Look at those rates--are you ready to buy?

Interest Rates under 5%-- The benchmark 30-year mortgage fell below 5% for the first time ever in Freddie Mac's weekly rate survey as economic weakness continued to push interest rates lower, the mortgage agency said Thursday.

The national average rate on the 30-year loan fell to 4.96% in the week ending Jan. 15, down from 5.01% a week ago. That is the lowest on record. Freddie Mac began its rate survey in 1971. A year ago the loan averaged 5.69%.

Interest rates for 30-year fixed rate mortgages fell for the 11th straight week to another record low, due in part to the slowing economy and government actions," said Frank Nothaft, Freddie Mac chief economist.

"Both the U.S. Treasury Department and the Federal Reserve have added over $ 100 billion in liquidity to the mortgage market since September 2008, which put downward pressure on interest rates for fixed-rate mortgages. The Federal Reserve may add up to an additional $570 billion more this year, based on its November 25, 2008 announcement, to further shore up mortgage lending and keep rates low."

Changing our mindset

As humans, we naturally crave certainty, consistency, and stability in most aspects of our lives. Not only is it comforting for us, it's a large component of our capitalistic way of life. But it's also extremely fragile, and always the first casualty of turmoil, especially in the financial markets.

In 2008, one could argue that the biggest challenges were not just the credit crunch or pending global recession. It was fear; a sweeping lack of confidence that suddenly gripped everyone, from major financial companies and individual investors, to consumers and governments alike.

One result was not only the unprecedented financial turmoil that we all witnessed, but also an amazing opportunity for those who aren't afraid to face that fear as the real estate and mortgage markets begin to turn – and they will turn. Many believe they already have.

For instance, mortgage rates are currently the lowest they've been in a generation, while home prices have dropped significantly in most areas including Delaware. For new buyers and homeowners looking to save on monthly payments, this is great news. Homes you might not have been able to afford just 2 or 3 years ago may well be within your reach at a rate that makes much more sense than renting, in many instances.

What's more, the Federal Reserve, the Treasury Department, and even the Federal Deposit Insurance Corporation (FDIC) are using all of their tools to address the ailing economy, which many experts believe could lead to even lower rates in the near future.

For homeowners with enough equity, this means now may be the time to lock in a low rate. At the time of the writing of this article, the Mortgage Bankers Association reported that mortgage applications jumped 2.9 percent in one week in December, 77% of which were refinances with an average interest rate of 5.18% for a 30-year fixed and an average rate of 4.93% for a 15-year fixed mortgage.

If the experts are wrong and rates increase, you made a great deal. If the experts are right and rates continue to drop, just ask your mortgage professional about a "no closing cost loan". This type of loan allows borrowers to lock in today's low rate and to refinance again if the rates fall further. Just make sure there's no prepayment penalty if you're not going to stay in the home long enough to recoup your investment.

While it may not be the right time to try and flip a home for a quick profit, if you're planning on a longer-term investment, it makes a lot of sense to take advantage of this rare combination of discounted prices and lower rates – especially for first-time home buyers.

A glimmer of light...hopefully for 2009

The nation’s foreclosure hemorrhage has finally slowed and 2009 should see a significant decline in foreclosures as buyers return, pushing home prices up and fueling a real estate recovery, according to the 2009 Outlook from ForeclosureS.com.

“Recovery is underway. Affordable is back in the housing market,” says Alexis McGee, real estate expert, educator, and president of ForeclosureS.com. “In 2009, housing will not only recover, but we’ll see buyers leap into this market in droves, depleting our housing oversupply, and actually put higher price pressures on the market.”

“With fixed mortgage rates around 5%, housing prices lower than they were 'pre-housing bubble', commodity prices lower, tax credits available for homebuyers, and the government eager to stimulate our economy, for the first time in years I can see prices rising again in 2009” adds McGee. “This is a great time to buy properties for investors -- to buy properties at wholesale prices below today’s already low prices -- rent them out for positive cash flow and then sell them for big profits in late 2009 once price appreciation kicks in.“

The latest U.S. Foreclosure Index by ForeclosureS.com shows a slight drop from 84,534 to 84,291 in the number of properties repossessed by lenders following foreclosure last month over October. These are REOs or lender-owned real estate. But that’s off nearly 21% from September’s 106,415 REO filings. (Year to date 12.6 of every 1,000 households nationwide have been lost to foreclosure.)

"Certainly some of the drop reflects growing results of government and private efforts to keep homeowners in their homes,” says McGee. “But the recovery takes shape when you factor in other things like what the National Association of Realtors calls ‘solid’ gains from a year ago in existing home sales in some key areas, and the fact that many of the same areas are seeing dropping home prices. Fewer foreclosure actions were initiated in the last quarter, too, according to the latest Mortgage Delinquency Survey from the Mortgage Bankers Association,” McGee adds.

“California is a great example of what’s happening now and what lies ahead for the housing sector. Long a leader in the subprime mortgage mess and rising numbers of foreclosures, the state’s foreclosures have slowed significantly,” says McGee.

The latest U.S. Foreclosure Index numbers show November REO filings in the state down to 15,978 in November, down 6.55% from October and off nearly 50% from September. Home prices there have come down, too, as much as 39.4% from the third quarter from a year ago in some areas like Riverside-San Bernardino-Ontario, according to National Association of Realtors numbers. That’s left many homeowners that bought their homes at high price points with upside down mortgages—they owe more than the value of the home. But it’s also made homes more affordable for plenty of other people. Solid and in many cases rising existing homes sales support that, adds McGee.

“I wish my crystal ball could pinpoint everything that’s going to happen with housing markets in the next 12 months, but there are just too many variables. What I can tell, though, is that hardest hit housing markets have already hit bottom and others will follow in 2009. Third-quarter National Association of Realtor numbers actually show existing home sales picking up in about 20 percent of the areas studied. And, given the uncertainty and volatility of the stock market combined with all time low interest rates, extremely affordable low priced homes, and all the choices out there, 2009 is an excellent time to buy real estate. Properties, especially foreclosed ones, will be highly discounted, lenders are motivated to work with buyers, and the opportunities are abound. The bottom line to keep in mind: What goes down absolutely positively will go back up again.

Who do YOU Believe?

Tracking Home Prices - Different Measures; Different Approaches,
by NAR Research Staff

Since all real estate is local, interpreting changes in home prices at the national or metropolitan level can be difficult. This can be problematic for policy makers and market participants like home buyers, sellers, and REALTORS®. The first step is understanding what the various measures of house prices are, what those measures actually track, and how this information can be interpreted and used. Below is a summary describing four most closely watched home price indexes and discussing the major differences between them.

There are four major home price indexes that market participants follow:
· the National Association of REALTORS® Median Sales Price series
· the Case-Shiller Index group
· the Federal Housing Finance Agency (formerly OFHEO) Index
· the Freddie Mac Conventional Mortgage Home Price index

Of the series listed above, only NAR's is a pure median measure. The NAR Median Sales Price (which is not an index) tracks the sales price of the typical home where half of the homes sold at a higher and half sold at a lower price in a particular month.

Indexes track home prices with a level of abstraction since there are several ways that information about home prices can be aggregated to develop an index. Consequently, changes in the prices of homes in a particular neighborhood may differ from an index based on home sales from a larger or slightly different geographic area.

Each of the other measures is an index. Like all indexes, these indexes track house prices with a level of abstraction. Percent changes in the index figure mirror percent changes in the prices of houses; therefore, a single index figure may not be very meaningful. The weighted repeat sales technique-employed by all of the other major players attempts to address an issue arising in pure sales medians, namely, that the houses that sell one month are not the same houses that sell the following month. If these houses differ in quality, then a change in the median sales price of houses reflects the change in the quality of the home sold as well as any appreciation in value that would have accrued to a constant-quality house.

Researchers track and measure repeat sales to get past this limitation. For example, if a house sold in 1980 for $100,000, and it sold again in 2007 for $400,000, it would register as a repeat sale. Researchers would use its 300% appreciation over 27 years with information from other repeat sales to determine how much this same (and therefore "constant quality") home had appreciated in the most recent time period.
Unlike a median sales price, the repeat-sales methodology is very complex and requires an extremely large database of home sales transactions that limits its application to the nation or to large metropolitan areas.

The National Association of REALTORS® Median Sales Price (NAR's median sales price) data is a series of dollar figures released monthly at both the national and Census regional levels. In addition, NAR releases quarterly median home price data for more than 150 metropolitan areas. NAR reports the observed median sales prices based on closed sales transactions gathered from Multiple Listing Services (MLSs). NAR's median sales price data on existing homes are available at the Association's web site at http://www.realtor.org/research. Click on "home sales statistics" in the left hand navigation.

Case-Shiller
The Case-Shiller Index group consists of 20 regional (metro area) indexes and two composite indexes (a 10-region and a 20-region index). These indexes are reported monthly as 3-month moving averages and cover a period ending two months prior. This group also consists of a broader national index that is released quarterly.
Case-Shiller uses a weighted repeat sales methodology to measure price change. This type of index examines price changes for the same home based on the two most recent sales transactions. While this methodology helps to control for several factors that influence price, it requires the exclusion of many data points. For instance, Case-Shiller indexes exclude data from foreclosures as well as home sales transactions in the following states: Maine, Indiana, Wisconsin, North Dakota, South Dakota, South Carolina, West Virginia, Alabama, Mississippi, Idaho, Montana, Wyoming, and Alaska. Additionally, Case-Shiller gathers information on transactions from local government sources and therefore, information about sales transactions is subject to delay. Furthermore, the index is value-weighted: that means that high-priced homes have a greater impact on the index than do low-priced homes. Sales financed with conventional as well as jumbo and subprime loans are included in the index.
For more information about the Case-Shiller Index, visit www.homeprice.standardandpoors.com.

continued in future posts