Housing Doom

According to Yahoo Finance this morning:

Stocks surged Tuesday on signs of an improving housing market, with falling oil prices contributing to the rally. The Dow Jones industrials gained more than 120 points.

The data reassured investors that the housing sector, while weak, is not being pummeled by the struggling subprime mortgage sector. Fears that mortgage problems will spill over into the rest of the economy have been a big factor behind the market’s volatility of the past several weeks, and the uptick in sales came as a pleasant surprise.

Here’s what the NAR says in their press release:

David Lereah, NAR’s chief economist, said there has been a steady narrowing from year-ago readings since last July.  "If it wasn’t for the unusually bad weather in February, we’d be seeing a better performance in pending home sales," he said.  "We also may be seeing some fallout from a decline in subprime lending, but a slight improvement in the more volatile month-to-month index is encouraging- the data suggests an underlying stabilization is taking place in the housing market, but it will take another month or two to clarify.

So what are the numbers that we are now all feeling so giddy about?

The Pending Home Sales Index, based on contracts signed in February, stood at 109.3- down 8.5% from February 2006 when it reached 119.4, but is 07% higher than a downwardly revised reading of 108.5 in January.  Earlier, mild weather caused the index to spike at 113.3 in December.

[Data from NAR]

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I buy a resale or brand new home that you help pick out and we sign a Lease-Purchase Agreement where you can purchase the house in 12-18 months. (This gives you time to save money to purchase it and/or clean up your credit.) The rent-to-own lease requires a Down Payment of usually $2,500 (instead of a security deposit) and a monthly payment of approximately $1,500. (Amounts may vary depending on price of house that you choose - this is based on a home priced up to $200,000.) The initial $2,500 down payment and $250 of each month’s payment will be credited to you towards your total down payment when you purchase the house in 12+ months. Then, you obtain a loan to purchase the house at the agreed upon sales price at lease signing (usually $15,000 more than the original sales price to cover my costs). I also work as a mortgage consultant and can help you clean up your credit, if needed, so you can obtain financing. This is a Win-Win situation:

I thought we’d look at the scenario where you used this offer to buy a $200,000 home after one year.  For comparison, I thought we’d consider renting a $200,000 home for one year before purchasing it.  I used a -2% appreciation rate, as that is about the average rate in Phoenix since last September.  For the relative costs of rent vs. buy, we are considering the following two properties:

A property on Port Royale in Surprise sold for $200,000 in June 2005.  Based on recent appreciation rates, I would not expect it to sell for much more today.  An identical property is currently  being offered for rent on Port Royale for $960/month. 
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