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Description: MAR: Jun 2010 MA SFH median up 8.2% nominal over June 2009, as alleged deadline for tax credit approached
URL: http://www.boston.com/business/ticker/2010/07/mass_home_sales_11.html
Info/Broken?: http://www.bostonbubble.com/link_info.php?id=3105

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admin · Posted: Tue Jul 27, 2010 1:22 pm GMT Post subject:

So Massachusetts buyers spent $25K more at the median to get $8K back on their taxes. It is as if they channeled the full $8K into the down payment and increased their entire mortgage to as much as that higher down payment would allow. At least they can take consolation in the fact that they will be helping to secure a backdoor bank bailout for the next 30 years.

- admin

Renting in Mass · Posted: Tue Jul 27, 2010 3:18 pm GMT Post subject:

People are dumb.

CL · Guest

Well, I think people in this board is skeptical about the tax credit, which is fair, but to say market buyers overpaid 25K IN ORDER TO get the 8K tax credit is a bit of a stretch. Market value fluctuates and it is hard to quantify exactly how much price increase is due to tax credit, how much is not.

I have no data to quantify, but my guess is the median price increase is more due to the drop in mortgage rate (almost 2%) and increased affordability, rather than 8K.

admin · Posted: Tue Jul 27, 2010 4:54 pm GMT Post subject:

john p · Joined: 10 Mar 2006 Posts: 1820

The $8K seemed to have targeted first time homebuyers which weighs the sales on the entry end of the price structure, so the median may have been lower.

The low mortgage rates induce "trade up" activity because if someone was predisposed to trade up, the timing is right because they can get a good deal and get a refinance in the meantime.

The "trade up" market also coincides with lots of babyboomers retiring and overhoused sellers with price points at the medium to upper end of the market. Many might be induced to move to Florida to get a steal.

admin · Posted: Wed Jul 28, 2010 12:48 pm GMT Post subject:

While earlier versions of the tax credit were targeted at "first time" buyers (really "first time in a few years"), the extension of the credit which is pertinent to June closings was open to repeat buyers too. The income limits were also raised to extend the handout to the wealthy too. I think that it boosted prices across the board, which is why the median rose. That's just from the first order effects too. There is also the increased competition that it generated from 1) people viewing the credit as free money and 2) people who did not have an adequate down payment and would not have been able to buy without the handout.

If mortgage rates which were lower than the year before were responsible for the trade up activity, and therefore the rising median, why did a similar increase not occur from June 2008 - June 2009 when the decline in rates was even greater? Prices fell instead.

- admin

balor123 · Joined: 08 Mar 2008 Posts: 1204

I think the answer is that home purchase activity is not a function of mortgage rates but of a whole bunch of factors. A drop in mortgage only increases the likelihood of increased activity.

admin · Posted: Wed Jul 28, 2010 3:20 pm GMT Post subject:

john p · Joined: 10 Mar 2006 Posts: 1820

What's the Case Shiller saying?

I see the "Median" as reflective of activity along the market spectrum. It is reflective of the median income of the range of buyers and sellers and the value range of property available at any given time.

Perhaps people that may have been considered "buyers" five years ago either don't qualify due to income or down payment etc. and many others who do qualify are choosing to rent while they wait and see how secure their job situation is? If you take out that segment of "buyers", the people out there who are actually buying might be more financially secure and looking for a great deal or to refinance as well, so naturally you might see more activity in the higher end.

Admin, I get your point that they were juicing the lower end and then raised it to reach the higher level price points with the government interaction, but in many cases that $8k hand out really just may have been bringing up the down payment to the new higher lending standards. If this was the case, you wouldn't have seen a huge surcharge in newer buyers.

As far as the "Trade up" market, it isn't so much the year over year mortgage rate drops, it's that we're at historic lows right now. For example, if someone who has been a homeowner for the past ten years, most likely they have refinanced at a point when the mortgage rates were pretty low. Let's say that they originally had a 7.5% rate, don't you think that in the past ten years they have refinanced at this point? If so, what do you think they're at? Let's say that they got in at like 5.75% which is reasonable. It's going to take them something like 4.5% for them to really be induced to have the mortgage rate a contributing factor in selling.

Also, keep in mind that we have a generational thing going on where you are pairing the trade up's with the trade down's, and in many instances that means the higher end of the market. Let's say that a family may be hurting or in hock with their kid's college tuition so they sell the $2,800 s.f. colonial in Winchester and they move to the Pine Hills over 55 community in Plymouth. They sell Winchester for say $700,000 and buy Pine Hills, Plymouth for $450k; both are on the higher end of the spectrum, yet they reflect both the financial growth of a trade up and the potential financial stress of a trade down. This is what I see as a "matched pair" of buyer to seller; it takes two to tango and you need the right balance of motivation for one to trade up and the other to trade down to induce sales.

balor123 · Joined: 08 Mar 2008 Posts: 1204

admin · Posted: Wed Jul 28, 2010 4:58 pm GMT Post subject:

admin · Posted: Wed Jul 28, 2010 5:09 pm GMT Post subject:

john p · Joined: 10 Mar 2006 Posts: 1820

http://articles.latimes.com/2009/nov/22/business/la-fi-harney22-2009nov22

http://articles.moneycentral.msn.com/Banking/HomeFinancing/last-chance-for-lowest-cost-loans.aspx

http://www.biggerpockets.com/renewsblog/2010/02/16/fha-changes-make-fha-loans-more-expensive/

http://wealthwithmortgage.com/1039/mortgage-insurance-on-fha-loans-is-increasing/

This is the nature of the stuff I was basing my thinking.

admin · Posted: Wed Jul 28, 2010 7:52 pm GMT Post subject:

I'm not sure I see how the FHA changes which were listed in the articles that you posted and which have already been implemented would affect down payment requirements. The only exception is the higher down payment requirement of 10% for people with a 580 credit score, and to quote the biggerpockets.com article you posted: "very few lenders (I am not personally aware of any, but maybe there are still a few out there) will lend money to someone for an FHA loan with a 580 mid credit score." No doubt, some of the other changes may exert (minor?) downward pressure on prices, but that goes to the overall cost of the loan and does not affect the down payment requirements which is where you suggested the $8K credit flowed to.

- admin