Tracking the U.S. housing market's rise, fall and rebound

These five charts show the housing industry's boom and bust this decade and forecast the possible course of its recovery the next three years, as reflected in home sales, home prices, housing starts, the supply of homes available for sale and mortgage defaults. All data is quarterly.

Housing market trends and forecast About this interactive graphic: Moody's Economy.com supplied the data for this interactive. Each of the five charts shows the quarterly performance of an important component of the housing market's health from first quarter 2000 through fourth quarter 2012. Data from the first quarter 2010 onward are forecasts by Moody's

Economy.com. Seasonally-adjusted figures, or seasonally-adjusted annual rates, are used for each component

to simplify comparisons.

Moody's Economy.com chose these five indicators because they show key trends in the residential housing market. Sales of new and existing homes and the national median price for existing homes are closely followed benchmarks of the demand for housing. Both sales and prices are also influenced by supply, represented here by the number of single-family homes available for sale and single- and multi-family housing starts. A large supply of houses puts downward pressure on prices. Foreclosures also push down prices by increasing the supply of low-priced houses on the market.

Currently high mortgage delinquencies and defaults point to a continuing high number of foreclosure sales the next few years. Moody's Economy.com supplied not only the forecasts, but also historical data back to 2000, using figures from the National Association of Realtors, the U.S. Census Bureau and credit-reporting firm Equifax.

This interactive was updated March 2010.  Source: Moody's Economy.com  USA TODAY graphic by Barbara Hansen, Julia Schmalz and Juan Thomassie

  

3 Mistakes That Can Bite You at Loan Closing

By Jim Spray 5/25/10

You’ve provided your lender with a stack of documents over the last month and then find out it is time to close and you need to come up with another $5,000 down payment.  Can’t happen to you?  Read on to be sure.  The three biggest mistakes biting people at closing today are thinking:

I have equity in my land…

I’m going VA/USDA/Section 129/etc…

I was pre-approved…

…so I don’t need any down payment.  This may be the case, maybe not.

Last newsletter we discussed determining how much home you can afford for the payment you consider comfortable.  Lenders also make a similar determination on how much they will loan for what and to whom.  Have you ever wondered what a lender means by pre-qualified, pre-approved, and approved?  The third term, approved, is where many people are stumbling.

Pre-qualified means you’ve talked with the lender.  Based on what you told them, they think they may be able to get you a loan for the amount you discussed, IF you can verify what you told them.  This takes about five minutes of talking with a lender.  They basically ask three things: 

What is your credit rating (620 FICO, no bankruptcy in the last 2 years)?

How much do you earn? (Have you been doing this for at least 2 years)?

How much do you owe?

Based on those three questions they give you a number and payment.  Let us use $150,000 for an example.  You point out you have $5,500 down payment.  The lender says, “An FHA loan requires 3.5% down so you are OK.”  You go shopping for homes for $156,000.

Pre-approved means they are willing to loan you a certain amount of money based on your financial information they have verified with pay stubs or tax returns and credit reports.  They like you and say they can loan you $160,000.  You shop for $160,000 homes.  Pre-approval takes a lender about a day after you provide requested documents.

You find a home for sale for $165,000.  You figure you have $5,500 down plus the loan for $160,000 so no problem.  The lender may want to loan on the property you want to buy.  You still have to verify the property meets certain criteria.  The lender wants to have the property appraised to verify it is worth loaning $160,000 against.

Approved means the bank is willing to loan you the amount you need for the specific home you want to buy.  It requires the documents to go through a process called underwriting where someone double checks everything.  One of the things the underwriter wants to see is an appraisal for the home showing what it is worth.  Lenders must request an appraisal through a government approved “third party” who assigns it to an appraiser, who then appraises, sends to third party, who sends it to lender.  Underwriting is taking about three weeks.  Suppose your home appraises for the $165,000 you offered.  3.5% of $165,000 is $5,775.  You think no big deal, I saved up $5,500 another $250 is no big deal.  Hold on tight.  For an FHA loan on a property appraised at $165,000 the highest loan amount you can have is $165,000-$5,775=$159,225.  The sale price of the home did not include lender closing costs like loan origination fee, appraisal fee, document preparation fee for a total of $5,000 (a conservative estimate).  The total amount you need for the home is $165,000+$5,000=$170,000.  You need $170,000-159,225=$10,775 down payment.  What if the appraisal comes in at $155,000?  Well, $170,000-$149,575(FHA loan maximum) = $20,425 down payment.

It feels good to have a lender tell you “You are pre-approved” for more than you expected.  There is a big difference between a pre-approval and an approval.  I see people get price creep every week.  The good feeling from their pre-approval turns into a larger lot and a larger home with as many bells and whistles as will fit into the pre-approval.  The approval comes around and emotions run even higher.  Remember the original comfortable monthly payment and down payment?

Scrambling to find an extra $5,000 down payment laying around a week before you are suppose to close on a home is not fun.  “I own the land already.”  Yes, and depending on how recently you purchased it, you may or may not be able to count equity in your land.  “I’m doing a VA loan.”  Yes, and the loan still cannot exceed the appraised value enough to cover closing costs.  “I was pre-approved.”  Yes, and there is a big difference between a pre-approval and a fully underwritten approval.

Remember to decide on what value means to you, what you need in a home, what payment you are comfortable with, and what down payment you can handle.  Decide those before you fall in love with a home and shop for what will meet your needs.

Your Home is an Investment?

By Jim Spray 5/26/10

Many people are asking themselves about home ownership these days.  Stock brokers and other financial “specialists” tell you now is the time to get into the market.  Realtors tell you it is a great time to “invest” in a home.  Late night TV infomercials tell you gold is the most expensive it has been EVER so buy high right now.  Are your priorities on investing or security?  What if our home is not an investment?  What if we are losing sleep at night worrying about paying the rent or being laid off?

Stock brokers have suggested renting something cheap and using the money you “save” to invest in hopes of a return for you and a guaranteed commission for them.  I have never seen a stock certificate with 3 bedrooms, a kitchen, or even a toilet.  I have read about stocks ending up in the toilet.  The philosophy seems to assume we are all corporations, not mortal individuals.  A company may move to China, be bought out, buy another company, change product lines or a million other things.  We as real people are going to live somewhere.  Everyone lives somewhere their entire life.  It may be a park bench, the back seat of our car, or the Spelling Mansion.  I took my kids to Disneyland last year and the Spelling Mansion was on sale for $300,0000,000.00 and there were several people living next to the public restroom on Santa Monica beach.

If we are honest with ourselves, most of us really do not prefer to literally live on the beach or in our parent’s basement.  Most of us will never be able to afford a $300,0000,000.00 mansion even if we win the lottery.  Most of us will work most of our lives.  If we get laid off, we will find another job somewhere even if it is for less money.  Most of us will do one of two things.  We will either pay rent  until the day we die or pay our mortgage until the home is paid for.  For most normal people the only real hope of financial independence and security comes with paying the last mortgage payment.  You never get to the last payment if you never make the first.  Rents will increase over the next thirty years.  A fixed rate mortgage will not.  Property tax is inevitable as death.  If you rent, the owner passes tax increases on to you.

The house you live in is not an investment.  For most of us, it is a requirement for a bearable life at the least and a home and refuge at best.  You will have the expense of maintaining a home for your entire life…or not (some of us may still have parents with basements).  What’s the difference in expense of renting versus buying?  Let us play with a few numbers to estimate our housing expense.  Let us stack the odds as best we can in favor of renting.  Say you can pay $700 a month rent and buying a comparable home is $800 a month, both are worth $120,000.  In our fantasy world there is no inflation for thirty years.  After thirty years you will have paid $252,000 in rent and have another thirty years of working to make rent to look forward to.  If you bought, you will have paid $288,000 and own the home free and clear and own a home worth $120,000 (remember no inflation).  You NEVER have to make another rent or mortgage payment ever again.  What would your life and budget be like right now if you didn’t have to make a payment on your home every month?   Yes, you will still pay property tax either way.  Many communities give tax breaks to people over 65 years of age.  I don’t know of any communities giving tax breaks to renters.

What if we see 3% inflation over the next thirty years and interest rates stay level for 29 years and go up 1% in year 30?  Same $120,000 home $700 rent and $800 mortgage (assume $50 of the $800 is property tax).  In June of 2040 the rent will be $1700 or the last home payment will be $871, then paying $71 a month property tax.  The home will be worth $291,000.  If you buy the home in June 2040 you will only have to pay $1800 a month until 2070 to retire.

Owning the home you live in is always better than renting the house someone else owns.  The only better time to buy than today is yesterday.  Once you have the security of having a place to live today you can worry about investments paying off in the future.