Questions to Ask Before Buying A Home

Questions to Ask Before Buying A Home

The Pros & Cons of Mortgage Debt

Basics

Houses are generally the most expensive purchase most people will make. In order to swing it, most people take out a mortgage. There are a few different types to consider.

FHA loans: For first-time homebuyers with little savings, the Federal Housing Administration, or FHA, has a loan guarantee program that allows first-time homebuyers to buy a home with as little as 3% down. Borrowers do have to pay extra to have the loan guaranteed by the FHA.

VA loans: Similarly, the Veterans Administration (VA) guarantees loans to service members and eligible surviving spouses. Loans backed by the VA might not require a down payment if the sales price is equal to or less than the appraised value. No private mortgage insurance is required, as the VA insures the loan. Even if you have less-than-perfect credit, you can get a loan at competitive interest rates.

Existing Home Sales Rise in April...

Chart of The Day: Median Single Family Home Is Still -42% Off Its Peak...

For some perspective on the all-important U.S. real estate market, today's chart illustrates the inflation-adjusted median price of a single-family home in the United States over the past 42 years.

Not only did housing prices increase at a rapid rate from 1991 to 2005, the rate at which housing prices increased -- increased. That brings us to today's chart which illustrates how the inflation-adjusted median home price is currently -42% off its 2005 peak.

That's a -$112,000 drop.

In fact, a home buyer who bought the median priced single-family home at the 1979 peak has actually seen that home lose value
(-13.7% loss). Not an impressive performance considering that more than three decades have passed.

It is worth noting that the median priced home is currently at the bottom of a price range that existed from the late 1970s into the mid-1990s.

Chart & Commentary Courtesy of Chart of The Day

The Housing Market Finally Showing Signs of Improvement...

Home Prices Still Falling: -3.4% Year-Over-Year...

Chart of The Day: Median Home Prices Still On The Decline...

The U.S. real estate market continues to struggle.

For some perspective, today's top chart illustrates the U.S. median price (adjusted for inflation) of a single-family home over the past 41 years while today's bottom chart presents the annual percent change in home prices (also adjusted for inflation).

Today's chart illustrates that, prior to the financial crisis, the inflation-adjusted median home price rarely declined more than -5% in one year (gray shading).

It is also very important to note that due to a large number of distressed properties, a high unemployment rate and stagnant wages, the inflation-adjusted median home price has declined -7.9% over the past year -- an annual decline larger than any that occurred during the 35 years prior to the financial crisis.

Chart & Commentary Courtesy of Chart of The Day

Chart of The Day: Median Single Family Home Is Still -38% Off Its Peak...

For some perspective on the all-important U.S. real estate market, today's chart illustrates the inflation-adjusted median price of a single-family home in the United States over the past 41 years.

Not only did housing prices increase at a rapid rate from 1991 to 2005, the rate at which housing prices increased jumped, too.

That brings us to today's chart which illustrates how the inflation-adjusted median home price is currently -38% off its 2005 peak.

That's a -$100,000 drop!

In fact, a home buyer who bought the median priced single-family home at the 1979 peak has actually seen that home lose value (a -8.5% loss adjusted for inflation). Not an impressive performance considering that more than three decades have passed. It is worth noting that the median priced home is currently in the bottom half of a price range that existed from the late 1970s into the mid-1990s.

Chart & Commentary Courtesy of Chart of The Day

The So-Called Housing Recovery Is A Mirage...

U.S. new home sales slumped badly in February ― down -16.9% month-over-month or -89% at an annual rate. While some may claim that adverse weather conditions played a role, the reality is that activity was down in every region of the country ― not only down, but to unprecedented lows, too.

How can anyone really be talking about a normal recovery when housing is still in depression?

Let’s talk about normal. What’s normal is that at this stage of the post-recession recovery, new home sales would have risen +27% from the time the expansion began ― not having sagged -37% to fresh all-time lows.

The big news was on pricing. No matter how far the builders cut production, demand continues to recede at even a faster rate. Median new home prices slid -13.9% month over month, following a -0.8% decline in January, taking them to $202,100 ― the lowest they have been since December 2003.

This may not be deflation as far as consumer prices go, but it is serious deflation on the most critical part of the household balance sheet. And sadly, more deflation is very likely on its way.

Chart and Commentary Courtesy of David Rosenberg of Gluskin Sheff

Housing Double Dip?

Home prices are at near their post-bust lows. January saw a double-digit dip in the number of new homes sold. Then Robert Shiller, Yale economist and co-founder of the S&P/Case-Shiller home price indexes, dropped this bomb: "There's a substantial risk of home prices falling another -15%, -20% or -25%," he said.

Besides, a home purchase is more than a potential investment, especially for families planning to stay put for a while. The big plus for them is the pleasure of living in their own homes. "People should base their decision on affordability, lifestyle choices and home preferences, not on investment," said Lawrence Yun, the National Association of Realtors' chief economist.

Buyers may take heart from some positive recent indicators, such as an up tick in the sales of existing homes in January; a drop in vacant rental homes; and more investors snapping up properties.

There's also been an upswing in the number of high-end homes -- those costing more than $750,000 -- being sold, according to Yun. The wealthy buyers of these properties have lots of choices of where to place their money and many are investing in real estate. "The smart money is making their move," said Yun.

Home Price & Foreclosure Outlook Remains Bleak...

Home prices continue to fall because sales aren't taking off. Without buyers, the market can't bottom out. 

New home sales continue to languish around historic lows, barely exceeding an annual rate of 307,000. Existing home sales did rise to a 4.53 million annualized rate in September, up +10% compared with a month earlier, but are still well below the boom years.

Of course, nobody is buying homes when they can't find jobs. And still more people can't hang on to their homes because they're out of work. 

Nearly 1 million homes are expected to be repossessed this year, and analysts seem to be competing to issue the most dire forecast for future foreclosure numbers.

- Morgan Stanley reported that about 3.1 million borrowers are seriously delinquent with many expected to lose their homes.

- Mark Zandi, chief economist with Moody's Analytics, says more than 4 million homes are in trouble with half of those expected to go to foreclosure.

- And Laurie Goodman, of Amherst Securities, estimates the number of homes in danger of foreclosure at a whopping 11 million!

- Real estate analyst Kyle Lundstedt, of LPS Applied Analytics, said serious delinquencies will continue to spike and will not return even to the current rates -- which are already at peak levels -- until late 2012 or early 2013.

Anemic Home Sales Could Sink The Recovery...

With home sales plunging to their lowest level in 15 years, economists warn that a double-dip in housing prices is just around the corner, threatening to further slow the recovery. 

Existing home sales sank -27.2% in July, twice as much as analysts expected, to a seasonally adjusted annual rate of 3.83 million units. Two months after the end of the tax credit, sales are -34% below April's tax incentive-induced peak.

"Home sales were eye-wateringly weak in July," said economist Paul Dales of Capital Economics. "It is becoming abundantly clear that the housing market is undermining the already faltering wider economic recovery. With an increasingly inevitable double-dip in housing prices yet to come, things could get a lot worse." 

The sales pace of all homes -- single-family homes, town homes, condominiums, and co-ops -- is at the lowest since NAR began tracking the figure in 1999. Sales of single-family homes, which account for a bulk of the transactions, are at the lowest level since May 1995.  Inventory has also continued to climb, rising +2.5% to 3.98 million existing homes for sale. That represents a 12.5-month supply at the current sales pace, the highest since October 1982 when it stood at 13.8 months. A 6-month supply is considered normal. 

The housing market and the broader economy are closely intertwined. When housing prices collapse, so does the overall wealth and confidence of Americans.

"Falling housing prices strain the overall confidence in the economy and discourage Americans from spending," Dales said. "They also mean that banks lose money on their investments and curtail lending, meaning there is less money out there to invest and boost the economy."

Existing Home Sales Plunge -27%

The latest report from the National Association of Realtors (NAR) shows that purchases of existing homes plunged -27.2% to a 3.83 million annual rate. The pace compares with the median forecast of a 4.65 million rate, according to a Bloomberg News survey. 

The number of previously owned homes on the market rose +2.5% to 3.98 million. At the current sales pace, it would take 12.5 months to sell those houses, the highest since at least 1999 and compared with 8.9 months in June. The months’ supply of single-family homes at 11.9 months was the highest since 1983, NAR said.  Sales last month fell in all 4 U.S. regions.  Foreclosures are boosting the so-called shadow inventory, and competing with owners trying to sell properties.

Home seizures increased almost +4% in July from the previous month, with 325,229 properties last month getting a notice of default, auction or bank repossession, RealtyTrac Inc. said August 12. 

Residential real estate may keep struggling for the rest of this year, while into “2011 and beyond, it is difficult to determine,” Richard Dugas, chief executive officer at Pulte Group Inc., said in an August 20 interview with Bloomberg Television. Pulte is the largest U.S. homebuilder by revenue. 

“Demand is low across the country,” Dugas said. “You have record-low interest rates and excellent pricing, but consumer confidence eased. We really need the economy to improve and job creation to take hold before people feel comfortable stepping into a home.”

U.S. Foreclosures Fall, Bank Repossessions (REOs) Hit Record High

The national foreclosure rate continued to fall in May from the previous month, according to a new report released Thursday.

The national foreclosure rate fell by 3.27% in May from the previous month.

However, bank repossessions reached a record high during the same month, a sign that lenders are focusing on their backlog of foreclosure inventory before tackling new distressed loans, according to foreclosure database website RealtyTrac, which released the report.

“What it looks like is that the lenders are focusing on processing the delinquent loans they already have rather than initiating new foreclosures,” said Rick Sharga, senior vice president of RealtyTrac.

Foreclosure activity dropped 3.27% in May from the previous month, and was up +0.45% from May 2009. In all, 322,920 properties generated a foreclosure notice.

1 in every 400 homes in America received a foreclosure notice in May. Bank repossessions (known as real estate owned properties or REOs) hit a record high in May for the second month in a row.

All 50 states reported a year-over-year increases in REOs, according to RealtyTrac. It is projected that over 3 million homes will receive a foreclosure notice over the course of this year, said Sharga.

The Cost of The Median Single-Family Home in Ounces of Gold

This chart represents the median single-family home price divided by the price of one ounce of gold. 

This results in the home / gold ratio or the cost of the median single-family home in ounces of gold. 

For example, it currently takes 153 ounces of gold to buy the median single-family home. This is considerably less that the 601 ounces it took back in 2001. 

When priced in gold, the median single-family home is down -75% from its 2001 peak and remains well within the confines of its 5-year accelerated downtrend. 

"Gold is forever. It is beautiful, useful, and never wears out. Small wonder that gold has been prized over all else, in all ages, as a store of value that will survive the travails of life and the ravages of time."  - James Blakely

Chart & commentary courtesy of www.ChartofTheDay.com