Seller Optimism Causing Price Climb

Despite the recent market decline, Americans are still willing to borrow a large amount of money to buy a home because they are convinced that housing values will rise, writes Robert J. Shiller in his monthly New York Times column.

Shiller, professor of economics and finance at Yale University and cofounder and chief economist of MacroMarkets, examined survey data that asked home buyers in Los Angeles, San Francisco, Milwaukee, and Boston a variety of questions, including how much they believe the value of their homes will change in the next year.

The average answer among the 311 people surveyed was an increase of 11.2 percent. The media response was 5 percent, which Shiller also believes is high.

Such upbeat answers about the housing market led Shiller to conclude that home buyers think the decline in home prices is over and now is the time to buy. Their optimism, Shiller says, has caused an upturn in prices.

Shiller has doubts that this increase signals a new housing boom. Instead, he says it is evidence of “higher short-run price volatility,” which is economist-speak for a warning that prices could go down again.

Source: The New York Times, Robert J. Shiller (10/11/2009)

Keeping Mortgage Loans in the Family

Low-interest intra-family loans can be the best way for parents to help their children purchase a property.

The strategy makes the purchase more affordable, increases the size of the home a cash-strapped purchaser can afford, and helps the parent leverage his gift to reduce a taxable estate.

The parent must charge interest at a market rate on family loans, says Ken Kilday, an adviser with USAA Wealth Management, or face IRS penalties. But parents can then take the $13,000—$26,000 for a couple—that can be gifted without eating into the gift exemption and apply it annually toward paying off their child’s loan.

Kilday also suggests that parents put in their will that upon their death, the loan be fully forgiven.

Source: Dow Jones Newswires, Taylor Smith (10/15/2009)

housing market report

Housing Market
The National Association of Realtor’s Pending Home Sales Index increased 6.4% to a reading of 103.8 in August from a reading of 97.6 in July.  This was the seventh straight month in which the index has increased and the highest it has been since March 2007.

National average mortgage rates increased from the previous week to 4.92% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on October 15th.  This is the first time mortgage rates have recorded a weekly gain since the end of August.  It is the second straight week that mortgage rates have averaged less than 5.0% while remaining at historically low levels.  In the week ending October 12th, the MBA’s seasonally-adjusted purchase index dropped 5.0% from the previous week and was down 7.32% compared to the same time last year.  Purchase applications were coming off their highest levels since the beginning of the year in the previous week.  Lower rates have spurred mortgage application activity over the past several weeks.