After a rising surge from September through November, existing-home sales fell as expected in December after first-time buyers rushed to complete sales before the original November deadline for the tax credit. However, prices rose from December 2008 and annual sales improved in 2009, according to the National Association of Realtors®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – fell 16.7 percent to a seasonally adjusted annual rate of 5.45 million units in December from 6.54 million in November, but remain 15.0 percent above the 4.74 million-unit level in December 2008.

For all of 2009 there were 5,156,000 existing-home sales, which was 4.9 percent higher than the 4,913,000 transactions recorded in 2008; it was the first annual sales gain since 2005.

The national median existing-home price³ for all housing types was $178,300 in December, which is 1.5 percent higher than December 2008. “The median price rose because of an increased number of mid- to upper-priced homes in the sales mix,” Yun said. It was the first year-over-year gain in median price since August 2007.

So, what are we to make of these numbers? It's clear that the home-buyer tax credit fueled a lot of sales in November. Now that the credit has been renewed until April 2010, there is less urgency and sales numbers are falling. It shows the impact the government program is having on monthly sales figures.

Still, a 16.7% drop is significant. Total housing inventory at the end of December fell 6.6 percent to 3.29 million existing homes available for sale, which represents a 7.2-month supply at the current sales pace, up from a 6.5-month supply in November. It's not good that inventory is headed in the wrong direction. If this is a housing recovery, it's a very tentative one.

The Federal Reserve released its Federal Open Market Committee statement today and the most noticeable aspect was confirmation that it is winding down its purchase of mortgage backed securities.

The statement says:

"To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets. "

The risks of ending this program are pointed out in this article, and include higher mortgage rates. Indeed, our projections show that mortgage rates may rise between 50 to 100 basis points once the Fed stops buying mortgage backed securities. Average national mortgage rates are at 5%, and have actually fallen over the past three weeks.

The Fed also confirmed that it will keep the Fed Funds rate low for the foreseeable future.

"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

This news does not change our forecast of rising mortgage rates and flat deposit rates for the next 6 - 12 months.

You can read the full Fed statement here.

These are the lengths some people will go through to get their house ready for the bank to take it back. Homeowner Terry Hoskins decided he would rather demolish his house than let the bank have it. This is a unique case involving tax liens, a family feud, and more.

More details here.

The National Association of Realtors fourth quarter home sales results are out and they tell us what we expected - home sales surged at the end of 2010. The reason: record low interest rates as well as the homebuyer tax credit.

From the press release:

"Sales increased from the third quarter in 48 states and the District of Columbia; 32 states saw double-digit gains. Year-over-year sales were higher in 49 states and D.C.; all but three states had double-digit annual increases.

Total state existing-home sales, including single-family and condo, jumped 13.9 percent to a seasonally adjusted annual rate of 6.03 million in the fourth quarter from 5.29 million in the third quarter, and are 27.2 percent above the 4.74 million-unit level in the fourth quarter of 2008. Distressed property accounted for 32 percent of fourth quarter transactions, down from 37 percent a year earlier."

None of this should come as a suprise. Mortgage rates hit record lows in December 2009 and the end of the government tax credit last Novembmer spurred many buyers into the market. The tax credit was subsequently renewed through April 2010.

The NAR has always been the cheerleader for the Real Estate industry, as they should be. It's in there interest to talk up the market and spur sales. After all, they don't make money if homes don't sell.

Lawrence Yun , NAR chief economist, said the first-time home buyer tax credit was the dominant factor. “The surge in home sales was driven by buyers responding strongly to the tax credit combined with record low mortgage interest rates,” he said. “With inventory levels trending down over the past 18 months, we expect broadly balanced housing market conditions in much of the country by late spring with more areas showing higher prices.”

But what happens when the tax credit expires and mortgage rates move up, assuming they will? Will that result in a broadly balanced housing market? I remember similar cheerleading when the housing market was going up, up, up from 2000-2005. Bubble, what bubble? I don't think the NAR ever said that prices were ridiculously high in some regions of the country. Once again, that's their perogative but be careful in reading their data.

As pointed out here, mortgage defaults paint a picture of a real estate market that is still very sick. In addition, foreclosures increased by over 10% in January 2010 from January 2009.

I hope the NAR stats stick and the housing market is really improving, but I'm going to remain skeptical until more data emerges.

Average 30-year mortgage rates dropped for the seventh week in a row to 4.85% according to BestCashCow/Informa data. That's down from the high of 5.20% in early April. Homebuyers and homeowners looking to refinance can thank the European debt crisis for the most recent drop below 5%. European debt fears have sent a wave of cash into Treasuries, driving down the 10 year note. The 10 year note is the benchmark used to set 30 year rates.

Other mortgage rates have also come down. The 15-year fixed rate mortgage dropped to 4.30%, down from a 4.52% in early April. Five-year ARMs are at 3.76% versus 4.05% in early April.

What Does This Mean for Homebuyers?

I've been following actual rates, not just averages for a 30-year fixed rate loan in Massachusetts with 0 points ($200,000 loan) for the past four months. Three weeks ago, the rate shot up to 5.125%. Three weeks ago it was 4.875%. Last week the rate was 4.750%. This week it's 4.625%. Best rates continue to drop along with the averages.

View mortgage rates by state and zip code.

Average 30-year mortgage rates dropped to 4.76% according to BestCashCow/Informa data. That's down from the high of 5.20% in early April. Homebuyers and homeowners looking to refinance can thank the European debt crisis for the drop below 5%. European debt fears have sent a wave of cash into Treasuries, driving down the 10 year note. The 10 year note is the benchmark used to set 30 year rates and it is now bumping around at its low for the year.

Other mortgage rates have also come down. The 15-year fixed rate mortgage dropped to 4.22%, down from a 4.52% in early April. Five-year ARMs are at 3.72% versus 4.05% in early April.

What Does This Mean for Homebuyers?

I've been following actual rates, not just averages for a 30-year fixed rate loan in Massachusetts with 0 points ($200,000 loan) for the past four months. In April the rate shot up to 5.125%. Six weeks ago it was 4.875%. Five weeks ago it's 4.625%. Today, it remains at 4.625%. What has changed are the number of banks offering a 4.625% rate. Several weeks ago just one bank did with $1,995 in fees. Now several banks are offering this ratge and CapWest Mortgage is only charging $397 in fees.

View mortgage rates by state and zip code.

The Fed today released its FOMC statement, in which it painted a picture of an economy that is not growing as quickly as anticipated.

"Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated."

According to a WSJ article, more than 75% of economists now believe that deflation is a bigger threat to the economy than inflation. What a change! Just six months ago these same economists were worried about a massive inflationary spiral kicked off by high government borrowing. If you don't like deflation, wait another six months and we'll be back to inflation.

But in the meantime, if you are looking to buy a home or refinance, rates may get even better. The Fed said:

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature.

Ten year Treasury yields fell from 2.83% yesterday to 2.76% today. Last month, the 10 year yielded 3.06%. The 10-year is the benchmark rate for 30 year mortgage rates, meaning that if it falls, mortgage rates will also fall. As I reported yesterday, 30 year rates are already at a 50 year low of 4.60%, and many are predicting they will go lower. It's conceivable that 15 year mortgage rates could fall below 3.5% in the next six months.

While savers are suffering, mortgage borrowers have never seen rates so low.

Check mortgage rates in your area.