WEEK IN ADVANCE
|A full economic calendar in the coming week yields the latest data on the consumer, manufacturing, housing and third-quarter GDP. Midweek, the Fed will decide on monetary policy. Expectations are for an additional half-point rate cut after the emergency half-point easing earlier this month to help counter escalating economic weakness. The Treasury will also hold its regular monthly auctions of 2-year and 5-year notes in larger offering sizes than previously to help finance the bailout package and fund other lending facilities. Large amounts of new supply in the bond market typically lower prices and raise yields. Colorado Springs Properties are abundant! Click here to check out my website.|
Not wanting to be involved in financing "buy and bail" home purchases, the Federal Housing Administration will no longer count rental income when home buyers choose to vacate, rather than sell, their principal residence.
Home buyers seeking to rent out their existing home and buy another with an FHA-backed mortgage must now demonstrate they have sufficient income to pay both mortgages. The FHA won't allow lenders to count rental income for the home being vacated unless borrowers have a 25 percent equity stake or can prove they are relocating for employment and obtain a one-year lease on the home being vacated.
The new rules are intended to prevent the practice known as "buy and bail," where the buyer purchases a more affordable dwelling with the intention to cease making payments on the previous mortgage. See link for HUD’s mortgagee letter http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-25ml.doc
Because FHA will insure principal residences only, and not income properties, the property being vacated by definition could not have an FHA-insured mortgage (unless it falls under the exception ruling*). But FHA feels that if the property ended up in foreclosure, it might have an impact on the value of nearby homes with FHA-guaranteed mortgages as well as the industry as a whole. The new rules took effect Sept. 19 (we are given a four hour notice!), and are temporary pending a determination whether a permanent rule change is needed. The rules apply only to a principal residence being vacated in favor of another principal residence, and not to existing rental properties disclosed on the loan application and confirmed by tax returns (with at least a year of being reported on Schedule E).
*When can you have two FHA loans at the same time?
A buyer cannot have two FHA loans at the same time unless:
1) The second FHA loan is for a primary residence and the old home which has the current FHA financing is not in a "reasonable driving distance to the first one" from the new one. An example would be: First home with FHA financing is in New Mexico and they are being transferred here with their company. Since the first home with FHA financing is not in a "reasonable driving distance" from the next home, the buyer can obtain another FHA loan. Note that they would have to qualify for both payments or have a 12 -month lease agreement against the first one (The 12-month lease can only be used to offset the mortgage payment provided that there is 25% equity in the first one OR they are relocating for employment).
2) The second exception of when a buyer can have a second FHA mortgage has two parts (and both parts must be satisfied): A) Current home with FHA must have 25% equity into the home (as per an appraisal) AND (not OR) B) must be able to prove increase of family size (i.e., births of additional children) so that the current home does not now adequately fit the family needs. Note that they would have to qualify for both payments or have a 12 -month lease agreement against the first one.
3) And third exception of when a buyer can have a second FHA mortgage at the same time is if they are non-occupying co-signing for someone. If the parents already had an FHA loan on their current property and they are Non-Occupying co-signing, that is OK.
4) The forth exception would be if a husband and wife are on an FHA mortgage and they get a divorce. The divorce decree specifically awards the home to one spouse. This would release the other spouse (the one not awarded the original home) to obtain their own FHA financing on another home.
Obviously in any situation, if a buyer has FHA financing on their current home and it is sold, then that would release them to obtain an FHA loan again.
|Recent data point to recession. Extremely light data flows in the week ahead will provide little to further the outlook. Pricing pressures and interest rates are expected to ease during the downturn. In my opinion, Colorado Springs is not feeling the turbulence as much as some other cities. Check out some of my great Colorado Real Estate buys at http://www.KathyStenberg.com.|
Well today was another day of huge swings for both the stock market and Mortgage Bonds. Mortgage Bonds tried to rally early in the session by moving 82bp higher from a lower open, but then swung 119bp the other way to resume its downward trend with a loss of 81bp. The bond market fought lower bond trading volumes and news of a global coordinated effort by the world’s major economic powers to guaranty inter-bank loans and allow governments to purchase stock in troubled banking firms.
This put investor concerns over the credit crunch more at ease while many Fed analysts feel the Fed will cut short-term interest rates by 25bp to 50bp at their next FOMC meeting at the end of October. This sentiment also pressured bonds lower as did news of S&P ratings downgrades on debt issuers. S&P downgraded 227 issuers affecting $1.8 trillion of rated debt in U.S. dollars and $1.3 trillion rated in Euros.
The day’s big news came from the Bush Administration including Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke, and FDIC Chairman Sheila Bair when they announced a plan to use $250 billion of the $700 billion appropriated in the financial rescue bailout bill recently passed by Congress. The government will begin by buying stock in nine of the largest banks including Bank of America, JPMorgan Chase, and Citigroup.
This is a very good idea and is an impressive effort by the government to stabilize the financial markets. As we have talked about, the over leveraged banking system is mostly due to accounting regulations. As losses are taken, it reduces (on paper) the net worth of institutions, which then see their ratio of loans to capital skyrocket. The only ways to de-leverage are 1) to sell off the loans – and in this market, that means at “fire sale” prices, which add to losses, exacerbate the problem, and that is why, in part, we are where we are. 2) To raise capital. But it is hard to do this in this market. So the Feds plan today says they will buy non-voting or preferred shares. This is a way to help banks raise capital. So far this has led to a favorable reaction among banks as evidenced by the drop in the LIBOR Rates.
After several days of losses, Mortgage Bonds are technically oversold and ripe for a bounce higher. With prices now crashing well below the 200-day Moving Average, the bond does have a lot of technical damage to repair in order for prices to improve much further. Hopefully you have locked in your interest rate if you are closing soon. On new transactions, or if you have time to wait, carefully float and see if Bonds can build back up. There are some great Colorado Springs properties for sale. It is still a great time to find a real estate bargain.
|WEEK IN ADVANCE|
|A full economic calendar this week will take backseat to the ongoing financial market meltdown and the latest government interventions to get credit flowing and stem the losses. There are still great Real Estate deals in Colorado Springs.|
- Homes sold in September: 17
- Average sales price: $198,726
- Current number of listings: 72
- Listings price from: $135,900 - $364,900
Children attend Falcon School District 49
- Elementary School : Ridgeview Elementary
- Middle School: Skyview Middle School
- High School: Sand Creek High School
Ridgeview at Stetson Hills is a short drive to:
This Colorado Springs Property Report contains Single Family Homes and Townhomes.
This information is taken from the Pikes Peak Realtor Services Corp and is deemed reliable but not guaranteed.
Believe it or not, in the future people will be buying and selling homes. Some of them will even make a profit.
It's not so crazy an idea. Consider Albuquerque, NM. The mid-sized Southwestern city has experienced housing price declines since a peak in the third quarter of 2007, job growth has been flat, and housing starts are expected to fade by 45% through the end of 2008. Nevertheless, it's a city that home builders and economists are bullish about for 2010 and beyond.
In Depth: Where Home Prices Are Likely To Rise
According to analysts at Moody's Economy.com, Albuquerque's job growth through 2012 is projected at an average annual rate of 1.6%, fueled in large part by its low costs and local business expansion. Housing starts in the city are expected to reverse course in 2009, growing by 26.6%, according to the National Association of Home Builders (NAHB). This means builders have high hopes for 2010 and 2011, when those homes will be completed and on the market.
It's the same story in several other cities: more tough times to come in the short term, but potential for a recovery and a rise in prices in the long term.
Behind The Numbers To determine where house prices are expected to rise next, Forbes.com looked at projections for housing starts from the NAHB and job-growth figures from Moody's Economy.com, for the 100 largest metro areas in the U.S. The estimates are based on the cost structures of business in the respective cities and the composition of the local economies. Housing start projections from the NAHB may seem like wishful thinking. Trade-association economists often view their own industry through rose-colored lenses. The National Association of Realtors (NAR), for example, has developed a reputation for its positive outlooks despite negative numbers.
But the NAHB data are filled with laggards, signifying some realistic thinking. Housing starts in Las Vegas are expected to drop by 32% in 2008 and actually get worse in 2009, falling by a further 43%. In overbuilt, highly leveraged Phoenix, starts are predicted to fall 50% this year and descend another 11% more in 2009.
Because houses take six months to two years to build, that means home builders aren't expecting profits in the Vegas or Phoenix market until past 2011.
"These are some of the most overbuilt markets," says Robert Denk, an economist at the NAHB. "There are some markets that got really out of hand and they're going to be in trouble for a couple years still." He cites Cape Coral, Fla., as the poster child of overbuilding exuberance. "They built 10 years of housing in two years."
The prognosis isn't as bad elsewhere.
Recovery In Obvious Places At this point, it's clear the subprime contagion won't be contained in the next year, based on the acceleration of home price drops and foreclosures nationwide. But when the bad vintages of loans finally come off the books, the cities where prices are expected to rebound are largely those with vibrant economies.
"The logic is pretty straightforward," says Mark Zandi, chief economist at Moody's Economy.com. "People will spend as much on housing as their income will allow them. House prices are very closely tied to household income over the long run when you look at business cycles."
Do you think recovery is in the cards after 2010? Or more of the same? Add your thoughts in the Reader Comments section below.
This means that recovery is likely in the cards for even the hardest-hit spots. Cities like Atlanta and Colorado Springs, Colo., may be reeling from high defaults and foreclosures, but from 2007 through 2012, their economies are expected to experience 2% and 1.6% average annual job growth. That means more in-migration and more money in the economy, factors that help businesses grow and profit--and put more money in residents' pockets.
As local economies grow bigger and more dynamic, land values increase because the value of what can be produced on that land increases. When land prices go up, home values go up.
Home prices moving up; it sort of makes one nostalgic.
Colorado Springs is #7 on the Forbes list.
7. Colorado Springs, Colo.
Housing starts 2008: -37.6%
Housing starts 2009 increase: 53.2%
Single-family increase: 49.6%
Multi-family increase: 81.8%
Job growth 2007: 0.9%
Average job growth 2007-2012: 1.6%
|Stock Market Close for the Week|
|WEEK IN ADVANCE|
|The economy has been deteriorating before our eyes amid efforts to pass bailout legislation. Now that the bailout bill has been approved, the economic data will come back into play as the next FOMC meeting approaches. Given the current state of economic affairs, a rate cut at the end of the month is very likely. It's a great time to buy real estate in Colorado Springs.|