Explanation why home sales are up 6.8%

[B]According to Associated Press;[/B]
[I]Sales of previously occupied homes rose 6.8 percent to a seasonally adjusted annual rate of 5.35 million last month, the highest level since December, the National Association of Realtors said Thursday. February’s sales figures were revised downward slightly to 5.01 million.
Sales are likely to keep growing through the first half of the year as tax credits for first-time buyers and low mortgage rates fuel purchases. The average interest rates is 5.07 percent for a traditional fixed-rate mortgage, Freddie Mac said Thursday.
Sales are now up 18 percent from their low in early 2009, but are still down 26 percent from their peak in fall 2005. March’s results had been expected to rise about 5 percent to 5.28 million, according to economists surveyed by Thomson Reuters.
The median sales price was $170,700, up almost 4 percent from $164,600 a month earlier and nearly unchanged from $170,000 in March 2009.
The inventory of unsold homes on the market was up 1.5 percent at 3.6 million. That’s an eight month supply at the current sales pace.[/I]

[B]As most of you know these sales are on houses that are $250,000 and below. And that is due to the $8K credit for first time buyers and $6.5K credit for current home owners who lived in a house for 3 years or longer.

The second reason most of you don’t know is that most of these houses you can buy at only 3% down with a credit score in the mid 600s. So now you can buy a home worth $266,666 as a first time buyer for 0 money down due to the $8K credit or a $216,666 house with zero down due to the $6.5K credit (did you notice all these 6s…it’s the devils work ;-).

The third reason is when your home gets appraised lower than the actual offer price they have a special program called Home Path by Fannie Mae. For example: offer $220,000…appraisal…$200,000 now you qualify for Home Path program (if house is Fannie Mae owned). The way they do it is that they do not use appraisals; the appraisal is the actual accepted offer for the house by Fannie Mae, all you need to do is put 3% down if you have a credit score in the mid 600s (and plus there is no PMI insurance) and this program is also for first time home buyers and investors.

All of this looks familiar; it’s like déjà vu from 2005 and 2006. I think this time they are serving cool aid with 50% vodka in it, I think I am going to have a glass too.[/B]

Great news! New home sales in March are up 103K from February which was the lowest month ever in the new home sales. Again most of these houses sold are $250K and under. Great number, looks like the economy is starting to grow and all the stimulus they had put in is working. The only problem I have with this is that if you put 0 money down to buy a house (no skin in the game) and if the home prices go down again in value who is to say that you will stay in your house and especially who is to say that the investors who are buying these houses with 0 money down are going to stay with these houses. I am just afraid that we might be creating another smaller bubble in the housing market, by allowing people to buy houses with 0 money down and keeping interest rates artificially low for a long time. It did not work for Greenspan, it did not work for Bernanke and I think it might not work for Bernanke again. I think that both of these guys have a PhDs in economics (that might be the problem).