What Will Happen When the US Stops Buying Mortgage-Backed Securities?

When the US stops buying mortgage-backed securities it is going to affect Buyers and Sellers; Buyers may find it harder to get lending or it could become much more expensive to borrow, so this will dampen prices and demand, affecting Sellers. Here is an optimistic view of what will happen when the US Treasury purchases slow or stop. For more data on mortgage-backed securities and how they work, do look through the blog. Marie

From WSJ:

JANUARY 28, 2010
Mortgage Bulls Bid Fed Fond Farewell
Say Rates Won't Soar When U.S. Ends Buying Spree

By Mark Gongloff

Conventional wisdom holds that the end of the Federal Reserve's $1.25 trillion mortgage-buying spree will be catastrophic for housing. But a growing number of investors are betting that the fears are overstated and mortgage rates won't soar when the Fed leaves the market in just over two months.

Following a two-day policy meeting, the Fed on Wednesday reiterated its plan to end the program on schedule. The policy makers ignored weak home-sales data that had some observers, worried the market wouldn't be able to wean itself from Fed support, expecting an extension.

Fed officials believe they can pull back successfully. And a growing group of optimists are joining their camp. They argue that investors, searching for higher-yielding securities, will find government-backed mortgage-backed securities a bargain relative to other investments, like corporate debt, that have rallied for much of the past year.

"People will jump in and buy" if there's weakness in the mortgage-backed securities market, said Brian Yelvington, a strategist at fixed-income brokerage Knight Libertas.

The optimistic view hinges on the government remaining an enormous presence in the mortgage market, both through its mortgage-backed securities holdings and the widespread expectation that it could jump back in if the market falters.

If this view is right, then the end of Fed purchases will barely cause a ripple in interest rates on mortgage-backed securities, which move in the opposite direction of price. That, by extension, could mean mortgage rates could stay relatively low, buoying housing.

So far, the numbers support the optimists. In recent weeks, the Fed has slowed its average weekly net purchases of mortgage-backed securities from $21 billion to about $12 billion. Despite this, the "spread" between mortgage-backed securities yields and risk-free Treasury yields is thinner than last September, when the Fed said it was extending its mortgage buying program by a quarter.

This spread is the basis for the rate people pay when they borrow to buy a home. Any widening typically pushes mortgage rates higher by an equal amount almost immediately.

To be sure, mortgage prices could suffer when the Fed stops buying. Pessimists worry spreads could rise a full percentage point, which could take 30-year conforming mortgage rates to 6% from 5%, a potentially crippling blow to a still-shaky housing market.

But spreads mightn't have to widen nearly that much to attract private investors hungry for yield at a time when cash yields nothing.

For one thing, riskier credit investments, such as corporate debt, may have little upside left after rallying furiously for nearly a year. Corporate bonds with an "A" credit rating, for example, yield 160 percentage points over Treasury debt, according to Merrill Lynch indexes. MBS issued by government-backed mortgage agencies, in comparison, yield about 138 percentage points more than Treasurys, according to Kevin Cavin, a mortgage strategist at FTN Financial in Chicago.

Even a small widening of that MBS spread would offer investors a similar spread as risky corporate debt, but this debt would be guaranteed by the U.S. government.

The Fed's purchase program, meanwhile, has likely kept spreads on mortgage-backed securities issued by government-backed mortgage agencies artificially narrow, which has turned off many private investors.

"Our interest in residential mortgage product is next to zero right now," given the low spread over Treasurys, said James Camp, head of fixed income for Eagle Asset Management, a St. Petersburg, Fla. investment firm.

But if mortgage spreads over 10-year Treasurys were to widen by just half a percentage point—taking them back to their long-term average—buying government-backed mortgage securities "starts to make sense again," Mr. Camp said.

A half-point increase in spreads might push mortgage rates up by half a percentage point. But subsequent private buying of mortgages could push spreads and rates right back down again, limiting the damage to the housing market, bulls say.

Large bond mutual-fund managers, such as Pimco, have dialed back on their mortgage investments in the past year and now may be short of their usual allocations to mortgages by up to $350 billion, estimates Ohmsatya Ravi, head of U.S. securitized products research at Nomura Securities International.

Their buying could be enough to replace three or four months' worth of Fed purchases, notes Mr. Ravi, who said he doubts mortgage spreads will widen more than 0.2 percentage point when the Fed stops buying.

Meanwhile, the government will remain an enormous presence in the mortgage market even after the Fed stops buying.

The Fed will have a $1.25 trillion mortgage-backed securities portfolio after March. Unless the Fed sells its securities, its holdings mean a lot of supply is being held off the market, at a time when new mortgage originations are anemic, keeping prices from falling too far.

Meanwhile, the Treasury Department in December said it would provide unlimited support to Fannie Mae and Freddie Mac and wouldn't require the agencies to reduce their $1.5 trillion mortgage holdings, as previously planned, a show of government commitment that has lifted mortgage prices.

Some analysts even suggest that Fannie and Freddie, now with greater government backing, could buy more mortgages if spreads widen drastically and the Fed declines to help. —Jon Hilsenrath contributed to this article.

A Primer: Mortgage-Backed Securities

In the next few posts I'll be defining, explaining and telling you how mortgage-backed securities affect lending. The Obama Administration will be pulling back from purchasing these in the next couple months and it's expected to affect lending. This will help you understand beyond the "hype" why now is a great time to find and purchase a home. Marie

Q: What exactly are mortgage backed securities and what companies offer them?

Many of us experienced in the stock market trading or have 401(k)s or private portfolios are familiar with the term "securities." A security is a holder's legal interest in a corporation, certificate, or note that may increase in financial value over time.

Corporate stocks, mutual funds, bonds, certificates of deposit, and notes can be considered securities. The holder of these securities experience can experience gains and losses. Depending on the strength of the security, gains and profits will vary. Gains are evidenced by the growth of a holder's stock portfolio, 401(k), CDs, or bonds. Also, dividend and annuity gains can be paid out as cash profits to the holders.

A mortgage backed security (MBS) is a bond financed by home mortgage payments. This is the essential concept behind the mortgage backed securities definition. The mortgage principal and interest paid by the homeowner is the principal and interest paid to the MBS holder. This is called "mortgage pass-through," which may also differentiate the MBS from other MBS programs that may have other features attached to it.

An investor who buys MBSs provides mortgage loans to the homebuyer (or business) as a consequence. The homeowner or mortgage loan holder controls the "cash flow" that goes to the MBS holder. As mentioned before, the homeowner pays off his mortgage's principal and interest over a designated period of time, i.e., 15, 20, or 30 years. The mortgage loan holder may prepay their entire mortgage at any time, which may upset the timing of the MBS investor's cash flow.
Mortgage prepayments usually occur when a house is sold or the homeowner decides to refinance his home with a second mortgage at a lower rate. This is a risk for the MBS investor.

But mitigating this MBS risk is something called the "option adjusted spread," which means the MBS is tied to government bonds' trade spread.

Other catalysts that spur the prepayment option not tied to interest rates include real estate price inflation, unemployment, economic growth, mortgage risk aversions, and change in borrowing regulations.

Overall, MBSs are an attractive and safe investment vehicle. Good income coupled with capital appreciation and tax-deferred savings are the main advantages to investing in these security or bond types. Like bonds, MBSs trade dynamically with little risk to liquidity. Also, MBSs are likened to treasuries in that they are safe and even offer a higher return of from 1% to 2%.
But, as intimated before, MBS monthly income can vary due to falling interest rates. This fall in interest rates may cause a higher rise in prepayments. As a result this may shorten the term of an MBS, but the investors benefit from the gains anyway.

So, you appear interested. What companies offer mortgage backed securities? Companies that offer MBSs include the Government National Mortgage Association (Ginnie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal National Mortgage Association (Fannie Mae). Each entity may be defined a bit differently depending on the security products each offers.

You can find more information regarding MBSs and even a mortgage backed securities tutorial on the Internet.

How to Get $6000 from CHAFA for your Down Payment!

The following data is from FHA websites. Buyers need to speak with a lender to determine their qualifications. Generally, these are going to work well for borrower / buyers who need down payment funds and are willing to use their 1st time homebuyer tax credit payment to repay the down payment "front" from CHAFA. In some instances one need not be a first-time borrower and and in some instances repayment differs. See Below:

On November 6, President Obama signed into law legislation to extend the $8,000 homebuyer tax credit until April 30, 2010 and expand it to include higher income homebuyers. The credit was scheduled to expire November 30, 2009. The new law also creates a new $6,500 tax credit for existing homeowners who have lived in their home for at least five consecutive years out of the last eight, and who wish to purchase a different home as their primary residence. This credit is available for homes purchased after November 6, 2009 and expires April 30, 2010.

To help buyers that need down payment and closing cost assistance when purchasing a home with the tax credit, a number of HFAs are offering special short-term second loans to qualified buyers. These loans are available for little or no interest and may be repaid with the homebuyer tax credit refund.


CHFA JumpStart2 Borrower Special Online Training and Form 912

The Worker, Homeownership and Business Assistance Act of 2009 (WHBAA) extended the temporary tax credit to provide a continuing incentive for first time homebuyers to purchase a home, or enter into a binding contract to purchase a home, on or before April 30, 2010, and close by June 30, 2010.

In addition, WHBAA allows a tax credit of up to $6,500 for long time homeowners who buy a replacement principal residence, so long as they have lived in the same principal residence for any five-consecutive–year period during the eight-year period that ended on the date the replacement home is purchased. A refundable tax credit of up to 10 percent of the cost of the home, not to exceed $8,000, is available to eligible first time homebuyers. The credit may be claimed by filing a Form 5405 with your Federal Income Tax Return.

See IRS Form 5405 for instructions or consult with your tax advisor. In general, a tax credit is used to reduce the amount of taxes owed. This tax credit is refundable, so you may be eligible to receive a refund even if you owe no taxes, or you owe less than the credit for which you are eligible.

For example, if you owe $500 in taxes and are eligible for the maximum $8,000 credit, you are eligible for a refund of $7,500 ($8,000 - $500). If the home continues to be your main home for at least 36 months beginning on the purchase date, you do not have to repay any of the credit.

CHFA is offering the CHFA JumpStart2 Tax Credit Loan Program to enable first time homebuyers in need of closing costs and/or downpayment assistance to borrow funds on a short term basis under the new federal First-Time Homebuyers Tax Credit.

Eligible borrowers may receive from CHFA a loan in an amount up to three and one-half percent (3.5%) of the first mortgage loan amount or $6000, whichever is less, to be secured by a second mortgage loan. This second mortgage loan is only available in conjunction with a CHFA JumpStart2 Tax Credit First Mortgage Loan.

The First Mortgage Loan has monthly payments due and is payable over thirty (30) years. The Second Mortgage Loan has zero percent (0%) interest only until December 31, 2010. If you do not pay it off by that date, you must start making monthly payments and interest starts accruing at eight percent (8%) per annum for ten (10) years.

To avoid the payment of interest on this loan and to take full advantage of its benefits, you should pay the CHFA JumpStart2 Second Mortgage Loan in full when you receive your tax refund (but no later than December 31, 2010, to avoid the payment of interest).

CHFA is offering the CHFA JumpStart2 Second Mortgage Loan based upon the expectation it will be repaid in its entirety when you receive the tax credit refund. If you do not receive all or part of your tax credit, you are still liable for repayment of the loan. Instructions on how to repay the CHFA JumpStart2 Second Mortgage Loan to CHFA will be provided in your CHFA welcome package after loan closing.

You will receive a credit of $250 of the $350 Administration Fee you paid at closing if you repay CHFA the full amount of the CHFA JumpStart2 Second Mortgage Loan by December 31, 2010.

Note: Repayment of the CHFA JumpStart2 Second Mortgage loan does not remove your obligation to repay the federal government if the home ceases to be your main home within 36 months after closing. See IRS Form 5405 for guidance or consult with your tax advisor.

Do You Know Everything You Should About the Move-Up Tax Credit?

Frequently Asked QuestionsAbout the Move-Up/Repeat Home Buyer Tax Credit

The Worker, Homeownership, and Business Assistance Act of 2009 has established a tax credit of up to $6,500 for qualified move-up/repeat home buyers (existing home owners) purchasing a principal residence after November 6, 2009 and on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010).

The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

1. Who is eligible to claim the $6,500 tax credit?

Qualified move-up or repeat home buyers purchasing any kind of home are eligible to claim this credit.

2. What is the definition of a move-up or repeat home buyer?

The law defines a tax credit qualified move-up home buyer (“long-time resident”) as a person who has owned and resided in the same home for at least five consecutive years of the eight years prior to the purchase date.

For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. That is, both spouses must qualify as long-time residents, with at least five years of principal residency for each. Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.

3. How is the amount of the tax credit determined?

The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.

4. Are there any income limits for claiming the tax credit?

Yes. The income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return.

The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) above those limits. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

5. What is “modified adjusted gross income”?

Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and the first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007).

Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income. See IRS Form 5405 for more details.

6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?

Possibly. It depends on your income. Partial credits of less than $6,500 are available for some taxpayers whose MAGI exceeds the phaseout limits.

7. Can you give me an example of how the partial tax credit is determined?

Just as an example, assume that a married couple has a modified adjusted gross income of $235,000. The applicable phaseout to qualify for the tax credit is $225,000, and the couple is $10,000 over this amount.

Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $6,500 by 0.5. The result is $3,250.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $138,000. The buyer’s income exceeds $125,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $6,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,275.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

8. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008? How is this different than the rules established in early 2009?

The previous tax credits applied only to first-time home buyers and were for different amounts of money.

9. How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?

You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns).

Please note that although the Form is titled “First-Time Homebuyer Credit,” this is the correct form for claiming both the $8,000 first-time homebuyer tax credit and $6,500 repeat buyer tax credit.

No other applications are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and repeat home buyer tests.

Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase. In cases where a HUD-1 form is not used, such as for construction of some new homes, you should attach a copy of the certificate of occupancy in lieu of the HUD-1.Homebuyers should be sure to read the instructions for the revised IRS Form 5405 to be sure they meet the new program requirements.

10. What types of homes will qualify for the tax credit?

Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.

The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse’s family members. Please consult with your tax advisor for more information. Also see IRS Form 5405.

11. I read that the tax credit is “refundable.” What does that mean?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $6,500 home buyer tax credit. As a result, the taxpayer would receive a check for $5,500 ($6,500 minus the $1,000 owed).

12. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?

Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be after November 6, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April 30, 2010).In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date. To provide proof of purchase, homebuyers must attach a copy of the HUD-1 Form or certificate of occupancy to IRS Form 5405.

13. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?

Yes. The tax credit can be combined with an MRB home buyer program.

14. I am not a U.S. citizen. Can I claim the tax credit?

Perhaps. Anyone who is not a nonresident alien (as defined by the IRS) and who has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date can claim the tax credit if they meet the income limits.

For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

15. Is a tax credit the same as a tax deduction?

No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $6,500 in income taxes and who receives an $6,500 tax credit would owe nothing to the IRS.A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $6,500 in income taxes. If the taxpayer receives a $6,500 deduction, the taxpayer’s tax liability would be reduced by $975 (15 percent of $6,500), or lowered from $6,500 to $5,525.

16. Is there a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax return?

Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.

Buyers should adjust the withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding.

Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

In addition, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. As a result, some state housing finance agencies have introduced programs that provide short-term second mortgage loans that may be used to fund a downpayment. Prospective home buyers should check with their state housing finance agency to see if such a program is available in their community. To date, 18 state agencies have announced tax credit assistance programs, and more are expected to follow suit. The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs.

17. HUD allows “monetization” of the tax credit. What does that mean?

It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.Under the guidelines announced by HUD, non-profits and FHA-approved lenders are allowed to give home buyers short-term loans. The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement.

In addition, approved FHA lenders can purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes.

18. If I’m qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return?

Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year’s income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

Taxpayers buying a home who wish to claim it on their prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.

19. For a home purchase in 2009 or 2010, can I choose whether to treat the purchase as occurring in the prior or present year, depending on in which year my credit amount is the largest?

Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.

20. How can two unmarried buyers allocate the tax credit if one qualifies for the $8,000 first-time home buyer tax credit and the other qualifies for the $6,500 repeat home buyer credit?

The buyers can allocate the tax credit in any reasonable manner, provided neither claims a tax credit higher than the one they qualify for and the home purchase does not yield a total of more than $8,000 in tax credits. For example, the repeat home buyer could claim $6,500 and the first-time home buyer could claim $1,500. Alternatively, both buyers could claim a $4,000 tax credit.

21. Does a married couple qualify for any home buyer tax credit in the following situation?

Spouse A has lived in and owned the same principal residence for at least five years. Spouse B has lived in and owned the same principal residence for less than five years.In this situation, the couple does not qualify for any home buyer tax credit. Because the couple is married, the law tests the ownership history of both spouses. Spouse A clearly does not qualify for the $8,000 first-time home buyer tax credit, so neither does Spouse B.

Spouse A does appear to qualify for the $6,500 repeat buyer credit, but because Spouse B has not owned and lived in the same principal residence for at least five years, neither of them can claim the repeat home buyer tax credit.

Serious Home Sellers are Listing Now

Here's why Sellers who are serious are pricing right and listing right now -

Homeowners should buck the conventional wisdom about selling in the spring.
Putting a home on the market in this grim real-estate climate might seem like lunacy considering how heavily the market favors buyers. Home prices are down 28% from their national peak in the second quarter of 2006, according to the S&P/Case-Shiller home price index, which tracks sales in 20 major housing markets. Still, listing a home during certain months can improve a seller's odds.

Late spring and summer are usually thought of as the best times to put a home on the market because buyer demand builds steadily through spring. Sales then peak during the warmest months, when it's easiest for families to move without uprooting their children from school. But this year, experts predict that the selling boom, which normally starts in spring, will hit at a different time than it has in the past. Sellers with flexibility should market their homes earlier in the year.

According to data from Zillow.com, an online real-estate database, the volume of home sales was highest in June, July or August every year since 2000. This year, however, an $8,000 credit for those buying their first home--that expires on June 30, 2010 and requires buyers to have closed on a home by April 30, 2010--will force buyers to speed up their decisions. Historically low interest rates also suggest that sellers will face a busier market as early as February.

"This year, we're anticipating sales will peak earlier," says Nicole Hall, editor in chief of Lendingtree.com, an online mortgage comparison service. "The best time to get your house on the market will be February or early March, and maybe even earlier if you want to avoid competition."

The Economy Upsets Seasonal Trends

House hunting may have traditionally sped up after March, but nothing about the last few years in real estate has been traditional. In 2008, sales failed to pick up with their usual gusto in late winter because the financial crisis cast a shadow of fear over buyers, and lending seized up.

"Between the fall of 2008 and March of 2009, there was a long dead period in real estate," says Ken Shuman, spokesman for the real estate Web site Trulia.com. "You don't want to buy a house if you don't have job security, and a lot of people had jobs but didn't feel too secure about them."
2009 didn't follow typical trends, either. Fall, when sales usually plummet, saw more sales activity than usual this year because of the introduction of the government's tax credit, which was initially set to expire on Nov. 30, 2009.

Improving the Odds

Granted, some sellers have no choice but to sell at a slow time of year. Job relocation and the need to free up assets are facts of life that can deprive families of the luxury of waiting until the peonies bloom to put their homes on the market.

But Hall says that there are ways to improve your chances of a sale if you have to list your home late in the year, like playing up holiday decorations and shoveling walkways to maximize curb appeal. She adds that selling at this point in the cycle isn't always the worst fate.

"Look at how you can turn it to your advantage. Maybe because you're forced to sell at a different time, there will be less competition," she says. "Also, be realistic about your price. If you know you're selling at a tough time, it can be a tough call, but you might have to drop that price a little."

Shuman and Hall agree that the season shouldn't be the only factor homeowners consider when getting ready to sell. Paying attention to the vagaries of the local real-estate market, where inventory and prices can fluctuate week to week, will offer more guidance to sellers than simple seasonal trends.

"Check out your local inventory," says Hall. "Read the housing-market blogs, follow the local market really carefully, and look at the unemployment rate. That will make a big difference."
For smart sellers, Shuman and Hall agree, taking a chance and starting the sale process earlier will reap distinct benefits in 2010.

"The beginning of the year is going to be make-it-or-break-it," says Shuman. "If you're a seller, get your property listed as early in the year as you can."

By Francesca Levy, Forbes.com, Jan 4th, 2010 CALL or eMail to find out what the housing market has been doing recently in your neighborhood - Marie de Espinosa (720) 275-3926