One way to determine if prices are headed up or down is to watch the supply of inventory.  A balance market has five to six months of supply.  Monthly supply is determined by the number of homes sold in a given month divided by the number of homes on the market.  For example, if there are 1000 homes on the market in your area and 200 sold in a month there would be 5 months of inventory.  Based on this finding, prices would be holding steady. 

If there was less then 5-6 months of inventory you would be in a seller’s market and prices would climb.  With a low supply of available homes, buyers would have to outbid each other to get the home.  This is what drives inflation.

It there was more then 6 months of inventory you would be in a buyer’s market and prices would drop.  With an abundance of homes available, seller’s would have to compete with each other causing prices to fall.

Economical factors can also play into which direction home prices go.  According to Realtor.org, ”Traditionally, the national average sales price of a home is two-and-a-half times the average household income.”  During the boom in the real estate market this reached four times the average income.  With unemployment rising, prices may drop more to get us closer to the traditional average.  But the good news is we are getting closer to the two-and-a-half time average.

Fannie Mae wants to continue to provide financing for high-credit quality (minimum of 720 credit score) investors because experienced investors bring stability, liquidity and affordability to the housing system. Which in turn plays a key role in helping the housing market recover.

Fannie Mae is making changes again to their policy about multiple mortgages to the same borrower. Before the housing boom, borrowers could have 10 (ten) financed properties which they held individual or joint ownership interest and the mortgage was delivered and backed by Fannie Mae.   In 2008 this was changed to 4 (four) financed properties.  The new modifications will allow investors and second home borrowers to own five to ten financed properties if they meet certain eligibility and underwriting and delivery requirements.

Underwriting guidelines for the borrower:
1. No history of bankruptcy or foreclosure within the last seven years.
2. No delinquencies (30-day or greater) within the last 12 months on any mortgage loans.
3. Rental income on the subject investment property must be fully documented.
4. Rental income from other properties owned must be supported by two years’ federal income tax returns.
5. Complete and sign Form 4506  Request for Copy of Tax Return or 4506-T Request for Transcript of Tax Return.  This allows the lender permission to request copies of federal income tax returns directly from the IRS.   The lender then must validate the accuracy of those tax returns provided by the borrower prior to the loan closing.
6. Reserves on hand varies depending on whether the subject property is a second home or investment property, and on the number of other financed properties the borrower currently
a. When the borrower will own one to four financed properties (including the subject property) the reserve requirements are:
 Two months of reserves on the subject property if it is a second home,
 Six months of reserves on the subject property if it is an investment property, and
 Two months of reserves on each other financed second home or investment property.
b. When the borrower will own five to ten financed properties (including the subject property) the reserve requirements are:
 Two months of reserves on the subject property if it is a second home,
 Six months of reserves on the subject property if it is an investment property, and
 Six months of reserves on each other financed second home or investment properties

Reserves are those liquid or near liquid assets that are available to a borrower after the mortgage loan closes. Reserves are most often measured by the number of months of principal, interest, taxes, and insurance (PITI) that a borrower could pay using his or her financial assets.
Fannie Mae is expanding the definition of reserves to include all components of the monthly housing expense (PITIA), including:
• principal and interest,
• hazard, flood, and mortgage insurance premiums (as applicable),
• real estate taxes,
• ground rent,
• special assessments,
• any owners’ association dues (excluding any utility charges that apply to the individual
unit),
• any monthly cooperative corporation fee (less the pro rata share of the master utility charges
for servicing individual units that is attributable to the borrower’s unit), and
• any subordinate financing payments on mortgages secured by the subject property.