Home Sales Surge/Rates projected higher

There were few major surprises in the economic news this week, and moderate change in the stock market. The old rule of tracking mortgage rates by the ebb and low of the stock market seems to be a thing of the past. There simply is no rhyme or reason to the the increase or decrease in interest rate short term.

While there was a great deal of daily volatility, mortgage rates ended the week with slight increases and we believe that trend will continue.
A flood of housing market data was released during the week, and most of it reflected improvement in the sector. The biggest unexpected news came from the September Existing Home Sales report, which jumped 9% from August to the highest level since July 2007. Inventories of unsold existing homes dropped sharply to a 7.8-month supply from a 9.3-month supply in August. This marked the lowest inventory levels in two and one-half years. Again this is a great sign but with the projected wave of foreclosures coming in the next few years I still maintain that this is the temporary calm before the storm. In Maryland alone this year there have been 37,000 foreclosures. In Montgomery county which is the biggest and most wealthy county we have had 14,000 since 2007. People say that we are immune to the economic storm which hits other parts of the country. These stats show that this is simply untrue. Bad loans from banks, foolish pie in the sky borrowers and most everyone involved in the loan process share some of the blame. September Housing Starts remained at depressed levels, which removes pressure on future inventory levels. Building Permits, a leading indicator, also held at low levels. In short, home sales improved, while inventory levels moved lower with a relatively light supply of new homes in coming months. If there is a note of caution, though, it's that much of the activity has been spurred by exceptionally low mortgage rates and the first-time home buyer tax credit, and the future is uncertain on both fronts. The Fed is scaling back its purchases of mortgage-backed securities, which might push mortgage rates gradually higher, and lawmakers are currently debating whether to extend the first-time home buyer tax credit. The National Association of Realtors estimates that 355,000 homes were sold that wouldn't have been if the first time home buyer tax credit wasn't implemented. It worked but at what cost and can we afford to extend it. Selfishly I would like to see it not only extended by opened up to any home buyer, that would really generate a housing boom but I would like to see some estimates of cost versus revenue.
The Mortgage Bankers Association (MBA) also released its forecasts for this year and next. According to the MBA projections, purchase origination's will decline slightly in 2009, but will then increase by 12% in 2010. Similarly, the MBA forecasts that existing home sales will rise by 11% in 2010. The chief economist of the MBA suggested that the timing of the economic recovery and the level of mortgage rates are the biggest variables influencing the results for 2010. This is obviously good news but I still think that one of the major reasons for the mini boom is a combination of artificial factors including the tax credit and the temporary increase in loan limits for FHA, VA and Fannie Freddie.

I still think prices will remain depressed for several years or remain flat. Selected sub markets such as Bethesda or Old Town Alexandria will continue to just fine. If you bought the last few years this is probably good news, if you bought from 02 to 06 not so much. My advice is to get in a 30 year fixed no matter what the cost and then you are immune to the temporary fluctuations of the market. If you own a home free and clear in 30 years it will be worth far more than today and besides you won't owe anything on it which can secure you for the rest of your golden years. Let me know if I can help answer any questions.