Wednesday, May 23, 2012

Housing Headed UP

More good news from the housing market. The number of home resales rose in April nationwide, and median sales prices rose, too. The former is a function of an improving market conditions; the latter a function of the actual homes getting sold.

Existing Home Sales Up 10% Since Last Year

In its April Existing Home Sales Report, the National Association of REALTORS® reports 4.62 million homes sold on a seasonally-adjusted, annualized basis. This is the second-highest reading since May 2010, the month after the expiration of that year's federal home buyer tax credit.
It's also a 10% increase over April 2011, a noteworthy statistic in its own right.
Since late-2011, the housing market has been improving. Steadily, home sales have moved higher; builder confidence has reached multi-year heights; and, in many U.S. markets, home values have climbed. On a month-to-month basis, it's hard to spot longer-term trends. Beginning this month, it should become easier.
We're only now beginning to see the effects of the government's massive market interventions. As the housing market improves through 2012, 2013 and 2014, we'll look back at Spring 2012 and dub it the "turnaround".

3 Years Later, Markets Respond To Stimulus

Along with the U.S. economy, the housing market cracked in mid-2007. The government stepped in, adding spot-stimulus where Congress deemed necessary. By mid-2008, though, with the economy still stalled, elected representatives hatched larger, more wide-reaching stimulus plans.
Some programs were passed, many were not. The housing market, though, received its fair share.
Since 2009, in broad categories, the housing market has been subject to (1) Home buyer federal tax incentives meant to spur home buying, (2) Mortgage market stimulus meant to make homes more affordable, and (3) Legislative and judicial efforts meant to promote fair and expedited foreclosures.
It's taken 3 years to take hold, but we're finally seeing results. April's Existing Home Sales data shows how the housing market stimulus has moved the market forward.

The Housing Recovery's Foundation Is Built

There have been tomes written about the housing market's collapse last decade; and who's to blame; and how it happened. Those arguments take a macro approach, focusing on the U.S. economy, the bets of Wall Street and financial instruments known as mortgage-backed securities.
From a micro-angle, the conversation looks different. There were really only two reasons why the housing market tanked between 2007-2010 :
  1. Home sellers could not (or would not) sell their homes
  2. Self-employed and commissioned workers could not (or would not) get a mortgage
It's these micro-issues that the government attempted to relieve. And, as we're seeing now, those attempts were successful.
When Congress passed the first version of its home buyer tax credit, the credit was for first-time buyers only. The program was meant to add new home buyers to the housing pool, creating demand for "entry-level" homes.
Of course, the sellers of these entry-level homes need a place to live, too. They become what's known as a "move-up" buyer and, in this way, one home sale becomes 2 or 3 homes sold. Real estate is a trickle-up business.
The first-time home buyer tax credit program was deemed effective and was eventually expanded to include buyers of all types -- not just first-timers.
This built the foundation for the housing market's recovery.
And, meanwhile, as this all was happening in housing, stimulus for other parts of the economy were gaining traction.  After a terrible run as a result of the economy, many businesses returned to profitability in 2010 and business spending resumed rising. This reversed the annual income decline that most business owners and commissioned salespersons experienced between 2007 and 2008.
Mortgage underwriters don't like to see declining income. As a result, many self-employed mortgage applicants -- especially the high-income earning households -- found themselves turned down by their respective banks during 2009, based on the adjusted gross income shown on the prior year's tax returns.
The country's move-up buyers, therefore, got stuck. Owners of jumbo and luxury homes couldn't get financing to move out. So, they stayed.
Today, with the economy moving forward, these homeowners can show strong income, and get be approved for their next mortgage. The housing market's ceiling is lifted.

High-Valued Homes Lead The Housing Recovery

When we look at April's Existing Home Sales report in the context of government stimulus, it makes complete sense that home sales in the sub-$100,000 price range fell over the last 12 months but that all other price ranges improved.
Last year, the foundation was built. This year, it's the trickle-up effect.
Move-up buyers are leading the recovery. Higher price points should continue to fare well through the rest of 2012 while lower-priced homes sell well, too, but without the effects of direct market stimulus.

Build Your Housing Budget Using Today's Mortgage Rates

Today's home buyers -- first-time buyer, move-up buyer, or investor -- can benefit from low mortgage rates and a recovering housing market. Home values are higher in many U.S. cities but all-time low mortgage rates have made homes more affordable than ever before.
Even in the jumbo housing market.
To buy a home, get started with a budget. Get today's mortgage rates and know your housing payment.