Drop in mortgage rates leads to jump in affordability

Drop in mortgage rates leads to jump in affordability

Minneapolis, Minnesota (December 10, 2008) – According to the Minneapolis Area Association of REALTORS®
(MAAR) based on data from the Regional Multiple Listing Service of Minnesota, Inc., a combination of substantial
declines in mortgage rates and the continued downward movement of home prices is leading to an unusually
attractive affordability environment.
Mortgage rates declined well into the 5 percent range
in the last month—the best rates of 2008 and the most
attractive since 2003. Add November’s tantalizingly
low median sales price of $175,000—down 19.2
percent from the same time last year and the lowest
November showing since 2001—and you have
extremely healthy affordability.

It is absolutely ‘go time’ for anyone interested in
making an affordable home purchase,”said Kevin
Knudsen, MAAR President. “The current combination
of low prices and low rates is unprecedented.”

MAAR’s Housing Affordability Index (HAI) jumped 19 points in the last month, and currently sits at 180. This is up
27.7 percent from last December’s mark of 141 and is the highest recorded HAI since we began tracking the data in
1990.
Lender-mediated home sales, which accounted for 53.5 percent of pending sales and 47.3 percent of closed sales,
posted a November median price of $130,881. This is a drop of $5,000 from last month and a decline of 20.7
percent from last year. Traditional properties, which exclude foreclosures and short sales, had a November median
sales price of $225,420, a decrease of 2.0 percent from last year.
The stark differences in home prices between the lender-mediated market and the traditional sales market has led
to two very different market segments, each comprising roughly half of total market activity. Foreclosure and short
sale prices are falling fast as banks aggressively price their homes, while the traditional market is more effectively
maintaining its value as buyers appear willing to pay a fair-market price for “turnkey” properties that are closer to
move-in ready. The one thing each market segment has in common is a large increase in affordability thanks to the
recent drop in mortgage rates.
“Buyers are being rewarded by market conditions that have continued in their favor all year,” said MAAR President-
Elect, Steve Havig. “Mortgage rates haven’t been this good in five years.”

Nation: Mortgage Rates Dip For 4th Straight Week!

30-year mortgages fell below 6 percent and are heading lower due to the government's massive new effort to aid the U.S. housing market. The Fed's move to spend up to $600 billion buying mortgage-backed securities owned or guaranteed by Freddie Mac and Fannie Mae caused rates to drop immediately by one half-point. Rates on 30-year fixed-rate mortgages dropped to 5.97 percent down from 6.04 the week previous. Rates on the 30-year hit a high for 2008 of 6.63 percent in July.

Holiday Season Opportunity For Today's Sellers

Holiday Season Opportunity For Today's Sellers

If you're getting ready to sell your home, doing so this season offers some real advantages. Although spring is the traditional high season for home listings and sales, it isn't necessarily a better time to sell. By waiting until spring to list your home, you could face more competition from other sellers. In addition, interest rates could be higher by then, discouraging some would-be buyers.

Here are more great reasons to consider listing your home now:

Motivated buyers. With fewer buyers in the marketplace during fall and winter, home shoppers tend to be more serious about purchasing. Consider that many corporate moves are made during December and January. Transferees need to find new homes fast--perhaps in your neighborhood!


Fast start for kids. Some experts advise parents that the transition to a new home can be smoother for some kids when they are moved during the school year--rather than spending the summer "friend free." Starting at a new school immediately upon arrival in the area helps kids establish routines more quickly.


Seasonal charm. Selling your home during cooler weather or over the holidays heightens its "warm" appeal. Keep your home bright by turning on lights and opening curtains and shades.


Call us today

Metro: Market Gains Momentum

Driven by bargain hunters and first-time buyers, the local market is feeling an uptick. Joel Jordan was pleasantly surprised when the house he fell in love with in Stillwater, dropped in price by nearly $30,000 and making it affordable. He had looked at about 40 houses, mostly foreclosures and fixer-uppers. Despite an almost daily dose of dim economic news, the Twin Cities metro area is gaining some momentum. Pending home sales rose 6.9 percent during October from a year ago. It was the fourth consecutive month of year-over-year increases. Closed home sales for the year are still almost 5 percent behind last year, but rose 12 percent in October. A growing share of those sales were distressed sales which help drive down the median sale price and those prices are now approaching levels not seen since the beginning of the decade.

Nation: Rise In First-Time Buyers, Long-Term Plans

The 2008 National Association of Realtors Profile of Home Buyers and Sellers shows first-time buyers have risen and they plan to own their homes longer than buyers in the past. Lawrence Yun, NAR chief economist, "First-time buyers are more flexible in entering the market because they aren't concerned about selling an existing home. Given low home prices, plentiful supply and affordable interest rates, it's been an optimal time for entry-level buyers with a long term view. The number if first-time buyers rose to 41 percent from 39 percent of transactions last year and 36 percent in 2006. The median age of first-time buyers was 30, down from 31 in '07 and the median income was $60,000. The typical first-time buyer purchased a home costing $165,000 and plans to stay in that home for 10 years, up from seven years in 2007.

Metro: Housing Researcher Finds A Ray Of Sunshine

spotted some encouraging signs in residential construction trends. Closed sales of newly built homes in the Twin Cities came in with a 23 percent decline compared wit the previous 12-month period. The silver lining? It's one of the mildest year-over-year declines recorded since 2005 says Jones. Jones also noted that the inventory of finished vacant homes on the market dropped by a third to 2,377, during the third quarter of 2008. Homebuilders have been trying to work through that supply because these spec homes exert a downward pressure on overall prices. These bits of relatively good news in the MetroStudy report to build on some other positive signs for homebuilders. For example, the U.S. Commerce Department reported that new home sales unexpectedly rose to 2.7 percent in September, although median sale prices dropped too. The Minneapolis Area Association of Realtors reported a 42 percent increase in pending sales for September. Despite the silver lining, there's no denying the clouds; the financial crisis, more restrictive credit policies, the psychological affects of falling prices and foreclosures.

Today’s Market Commentary. Slightly higher rates today.

Commentary: The mortgage market was bounced around a little this morning by the Bank of England’s stunning 150 basis-point cut in short-term rates, well in excess of the most aggressive forecasts calling for a cut of 50 basis-points. .Short-term interest rates in Britain are now at their lowest level in more than 50 years.

The sudden swoon in mortgage prices this morning suggest that mortgage investors are beginning to believe that the massive effort by the world’s central bankers will ultimately prove to be effective in jump starting the global economic engine. Rate cuts are viewed as leading to a greater demand for capital which in-turn ultimately leads to higher interest rates.

Closer to home the Labor Department said initial jobless claims for the week ended November 1st fell by 4,000 drew nothing more than a passing glance from mortgage investors. In a separate report the Department said third-quarter Productivity grew at a very anemic 1.1% pace while unit labor costs climbed 3.6%. While the unit labor costs increase is a bit disconcerting, most analysts see virtually no reason to fear a resurgence in wage driven inflation pressures.

The media channels are full of text and talk regarding the recession – and some even talking about an extended recession. As usual these “talking heads” fail to provide much perspective in terms of the time this economic condition might prevail. I think it is worth noting that since the Great Depression, there have been six major recessions; the recession of 1953, 1957, the 1973 oil crisis recession, the 1980 recession following the Iranian Revolution, the 1990’s recession and the early 2000 recession brought on by the collapse of the dot-com bubble. Three of these recessions lasted two years – and the other three lasted one year – start to finish.

If, as many suggest, the current recession began in mid-2007 -- we should reach the point at which economic activity begins to show a notable and sustained improvement somewhere between March and June of 2009. We personally find it hard to believe that $10 trillion in stimulus provided by the world’s central banks -- together with massive cuts in short-term interest rates -- will fail to have its intended effect of freeing the economic pendulum from the current recessionary mire. If our assumption is accurate, look for the economic pendulum to get a very healthy push in the direction of accelerating growth as the largest amount of cash and cash equivalents the world has ever seen that is presently sitting on the sidelines gets deployed.