March 13, 2008

Housing: Best time to buy in four years

Valuations—the difference between a home’s actual price and what it should cost—are the lowest they’ve been in four years.

MAKING SENSE OF THE STORY FOR CONSUMERS

• More than 88 percent of 330 housing markets surveyed showed price declines and improved affordability during the last three months of 2007, according to bank National City Corp. and financial analysis firm Global Insight.
• The survey covered home valuations during the last quarter of 2007, but there's reason to believe that valuations are even more favorable for buyers today, according to the authors of the report.
• The biggest gains in affordability occurred in California, Michigan and Florida, which are areas that also have been some of the hardest hit by foreclosures. Those states registered 43 of the 50 biggest price declines.

Home equity slips below 50 percent

Homeowners’ debt on their houses exceeded their equity for the first time since the Federal Reserve Board began tracking it in 1945, falling below 50 percent.

MAKING SENSE OF THE STORY FOR CONSUMERS

• Today’s low equity is a result of lax lending standards during the housing boom, when many buyers were able to obtain mortgages with little or no money down. Although some of those buyers could not afford their homes and lost them to foreclosure, some could afford houses—with help from alternative loan models—and but for those loans would have found homeownership beyond their reach.
• The statewide median price of existing single-family homes for January 2008 was $430,370. The last time we had a comparable median price was in March 2004, when the median was $428,060. Homeowners who bought their homes before 2004 will likely have more equity than those who purchased since 2004.
• The median home price in January 2003 was $336,210. Comparing the current median to five years ago, it is now 28 percent higher. People who buy a home and hold onto it at least five years will usually come out ahead.
• A house is not a stock. It’s always been first and foremost a place to live, to raise a family or to retire. Even when prices were falling, home buyers who pursued a buy and hold strategy—retaining the property at least five years—have almost always come out ahead in the long-run. Historically, the value of single-family homes in California has increased about 9 percent a year.

Buyers jump into murky housing market

While low interest rates and depressed home prices have started to attract entry-level home buyers, the typical home in San Diego County remains out of reach for the average family.

MAKING SENSE OF THE STORY FOR CONSUMERS

• Bleak economic news is usually followed by a downward turn in mortgage interest rates, but despite some fairly poor news this week about banks selling securitized loans at fire sale prices, the overall average of 30-year fixed-rate mortgages eased by just two basis points (.02 percent). The fact that news that would usually produce a significant decline in mortgage rates instead preceded only a modest drop could be a sign that rates may soon go up. Consumers should take advantage of low interest rates while they last.
• According to home-finance corporation Freddie Mac, U.S. house prices have climbed 6.2 percent a year over the past 30 years.
• The recently passed economic stimulus package raised the conforming loan limit to up to $729,750 in some areas. So-called "expanded conforming" loans should provide some borrowers with an opportunity to finance or refinance at lower rates than the jumbo market may currently offer, provided borrowers can meet the guidelines for a conforming loan, which are usually more restrictive than jumbo market underwriting criteria.

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