July Housing Stats - Will positive trends continue?

With economists and news media reporting housing as the good news for a change, it would be easy to think the worst is now behind us. This month's statistics definitely continue the trends in a positive direction, but underlying the movement are temporary factors that will likely keep the pressure on sellers and prices flat for a long time to come.

The good news in July's statistics include:

• The absorption rate (rate of sales to inventory) fell to 7 months in the Cincinnati area. This is the lowest rate in 3 years.
  
• The number of year over year July sales increased by 150.
• On a national level, existing home sales increased for the 4th month in a row. The first time that has occurred in 5 years.
• Single family home starts increased 1.7% to an annual rate of 490,000.
• The Case-Schiller price index reflected a 3% gain for the April - June period. The first quarterly increase in 3 years.
  

So, why continue to keep a lid on enthusiasm? The biggest reasons are:

• The first-time buyer credit deadline is bringing more buyers into the market, but primarily at the lower end of the market. No one is sure what will happen when the credit ends.
  
• Large banks are holding foreclosures off the market while attempting loan modifications. Inventory levels are expected to increase as they end a self-imposed moratorium. Foreclosures are likely to pervade the market as banks work through remaining subprime and adjustable rate mortgages, with a peak in foreclosures around the fall of 2010.

One important note to first-time buyers - closings are often taking longer than the usual 30 days. 45 to 60 days is not unusual. If the tax credit is important to your purchase plans, I recommend getting a contract no later than October 15th.

For a detailed look at July stats, see the charts below:

• Sales vs. Inventory
  
• Sales rate
  

203K offers path to rehab foreclosures

Many prospective homebuyers initially think of foreclosures and short sales as the way to get a bargain home. Unfortunately, most experience a shock when they see the condition of most of those "bargain" properties. The vast majority need at least some level of rehab conditioning - paint and carpet being a minimum level to start, but there's usually a number of both minor and major fixes needed beyond that.

For those that can envision a home after it's fixed up, the FHA 203K program can provide the funds needed to make improvements. The 203K allows a homebuyer to include up to $35,000 of upgrades into their mortgage, but it does take some effort to make it happen.

The first thing to expect if you use a 203K is that it will take longer to process and there's additional significant paperwork (which your lender should assist you with). Closings are currently running an additional 15 - 30 days over a standard loan. Additionally, the homebuyer will need to line up estimates from contractors for the improvements to be made and supply those to the lender.

The biggest hurdle to get over with the rehab loan is the appraisal of the "as improved" value of the home. In a typical home purchase, the appraiser is looking simply at the current "as is" value of the property and your loan is approved (or not) based on that value. With the 203K, they must make a determination of the home's value after the work is done. There is some flexibility with the value assessment relative to cost of improvement, but essentially the lender needs to see that it will be a worthwhile investment.

After the loan closes, funds are disbursed to contractors once work is complete and inspected. Keep this in mind when lining up contractors that will perform the work as they need to understand the 203K requirements for payment.

If you are looking at homes that need work, keep the 203K in mind as one possible option for finding the bargain home and making it livable. For more information about the 203K program and whether it would work for you, visit the official FHA Website.

Energy Star rating for homes undergoing changes

The Energy Star rating for homes has long been a basic standard for consumers looking for energy efficiency, but as building codes have improved, the current guideline is starting to show its age.

One of the primary measures to get the Energy Star rating is the Home Energy Rating Standard (HERS). The HERS rating system by itself can be a strong indicator of how energy efficient a home is by providing a numeric indicator of energy performance. Although the overall process is a bit more complex, in our area a HERS rating of 85 or less is the basic measure for receiving the Energy Star label.

As defined now, most builders are very close or even surpassing the required rating guidelines simply by following local building codes and international standards. Since the Energy Star standard is supposed to identify those that exceed the norm by at least 15%, it is in danger of no longer achieving its defined purpose. In the meantime, other more comprehensive guidelines such as LEED and NAHB Green have achieved recognition for higher standards of performance.

The comment period for the new proposed guidelines closed on July 10th and will likely prompt at least some changes, but some of the more significant updates may include:

• Indirect energy measures. Factors such as water usage and indoor air quality will be evaluated (already included in standards like LEED).
  
• House size consideration. Under the current standard, larger homes get an advantage over smaller homes in the evaluation and thus obtain qualification easier.
• Cost effectiveness policy. Inclusion of certain efficiency measures will attempt to ensure that improvements pay for themselves when included in a mortgage.
• Application of State codes. Where state codes are more restrictive, they will be used as a baseline measure.

The Energy Star label has a distinct advantage of being widely known by the public as a measure of efficiency. If nothing else, the fact that the bar will be raised in 2011 is solid evidence that building science has gone through significant advancements in improving energy efficiency. We should expect to see that translated into continuing methods for lowering everyone's utility bills.