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John Paulson: “The Best Time in 50 Years to Buy a Home”

Multibillionaire hedge fund operator John Paulson, the investment genius who made a killing going short subprime mortgages a few years ago recently spoke to a standing room only crowd at New York’s University Club about the U.S. economy and said the following about housing:

As this is the best time in 50 years to buy homes, Paulson advised his listeners, crowded into three separate dining rooms, to issue 30 year mortgages to buy a home as “your debt and interest payments get locked in at record lows, while the price of your home will rise.”

“If you don’t own a home, buy one,” Paulson recommended; “if you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home.  

Record Low Mortgage Rates Continue to Fall

Mortgage rates headed down again, after lingering at a record low for two weeks. The benchmark 30-year fixed-rate mortgage fell 5 basis points this week, to 4.45%, according to the Bankrate.com national survey of large lenders. In the 25-year history of Bankrate’s weekly survey, the 30-year fixed has never been lower. According to statistics compiled by the National Bureau of Economic Research, the last time mortgage rates were below 4.5% was in April 1953.

Home Purchase Mortgage Loan Demand at Highest Level Since May

U.S. mortgage applications for home purchases rose for a second straight week, with demand at its highest level since early May as potential homeowners took advantage of record low interest rates, data from the Mortgage Bankers Association industry group showed on Wednesday. The MBA’s seasonally adjusted purchase index, a tentative early indicator of home sales, increased 9.3%, reaching the highest level since the week ended May 7. The increase in purchase activity was led by a 17.2% increase in Federal Housing Administration (FHA) applications, while conventional purchase applications increased by 3.6%.

NAR: Pending Home Sales Increase for Second Consecutive Month

The number of contracts to purchase previously owned homes in the U.S. increased for a second month, a sign the housing market is beginning to stabilize.  The National Association of Realtors’ index of pending home resales rose 4.3% in August, more than forecast, after a revised 4.5% gain the prior month.

Housing is “bouncing along the bottom, unable to gain any traction, but with little reason to believe it’s going to go any lower. All of the froth has been eliminated from the bubble and all we need now is for confidence to turn higher and job growth to accelerate,” said Eric Green, chief market economist at TD Securities Inc. in New York. 

Case-Shiller Index Up 3.2% in July; Karl Case Says Housing Market Will Grow Slowly

The U.S. housing market has reached its lows and will expand slowly as the economic recovery remains subdued, said the S&P/Case-Shiller index co-creator Karl Case.

The index of property values in 20 U.S. cities increased 3.2% in July from 12 months earlier. The gauge is a three-month average, which means the July data are still being influenced by transactions in May and June that may have benefited from the government homebuyer tax credit incentive.

“It’s bouncing along the bottom, it stopped that free-fall. The combination of the tremendous drop in prices, the fall in interest rates, the government going all in and buying mortgage-backed securities to keep mortgage rates low, and the credit, of course – it’s not surprising that it’s come to an end.” Case said in an interview on “Bloomberg Surveillance” with Tom Keene.

Reuters Analysis: Three Reasons U.S. Homeowners Shouldn’t Lose Hope

Homeowners can take solace from three historical comparisons. To start with, relative to disposable income, houses are as cheap as they have been since records began 35 years ago. To get back to a fair value on this measure, according to the consultancy Capital Economics, prices would have to rise 11%. Second, adjusted for inflation house prices are now equal to their level in 2001, before the height of the property frenzy.

Finally, the second legs of house price declines tend to be far less painful than the first. The first wave of the Great Depression, for example, wiped 30% off property values before prices rebounded 20%. The second downturn after 1937 erased less than half of this upswing. Other housing market double dips in the United Kingdom and Sweden in the 1990s showed a similar pattern.

Of course, the American housing market has recently shown a disconcerting ability to flout historical precedent. But notwithstanding the IMF’s worries, there are now good reasons to believe that property prices are very close to hitting rock bottom.

Wall Street Journal Columnist: Why it’s a Good Time to Buy a Home

In a recent column that ran in the Wall Street Journal, financial journalist and author, Brett Arends, discusses why he thinks now is a particularly good time to buy a home.

Ø You can get a good deal: Will prices fall further? Sure, they could. You’ll never catch the bottom. It doesn’t really matter so much in the long haul.

Ø Mortgages are cheap: You can get a 30-year loan for around 4.3%. These are the lowest rates on record. As recently as two years ago they were about 6.3%. That drop slashes your monthly repayment by a fifth.

Ø You’ll save on taxes: You can deduct the mortgage interest from your income taxes. You can deduct your real estate taxes. And you’ll get a tax break on capital gains when you sell.

Ø It offers some inflation protection: No, it’s not perfect. But studies by Professor Karl Case (of Case-Shiller), and others, suggest that over the long-term housing has tended to beat inflation by a couple of percentage points a year.

Ø Sooner or later, the market will clear. Demand and supply will meet. And a lot of the “glut” simply won’t matter: It’s concentrated in a few areas, like Florida and Nevada. Unless you live there, the glut won’t have any long-term impact on housing supply in your town.