Fed Funds Rate to Remain Unchanged

Tuesday, the Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent.

For the fourth consecutive month, the Fed Funds Rate vote was nearly unanimous. Just one FOMC member dissented in the 9-1 vote.

The Fed Funds Rate has been near zero percent since December 2008. It is expected to remain near-zero through 2014, at least.

In its press release, the Federal Reserve noted that the the U.S. economy has “expanded moderately” since the FOMC’s January 2012 meeting, adding that growth is occurring despite “strains in the global financial markets” that pose “significant downside risks” to long-term outlooks.

The Federal Reserve now expects moderate economic expansion through the next few quarters and a gradual easing in the national Unemployment Rate.

Details Worth Noting:

1. The housing sector remains “depressed”
2. Labor conditions have “improved further”
3. Household spending has “continued to advance”

With respect to inflation, the Fed said that rising oil and gasoline prices will “push up” inflation temporarily, but not over the long-term.

At its meeting, the Federal Reserve neither introduced new economic stimulus, nor discontinued existing market programs. The Fed re-affirmed its intentions to hold the Fed Funds Rate at “exceptionally low” levels through late-2014, and to buy mortgage-backed bonds in the open market.

Immediately following the FOMC’s statement, mortgage markets worsened slightly, pressuring mortgage rates higher in and around Des Moines.

Expect Sales to Climb in the Coming Weeks

After a brief setback in December, the Pending Home Sales Index resumed its climb in January, posting a 2 percent gain over the month prior.

The data puts pressure on Ankeny home buyers. This is because a “pending home” is a home that’s under contract to sell, but has not yet sold. It’s tracked by the National Association of REALTORS® and, among all housing statistics, it’s the only one that’s “forward-looking”.

The Pending Home Sales Index is important to home buyers throughout Iowa because 80% of homes under contract to sell close within 60 days of contract. In this way, the Pending Home Sales Index forecasts the housing market 1-2 months into the future.

This is very different from how NAR’s Existing Home Sales report works; or, how the Census Bureau’s New Home Sales report works. These two metrics tell us what’s already happened in housing.

Pending Home Sales Index Predicts What’s Coming Next

January’s Pending Home Sales Index reading lifts the monthly metric to its highest level since April 2010 — the month during which the 2010 federal home buyer tax credit expired — foreshadowing a strong housing market through March and April 2012, at least.

This should not be news, of course. The nation’s home builders have said “foot traffic” is rising and home supplies are scarce nationwide. The only wild-card for housing is the high contract cancellation rate.

As compared to last January when just 9 percent of home purchase contracts “failed”, this January saw 33 percent of contracts fail. High failure rates undermine the Pending Home Sales Index’s viability as a forward-looking housing market indicator.

Despite contract failures, though, the combination of low mortgage rates and low home prices is enticing to today’s home buyers. Expect home sales to climb in the coming weeks which will lead to a strong spring season for housing.

2012 Housing Market will be Closely Tied to Jobs

Economists believe the strength of the market will be closely tied to jobs. If they’re right, the housing market is ripe for a boost. It spells good news for Ankeny home sellers and may mean the end of bargain-basement prices for buyers.

Since peaking in mid-2009, the number of U.S. workers filing for first-time unemployment benefits has dropped 44 percent. Over the same period of time, the U.S. economy has added more than 2 million jobs and the national Unemployment Rate is down more than 1 percentage point to 8.3%.

Employment’s link to the housing market of Downtown is both economic and psychological.

To make the economic link is straight-forward. A person with a job earns verifiable income and such income is required in order to be mortgage-eligible. For conventional and FHA purchase loans, for example, mortgage lenders want a home buyer’s monthly income be more than double his monthly debts.

Jobless Claims Average is at Lowest Level Since 2008

For the formerly unemployed that have since returned to work, having a full-time income makes buying homes possible. It also supports higher home valuations nationwide because home prices are based on supply-and-demand. All things equal, when the number of buyers in a market goes up, prices do, too.

The psychological connection between housing and employment is a tad more complicated, but every bit as important. It’s not just out-of-work Americans that don’t look for homes — it’s fearful Americans, too. People with concerns about losing a job are just as unlikely to shop for homes as people actually without a job. The same is true for people unsure of their prospects for a better-paying job, or their own upward mobility.

The Initial Jobless Claims rolling 4-week average is at its lowest level since 2008. Fewer Americans are losing jobs, and more are finding permanent placement.

It’s one more reason to be optimistic for this year’s housing market.

2 Extra Days to Prepare and File

Traditionally, federal income taxes must be filed with the IRS on, or before, April 15 each year. The date has become such a part of U.S. culture that many people simply call it “Tax Day”.

This year, however, for the 3rd time in 7 years, your federal income taxes will not be due April 15. Instead, because of a combination of the calendar, a holiday, and tax law, Tax Day 2012 is delayed until Tuesday, April 17.

You will have two extra days to prepare and file your federal income taxes this year.

Why the Extension?

First, April 15 is a Sunday and all federal offices are closed on Sundays. This means that that taxes can’t be filed on April 15, as regularly scheduled. Rather, the tax due date should roll over to the first available business day — Monday.

However, Monday, April 16 is Emancipation Day, a holiday in the District of Columbia since 2005.

Emancipation Day honors President Abraham Lincoln’s April 16, 1862 signing of the Compensation Emancipation Act. All of Washington, D.C. is closed for the local holiday — including the offices of the IRS. Taxes can’t be due on this date because there will be nobody at the Internal Revenue Service to receive them.

Therefore, Tax Day rolls over to the next available business day, and that’s Tuesday, April 17. Despite the 2-day change, as a reminder, the deadline to file a federal tax return with extension has not changed. That filing date remains October 15, 2012.

Also, note that most states have chosen to mirror the IRS’ tax deadlines this year even though Emancipation Day is a Washington, D.C-specific. Be sure to check with your accountant to confirm your local filing deadline.

Newly Built Home Market Remains Strong

For home buyers in Iowa and nationwide, December’s New Home Sales report is yet one more signal that the housing market recovery may be underway.

According to the Census Bureau, the number of new homes sold in December 2011 slipped 2 percent to 307,000 units on a seasonally-adjusted, annualized basis nationwide.

A “new home” is a home that is considered new construction; a home for which the buyer will be the first owner and tenant.

As compared to December 2010, last months’ sales volume fell seven percent. It’s a statistic that suggests housing market weakness. However, in looking at a different component of the New Home Sales report — the supply of homes for sale — we’re forced to reconsider.

At the current pace of sales, every new home for sale nationwide would be “sold” in a matter of 6.1 months.

Economists believe that a 6.0-month supply defines a market in balance — anything quicker is termed a “seller’s market”. Statistics like that are enough to create urgency among today’s Ankeny home buyers.

Numbers Can Be Misleading

Although December’s New Home Sales report shows sales down 2 percent, the government’s data was published with a ±13.2% margin of error. This means that the actual New Home Sales figure may have been as low as -15.2 percent, or as high as +11.2 percent. And, because the range of possible values includes both positive and negative numbers, the Census Bureau had no choice but to assign its December data “Zero Confidence”.

It will be a few months before final revisions are made to December New Home Sales data. Until then, therefore, buyers should take cues from the market-at-large and the market-at-large hints at recovery. One example of this is homebuilders showing more confidence in their product than at any time in the last 5 years.

If your plans for 2012 call for buying new construction, therefore, consider using this lull to “make a deal”. As the year progresses, the great values in housing may be gone.

1 Year Stimulus Expired December 31st

Starting soon, nearly all home buyers and refinancing households throughout Iowa and nationwide will pay higher mortgage loan fees. Congress has made it law.

13 months ago, as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Congress enacted a one-year cut to FICA payroll taxes.

FICA stands for Federal Insurance Contributions Act. Taxes collected under FICA fund such programs as Social Security and Medicare.

The stimulus plan temporarily lowered tax rates for salaried workers from 6.2% to 4.2%; and for self-employed persons from 12.4% to 10.4%. Effective January 1, 2012, “regular” tax rates were to return.

That is, until late-December 2011. In one of its last moves of the year, Congress passed a temporary, two-month extension to the payroll tax cut, extending it through February 29, 2012. The expected cost to the U.S. Treasury is $33 billion.

Fannie, Freddie & FHA asked to Recoup Costs of Extension

Each entity has been ordered to collect news fees on each new mortgage is backs, and has been told to forward said fees to U.S. Treasury directly. There’s no “workaround” allowed or forgiveness applied — each new loan is subject to the payment.

The rules are listed on page 17 of the law’s final draft, in a section unambiguously titled “Title IV — Mortgage Fees and Premiums”.

According to the law :

• Fannie Mae and Freddie Mac must collect an average fee of no less than 10 basis points (0.1%) per new loan
• The FHA must raise its monthly mortgage insurance premiums 10 basis points for all new loans

The expected cost to consumers is no less than $10 monthly per $100,000 borrowed. Some analysts, however, expect Fannie Mae and Freddie Mac to collect more than is minimally required. This could add an additional $30-50 to your monthly mortgage payment per $100,000 borrowed.

Therefore, if you’ve been shopping for a home or for mortgage rates in Urbandale , take advantage. Within days, lenders are expected to start collecting Payroll Tax Extension fees from mortgage applicants — a move that will cost you money.

Builders Expect Trend to Continue

According to the Census Bureau, the number of new homes sold rose 2 percent in November. On a seasonally-adjusted, annualized basis, home buyers bought 315,000 newly-built homes last month.

November’s New Home Sales data marks the 4th straight month of rising sales volume, lifting the housing-market metric to a 7-month high, and adding to the housing market’s recent show of strength.

Last week, we learned that Existing Home Sales also climbed in November.

The big story in the New Home Sales report, though, is the remaining new home supply nationwide.

With just 158,000 homes “on the market” and the pace of home sales hastening, the complete, national inventory of “new homes” would now be sold in just 6.0 months, a 0.2-month improvement from October. This is the quickest home sales pace in nearly 6 years for the new construction market.

It’s even faster than in April 2010 — the buyer-deadline month of last year’s federal home buyer tax credit.

Home builders expect the trend to continue, too. Buyer foot traffic is on the rise and builders have a strong outlook for the next 6 months.

It’s an unsettling series of developments for today’s Urbandale home buyers. As home supplies drop and builders gain confidence, the ability of an buyer to negotiate for price reduction and/or upgrades shrinks.

If you’re a home buyer in search of new construction, therefore, consider that the best new construction “deals” of the next 12 months may be the ones you find today.

Family Friendly & Affordable

BusinessWeek recently released its 2011 America’s Best Place to Raise a Family rankings. College-town Blacksburg, Virginia took top honors, breaking a 2-year win streak for the Chicago, Illinois region.

In 2009, suburban Mount Prospect, Illinois placed first. Last year, it was Tinley Park, Illinois.

The BusinessWeek report employs data from real estate information firm Onboard Informatics to make its rankings, compiling data across categories such as education, crime, and jobs plus access to parks and affordable homes. All selections are limited by population; all selections are home to 50,000 residents or fewer. Median incomes are within 20 percent — plus or minus — of the state’s median income levels.

BusinessWeek names one winner in each state. The winners in the 10 most populous states and their nearest “big city” are listed below

1. California : East San Gabriel (Los Angeles)
2. Texas : Wells Branch (Austin)
3. New York : Hampton Manor (Albany)
4. Florida : Niceville (Fort Walton Beach)
5. Illinois : Morton Grove (Chicago)
6. Pennsylvania : Cecil-Bishop (Pittsburgh)
7. Ohio : St. Henry (Dayton)
8. Michigan : Spring Arbor (Jackson)
9. Georgia : Hoschton (Atlanta)
10. North Carolina : Tryon (Spartanburg, SC)

Winners in all 50 States–Found Here:http://tinyurl.com/86ey496

The winners in all 50 states can be found on the BusinessWeek website.

Rankings like the BusinessWeek America’s Best Place to Raise a Family can be useful for home buyers in Des Moines , but like everything in real estate, statistics do not apply to every home equally. Even within the “best towns”, there are areas in which school systems are better, crime figures are lower, and amenities are more plentiful.

Therefore, before you make the decision to buy a home, talk with a real estate agent who has local market knowledge. It’s the most effective means to get data that matters to you.

New Construction VS. Existing Homes

If you plan to buy of new construction in Iowa sometime in 2012, don’t expect today’s low prices. Like everything in housing of late, the market for newly-built homes appears to be stabilizing and, in some markets, improving.

As foreshadowed by this month’s strong Homebuilder Confidence survey, the Census Bureau reports that the number of new homes sold rose to a 6-month high in October, climbing to 307,000 units on a seasonally-adjusted, annualized basis.

Home buyers are comparing new construction to home resales and liking what they see. At the current sales pace, the nation’s complete new home inventory would now be depleted in just 6.3 months. This marks the lowest home supply since April 2010 — the last month of the last year’s federal homebuyer tax credit.

By building only to meet new demand, builders are keeping home supplies in check, and home prices stable. They’ve also found a niche market – 80% of homes sold last month sold for less than $300,000.

Split by region, the Census Bureau reports October’s New Home Sales as follows :

• Northeast Region : +0.0% from September 2011
• Midwest Region : +22.2% from September 2011
• South Region : -9.5% from September 2011
• West Region : -14.9% from September 2011

Home Prices Will be on the Rise in 2012

Although the October New Home Sales report says that sales climbed 1.3 percent last month, the government’s data was published with a ±19.7% margin of error. This means that the actual New Home Sales reading may have been as high as +21.0 percent, or as low as -18.4 percent. Because the range of values includes both positive and negative values, the Census Bureau assigned its October data “zero confidence”.

As home buyers, then, we can’t take our market cues from the published data. Instead, we should look to other metrics including Housing Starts data and the aforementioned homebuilder confidence survey. Each points to strength in the new home market, and foretells higher home prices in 2012.

If you’re in the market for new construction, consider writing an offer soon. Home prices remain low and mortgage rates do, too — a combination that keeps home payments low. Next year, that may not be the case.

Foreclosures Account for 18% of Home Resales

Foreclosed homes are a hot market throughout Iowa — and supplies are ramping up.

According to foreclosure-tracking firm RealtyTrac, October’s foreclosure filings rose 7 percent to 231,000 filings nationwide.

A “foreclosure filing” is any one of the following foreclosure-related events : A default notice on a home; a scheduled auction for a home; or, a bank repossession of a home. Because of this definition, a single home can account for up to 3 foreclosure filings — one from each category.

Because of this, we may glean more relevant insight into the foreclosure market by separating RealtyTrac’s foreclosure report into “event types”.

• Default Notices : Up 10% from September 2011; Down 31% from October 2010.
• Scheduled Auctions : Up 8% from September 2011; Down 38% from October 2010.
• Bank Repossessions : Up 4% from September 2011; Down 27% from October 2010.

These breakdowns suggest that, although improved as compared to last year, the foreclosure market is growing. At least, it’s growing in some parts of the country. We can’t forget that — like everything real estate — foreclosures are a local phenomenon.

In October, just 4 states accounted for more than half of the country’s foreclosure filings. Those four states — California, Florida, Michigan and Illinois — represent just 26% of the U.S. population.

“As Is” Means As Is

Even on a per household basis, the figures remain disproportionate :

• Top 10 Foreclosure States : 1 foreclosure per 341 households, on average
• Bottom 10 Foreclosure States : 1 foreclosure per 7,434 households, on average

The nationwide foreclosure rate was 1 foreclosure per 563 households.

As a Urbandale home buyer, foreclosures are worth watching. They account for 18% of home resales nationwide and, in some markets, can be bought at steep discounts versus a comparable “non-distressed” home. That is part of their appeal, in fact.

But just because foreclosed properties can be a “deal”, it doesn’t mean you should rush to buy one. Buying a foreclosed home from a bank is different from buying a non-foreclosed home from a “person”. The contracts and negotiation process are different, and foreclosed homes are sometimes sold as-is.

“As-is” means “this home may have defects”.

Therefore, if you plan to buy a foreclosed home, talk with a real estate professional first. You can learn a lot about the housing market online, but with respect to writing an offer on a property, you’ll want an experienced agent on your side.