Potent combination of FHA Financing, Steep Home Price Declines & Low Mortgage Rates
According to DataQuick Bay Area home sales posted a year-over-year gain for the eighth consecutive month in April. Santa Clara county had 1606 sales in April 09 compared to 1440 in April 08 up 11.5%. Alameda county had 1457 sales in April 09 compared to 1240 in April 08, up 17.5%. The question is what is causing this robust sales. I guess, I gave away the answer in the post header.
Lets discuss the top 3 reasons one at a time.
FHA Financing – In April FHA mortgages represented a record 26% of all Bay area home purchase, up from 3.2% a year ago. With the option of making a downpayment as low as 3.5% and flexible underwriting options; FHA loans have been a big boon for First Time Buyers buying in lower cost communities. Note that thet FHA loan limits in Santa Clara, San Mateo, Alameda and Contra Costa counties are $729,750. The monthly mortgage insurance is usually lower than the conventional loans and even the interest rates could be better at times.
Steep Home Price Declines -The median price paid for all new and resale Bay Area houses and condos combined was $304,000 last month. That was up 4.8 percent from $290,000 in March but down 41.3 percent from $518,000 a year ago. The median stood 54.3 percent below the peak median of $665,000 reached in June and July of 2007.
Low Mortgage Rates – Accroding to Freddie Mac weekly mortgage rates survey released yesterday, 30 year Fixed Rate for conforming loans under $417,000 was 4.82% with 0.7 points. That’s one of the lowest rates in the history. The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $1,277 last month, up from $1,245 the previous month, but down from $2,463 a year ago. The payment assumes 20 percent down and a 30-year fixed-rate mortgage. Adjusted for inflation, current payments are near an all-time low. They are 50.8 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 63.6 percent below the current cycle’s peak in July 2007.