HOME PRICES RISE IN ABQ

Well, the prices didn't go up by much, but they didn't go down. Last year the average price was $246,000 and now it is $247,000. Most of the sales are happening in the price range $100,000 - 300,000 so that depresses the average abit. In this price range we see first time homeowners and local couples moving up from their first home. FHA loans are quite popular and NM has a program for first time homebuyers called MFA that pays the down payment. Lots of VA loans too. Looks like whoever can get help is getting it with these government programs. The range between $300,000 - 500,000 has fewer buyers and these houses sit on the market 3-4 months or more. It's an in between range where buyers need at least 10% down. Most people in this group and above, need to sell their home first and they are fearful to buy before they sell. They can't afford to end up with two payments for an extended period.
None of my deals are straight up easy ones anymore. I am seeing more Real Estate Contracts where the seller carries some amount until the buyers home sells. The buyer still needs to come in with enough cash to cover closing costs so it is not a slam dunk. One deal this week was a REC for just three weeks while the buyer who is over 62 years gets a reverse mortgage on the equity in the house and pays off the seller. YOu just need to be 62 to qualify for a reverse mortgage. Interesting.
We have more homes under contract than in months. It feels to me like the market is turning around. I think we hit bottom and didn't realize it. Let's hope.

FANNIE MAE ELIMINATES SURCHARGE

Declining-market surcharge dropped
Fannie and Freddie reverse the policy that made buyers cough up bigger down payments in certain locales.
By Kenneth R. Harney, Washington Post Writers Group May 25, 2008
WASHINGTON -- Could the controversial mortgage industry practice of listing hundreds of local real estate markets as "declining" -- and restricting lending through higher down payments or credit scores -- be scrapped?The two biggest players in the home mortgage field, Fannie Mae and Freddie Mac, did precisely that on May 16. Reversing its policy of penalizing buyers in troubled real estate markets with 5% higher down payments, Fannie Mae switched to a nationally uniform policy of charging borrowers the same minimum down payments irrespective of location. A spokesman for Freddie Mac, Brad German, said his company would be "suspending" its declining markets policy indefinitely as well.Starting June 1, mortgage applicants who are underwritten by Fannie Mae's automated system online will qualify for 3% minimum down payments, wherever the property is located.Borrowers whose applications require "manual" underwriting will pay 5% minimum down payments.Under Fannie Mae's prior system, applicants buying in designated declining markets had to contribute 5% extra in upfront equity compared with borrowers in nondeclining market areas.Freddie Mac's policy, which never employed a list of areas designated as declining, relied instead on lenders to flag applications using appraisal data or home price indexes. Freddie's policy also required 5% higher equity contributions upfront.Critics -- including the National Assn. of Realtors and consumer advocacy groups -- had charged that Fannie Mae's policy served to further depress sales and real estate values in areas tainted as declining.

HIGH COST OF ROOFING

Of course we all knew this, but roofing materials are petroleum-based so of course the price of roofing will go skyhigh this year. Here in New Mexico we constantly watch and worry about our roofs, and our stucco. Flat roofs are the most worrisome as the heat destroys them. A few years ago one of our heavy hail storms ripped up flat and shingle and tile roofs so no one was immune to the destruction.

Our home is 13 years old so in a couple of years we will need to put a whole new surface on or re-roof. Here re-roofing is when they scrape off the gravel and re-tar so it's not taking off the roof as is done else where. You can re-roof about 4 times, so they say before the weight forces you to take off the whole bloody thing. I have had three roofing estimates this month with three different answers. One gave me an estimate of $14,000 and said the roof had holes in it. I think he thought I was a rich sucker living in High Desert and a woman at that so thought I was gullible. He was just hungry! At the other extreme was an estimate by Right Way Roofing, John Sanchez, who said the roof was in great shape for it's age and just needed a yearly maintenance for $1500. One has to be so careful. Of course, John got the job and yes, I do know that I am prolonging the inevitable re-roofing but I also have to re-do my stucco this year, but that's another story!

FORECLOSURES LOW IN NM

A national report released today states that NM ranks 36th in the US in foreclosure notices. Our rate has been hovering around 3.6% and seems to be holding. Some States like California, AZ and Nevada have more than 1 in 200 households receiving foreclosure notices. Nationally, the rate is up 50%. I think we are low because both realtors and lenders here in NM are more responsible in pricing homes fairly and not encouraging people to buy if they qualify only marginally. We try to be fair here and are not so driven by the allmighty dollar such that we might push to make a sale that brings us our commission at the expense of a buyer who really shouldn't buy.

CLARIFICATION ON DECLINING MARKETS

This just in from one of my readers.......Declining-market surcharge droppedFannie and Freddie reverse the policy that made buyers cough up bigger down payments in certain locales.By Kenneth R. Harney, Washington Post Writers Group May 25, 2008 WASHINGTON -- Could the controversial mortgage industry practice of listing hundreds of local real estate markets as "declining" -- and restricting lending through higher down payments or credit scores -- be scrapped?The two biggest players in the home mortgage field, Fannie Mae and Freddie Mac, did precisely that on May 16. Reversing its policy of penalizing buyers in troubled real estate markets with 5% higher down payments, Fannie Mae switched to a nationally uniform policy of charging borrowers the same minimum down payments irrespective of location. A spokesman for Freddie Mac, Brad German, said his company would be "suspending" its declining markets policy indefinitely as well.Starting June 1, mortgage applicants who are underwritten by Fannie Mae's automated system online will qualify for 3% minimum down payments, wherever the property is located.Borrowers whose applications require "manual" underwriting will pay 5% minimum down payments.Under Fannie Mae's prior system, applicants buying in designated declining markets had to contribute 5% extra in upfront equity compared with borrowers in nondeclining market areas.Freddie Mac's policy, which never employed a list of areas designated as declining, relied instead on lenders to flag applications using appraisal data or home price indexes. Freddie's policy also required 5% higher equity contributions upfront.Critics -- including the National Assn. of Realtors and consumer advocacy groups -- had charged that Fannie Mae's policy served to further depress sales and real estate values in areas tainted as declining.They also argued that many metropolitan markets experiencing price decreases contain sub-markets performing relatively well, and they do not deserve to be underwritten as high risk.Marianne Sullivan, Fannie Mae's senior vice president for single-family credit and risk management, said the policy reversal was possible because of improvements to the company's automated underwriting system, allowing it to "assess each loan more precisely."The change was welcomed by national real estate and housing groups. Dick Gaylord, president of the National Assn. of Realtors, said the termination of a policy that "stigmatized" certain communities will "help stabilize the credit markets." David Berenbaum, executive vice president of the National Community Reinvestment Coalition, said his group hopes the revised policies at Fannie Mae and Freddie Mac will prove to be "a model for others to follow."Whether that happens any time soon, however, is far from certain. Private mortgage insurers, who provide loss protection to lenders on loans with low down payments, have virtually all adopted highly restrictive policies affecting ZIP Codes or metropolitan areas they designate as declining.MGIC, the largest-volume insurer, recently expanded its list of distressed markets along with a series of cutbacks on specific types of low-equity loans. As of June 1, MGIC will not insure condominium mortgages in the state of Florida. It also has abandoned cash-out refinancings and loans on investment properties.PMI Group, another major underwriter, has banned cash-out refis or investor loans in areas it judges to be distressed. Genworth Financial will not consider applications on second homes anywhere in Florida. AIG United Guaranty no longer will write insurance on condominiums in any of hundreds of ZIP Codes around the country that are on its declining markets list.Asked whether his firm might reevaluate its declining markets restrictions in light of the abrupt changes at Fannie Mae and Freddie Mac, Terry Souers, a spokesman for Genworth Financial's mortgage insurance unit, said: "We're aware of their actions and will take them into consideration to see if additional steps are necessary."But Michael J. Zimmerman, senior vice president of investor relations for MGIC, shot down hopes for any quick abandonment of declining markets restrictions at his firm. "We're not contemplating any changes," he said. MGIC, which reported a $1.4 billion loss for the fourth quarter of 2007 and a $34 million loss for the first quarter of this year, has been hit hard by claims following foreclosures and extended delinquencies in once-booming housing markets.What's the trend line here? Fannie Mae's and Freddie Mac's policy switches should open the door to some additional low-down-payment mortgages -- and home sales -- in local areas once tagged as declining.However, without the participation of private mortgage insurers -- who report solely to stock market investors rather than to Congress -- many borrowers will likely have to turn to the Federal Housing Administration, which accepts 3% down, does not have declining markets restrictions and whose loans can be purchased by Fannie Mae and Freddie Mac. Ken Harney can be reached at kenharney@earthlink.net.

PARALLELS OF NEW TO RESALE HOME SALES

One of the people I respect most in this industry is a fellow named David Murphy who supplies data and analyzes new home data. I found this recent article of his to be very interesting. Let me know what you think.

"June 2008: Dear Real Estate Professional,

Smaller is better, and in the economy of 2008 price is more important than ever. Smaller automobiles are now in greater demand than larger automobiles. People are supplying their gas tanks with less fuel at any given time due to the high cost. People are cutting back on how often they eat out or go to the movies. Scaling back on expenses and paying less wherever possible is the new American trend in the face of dwindling consumer confidence. In the local residential real estate market, the same trend applies. I’d like to demonstrate this by looking at price ranges for both new and existing homes, and then examine that data in light of absorption rates. It’s important to note that the resale home market and the new home market go hand in hand to a great degree. The variables which affect the one, will in turn typically affect the other. With that understanding in place, let’s analyze current resale data and use the results to base some conclusions on the local new home market as well. For starters, let’s look at categories of resale* closing prices in relation to supply: Below is a breakdown of the number of detached resale single family homes listed within the greater Albuquerque metro market as of June 2, 2008 grouped by price:

Between $0 and $99,999 71 listings
Between $100,000 and $199,999 1,867 listings
Between $200,000 and $299,999 1,872 listings
Between $300,000 and $399,999 891 listings
Between $400,000 and $499,999 508 listings
Between $500,000 and $749,999 545 listings
Between $750,000 and $999,999 250 listings

Since the month of June 2008 has only begun, there’s no way to measure with complete certainty what the absorption rate of the above inventory of resale homes will be. However, we do have data available from June of last year that we can use as a substitute for the sake of reference. Granted, June of 2007 will likely look better than June 2008 when all is said and done, but let’s go ahead and use it to compare anyway. Below is a list of the number of closed sales for detached resale single family homes in each price category from June 2007:

Between $0 and $99,999 26 closed sales
Between $100,000 and $199,999 469 closed sales
Between $200,000 and $299,999 291 closed sales
Between $300,000 and $399,999 97 closed sales
Between $400,000 and $499,999 49 closed sales
Between $500,000 and $749,999 54 closed sales
Between $750,000 and $999,999 20 closed sales

If June 2008 were to be a repeat of June 2007, then below is where we would currently stand with absorption rates on detached single family resale homes for each price category within the Albuquerque metro:

Between $0 and $99,999 2.7 month supply
Between $100,000 and $199,999 4.0 month supply
Between $200,000 and $299,999 6.4 month supply
Between $300,000 and $399,999 9.2 month supply
Between $400,000 and $499,999 10.4 month supply
Between $500,000 and $749,999 10.1 month supply
Between $750,000 and $999,999 12.5 month supply

The above scenario of absorption would be considered a “best case” conclusion to be sure. Comparing April 2008 resale data (the most recent available to me at the time of this writing) with April of the year prior, there is a reduction of sales volume in that year-over-year comparison. Given that we’ve experienced a severe crisis of credit between this summer and last summer, it stands to reason that the above absorption rates are likely too optimistic. Regardless, what the data unquestionably shows is an increasing amount of inventory oversupply which correlates to each increasing range of price. I’ve often said there are way too many houses on the market priced between $200,000 and $300,000. While this is true, it’s also true that there is far more of an oversupply problem above $300,000. For example, in the range of resale homes priced between $750,000 and $999,999 there are 250 listings as of today. The sales rate for this price range in April of this year was only 6 sales. If that sales rate were to remain the same for the foreseeable future, we’d be looking at almost 3-and-a-half years of supply in that price range!

So how does all of the above resale data relate to new homes? I would suggest that given the obvious correlation between price and absorption, that the new home picture isn’t all that different. Below is a breakdown of the SalesTraq new home “menu” of detached single family homes based on the current records in our database. (These are not the equivalent of a “listing” per se, but they correspond very well to give a picture of quantities of new homes offered to be built within a given range of price):

Between $0 and $99,999 0 records
Between $100,000 and $199,999 259 records
Between $200,000 and $299,999 441 records
Between $300,000 and $399,999 143 records
Between $400,000 and $499,999 75 records
Between $500,000 and $749,999 56 records
Between $750,000 and $999,999 2 records

In comparing resale listings by price with SalesTraq's new home records by price, the most obvious disconnect between the two is seen between the $100,000 to $199,999 and the $200,000 to $299,999 price ranges. In the case of the resale listings, we saw very similar quantities of available inventory (1,867 listings and 1,872 listings respectively). The resale absorption rate for those price ranges shows that the consumer choice highly favors homes priced below $200,000. The same should certainly hold true for new homes, but there is a discrepancy in the numbers. It’s clear that new home builders are offering substantially more choices for consumers in the $200,000 to $299,999 range than they are for the $100,000 to $199,999 range, even though the demand trends don’t justify it. This is the same dilemma new home builders have been in for the past two years in this market – far too many homes to choose from in the $200,000 to $299,999 price range.

But is that necessarily a bad thing? I’m beginning to think it doesn’t even matter anymore. Here’s why: If new home builders have higher priced homes on the “menu” of homes to choose from, but people are choosing to buy smaller, less expensive homes from the menu instead, then what difference does it really make in the end? The resale side of the equation is the side most hurt by having to deal with all those “McMansions” which were built during the inflation of the housing bubble and subsequently dumped onto an increasingly swollen MLS. Today, demand for those larger homes has dropped off considerably for reasons of both price and efficiency. Larger homes have come to be seen as the residential equivalent of SUV’s – big, expensive electricity guzzlers. New home builders have been responding to this trend by adding a smaller plan or two in each subdivision for new home buyers to choose from. In the economy of 2008 it’s not only about price, it’s just as much about size. Expect the new housing trend to be for not only lower priced homes, but for homes with less square footage as well.