Riverwoods Vacant Lot

Market Recap

Many pundits were predicting a second wave of foreclosures headed our way in the second half of the year, as banks tried to unload homes they can’t refinance. But for now, at least, the big wave of bank-owned properties appears to have crested. According to Foreclosures.com, foreclosures dropped 11% nationally in the second quarter of 2009 to 205,000 compared to 231,000 in the first quarter of 2009. Even more encouraging, June’s foreclosure numbers reached record lows for the year.

More good news on housing was dispensed by Clear Capital, which noted that for the first time since 2006, the nation posted positive quarter-over-quarter price returns in the second quarter of 2009, according to its July Home Data Index Report released last Thursday. Fueled by strong seasonal spring sales in the Midwest , which had a price increase of 5.3% over the first quarter of 2009, the overall U.S. price growth increased by 1.7%.

It's obvious that people are buying more homes – foreclosures or otherwise. The Mortgage Bankers Association released its Weekly Mortgage Applications Survey for the week ending July 3, and new loan applications increased 10.9% from the previous week. Mortgage rates remain low, and are actually dropping. The benchmark 30-year, fixed-rate mortgage fell 11 basis points to average 5.59% last week, according to the Bankrate.com national survey of large lenders, while the benchmark 15-year, fixed-rate mortgage fell 14 basis points to average 4.93%. The drop should assuage concerns among many potential borrowers that they missed the boat.

Eric P. Egeland
Broker Associate
RE/MAX UNITED
DeerfieldsAgent.com

Rate Outlook

Last week's drop in mortgage rates was a welcome relief, and you would think that more relief should be forthcoming. After all, inflation appears to be a dead issue, given recent data on producer and consumer prices. Inflation and interest rates are highly correlated: When one falls, the other usually falls in tandem.

But there is more to the story than inflation. All interest rates are determined relative to risk-free market interest rates, with short-term Treasury bills serving as a proxy. But most interest rates are not risk-free. Mortgages rates are certainly not risk-free, which is why they are higher than Treasury bill rates. What's more, mortgage rates are heavily influenced by rates on mortgage-backed securities (MBS). MBS rates, in turn, are heavily influenced by yields on Treasury bills, notes, and bonds.

And there is the rub. Treasury securities prices tumbled last week after the government announced $104 billion in debt auctions. As rates on Treasury securities increase to attract buyers, there is a crowding out effect, because Treasuries compete with other debt instruments for buyers. If Treasury securities must raise their yields to attract buyers (which happened last week), then so do most other debt securities; hence, a possible increase in mortgage rates.

We can't be sure what impact this crowding effect will have. Rates could go higher, but they could go lower too, particularly if the Federal Reserve continues to implement its $300-billion program to create demand and keep a lid on rising rates. But why chance it? Thirty-year fixed-rate loans averaging between 5.5% to 5.75% are still a very good deal, as are the deals found on most existing and new homes on the market.

Eric P. Egeland
Broker Associate
RE/MAX UNITED
847.337.7090
DeerfieldsAgent.com

Rate Recap

Interest rates across the board spiked last week. Depending on who you asked and when, the 30-year fixed-rate mortgage rose as much as one percentage point. Officially, Bankrate.com has the national average at around 5.5%, but its survey was conducted before the full brunt of the increase.

Various explanations were given for the spike in interest rates. Impending inflation was at the forefront, with one particularly animated pundit claiming U.S. inflation could approach Zimbabwe levels. Fact is, most people are already expecting some inflation down the road, so inflation alone was an unlikely reason. A more plausible explanation is that the Treasury Department has been issuing so much debt lately, $101 billion worth last week alone, that it simply swamped demand, so bond prices fell and the interest the Treasury had to pay to attract buyers rose.

At any rate, it's not the end of the world. Over the past 25 years, the 30-year fixed-rate mortgage has averaged around 7.8%. In 2007, the average rate was around 6.3%. And even last year, the average rate was around 6.2%.

The big concern with last week's rate spike is that it could put downward pressure on home prices and sales. It's a legitimate concern, to be sure, given that existing home sales rose again in April to an annual pace of 4.68 million units, with about 45% of April's sales attributable to foreclosures and short sales. Meanwhile, new home sales continue to make positive strides, albeit slight, with sales rising to 352,000 units annually.

The good new is that homes remain affordable, at least when vetting the national numbers, which, admittedly, aren't always applicable to the local scene. That said, the median price for an existing home in April was $170,200, while the median price for a new home was $209,700.

Eric P. Egeland
RE/MAX UNITED
847.337.7090
DeerfieldsAgent.com

$8,000 Tax Credit

The proposed $15,000 tax credit to anyone buying a new primary residence is NOT part of the stimulus plan, as everyone had hoped.

However, here are some details on the new $8,000 refundable tax credit and the $7,500 tax credit that it replaces.

1). In the stimulus bill that is likely to become law this week, there is an $8,000 tax credit for first-time homebuyers who purchase a home from January 1, 2009 through December 1, 2009. This is a tax credit, not a deduction. First-time homebuyers reduce their tax bill by the amount of the credit. If they owed $5,000 in taxes, they would receive a refund of $3,000.

2). Single buyers can not make more than $75,000 adjusted gross income per year to claim the full tax credit. Similarly, married couples can only claim the maximum $8,000 if they earn less than $150,000 per year

3). The tax credit is available only to first-time homebuyers. A first-time homebuyer is someone who has not owned a home in the last three years. For example, if you sold a house on May 4, 2006, and you haven't had an ownership stake in a home since then, you are eligible for the tax credit if you close on a home after May 4 this year.

4). If a spouse owned or co-owned a home in the last three years, neither is eligible for the tax credit. This means they aren't eligible for the tax credit if their spouse was previously married to someone else, and that couple owned a home sometime in the last three years.

5). The tax credit is 10 percent of the home's cost, up to $8,000. If married filing separately, each spouse's maximum credit is $4,000.

6). The $8,000 tax credit does NOT have to be repaid if you buy the home in 2009, with this exception: If you buy the house this year, and you sell it within three years, you have to repay the tax credit. You repay it in a lump sum the next time you file a tax return.

7). As of today, if a first-time homebuyer bought a house between April 9, 2008 and Dec. 31, 2008 they still have to repay the $7,500 tax credit over 15 years. This may change....

Eric P. Egeland
RE/MAX UNITED
DeerfieldsAgent.com

Market Recap

If a retailer wants to stimulate sales, what does he do? He lowers prices. It's a simple, yet powerful, principle of economics that we've been proselytizing over the past two months, and for good reason, it works. To wit: The National Association of Realtors (NAR) reported that its index of pending home sales, which measures contracts signed but not closed, rose 6.3% to 87.7 in December. Year-over-year, the pending-home-sales index was up 17.5% in the West and 1.6% in the South. Even more encouraging, the index's numbers reflect the most favorable combination of home prices, mortgage interest rates, and family income since tracking started in 1970.

Lower mortgage prices have contributed greatly to improving housing affordability. The prime 30-year fixed-rated mortgage has been floating below 6% for the past three months. But the mortgage market's contribution could diminish in the near term. Recent news that the federal government is seeking ways to lower mortgage-rates further sounds like a positive, but could actually be doing more harm than good. Yes, lower rates are a good thing (and we understand the NAR supports intervention to push rates lower), but if people are always anticipating lower rates, they hesitate to act today. Let's not forget that mortgage rates in the 5% range are darn-good rates, and even those can be readily refinanced if the feds succeed in pushing rates down.

While housing prices and mortgages have trended lower, unemployment has trended higher. Jobs, or the lack thereof, is the monkey wrench that could conceivably grind the housing-recovery gears to a halt (operative word being “conceivably”). On that front, there was much media teeth-gnashing and lamenting last week because the unemployment rate rose to 7.6% on 598,000 lost jobs in January.

How did the financial markets react to the “dire” unemployment news? The Dow Jones Industrial Average surged ahead 150 points in the first hour of trading. Like we stated last week, many economists view the recent job cuts as a bottoming of the recession, not an omen of things to come. It appears the stock market shares the same view.

Eric P. Egeland
RE/MAX UNITED
847.337.7090
DeerfieldsAgent.com

Deerfield Year to date Stats

Deerfield Price Year to Date Closed Price Range Chart (1/1/08-10/14/08)

In total there have been a 166 units to close year to date. Surprisingly the price range with the most activity has been the $150,000.00 - $199,999.00. Markets times continue to build, currently the average market time is 186 (keep in mind that this does not account for the listings that have been pulled on & off the market to reset market times, so this number is even more inflated). The average Sold price year to date is $508,244.00.

Eric P. Egeland
RE/MAX UNITED
847.337.7090
DeerfieldsAgent.com