NATIONAL

Home Sales & Median Price

Existing home sales rose 6.5% in December over November, but are 3.5% below the unit pace in December 2007.  For all of 2008, the sales were 13.1% below the number of transactions for 2007.  The median price in 2008 is down 9.3% from 2007.

Single family home sales rose 7% in December over November, but are 1.4% below December 2007.  For all of 2008, sales fell 11.9% over 2007.  For all of 2008, the median price is 9.5% below 2007.

Existing condo sales increased 2.1% in December over November, but for all of 2008, the sales were 21% below 2007.  The median price for 2008 was 7.2% below 2007.

Existing Home Sales by Region

·        Northeast: Slipped 1.4% from November and are 14.3% below December 2007.  The median price is 7.8% below a year ago.

·        Midwest: Increased 4% in December but are 10.3% below a year ago.  The median price is 11.4% below December 2007.

·        South: Rose 7.4% in December, but are 11.2% lower than December 2007.  The median price is down 31.5% from December 2007.

·        West: Jumped 13.6% in December and are 31.6% higher than a year ago.  The median price is 31.5% below December 2007.

(Source:  Daily Real Estate News, NAR 1/27/09)

Five different sources have tallied the change in prices year over year.  Please see the Prices-Year Over Year table for their results.

Interest Rates

Mortgage rates for 30 year fixed loans are the lowest since the Federal Reserve began keeping records in 1971.  See the Mortgage Rates-30 Year Fixed graph.  However, the rates are being kept artificially low by the government stimulus plan.  In the past, the rates have skyrocket upward after hitting bottom.  See the Mortgage Rates-30 Year Fixed graph #2. 

In prior years, mortgage rates did not continue to decrease more than six weeks.  It has now been 11 straight weeks due to the Federal Reserve plan to buy up to $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac and Ginnie Mae ? the government-sponsored enterprises.  (Source:  Daily RealEstate News 1/16/09).  See Mortgage Rates-30 Year Fixed graph #3.

Foreclosures

"The final numbers for 2008 were even worse than anticipated," says Rick Sharga of RealtyTrac, which saw an 81% increase in the number of households in foreclosure last year.  Sharga says that foreclosure prevention efforts at the state and national level have probably been an abysmal failure.  (Source:  Market Watch 1/16/09)

"The single most important trigger event for delinquencies is unemployment," Frank Nothaft, chief economist for mortgage agency Freddie Mac said.  The job losses over 2009 will contribute to the delinquencies.  Even prime borrowers with conventional, conforming fixed-rate loans are defaulting in higher numbers.  (Source:  Market Watch 1/20/09)  To see the percent increase in loans 60 days delinquent 3^rd quarter, see the 3Q Delinquent graph.  The national unemployment rate was 6.7% by the end of December.  View the Unemployment Rate graph.  This graph will be interactive if you go to the web address.

Loan Modifications

Hope for Homeowners, which was approved by Congress last summer, was supposed to help 400,000 homeowners.  Only 357 people have signed up so far for the voluntary program.  To see the number of foreclosures and delinquencies vs. workouts, see the Number of Subprime Loan Foreclosures graph.

One critic of loan modification programs is Norm Miller, a professor at the University of San Diego's Burnham-Moores Center for Real Estate.  He thinks that home owners who have lost jobs, died or divorced account for 50% of the defaults.  Another 25% are a result of resets of adjustable-rate mortgages that borrowers can no longer afford on loans that are underwater.  (Source: Daily Real Estate News 1/26/09)

Pricing & Inventory

The 10-City Composite Index was down just 0.4% during the last month and 1.2% over the most recent three month period.  This represents a substantial deceleration in listing price declines.  Inventory levels have fallen in virtually all markets since the summer of 2008, consistent with industry seasonality.  The question is whether the inventory will balloon during the spring season or remain sustained.  Until inventory experiences a sustained decline, housing prices will continue to be pressured.  (Source: Altos Research & Real IQ 1/8/09)

Inventories typically fall sharply in December from November because fewer people want to show their homes during the holidays.  Over the past 25 years, the average decrease in December from the prior month has been 11%, according to Zelman & Associates.  Compared with a year earlier, the December inventory in the 29 metro areas was down about 9.5%.  (Source: Wall Street Journal 1/13/09)

Some economists feel that home prices need to fall to the 2000-2002 level.  The percent of decrease will be affected by the amount of appreciation experienced.  To see the amount of home-price appreciation from 1998-2006, go to the Inflation-Adjusted Home-Price Appreciation graph.

How did we get here?

Of course, the greed of consumers to own a house that they couldn't afford and of lenders to provide products with higher risk ? no documentation/no stated income, interest only, etc. ? led to more Americans being able to have homes initially, but unsustainable appreciation in homes from the increased demand.  These loans were packaged into collateralized debt obligations (CDOs), etc., that were not graded properly for risk and so pooled that tracing the origins of the loans was nearly impossible.

However, according to Barry Habib, CEO of the Mortgage Market Guide, and many others, the downfall of the lending institutions came from Financial Accounting Standards Board 157 ? mark to market.  For example, if a lender lends based on capital of $2M and takes in deposits of $30M to lend out, the lender has a capital ratio of 15 (2/30).  Perhaps this lender has expected 70% loan to value and has good loans.  Now, in a neighborhood of $300,000 homes, a home under duress goes for $200,000. According to "mark to market", the lender must mark its assets down to the other homes in the area at the current sales/market price of $200,000, which results in the lender no longer having 30% down and taking $1M out of their capital account.  Now their worth is a ratio of 30 (1/30) and the lender is over leveraged.  The lender tries to obtain capital, but is unable due to the bad press and now must sell the loans at a low price.

The recession was worsened by lack of consumer confidence.  Dr. Jim Paulsen, chief investment strategist of Wells Capital Management, blamed "fear mongering" by government officials to persuade Congress to pass the Troubled Asset Relief Program for the depth of our problems today.  That, he said, "froze everyone in their tracks" and resulted in "economic paralysis."  (Source: Business Wire Press Release 12/13/08)

Forecast

Housing prices will hit bottom in the 4^th quarter of 2009, predicts Moody's Ecoonomy.com.  On average, home prices will decline 36% from the peak in the first quarter of 2006.  By the end of the housing downturn, nearly 62% of the nation's 381 metropolitan areas will have experienced double-digit percent declines in house prices.  The declines will exceed 20% in about 100 metro areas.  (Source: Daily Real Estate News 2/9/09)

The Wells Fargo economists predicted that the recession will end in the second half of 2009.  Dr. Eugenia Aleman, senior economist for Wells Fargo & Company, feels that the monetary policy of injecting billions into the economy will only help those who have jobs and money.  He states that the new administration must help through fiscal policy, with government spending that will create jobs.

For Sellers

Correct pricing is paramount.  Though the decline in home prices is decelerating, it is expected to continue into 2009.  Unless you can wait several years to sell your home, price the home properly and sell it now.  Assuming a 10% fall in prices for 2009, a $200,000 house is losing $384.61per week.

For Buyers

Looking at 5 year increments, homes have appreciated an average of 26.5% (5.3%/yr) prior to 2000-2006.  See the % Appreciation graph and the PMI Value of Homeownership graph.  Thus, purchasing a $300,000 house with 20% down will give you a 133% return in five years by leveraging the down payment.

If you had purchased securities with the money from the 20% down, you would have experienced only the 26.5% gain, assuming the same appreciation.  If we look at your return on investment from securities vs. home ownership from January 2000 through September 2008, you would have lost money from securities and gained from real estate.  See Return on Investment graph.

The appropriateness of home prices is based on home prices as a multiple of income and home prices as a multiple of annual rent.  Historically, home prices have been equal to about three times average household income and 20 times what it would cost to rent the home annually.  We are at or approaching those levels now.  See the Home Prices as a Multiple of Income graph and What's Your House Worth if You Rented it?

Based on the current Stimulus plan, here is what First Time Home Buyers can expect:

·        A tax credit of the lesser of 10% of the cost of the home or $8,000.

·        Must be a primary home and first time purchaser.

·        Full credit for single filers with adjustable gross income of no more than $75,000 and joint filers of $150,000.

·        No repayment for purchases on or after January 1, 2009 and before December 1, 2009.

·        If home is sold within three years of purchase, entire amount of credit is recaptured on sale.

NORTH CAROLINA AND WILMINGTON

·        In November, North Carolina reported a 30% decrease in foreclosures compared to November 2007 as well as a 13% decrease compared to October.

·        N.C. ranked 31^st in a national ranking of foreclosure rates.

·        North Carolina's population rose 2% during 2008, making it the nation's fourth fastest growing state.

·        The UNC Charlotte Carolina Economic Forecast has predicted growth should begin in the second quarter of 2009, with the gross state product advancing by 1.4%.

·        The average price of a home, comparing November 2008 to November 2000, has increased 17%.

·        The National Association of Realtors' affordability index jumped to 131 at the end of 2008, up 17% from 2007 figures.  This index indicated that households earning the national median income have 131% of the income needed to buy the national median-priced house.

(Source: The NC Association of Realtors Jan/Feb 2009)

In Wilmington:

·        Wilmington was named among the top six markets in the nation to show the most positive net home values in the past five years.

·        The number of sales in 2008 was down 30% from 2007.

·        We saw the biggest increase in listing inventory in several months, a 256 unit (5%) increase, to give a total of 5,405 single family units.

·        The monthly average sold price is down 4.3% from last month and 10.4% from year end 2008.  For the rolling 12 months (Feb 2008-Jan 2009), the average sold price is down 8.3% from the same a year ago.

·        The median sales price for 2008, $215,000, reflects a decrease of 6.7% from 2007, but is the same as 2006.   

·        The average number of days a home sat on the market before being sold is 139.

·        The average list price to average sold price is 93%.

2008 MLS 4^th Quarter

To see the number of months of supply of all new, resale and total homes by price range, please see the New Hanover County Absorption Report-Total of Homes table.

Carolina & Kure Beach:

·        There are currently 592 single family homes for sale, a 33 unit increase over January.

·        In January, there were 17 homes sold, divided by the homes available to give a 34 month inventory.

·        Looking at a rolling 12 months, the average sold price has dipped from $425,562 to a current $360,748, a decrease of 15.2%.