percent respectively, but in the recession of 1992, unemployment rates reached 7.5 percent.
Incentives for Lenders
Banks such as Bank of America, JP Morgan Chase & Co, Citigroup and Wells Fargo have voluntarily put a temporary moratorium on foreclosures through the first weeks of March, in anticipation of government assistance in modifying troubled mortgages.
To keep banks engaged, the new stimulus loan modification program targets troubled loans owned or guaranteed by Fannie Mae or Freddie Mac. Loan servicers will receive $1000 per loan for eligible loans and monthly fees as long as the borrowers remain current on the new modified schedule designed to bring their payments within affordable income-to-debt ranges. Banks will also receive incentives for allowing borrowers to sell short (less than their current mortgages are worth) and for taking deeds in lieu of foreclosure.
Banks Get Great Rates, Interest Rates Stay Low
The target range for the federal funds rate will remain at 0 to 1/4 percent, which will keep the interest that banks pay to borrow money from each other low, which should in turn help keep credit interest payments lower for consumers.  
The response to the announcement was positive. With the announcement that a lot of bad debt is now going to be insured, the 10-year treasury bond shot up, which translates into lower interest rates. Immediately, money began to pour into the stock market for a four-day turnaround.
First-time Homebuyers Get Their Toes Wet
The stimulus package is expected to boost housing sales across the nation. Not only do first-time home buyers receive a tax-free incentive of $8,000, (the incentive is available to anyone who has not owned a home in the last three years) but many states are chipping in as well. California, for example, is offering $10,000 to anyone who buys a home there.
State representatives in Florida, seeking to reduce the 22-month inventory of homes for sale, is proposing an additional five-year property tax reduction for homebuyers.
Optimism that the stimulus will work has major housing organizations predicting an increase in home sales in 2009, after two years of declines.
*The National Association of Home Builders anticipates about 160,000 additional new home sales.
*The National Association of REALTORS® says that there will be approximately 4.93 million homes sold in 2009, with about 900,000 more in existing homes sales as a result of the first-time home buyer stimulus alone.  
First-time Homebuyers Re-enter the Market
According to Walt Molony, spokesperson for the National Association of REALTORS®, housing heals from the bottom up, led by first-time buyers.
“Unpublished data in February through a member survey has found first-time buyers are at 51% of the market,” says Molony. “While some of that is probably seasonal, we wouldn't be surprised if it's a bit higher this year.”
The interesting point is that the last 10 years, first-time home buyers have averaged about 40 percent of the market.
Mortgage Applications Are Up

Mortgage applications have see-sawed on economic news like never before, but at this writing, the volume of mortgage applications rose a seasonally adjusted 21.2% compared with the week before, driven by a surge in refinancing activity in mid-March, says  the Mortgage Bankers Association.
Application volume for the week ending March 13 shot up an unadjusted 31.2% from the same week in 2008, and the four-week moving average was also up, though only slightly.
The reason is 30-year fixed rates at under 5.00 percent.
New Construction Soars
If existing homes lead housing recoveries, someone forgot to tell the new homes industry.
After falling for eight months straight, the Commerce Department reported in mid-March that housing starts (those beginning ground-breaking and construction) were up 22 percent from a year ago.
Starts are down from February 2008 when over 1.1 million homes broke ground, but with nearly 12 months of inventory on hand, a slower start rate is good.
New construction is now at a seasonally adjusted rate of 583,000 new homes for 2009.
The Horizon
Other indicators are also positive – consumer spending has stabilized, which means it hasn’t retracted further. The trade deficit has narrowed for the first time since 2002, and imports are shriveling faster than exports. The hideous losses of the stock market have found a floor, as trading staggers slowly upward.
And home prices nationwide, flexed by declines on the east and west coasts, continue to pull back.
The Obama Administration has expressed the belief that the stimulus is already working. Others say that more time is needed to experience the positive effects.
It’s clear that investors are now on high alert. Buying at the bottom is the best way to make a profit.
But buying at the bottom doesn’t always mean buying at the lowest price. It also means making the best selection.
In housing, that means the most house for the money that best suits the buyer’s needs and wants at the time.
Today, home buyers can buy nearly 20 percent more house than they could three years ago, but at record low interest rates, and a tsunami of incentives, it’s not likely that prices, interest rates and selection will be so favorable again.     
Blanche Evans is CEO of Evans Emedia, Inc. and publisher of The Evans Ezine. As an award-winning journalist, Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and twice recognized as one of the industry's most "Notables."    

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