Daily Mortgage Gazette

For the second month in a row, 18 of the 20 Case-Shiller real estate markets posted higher home values. It’s the 6th consecutive strong showing for the benchmark private-sector housing index.

Combined with falling home supplies and rising sales figures, this month’s Case-Shiller Index suggests that housing may have bottomed sometime earlier this year.

It’s cause for optimism.

Even Case-Shiller respresentatives seem excited. In its press release, the publishers singled out the index’s winning streak, commenting on the recent “stabilization in national real estate values”.

But, in that statement, we see the Case-Shiller Index’s biggest flaw. The index ipurports itself to be a national real estate metric but, in reality, there is no such thing as a national real estate market.

All real estate is local.

The Case-Shiller Index reports home values for 20 U.S. cities. Each of those cities, however, is comprised of smaller neighborhoods, each with its own character, desirability, and price points. Case-Shiller attempts to lump it all together — an impossibility.

As an example, New York City posted a nearly 1 percent increase in July but that figure is just a city summary. The actual market in three distinct neighborhoods — Upper East Side, Chelsea, and Flatbush — vary tremendously. Not to mention Long Island, too.

Flaws aside, though, Case-Shiller is still important. It helps to identify broader trends in housing and housing may hold the key to our economic future.

With July’s Case-Shiller Index, we see that the housing market’s recovery is being sustained.

Have you ever been introduced to someone, only to forget his or her name two seconds after you shake their hand? In our industry, remembering the finite details can help solidify that relationship with a potential client. Don’t worry. This is NOT evidence that you’re losing your mind. Turns out, it’s actually an extremely common occurrence for many people. The good news is there is plenty of research on the subject and there are a number of simple, practical steps you can take to improve your memory now and long into the future. With that in mind, here are a couple of great tips for proactively strengthening your memory:

Tip #1: Neurobic Exercise

You know all about the wonderful effects aerobic exercise has on the heart, but have you heard of neurobic exercise for the brain? According to Lawrence Katz, co-author of Keep Your Brain Alive: 83 Neurobic Exercises, the best exercise for the brain is to force it to form “new patterns of association” or new pathways. In other words, challenge your brain every day. Take it off autopilot and make it relearn or create new associations with the most routine activities of your day.

Katz’s book offers numerous examples of small changes you can make to activate your brain, including:

• brushing your teeth with the other hand
• taking an alternative route to work
• moving your wastebasket to the other side of your desk
• closing your eyes while putting your key in and unlocking the front door and
• changing where you and your family members sit at the dinner table

So if you feel like your memory might be starting to slip a bit, try some of these simple neurobic exercises today!

Tip #2: Mnemonic Drilling

There are actually three steps or stages of memorization:

1. acquisition,
2. consolidation, and
3. retrieval.

That means, once we acquire new information, like someone’s name for instance, the way in which we consolidate that data will directly affect how well we’re able to retrieve it from memory. Whether you’re a visual or auditory type of learner, there are many mnemonic devices that can help you to better organize or consolidate the new information that you need to recall. Here’s an example of simple steps that might help:

First, associate the data you want to remember with common images. For instance, let’s say you meet someone named Jennifer Green. Imagine Jennifer playing golf, or picture her wearing all green clothes, or imagine her face painted completely green. Second, think of associations you can use to help you remember this person. For instance, link Jennifer to the quality that best fits her personality (use alliteration and rhymes whenever possible): Jolly Jennifer Green. Finally, connect sound to your memory by saying the name aloud. Do this regularly and, before you know it, you’ll never forget anyone’s name again!

Getting approved for a mortgage is about to get harder.

For the second time in less than 3 months, Fannie Mae announced changes to its mortgage guidelines.

In its official announcement, Fannie Mae details the updates, meant to reduce the mortgage firm’s overall risk.

The first major change is with respect to credit scoring. All Fannie Mae loans — whether underwritten electronically or manually — require a 620 credit score minimum. There are very few exceptions.

A second change relates to loans with private mortgage insurance. Homeowners whose loan-to-value exceeds 80 percent now have a choice:

1. Accept higher mortgage insurance premiums month-after-month
2. Accept a one-time fee paid at closing to compensate for higher risk

Both options pass higher costs to consumers.

Then, a third change relates to maximum debt-to-income ratio. As announced in a separate document, Fannie Mae will no longer approve expense ratios exceeding 45 percent except with very strong assets and credit to back it up. In no case can expense ratios exceed 50 percent.

There are other changes, too, including the elimination of seldom-used mortgage products and new risk-based pricing on “expanded level” approvals.

Fannie Mae implements its updates during the weekend of December 12.

Therefore, if you’re going to need (or want) a new mortgage later this year, consider moving up your timeframe to October or November. Once the guidelines change, getting approved for a mortgage is going to be tougher.

There are a number of personal and emotional reasons to buy a home. But there are also some strong financial reasons to make the investment. In addition to exceptional home affordability and near historic interest rates, here are some important financial benefits of owning a home:

Increased Net Worth: Few things have a greater impact on net worth than owning a home. In a comparison of renters versus homeowners, the Federal Reserve Board of Consumer Finance found that the average net worth of renters was just $4,000 compared to homeowners at $184,400.

A Big Tax Deduction: One of the largest tax deductions available is the amount of interest paid on a mortgage. In fact, a $150,000 home at a 5.50% interest rate can add up to approximately $8,000 in first year’s interest. This amounts to a significant savings – effectively reducing the amount of a homeowner’s monthly loan payment.

Long-Term Appreciation: Over the last few years, home prices have corrected and become more affordable. While that’s good news for potential buyers, it has overshadowed the long-term appreciation of a home’s value. The reality is, despite market ups and downs, real estate historically appreciates around 6% per year. Even if you calculate a modest appreciation of 3%, a home purchased today for $150,000 should grow in value to $364,000 over 30 years.

$8,000 Tax Credit: Don’t forget, the government is offering an $8,000 tax credit for first-time homebuyers – or for folks that haven’t owned a home during the past three years. However, the program is scheduled to end soon. In fact, the Internal Revenue Service recently reminded potential buyers that they must complete their first-time home purchases before December 1, 2009 to qualify for the special credit, which means the last day to close on a home and qualify for the credit is November 30, 2009.

If you’re considering purchasing a home or refinancing, this is an ideal time. Call or email me today to discuss your specific situation and how you can benefit from today’s market.

The mortgage market resumed its winning streak last week after a 1-week hiatus. Markets rallied into the weekend and mortgage rates eased lower overall.

It’s the third week out of four that rates improved and, ironically, rates may have dropped last week because traders were watching the wrong metrics.

With respect to housing, analysts found August’s Existing Home Sales and New Homes Sales reports disappointing.

Both posted weaker-than-expected sales volume, sparking a stock market sell-off that led bond markets higher.

It was the wrong reaction.

Versus home supply, the number of monthly sales isn’t nearly as important to the national housing recovery and the supply of homes fell in August. If Wall Street had been paying better attention, mortgage rates may have risen instead.

The supply of homes for resale fell nearly a month, and of new homes by 0.3 months.

This week will be heavy with data so don’t expect rates to stay low for long.

Early in the week we’ll get the Case-Shiller Index, a few consumer confidence surveys, and the Personal Consumption Expenditures report. Late in the week, it’s the September jobs report.

With mortgage rates are trolling near their lowest levels of the quarter, it may be prudent to lock something in to avoid the risk of rates rising.

As reported by the National Association of REALTORS®, the number of Existing Home Sales dipped last month, ending the metric’s 5-month winning streak.

Newspaper headlines today are overwhelmingly negative on housing. You’d almost believe this year’s housing recovery had ended.

That’s hardly the case.

See, the other side of the Existing Home Sales story is that — while the number of units sold did fall by 3 percent — the existing supply fell by nearly an entire month.

To home buyers and home sellers, this is huge. Home prices are based on supply and demand and with supplies plummeting, it means that home prices are poised to rise.

Indeed, dwindling inventory isn’t “news” to today’s buyers. Multiple offer situations have been common since the start of the summer and, should supplies fall further, they may soon be the home-buying rule rather than the exception.

Since peaking in November 2008, existing home supplies are down 23%.

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

It also reiterated plans to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the U.S. economy is “picking up following its severe downturn” and that financial markets have “improved further”.

It’s the second consecutive post-FOMC statement in which the Fed appears somewhat optimistic — a signal that the recession will end soon, or has already ended.

That said, the economy still has some soft spots and the Fed made a point to single them out. Each poses a distinct threat to economic recovery.

1. Ongoing job losses
2. Sluggish income growth
3. Tight credit conditions

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to honor its $1.25 trillion commitment to the mortgage bond market.

However, the FOMC changed its timeframe on the mortgage-backed bond buys, extending its deadline to March 2010. This move should help the Fed keep mortgage rates from rising too high as the economic expansion takes hold.

Market reaction to the Fed’s press release is positive. After an early day sell-off that drove rates higher by about a quarter-percent, most of the pressure is easing. Pricing is worse on the day overall, but well off its lows.

The FOMC’s next scheduled meeting is November 3-4, 2009.

Preparation is a crucial element to success in all your endeavors, be it preparing for an important meeting or an upcoming summer vacation. As Zig Ziglar once said, “You were born to win, but to be a winner, you must plan to win, prepare to win, and expect to win.” Ronald Shapiro, author of the New York Times bestseller, Dare to Prepare: How to Win Before You Begin, suggests these great steps you can use to prepare for anything. Ask yourself:

What is the objective? Determine where you want to end up before you get started, and make sure you don’t just pick the easiest or most obvious result. Make sure your objective ties into your short and long-term goals.

Are there precedents? Look for people who have both failed and succeeded in similar situations and see what and how you can learn from their experiences. If possible and if it makes sense, contact them and see if you can set up an informational interview or lunch to learn more details.

Are there any other scenarios? If you only prepare for your intended outcome, then you won’t have a position to fall back on. Determine if there is more than one scenario that you should plan for, or if you should walk away if your intended outcome does not arise.

What’s important to other people? Where possible, ask the other people who are involved about their concerns. This keeps you from assuming you know what matters most to everyone.

What’s your time frame? Break down your overall project into small goals and set deadlines for each element so you stay on track while you go. For instance, if you are planning a trip, timeline everything from booking your airfare to making reservations for places to see while you’re away.

Can anyone help? If you have people who can help you, ask them to do so! Not only will this make things more manageable, others can also help you see objections or problems that you might not have otherwise noticed.

What do you want to say? If you’re preparing for an important meeting or have an important request like asking for a raise or a bargain deal from a salesman, practice first! Outline your main points, create a script, and practice until the words feel normal.

To download a preparation principles checklist, visit http://www.shapironegotiations.com/pdf/PREPARATION_PRINCIPLES_CHECKLIST.pdf.

As reported by the government, home prices are rising nationwide, up 0.3 percent in July.

Furthermore, versus November 2008, the Home Price Index has clawed back to unchanged.

The housing market appears to be holding its own.

However, we have to be careful about putting our full faith in the Federal Housing Finance Agency’s data. It’s somewhat flawed.

1. The Home Price Index is a national statistic and all real estate is local
2. The Home Price Index’s methodology specifically excludes key housing demographics

As an obvious example, HPI only accounts for homes with Fannie Mae- or Freddie Mac-backed mortgage. Lately, the percentage of homes meeting that description is shrinking.

As FHA financing rises in popularity, Fannie and Freddie back far fewer loans than in the past. Furthermore, the HPI sample set also excludes newly-built homes and multi-unit properties.

Because of these exclusions, some analysts call the HPI incomplete. The same could be said of all home price metrics, however — including the venerable Case-Shiller Index.

Therefore, what should be of interest to today’s buyers and sellers is that all of “popular” home valuation models seem to be telling the same story — home prices have stopped falling and look like they’re beginning to rebound.

For a region-by-region breakdown of the Home Price Index, visit the FHFA website.