Short Sale Commander Blog

The consensus forecast among private and government economists for the main barometer of the U.S. economy’s health, gross domestic product or GDP, is for a very solid 3 percent during the first quarter.

Alan Levenson, chief economist for T.Rowe Price Associates, said the latest reports are “indicative of a labor market and economy that is in the midst of recovery.” That’s hugely important for real estate because expanding employment created by a rowing national economy are the essential fuels to power housing demand and sales.

Even though harsh weather conditions knocked the wind out of pending home sales and real estate shopping in many areas during January and February, analysts say the spring and summer market should be strong. Lawrence Yun, chief economist for the National Association of Realtors, says the $8,000 and $6,500 federal home purchase tax credits that expire at the end of April for signed contracts — and the end of June for closed deals — should squeeze a lot of sales volume into the spring and early summer months.

Assuming slow but steady improvement in the jobs picture, Yun forecasts a solid second half of the year as well. On the home pricing front, evidence continues to mount that in most parts of the country, home values have either bottomed out or have turned positive. The most recent Case- Shiller index numbers on the top 20 metropolitan markets bear that out — and last week’s Zillow home value report found values essentially flat on a national average basis. They were down by just three tenths of a percent, but up in some major markets of note. For example, Boston’s home values are up nearly two percent year-over-year, according to Zillow, and Los Angeles, San Diego, Denver and Philadelphia have registered gains after long periods of negative numbers.

Two other statistical hints that conditions are improving: The difference between listed prices and selling prices of home nationwide is now smaller than it’s been in a year, according to real estate research site Trulia.com. And Realty Trac fond that foreclosures, which are clearly still a massive drag on the market — dropped by two percent last month — the second straight month of decline. In a tough market, I guess we should appreciate even the smallest of improvements.

Starting in early summer, the Federal Housing Administration is tightening lending standards in an effort to bolster its dwindling reserves. The new lending standards will make it tougher for some prospective buyers to purchase a home by requiring a higher down payment than the typical 3.5 percent for some borrowers, higher insurance premiums and reduced seller concessions.

Securing FHA-insured mortgages are attractive to borrowers because down payments are only 3.5 percent. Most conventional loans now require 20 percent down, keeping many creditworthy borrowers on the sidelines.

New Guidelines The new rules — which are temporary and take effect this summer — come after more than a year of stringent standards from lenders. Among them:

Better Credit Scores — New borrowers will have to have a minimum credit score of 580 to qualify for a 3.5 percent down payment. Previously, there was no minimum score. Those with lower scores will have to make at least a 10 percent down payment. The average credit score of FHA-insured borrowers is 693. Higher Insurance Premiums — Buyers who get an FHA-insured loan will soon have to pay a higher initial insurance premium. The new premium will be 2.25 percent of the value of total loan amount, up from 1.75 percent now. A $100,000 mortgage would require a payment of $2,250, or $500 more. But buyers can roll the added cost into the loan amount.

Reduction in Seller Concessions — Starting this summer, sellers will not be able to offer as much help to buyers to pay their closing costs. The maximum amount of assistance will drop to 3 percent of the value of the property, from the current 6 percent. FHA removes anti-flipping rules Another FHA rule change could help foreclosure-plagued markets like Las Vegas, Phoenix, Miami, Detroit and Los Angeles, making it easier for investors to “flip” houses to buyers who use FHA-insured loans.

Effective Feb. 1, the federal government will waive for one year an FHA anti-flipping rule that prohibits insuring a mortgage on a home owned by the seller for less than 90 days.

The new rule lets investors buy today and re-sell as quickly as possible. The move is to allow REO homes purchased by investors to resell as quickly as possible, helping stabilize real estate prices and revitalize neighborhoods after the U.S. housing market collapse.

This new rule will open up a new pool of homes to buyers. Waiving the 90-day flip rule is being heralded by many real estate investors as a boon to their ability to buy, rehab and resell foreclosed homes on a more efficient time line.