The recent headlines have trumpeted a rebound in the American housing market. According to the Associated Press, July's 7.2 percent increase in home sales was the biggest month-to-month jump in the last ten years. But before breathing a sigh of relief and checking Zillow for increased home values, it might be a good idea to look at the story behind the new and improved numbers.

A big chunk of the recent increase is first-time home buyers taking advantage of the tax credit. One third of recent home sales are due to the $8000 incentive for first-time home buyers, which will end in November. Another third of the recent sales across the nation are actually foreclosures. According to a recent report on NBC news, home prices overall are down 23 percent in the last year, largely due to the number of foreclosures across the country.

NBC news broke down the numbers even further, showing that the biggest surge in home sales are for homes under $100,000. While sales of homes in this price range rose an impressive 39 percent in the last month, sales for homes over $250,000 are actually down. In fact, the higher the price tag the fewer homes are selling.

Better numbers in several sectors of the economy, including housing, have led Federal Reserve Chairman Ben Bernanke to announce that the U.S. economy is on the verge of recovery. He said at a Federal Reserve conference in Wyoming that "the prospects for a return to growth in the near term appear good." Not a resounding endorsement of the world economy, but certainly keeping to the more positive tone he has taken lately.

According the Associated Press, Bernanke continues to stress the importance of freeing up consumer credit, stating this is the key to any kind of long term economic recovery. However, banks continue to be careful with lending to consumers. Mortgage defaults remain at an all time high--which brings us back to the housing numbers. While foreclosures continue to less of a factor in Austin as they are in other parts of the country, they are taking a toll on the economy as a whole.

As the latest housing numbers have indicated, foreclosures are great for bargain hunters but bad for the housing sector and the overall economy. It only takes one foreclosure in a neighborhood to skew the assessment of overall home values in that area. Mortgage defaults that lead to foreclosures cost banks a significant amount of money. The banks in turn raise rates on credit cards and fees to recoup some of these losses, along with making fewer loans overall.

The real estate industry is lobbying Congress to get an extension on the first-time buyers' tax credit, because many industry analysts are predicting a plunge in the housing numbers after November. "I would not be at all surprised to see a dip at the end of the year once the tax credit expires," Robert Dye, senior economist with PNC Financial Services Group, told the AP.

Austin continues to weather this long recession better than the rest of the country, but let's hope the story behind the national numbers gets better.


Ki moved to Austin for school. After graduation, he started working in the Austin real estate market. He has a website where future owners can search the Austin MLS. His website also has a blog with updates in Austin Texas real estate.

So for the previous two weeks we saw sizable gains in mortgage rates. Between May 28th and June 11th 30 year mortgage rates jumped from 4.91 to 5.59. This week we saw rates drop down to 5.38. Although we are still above what we were at two weeks ago it's nice to see mortgage rates moving back down. The other major mortgage products all went down as well. The 15 year dropped from 5.06 to 4.89. The 5 and 1 year arms dropped from 5.17 to 4.97 (5 year arm) and 5.04 to 4.95 (1 year arm). Below are rates for the 4 major mortgage products since May 21st.

Jun 18, 2009
30-yr 5.38 15-yr 4.89 5-yr ARM 4.97 1-yr ARM 4.95

Jun 11, 2009
30-yr 5.59 15-yr 5.06 5-yr ARM 5.17 1-yr ARM 5.04

Jun 04, 2009
30-yr 5.29 15-yr 4.79 5-yr ARM 4.85 1-yr ARM 4.81

May 28, 2009
30-yr 4.91 15-yr 4.53 5-yr ARM 4.82 1-yr ARM 4.69

May 21, 2009
30-yr 4.82 15-yr 4.50 5-yr ARM 4.79 1-yr ARM 4.82

Dec 18, 2008
30-yr 5.19 15-yr 4.92 5-yr ARM 5.60 1-yr ARM 4.94

So why are mortgage rates dropping? Basically for the last few weeks the economy has been improving and consequently we have seen mortgage rates increasing. In addition to that the government held a few bond auctions that went poorly which also provided upward pressure on mortgage rates. In the last week we have seen some signs the economy might not be recovering as cleanly and quickly as first hoped which has the effect of pushing mortgage rates down.

In addition to mortgage rates it's always nice to look at actual mortgage payments. We took today's rates and used a mortgage calculator and turned them into mortgage payments for a 200k loan. We also did the same thing with rates from June 11th (last week) and rates from December 18th (6 months ago).

Jun 18
30-yr $1120.56
15-yr $1570.15
5-yr ARM $1069.97
1-yr ARM $1067.53

Jun 11
30-yr $1146.89
15-yr $1587.84
5-yr ARM $1094.51
1-yr ARM $1078.53

Dec 18
30-yr $1096.98
15-yr $1573.26
5-yr ARM $1148.15
1-yr ARM $1066.32

As we can see payments based on 30 year mortgage rates the monthly payment on a 200k loans is about $26 dollars lower than they were last week.

So what is our advice? First of all I would still recommend 30 year mortgages. While rates on 5 and 1 year arms are lower I still expect rates to be much higher in 1 year and 5 years from now. So basically it's not worth the risk of having to refinance in a few years. Although rates are higher than they were a few weeks ago they are still near historical lows.

As always it's hard to predict what is going to happen moving forward. I would expect volatility in rates over the next month as we figure out whether the economy is one the road to recovery. Once the economy recovers we expect rates to increase rapidly. The government borrowed 50 cents of every dollar it spent this year. That mountain of debt should lead to higher interest rates.

Ki works as realtor in Austin Texas. His site is filled with information about Austin Texas real estate. It also provides information on mortgage rates along with a free mortgage calculator.