This Month In Real Estate March 2009

This Month in Real Estate
Released: March 11, 2009

Commentary……………………………. 2

The Numbers that Drive Real Estate… 3

Snapshot of the Economy………………
p y 9

Recent Government Action……………. 13

Research for Buyers and Sellers………. 21

Courtesy of Mike Walker
P.1
www.ShowMeTheKeys.com

Commentary
The government acted boldly in February to stimulate the economy and help stabilize the
housing market. Among the measures taken was a tax credit of up to $8,000 for a qualified
first-time buyers in 2009. Unlike the previous version, the new credit does not have to be
repaid. This tax credit will likely help lift overall homes sales and trigger trade-up purchases
as well. Good news for a weakened housing industry.
Among the many benefits of the massive stimulus package of 2009 is the reinstatement of
the conforming loan limit, which expired at the end of 2008. Higher loan limits could allow
h f il li i hi h id h df ih l li i ld ll
more buyers and existing homeowners to gain access to low mortgage rates. Combined
stimulus measures could raise home sales considerably in 2009. which should lead to home
price stabilization. President Obama also unveiled a much needed plan designed to help
much-needed
approximately 7 to 9 million families avoid foreclosure by refinancing or restructuring their
mortgages. In terms of the outlook for the broader economy, stabilization is likely to occur if
the economic stimulus plan does what it is intended to do.
In many areas around the country, home values are priced under market value. Mortgage
rates remain at historical lows and housing affordability is greatly improved. Considering
these factors, it is likely that demand is building among buyers who are able and willing but
waiting on the sidelines. Many smart buyers are taking action and continuing to find deals
sidelines
instead of trying to time the market.
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The Numbers that Drive Real Estate

P.3

Home Sales
Pace of Sales in Millions
Home sales fell 9% in the first month of the year as some prospective buyers waited for clarity on
the housing stimulus package.
On February 17, the economic stimulus package included a tax credit for new home buyers and
17 home-buyers
anyone who has not owned a home in the last three years. This provision alone could help increase
sales by an additional 300,000 homes this year. In turn, this could activate trade-up purchases by
existing homeowners, further increasing home sales this year.

5.23 5.10 5.86 6.03 6.23 7.12 6.75 6.46 4.91 4.49

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Note: Pace of sales as of January every year (Data released on February 25, 2009)
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Source: National Association of Realtors

Median Home Price
In Thousands

Home prices decreased 15% from a year ago due to the number of distressed sales in the market.

$137 $142 $156 $167 $179 $197 $217 $211 $200 $170

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Median home price as of January every year (Data released on February 25, 2009)
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Source: National Association of Realtors

Inventory - Months Supply
Number of months it would take to sell all the homes on the market at the current rate of sales

Fewer homes went on the market in January, resulting in a 6% decline in months’ supply of homes
from a year ago.
The overall inventory of homes fell to the lowest level in two years due to significant declines in
homebuilding activity and moratorium on foreclosures in several states.

4.2 4.2 4.3 4.6 4.3 3.6 5.1 6.6 10.2 9.6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Inventory as of January every year (Data released on February 25, 2009)
P.6
Source: NAR

Mortgage Rates
30-Year Fixed
Mortgage rates continued to remain at attractive levels for the month of February. For the final
week of the month, mortgage rates averaged 5.07%.

5.1%
8.3% 7.1% 6.9% 5.8% 5.6% 5.6% 6.3% 6.3% 5.9%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Mortgage rates as of February every year. (Data released on February 26, 2009)
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Source: Freddie Mac

Affordability - % of Income
The percentage of a median family’s income required to make mortgage payments on a median priced home

Housing affordability is at record levels due to declining home prices and low mortgage rates. As a
result, the purchase power of a typical family rose considerably. According to NAR’s housing
affordability index, a median-income family earning around $60K could afford a home costing
$283K i Jin January with a 20% down payment.
ith d t

20% 19% 19% 18% 19% 20% 23% 22% 19% 15%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Affordability as of January every year. Calculations assume a 20% down payment.
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Source: National Association of Realtors (NAR)

Snapshot of the Economy

P.9

Gross Domestic Product (GDP)
According to revised numbers by the Department of Commerce, the economy shrank by 6% in the
final quarter of 2008. The pace of decline for the final quarter was considerable as both businesses
and consumers continued to aggressively scale back. Consumer spending, which accounts for
approximately two-thirds of d
i tl t thi d f domestic activity fell by 4% in the final quarter of last year. On an
ti ti it f ll b i th fi l t fl t O
annual basis, GDP growth for 2008 was actually slightly better than 2001.

3% 4% 1% 5%
% 3%
% 2% 0.1% 5% 5% -0.2% 1%
% % 3% -0.5%
% 0.5%
3% 0.2%
1%
-6%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08
Source: Bureau of Economic Analysis (Data released on January 30, 2009)
P.10

Unemployment
The unemployment rate increased to 8.1% as the employers shed 651K jobs in February. Almost
all sectors posted job losses with the exception of government, education and health sectors.

4.1% 4.2% 5.7% 5.9% 5.6% 5.4% 4.8% 4.5% 4.8% 8.1%
20

20

20

20

20

20

20

20

20

20
000

001

002

003

004

005

006

007

008

009
Unemployment as of February every year (Data released on March 6, 2009)
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Source: Bureau of Labor Statistics

Inflation
Inflation declined for the sixth consecutive month, falling to 0% for the month of January. This
was the slowest rate of increase since the 1950’s. While consumer prices remained flat, it was
slightly more robust than market expectations. Areas that actually experienced small price gains
gy p yp p g
were in the energy sector, transportation costs, education and medical care.

2.7% 3.7% 1.1% 2.6% 1.9% 3.0% 4.0% 2.1% 4.3% 0.0%
20

20

20

20

20

20

20

20

20

20
000

001

002

003

004

005

006

007

008

009
Inflation as of January every year (Data released on February 20, 2009)
P.12
Source: Bureau of Labor Statistics – Consumer Price Index

Recent Government Action

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Feb 17, 2009
American Recovery and Reinvestment Act of 2009

 $780 billion economic stimulus package was signed by
President Obama
1. 35% in tax cuts
2. 65% in spending
 There were six key housing related provisions
1. First-Time Home Buyer Tax Credit
2. FHA, Fannie Mae, and Freddie Mac Loan Limits
3. Neighborhood Stabilization
4. Commercial Real Estate
4C i lR lE t t
5. Energy Efficient Housing Tax Credits and Grants
6.
6 Rural Housing Service
P.14

American Recovery and Reinvestment Act
Six Key Housing-Related Provisions
1. First-time Home Buyer Tax Credit
Who:
• First-time home buyers or anyone who has not owned a principal residence in 3 years
previous to purchase
i h
Amount:
• $8,000 Tax Credit
• Can be claimed on buyer’s 2008 federal tax return using Form 5405
Purpose:
• To encourage first-time home buyers to purchase; to reduce larger-than-normal
inventories of homes for sale
Provisions:
• Must be a primary residence
• Does not have to repay unless home is sold within three years of purchase
• To earn full tax credit, income (adjusted gross) cannot exceed $75,000 single or
$150,000 joint
• Eli ibl Homes:
Eligible H
• All single family residences/condos/co-ops/townhomes
Effective Date:
• Jan. 1, 2009 – Dec. 1, 2009

P.15

2. FHA, Fannie Mae, and Freddie Mac Loan Limits
• Loans above the conforming loan limit are considered jumbo loans which carry
high interest rates.
• Higher loan limit should allow more buyers and homeowners to access loans
with lower interest rates as Fannie and Freddie will now be able to guarantee
those loans.
• Reinstates the conforming loan limit that expired at the end of 2008 to either
125% of local median home price or $271,050 for FHA l
f l l di h i $271 050 f loans or $417 000 for
$417,000 f
loans guaranteed by Fannie Mae or Freddie Mac with an overall cap of
$729,750.
3. Neighborhood Stabilization
g
• $2 billion in grants to address the problems that arise when whole
neighborhoods are engulfed by foreclosures.
• Funds can be used to purchase, manage, repair, and resell foreclosed and
abandoned properties.
pp
• Homes must be used to assist those with incomes at or less than 120% of median
income.
• 25% of funds must be used to assist households with incomes of 50% (or less) of
area median income.

P.16

4. Commercial Real Estate
• Focus on green building and energy efficiency as well as business tax incentives.
• Provides funds for state energy programs, which could be used to support co
ov des u ds o e e gy p og a s, w c cou d suppo t commercial
eca
property owners' investment in energy efficiency upgrades. Commercial property owners
seeking to invest in alternative energy systems for onsite power generation would benefit
from the Department of Energy Renewable Energy Loan Guarantees Program.
• Tax relief in the area of bonus depreciation and capital expenditures, as well as the 5-year
expenditures
carryback of net operating losses for small businesses.
5. Energy Efficient Housing Tax Credits and Grants
• 30% tax credit to increase the energy efficiency of homes
gy y
• Tax credit can be applied for purchases on new furnaces, windows and insulation

6. Rural Housing Service
• $500 million for existing USDA Rural Housing programs through support for direct loans
and loan guarantees
• Expectations that financing would be available to fund an additional 192,000 homeowners

P.17

Feb 18, 2009
Homeowner Affordability and Stability Plan
Overview
President Obama unveiled his $75 billion Homeowner Affordability and Stability Plan
designed to help approximately 7 to 9 million families avoid foreclosure by refinancing
or restructuring their mortgages. Some of the measures will require Congressional
t t i th i t S f th ill iC il
approval prior to implementation.
Key Provisions
1. Reduction of monthly payments
• After the bank has agreed to lower monthly payments to 38% of income, the Treasury will
match additional reductions as low as 31% of income.
• In other words, the Treasury will cover half of the costs of lowering monthly payments between
38% and 31% of income.
2. Incentives for lenders
• For each modification lenders will receive $1,000 upfront.
• For each month that the borrowers stay current on modified mortgages, lenders will receive
additional payments up to $1,000 per year for three years if the monthly payments are reduced
by at least 6%.
6%
• For each loan modification that occurs before a payment is missed, lenders will receive $1,500
and servicers $500.

P.18

Feb 18, 2009
Key Provisions (continued…)
3. Incentives for homeowners
• Reductions of principal balance on mortgages for those who stay current on their
loans - up to $1,000 a year for up to five years.
4. Eligibility requirements
• The mortgage must be originated before Jan 1, 2009.
gg g ,
• The program will accept new borrowers until Dec 31, 2012.
• The home must be owner-occupied and a primary residence.
• Income will be documented and verified.
5. Refinancing options
• The restriction on refinancing loans owned or guaranteed by Fannie Mae or Freddie
Mac requiring at least 20% equity in the home will be removed.
• The l
Th loans must be current and the loan value cannot exceed 105% of current property
tb t d th l l t d f t t
value.
• Loans may be refinanced to as low as 2% and may be extended to 40-year terms.
• This p og a w go into e ect March 4.
s program will to effect a c .

P.19

Feb 18, 2009

What is missing from the bill?
 Investors are not covered by the bill.
 The bill does not require lenders to lower principal for borrowers
“underwater” whose home values have fallen below the principal of the
mortgage.
 Does not address loans that were sold into securitized pools, also known as
private-label securities.
 It is still voluntary.

P.20

Research for Buyers and Sellers

P.21

Fannie Mae to Loosen Investor Loan Rules

To help jump start the housing market, Fannie Mae will begin to
g
guarantee mortgages for borrowers from the current limit of
gg
three to as many as nine other properties beginning in March.
The number of reserve payments will also rise from two months
to six months in June.

Effective
Current New
Date
Number of Properties
p 3 9 March 2009

Months of Reserve Payments 2 6 June 2009

Source: Realtor Magazine and American Banker
P.22

Experian FICO Credit Scores No Longer Available
As of February 14, information on Experian credit scores will be more
difficult for consumers to obtain. Experian will no longer sell its information
through MYFICO com or any other external credit reporting agency. Consumer
MYFICO.com agency
may still receive the free credit report that they are entitled to by law through the
Annual Credit Report request service and may purchase a credit report and score
directly from Experian. However, these score may vary from the scores used by
y p , y y y
lenders.
According to The New York Times and Tom Quinn, vice president for
scoring at Fair Issac ( company that formulated the FICO score), “Experian
g (the py ), p
cannot distribute its FICO scores to consumers itself or though other outlets.
Experian does produce another propriety three-digit credit score and make it
available to consumers, but it is not the one that lenders base their decisions on.”
Lenders will still have access to the complete FICO scores, including FICO scores
from Experian.
It will be increasingly important for consumers to check for errors on
their credit reports.
Source: New York Times
P.23

Downsizing Tips for Sellers
1. Begin preparing early. Preparing early will help ease the process once an offer and
acceptance have been made. This will be especially helpful if buyers have a short
timeline to close.
2. Cleanse the home of unused items. Removing unused items will facilitate better
showings of the home by enabling potential buyers to focus on the home rather than
the belongings. This will also make moving easier when the time comes.
3. Donations and garage sales are great opportunities to recycle rather than discard
unused items.
4. Have grown up children remove their belongings to free the home from items the
owners don’t use.
don t use
5. Keep digitized documents and pictures to reduce physical file sizes and help keep
documents safer for longer.
6. Include furniture in the sale of the home. This can be a win-win situation for both
win win
the buyer and the seller.

Source: Realtor Magazine and Wall Street Journal
P.24

Your Local Market

Although it is important to stay informed about what is going on in the
national economy and housing market, many different factors impact the real
estate market in your area.

Talk to your Keller Williams Realtor for assistance
interpreting the conditions in y
p g your local market.

Keller Williams agents are equipped with all the knowledge and information to
g q pp g
help navigate you though the process of buying or selling a home in this
challenging market.

P.25

About Keller Williams
Founded in 1983, Keller Williams Realty Inc. is an international real estate
company with more than 74,175 associates and 693 offices located across the
United St t
U it d States and C d Th company began franchising in 1991, and
d Canada. The b f hi i i 1991 d
following years of phenomenal growth and success, became the third-largest U.S.
residential real estate firm in 2009.
The
Th company has succeeded by treating its associates as partners and shares its
h d d b t ti it it t dh it
knowledge, policy control and company profits on a system-wide basis.
Focusing on helping associates realize their fullest potential, Keller Williams is
known
kno n as an ind str leader in its famil culture, unmatched education, profit
industry family c lt re nmatched ed cation
sharing business model, phenomenal coaching program and technology offerings.
Keller Williams provides associates with all the tools needed to thrive and grow
in today’s market
today s market.

330-571-2020

P.26

This Month In Real Estate March 2009

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