Billings, MT

Interesting market thoughts to ponder. What happens when the first time buyer credit is gone?

Yellowstone County as of this A.M. has 210 active single family homes priced between 100k to 200k

There are 159 single family pending sales for 75.7% percentage which indicates strength in that price segment

There are 486 active single family and 255 single family pending total in Yellowstone County so the 100k to 200k comprises 62.3 % of the pending sales and only 42.2% of the active properties

A question I asked my self after looking at the price segment absorption rates(sent out early) was why such a jump (almost double in the first step above 100k to 200k absorption103 days and the 200k to250k absorption 204 days) where were the sellers from below going.

Well out of the 159 single family pending 92 or 57.9% of the sales the homes were not move up sales either vacant or estate or short sales that leaves only 67 possible move up buyers.

Above 200k there are 96 pending sales if 100% of the possible 67 are move up that leaves a possible 29 pending sales that are in migration sales. Roughly that would translate into population growth in Yellowstone county of about 1300 people this year or 9/10ths of one percent, believable and probable.

So back to my basic question what happens to the market sales when the $8,000 first time buyer credit disappears. I believe you get a radical drop in sales caused by the market drawing on future first times into the market now. If we lose half of those 67 first time buyer sales and retain the 29 move in buyers that would indicate we would have approximately 141 pending sales right now or a drop of 45% in pending sales.

Now Billings is fairly healthy so you extrapolate this math nation wide and then factor in unemployment and underwater loans in the major markets and you have some very interesting scenarios upon which to ponder.

HERE ARE THE MARKET PERFORMANCE NUMBERS THROUGH THE END OF SEPTEMBER. WE ARE NOW ON A "CASH FOR CLUNKER" RACE TO THE FINISH LINE WITH THE EXPIRATION OF THE FIRST TIME BUYER CREDIT SET TO EXPIRE ON NOVEMBER 30TH 2009. IT WILL BE REAL INTERESTING TO SEE HOW THE MARKET PERFORMS ONCE IT IS GONE.

MARKET UP DATE AT GLANCE COMMENTARY THRU SEPTEMBER 30TH 2009

I'LL BEGIN THIS MONTH WITH THE COMMENT "cash for clunkers" and a race to the finish line THE BEST WAY TO DESCRIBE THE WAY THE REAL ESTATE MARKET IS BEHAVING this fall.

WHEN YOU LOOK AT THE NUMBERS THE THING that JUMPS OUT AT YOU IS A 63% INCREASE IN THE NUMBER OF PENDING SALES YEAR TO YEAR, WHICH IF YOU WANTED, YOU COULD SHOUT ABOUT THE INCREASE, YET WHEN YOU NOTE THAT LAST YEAR AT THIS TIME THE BUYERS WITHDREW FROM THE MARKET PLACE AND CAUSED A PLUNGE IN PENDING SALES, IT TEMPERS ENTHUSIASM. I BELIEVE we are in race with first time buyers trying to purchase before the tax credit goes away.

THIS BRINGS UP A GOOD POINT IN THE OVERALL NUMBERS WE WILL EXPERIENCE THIS FALL AND THE REST OF THE YEAR. THE MARKET FELL FROM THIS POINT FORWARD FOR THE REMAINDER OF 2008 THIS YEAR APPEARS TO HAVE STABILIZED WITH INVENTORY AND PENDING SALES REMAINING IN A SOLID RELATIONSHIP TO EACH OTHER. THAT FACT IS why IS MEASURED OPTIMISM.

the most active SEGMENT of the market HAS REMAINED between 160k to 180k(PRIME FIRST TIME BUYER PRICE RANGE), that price range share of the market 13% by unit volume in 2008, INCREASED TO 17% by unit VOLUME AT THE END TO september 2009. THE UPPER RANGE SEGMENTS 300K TO 500K HAS SEEN AN INCREASE IN inventory with not as much A MOVE UP traffic as i would expect based on the first time buyer MARKET TREND. it may just be a lag in timing, WE WILL WATCH CLOSELY AS THE PENDING SALES SHOW UP IN THE CLOSED SIDE OF THE EQUATION TO SEE HOW THE MOVE UP MARKET PLAYS OUT FOR THE REST OF THE YEAR.

the question ABOUT what happens to FIRST TIME BUYERS when we MOVE TO NOVEMBER 30^TH as THE FIRST TIME BUYER TAX CREDIT EXPIRES, HOW MANY FIRST TIME BUYERS WILL CONTINUE TO COME INTO THE MARKET AFTER the tax credit EXPIRES? IF thE CREDIT MARKETS AND INTERESTS RATES CONTINUE TO BE KIND TO FIRST TIME BUYERS, WE SHOULD CONTINUE TO SEE STABILIZATION IN THE MARKET, YET I SUSPECT WE WILL SOME SORT OF DECLINE IN SALES FOR A TIME MAYBE into the SECOND QUARTER OF THE 2010.

THE inventory levels have CONTINUED TO slight A DECREASE IN PROPERTIES FOR SALE OF 1% FROM a year ago, AS COMPARED TO 41% HIGHER IN JANUARY AND 9% HIGHER IN MARCH A YEAR AGO, THE decrease from a year ago is AFFECTED by the increase in pending SALES AND STABLE INVENTORY..

THE PENDING SALES LEVELS CONTINUE TO moVE HIGHER, AN INCREASE OF 63% FROM a year ago, AS COMPARED TO 37% LOWER IN JANUARY AND 12% LOWER IN MARCH. THE CONTINUED INcrease from a YEAR ago is AFFECTED by the increase in FIRST TIME HOME BUYERS AND slight MOVE UP TRAFFIC. THIS MONTH AS IN COMING TIME PERIODS WE WILL SEE INCREASES FROM A YEAR AGO, BECAUSE A YEAR AGO PENDING SALES LEVELS WENT DOWN SUBSTANTIALLY.

CONSTRUCTION numbers in september: single family permits, IN TOTAL still show A DECLINE FROM LAST year, 22% LOWER. to put it in PERSPECTIVE the first 9 months of the year are as follows 1. 2009 178 single family permits, 2. 2008 227 Single family permits, 3. 2007 361 Single family permits. WE CONTINUE A TREND IN new CONSTRUCTION market THAT PERMITS IN FOR THE MONTH ARE AT OR HIGHER THAN THE YEAR BEFORE AND september DID ADMIRABLY WELL AGAIN 23 PERMITS 2009 AND 21 IN 2008. AS WE MOVE FORWARD THE TREND WILL MOST PROBABLY CONTINUE DUE THE STEEP DECLINE IN PERMITS LAST YEAR, AGAIN THIS SHOWS A MARKET THAT IS STABILIZING AND FOUND ITS FLOOR of activity.

the home sales prices below SHOW a slight price decline year to year YELLOWSTONE county a 4% IN AVERAGE AND 3% IN MEDIAN SALES PRICE. I WOULD SAY WHEN THE SMALLER SIZE OF HOME SELLING IS FACTORED IN THE DECLINE YEAR TO YEAR WOULD BE ABOUT 3% WITH HOMES IN POOR CONDITION OR LOCATION EXPERIENCING GREATER THAN THAT.

THE POSITIVE forces in the MARKET REMAIN THE SAME, the STRENGTH of the below $200,000, no SIGNIFICANT FORECLOSURES of HOMES AND HISTORICALLY LOW INTEREST RATES 5% FOR A 30YEAR LOAN AND STRONG EMPLOYMENT NUMBERS. the importance of A LOW FORECLOSURE RATE CAN not be OVERSTATED. when you look at other market places AND THE case /shiller index declines, the driving force in downward price pressure is FORECLOSED properties sold by lenders.

unemployment in YELLOWSTONE COUNTY IN JUNE WAS 4.9%, NOT SEASONALLY ADJUSTED, COMPARED to the state average of 6.6% , GALLATIN VALLEY OF 5.5% MISSOULA OF 5.7%, THE FLAT HEAD OF 8.7 % and the NATIONAL of 9.8% giving people who want to own their home a job and A BELIEF that they will be employed, (A SIDE NOTE TO YELLOWSTONE COUNTY ACTUAL NUMBER OF WORKING PEOPLE IN JUNE WAS 80,100 PRELIMINARY) along WITH low INTEREST, approximately 5.% on a 30 year fixed rate, and you have a good case for buying a home if your intention is staying put three plus years.

IF YOU NEED AN ADDITIONAL INFORMATION PLEASE CALL OR E-MAIL

A quarterly report from the agency that oversees Fannie Mae and Freddie Mac shows delinquencies on mortgages backed by the two rose 21 percent in the second quarter.

The Federal Housing Finance Agency says another 80,100 loans became more than 60 days delinquent in May, reaching more than 1.3 million, up from 1.1 million in the first quarter. Curtailment of income continues to be the largest reason for delinquency, the FHFA says, growing from 34 percent in January to 40 percent in May.

Foreclosures also continue to rise, up 5 percent from April to May.

Even as delinquencies and foreclosures rise, loan modifications are slowing. FHFA says completed loan modifications fell for the second consecutive month in May. Modification completions are slowed by Fannie Mae and Freddie Mac's implementation of a new modification program that requires a three-month trial period for a borrower to demonstrate ability to make the modified payments.

The top five reasons for mortgage delinquency are a reduction in household income, excessive obligations, unemployment, illness and marital difficulties

Although these rules were mad in 2008 i thought it might be useful to post them because they go into effect this week on October 1st 2009

The Federal Reserve Board on Monday approved a final rule for home mortgage loans to better protect consumers and facilitate responsible lending. The rule prohibits unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices. The final rule also establishes advertising standards and requires certain mortgage disclosures to be given to consumers earlier in the transaction.

The final rule, which amends Regulation Z (Truth in Lending) and was adopted under the Home Ownership and Equity Protection Act (HOEPA), largely follows a proposal released by the Board in December 2007, with enhancements that address ensuing public comments, consumer testing, and further analysis.

"The proposed final rules are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable homeownership," said Federal Reserve Chairman Ben S. Bernanke. "Importantly, the new rules will apply to all mortgage lenders, not just those supervised and examined by the Federal Reserve. Besides offering broader protection for consumers, a uniform set of rules will level the playing field for lenders and increase competition in the mortgage market, to the ultimate benefit of borrowers," the Chairman said.

The final rule adds four key protections for a newly defined category of "higher-priced mortgage loans" secured by a consumer's principal dwelling. For loans in this category, these protections will:

• Prohibit a lender from making a loan without regard to borrowers' ability to repay the loan from income and assets other than the home's value. A lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan. To show that a lender violated this prohibition, a borrower does not need to demonstrate that it is part of a "pattern or practice."
• Require creditors to verify the income and assets they rely upon to determine repayment ability.
• Ban any prepayment penalty if the payment can change in the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years. This rule is substantially more restrictive than originally proposed.
• Require creditors to establish escrow accounts for property taxes and homeowner's insurance for all first-lien mortgage loans.

"These changes have made for better rules that will go far in protecting consumers from unfair practices and restoring confidence in our mortgage system," said Governor Randall S. Kroszner.

In addition to the rules governing higher-priced loans, the rules adopt the following protections for loans secured by a consumer's principal dwelling, regardless of whether the loan is higher-priced:

• Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home's value.
• Companies that service mortgage loans are prohibited from engaging in certain practices, such as pyramiding late fees. In addition, servicers are required to credit consumers' loan payments as of the date of receipt and provide a payoff statement within a reasonable time of request.
• Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer's principal dwelling, such as a home improvement loan or a loan to refinance an existing loan. Currently, early cost estimates are only required for home-purchase loans. Consumers cannot be charged any fee until after they receive the early disclosures, except a reasonable fee for obtaining the consumer's credit history.

For all mortgages, the rule also sets additional advertising standards. Advertising rules now require additional information about rates, monthly payments, and other loan features. The final rule bans seven deceptive or misleading advertising practices, including representing that a rate or payment is "fixed" when it can change.

The rule's definition of "higher-priced mortgage loans" will capture virtually all loans in the subprime market, but generally exclude loans in the prime market. To provide an index, the Federal Reserve Board will publish the "average prime offer rate," based on a survey currently published by Freddie Mac. A loan is higher-priced if it is a first-lien mortgage and has an annual percentage rate that is 1.5 percentage points or more above this index, or 3.5 percentage points if it is a subordinate-lien mortgage. This definition overcomes certain technical problems with the original proposal, but the expected market coverage is similar.

One element of the original proposal has been withdrawn. The Federal Reserve Board had proposed for public comment certain requirements pertaining to so-called "yield-spread premiums." During the intervening period, the Board engaged in consumer testing that cast significant doubt on the effectiveness of the proposed rule. As part of its ongoing review of closed-end loan rules under Regulation Z, however, the Board will consider alternative approaches.

In finalizing the rule, the Board carefully considered information obtained from testimony, public hearings, consumer testing, and over 4,500 comment letters submitted during the comment period. "Listening carefully to the commenters, collecting and analyzing data, and undertaking consumer testing, has led to more effective and improved final rules," Governor Kroszner said.

The new rules take effect on October 1, 2009. The single exception is the escrow requirement, which will be phased in during 2010 to allow lenders to establish new systems as needed.

In a related move, the Board is publishing for public comment a proposal to revise the definition of "higher-priced mortgage loan" under Regulation C (Home Mortgage Disclosure), which requires lenders to report price information for such loans, to conform to the definition the Board is adopting under Regulation Z.