Real Estate Information and Homes For Sale

The major mortgage servicers are getting their house in order, as foreclosures have accelerated in the past month. RealtyTrac reports that mortgage servicers started foreclosure on more than 78,800 properties in August, a 33-percent increase from July levels.

Most of us were aware that the foreclosure lull was only a temporary reprieve. That said, the growing rate of foreclosures has revived concerns over excessive inventory. The Cato Institute, an economic think thank, estimates an oversupply of three million houses, about a million more than actually demanded.

With so much inventory on the market and more to come, pricing becomes an issue: More supply means lower prices, which, in turn, means more negative equity. Concerning the latter, CoreLogic estimates that nearly 11 million properties, roughly 22.5 percent of all U.S. homes, were worth less than the underlying mortgage in the second quarter of 2011.The prospect of more price depreciation and more negative equity has increased calls for more government action. Problem is, efforts to date have had only marginal benefits or have had negative unintended consequences: Cato reports that government efforts to revive housing have helped the most expensive markets while actually depressing prices in the cheapest markets.

At this point, it might be best to let the market run its course. We’ve noted in past editions that when prices fall, demand increases, then prices increase. We've seen this economic truism at work to encouraging effect in a few hard-hit markets. The Orlando Regional Realtor Association reports that the median price for homes in its area has increased 15.1 percent year-over-year.

We've also often noted that real estate is local. The national numbers on foreclosures and negative equity can be big and scary, but they also carry no relevance to any one particular market.Mortgage rates are another matter; they tend to adhere closely to a national average. Rates at the national level dropped a few basis points this past week on most mortgage products.

There are many reasons for the drop in mortgage rates. One of the more interesting is a rumor that the Federal Reserve is contemplating purchasing longer-term Treasury securities (such as the 10-year note) to drive down long-term interest rates, which would help keep mortgage rates low. Because markets are forward looking, it is possible that the market is getting a jump on the Federal Reserve.

We've been in the minority in questioning the economic benefits of ultra-low mortgage rates. Our rationale is that low rates, and the anticipation of even lower rates, are delaying buying and refinancing decisions today. Our rationale isn't unfounded. Richard Fisher, president of the Federal Reserve Bank of Dallas , believes low rates are limiting economic growth because businesses have an incentive to delay borrowing for expansion. They see no reason to act today if interest rates are expected to stay low tomorrow. We see the same effect in housing.

Information courtesy of Jessica Regan.

We've gone down the higher-inflation, higher-interest rate road many times in the past, only to find ourselves doubling back. There is an interesting trend occurring with banks, though, that could persuade us to go down it once again.

One of the more vocal criticisms of banks is that they haven't been lending as much as they should. There is some validity to the criticism; banks have been squirreling away a higher amount of reserves with the Federal Reserve, which has attenuated loan supply and, therefore, money supply, thus keeping inflation in check.

Data released by the Federal Reserve show this period of containment appears to be ending. In other words, excess bank reserves are leaking into the economy and money supply is growing. Because we operate in a fraction-reserve banking system, which means one dollar can be sufficiently leveraged to produce nine more, more reserves put to work can quickly raise inflation pressure.

This all might seem abstruse to the layperson unfamiliar with the intricacies of the Federal Reserve and fractional-reserving banking. All we are saying is that it is folly to write off price inflation and the possibility of higher mortgage rates, because there is no “normal” when it comes to financial markets.

Information courtesy of Jessica Regan.

The woes of homebuilders and anyone dependent on home building continue. The July report on new home sales shows that the annual sales rate has fallen to 298,000 units, hitting a five-month low. The good news is that supply isn't expanding. In fact, only 165,000 homes are in inventory. This is a record low and a 6.6-month supply at the going sales pace.

Homebuilders face a cluster of problems: bargain-priced foreclosures; higher lending standards; and skittish buyers, many of whom have been further put off by the recent stock market sell-off. Mounting concerns of a double-dip recession and rising cancellation rates have only exacerbated homebuilder worries. The chief concern now is that builders could be forced to cut prices, something they've been fighting tooth-and-nail.

Despite the recent spat of bad news, home prices continue to hold their own, and in many instances are moving higher – at least month-over-month. The FHFA home price index for June increased 0.9 percent after posting 0.4 percent and 0.3 percent increases in May and April respectively.However, does the slump in new and existing home sales portend falling home prices? We remain optimistic that prices will hold. People are understandably wary about big-ticket purchases, like a home, because of slow job growth and stagnating economic activity. But all have a reservation price (a price they will not sell below). Houses (that is, habitable houses) won't be given away, they'll be taken off market if the sales price doesn't exceed the reservation price.

Reservation prices could fall and the monthly price trend could reverse, of course. That said, we think most of the bad news is baked into the system, so we don't think there will be any heavy discounting. In short, we still think a home is a worthwhile investment in today's market.Mortgages have also been holding a price trend. Bankrate reported that its weekly survey on rates posted another all-time low. It's worth noting, though, that after the survey was released, yields on the 10-year Treasury note spiked 10 basis points, which points to higher mortgage rates in the next survey.

A surfeit of negative news has kept mortgage rates low. This has lead many analysts to opine that ultra-low mortgage rates are the new norm. We think this is a dangerous way of thinking (which we'll explain below) and that it is still best to take advantage of rates unseen in over 50 years.

Perseverance is a virtue, and the nation's home builders are displaying plenty of perseverance, even if they are not necessarily displaying it happily. The home builders' housing index remained unchanged in August, at a depressed level of 15. Components for present sales and buyer traffic inched higher, but home builders still aren't expecting any noticeable improvement in sales over the next six months.

The market for new-home sales might not be improving, but it doesn't appear to be worsening either. Housing starts dipped slightly in July, but continue to hover around 600,000 units per year, which is actually a higher level than what was seen six months ago. Unfortunately, the new-home market will likely remain anemic until we see a significant uptick in employment numbers.

Weak job growth is also taking a toll on existing home sales. July sales failed to live up to expectations, falling 3.5 percent to a 4.67 million annual rate. The good news is that prices remain stable nationally, with the median price holding near $174,000 and the average price holding at $224,000. Month-over-month, the price trend has been positive, though it is still slightly down year-over-year.

Price trends in producer and consumer goods, on the other hand, have been decidedly up. Consumer prices, in particular, have been moving perceptively higher. Consumer prices were up 0.5 percent in July and are up 3.6 percent year-over-year. This exceeds the Federal Reserve's 2 percent annual price-inflation target.

Many economists have raised concerns of a growing inflation threat. Credit markets, on the other hand, are showing no concerns. In fact, over the past week, the 10-year Treasury note – the baseline investment for 30-year fixed-rate mortgage loans – is down over 25 basis points and is yielding below 2.10 percent, an all-time low.

Prime 30-year fixed-rate mortgages are usually priced 2.25 to 2.5 percentage points above the 10-year Treasury yield. Not surprisingly, interest rates on these loans are also approaching an all-time low. This tells us that the state of the economy, not inflation, is the overriding concern of credit investors.

Can mortgage rates go lower still? Yes, they can, but will they do so is another matter. Timing markets is impossible, which is why we advise borrowers to lock if they are happy with their rate and payment schedule. We then advise them to cease following mortgage rates. After all, there is no sense in self-inflicting frustration when you are perfectly happy with the deal you received.

Harrisburg PA Real Estate Market Update brought to you by Jessica Regan, GMH Mortgage:

"It's d éjà vu all over again,” or so goes one of Yogi Berra's more famous malapropisms. There is a whiff of appropriateness to it, because home prices and foreclosures are reoccurring themes.

This week, the news on home prices was mixed, but encouraging. Zillow reported that home values were up 0.4 percent for the second quarter of 2011 compared to the first, but down 6.2 percent year-over-year, with the average home valued at $171,600.

The National Association of Realtors also reported a year-over-year decline. According to the NAR, the median sales price of existing homes fell 2.8 percent to $171,900 in the second quarter compared to the same year-ago quarter. The good news is that the NAR's data show prices trending modestly higher in recent months.

The question is, will the price trend continue? Foreclosures are the elephants in the room. RealtyTrac reported that foreclosures fell 35 percent, hitting a 44-month low, in July compared to the same year-ago period. In most markets that would be good news, but not necessarily in this one; the drop is attributed to banks still working through last year's servicing fiasco. Many market watchers are expecting a surge in foreclosures that could plague housing through 2012.

If there is a foreclosure surge, it will likely be regional. RealtyTrac also reported that 73 percent of foreclosure activity has been concentrated in a few states: California, Florida, Georgia, Michigan, Illinois, Nevada, Arizona, Ohio, and Wisconsin. The aggregated numbers might appear dire, but that doesn't mean that any one market is necessarily weakening.

Speaking of one market (actually, a number of smaller markets), overbuilt Florida is showing observable improvement. Existing home sales in the Sunshine State are up year-over-year. The median sales price has improved 17.3 percent, to $94,000, from the first quarter to the second. Florida has suffered home-price depreciation as much as any state, but lower prices spur demand, which helps stabilize prices. It's simple economics, and it's working.

The economics of mortgage rates are anything but simple. A few of our colleagues have been lamenting Standard & Poor's downgrade of U.S. Treasury debt, believing higher rates are on the horizon. We're not so sure. Mortgage rates are tightly tethered to 10-year Treasury-note yields. The current yield on these notes has dropped below 2.2 percent, lower than the yields in early 2009, and for the past 50 years. Investors obviously aren't concerned.

Much hoopla was made of the news that the Federal Reserve plans to hold short-term rates close to zero until 2013. But the Fed doesn't control the longer end of the market, which is influenced by the general level of economic uncertainty, credit worthiness of borrowers, time preference, and risk aversion. Sentiment and perceptions of these variables can change, and they can change on a dime, as the recent collapse of stock prices shows.

In short, we don't think mortgage rates are rising soon, but we'd be hesitant to play the rate game just to save a few extra basis points.

We've reworded Yogi Berra's quote into a question because of the volatility and hard sell-off in stocks. Could we possibly be setting ourselves up for a repeat of a decade ago? If you'll remember, many investors sold stocks in late 2000 and early 2001. A lot of that money was then funneled into real estate.

Admittedly, many people were subsequently burned by poor decisions – namely paying and borrowing too much. But as the sting of these losses subsides and stock losses accumulate, it's not outside the realm of possibility for money to cycle back into value-priced real estate. One of the overlooked benefits of real estate is that prices aren't continuously updated, so investors aren't whipsawed emotionally with real estate like they are with stocks.

This isn't to say that we expect a cascade of dollars to flow into real estate, but it's worth noting that investments compete with each. Given recent action in the stock market, the real estate market is looking quite a bit better in comparison.

In the wake of news stories that the US will face a government shutdown and default on its outstanding loans if a debt ceiling agreement isn't reached, many people may be wondering what the impact would be to the mortgage industry and closings.The last time we went through a government shutdown in 1995, it was a pain, but not a panic. If a shutdown were to occur again, mortgage expert Linda Davidson points out the following top six areas that could be impacted:

1. FHA Case Numbers: For each FHA loan, we are required to order a FHA case number. This number is generated before an appraisal can even be ordered. With a shutdown, we may not be able to order case numbers. Because of this, it is critical to let us know if there is a contract executed on any loan, so that our office can go ahead and order a case number without risking the loan being on hold during a shutdown. Note: with the new FHA guidelines, a contract must be executed before a case number can be ordered.The ability to close FHA loans is questionable, depending if HUD keeps its website running to obtain FHA case numbers and CAIVRS. During the November 1995 shutdown, case numbers could not be obtained, but this was prior to the internet and was a manual process. The shutdown in 1995 mainly caused a delay rather than a drop in FHA loan origination. But if lenders decide to stop accepting FHA applications, it could be a problem. I think we may see delays but not a complete shutdown of the FHA.

2. 4506 IRS Transcripts: Each loan requires the verification of at least one tax return by the IRS to verify the numbers that each customer presents on their tax returns. During a shutdown, this process would be delayed as the IRS wouldn't be at work to verify the transcripts.

3. Verifying Employment of a Government Employee: We are required to verify the employment of each customer. If the customer is a federal government employee, we would be unable to verify his or her employment during a shutdown.

4. FEMA: Homes in a Flood Zone: Homes that are determined to be in a flood zone would not be able to close as flood insurance could not be obtained.

5. USDA: During a shutdown, the USDA office would be closed because they have government underwriters that insure behind the lender. With a shutdown, we would see delays with all USDA loans.

6. VA: Like the FHA, the disruption is possible - but not absolute - during a shutdown. This would all depend on if they continued to allow their website to function. A disruption would cause delays in VA appraisals and the issuing of certificates of eligibility. If the website was closed during a shutdown, we would see delays in all VA loans.

Stay tuned for updates if necessary on this very important time period. And if you have any questions, please call or email today.

If you drive a car, truck or van for work, you'll be able to get an additional 4.5 cents per mile. Beginning July 1, here are the standard mileage rates for the remainder of 2011:

• Businesses = 55.5 cents per mile driven (up from 51 cents through June)
• Medical or moving = 23.5 cents per mile driven (up from 19 cents through June)

The Internal Revenue Service (IRS) increased the mileage rate in response to the recent high gas prices. These mileage rates are used to calculate deductible costs for driving an automobile for business, medical and moving purposes. NOTE: The rate for driving that is related to charities remains unchanged at 14 cents per mile, since that rate is set by a statute. You can read the official release in the IRS' Announcement 2011-40.

Make Sure You Qualify

Before you calculate your deduction, make sure you qualify. The IRS reminds taxpayers that they cannot use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.

Additional Option

Although the IRS provides the standard mileage rate for ease and convenience, you're not required to use it. If you prefer, you can calculate the actual costs of using your vehicle instead of using the standard mileage rates.

Remember, if you have questions are concerns, talk to a tax consultant or accountant to discuss your options and unique situation.

"HE THAT SPEAKS MUCH, IS MUCH MISTAKEN." Those words by Benjamin Franklin rang true last week, after a report earlier in the week had the markets buzzing about the potential for a strong Jobs Report... only to have those expectations crash at week's end. Here's what happened and how it impacted Bonds and home loan rates.

Major shocker. According to the Labor Department's "Non-Farm Payroll" Jobs Report, only 18,000 jobs were gained during the month of June. That number was significantly below the recently upwardly revised gain of 125,000 new jobs that were expected, and showed employers hiring the fewest number of workers in 9 months.

Unemployment ticks up. The Unemployment Rate was also a disappointment, rising from 9.1% to 9.2%. While this facet of the report isn't unexpected - as the Unemployment Rate can rise as more people re-enter the labor market in "job seeker" mode - the overall disappointing report re-ignites fears that the economic recovery is slowing and remains a bit stagnant.

Is there a silver lining? There was one somewhat bright spot in the Jobs Report. All of the job gains came from the private sector, with government agencies being the ones losing jobs as they deal with budget pressures. So while gains have slowed, the growth that exists is at least coming from the private sector.

Why were expectations so high? Just one day before the Jobs Report was released, the markets saw the ADP Employment Report, which was far better than anyone expected. Instead of the 60,000 job gains that were expected, the report showed 157,000 jobs added in June. That pleasant surprise boosted Stocks... and also boosted expectations that the Jobs Report would come in better than expected too.

In addition, the weekly Initial Jobless Claims Report also gave the markets a positive outlook on employment, as the report showed a decrease in the number of new unemployment claims. Although the number was still above the important 400,000 mark, it indicated that the previous week's higher number could have been an "anomaly" week - with the July 4th holiday slowing down the count for many states as well as Minnesota's state government shutting down and forcing several thousand state employees to file claims themselves.

Speaking of Minnesota, the state may serve as a warning. In the wake of the state government shutdown, many political and market experts are looking to Minnesota as a glimpse of what could happen at the federal level if Congress and the White House can't reach an agreement. The political climate in the state has mirrored what is happening on the federal level, as the battle continues over a budget deal. And just last week, Fitch Ratings has downgraded Minnesota's debt rating, which means the State will need to pay higher interest rates to investors due to increased risk. No matter how you look at the situation, it's not a pretty picture of what happens when compromise isn't reached.

Overall, the news last week led to volatility both in expectations and in market movement. In the end, Bonds made some strong gains at the end of the week to help home loan rates finish strong. That means rates are still near historic lows and represent a great opportunity. Call or email to see how the situation may benefit you.

When transactions are your livelihood, it can be difficult to muster a smile when there are fewer of them. There were fewer transactions in existing-home sales, which fell 3.8 percent to a 4.8 million annualized rate in May. Supply on the market, at 3.72 million units, is falling, but not enough relative to the sales pace, as inventory rose to 9.3 months versus April's 9.0 months.

Price stabilization was the positive takeaway, with the median sales price rising to $166,500. Another plus is that sales of single-family homes, the central component in the report, fell at a slower rate at 3.2 percent. Floods and tornado-ravaging storms in the Midwest were mitigating factors. Blaming the weather is often the easy way out, but this time it appears valid.

Sales of new houses also fell for the first time in three months, by 2.1 percent to a 319,000-unit annualized pace in May, showing that the industry continues to struggle to gain momentum. The good news is that prices continue to rise, with the median price inching up to $222,600 from $217,000 in April, while inventory continues to fall, with supply dipping to 6.2 months from 6.3 months.

Sales are down, but prices are up, which suggests to us that the days of simply giving away homes are over (even with the putative 1.8 million homes in shadow inventory). MacroMarkets, an economic data compiler, surveyed real estate experts on home-price trends. The consensus estimate was for an average annual growth rate of 2 percent, which MacroMarkets co-founder Robert Shiller opined “will not inspire a lot of consumer confidence.”

We disagree, because price growth isn't price contraction. Two percent average-annual growth on a $200,000 home means the home is worth more than $220,000 after five years. What's more, home equity will grow as the mortgage is amortized. Five years is a long time, and no one can know with certainty what the average annual rate of appreciation will be. Given the low price of homes today, though, we would not be surprised to see homes appreciate at a rate greater than 2 percent annually.

Now, we would like to see mortgage rates start to rise. Without artificial support from the Federal Reserve, interest rates would naturally move higher. That's not bad; the market needs to get back to equilibrium – with more private mortgage money and private mortgage-backed securities, so we can have more choices and more lending alternatives. A rising-rate environment also implies that there are other positive things happening in the economy.

Mortgage rates continue to hold historical lows. Low rates coupled with stable-to-rising prices in many parts of the country point to a near-perfect storm of a market for buying residential or investment real estate.