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The Housing Market After Life Support...

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Posted 05-06-2010 at 08:24 PM by Roy Sanborn

There were 1169 residential homes available as of May 1 in the communities in this Lakes Region of NH real estate report. That is up from the 1083 homes that were on the market in May 2009. The current inventory level represents an 18.4 months supply of homes on the market.
Home sales will have to increase significantly in order to bring this high inventory level down to a more reasonable level. Unfortunately (or maybe fortunately), the housing market has been taken off life support. The first time home buyer credit of $8,000 has expired (they pulled the plug so to speak) and I don’t think that is necessarily a bad thing. No one can stay on life support forever. It will be interesting to see what happens moving forward with sales of homes under $200,000. Many first time buyers took advantage of this stimulus and as a result 56% of the homes sold last year in the Lakes Region were under $200,000. While propping up the housing market by stimulating sales was very necessary and essential to helping stabilize our economy, everything does comes at a price and someone has to pay for it. In this case it was us, the American taxpayer. The $8,000 tax credit worked well and helped many first time buyers buy homes and also kept the inventory levels from getting even higher. Now we just need to find a way keep that positive momentum going.

There will probably be some creative marketing by real estate agencies, banks, and mortgage companies promoting special incentives to keep the home buying ball rolling. I saw an article recently about a real estate company and a mortgage company teaming up in Florida to offer “The Home Buyer Mortgage Credit” to offset the loss of the government program. It touted that that agency’s participating home sellers would be offering 3% of the purchase price back to buyers to be used toward closing cost. Also the mortgage company was reducing its rate by 1% for the first year. I’m not sure that this “Home Buyer Mortgage Credit” is really anything new, but it was packaged to try to create some excitement and interest for potential buyers.

Sellers often agree to pay 3% cash back to the buyer at closing if it is necessary to make a deal happen. That 3% back helps a cash strapped buyer who may have enough money for the down payment but can’t cover his closing costs. Sometimes the seller won’t (or can’t) contribute to the buyer’s closing cost because he needs to recoup a certain amount of money. In those cases the 3% needed by the buyer for closing costs can get added on top of the purchase price as long as the property will appraise at the agreed upon price. In this case the buyer is still paying his closing costs, but he’s paying over time by rolling them into his mortgage.

Home buyers have also always been able to ”buy down” the interest rate on a home mortgage by paying points up front. The mortgage company in Florida says they are paying to reduce the interest rate, but just by 1% and just for one year. That probably costs them around $2,000 which may be money well spent if it creates a lot more sales volume for the lender. However, there is no way to know whether this incentive is a good deal or not until you know what the rate of the loan is and what other fees are associated with the loan. With this, or any program offered, you have to compare it with other lender’s programs to make sure you are getting the best deal possible and that there are no hidden costs. There will be more “incentives” offered in some form or another, but to me the best “incentive” for a buyer is finding a great home at a really great price.

Let’s hope the market will continue to improve over time on its own without the help of tax payer dollars. Artificially stimulating the housing market by providing loans to marginally qualified buyers, then disguising, packaging and reselling the loans to investors who didn’t know what they were buying is what got us into this whole mess to start with. But that’s all old news. Our free market system is generally pretty resilient, so let’s see if buyers and sellers can work out the incentives between themselves without any resuscitation. That’s the way it is supposed to be…

Roy Sanborn
Roche Realty Group
97 Daniel Webster Highway
Meredith, NH 03253
Direct: 603-677-8420
Cell: 603-455-0335
Fax: 603-279-7604
Posted in Real Estate
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