May 27, 2008 – Two figures were released today, one showing that home prices dropped 14.4% from a year ago and the other showing that sales of new homes are at their lowest level since 1991 (sales of new homes are down 42% from a year ago while sales of existing homes are down 20% so far this year).

With 4.5 million home on the market nationwide, it’s a buyer’s market - except that there are few buyers. The main reason is because lenders have tightened their policies making the no-money down, no proof of income, easy credit loans a thing of the past.

However, lending standards today are not that strict historically. They have only reverted to the standards we had at the end of the 1990’s, so people with good credit and a down payment can still qualify.

How it works: The FHA still (and has always) offers home loans with 3% down payments to practically all first time buyers (loans up to $729,000).

What if you don’t have the 3%?  The FHA allows family and friends to give you a “gift” of the down payment. No family and friends to help out? A loophole lets a non-profit give you the down payment.

Who are these non-profits? They are sellers or homebuilders, such as Shea Homes, Lennar and Pulte Homes to name a few. With builders anxious to unload homes, they simply route the 3% down payment you need through a non-profit as a back door way for you to fulfill the FHA loan requirements.

In most cases, the sellers simply raises selling price of your home by 3% to cover the down payment they are giving you. A win-win? Maybe not. Buyers who get their 3% down payment gift from the seller have a default rate 3 times as high as people who come up with the down payment on their own.

Still,  it’s perfectly legal and a great way for people without a down payment to buy their first home.

Freddie Mac released its Primary Mortgage Market Survey® (PMMS®) on May 2, Friday. Mortgage rates did not change much due to concerns about higher inflation and weaker housing market, according to Frank Nothaft, Freddie Mac vice president and chief economist.

“Additionally, in its most recent policy committee statement on April 30, the Federal Reserve (Fed) indicated it expects inflation to moderate in coming quarters but uncertainty about the outlook for inflation remains high. However, the Fed did note that financial markets remain under considerable stress and tight credit conditions, along with the deepening housing contraction, are likely to weigh on economic growth,” Nothaft said.

Freddie Mac’s latest survey showed the following:

• 30-year fixed-rate mortgage (FRM) averaged 6.06 percent, with an average 0.5 point for the week ending May 1, 2008, slightly up from last week’s 6.03 percent average. A year ago around this time, the 30-year FRM averaged 6.16 percent.
• 15-year FRM averaged 5.59 percent this week (ending May 1). It averaged 0.5 point for the week, down from last week’s 5.62 percent average. Compared to last year at this time, the 15-year FRM averaged 5.87 percent.
• 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.73 percent this week, with a 0.5 point average , higher than last week’s average of 5.68 percent. Last year, the 5-year ARM average was 5.87 percent.
• 1-year Treasury-indexed ARMs averaged 5.29 percent this week with an average 0.6 point, no change from last week’s 5.29 percent. Same time a year ago, the 1-year ARM averaged 5.42 percent.

Home prices dropped 8.4% percent (10-City Composite)  in November, the largest drop since Standard & Poor’s began reporting prices in 1987. This latest plunge will only accelerate the price drop as more and more people are unable to refinance due to falling values. This, despite the lowest refinance rates since 2003 (now averaging 4.95% for a 15-year fixed).

Of the largest 20 cities, only 3 cities showed prices going up: Charlotte, Portland, OR and Seattle. Miami was the biggest loser, dropping 15.1% percent. San Diego dropped 13.4%, Las Vegas 13.2% and Detroit 13.0%.

Top 20 Cities
Atlanta - down 2.0%
Boston - down 3.0%
Charlotte - up 2.9%
Chicago - down 3.9%
Cleveland - down 5.8%
Dallas - down 1.2%
Denver - down 3.1%
Detroit - down 13.0%
Las Vegas - down 13.2%
Los Angeles - 11.9%
Miami - down 15.1%
Minneapolis - down 6.6%
New York - down 4.8%
Phoenix - down 12.9%
Portland - up 1.3%
San Diego - down 13.4%
San Francisco - down 8.6%
Seattle - up 1.8%
Tampa - down 12.6%
Washington, DC - down 7.8%

The Commerce Dept. reported yesterday, September 27, that sales of new homes dropped 8.3% in August, the lowest level in 7 years. Prices also fell by 7.5% from a year ago to an average of $225,700. This was the biggest drop in percentage terms in 37 years.
If your payments have recently or will soon increase, you may be able to roll back the increase by refinancing before your next payment is due on October 1.

Despite what you’ve heard, most people still have the ability to refinance their payments, especially if they need less than $417,000. See what’s available by getting a simple online quotation.

A big oversupply of property will bring U.S. house prices down further but it’s too early to say if this will plunge the U.S. economy into a recession.

Alan Greenspan, the former Federal Reserve Chief also said in his interview with Format Magazine that low interest rates over the past 15 years were to blame for the house price bubble (rates were just lowered another 0.5% this week).

“Many buildings which just have been finished can’t be sold”, he said.

About prices, Greenspan said “so far, prices have only dropped slightly” and continued “Prices are going to fall much lower yet”. His remarks are certain to further shock the real estate market. See the one year moving average of your own homes worth by going here.

The study, released today by ACORN, the Association of Community Organizations for Reform Now, shows that African-Americans are 180% more likely to have a high-cost loan while Hispanics are 140% more likely. Homeowners who took out a home loan in the past few years are at a higher risk of foreclosure due to the higher cost of these loans and resetting payments - especially for African-American and Hispanic homeowners. The study found that most of these high cost loans are in the South and that 40% of people who took out loans since 2006 are burdened with these loans, whose payments are larger than they should be. The larger risk is to homeowners facing falling home prices and rising payments, which makes refinancing more difficult.

Sadly, most could have qualified for lower payments: Many borrowers, even those with good credit were steered to these “high-cost” loans, even though they could have qualified for a conventional fixed, lower-cost rate. If you are seeing your payments rise, note that as of this writing, there are still lenders willing to refinance. Check if you can stop payment increases by refinancing your home or condo because there are still lenders who welcome your business. Note: According to BankRate.com, it’s more important now than ever to shop around with many lenders for your best rate. In one day, loans were being offered in one city from between 6.40% to 8.10%. The difference: $576 per month on a normal 30 year fixed rate loan. It also important to get an approval, a rate lock and an estimate of closing costs ASAP, and in writing. With lenders folding left and right, unless it is in writing, you are taking a big chance your loan will not be there when you are ready to close escrow.

For the first time since statistics began in the 1950’s, nationwide home prices are expected to fall this year, with further price falls in 2008 and 2009.

This is bad news for the 2/3’s of Americans who own their own homes, but good news for the 1/3 of Americans who are renters and might benefit if it costs less to buy a home.

In past decades, families used the equity in their homes as a sort of piggy bank, borrowing money against their house and increasing their spending with the extra cash. With slumping home prices, that financial cushion has disappeared for many families.

One analyst, Global Insight, expects prices to fall 10% in inflation-adjusted terms between this year and 2009. In some states, such as California, prices are expected to fall 20% after taking inflation into account.

You can see the 1-year moving average of your homes price by plugging in your street address and zip code on the main page of this website.

You can also benefit by refinancing your home now (get cash out), before lending standards tighten further and/or before your home value falls further.

If your equity dries up, your home won’t appraise for the refinancing you are looking for and you will remain locked in your current high payments.