New Home Supplies Fall To An 18-Month Low

If you plan to buy of new construction in New York sometime in 2012, don't expect today's low prices. Like everything in housing of late, the market for newly-built homes appears to be stabilizing and, in some markets, improving.

As foreshadowed by this month's strong Homebuilder Confidence survey, the Census Bureau reports that the number of new homes sold rose to a 6-month high in October, climbing to 307,000 units on a seasonally-adjusted, annualized basis.

A "new home" is a home that is considered new construction. It's the opposite of an "existing home".

Home buyers are comparing new construction to home resales and liking what they see. At the current sales pace, the nation's complete new home inventory would now be depleted in just 6.3 months. This marks the lowest home supply since April 2010 -- the last month of the last year's federal homebuyer tax credit.

By building only to meet new demand, builders are keeping home supplies in check, and home prices stable. They've also found a niche market -- 80% of homes sold last month sold for less than $300,000.

Split by region, the Census Bureau reports October's New Home Sales as follows :

• Northeast Region : +0.0% from September 2011 
• Midwest Region : +22.2% from September 2011 
• South Region : -9.5% from September 2011 
• West Region : -14.9% from September 2011 

Unfortunately, the data may be incorrect.

Although the October New Home Sales report says that sales climbed 1.3 percent last month, the government's data was published with a ±19.7% margin of error. This means that the actual New Home Sales reading may have been as high as +21.0 percent, or as low as -18.4 percent. Because the range of values includes both positive and negative values, the Census Bureau assigned its October data "zero confidence".

As home buyers, then, we can't take our market cues from the published data. Instead, we should look to other metrics including Housing Starts data and the aforementioned homebuilder confidence survey. Each points to strength in the new home market, and foretells higher home prices in 2012.

If you're in the market for new construction, consider writing an offer soon. Home prices remain low and mortgage rates do, too -- a combination that keeps home payments low. Next year, that may not be the case.

Home Improvement Projects : How Much Equity Will You Build?

Home improvement projects are booming, expected to cross $110 billion in total volume this quarter. Unlike in recent years, however, the projects aren't helping to create much new home equity.

According to Remodeling Magazine's Cost vs Value Report 2011-2012, for each home improvement dollar spent in 2012, homeowners can expect to recoup just 58 cents in home equity. 

This figure is down sharply from 2005, when the cost-to-value ratio was 87 percent. 

Today's Brooklyn, NY homeowners get a much smaller payoff on their home improvement projects. If you're planning to remodel/update in preparation for sale, therefore, consider the following projects, each of which carries a high cost-to-value ratio.

From Remodeling Magazine's "Mid-Range Project" list :

• Steel Entry Door Replacement : Cost, $1,238; Recoup, 73.0%
• Attic Bedroom : Cost, $50,184; Recoup, 72.5%
• Minor Kitchen Remodel : Cost, $19,588; Recoup, 72.1%
• Garage Door Replacement : Cost, $1,512; Recoup, 71.9%
• Wood Deck Addition : Cost, $10,350; Recoup 70.1%

By contrast, other projects carry a low cost-to-value ratio, and should only be undertaken if the project's utility exceeds its cost. These projects don't do much to raise a home's resale value.

• Home Office Remodel : Cost, $27,963; Recoup, 42.9%
• Sunroom Addition : Cost, $34,133; Recoup, 45.9%
• Backup Power Generator : Cost, $14,760; Recoup, 47.5%
• Bathroom Addition : Cost, $140,096512; Recoup, 51.0%
• Fiberglass Entry Door Replacement : Cost, $3,536; Recoup 56.3%

In the "Upscale Projects" category, projects including the replacement of doors, siding and windows occupy the list's first 6 slots in terms of cost-to-value. 

If you're planning a home improvement project over the next few months, the timing is right -- both contractor costs and material costs are low nationwide, and improving a home can extend its useful life.

See the complete Cost vs Value report online.

Conforming Loan Limits Unchanged For 2012

A conforming mortgage is one that, literally, conforms to the mortgage guidelines as set forth by Fannie Mae and Freddie Mac. 

Conforming mortgage guidelines are Fannie's and Freddie's eligibility standards; an underwriter's series of check-boxes to determine whether a given loan should be approved.

Among the many traits of a conforming mortgage is "loan size".

Each year, the government re-assesses its maximum allowable loan size based on "typical" housing costs nationwide. Loans that fall at, or below, this amount meet conforming mortgage guidelines. Loans in excess of this limit are known as "jumbo" loans.

Between 1980 and 2006, as home values increased, conforming loan limits did, too, rising from $93,750 to $417,000. Since 2006, however, despite falling home prices in many U.S. markets, the conforming loan limit has held steady.  This will remain true for 2012 as well. 

In 2012, for the 7th straight year, the national, single-family conforming mortgage loan limit will remain at $417,000.

The complete 2012 conforming loan limit breakdown, by property type :

• 1-unit properties : $417,000
• 2-unit properties : $533,850
• 3-unit properties : $645,300
• 4-unit properties : $801,950

However, there are some areas nationally that have earned "loan limit exceptions" based on the local median sales prices. These areas are known as "high-cost" areas and loan limits within these regions range from $417,001 to a maximum of $625,500.

Some examples of high-cost areas include San Francisco (along with a most of California), New York City, and most of Hawaii and Alaska. Nationally, there are approximately 200 such "high-cost" areas.

Verify your local conforming loan limit and loan limits across New York via the Fannie Mae website. A complete county-by-county list is published online.

More Sales, Less Inventory : Home Prices Headed Higher?

The housing market continues to signal that a broad rebound is underway. In October, despite sparse home inventory, the number of properties sold increased 1.4% nationwide.

According to data from the National Association of REALTORS®, on a seasonally-adjusted, annualized basis, October Existing Home Sales gained 70,000 units as compared to September, registering 4.97 million existing homes sold overall.

An "existing home" is a home that has been previously occupied and, as compared to prior months, the stock of homes for sale is depleted. 

Just 3.3 million homes were listed for sale last month. This represents a 2 percent drop from September and marks the sparsest home resale inventory of 2011.

The current home supply would last 8.0 months at today's sales pace -- the fastest rate since January 2010. 

The real estate trade group's report contained other noteworthy statistics, too :

1. 34 percent of all sales were made to first-time buyers
2. 29 percent of all sales were made with cash
3. 28 percent of all sales were for foreclosed homes, or short sales

It also said that one-third of transactions "failed" as a result of homes not appraising for the purchase price; failure to achieve a mortgage approval; and, insurmountable home inspection issues.

This 33% failure rate is huge as compared to September 2011 (18%) and October 2010 (8%). It underscores the importance of getting pre-qualified to purchase, and of selecting a home "in good condition".

For today's Brooklyn, NY home buyer, October's Existing Home Sales may be a "buy signal". Supplies are falling and sales are increasing. Elementary economics says home prices should begin rising, if they haven't already.

Remember : The data we're seeing is already 30 days old. Today's market may be markedly improved already.

The good news is that mortgage rates remain low. Freddie Mac reports that the average 30-year fixed rate mortgage rate is 4.000% with 0.7 discount points, making homes as affordable as they've been in history.

With rising home values, you may end up paying more to purchase your new home, but at least you'll pay less to finance it.

Maximum FHA Loan Limits Restored To $729,750

After a brief return to lower, pre-2009 levels, FHA loan limits have been restored. As signed into law last Friday, maximum FHA loan limits are -- once again -- as high as $729,750.

The move creates additional mortgage financing possibilities in more than 650 U.S. counties, and promises to increase the FHA's mortgage market share, which has grown from 6% in 2007 to roughly 30% today.

The change in FHA loan limits also marks the first time that FHA loan limits exceed those of conventional mortgage-backers Fannie Mae and Freddie Mac.

Conventional loans remain capped at a maximum of $625,500.

For home buyers in Brooklyn, NY and nationwide, FHA-insured mortgage offer several advantages over comparable conventional loans, the most commonly cited of which is that FHA-insured loans require a down payment of just 3.5 percent.

FHA-insured mortgages carry other advantages, too, however.

First, FHA home loans are not subject to loan-level pricing adjustments (LLPA). This means that, all things equal, buyers and would-be refinancers with credit scores below 740; or, who live in multi-unit homes; or, who have high loan-to-values are not subject to additional loan fees as a conventional mortgage applicant might.

Second, after 6 months of on-time payments, FHA-backed homeowners are eligible for the FHA Streamline Refinance. The FHA Streamline Refinance is among the simplest loan products for which to qualify with no appraisal required. Even if you're "underwater" on your mortgage, you can still be streamline-eligible.

And, lastly, at least in today's market, FHA mortgage rates are below those of the conventional market.

The downside of FHA financing, however, is that all FHA mortgages require mortgage insurance and FHA mortgage rates are often higher versus a comparable conventional loan. This means that, although its mortgage rate may be lower, the payment for an FHA home loan may be higher as compared to a Fannie Mae mortgage with similar credit traits.

FHA loans aren't always optimal, but with higher FHA loan limits, expect the FHA's market share to increase.

Check your local FHA loan limit at the HUD website.

This Holiday Season, Think Twice Before Saving 15 Percent At The Register

With Halloween behind us, retailers are in the Holiday Spirit. Businesses know that consumers spent a median $556 on holiday gifts last year and they want this year to be just as strong.

That's why it's barely November and, already, Black Friday ads clog our mailboxes and the airwaves. Retailers want our dollars and they're offering great deals to early shoppers.

There's one discount a smart shopper should think twice, however -- the ever-present "Open A Charge Card Today And Save 15%" promotion. In the short-term, deals like this will save money. 

Over the long-term, however, opening a charge card could cost you much, much more -- especially if you plan to refinance your home or buy a new one.

Applying for a charge card can lower your credit score up to 85 points.  

According to the myFICO.com website, as a category, "New Credit" accounts for 10% of your 850 possible credit points, comprising the following credit traits :

• Your number of recently opened accounts
• Your number of recent credit inquiries
• Time elapsed since your recent credit inquiries
• Your proportion of new accounts to all accounts

Each trait is a negative in the FICO-scoring credit algorithm which means that, with each in-store charge card application, your credit score is likely to fall. How far your score will fall depends on the rest of your credit profile.

Meanwhile, low FICO scores correlate to higher loan fees.

Using a real-life example, assuming 20% equity in a home, for either purchase or refinance, look how loan fees for a $200,000 conforming mortgage change by FICO score :

• 740 FICO : There will be no added loan costs
• 720 FICO : You'll have a 0.250% increase in loan costs, or $500
• 700 FICO : You'll have a 0.750% increase in loan costs, or $1,500
• 680 FICO : You'll have a 1.500% increase in loan costs, or $3,000
• 660 FICO : You'll have a 2.500% increase in loan costs, or $5,000

You can see first-hand how expensive low credit score can be -- much more costly than the 15% saved at the mall. That's why people planning to refinance to today's low rates and soon-to-be Brooklyn, NY homeowners, shouldn't rush to save 15% at the register. 

For people in want of a mortgage, high FICO scores are worth protecting.

Tips For Maximizing Your Home's Appraised Value

A home appraisal is an independent opinion of your home's value, performed by a licensed home appraiser. Appraisals are part of the traditional home purchase process, and lenders require them for most refinances, too.

Appraisers are trained professionals. First, they derive a base for your home's value based on the recent sales prices of homes that are comparable to yours in terms of bedrooms, bathrooms, style, and square footage.

Then, accounting for features and amenities that make your home different, the appraiser applies "adjustments" to that base value.

This methodology is called the "Sales Comparison" approach and the result is your home's appraised value.

It's the most common appraisal method used by lenders.

As a homeowner in Brooklyn, NY , you can't affect the sales prices of your home's comparable properties, but you can help your appraiser understand how your home stands apart from these homes. This, in turn, can affect your home's adjustments, resulting in a higher appraised value.

With home appraisals, every valuation dollar can matter. With that in mind, here are a few tips for maximizing your home's appraised value :

1. Be home for your appraisal so you can answer the appraiser's question, if there are any.
2. Mention any new roofing, flooring, HVAC, plumbing, or windows you've installed since purchase.
3. Don't mention projects or repairs you're "about to undertake". Appraisers don't credit for unfinished projects.
4. Make minor household fixes prior to the appraisal (e.g.; leaky sink, running toilet, peeling paint). 
5. Present a tidy home. This can contribute to a higher "overall condition" adjustment.

Lastly, schedule the appraisal for a time that is convenient for your entire household. An appraiser needs to see, measure, and take photos of every room in your home. If a room's door is closed because of a resting child, for example, the appraiser may need to schedule a second appointment to complete the appraisal, and that can raise your appraisal costs.