Nationwide, home affordability has received a serious boost from the combination of falling home prices and falling mortgage rates.
Today, because of the sagging economy, in most parts of the country, the cost of owning a home versus renting one is now very close to its historical average.
That said, though, near every major city, there are some neighborhoods in which home affordability and quality of life are stand-out. Using real estate data from OnBoard Informatics, Business Week highlights these areas in a report it calls the “Best Affordable Suburbs“.
Now, the country’s “Best Affordable Suburbs” doesn’t list the nation’s most affordable suburbs, but instead, a group of cities, towns, and villages in which the populace sits between five and sixty-thousand, and the economy, the schools, the lifestyle and the crime levels are all within a desirable range.
As concluded by Business Week, these are areas in which buying a home is a good value.
At the top of the list is Awake, Wisconsin, a suburb 20 minutes west of Milwaukee, prized for its outdoor lifestyle and healthy jobs market. The complete 50-state listing is posted at Business Week’s website.
In reading the headlines this morning, you’d think that last month’s Existing Home Sales figure signaled more trouble ahead for the housing market.
Quite the contrary.
Beyond the attention-grabbing headlines is the real story; the one that shows — once again — that housing market fundaments are coming back into balance.
As home values tick lower, it appears, value buyers are stepping in and snapping up supply. It’s true that the number of homes sold fell to its lowest levels in 12 years, but we can’t ignore the fact that the number of homes available to buy fell, too.
- Banks have put the brakes on foreclosures
- Economic uncertainty is reducing job-related relocations
- Builders have all but stopped building new homes
The national housing supply is as low as it’s been in more than a year.
Based on the current rate of sales activity, the national housing supply would be 100% sold in 9.6 months — a two-month improvement from the high point set in June 2008.
Demand for homes is expected to rise, too:
- The Federal Reserve is trying to hold mortgage rates low
- Fannie Mae is opening its checkbook to real estate investors
- The stimulus package is granting tax credits to first-timers
So, it’s not that the headlines are wrong; it’s just that they’re incomplete.
In looking at all of the data and not just one sliver of it, we can find hope. Falling supply plus rising demand leads home values higher and that’s the basis for a recovery.
One popular housing theory is that — before a bona fide housing recovery can begin — the cost of owning a home versus renting one must return to historical levels.
If that belief is a truth, a national return to rising home prices may be in store for 2009.
Falling home prices coupled with falling mortgage rates, too, have dropped the relative, after-tax cost of owning a home to 125% of the cost of renting a home.
This is the exact 18-year historical average and not since 2001 has the gap been this small.
As reported by the Wall Street Journal, though, the study has some flaws. For example, the data doesn’t account for ongoing home maintenance costs, nor does it consider real estate tax bills and insurance policies.
But, combining a relatively low cost of ownership with the government’s $8,000 tax credit for first-time home buyers is likely to convert long-time renters into never-before homeowners.
This, too, is thought to be a key element of the housing recovery.
In many markets (but not all), home prices are expected to edge lower through 2009. Provided mortgage rates stay low, the cost gap between owning and renting will shrink even more.
As part of the stimulus package passed last week, Congress authorized a temporary increase to conforming loan limits in certain high-cost parts of the country.
“High cost” is defined by a regions’ median sales price.
With the temporary increase, a greater share of Americans can now qualify for Fannie Mae- and Freddie Mac-backed loans, usually the least expensive source for mortgage money.
Higher loan limits can be good for the housing market and the broader economy for two reasons:
- Cheaper money can spur new home demand, supporting home values.
- Higher loan limits render more homeowners refinance-eligible, freeing up cash for spending, saving, or investing.
The complete county-by-county loan limit list is available on the OFHEO website.
Of the 3,232 U.S. counties, 10 percent are considered “high-cost”. Residents of these areas can expect the same low rates offered to the rest of the country, but with a slight premium. Be sure to ask your loan officer about how it works.
Food-borne illness is three times more likely to occur at home than in a commercial kitchen. It’s a fact that surprises a lot of people and one that experts attribute to a myriad of blunders including the improper storage of food, lack of cleanliness and unsafe food handling.
As it turns out, keeping your fridge clean and orderly is just a start.
Here’s a few other helpful tips:
- Produce for salads often grows low to the ground and, therefore, is exposed to fertilizers. Wash thoroughly before placing in the produce bin.
- Never put washed produce back into its original, contaminated container.
- Even if fruit comes with a “peel”, wash it. Whatever’s on the outside transfers to the inside when you cut it.
- Keep milk and cold cuts off the refrigerator door — it’s the warmest part of the interior.
- Adhere to expiration and “use by” dates.
- If you see mold on bread, throw out the entire loaf.
Lastly, remember to wash your hands before handling your food. You don’t have to be playing in dirt to get your hands dirty. The simple act of typing on a keyboard is enough to spread germs.
Clean food + dirty hands = dirty food.
I love you … Let’s clean out the fridge
Denver Post, February 11, 2009
Everything old is new again.
Conforming mortgages are limited by loan size, based on “typical” housing costs around the country. The current conforming limit on a single-unit property is $417,000.
In 2008, as part of the Economic Stimulus Act of 2008, Congress authorized conforming loan limits increases in “high-cost” areas around the country. In Los Angeles County, for example, a mortgage could be as large as $729,750 and still be considered “conforming”.
Those temporary increases rolled back effective January 1, 2009, to a maximum of $625,500.
However, as part of the American Recovery and Reinvestment Act of 2009 signed into law this week, conforming loan limits in high-cost areas have been returned to their elevated levels of 2008.
You can see the text on the bottom of page 111 of 407.
Changes to conforming loan limits impact everyone with a stake in real estate, even if their neighborhoods are not considered “high-cost”. This is because conforming mortgages offer the widest selection of home loan products, and often at the lowest rates. The widespread availability of conforming mortgages helps to support home sales nationwide as well as providing ample refinancing options for people that need it.
Lenders have yet to pick up the change, but are expected to shortly. Once they do, more homeowners will be eligible for cheap home financing.
To lookup your neighborhood’s conforming loan limits, visit the HUD Web site. Or, if you have specific questions related to your home or an upcoming purchase, contact me directly anytime.
In Mesa, Arizona, Wednesday, the President presented the Homeowner Affordability and Stability plan, a multi-pronged effort to support the housing market.
The story made the front page of nearly every newspaper in the country.
The president’s plan is sweeping:
- Incent mortgage servicers to work with at-risk homeowners before delinquency starts
- Let homeowners with good credit but little equity refinance to today’s low rates
- Fund Fannie Mae and Freddie Mac to support mortgage markets
It’s a broad plan with many positive angles, but for now, we can’t forget that it’s just a plan. Although the White House shapes and influences housing policy, Congress, Loan Servicers, and the Federal Agencies must still implement and execute it. Until that implementation occurs, these reforms exist only on paper.
It’s a key aspect of the speech that’s not getting coverage.
One thing we learned during the stimulus package debate was that just because the President wants something to happen doesn’t mean that it will. There are always details to be worked out and that’s one reason why the Homeowner Affordability and Stability Plan couldn’t go into effect immediately. There are still loose ends to tie and details to define.
According to its website, the White House lists March 4, 2009 as the plan’s effective date. Until March 4, therefore, nothing in Wednesday’s speech is guaranteed.
The American Recovery and Reinvestment Act of 2009 was signed into law Tuesday in Denver, Colorado. Also on Tuesday, stock markets fell near their November 2008 lows.
The two moves are related.
With each new stimulus; with each potential jumpstart of the economy, Wall Street questions whether the federal push will be enough to make an impact.
Traders ended undecided on that issue yesterday, but resolute in something else — that whatever change stimulus bill brings, it’s not going to come fast enough to help.
The sell-off in equities was a boon to home buyers. For the first time since early-December, mortgage markets gave a sustained rally, extending gains from the 8:30 AM market open through the 4:00 PM market close. Conforming mortgage rates were down on the day.
Longer-term, though, it’s not likely that pattern will last. Not only will the stock market eventually find balance, but, more importantly, there was verbiage in the stimulus bill that increased the nation’s debt ceiling by 53.4 percent. Debt, of course, is often financed with the printing more money and that leads to inflation.
Inflation is the enemy of mortgage rates.
So, for now, the stimulus plan is helping mortgage markets, albeit indirectly. If you’re shopping for home loan, consider locking quickly. When markets flip — and they always do — it figures to be sudden.
(Image courtesy: Recovery.gov)
It looks like a propane tank, but this device is a washing machine, if you can believe it.
Pictured at right is the WonderWash, an environmentally- and budget-friendly laundry product that fits on a countertop and washes with even less water than hand-washing.
From Laundry Alternative, the WonderWash washes 5 pounds of clothes in just a few minutes with a couple of turns on the crank. Its internal pressure system forces detergent through clothes at very high speeds — up to 100 times faster than by a machine.
WonderWash is safe for delicates, too.
So how much is 5 pounds worth of clothes? It’s 10 t-shirts, 30 pairs of socks, or 2 pairs of jeans — the kind of stuff that needs a frequent wash and sometimes in a hurry. It’s great for camping and RV trips, too.
WonderWash comes with a 1-year warranty and a 30-day, money-back policy. It costs $42.95.
Consumer Confidence fell this month for the first time in three months, reflecting Americans’ concern for the economy, housing, and the financial system.
The reading isn’t much of a surprise given our collective exposure to a near-constant stream of negative news. Before long, the reports become a self-fulfilling prophecy.
Despite falling confidence, however, the housing industry appears to be reviving. Sales of existing homes are on the rise and an increasing number of homes are under contract to sell. And, if these statistics seem out of place, consider the external forces that are accompanying this “down” economy:
- In some markets, home values have plummeted to early-2000 levels
- Government intervention has brought mortgage rates to near-5 percent
- Congress is pledging key support to housing and mortgage markets
These points can’t be captured in confidence surveys which, by comparison, ignore facts and focus on Big Picture behavioral questions like “Do you think you’ll be better off a year from now?” and “What’s your attitude toward buying major household items?”. It’s useful information for economists, but not so much for home buyers.
Anecdotally, a lot of the country’s housing markets have already started their recovery. Couple that with the natural momentum of Spring Buying and the stimulus package’s proposed first-time home buyer tax credit and you can clearly see the disconnect.
Just because confidence is down doesn’t mean that home prices will be, too.