Harvey Realty, Inc.

Last week, Standard & Poor’s reported that its S&P/Case-Shiller U.S. National Home Price index rose from the first quarter to the second, the first quarter-to-quarter increase in three years. Its index of 20 major cities also rose, with only two areas reporting declines. This data suggest that home prices may have reached bottom during the second quarter, and have now begun to rise. In California, July marked the fifth consecutive month of month-to-month increases in the state’s median price.

Real estate prices nationally have declined approximately 30 percent from their 2006 peak and are beginning to show signs of increases—an indicator that prices aren’t likely to go much lower, according to some housing analysts.

The inventory of unsold homes rose 7.3 percent nationwide in July, according to the NATIONAL ASSOCIATION OF REALTORS®. In California, inventory levels declined to 3.9 months, from 6.9 months a year ago, and are well below the long-run average. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

The recent increase in the median price is attributed, in part, to the change in the mix of sales since the beginning of this year. Since reaching a peak of 85 percent in January 2009, the market share of homes sold for less than $500,000 has been declining, and stood at 74 percent in July.

Inventory levels differ across price tiers and are tighter at the low-end market. The Unsold Inventory Index for the low-end market has remained around three to four months since the beginning of the year.

With inventory levels well below the long-run average, a supply shortage at the low to middle tiers has constrained sales in the lower-priced homes and contributed to an increase in the median price. In addition, competition among buyers in the lower-priced ranges has made it difficult for FHA or VA buyers to get their offers accepted. Most banks and sellers are will consider the conventional buyer and cash buyers first even at slightly lower prices.

Buyers sitting on the fence should note that the federal tax credit of up to $8,000 expires at midnight on Nov. 30, 2009. With mortgage loans taking longer to close than in years past, buyers should start working with a REALTOR® now to ensure they find the right house for their needs, and close escrow by the deadline.

Homeownership provides many benefits, including security, pride of ownership, a sense of community, and decent investment returns as a bonus. Those thinking of purchasing a home should consider these benefits when making their decision of whether or not now is the right time to buy a home.

However, the delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.24 percent of all loans outstanding as of the end of the second quarter of 2009, up 12 basis points from the first quarter of 2009, and up 283 basis points from one year ago, according to the most recent Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 64 basis points from 8.22 percent in the first quarter of 2009 to 8.86 percent this quarter, according to the report. The delinquency rate breaks the record set last quarter, based on MBA data dating back to 1972.

“While the rate of new foreclosures started was essentially unchanged from last quarter’s record high, there was a major drop in foreclosures on subprime ARM loans,” said Jay Brinkmann, MBA’s chief economist. “The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase. As a sign that mortgage performance is once again being driven by unemployment, prime fixed-rate loans now account for one in three foreclosure starts. A year ago they accounted for one in five.

California, Florida, Arizona, and Nevada continue to have a disproportionately high share of foreclosure starts, although the share has fallen slightly from last quarter, according to the report, with 44 percent of all of the nation’s new foreclosures during the second quarter of this year, down from 46 percent in the first quarter.

LOAN MODIFICATION ATTORNEYS UNDER INVESTIGATION

The State Bar of California has recently launched numerous investigations against attorneys for misconduct related to loan modifications. In a rare move, the State Bar has released the names of 16 attorneys under investigation, by opting to waive investigation confidentiality in favor of public protection. These attorneys have allegedly taken fees for promised services, but failed to perform those services or even communicate with their clients who face the possible loss of their homes. Their non-attorney staff may also be under investigation for unlawfully practicing law.

Not all attorneys engaged in loan modifications are unscrupulous. However, this announcement from the State Bar serves as a good reminder for REALTORS® and their clients to be careful when dealing with attorneys and others for loan modifications. Scam artists may intentionally associate or affiliate themselves with attorneys in an attempt to lend credence to their fraudulent schemes. The list of attorneys currently under investigation is available at http://calbar.ca.gov/state/calbar/calbar_generic.jsp?cid=10144&n=96395.

A window has opened up in the mortgage market—thanks to some unusual movements in the bond market, rates have come down in recent weeks, and someone with good credit may be able to get a 30-year fixed rate for as little as 5% right now.

Yes, mortgages still aren't as cheap as they were in May, when rates fell as low as about 4.75 %, but they're still a pretty good deal. As recently as June, rates spiked around 5.6%. And before the financial crisis walloped us last year, they were over 6%.

Greg McBride, senior financial analyst at Bankrate.com, says mortgage rates have been falling for a few weeks.

In a recent Bankrate survey the average rate was about 5.5%, he says, but you can do better if you look. "The different between getting 5.5% and 5% is shopping around," he says.

The obvious caveats apply. You'll need good credit to get the best rates—Bankrate cites a credit score of 700 or above. Those with lower scores may end up paying a higher rate or fees. And these rates only apply to conforming loans below non-jumbo limits.

The main reason for the cheaper home loans: A slump in the yields on long-term government bonds.

Long-term mortgage rates generally follow those on ten-year Treasury notes. And the yield on the ten-year Treasury has tumbled to around 3.47%, down from 3.85% in early August.

It's an open question how long mortgage rates and treasury yields will stay this low, or whether they'll dip lower still.

The latest move in the bond market is a bit of a mystery, and it looks vulnerable to any jump in growth expectations or fears of inflation.

Even if you aren't in the market for a new mortgage, the latest moves in interest rates may have you wondering about the economy. Usually lower yields suggest a more ominous turn ahead.

But there have been plenty of signs pointing to some degree of an economic rebound. Growth should mean higher short- and longer-term interest rates for both mortgages and treasurys.

The stock market has been suggesting there are better times ahead, even as bond yields have moved down.

Erik Weisman, investment officer at mutual fund company MFS in Boston, says some of the reasons behind the dip in treasury yields are technical, and concern the timing of bond purchases by banks and other institutions.

Comparison of the yields on regular and inflation-protected Treasurys shows that about half the move in bond prices is a result of fading fears about inflation.

It's unclear how long mortgage rates will stay low. If there are further signs that the economy is improving, or if the market worries about inflation return, expect bond yields,—and mortgage rates—head higher.

Write to Brett Arends at brett.arends@wsj.com