RE-AL NEWS

Hello and Happy New Year!

2008 was almost unprecedented in its challenges for the housing industry, which in turn generated a lot of adverse news. Experts now vary in their opinions on where the housing market is going in 2009 and nobody seems able to agree. All in all, we know that times like these are unsettling. The good news is December’s housing affordability index was at 180, which is very high – meaning the average family can afford 180% of the average home price. Mortgage rates, which had averaged 6.3 percent in the third quarter, recently fell to the 4.5 percent range – the lowest in nearly 50 years! Coupled with lower home prices, this should bring buyers back to the marketplace.

The recent Case-Shiller home price data reports Minneapolis housing as a 135.71 raise from 2000 values; a 3.4% home price decline from Sept 2008; a 16.3% decline from Dec. 2007. One surprising trend about the real estate market here shows that prices are stabilizing. Many of the year end housing reports will be released within the next few weeks. We're happy to send them to you.

A crisis of this nature feeds on itself and creates a descending spiral. A recovery isn't likely until potential buyers believe prices are bottoming-out. The reluctance of financial institutions to lend is also slowing a recovery. However, the Fed has taken action that should start to take hold in 2009 to recharge housing sales:

o FHA loan limits were increased and rates lowered
o Approved a $7,500 tax credit for first-time home buyers (ends April 2009)
o Purchases of mortgage securities issued by Fannie Mae and Freddie Mac.

The question we ask is: what happens to home prices once foreclosures taper-off and all the foreclosed homes are bought-up, builders have no models for sale, construction costs rise and consumer confidence turns positive on housing again, opening up a back log of 3-4 years of pent-up housing demand?

Will we quickly see things change to a sellers market? Will the reversal be so slow that nobody notices? Only time will tell. I suspect that many of the buyers who purchased real estate during this correction may one day look back on this as the year they found the great bargains.

There are two things we’d like to point out about our local market. First, many of the buyers we’re currently working with to find new homes aren’t finding good quality properties that easily fit their needs. While listing inventory is still high, truly “nice” homes are selling relatively quickly and are limited in number.

Second, "true" new listing inventory has been on a consistent decline in the Twin Cities since last June, and the number of pending sales is increasing. However, the percent of pending sales that are “lender-mediated” is incredibly high – over 40 percent (!) with deep discounts for quick disposal. Nearly 70 percent of these transactions are priced under $120,000. The bulk of bank-owned homes are in the “starter” range so the sale price is lower, thus the resulting overall mean average is skewed. If you’re wondering how all this has affected the value of your home, I’m happy to provide you with a current market analysis.

You may soon be preparing your 2008 federal income tax return. It’s helpful to know what to supply your accountant with so that all legitimate deductions may be taken.

o If you purchased a home in 2008, any mortgage interest you paid at closing through the end of the month shown on the closing statement is qualified interest, but it will not show on the year end statement supplied by the lender.

o If you refinanced, any pre-payment penalty to retire a mortgage, or unamortized points not previously deducted, may be deducted on the return.

If you have questions about any of these issues, please rely on the counsel of your tax professional. If you’ve misplaced your home's closing statement, I can easily get them and save you some time and effort in searching.

If you have friends who are talking about moving, please tell them about me. Your referrals are crucial to my business plan. Thanks and let me know if there is anything we can do for you.

L&M