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Are We There Yet?

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Posted On: 06/29/2011

QUESTION:

Is there any evidence we've hit bottom and that the market is beginning to recover?

ANSWER:

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It's possible to tell how far we've fallen, but whether we've hit bottom is something we'll only know after the fact.

According to the National Association of Realtors, "Sales of existing-home sales rose in March, continuing an uneven recovery that began after sales bottomed last July." That is, the annual rate of sales was 5.10 million units in March versus 4.92 million units in February.

But is this really an increase? There were 28 days in February - an average of 175,714 sales per day. In March, with 31 days, the average was 164,516 units. As well, sales in March 2011 were 6.3 percent below March 2010.

The Federal Housing Finance Agency reports that home prices in February were 18.6 percent below the peak in April 2007. Essentially, home prices are where they were in February 2004.

Lastly, figures from the Federal Reserve show that the value of U.S. homes stood at $22.7 trillion in 2006 - a value that fell to $16.4 trillion in the fourth quarter of 2010.

Meanwhile, the real estate research firm REIS, Inc. reports that in 2010 and into the first quarter of 2011 apartment rents in major metro areas were rising while vacancies fell.

So, no, as this is written, the question of whether we've hit bottom is unclear.

QUESTION:

Imagine that someone bought a $450,000 home, the property value fell to $275,000 and the owner was foreclosed. The owner has now saved $35,000 in cash to buy a $100,000 replacement residence but cannot get a loan for the $65,000 balance. With 35 percent down why is financing unavailable?

ANSWER:

After a foreclosure borrowers will generally need to wait three to five years before getting a new mortgage - and longer if the foreclosure was a deliberate walk-away. In this case the first lender lost at least $175,000, and the borrower is now regarded as so risky that no lender will accept his or her mortgage application.

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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