It's a Great Time to Buy a Home

The National Association of Realtors just reported that sales of single-family homes and condominiums fell against in January. This means existing homes fell for the sixth straight month, putting more inventory than ever on the market. The median price of a home sold also fell to just over $200,000, a 4.6 percent decrease from a year ago.

Although January saw another decline, it was much less than previously expected, which means we may be seeing a leveling out in the decline of the home market. With existing and new home inventory levels increasing and with banks continuing to tighten credit, this is a great time to buy a new home. It’s a buyers’ market out there, especially if you’re one of the few who can get a home loan.

Although home prices in certain regions of the San Francisco Bay Area have not fallen as much, there are still areas in the East Bay such as Oakland, Hayward, and Union City and areas outside of the core Bay Area such as Fresno, Stockton, and Sacramento which have seen huge declines in home prices. Even in desirable areas such as Cupertino, Saratoga, Los Altos, and Palo Alto, there are fewer buyers on the market, and more homes for sale. This means less competition as a buyer. If you can afford a home, now is the time to get into the market and become a homeowner.

D.R. Horton Reports First Quarter Loss

In D.R. Horton’s first fiscal quarter for the three months ending December 31, 2007, the company reported losses of 41 cents per share, or $128.8 million dollars. There were various inventory write-off and charges taken for abandoned land options.

Operations generated $588 million. However, new homes sales orders plunged nearly 52% from 8,771 to 4,245 homes. The cancellation rate buy buyers skyrocketed to 44%, showing weak consumer sentiment and continued bullishness in the housing market. It’s expected that the overall tough housing market and strict lending practices will continue to hurt home builders.

However, if you’re in the market for a home, and you have a good credit history and credit score, now might be the right time for you. Home builders are offering a lot of incentives and rebates, such as upgrades, appliances, move-in specials, deep discounts, and financing specials.

President Bush Signs Economic Stimulus Bill and Increases Conforming Loan Limits

Now that President Bush has formally signed the Economic Stimulus Bill into law, it's a matter of time before we consumers feel the trickle down effects. Refund checks are expected to be in the mail in May.

Even better news, as I had written about before, is that the conforming loan limits will now increase. The current $417,000 limit will be temporarily raised to 125% of median home values, which can translate to conforming loan limits of up to $729,750. As we mentioned before, this will have a huge impact in ares with high median prices, such as San Francisco, Palo Alto, Cupertino, Los Altos, Saratoga, and really the entire SF Bay Area.

The key to this limit is that it is temporary, so make sure you have your paperwork in order and make sure you talk to your mortgage agent to see when rates fall and when it's time for you to refinance. This can save you thousands of dollars in the long run.

Will Project Lifeline Really Save Anyone?

A new initiative called Project Lifeline was just launched by six of the largest banks and lenders in conjunction with the U.S. Treasury and the Department of Housing and Urban Development. The lenders include Bank of America, Citigroup, Countrywide, Wells Fargo, Washington Mutual, and JP Morgan Chase, which together represent about half of the mortgages in the U.S.

Unlike previous initiatives which targeted subprime loans, this plan address all types of home loans, including home equity loans. For borrowers who are more than 90 days late in payments and facing foreclosure, this plan will pause foreclosure proceedings and give homeowners 30 days to negotiate new payment terms with their lender.

While this is a step in the right direction and may help some borrowers, only a fraction of loans are expected to be serviced under this agreement. Unfortunately, the bill doesn’t go far enough to help home owners who are facing huge mortgages and declining home values. For most home owners, simply walking away from their homes rather than paying off a mortgage much larger than their home value is a more attractive option.

In the Bay Area and large metropolitan areas of San Francisco, this program may indeed help those who need some time to sort out finances and work out new terms with a lender. Although home prices are declining in California as well, most of the Bay Area is not seeing the huge declines that other areas are experiencing. In fact, some areas such as San Francisco have still seen an increase in home prices. If you are in trouble, reach out to your lender to see if terms can be negotiated and what loan modifications can be made. It’s a win-win for both sides if a foreclosure can be avoided, and it’s best to ask for help before you’re delinquent in your payments.

Additional Fed Rate Cuts in Doubt

Federal Reserve officials cast doubt on further rates cuts due to two recent sharp cuts and increased concerns over inflation. This news comes at a bad time during this earnings seasons when little good news has been seen. Bad earnings, combined with job losses, slow service-sector growth, low consumer confidence, and housing troubles is leading to a very pessimistic outlook.

Without further Fed rates cuts, decreases in mortgage rates, especially 30-year loans, are unlikely. Banks borrow money from the Fed, and if rates at which they borrow aren’t reduced, banks are unlikely to take on further risk and reduce mortgage rates.

What this means is that it is a great time to shop around for mortgage rates. Economists predict there will be an economic slowdown most of 2008. After this, when the economy rebounds, you can expect interest rates and home prices to do so as well.

Why the Economic Stimulus Bill Matters

Why should a home owner or potential buyer care about the proposed Economic Stimulus Bill passed by the House of Representatives? I’ll answer this in a bit. A conforming loan is one that conforms to GSE guidelines. Loans that don’t meet conforming loan standards due to their large size are called jumbo loans. Interest rates on conforming loans are typically at least 1 percentage point or more lower than compared to non-conforming loans such as jumbo loans.

Currently, Fannie Mae and Freddie Mac have set conforming loan limits at $417,000 for a single home loan. In the San Francisco Bay Area (especially areas like Palo Alto, Cupertino, Los Altos, Hillsborough, Saratoga, San Francisco), with median home prices well over $500,000 and $600,000, nearly all home loans would be classified as jumbo, non-conforming loans. This means nearly everyone is paying at least 1 percentage point higher on their mortgages. Can you imagine what a 1 percentage point decrease on your mortgage would do to payments? For every $100,000 borrowed, you typically save around $65 for each percentage point lower your loan rate is. This means if you’re borrowing $600,000, you’re paying nearly $400 more per month.

Back to the Economic Stimulus Bill and why it matters to you besides the rebate check you may see in the mail. In this bill, there is a provision to temporarily increase the conforming loan limit up to 125% of the median home price for an area with a cap of $729,750. If the bill passes, this means you can refinance your loan and get at least 1% off immediately since you would be applying for a conforming loan.

The best thing to do is to start researching mortgage brokers. If the bill passes, this provision is only valid until the end of 2008. Once this bill passes, you can bet there will be a mountain of refinances, and you don’t want to be caught at the back of the line.

Home Builders Offering Price Guarantees

In a first of its kind for the housing market, home builders such as KB Homes and Ryland are offering buyers price guarantees on their new homes. KB and Ryland have been fairly quiet about these offers, so make sure to ask about them in your market no matter which builder you purchase from.

What this means is that prior to moving in, KB and Ryland will guarantee the price of your home does not drop. If it does, they will credit you the difference. Although this has made some home buyers feel more safe and secure, this doesn’t guarantee you’ll be protected if a home’s value plummets after you move in. However, this is one of the best buyer protection programs we’ve seen, and it illustrates how desperate home builders are becoming.

Currently, KB and Ryland are offering this program in select markets. KB has expanded this program from Florida into 35 markets across the nation, including Arizona. Chances are likely they offer this program where you’re looking to buy.

Taylor Woodrow Homes and Morrison Homes Merge

Taylor Woodrow Homes and Morrison Homes have merged to form Taylor Morrison, which is now the 15th largest home builder in the United States. Both companies are owned by the United Kingdom’s largest home builder, Taylor Wimpey PLC. However, this signals a potential for consolidation among home builders, especially as economic conditions worsen in the U.S. and the housing market continues to slide.

Taylor Morrison’s Silicon Valley communities include Morgan Lane in Menlo Park; Hawthorn Place, Marburg Place, Hampton Park, Modern Ice, and Spyglass Hill in San Jose; and Verona Ridge in San Mateo. In the U.S. Taylor Morrison is involved with more than 280 communities in Texas, Colorado, Nevada, Florida, and Arizona.