12/23/2010

So how does the housing market look?

My own guess is that with the tax changes that are being discussed in Washington housing is not going to be a very good investment for years to come. From the Financial Times:

. . . Sales of existing homes grew by 5.6 per cent in November to a seasonally adjusted 4.68m properties, but that is 28 per cent below year-ago levels.

Although house prices rose 0.7 per cent in October, the index compiled by the Federal Housing Finance Agency has fallen 3.4 per cent over the preceding 12 months.

“We thought housing would bottom in 2010, but it looks like it will take another year,” said David Wyss, the chief economist at Standard & Poor’s.

Rising interest rates are also acting as a headwind by making it more expensive to refinance an existing mortgage or get a new loan. Purchase applications fell 2.5 per cent in the most recent week, while refinancing activity was down 25 per cent to its lowest level since April, according to the Mortgage Bankers Association.

If the cost of a 30-year fixed rate mortgage increases much beyond current levels of 5.07 per cent, half the borrowers will be outside the “refinancing threshold” and the rest will be locked out due to damaged credit or falling home prices, the MBA said. . . .

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