Home buyers sitting on the fence wondering if now is the right time to buy should consider five factors when making this decision: Jobs, recent sales activity, construction, mortgage availability, and anecdotal evidence. Each of these issues can help consumers make the best choice for their situation and financial circumstance.

MAKING SENSE OF THE STORY

Jobs: Although many areas of the country were deeply impacted by the recession, some areas were less affected by job loss. If employment stability is a concern, prospective buyers should review job-growth data from the U.S. Bureau of Labor Statistics at www.bls.gov. The data provided by the Bureau is approximately one month old and shows the direction of the local economy.

Recent Sales Activity: Housing inventory and sales volume should be taken into consideration while house hunting. A large inventory of homes with few actual transactions can be a negative indicator. On the other hand, if inventory is falling and transactions are rising, that is a good sign. In January, the CALIFORNIA ASSOCIATION OF REALTORS®’ Unsold Inventory Index stood at 6.7 months, up from 5 months in December 2010, but down from 5.7 months in January 2010. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

Construction: Staying up-to-date on the number of building permits issued for local builders is useful for gauging builder sentiment and the future of housing activity. The California Building Industry Association recently announced that California homebuilders pulled 2,920 total housing permits in January, registering a 5-percent decline compared with a year ago and a 56-percent decline compared with December. However, the Construction Industry Research Board is projecting 62,000 total permits will be pulled in 2011, an increase of 38 percent compared with 2010’s total of 44,893 permits.

Mortgage Availability: Home buyers hoping to be approved for a mortgage should monitor local lending patterns. Following the financial crisis, most national banks tightened lending standards; however, some local banks haven’t been impacted as much as large lenders and are more willing to lend, even for higher-priced homes.

Anecdotal Evidence: Although buyers can access home listings online, one of the best ways to monitor the local housing market is to work with a REALTOR® and gather intelligence using their expertise and guidance.

Affordable home prices and historically low interest rates have created an ideal situation for many qualified first-time home buyers to purchase a house. Despite this opportunity, some buyers may be overconfident and make mistakes during the home-buying process.

MAKING SENSE OF THE STORY FOR CONSUMERS

Some first-time buyers are unaware of the vast amount of paperwork and negotiations that go into purchasing a home. As a result, buyers may think they can save money by forgoing the use of a REALTOR®. However, managing the nuances of offers, inspections, financing, and other pivotal steps when buying a home often causes confusion and anxiety for buyers. Working with a REALTOR®–who is obligated to put the buyer’s best interests first–will help to alleviate buyer concerns during this process.

Online mortgage calculators can help buyers estimate the amount of house they can afford, but calculators should not be the sole source for mortgage-approval information. Buyers are advised to meet with a mortgage broker or banker prior to beginning the home search to help determine the loan amount for which they are most likely to be approved.

Although there is a large selection of homes available for sale, home buyers should not assume they can make low offers or unreasonable demands. Even in hard-hit housing markets, homes in desirable neighborhoods are receiving multiple offers.

Following the expiration of the federal home buyers tax credit, sales of existing, single-family homes in California declined 4.2 percent during the month of June compared with the prior year, according to the CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.) June sales and price report. Meanwhile, the median price of existing homes in California rose 13.6 percent on a year-to-year basis to $311,950. The median price is the point at which half of homes on the market sell for more and half for less.

MAKING SENSE OF THE STORY:

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Although the median home price in California rose in June on a year-to-year basis, in month-to-month comparisons the median price declined 3.8 percent, according to C.A.R.’s report. Despite the slight decline in month-to-month home sales, California’s housing market continues to recover at a quicker pace than the national housing market. Nationwide, home sales declined 5 percent in June and the median price rose only 1 percent, according to a report from the NATIONAL ASSOCIATION OF REALTORS® (NAR).

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C.A.R. expects home sales to be lower in the second half of the year due to the absence of the federal home buyers tax credit, but sales should remain above the long-run average and be significantly higher than the trough in 2007.

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According to C.A.R. President Steve Goddard, “It’s important to keep in mind that home prices are substantially below their peaks and interest rates remain at historic lows, making this a very affordable time for many first-time buyers to purchase a home of their own.”

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Home prices continued to post modest gains in June, due in large part to the lean inventory of homes for sale in many regions of the state. C.A.R.’s Unsold Inventory Index rose slightly to 4.8 months in June compared with 4.6 months in May and 4.2 months in June 2009. However, the number of homes for sale remains well below the long-run average of a 7.1-month supply. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

Foreclosure filings – notices of default, scheduled auctions, and bank repossessions – declined 5 percent during the first six months of the year compared with the previous six months, but rose 8 percent compared with the first six months of 2009, RealtyTrac® recently reported. The report also shows that 1.28 percent of all U.S. housing units (one in 78) received at least one foreclosure filing in the first half of the year.

A total of 340,740 California properties received a foreclosure filing in the first half of 2010, the nation’s highest total, according to the report. Filings in California decreased 15 percent from the previous six months and nearly 13 percent from the first six months of 2009.

Foreclosed homeowners could owe ‘tens thousands of dollars’ to lenders
Facing the possibility of foreclosure, California homeowners may be hit with more than just losing their homes.  Due to a loophole in state law, they also can be sued by their lender.  To prevent this, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) is sponsoring Senate Bill 1178 by State Sen. Ellen Corbett (D-San Leandro), which will extend anti-deficiency protection for consumers who have refinanced their original mortgage loans and now are facing foreclosure.

MAKING SENSE OF THE STORY FOR CONSUMERS

• Currently, if a homeowner defaults on a mortgage used to purchase his or her home — known as a “purchase money mortgage” — the homeowner’s liability on the mortgage is limited to the property itself.  Unfortunately, the original law did not extend the purchase money protection to loans that refinance the original purchase debt, even if the refinance only was to obtain a lower interest rate.
• Californians who refinance a property currently do not have protection if they default on a mortgage greater than the property’s value. Called a “deficiency” liability, under current California law, the lender can sue the former homeowner for the amount of the deficiency even after taking back the property.
• Recent years of low interest rates and aggressive marketing campaigns by lenders have induced tens of thousands to refinance mortgages.  Few homeowners realized that by refinancing their mortgage, they were forfeiting their protections and now are personally liable.

Home appraisals still fraught with uncertainty despite new code of conduct
Last year, the Federal Housing Finance Agency (FHFA), Fannie Mae, Freddie Mac, and the New York State General Attorney created an agreement titled the Home Valuation Code of Conduct (HVCC), which prohibits lenders, mortgage brokers, and real estate agents from selecting and having any “substantive” communication with a home appraiser. HVCC was created to protect consumers against fraudulent appraisals, which some industry experts believe was a contributing factor to inflated home values.  However, many lenders have turned to the use of third-party appraisal management companies and the practice has led to complaints.

MAKING SENSE OF THE STORY FOR CONSUMERS

• HVCC, which may result in appraisers evaluating homes in areas with which they are not familiar and using comparables that are inaccurate, has caused delays in closing sales, and in some cases, undermined sales if the appraisals undervalue a home’s current worth.

• HVCC applies to conventional, single-family loans that are sold to Fannie Mae or Freddie Mac.  It does not apply to loans backed by the Federal Housing Administration (FHA) or the Veterans Administration.

• Through HVCC guidelines, borrowers are entitled to receive, free of charge, a copy of the home appraisal at least three days prior to closing, giving the borrowers more time to contest what they view as an inaccurate appraisal.

• Borrowers and/or sellers who believe a home valuation is too low may appeal the valuation or request a second option.  It’s important to note that the second valuation must be more than five percent higher than the first–anything less is considered an acceptable difference.

• Appraisers are required to view the inside of homes being valuated, but not homes used as comparables. More often than not, the appraiser’s knowledge of the property is based solely on the description in the MLS or on the public land records.  Yet, the previous owners may have removed appliances and caused other damages to the property.  To guard against appraisers using non-comparable homes in the valuation, borrowers can work with their REALTOR® to review comparable homes in the neighborhood for differences the appraiser did not know about or failed to consider.