According to 3 out of 5 indexes, home prices year over year have decreased further from November to December.

Source:  Macro Markets, IAS, OFHEO, Census Bureau, NAR

The asking/list prices for homes fell .8% in October, bringing the total drop in the last three-month cycle to 2.4%.  Extrapolate this to annual and the drop would be 10%.  Declining prices are expected to continue for the immediate future as the fall and winter months are weak periods and are now aggravated by the tight credit conditions and rising unemployment.

Source:  Altos Research & Real IQ 12/8/08

Sales year over year (12/1/07-12/31/08) are down with consumer confidence being particularly low in October and November.

As an update to last month's newsletter, please click here to see the graph of US sales for 2008.

The following is how pending home sales have fared regionally:

·         Northeast:  dropped 7.2% in November and is 14.6% below a year ago.

·         Midwest:     fell 6.7% and is 10.1% below November 2007.

·         South:        declined 2.2% and is 12.7% below a year ago.

·         West:         down 2.4% but remains 19.3% higher than November 2007.

Source:  Daily Real Estate News 1/6/09.

The decrease in housing prices and interest rates has helped housing be more affordable than in the last 25 years.  Click here to see % of Median Household Income graph.  Numerous newspaper articles have appeared in the last month suggesting that NOW IS THE TIME TO BUY A HOME ? ChattahBox (Boston MA), Washington Post, New York Times, Atlanta Journal Constitution 12/28/08, Chicago Tribune 12/19/08, Journal Sentinel of Milwaukee 12/12/08, and Arizona Daily Star 12/28/08.

Pricing

Henry Paulson has stated that the key thing to get us through this period is getting housing prices down.  Source:  Housing Wire 12/17/08.  Economists surveyed by the Wall Street Journal say that home prices won't hit bottom until the second half of 2009 at the earliest and some say the downward trend will continue until 2011 or 2012.  Source:  Wall Street Journal 12/2/08.

There are two measures that indicate the appropriateness of home prices ? as a multiple of income and as a comparison to rental rates.  Historically, home prices have been equal to about three times average household income.  In 2005, they peaked at 4.5 times income.  As for rent comparisons, homes historically cost about 20 times what it would cost to rent a home for a year.  Based on these historic ratios, how much do prices need to fall to reach traditional levels?

Source:  USA Today report usatoday.com/money/economy/housing/2008-12-12homeprices_N.htm.

Government Intervention

The Federal Reserve announced that it will begin purchasing mortgage backed securities (MBS) backed by Fannie Mae, Freddie Mac and Ginnie Mae in early January to support the mortgage and housing markets and to foster improved conditions in financial markets.  The program includes, but is not limited to, 3-year, 20-year and 15-year securities of these issuers.  Due to the complexity of these assets in comparison to the traditional assets purchased by the Federal Reserve, four investment managers were selected ? BlackRock, Inc., Goldman Sachs Asset Management, PIMCO and Wellington Management Company, LLP.

The investment managers will employ a passive buy and hold strategy.  Assets purchased under this program are fully guaranteed as to principal and interest by Fannie Mae, Freddie Mac and Ginnie Mae, so the Federal Reserve's exposure to credit risk of the underlying mortgages is minimal.

These purchases will be financed through the creation of additional bank reserves.  These holdings will be reported as balance sheet items on the H.4.1 statistical release titled "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks."

Source:  Federal Reserve Press Release 12/30/08.

This government intervention immediately pushed down rates on 30-year mortgages.  To see the effects of the announcement of the bail-out, click here to see the graph of Mortgage Rates ? 30 yr. fixed.

Foreclosures

Those with option arms will not be helped by lower interest rates as they are paying the minimum interest payment now on the loans.  This will lead to another tidal wave of homes coming into the market in the next year or two.  These defaults will hit the $500k and over homes that people bought with 5% or less down.  Source:  Todd Sullivan Seeking Alpha 12/24/08.

To see the percentage of borrowers who had negative equity as of September 2008, click here to see the graph Under Water.  TransUnion feels that the number of consumers with delinquent mortgages will almost double by the end of next year due to adjustable-rate mortgages.  Click here to see the graph of TransUnion's View.  Credit Suisse has predicted that 16% of all mortgages will be in foreclosure in the next four years.  Source:  Wall Street Journal 12/2/08.

But what are the effects of the modifications on the current foreclosures?  Research by law professor Alan White finds that only 35% of voluntary mortgage modifications reduced monthly payments; 20% had no effect either way on the payment amount and nearly half of all modifications ? 45% - resulted in an increased monthly payment.  Source:  Housing Wire 12/19/08.  A separate report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision found that more than half of the mortgages modified in the first quarter were at least 30 days delinquent after six months.  Source:  Market Watch 12/26/08.

Forecast

The following are predictions from several authorities:

"Lower interest rates will likely cause more buyers to enter the market than had in previous quarters and we expect a stronger first quarter than would have been the case without the stimulus from lower rates."  Source:  Steve Murray, Real Trends 12/16/08.

"Recovery is underway. Affordable is back in the housing market.  In 2009, housing will not only recover, but we'll see buyers leap into this market in droves, depleting our housing oversupply."  Source:  Market Watch 12/18/08, Alexis McGee, Pres. of ForeclosureS.com.

"The U.S. housing market is very near a bottom for home sales and prices will hit their low in September."  Source:  Reuters 12/9/08 Mark Zandi, Moody's Economy.com.

NORTH CAROLINA AND WILMINGTON

NC ranked third among the states for inbound migration in a study by United Van Lines.  The 2008 study looked at 200,000 interstate household moves in the 48 contiguous states and DC.

Housing Predictor forecasts the average home price change in major NC cities:

The Tri-county area of Pender, Brunswick and New Hanover jobless rate soared in November to 7.6%, higher than the national rate of 6.7%  Source:  Star News 1/7/09.

Wilmington

Average sold price:  The monthly average sold price is down 4.3% from last month and 9.8% from December 2007.  The current year end (1/1/08-12/31/08) average sold price is 6.1% behind this time last year, but ahead of 2005 by 1%.

Monthly sold units:  The number of sold home is up 34% from last month, but down 28.2% this year over last year.

Market absorption rate:  The number of homes sold in December, 291, divided by the current listing inventory, 5,149, gives us a 17.6 month supply of single family homes.  We would need monthly sales of 950 units to get back under a 6 month supply.

List to sold ratio:  The average list price of the sold properties is $256,977 and the average sold price is $241,072 for November which gives us a 92.7% list to sold price ratio.   This is the lowest it's been in years.

Days on the market:  The average days on the market was 23 days longer than last month ? 139 days.

Carolina & Kure Beach

There are 559 single family homes for sale and this is a 33 unit decrease over December.

The average list price has decreased 4.3% over December 2008.

There is a 34.9 month supply of homes.

The year-end average sales price for 2008 has decreased 12.6% from 2007.

The year-end units sold finished with 240 sales, down 15 units or 5.96% from 2007.

Loan Availability

Money is available, but with more stringent requirements.  I have included a summary of the loan products available from John Friend, Sr. Loan Officer from Watermark Mortgage Group (formerly Intracoastal Mortgage).

John Friend

john@watermarkmg.com

Sr. Loan Officer                                                                                          Phone 910-509-7671

With the New Year comes a drastically different mortgage lending environment. While the "Sub-Prime" and "Alt-A" mortgage loans are gone for good, the Federal Government has taken all actions to insure that Fannie Mae and Freddie Mac continue to lend, and lend at exceptional rates. Most rates are under 5% right now.

It is important to know that almost all lending right now is being done by those with ties to the government: Fannie Mae, Freddie Mac, VA, FHA, USDA. That's about it. Their guidelines are specific and if you don't fit in the box you likely find yourself without financing.

Below is a guide to show you what conventional loans are available today. (conventional being Fannie and Freddie)

For Purchases and Rate Term Refinances

  (LTV is the % of the purchase price or appraised value of the home. i.e. 95% requires a 5% down payment)

USDA and VA are still offering 100% financing. USDA is a great resource here in the Wilmington area, as all of Brunswick and Pender County areas are eligible and about 1/3 of New Hanover County. USDA offers 100% financing with no pmi and a current rate at 5.00% 30 year fixed. Specific criteria applies to be eligible for these loans.

As an effect of the current market for mortgage backed securities and the economic environment, you will find that the 30 Year Fixed Rate Mortgages have lower rates than the ARM Mortgages. The exception to this rule is the Jumbo Mortgage Market. A Jumbo Mortgage is a loan of over $417,000.00. Fannie and Freddie do not buy/fund loans over $417,000.00 except in some high cost areas. As a result you must borrow from a bank or investment firm. Today we are seeing 30 Year Fixed Jumbo Rates with most lenders at 7.5% to 8.5% paying a point! Not to worry, there are limited resources that are lending on Jumbos up to 3 million dollars in the 5.25% - 6% range on a 5 Year ARM. While it may not be optimal, 5 years should give you plenty of time to pay down the mortgage and see a return of the fixed rate Jumbo lenders.

Lot Loans, like Jumbos, are not offered by Fannie and Freddie, so expect to put down at least 30% and look for rates from 7% to 7.5%. These will generally be 3 Year ARMs and have 15 year payments.

Lastly, regardless of the type of mortgage in your future be prepared to go through a fully documented loan process. Mortgages Made Simple, Mortgages Made Easy, 80% Less Paperwork, etc. all a thing of the past.

To quote the Today show3; "With today's home prices and current interest rates, those with the ability to buy are crazy not to!"   This is especially true in our area.