We had a nice downward trend in rates last week after the Fed announced that they they left their target rate at 0% to 0.25% and the continuation of their previously announced $800 billion dollar purchase of US Treasuries as well as the previously announced $1.25 trillion dollar purchase of MBSs by the end of the year.
We have another big week in announcements including the Unemployment rate tomorrow so we can expect the volatile rate environment to continue for the time being. After last months report from National Association of Realtors (NAR) indicated that existing home sales showed the first month over month increase since September of 2005, a report today shows that the pending home sales rose .1% during the month which is up 6.7% compared with May surprising prognosticators who had forecast no growth.
In May, existing SFR, Townhomes, condos & co-ops rose to an annual rate of 4.77 million units which was a 2.4% increase from 4.66 in April. Keeping with this (hopeful) trend, the U.S. Census Bureau separately reported the median sales price of new homes rose to $221,600 in May which is a 4% increase from April.
All this activity is good news as climbing out of the housing crisis is the first step to an overall rebound. People who are looking to refinance with today's low rates are left wondering how to determine what their home is now worth. It's a good question and today there are really two markets; the distressed foreclosure market and the ordinary market. In the current environment it has been difficult to distinguish between the two when home appraisals are often based on values of foreclosed properties, which sell for significantly less than homes of ordinary sellers.
Distressed homes usually sell for around 20% less than normal homes in the same area, but unless the appraiser takes the time to make this distinction, a traditional home can get lumped in with the bargains. Appraisers are required to use comparable properties that have sold recently, and if there is nothing but distressed sales, what is left to compare to? Is your house worth more because you paid your mortgage on time? We'd like to think so but in a less than ordinary market, it's very difficult to prove.
Still the indicators for recovery are there. NAR's affordability index is near historic highs because with the combination of low housing prices and low rates, the average family is required to devote less of their income toward the mortgage. This should continue to have a positive effect on demand and although the market is not likely to rebound very quickly, we should begin to see a gradual recovery.
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