"BE WILLING TO MAKE DECISIONS." General George Patton.

And that's exactly what the Fed did last week at their regularly scheduled Federal Open Market Committee meeting. But just what did they decide...and what do their decisions mean for home loan rates?

The Fed said they are going to ration out the remaining commitment of Mortgage Backed Security purchases through the first quarter of 2010. There will be no additional buying, but instead, a longer weaning off of the program. There was some speculation about the Fed increasing the amount of buying above the $1.25T committed to, and last week's statement is the Fed's nice way of saying "no." They will not be buying more in quantity, but what they will do is attempt to provide a smoother transition to normal market conditions.

It is a given that once the Fed ceases its purchases, that interest rates will climb significantly higher...most likely back above the 6% area. So instead of a hard transition with a large bump in rates, the Fed is attempting to allow rates to gradually rise. This means that waiting to purchase or refinance will very likely mean a higher interest rate.

Their decision also means that the Fed's remaining purchases will all be lower in quantity, as the remaining allotment for purchases will be spread over a longer period of time - and additionally, will not necessarily be spread out as evenly as their past purchases - which could lead to more volatility for rates in the near term.

In other news, Existing Home Sales and New Home Sales were reported slightly less than expected, but both reports continue to show signs of an improving housing market. The inventory of unsold existing homes fell to its lowest inventory level since April 2007, while the inventory of unsold new homes dropped to its lowest level since January 2007. While some of the decline in new home inventory may be due to builders constructing fewer homes - these reports indicate that the housing market is indeed showing signs of life.

Why Now May Be a Good Time to Move up to a Larger Home

You’re beginning to feel a little cramped in that starter home that looked so perfect several years ago. There just aren’t enough bedrooms anymore, or adequate storage space, or a big enough back yard for the kids and the dog to play. Or maybe there is another one on the way – a baby, not a dog!

Many residents are facing a similar dilemma these days. While that tiny bungalow made perfect sense back when you bought it, you are quickly realizing that you have long since outgrown your home. The logical answer would be to move up to a larger property,
but many homeowners fear that the soft housing market would make buying that dream home difficult if not impossible.

Surprisingly this may actually be a great time to move up – precisely because of the housing slowdown. Yes, home sales and prices have been sluggish for the past couple of years. And chances are that your home isn’t worth what it was at the peak of the market two or three years ago. But savvy homeowners are beginning to discover that the math actually works in their favor when they move up to a more expensive property.

It’s true that you probably won’t get every dollar you would like when you sell your existing home. Depending on the price range and location there may be a larger than normal inventory of properties on the market and fewer qualified buyers. So, of course, prices need to be competitive in order to sell. Valuations have dipped in many communities, in some cases back to levels of six or seven years ago.

Now for the good news: That larger, more expensive home that you’ve had your eye on has probably dropped even more – in some cases, much more – than your current home. So the difference between your existing home and the next one is probably much less of a step up than you might have imagined. And if you’ve been in your home for more than just the past few years, there’s the possibility that you’ve built up equity that could be used to buy a larger home.

Plus those individuals who are in starter homes are finding that thanks to the $8,000 first time home buyer credit there is increasing demand for homes like yours. As such, homes at this price point are selling more quickly, sometimes with multiple offers.

Walter Maloney with the National Association of Realtors said it’s important for homeowners to do the math. “Obviously, if you’re selling for less than you could have gotten two years ago, you’re disappointed, but you really need to look at your bottom line,” he said. “If you’re trying to trade up, whatever you’re going to trade up to is going to sell at a discount, too. You need to look at your net.”

Let’s look at the example used in an April 23, 2009 MSNBC article entitled Math smiles on move-up buyers. The article reported, “Chris and Lori Kristen got $20,000 less than they might have in 2007 when they sold their Seattle condo earlier this year, but they purchased this suburban home for $425,000--$86,000 less than the home’s peak value.”

The article went on to report, “Their mood brightened when they began shopping in the spacious neighborhoods of this suburb northeast of Seattle and found a 3,000-square-foot, four-bedroom split-level on a half-acre of towering fir trees that they wound up buying for $425,000. That’s $86,000 less than the $511,000 peak value placed on the home by real estate Web site Zillow.com, $64,000 below the original asking price of $489,000 and even well below the final asking price of $438,000.”

Getting into a larger home isn’t the only reason consumers typically think about moving up. Others consider “trading spaces” because of job relocations or a desire to get into a certain neighborhood or simply because they’ve been pining after that dream home. While the savings on the purchase price of a larger home is a benefit, there are a number of other reasons why the soft housing market may work in your favor right now:

• Strong buyer’s market at upper-end. There just is not as much competition for more expensive homes as there is in the entry level market. Much of the home sales this year have been low-priced and distressed properties. “This year’s peak home buying season is suffering from the absence of move-up buyers,” said Jim Gillespie, chief executive officer of Coldwell Banker Real Estate Corporation. Less competition can mean lower prices and greater bargaining power for those individuals who can afford to make the jump.

• Mortgage rates are still near historic lows. Traditionally, low interest rates make homes more affordable. While it is easy to lament the recent decline in your existing home’s value, interest
rates may play an even greater role in how much home you may be able to afford when it comes time to moving up. According
to Brendon Riordan of Princeton Capital, a one-percent hike in interest rates can increase monthly mortgage payments just as much as a 10 percent increase in price. He went on to note: “With 30-year fixed rate mortgage hovering in the low 5 percent range, buyers may be able to stretch their housing dollars further than they think.”

• Record affordability. According to the National Association of Home Builders August 19, 2009 article entitled Housing Affordability
Continues to Hover Near Highest Level in 18 Years, “Bolstered by affordable interest rates and low prices, nationwide housing affordability during the second quarter of 2009 continued to hover near its highest level since the series began 18 years ago, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) released today.” The article went on to report, “The HOI showed that 72.3 percent of all new and existing homes sold in the second quarter of 2009 were affordable to families earning the national median income of $64,000, down only slightly from the record-high 72.5 percent during the previous quarter and up from 55.0 percent during the second quarter of 2009.”

• Entry level homes are in greater demand. The hottest segment of the housing market this year has been the low-end. In some cases, there are multiple offers for the best properties. Adding to the demand is the $8,000 federal tax credit for first-time buyers that’s due to expire before the end of the year. So while you may have outgrown that little bungalow, there are lots of potential buyers who would be interested in moving in when you’re ready to trade up.

• Housing market showing signs of improvement. While no one can say for sure whether we’ve bottomed out, there have been many encouraging signs in recent months that the housing market is stabilizing and perhaps turning the corner. In its August 21, 2009 report entitled Strong Gains in Existing-Home Sales Maintain Uptrend, the National Association of Realtors reported, “For the first time in five years, existing home-sales have increased for four months in a row, according to the National Association of Realtors®.” The article went on to report “Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 7.2 percent to a seasonally adjusted annual rate of 5.24 million units in July from a level of 4.89 million in June, and are 5.0 percent above the 4.99 million-unit pace in July 2008. The last time sales rose for four consecutive months was in June 2004 and the last time sales were higher than a year earlier was November 2005.” It may be a good idea to think about trading up while it’s still a buyer’s market.

Making the decision to move up to a larger home is just the beginning, of course. There are a myriad of issues that go into selling your existing home and getting into that larger move-up property. That’s where a professional Realtor can help. Working with a seasoned agent who knows your market may be the best move you’ve ever made!

"I'M ON MY WAY...JUST SET ME FREE...HOME SWEET HOME."

The lyrics from Mötley Crüe's Home Sweet Home sound a lot like something the housing industry might have sang last week, after the Commerce Department reported that the number of Housing Starts in August came in better than expected. As you can see in the chart below, Housing Starts have fallen significantly since June 2008, but in last week's report, they broke free to come in at their highest level since last November. Building Permits were a bit lower than expectations, but the overall report suggests that while we're not entirely out of the woods yet, the worst in the housing market may have passed and that the industry may be on its way to stabilizing. ----------------------- Chart: Housing Starts in August Inflation was also in the news last week. On Tuesday, the Producer Price Index came in more than double expectations, prompting fears of wholesale inflation. However, since wholesale inflation isn't always passed on to consumers, the markets anxiously awaited the Consumer Price Index (CPI). CPI is an important measurement of inflation because it actually measures the average prices paid by consumers for goods and services, which is where the real inflation concerns come in. According to last week's report, CPI came in just slightly higher than expectations. Remember, inflation is the archenemy of Bonds and home loan rates, and it is said that "rates are the boat that floats on the sea of inflation", meaning when inflation rises, home loan rates will move higher as well. With the recession appearing to be bottoming out and with an unprecedented amount of government spending over the past year, there are fears that inflation - and therefore home loan rates - may be on the rise soon. If you are in the market to purchase or refinance, this is an important aspect to keep an eye on. Call me if you want to discuss presently low rates, and how they might fit into your plans. The $8,000 tax credit for First Time Home Buyers was also in the news again last week. White House Spokesman Robert Gibbs said that the administration is evaluating the program and the effect it has had on home sales and will soon make a recommendation to the President. Although there's been talk and speculation regarding the expansion of this program, as of now, potential buyers must complete their first-time home purchases before December 1 to qualify for the special credit. Overall, Bonds and home loan rates saw some nice gains early last week, but finished just slightly worse than they began, as Stocks closed at highs for 2009 and pulled some money away from Bonds. Whether Bonds can climb back up this week will depend not only on the economic reports due out, but also on how well the markets receive the incoming round of 2-year, 5-year, and 7-year Note auctions.

"BEFORE ANYTHING ELSE...PREPARATION IS THE KEY TO SUCCESS." Alexander Graham Bell

Very true words - and preparation is especially important these days, as several circumstances will make this fall a particularly successful time for prepared home buyers.
Rates for home loans remain low - but it won't last forever. The Fed continues on their purchasing plan of Mortgage Backed Securities, and the added demand has kept Bond prices high and home loan rates low. Last week, they purchased another $32.4B, bringing the total to $849B out of the $1.25T they committed to. While these Fed purchases have helped home loan rates stay near present low levels, remember that their buying program is set to be over near the end of the year. There is talk that the program will be extended - but there has also been talk that it will end early - so nothing is a guarantee, except for the fact that when the Fed purchasing program is over, home loan rates will assuredly rise.
In addition, given the current expiration date of November 30, 2009 for the $8,000 First Time Homebuyer credit, it's important for homebuyers to get prepared, and take action. In fact, many homebuyers are doing just that already. The Mortgage Bankers Association reported that home loan applications surged in the latest week to their highest level since late May, as more buyers are seeing the great opportunity that exists right now.

Let me know if I can answer any questions for you, or perhaps a friend, family member, neighbor or coworker that might be thinking about a home purchase. The combination of reduced home prices, motivated sellers, low home loan rates, and the potential of a juicy tax credit is too great an opportunity to miss.

The Stock market is doing well - the Index closed at its highest level of 2009 last Thursday. The S&P 500 is a basket of 500 Stocks that are considered to be widely held, and is considered by most market experts as one of the best benchmarks available to judge overall US Stock market performance.

In other economic news, Consumer Sentiment came in stronger than expected and Initial Jobless Claims were also reported better than expected, but still at a high level. Continuing Claims, which represent the number of people still receiving unemployment benefits, dropped a bit, but this realistically may be due to benefits expiring rather than people finding new jobs.

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"Advertising is the tax you pay for being unremarkable." -Robert Stephens, founder of Geek Squad, acquired by Best Buy in 2002