Roger Mohan, Realtor

Is 2011 a good year to buy a house if the pocket permits? Declining home prices and a low interest rate environment suggest that the time is just perfect. Also, many of economists expect housing prices to bottom in 2011.

House Keys to Remember

Given below are pre-buying pointers for a safe and quick home transaction:

The buyer should be able to keep the home for a long time, at least 10 years. As it is difficult to predict that home prices will decline in the near term, a long-term investment decision would be safer. Whatever the price movement, a long ownership timeline would command a higher price. As it is difficult to foresee the financial market, it would not be prudent to use the last penny in savings for down payment while buying a house since it would lock liquidity. However, a higher down payment than was required a few years ago should be affordable, reducing chances of defaulting regular installments. As interest rates are at historical low now, a fixed-rate mortgage would be advantageous and help evade rate fluctuations.

Housing Prices Nearing Bottom?

According to the analysts of Moody’s Analytics, a wing of Moody’s Corp. (MCO - Analyst Report), houses are most affordable now than they have been in decades. In some areas, prices have already plummeted below the valuation level prior to the housing bubble, which peaked in early 2007.

Considering home prices and peoples’ income, analysts said that, nationally, total household income for 19 months of an average family is now sufficient to buy a house. Notably, this is the lowest price seen in 35 years. Though prices vary across the nation, two years’ income is the standard to buy a house.

In January, Freddie Mac’s (FMCC - Analyst Report) chief economist, Frank Nothaft, said that housing prices are expected to bottom by spring 2011. Also, Mr. Nothaft expects a gradual price increase in 2012. This expectation is based on historically low mortgage interest rates and other positive economic signs such as a small drop in the unemployment rate, increased purchases of durable goods and diminishing delinquencies.

However, in some regions including Florida, Nevada and California, the housing market is expected to recover erratically as these areas were severally affected by the financial crisis.

Encouraging Dip in Home Price Index?

According to the data released last week by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the U.S. National Home Price Index declined 3.9% sequentially and 4.1% year over year during the fourth quarter of 2010.

The S&P/Case-Shiller Home Price Indices tracks changes in the value of residential real estate both nationally as well as in 20 major regions. A decline in the Index reading is a positive as many people will be attracted by lower real estate prices, which would increase overall demand and eventually iron out the housing situation.

CCI Spike to Lift Housing Demand?

According to the Conference Board, its Consumer Confidence Index (CCI) for the month of February jumped to the highest level since February 2008. The sharp rise is a reflection of growing consumer optimism on the short term, the Board says.

CCI increased to 70.4 from 64.8 in January, representing the fifth consecutive monthly increase. This was also substantially ahead of economists’ expectation of 65.0.

According to Lynn Franco, director of the Conference Board Consumer Research Center, the improvement indicates that consumers are once again upbeat about the economy and hopeful of higher income prospects. With rising income, more people will be keen on buying homes, suggesting further surge in demand.

Shadow Inventory: A Source of Supply

The chaos resulting from foreclosure paperwork flaws could result in tremendous losses for banks and a new quandary for the housing market. There still remains a large number of homes in the indeterminate state of “shadow inventory”, which will not be foreclosed as lenders will not be able to sell these homes when there is a lack of demand.

However, once demand increases, supply will not be a problem as houses will be released from the “shadow inventory” status. This would lead to a gradual increase in price.

With all of the problems the recession has brought to us one thing that has been a benefit is that we have had unheard of Interest Rates that have been at unbelievable lows. With signs that the Ventura County Real Estate Market has begun to stabilize we are seeing Interest Rates rise. What does that mean to you as a buyer?

Rates are up over 5% and are expected to bounce around between 5-6% for awhile. A change as nominal as 1/2% in the going Interest Rate can alter how much house you can afford. You could easily lose $50k or more in buying power depending on your qualifying bracket. $50k can be the difference in having all the perks you were hoping for in a home, neighborhood, & community or settling for what your new interest rate allows for.

Why put yourself in a position of settling? Seize the opportunity to better control your future and take advantage of your options.

So have you been looking for an investment vehicle that will let you take full advantage of your 401k savings or other assets that may be liquid or potentially liquid?

How about a self-directed IRA that could be used to purchase and manage an investment property? There is a real opportunity to take advantage of the current market and your available assets to maximize your investment portfolio.

There are some qualifying factors to make this work. Contact me and I will be glad to get you the information so you can find out if this is the right vehicle for you.

Any idea what MID stands for? Well the answer is simple and a vital benefit of purchasing a home for everyone! It stands for ‘Mortgage Interest Deduction’. You may or not be aware that Congress is debating on whether or not to limit or eliminate completely the MID due to a report recently released by the Deficit Commission.

The MID has been around for nearly 100 years. Any changes will affect all homeowners! A loss of this critical benefit of homeownership will influence potential buyers in the market and may just be the straw to break the back for those barely holding on to their homes. Ultimately, this will negatively affect the economy and potential negate any positive gains or stabilizing that the economy has recently made.

If you are concerned, and you should be, contact your local representative to voice your opinion.

Click here to find your Representative http://goo.gl/sohMb

As you began your venture to purchase your 1st or next home you may be asking yourself, should we look at new homes or not?

Here are some things to think about. When purchasing a new home in this market you will find most builders offering incentives that can help cover most or all closing cost, buydowns on interest rates, and upgrades such as appliances and flooring. This can make for an attractive proposition especially for those 1st time buyers or those with the ability for a down payment but needing help with closing costs. With this in mind most builders are not flexible on their asking price but the incentives more than make up for this inflexibilty.

The idea of acquiring a home that has been built from the ground up and being the 1st one to ever live in it is certainly intriguing.

Not all builders produce the same quality home nor offer the same incentives. Most cooperate with Realtors and a Realtor will be able to represent and advise you so you can always feel safe knowing that someone will still be there to help you along the way with your best interests in mind.

If you are have any question about this or an other Real Estate topic please feel free to contact me at roger@rogermohan.com and I will be glad to assist you.

Q:  Existing homeowner credit: How is the amount of the tax credit determined?  

A: The tax credit is equal to 10 percent of the homes purchase price, up to a maximum of $6,500.
Purchases of homes priced above $800,000 are not eligible for the tax credit.

Q:  Existing homeowner credit: Must the new house cost more than the old house?

A: No. Thus, for example, individuals who move from a high cost area to a lower cost area
who meet all eligibility requirements will qualify for the $6500 credit.

California’s housing markets peaked at different times, and some are recovering faster than others, according to the California Association of REALTORS’ 2010 California Real Estate Market Forecast.

The state housing market peaked in May 2007 at a median sales price of $594,530 and hit a trough 59% lower in February 2009. Since then, housing prices have steadily gained.

Southern California markets also peaked at different times and are recovering at their own paces. Sales volume slid 44% from its peak in 2004 to its low in 2007.

• San Diego peaked in May 2006 with a median sales price of $622,380, and was down 39.6% to a median price of $375,710 in August 2009.

• Ventura didn’t peak until August 2006, at $710,910. It was down 34.4% at $466,200 in August 2009.

• Orange County peaked in April 2007 at $747,260, and was down 33.2% to a median price of $499,440 in August 2009.

C.A.R. anticipates that the median home price will be $271,000 by the end of 2009, down 21.8% from 2008, but that 2010 will see an annual increase of 3.3% to a median home price of $280,000. Explains Leslie Appleton-Young, chief economist and vice president of C.A.R., “With distressed properties accounting for nearly one-third of the sales in 2010, inventory will be relatively lean, under six months during the off-season months, and a roughly fourmonth supply during the peak season.”

The caveat is the flow of foreclosures. “Although it appears at this time that lenders are closely monitoring the flow of distressed properties onto the market, there could be an exertion of downward pressure on home prices should a heavier than expected wave of foreclosures come to market next year,” said Appleton-Young.

What will sell more houses is more jobs. In Southern California, non-farm payrolls fell 4.5% between August 2008 and August 2009, a loss of some 370,000 jobs. That’s 0.5% less job loss than the state as a whole.

California is predicted to end the year with an unemployment rate of 11.6%, and the figure is forecast to rise to 12.1% in 2010. However, the rate of non-farm job losses will slow from 4.3% in 2009 to 1.1% in 2010. Disposable income will rise 0.1% in 2010 from a loss of 0.4% in 2009.

“The wild cards for 2010 include foreclosures, loan resets, the labor market, and the California budget crisis, as well as the actions of the federal government,” Appleton-Young said. “We expect the median price to decrease slightly through the remainder of 2009 and into next year, then rise before leveling off next summer.”

Declarations that the recession is over are becoming more official. In late September, the Federal Reserve released a statement that data “suggest economic activity has picked up following its severe downturn.”

Now, a recent survey of 43 leading economists by the National Association for Business Economics (NABE) finds that 81% of university, research, corporate and Wall Street economists say they believe the recovery has begun, with a 3% gain in Q-3 2009.

But the recovery will be slow for many. Two sectors facing that pace are labor and housing, says NABE.

About 54% of economists agree that the 7.2 million jobs lost in the recession won’t be regained until 2012, while 38% predict job recovery will take longer than that. They predict the unemployment rate will reach 10% by the first quarter of 2010 before drifting back down to 9.5%.

Housing isn’t out of the woods yet, but it’s much further along than jobs. One-third of the surveyed economists say housing prices will bottom in early 2010, while about 25% say the bottom will be Q-4 2009.

The key benefit for consumers lies in the economists’ belief that the Federal Reserve will keep a lid on short-term interest rates (the rates at which FDIC banks borrow money from the Fed and each other). This action should be passed along to consumers in the form of low interest rates for both short- and long-term credit.

Overall, housing prices should rise a modest 2% in 2010. Before then, though, the Mortgage Bankers Association predicts that housing will face considerable headwinds due to a rise in foreclosures — largely limited to California, Florida, Nevada and Arizona.

In his October 22, 2009 statement to the Senate Committee on Banking, Housing and Urban Affairs at a hearing titled “The State of the Nation’s Housing Market,” Jay Brinkmann, chief economist and senior vice president of research and economics for the Mortgage Bankers Association (MBA), said the economy and housing “are inextricably linked.”

“The number of people receiving paychecks will drive the demand for houses and apartments, and the recovery will begin when unemployment stops rising,”  rinkmann said. “Since September 2008, we have lost 5.8 million jobs in the US, more than five times the number the previous year. Job losses of this magnitude put incredible strains on all of our systems, especially housing.”

The rapid pace of sales in housing throughout the summer may be coming to end. According to the MBA, mortgage applications slowed two weeks in a row in mid-October while interest rates simultaneously rose, putting the fixed rate above 5%.

Among the possible reasons for the decline in sales volume are fears over employment, the end of the first-time home buyer tax credit in November (if not extended by the federal government), and rising interest rates.