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Saturday, March 15, 2008

Why “flat lining” may be good

Yet another report in the up and down world of real estate. Parts of this post appeared recently in one of the real esate news feeds that I get on a daily basis.

In the health care world “flat lining “is bad, very bad. It basically means that the patient has died. In the real estate world, recent news of flat lining in one particular measurement is potentially very good. It means the patient (in this case the real estate market) has at least stopped getting worse. The pending home sales index didn't decline last month as many economists had predicted after months of negative numbers. It just stayed flat. In a market that's been going negative, "flat" looks pretty good -- a sign that maybe -- just maybe -- two years plus of sales declines might be bottoming out, or could do so soon

Other encouraging news included a report that new mortgage applications nationwide jumped last week for the first time in more than a month, according to the Mortgage Bankers Association.

New applications for loans to purchase houses -- a very important indicator of home buying in the months ahead -- were up by 1.4 percent on a seasonally-adjusted basis. But they rose by a surprising 14 and a half percent on an unadjusted basis -- that's the raw numbers last week compared with the week before.

Why the sudden increase? Probably because 30-year fixed rates dropped by a third of a percentage point … down to 5.98 percent from 6.27 percent the week before. Home shoppers have been watching mortgage rates bounce around for the last month -- sometimes getting as high as the mid 6 percent range. So when they saw rates plummet, they put in their loan applications -- and locked. The rates have since bounced back above 6%, but even there rates are still low compared to historic levels.

Also, the Federal Reserve is expected to keep turning the dial down on short-term interest rates -- whatever it takes to kick-start the U.S. economy back into growth mode. Look for another quarter point cut in rates next week -- and maybe more in the weeks ahead.

And, we have the new FHA and Fannie Mae and Freddie Mac limits that came about because of the FHA Modernization Law, which allows FHA-backed loans to go as high as $297,500 in Oakland County, which gets FHA loans up near the “sweet spot” of our market and allows many first time buyers to look at a great number of the bigger foreclosed homes that are currently on the market. The Fannie/Freddie limits floated upwards too, allowing more buyers to look at bigger, more expensive homes without incurring higher, “Jumbo Loan” rates.

Maybe the treatments by Dr's FHA, Fannie May and Freddie Mac will have the desired affect on ther housing market. I certainly have experienced an upward spike lately in my little corner of the real estate market, with more buyers out looking and more potential sellers starting to come out of “bunker mentality” and starting to consider listing. So, flat lining is a good thing; although, I’d just as soon keep the experience all about real estate and not about my health, thank you very much.

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