In late summer and fall 2009, lured by fixed 30-year mortgage rates under 5 percent and the first $8,000 tax credit, which expired Nov. 30, first-timers pushed sales of previously owned homes to the highest levels in at least three years, reducing record inventories and braking price declines.

That tax credit was renewed Nov. 5 and expanded to buyers who had not purchased a property in five years, although the credit for repeat buyers is $6,500.

The second credit expires April 30, is unlikely to be renewed, and remains the engine moving buyers.

"Not a single one has expressed concern about interest rates," said Cheryl Miller of Long & Foster Real Estate in Blue Bell, acknowledging that "there is, I suppose, a false sense of security regarding rates remaining low."

As the date for the Fed pullout approaches, analysts now generally agree that an immediate rate spike is no longer the likely result.

"We think there will be a significant increase in private demand [for mortgage-backed securities] to take the place of the Fed," said David Berson, chief economist at PMI Group in Walnut Creek, Calif. Not enough to offset the Fed's departure, he said, with rates possibly increasing a quarter of a percentage point, "but a significant one."

Bankrate.com columnist Holden Lewis said rates are so low now - averaging 4.87 percent for a 30-year fixed this week - that an increase "is inevitable. But maybe they'll rise gradually instead of jumping" April 1.

The Fed says it will stop buying "by" March 31 instead of "at" the end of the month, meaning that it likely has reduced its purchases and rates haven't risen, Lewis said.

Moody's Economy.com chief economist Mark Zandi, based in West Chester, said rates will "drift" higher in summer and fall, with the half a percentage point the Fed's action cut working its way back in - mainly because investors believe the government would return if they got too high.

For that reason, Philadelphia mortgage broker Fred Glick said, rates won't change.

"If the old buyers don't come back, the Fed will intercede again to ensure rates during a continued slowly recovering economy will not go so high as to stymie a positive direction," Glick said.

Buyers of these securities "now see that the lenders have instituted rigorous standards to ensure that the Fannie Mae and Freddie Mac paper they are buying are very good loans," he said.

On the other hand, said Holland, Bucks County-based economist Joel L. Naroff, low rates are not sustainable, and "the only way to get the market to stand on its own is to get people to become realistic again about prices and rates."

Rates will likely rise, but "the level will still be historically low," Naroff said.

When rates do rise, likely by year's end, it won't be because of the Fed's action, but "natural macroeconomic forces" like a recovering economy and the high budget deficit, said Lawrence Yun, National Association of Realtors chief economist.

The possibility of renewed Fed intervention will likely prevent rate increases resulting from private investors demanding large risk spreads, said economist Brian Bethune of IHS Global Insight in Lexington, Mass.

As a result, Bethune and IHS economist Patrick Newport believe, the rate will be at only 5.25 percent by the fourth quarter.

Many Fed officials have emphasized that "high unemployment and tame inflation warrant a continued promise to hold rates very low for a long time," said Peter Buchsbaum, of Arlington Capital Mortgage in Horsham.

Some analysts expect the expansion to ease, "and I am sure the Fed does not want to extinguish the fragile recovery," Buchsbaum said.

Research from The Shimberg Center for Housing Studies at the University of Florida tried to quantify the ripple effect of the $380 million that the bank has provided to build more than 60,000 units of housing between 1990 and 2009.

It concluded:

• Every $1 million in funding resulted in $14.3 million worth of new or rehabbed housing.
• Each $1 million in funding created 158 jobs.
• Since 1989, funding from the bank has generated more than $811 million in tax revenue, representing $2.79 in taxes for each $1 of funding.

Source: Federal Home Loan Bank of Atlanta (03/11/2010)

The median existing single-family home price was $177,500 in December, which is 1.4 percent above a year ago. For all last year, the single-family median was $173,200, down 11.9 percent from 2008.

Existing condominium and co-op sales fell 15.4 percent to a seasonally adjusted annual rate of 660,000 in December from 780,000 in November, but are 34.7 percent higher than the 490,000-unit pace a year ago. For all of 2009, condo sales rose 4.8 percent to 590,000 units.

The median existing condo price5 was $183,700 in December, up 1.0 percent from December 2008. For all of last year, the median condo price was $176,100, which is 16.1 percent below 2008.

Regionally, existing-home sales in the Northeast dropped 19.5 percent to an annual level of 910,000 in December but are 21.3 percent above a year ago. The median price in the Northeast was $241,700, up 3.2 percent from December 2008.

Existing-home sales in the Midwest fell 25.8 percent in December to a level of 1.15 million but are 8.5 percent higher than December 2008. The median price in the Midwest was $143,200, which is 1.8 percent above a year ago.

In the South, existing-home sales dropped 16.3 percent to an annual pace of 2.01 million in December but are 15.5 percent above December 2008. The median price in the South was $152,000, down 1.0 percent from a year ago.

Existing-home sales in the West declined 4.8 percent to an annual rate of 1.38 million in December but are 15.0 percent higher than a year ago. The median price in the West was $236,000, up 2.7 percent from December 2008.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

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.

Lawrence Yun, NAR chief economist, said there were no surprises in the data. “It’s significant that home sales remain above year-ago levels, but the market is going through a period of swings driven by the tax credit,” he said. “We’ll likely have another surge in the spring as home buyers take advantage of the extended and expanded tax credit. By early summer the overall market should benefit from more balanced inventory, and sales are on track to rise again in 2010. However, the job market remains a concern and could dampen the housing recovery – job creation is key to a continued recovery in the second half of the year.”

An NAR practitioner survey2 shows first-time buyers purchased 43 percent of homes in December, down from 51 percent in November. Repeat buyers rose to 42 percent of transactions in December from 37 percent in November; the remaining sales were to investors.

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.

NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz., said market conditions are challenging in some areas. “There’s a shortage of lower priced homes for sale in much of the country, resulting in multiple bids in some areas,” she said.

“Raw unsold inventory has been trending down. As the market heats up again this spring, buyers may need to be prepared to move quickly on a particular home – the best advice is to begin working with a Realtor® now to be able to use the tax credit and benefit from the increased buying power in the current market,” Golder said.

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 supply4 at the current sales pace, up from a 6.5-month supply in November. Raw unsold inventory is 11.1 percent below a year ago, is at the lowest level since March 2006, and is 28.2 percent below the record of 4.58 million in July 2008.

Distressed homes, which accounted for 32 percent of sales last month, continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes in the same area. For all of 2009, the median price was $173,500, down 12.4 percent from $198,100 in 2008; distressed homes accounted for 36 percent of total sales last year.

The Move.com survey also found that while perceptions related to affordability have improved in four months, most Americans are still unaware of how affordable homes are today. In June 2009, more than three-quarters (76.4%) of Americans said they thought a family earning the national median income of $52,029(3) could afford 50 percent or fewer of the homes for sale in their area. Today only half (50.4%) of all Americans say a median income family can afford 50 percent or fewer of the homes for sale in their neighborhood, a 26 percentage point improvement in just three months. In fact, a median income family today can afford approximately 70 percent of the homes listed for sale on the Move Network of real estate Web sites.(4)

"In the past year, affordability has improved significantly, especially for first time home buyers, and is higher now than at any time the past two decades(5)," said Samuelson. "Even more encouraging is that 34.1% of survey respondents said they expect median income families will be able to afford more than 50 percent of the homes in their neighborhood a year from now. This sentiment is especially true with people ages 18 to 34, the nation’s next group of first time homebuyers."

The Move.com survey found foreclosure buyers expect to profit from both deeply discounted purchase prices, as well as healthy appreciation rates over five years. Most foreclosure buyers (58.2%) expect to pay 20 percent or less than market price for a foreclosure, while 38.5 percent expect a 25 percent or greater discount. While, 73 percent expect their properties to appreciate ten percent or more in five years, 28 percent expect their purchases to appreciate 20 percent or more during that same investment horizon. According to the Federal Housing Finance Administration’s Purchase Index, homes have appreciated an average of 15 percent nationally since 2004(2).

According to the Move.com survey, the most important reasons motivating prospective home buyers and investors to purchase a house include concerns that prices are as low as they will go (23.6%) and desire to take advantage of foreclosure bargains (18.7%). The second most important reasons motivating property purchases include taking advantage of the great selection of homes for sale in their community (21.2%) and concern interest rates will rise (14.2%).

"This latest Homeownership Survey validates what many had hoped to see in the housing markets -- affordable prices and ample inventories are restoring the appeal of real estate to investors while providing opportunities for first time home buyers to enter the market," said Move, Inc., Chief Revenue Officer, Errol Samuelson. "In today’s environment, regardless of whether you’re an investor or interested in purchasing a home to live in yourself, residential real estate is a more attractive investment today for many than it has been in recent years."

An analysis of public records collected for the Zillow Real Estate Market Reports suggests that 21 percent of homes with mortgages were underwater at the end of September, down from 23 percent at the end of June, Zillow said.

An index measuring home values in 156 metropolitan statistical areas (MSAs) tracked by Zillow was relatively flat, declining 0.4 percent from the second quarter to the third. Looking back a year, the index showed the median value of single-family homes, condominiums and cooperatives in those markets falling 6.9 percent, to $190,400.

The index showed home values increasing in the last year in 24 of 156 MSAs, including Boston and Milwaukee, and holding their ground in 16 others.

The best-performing markets in the last year were Fayetteville, N.C. (up 10.8 percent); Cumberland, Md. (up 9.1 percent); Gainesville, Ga. (up 7.7 percent); Rochester, N.Y. (up 6.2 percent); and Green Bay, Wis. (up 5.3 percent).

"The decline in the percentage of homeowners with negative equity is a positive sign, and is directly attributable to the stabilization of home values from the second quarter to the third," Zillow Chief Economist Stan Humphries said in a statement. "It is also attributable to many homeowners who were previously underwater on their mortgage losing their homes to foreclosure."

A majority of homeowners with mortgages in several markets hard hit by foreclosures had negative equity in their homes. According to Zillow's analysis, in Las Vegas 81.8 percent of homes with mortgages are underwater, and in Fort Myers, Fla., 60.5 percent of homeowners with loans have negative equity (some homeowners don't have mortgages because they have paid off their loans or purchased their homes with cash).

Foreclosure resales accounted for 21.4 percent of all U.S. home sales in September, Zillow said, and more than half of sales in several MSAs including Las Vegas (67.5 percent) and the California communities of Merced (74.2 percent), Stockton (69.3 percent), Madera (68.7 percent), and El Centro (68.1 percent)

This measure will allow troubled banks, burdened by sizeable commercial real estate loan portfolios, to seek a respite from loan loss reserve requirements that effectively lower their capacity to lend. This relief for the banks will result in an easing of the tight credit conditions affecting commercial real estate transactions, although it is still too early to gauge the full impact of the new measures on commercial real estate sales.

The guidance came from the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp and the Office of Thrift Supervision.

Community banks are being hit especially hard by the troubled CRE sector because many smaller banks built up heavy concentrations of commercial loans, viewing it as an area in which they could compete with larger banks.

FDIC Chairman Sheila Bair has said CRE exposure will increasingly be a driver of bank failures.

Last week, the tally of failures passed the 100-mark for the year and reached 106, the highest annual level since 1992.

That number is expected to continue rising as the banking industry continues to grapple with deteriorating loans on its books, many of which were extended during the credit heyday before the housing market bust.

The regulators' guidance said that while CRE borrowers may see their financial conditions deteriorate, many of them will continue to be creditworthy borrowers who can repay their debts.

Bank examiners will take a balanced approach and will not necessarily criticize institutions should the restructured CRE loans have weaknesses that result in an adverse credit classification, the regulators said.

As of June, commercial real estate loans totaled more than $1 trillion, or 14.2 percent of all loans and leases in the banking industry.

Prices for existing commercial properties have fallen 35 to 40 percent since peaking in 2007 and more declines are anticipated. Rising job losses and high vacancy rates also are weakening demand for commercial property

Under the guidelines, loans to creditworthy borrowers that have been restructured and are current won't be classified as high risk by regulators solely because the collateral backing them has declined to an amount less than the loan balance.

Banks that put prudent modifications into effect after making a full review of the borrower's financial condition "will not be subject to criticism (by regulators) for engaging in these efforts," even if the reworked loans end up being classified as high risk, the agencies said. They said their bank examiners will take "a balanced approach" in evaluating banks' risk management practices in this area.

Bank failures for the year hit 106 last week, the most since 1992 at the height of the savings-and-loan crisis, as institutions nationwide have succumbed under the weight of soured real estate loans and the recession.

The failures have cost the FDIC's fund that insures deposits an estimated $25 billion so far this year and are expected to cost around $100 billion through 2013. To replenish the fund, which has fallen into the red, the agency wants the roughly 8,100 insured banks and savings institutions to pay in advance $45 billion in premiums that would have been due over the next three years.

The policy took Tom Lasswell, a mortgage professional with Guild Mortgage in Lynnwood, completely by surprise. Lasswell recently had a pre-approved borrower who found a bank-owned property. While the buyers were highly qualified, the lender who owned the property let it be known that two other parties were interested in the parcel.

“Our clients’ offer was accepted, but only if they got a loan from the lender who held the property,” Lasswell said. “If they wanted the home — which was perfect for them — they had to get a loan with that lender and close with them. If our clients did not comply with those terms, the lender with the foreclosure would move on to the next person in line.”

No specific loan terms were discussed or promised. The potential buyers simply had to accept that the financing would come from the lender holding the property.

“I’ve known some builders that require borrowers to be pre-approved or pre-qualified through their affiliate companies or relationships, but the borrower has not been required to use those services as a part of the contract. They have always been able to choose.”

Is it even legal for a bank to ever dictate where a borrower obtains financing?

Joseph Vincent, general counsel for the state Department of Financial Institutions, said a lender can require a borrower to secure financing when the lender is acting as the “seller” of the property.

It is a violation of the Federal Anti-Tying Law for a bank, its holding company or affiliate to condition a loan on the purchase of specific property. However, it is not a violation if the institution is telling any would-be buyers that, as seller, it will not sell the property to them unless they obtain a seller-financed loan for that purpose.

However, if the bank, savings association or one of its subsidiaries or its holding company required more than the seller-financed loan, that extra requirement could be an illegal tying arrangement, according to Vincent.

For example, a bank sells you an office building it owns through foreclosure, the terms of which are 20 percent down payment and an 80 percent bank-financed purchase loan. So far, so good. But the terms also require that, as a condition of purchase, you agree to use Property Manager X or Remodeling Consultant Y. The bank, savings association or one of its subsidiaries or its holding company has a beneficial ownership interest in or less-than-arm’s-length relationship with Property Manager X or Remodeling Consultant Y. This would likely be an illegal tying arrangement, Vincent wrote.

Vincent cited the legal case Sharkey vs. Security Bank & Trust Co., where a bank’s tying arrangement constituted a violation because the bank required a customer to purchase real estate from the bank as a condition for obtaining a loan. The court sided with the customer, and rejected the bank’s argument that the customer must prove the arrangement was “anti-competitive.”

When 2008 finally came to an end, there were approximately 871,000 foreclosed, or bank-owned homes, in the United States, up from 414,000 at the close of 2007. More than 5 percent of all performing mortgages were 60 or more days delinquent, pointing to a potentially precarious situation.

TransUnion, the huge credit and information-management company, expects that percentage to double in 2009 as more adjustable rate mortgages and Option Arm instruments click in to their adjustment mode. These adjustables, approximately $321 billion strong and scheduled to re-set before 2012, could well drive the number of real-estate-owned homes to more than 2 million. Most of these properties are vacant, creating a drag on neighborhoods and lessening the desire of many other homeowners to hang on.

All eyes in the automotive industry are once again on Ford (F), but this time for promising reasons. The WSJ cites industry analysts who reckon the carmaker just may report break-even results for its biggest market, North America, on Nov. 2, breaking a string of several years of heavy losses. Ford is gaining ground mainly at the expense of rivals General Motors (MTLQQ) and Chrysler. "Ford gained more than five percentage points of U.S. retail market share in the third quarter compared with the same period of 2008, while Detroit rivals General Motors Co. and Chrysler Group LLC lost ground," the newspaper reports, citing CNW Marketing Research. That's the good news. The reality is the rally isn't expected to last long. By 2010, GM and Chrysler, fresh out of bankruptcy, are expected to bounce back on the strength of new models.

Meanwhile, a GM plant in Delaware is expected to rev to life again—this time as the site of a new manufacturing hub for Fisker Automotive's new hybrid vehicles, the Los Angeles Times reports. The announcement is expected to be made by Delaware's own Joe Biden. Fisker earlier this year got a $528 million loan from the Department of Energy.

The media reincarnation of Michael Eisner continues apace. On Monday, the former head of Disney (DIS) is expected to announce that his fledgling Web video studio, named Vuguru, will become its own company, thanks to a multimillion-dollar investment by Canadian media company Rogers Communications, the NYT reports. The main thrust of this investment is to help Eisner increase the volume of Vuguru's output. "Under a dozen series have been released by Vuguru to date, but he would like the company years from now to be producing 30 series a year," writes the NYT. Eisner seems to think that by bolstering Vuguru now, he will able to see off other underfinanced competition in a market that could attract greater levels of advertising when the economy rebounds.

There are some major rumblings in the financial world this morning. The NYT reports that the Obama administration and Congress are poised to introduce legislation that would give the government sweeping powers over companies and institutions deemed too big to fail. "The measure would make it easier for the government to seize control of troubled financial institutions, throw out management, wipe out the shareholders and change the terms of existing loans held by the institution," it writes. Meanwhile, long-time activist investor Nelson Peltz is set to grab a seat on the board of mutual fund giant Legg Mason after acquiring a 4.3 percent stake in the firm, the WSJ writes. Why would Legg be so magnanimous with its directorships? "In exchange for the board seat, Mr. Peltz's Trian Fund Management, a New York-based hedge fund, has agreed to a 'standstill' pact in which it will accumulate no more than 9.9% of Legg Mason stock for the next two years and vote its shares in favor of the company's slate of director nominees in that period," writes the WSJ. And in late-breaking finance news, ING Group, the Dutch financial-services company, plans to raise up to 7.5 billion euros, or $11.3 billion, in a new rights issue as part of a deal with the Dutch government to repay bailout money ahead of schedule. As part of the plan, ING will split its insurance and banking businesses.

And, finally, there's a hopeful prediction on fuel prices for those of you who watched in horror over the past week as the price of a gallon of gas shot upward. Crude may have broken the $80 barrier, the highest price in more than a year, last week, but it probably won't go much higher, Business Week says, citing industry analysts.

The Commerce Department said Wednesday that sales fell 3.6 percent to a seasonally adjusted annual rate of 402,000 from a downwardly revised 417,000 in August. Economists surveyed by Thomson Reuters had expected a pace of 440,000.

The median sales price of $204,800 was off 9.1 percent from $225,200 a year earlier, but up 2.5 percent from August's $199,900.

The drop in sales was driven by a nearly 11 percent decline in the West and a 10 percent drop in the South. Sales rose 35 percent in the Midwest and were unchanged in the Northeast.

The report reflects contracts to buy homes, not completed sales. It has been taking longer to close a transaction this year because it's taking longer to get approved for a mortgage and to have a property appraised.

Those time lags could make buyers nervous they won't be able to complete the deal before the Nov. 30 deadline to take advantage of a tax credit of up to $8,000 for first-time buyers.

The report "demonstrates the power of the first-time homebuyers tax credit," said Bernard Markstein, senior economist with the National Association of Home Builders, which has been lobbying Congress to extend and expand the tax incentive. "We just haven't gotten the economy back to the point where we can step back and say the housing market doesn't need any more support."

Congress is considering extending the tax credit through March 31 and gradually phasing it out over the rest of next year. The Senate could vote as soon as Wednesday.

"If they don't extend it, then I think the pullback could be quite significant," said Brad Hunter, chief economist with Metrostudy, a real estate research firm.

Critics, however, say many buyers would have entered the market anyway and call the credit an unnecessary subsidy for people who don't need it.

Low mortgage rates, the tax credit and more affordably priced homes have provided a big lift to the housing market this year. Sales of previously occupied homes, for example, jumped more than 9 percent in September. That report measures completed sales rather than sales agreements.

There were 251,000 new homes for sale at the end of September, down almost 4 percent from August and the lowest inventory in nearly 17 years. At the current sales pace, that represents 7.5 months of supply

He expects prices will continue to rise for the next few months, but can't forecast beyond that, explaining, "There's no way to be a statistician about this."

The Case-Shiller index of 20 major cities climbed 1 percent from July to a seasonally adjusted reading of 144.5. While prices were down 11.4 percent from August a year ago, the annual declines have slowed since February.

Rising home prices are a key ingredient to rebuilding the economy. Homeowners feel wealthier when their property appreciates in value and are more likely to spend money. Rising prices also help millions of homeowners who owe more to the bank than their homes are worth.

But many economists expect a double dip in prices. Despite signs the economy is recovering, home prices could decline again as unemployment and foreclosures rise and a tax credit for first-time homebuyers expires next month.

Zach Pandl, an economist at Nomura Global Economics, expects prices to fall to the lows reached earlier this year before recovering in early 2010.

"We need to see flat to rising prices in the winter months," Pandl said. "That would be a very encouraging sign that prices have bottomed out."

While prices are still down about 30 percent from the peak in 2006, the rebound appears widespread. Prices rose month-over-month in 15 metro areas since June, with San Francisco, Minneapolis and San Diego leading the way.

September home sales figures back up the recovery. Home resales climbed more than 9 percent last month, the largest amount in more than 26 years, the National Association of Realtors said last week. Sales figures for newly built homes are due out Wednesday.

Jacqueline Buchanan picked up a two-bedroom bargain foreclosure five miles from her work in Miami. She plans to qualify for the federal tax credit and spend the money on her new home.

"You want to know how good of a deal it was? In 2007, the property sold for $449,000 and I got it for $71,000," said the 50-year-old nurse, who moved here from England more than two years ago. "And it's immaculate."

Though prices in Miami have edged up for three months in a row, they are about half the level they were in 2006, according to the Case-Shiller index.

Congress is considering extending the tax credit that saves first-time buyers 10 percent of the sales price, up to $8,000. This week, top Democrats in the Senate pressed a plan that would prolong the credit but gradually phase it out over the next year.

Supporters will likely point to new data Tuesday that showed confidence about the U.S. economy receded unexpectedly in October. With job prospects bleak, the Conference Board's Consumer Confidence Index fell almost 6 points from September to the lowest level since May.

And home prices are not rising everywhere.

Prices in Las Vegas, Seattle and Charlotte, N.C., all fell to their lowest levels in August. Prices in Las Vegas have plunged by 56 percent since peaking in April 2006, the largest peak-to-trough decline of all 20 cities.

"My worry," Shiller said, "is that confidence will drop back and the rally we're seeing in the housing market will collapse."