Jim Gramata

Congress has extended and expanded the homebuyer tax credit and is just waiting for the presidents signature.

A sign of recovery? If you have to ask ‘have we recovered yet’ chances are we have not. However, by the time we know we have recovered we will have been recovered for some time. Remember we didn’t diagnose the recession until three quarters later.

Warren Buffet says, “If you wait for the robins, Spring will be over”. In my opinion, the best opportunities come at the bottom of the market cycle when depression and worry are at their peak. I’d say we are pretty close to that now. The market is correcting itself in a healthy way. When prices inflate beyond a normal appreciation (~5% annually) the market requires corrections and that is what is happening now. Correction means opportunity. Look at the graph below and it spotlights the need for this correction (figures are national).

Once local indicator of housing pricing and recovery is to measure the absorption rate. In a healthy balanced market we could expect five to six months supply of units on the market (if no new inventory came on the market that is how long it would take to sell the current housing stock). In most areas we are well into double digit absorption rates. In many areas we are into years to absorb the current supply!
That’s the Chicago buzz for now. Visit www.ChicagoHomeBuzz.com for the latest market buzz!

What kind of incentive are Fannie and Freddie offering to help build buyer confidence and stimulate the economy? How about a 3/4% penalty charge for buyers with good credit that don't have 25% down payments! If your credit is under 700 try a 1.5% penalty. While I realize they are trying to cover their tail from future property value tailspins, it seems to me there needs a solution which will not prevent buyers from buying especially good credit candidates. The risk could be underwritten with perhaps a lesser penalty charged to these buyers. Some lenders are fighting this ridiculous amended clause, but unless more people are aware of this there will not be any change. This article was posted on the NAHB e-letter I receive and I wanted to share the absurdity with my bloggers. There are alternatives such as FHA but those come with great limitations. It is getting a little crazy out there and you need to be aware.

As of April 1, Fannie Mae and Freddie Mac are increasing the delivery fees they charge lenders based on FICO scores, downpayment amounts and other loan characteristics. Most major lenders already are pricing in these higher fees, effectively raising costs to borrowers immediately. Lenders can pass these fees on to the consumer in the form of higher interest rates rather than as an upfront charge. Under the new guidelines, even applicants who assumed that their FICO credit scores would get them favorable rates will be charged more unless they can come up with downpayments of 30% or more. For example, a buyer with a 699 FICO score who brings a sizable downpayment of about 25% to the table will be hit with a 1.5% delivery fee at closing under the new guidelines. A buyer with a FICO score between 700 and 720 will pay an extra three-quarters of a point. Even someone with a 739 FICO — once considered a platinum guarantee of the best rates available — will get dinged with a quarter-point add-on. Condominium buyers who cannot come up with a 25% downpayment will be hit with a three-quarter point add-on penalty, no matter how high their credit score — simply because they are not purchasing a traditional detached, stand-alone house. Without congressional intervention or new marching orders from the companies’ regulator, the add-on fees are here to stay. But there’s an alternative available for just about anyone who wants to avoid the fees: Federal Housing Administration mortgages, where downpayments go as low as 3.5% and credit scores are not an issue for most applicants. (www.washingtonpost.com)

Washington Post (2/14/09); Kenneth R. Harney