Hunter Palmer

A string of positive economic reports on the housing market over the past few weeks show the hangover from the first-time homebuyer tax credit is easing and demand for housing is slowly increasing. New home sales for August were of their lows from July and existing home sales rose a better than expected 7.6%. Perhaps the best news of the past week was the Commerce Department’ s report that new home construction surged 10.5% in August and 2.2% from a year ago. Many economists feel builders are beginning to anticipate a future shortage of housing when the economic recovery gets into full gear. Home prices also showed a 3.2% year-over-year increase in July according to the S&P Case-Schiller Home Price Index.

Mortgage rates remain just barely off their lows for the year but are still extremely attractive with the benchmark thirty-year, fixed-rate sitting at 4.25% with no points. The fifteen-year fixed also remains near historic lows at 3.75% with no points. Thirty-year government loans for FHA, VA and Rural Development are currently in the 4.25% to 4.375% range with no points. Rates have managed to stay low despite a month-long rally in the stock market thanks to continued weak employment and this month’s decision by the Federal Reserve’s Open Market Committee to leave rates unchanged and the return of European debt concerns.

On the local front, Rural Development funding has been restored and we are beginning to see a resurgence in first-time homebuyers entering the market and using the popular zero-down program to take advantage of low home prices, interest rates in the low 4% range and Rural Development’s lack of a monthly mortgage insurance component to purchase more home for the money than anyone would have thought possible just a few years ago. Those exceeding the $70,750 annual household income limit for Rural Development can still take advantage of this buyer’s market with FHA financing which only requires 3.5% down and has comparably low interest rates to Rural Development and no geographic restrictions. And let’s not forget one the most popular government loans for our area, VA Guaranteed, which allows for 100% financing, no income limits, no geographic restrictions and no monthly mortgage insurance.

Lastly, we have seen a steady increase in condominium purchases since early August when it became clear that BP had the Deepwater Horizon spill capped. While out-of-state second home buyers and investors were mostly taking a wait and see approach in June and July, we now see them returning in earnest to take advantage of rock bottom prices and all that Panama City Beach has to offer. The impact of the new Northwest Florida Beaches International airport and low-fare carrier Southwest is evident in the big increase in the number of buyers from Nashville, Texas and Northeast. The most encouraging thing about the current condo market demographic is that they are almost exclusively true second-home buyers who plan to use their unit as much as possible and allow their friends and families to use and enjoy when it is vacant. This sets the foundation for a sustainable condo market and steady price appreciation without the investors and flippers that brought so much volatility to the market in the past

Mortgage rates actually rose a bit this week for the first time in a couple of months. After bottoming out earlier in the week on renewed global economic fears, a string of positive economic reports had stocks rallying in the second half of the week creating a sell-off in US Treasuries. After falling to 2.42% on Monday, the yield on the ten year T-Note had risen to 2.72% by Friday afternoon causing a corresponding rise in the thirty year fixed mortgage rate from 4.125% to 4.375%.

The rally on Wall Street started on Wednesday when reports showing manufacturing activity in the US and China expanding. This was followed by upbeat reports on consumer spending and home prices and a better than expected report on August unemployment. The S&P Case Schiller Home Price Index showed that home prices have risen nationally by 3.6% over the past year and 4.4% in the second quarter. Perhaps the best news in recent days, however, was the unexpected jump in pending home sales in August. After a dismal July that reflected the end of the first-time homebuyer tax credit, the number of new contracts surprised everyone by rising 5.2% for the month.

There are some FHA changes coming down the pipe that I wanted to make everyone aware of. HUD, in an attempt to bolster FHA’s loan loss reserves, has altered their up-front and monthly mortgage insurance premiums for all case numbers assigned after October 4^th. The up-front premium will be reduced by .75% going form 1.75% to 1% of the base loan amount. However, the annual premium, that which is paid each month in the payment, will increase from .55% to 1.55%. This means that on a sales price of $100,000, the new up-front premium will be $965 ($100,000 X .965 X 1%) and the new monthly premium will be $124.64 (1.55% x $96,500 / 12). Compare this to the old formula ($96,500 X .55% /12) which would have yielded a monthly premium of $44.23. So borrowers will be paying roughly $80 more per month for their FHA mortgages on a sales price of $100,000 which will in turn reduce the amount of loan they will qualify for.

Lastly, Rural Development has announced they expect to have funding restored by the middle of this month so we no longer have to close with a conditional commitment.

After a week of miserable news on the housing market, including last Friday’s report that show May new home sales fell 33% and existing home sales off 2%, we got some much needed good news on Tuesday which showed a modest gain in home prices nationwide. The S&P Case-Schiller Home Price Index of twenty major housing markets showed prices gained by nearly 1% in May over the prior month and 3.8% from the year earlier. Despite the recent gains, however, home prices still remain some 30% below their peak. Some economists fear that, without the stimulus provided by the now expired first-time homebuyer tax credit, the housing market recovery could lose momentum but others argue that the overall effect of the tax credit has been overblown.

You certainly can’t blame interest rates for any housing market woes as Freddie Mac reported last week that rates for thirty-year mortgages had reached an all-time low. And did I mention that was last week? On Tuesday the yield on the ten-year T-note fell below 3% for the first time since April of 2009 driving rates on thirty and fifteen-year mortgages down to 4.50% and 4.00% respectively. Global economic worries over a possible China slowdown and European debt have investors jittery and looking for a safe haven in the form of US Treasury debt - thus pushing down yields along with interest rates. The Federal Reserve's Open Market Committee also reaffirmed last week that it intended to keep interest rates exceptionally low for a considerable period of time.

The bigger picture for the housing market remains this. Despite the tax credit hangover the market experienced in May most analysts agree that pent up demand for housing will ultimately stabilize the market. This is supported by a report from the Mortgage Banker's Association last week that showed most banks across the country were adding mortgage staff to deal with a possible surge in home financing over the next year. Rates remain extremely low and, though not rising as much or as fast as many would like, home prices are indeed improving. As long as the US economic recovery can weather exterior threats from Europe and China I expect the housing market to continue to improve over the second half of 2010 and foresee significant gains in 2011.

Mortgage rates remained at or near historical lows over the past week with benchmark thirty-year, fixed-rate at 4.75% with no pints and the fifteen-year, fixed-rate at 4.25%.Rates on FHA, VA and Rural Development loans are also all under 5.00%. Rate shave been held at bay by the usual suspects – European debt concerns, weak employment numbers and stick market volatility. The longer-term prognosis doesn’t see interest higher interest rates coming for some time. A research paper released by the San Francisco Federal Reserve on Tuesday argues that interest rates will remain low until 2012 thanks to high unemployment and low inflation.

Also on Tuesday, the National Association of Home Builders released their monthly builder confidence index which registered a surprise decline in June. The index came in at 17 after an unrevised reading of 22 in May. The sharp decline in builder confidence was attributed in part to the expiration of the first-time homebuyer’s tax credit but still came in well below the 22 reading most analysts were expecting. Yet the NAHB also noted that a shortage of housing could result if we see a turnaround in the jobs market that could, in turn, unleash a flood of pent-up demand for homes that builders may not be able to satisfy. To that end, the NAHB is supporting current legislation in Congress that would make $15 billion in loan guarantees available for private builders to meet such demand if it were to arise.

Lastly, it appears that more revisions to FHA are in the pipeline. Though a proposal to raise the minimum down payment requirement to 5% appears to now be dead, what is not dead is a proposal to raise the monthly mortgage insurance premium, or MIP, to 1% annually or higher in attempt to shore up FHA’s dwindling reserves. I will give a thorough update on all changes to the FHA program once they are finalized.

With more and more Realtors and customers expressing concern regarding the potential effects the Deepwater Horizon oil spill could have on our local real estate market, I thought I would offer up my two cents and what I have been telling anyone interested enough to listen. While I will not attempt to minimize the enormity and severity of this unprecedented environmental disaster, I will offer my reasons for why we on the Emerald Coast should fare far better than our friends in Louisiana, Mississippi and Alabama. We here in Bay and surrounding counties have several things in our favor that should keep the oil impacts to a minimum.

The first and most obvious reason Florida Panhandle beaches will not feel the full brunt of the spill is simply proximity. The sickening images of birds literally drowning in oil and reporters up to their knees in thick crude are coming from those areas in Louisianan closest to the site of the spill. The enormous amount of oil released before any semblance of a response could be mustered by BP or the Feds all has inevitably found its way to the barrier islands and Marshes of the Louisiana coast. Similarly, wind, rain and wave action along with sunlight and humidity gradually break down the oil and, over time and distance, work to turn the oil into a less lethal substance at least in the short-run.

Another reason why the impacts here will be less severe is that if there is any coastal barrier that could be considered optimal for oil impact it would be a sandy beach. The marshes and estuaries of Louisiana are the worst place for oil as once it is there it is nearly impossible to clean up. In Alaska, after the Exxon Valdez incident, much of the impacted coast was rocky and gravely and subject to much greater tides than hear in the Gulf making cleanup painstakingly difficult. Our minimal tides and pure sand beaches mean that if the oil does come ashore, it will be easily cleaned up and carted away and the beach re-nourished…just as we do after a hurricane. Only this time it will be BP paying for it.

Lastly, between the Alabama-Florida state line to the tip of Cape San Blas, there are only five passes into the Gulf that oil could potentially enter our bays. The largest and most immediately threatened is, of course, the Pensacola pass where boom is deployed and skimmers are already operating. After that there is only Destin Pass, St. Andrews, Crooked Island pass and the entrance to St. Joe Bay and all of these are considerably smaller and more manageable than Pensacola. I feel confident that, in part because we have had so long to plan and prepare, that boom and skimmers will keep the oil out of Choctawhatchee, St. Andrews, and St. Joe bays as well as Crooked Island Sound and there will be little or no environmental impacts in these areas.

Again, it is not my intention to minimize the effect this catastrophe is having on the region and our way of life. It will take years before the entire Gulf Coast recovers from this man-made tragedy. But if there is a silver lining, the Deepwater Horizon was not drilling just off our coast when it exploded and took the lives of eleven men. It was off the coast of Louisiana where the impacts have been greatest. Of course, none of our good fortune to this point will hold out forever if BP does not stop the flow of oil into the Gulf. We have been lucky to this point and still have a lot in our favor, as I have mentioned, but until the flow of oil is permanently stopped, we cannot know how much we will ultimately have to clean up.