Real Estate Blog

Sales are expected to fall to 410,500 units in 2007, a 14 percent decline from the 477,460 pace recorded in 2006, according to the forecast. The median price of a home will reach $566,500 this year, a 1.8 percent increase from the $556,640 median for 2006.

Click here to open the 2007 Midyear Housing Market Forecast PowerPoint presentation.

The Federal Open Market Committee (The Federal Reserve) announced today it is cutting its federal funds rate by a half-point to 4.75 percent from 5.25 percent, the first reduction in this key rate in four years. 

The weakening housing market and the associated subprime mortgage meltdown, suggests recessionary conditions, which spurred the Fed to take action to ensure continued economic growth. Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally.  Today’s action is intended to help prevent some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time. 

Keep in mind, the fed funds rate is a key short-term interest rate that impacts consumer loans. Ultimately, by lowering the rate, the Fed would be making it less expensive for consumers to borrow money, which could, in turn, encourage continued spending, thereby stimulating the economy.
Even though readings on core inflation have improved modestly this year, some inflation risks remain, the Fed said, adding the central bank will continue to monitor price pressures carefully.

What does this mean for the consumer?
The bottom line is lower interest rates are a good thing for consumers. While the Fed does not directly control mortgage rates or interest rates on credit cards, it does have an indirect impact on these rates (consumer confidence).

• Homeowners with adjustable rate mortgages could see their rate reset at a lower amount, which is good news.
• This heftier-than-expected cut should boost consumer confidence should rebound and stimulate the real estate market

On Friday, August 31, 2007, President George W. Bush announced a new Federal Housing Administration (“FHA”) initiative - FHASecure - that will assist nearly one-quarter of a million homeowners refinance and keep their homes. FHASecure is a temporary program (all loan applications must be signed no later than December 31, 2008) designed to provide refinancing opportunities to homeowners and to increase liquidity in the mortgage market. Under FHASecure, homeowners with strong credit histories who had been making timely mortgage payments before their loans reset, but are now in default, will be eligible for refinancing.

On Tuesday, the FHA released Mortgagee Letter 2007-11, which outlines the initiative and establishes the eligibility criteria. To qualify for FHASecure homeowners must meet the following criteria:

1. The mortgage being refinanced must be a non-FHA adjustable rate mortgage (“ARM”) that has reset or will reset between June 2005 and December 2009.
2. A history of on-time mortgage payments before the borrower's teaser rates expired and loans reset;
3. Three percent cash or equity in the home;
4. A sustained history of employment; and
5. Sufficient income to make the mortgage payment.

The Mortgagee Letter outlines additional requirements for obtaining a mortgage under the FHASecure program, such as obtaining a new appraisal and qualifying the borrower using FHA’s TOTAL Mortgage Scorecard to assess to the borrower’s ability to repay. In addition, the amount of the FHASecure mortgage may not exceed either the geographical maximum mortgage limits or the loan-to-value ratios outlined in Mortgagee Letter 2007-11. The FHASecure mortgage can include the existing first lien, any purchase money second mortgage, closing costs, prepaid expenses, discount points, prepayment penalties, and late charges.