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Has the Market Bounced Back Yet?

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Posted On: 04/22/2015

QUESTION:

Are we over the foreclosure meltdown? Hasn’t the real estate market largely recovered?

ANSWER:

In a word, no, the housing market has not fully recovered. Here’s the evidence:

First, the Federal Housing Finance Agency tells us that in November (the last month available at this writing) home prices had increased 5.3 percent during the past year. That’s the good news. The bad news is that real estate values still were 4.5 percent below their 2007 peak.

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Second, the Federal Housing Administration has recently cut its annual mortgage insurance premium by 0.5 percent, a huge savings for new borrowers. Why did it take until 2015 to enact such a reduction? Because the FHA is trying to recover from the massive losses that took place with loans insured from 2000 through 2009, years when the program lost money.

Third, Fannie Mae and Freddie Mac now will buy loans with as little as 3 percent down, a big reduction from the previous 5 percent standard. Why the cut? Because “lower wealth borrowers” need help, according to FHFA Director Mel Watt. Actually, though, it’s a way to pump up home sales and loan originations.

Fourth, according to the National Association of Realtors, existing home sales fell 3.1 percent in 2014.

Fifth, according to David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, “the housing recovery is faltering. While prices and sales of existing homes are close to normal, construction and new home sales remain weak. Before the current business cycle, any time housing starts were at their current level of about one million at annual rates, the economy was in a recession.”

Blitzer adds that “the softness in housing is despite favorable conditions elsewhere in the economy: strong job growth, a declining unemployment rate, continued low interest rates and positive consumer confidence.”

So, despite the massive dislocations that still echo from 2008 and before, does this mean you should not consider the purchase of real estate? Not at all.

Interest rates are near record lows. Home prices nationwide have yet to reach the levels seen eight years ago, especially when one adjusts for inflation. Significant tax benefits for owners remain in place. Moreover, rental rates are soaring. As Zillow reports, “median rents continued rising nationwide in January, with rental appreciation in some small and even struggling housing markets catching up to the country’s hottest areas.”

The real issue concerns your personal finances and preferences, in addition to your local real estate market. You need to review your options, especially in light of today’s low-rate mortgages that may require less down or have smaller annual insurance costs.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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