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.