Kristy W. Agan

In a recent Forbes blog post, multimillionaire hedge fund manager John Paulson declared that today™s record-low interest rates made this the best time to buy homes in fifty years. œIf you don™t own a home, buy one, Paulson said. œIf you  own one home, buy another one, and if you own two homes, buy a third and lend your relatives the money to buy a home.  Why should we care what Paulson thinks? Well, he was among the few to accurately predict the subprime collapse and, while no one has a crystal ball, a closer look at the numbers supports his call to action.

Historically low interest rates are the key¦and they aren™t likely to hang around for long.

As we wrote in SHIFT, buyers who œchoose to wait until prices come down more are gambling that interest rates will hold steady or drop. The truth is even a 10 percent drop in home prices is nullified by a 1 percent increase in interest rates. The figure below illustrates how this works for a $250,000 home purchase and the relative likelihood of each scenario.

To figure out which was a smarter bet“counting on home prices to fall further or interest rates to rise“our research department took the last ten years of monthly home price and mortgage interest rate data and ran the numbers to see which was more likely: an increase in mortgage rates or a further drop in home prices. Here™s what we found:

1. A one percent increase in mortgage rates is ten times more likely to happen than a ten percent drop in home prices.
2. A one percent rate increase more than offsets a ten percent reduction in home prices.
3. When interest rates fall by one percent, the total interest paid is almost three times more than the interest savings from a ten percent drop in home prices.
4. The probability of both happening at the same time is ridiculously small, and homeowners would still pay 15 percent more in interest over the life of the loan.

Interest rates have dominated the news in recent months as we™ve shattered record low after record low. Potential home buyers need to understand the positive financial impact low interest rates have on the cost of home ownership and the thousands of dollars that can be saved over the life of a typical mortgage loan. For those who can afford to buy, trade up, or invest, our current market presents a lifetime opportunity.

Published by Jay Papasan, VP of Publishing and Executive Editor – Keller Williams Realty

LOS ANGELES — Lenders seized more U.S. homes this summer than in any three-month stretch since the housing market began to bust in 2006. But many of the foreclosures may be challenged in court later because of allegations that banks evicted people without reading the documents.

A total of 288,345 properties were lost to foreclosure in the July-September quarter, according to data released Thursday by RealtyTrac Inc., a foreclosure listing service. That’s up from nearly 270,000 in the second quarter, the previous high point in the firm’s records dating back to 2005.

Banks have seized more than 816,000 homes through the first nine months of the year and had been on pace to seize 1.2 million by the end of 2010. But fewer are expected now that several major lenders have suspended foreclosures and sales of repossessed homes until they can sort out the foreclosure-documents mess.

On Wednesday, officials in 50 states and the District of Columbia launched a joint investigation into the matter.

Rick Sharga, a senior vice president at RealtyTrac, noted that legal challenges are likely. But he doubts many will be successful in overturning foreclosures. He said he expects foreclosures to resume and predicts about 1 million homes will be taken back this year.

“The bottom line is not that those properties won’t be repossessed,” Sharga said. “They simply won’t be repossessed as quickly. We’re simply delaying the inevitable.”

Experts say if lenders resume foreclosures in a couple of months or so, the delay will amount to a temporary lull followed by a spike in home repossessions early next year.

But if the crisis drags on for months and more lenders stop seizing homes, the foreclosure delays could last well into next year. That could have a severe effect on home sales and prices.

A freeze in foreclosure sales between now and December by a majority of lenders could amount to removing 30 percent of all home sales for that period, Sharga suggests.

“You would virtually guarantee that tens of thousands of properties would miss going to market in time for the spring, which is the peak buying season for real estate,” Sharga said.

Nearly 600,000 bank-owned homes are not yet on the market, according to RealtyTrac.

The states most affected by the foreclosure freeze accounted for 40 percent of all foreclosure activity in the third quarter and 36 percent of homes taken back by lenders, the firm estimates. Sales of homes by lenders made up 18 percent of all U.S. home sales in September, the firm said.

Other experts say delays from the foreclosure documents problem won’t end up having a huge impact on home sales or housing values.

Foreclosed homes that would have been sold by lenders now will be sold seven or eight months from now, and prices will start going declining about 3 percent to 4 percent nationally, on average, when those sales take place, said Andres Carbacho-Burgos, an economist at Moody’s Economy.com.

That’s good news if you’re a homeowner looking to sell in the near term, because there won’t be as much competition from deeply discounted foreclosed properties, Carbacho-Burgos said.

“But if you were looking to sell further down the line, that’s not so good news,” he said.

Economic woes, such as unemployment or reduced income, continue to be the main catalysts for foreclosures this year.

While bank repossessions rose in the third quarter, new defaults continued to decline.

Some 269,647 properties received default notices, the first step in the foreclosure process, down 1 percent from the second quarter and down 21 percent from the same period last year, according to RealtyTrac, which tracks notices for defaults, scheduled home auctions and home repossessions.

In all, 930,437 homeowners received a foreclosure-related warning between July and September, up nearly 4 percent from the second quarter but down 1 percent from the same period last year, RealtyTrac said. The latest tally translates to one in 139 U.S. homes.

Existing-home sales were sharply lower in July following expiration of the home buyer tax credit but home prices continued to gain, according to the National Association of Realtors ®.

Existing-home sales¹, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009.

Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales “ accounting for the bulk of transactions “ are at the lowest level since May of 1995.

Lawrence Yun, NAR chief economist, said a soft sales pace likely will continue for a few additional months. œConsumers rationally jumped into the market before the deadline for the home buyer tax credit expired. Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September, he said. œHowever, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs……

Read Entire Article – http://www.realtor.org/press_room/news_releases/2010/08/ehs_fall

The Senate on Wednesday gave the Federal Housing Administration the go-ahead to raise monthly fees that borrowers pay the agency.

The annual fee is expected to raise from the current rate of 0.55 percent to 0.9 percent of the total loan. The bill gives the FHA the authority to raise the annual fee as high as 1.55 percent.

Simultaneously, the agency plans to lower the loan initiation fee that was raised from 1.75 percent to 2.25 percent earlier this year. Officials would like to drop the up-front fee down to 1 percent of the total mortgage amount.

The net effect of lowering the up-front fee and raising the monthly fee would mean that someone who borrowed $170,000 at 5 percent would pay an extra $38 per month (for mortgage insurance). Current mortgage holders won™t be affected.

The fee changes are projected to bring in an extra $3.6 billion per year to help stabilize the agency’s finances.

Source: The Associated Press, Alan Zibel (08/05/2010)

Remodels are great, but can get pretty pricey. Not everyone has thousands to add value to their home  - but what about those less glamorous repair projects on your to-do list? These simple and inexpensive maintenance items don’t seem like they add to your home’s value, but they’re big money-savers in the long run.  

1. Caulk
If you’ve lived in your house a few years, you probably noticed that the caulk along your sinks, countertops and bathtub is coming loose. These gaps may not seem like a big deal, but they can wreak havoc inside your walls. Moisture causes mold and even leaks – expensive repairs that can easily be prevented. A tube of kitchen and bath caulk costs just a few dollars, and you’ll avoid expensive repairs.  

2. Insulate
The quickest way to save money on your energy bill is to insulate, yet so many of us overlook this simple home improvement project for its benefits. Sure, your walls are insulated, but what about your basement, your attic, and your garage? Just in case the energy cost savings aren’t enticing enough for you, check with the IRS – there are current credits that allow you to deduct this energy-saving expense from your taxes.    

3. Change Filters
When was the last time you changed your furnace’s air filters? It’s an oft-overlooked chore, but one that keep your furnace running efficiently, and improves the air quality inside your home. Change your filters at least every three months to keep your furnace working efficiently for years to come.  

4. Install a Thermostat
Does your home have a programmable thermostat? If not, invest in one; it’ll earn its money back in no time. By programming heating and cooling, you avoid paying to keep an empty house at a comfortable temperature. Manage the heat appropriately in winter to avoid burst water pipes; in summer, draw your curtains during the day to keep the house cool. Buy a programmable thermostat and you can save big on monthly bills.  

5. Fix Leaks
That leaky faucet or runny toilet is draining your water bill, and in most cases it’s a cheap and quick fix. Replace the washer on your faucet, and while you’re at it, consider installing a faucet aerator if yours doesn’t already have one. Faucet aerators reduce water flow from your faucet to save on your water bill; check your home improvement store for this inexpensive fix.  

6. Install Dimmers
Dimmers aren’t just for romance; they can save you big bucks on your energy bill. They’re cheap and easy to install, so look for rooms that could use a little reduction in harsh lighting. While you’re at it, replace your light bulbs with energy-efficient ones. They’re big money savers.  

7. Clean Carpets
Clean your carpet lately? With proper care, carpets can last a long time and look great, but everyone needs to clean them sometime. You don’t need to hire an expensive service either – if you can vacuum, you can clean your carpets by yourself. Rent a carpet cleaner at your local supermarket or big-box store for a modest fee. Make sure you vacuum thoroughly before cleaning, and pick a dry day so your carpet dries quickly. With regular cleaning your carpet can last a long time, saving you big bucks on new flooring.  

8. Clean Siding and Windows
Windows and siding get a beating in most climates. Wash your windows and siding with a simple hose and water first, and with a cleaning solution as needed; your home improvement store sells specialty products for just this kind of job. Rent a power washer for very dirty jobs. Keep an eye on cobwebs, wasp and bird nests to ensure your home’s exterior stays in good shape. Touch up with paint as needed, and your house will look like new at little or no cost.    

9. Fight Pests
Those spiders and ants at your foundation, that mouse nest in your crawl space? Take care of it – pests can destroy a home in a hurry. Hire an exterminator, or for small pests, combat with pesticides. Even if you don’t think you have a problem, inspect every part of the interior and exterior of your home regularly to avoid small pest problems getting out hand.  

10. Clean Ductwork
If your home is older, your ductwork likely has dust, grime, and other unwelcome residue inside. For big jobs, pay a professional; a simple cleaning can easily be done yourself. Simply remove the grates from your air vents, and clean the inside with your vacuum.  

The Bottom Line
The best way to invest in your home is to take good care of what’s already there. With these simple repair jobs, you’ll even save money – with just a little elbow grease as investment.

With the scheduled closing deadline for the home buyer tax credits, existing-home sales slowed in June but remained at relatively elevated levels, according to the National Association of REALTORS ®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, fell 5.1 percent to a seasonally adjusted annual rate of 5.37 million units in June from 5.66 million in May, but are 9.8 percent higher than the 4.89 million-unit pace in June 2009.

Lawrence Yun, NAR chief economist, said the market shows uncharacteristic yet understandable swings as buyers responded to the tax credits. œJune home sales still reflect a tax credit impact with some sales not closed due to delays, which will show up in the next two months, he said. œBroadly speaking, sales closed after the home buyer tax credit will be significantly lower compared to the credit-induced spring surge. Only when jobs are created at a sufficient pace will home sales return to sustainable healthy levels.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.74 percent in June from 4.89 percent in May; the rate was 5.42 percent in June 2009.

The national median existing-home price for all housing types was $183,700 in June, which is 1.0 percent higher than a year ago. Distressed homes were at 32 percent of sales last month, compared with 31 percent in May; it was also 31 percent in June 2009.

NAR President Vicki Cox Golder said softer home sales expected this summer don™t tell the whole story. œDespite these market swings, total annual home sales are rising above 2009 and we™re looking for overall gains again this year as well as in 2011, she said. œConditions have become more balanced in much of the country, which is good for both buyers and sellers. However, consumers find it even more challenging to navigate the transaction process, especially for distressed properties, which only underscores the value REALTORS ® bring to buyers and sellers in this market.

A parallel NAR practitioner survey shows first-time buyers purchased 43 percent of homes in June, down from 46 percent in May. Investors accounted for 13 percent of sales in June, little changed from 14 percent in May; the remaining purchases were by repeat buyers. All-cash sales were at 24 percent in June compared with 25 percent in May.

Total housing inventory at the end of June rose 2.5 percent to 3.99 million existing homes available for sale, which represents an 8.9-month supply at the current sales pace, up from an 8.3-month supply in May.

œThe supply of homes on the market is higher than we™d like to see. But home prices are still holding their ground because prices had already overcorrected in many local markets, Yun said. Raw unsold inventory remains 12.7 percent below the record of 4.58 million in July 2008.

Single-family home sales fell 5.6 percent to a seasonally adjusted annual rate of 4.70 million in June from a level of 4.98 million in May, but are 8.5 percent above the 4.33 million pace in June 2009. The median existing single-family home price was $184,200 in June, up 1.3 percent from a year ago.

Single-family median existing-home prices were higher in 10 out of 19 metropolitan statistical areas reported in June in comparison with June 2009. In addition, existing single-family home sales rose in 12 of the 19 areas from a year ago while two were unchanged.

Existing condominium and co-op sales slipped 1.5 percent to a seasonally adjusted annual rate of 670,000 in June from 680,000 in May, but are 20.5 percent higher than the 556,000-unit pace in June 2009. The median existing condo price was $180,100 in June, which is 1.4 percent below a year ago.

Regionally, existing-home sales in the Northeast rose 7.9 percent to an annual level of 960,000 in June and are 17.1 percent above June 2009. The median price in the Northeast was $244,300, down 1.2 percent from a year ago.

Existing-home sales in the Midwest dropped 7.5 percent in June to a pace of 1.23 million but are 11.8 percent higher than a year ago. The median price in the Midwest was $155,900, down 0.1 percent from June 2009.

In the South, existing-home sales fell 6.5 percent to an annual level of 2.01 million in June but are 11.0 percent above June 2009. The median price in the South was $163,600, unchanged from a year ago.

Existing-home sales in the West dropped 9.3 percent to an annual pace of 1.17 million in June but are 0.9 percent higher than a year ago. The median price in the West was $221,800, up 1.5 percent from June 2009.

Source: NAR