Seasonally adjusted is one of those terms we hear in a lot of economic reports that may sound intimidating, but is really exactly what it sounds like. Home sales vary a lot by season, due to weather, school and work vacation schedules, holidays, the timing of tax refunds and other factors. Spring, when the weather is nice, potential buyers have tax refund checks in hand and school is still in session so vacations and holidays don’t interfere is prime selling season in most parts of the country. Summers tend to slow down a bit with hot weather and family vacations. Winter, with holidays and cold weather is generally the worst part of the year. (An informal survey I did in our local market a few years ago showed a drop in both number of sales and prices of around 8-12% every year for the December-February season compared to the previous June peak.) Seasonal adjustment just means that a formula has been applied, based on previous years seasonal variations, to turn one month’s sales figures into a meaningful annual figure.

That figure is expressed as annual “unit” sales. A unit is simply one home – that may be a single family home or a single condo or coop unit. A duplex or triplex would be two or three units.

The report includes information on inventories of existing homes. This is not an actual count of the number of homes in the country. It’s a count of the number of homes listed for sale. To put the number in context, the report always gives both the number and a reference to the number of “month’s supply”. The more month’s supply that is available, the more the situation favors buyers, while a smaller month’s supply available means a tighter supply and favors sellers. Month’s supply is another of those fairly simple things that looks daunting – it’s the seasonally adjusted annual unit sales divided by 12. Take the available inventory and divide it by a month’s supply and you’ve got the number of month’s supply available for a given month.

The report also includes information on price and gives both “median” and “average” prices. The average price is the simple mathematical average you learned in basic math – total sales dollars divided by number of sales – though it’s certainly not simple to compute with the large number of sales involved. Median is the actual midpoint. It’s the price where exactly half of homes sold for more and exactly half sold for less. Normally, that’s an important number because the sale of one really expensive home still only counts as one sale and it doesn’t move the numbers too much. The last few months, it’s cause a little problem as the “jumbo loan” market for mortgages above $417,000 dried up. Even though homes below $417,000 were still selling at about the same price, the median was pushed down simply because the number of higher priced homes dropped – so July’s “median” home was actually above the median by December and might actually be worth more than it was in July.

For the average home buyer or seller, the important things to look for in the report are your regional numbers and the long run trends. That means looking not just at this month’s report, but at several month’s reports. The month’s supply of available homes is a great number for getting a sense of where the market is heading and one of the most effective ways to use it is to put yourself in the typical seller’s shoes. How fast do you want your home sold? Many sellers expect a sale time of 60-120 days. Currently, the months available supply is running from 8 to 10 months, or about 3 times as long. Another important factor is to look at where the number is in good times (or seller’s markets). With some sellers always willing to hold out for a higher price, even in boom times the number doesn’t go much below 5 to 6 months.

Technorati Tags: existing home sales, inventory, month’s supply

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What is “a months supply for existing home sales”?

Done right, paying points can allow a buyer to purchase a higher priced home. Since paying points can allow for a higher purchase price, some sellers will pay points for the buyer.

So, the reader’s question could be “How do we determine who pays the points?” or “How do we determine how many points to pay?”

The answer to the first question is that it’s a matter of negotiation. Traditionally there have been limits on buyers paying points on Veteran’s Administration loans and, because VA loans almost created the suburban real estate marketplace after World War II, a lot of the VA requirements were assumed by many people to be legal requirements for all loans. This wasn’t, and isn’t, the case. Who pays points is entirely a matter of negotiation. Though some loan requirements may still not allow the buyer to pay, this simply means that if the seller is unwilling to pay points, the options are to nix the deal or to not pay points at all.

Which gives a big hint as to the answer to “How do we determine how many points to pay?” The answer is, whatever makes your budget work. Don’t confuse points with the origination fee charged by the lender, which is also usually expressed as a percentage of the loan amount. (Unfortunately, the Mortgage Bankers Association’s weekly reports on interest rates now combine discount points and origination fees under the blanket term “points”, confusing the issue.) You can pay points or not pay points and the amount you pay is entirely determined by the trade-off you, as a buyer, want to make between cash up front and monthly payment. Of course, if the seller is willing to pay points, but won’t negotiate on price, as a buyer you’d want to maximize the amount the seller will pay. As a seller, your chief concern is how paying points versus negotiating on price affect your post-tax bottom line. Tour real estate professional, along with your tax professional, should help you put pencil to paper to determine that when evaluating offers.

Since discount points are interest and interest can be tax deductible in some situations, both buyers and sellers will want to consider the tax implications of paying points and of negotiating points instead of an equivalent reduction in price. Specific factors to discuss with your professional tax planner are, as a seller, selling expenses versus reduced sale price and, as a buyer, amortizing points over the loan.

Technorati Tags: discount points, mortgage points

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How are points determined in a mortgage?

For your purposes as a buyer, a home with an option pending is about as useful as a home with a contract pending. An option pending means that the seller has committed to sell the home to a buyer for a certain price with a certain deadline. The difference between an option and a purchase contract is that the buyer isn’t obligated to purchase, but merely has the <em>option to purchase</em> at the buyer’s discretion. There may be any number of reasons for this, but if the option is valid the buyer has done something to make it worth the seller’s while, usually paying a price for the option itself.

As a potential buyer, you may want to keep an eye on this property to see if the option expires and the “Option Pending” is removed. You may want to inquire as to when the option will expire, so you can make an offer at that point.

It is also possible to buy the property subject to the option, but the obligation to sell would merely pass to you as the new owner, so the situations where you’d want to actually do this are very narrow. Since most well written options are notarized and recorded, they can cloud the title to the property if breached, so if you purchased a property with a valid option pending, you would have to honor it. If you are using a the property as collateral on a loan, the pending option would likely prevent getting a loan, so even buying the property subject to the option is only a real possibility for cash buyers.

Technorati Tags: option, pending, real estate, home, sale

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What is Option Pending on a for sale home?