We return to the subject of financing from our previous post about how mortage rates are established towards what type of financing are buyers actually using. After the turbulence of the last half of last year in the credit markets, with interest rate spreads leaping skywards, significant changes have occured in the mortgage markets. Mortgages are still available at some very low rates for creditworthy buyers. FHA has recently become a dominant mortgage type. FHA loans are not loans from the government but are made by private lenders with the government insuring against default. While FHA loans are not for everyone, one benefit for some folks is the small downpayment. These are not for people who require a large mortgage but at the current price points of a lot of the Valley's housing, this is a viable option for many (See chart) . For that same reason and because of the increase in professional investors entering the market, cash purchases have been stronger in the fourth quarter than the same period in 2007. It would not be surprising to see cash grow proportionately more as prices decline, especially on properties that have good tenant histories as rentals. On a further note, allegedly, the House and the Senate have finished the last pieces of the stimulus legislation and it should be on the Presidents desk next week. One of the housing related issues in the package was a change in the home buyer tax credit (supposedly $8,000 for new home buyers). There was also a discussion of extending Freddie Mac and Fannie Mae loan limits in high-cost markets. So we'll see what happens to that by next week. With affordability at the highest point in years and increasing, it looks like the price component of the market is solving a lot of the problems by returning to long-term fundamentals and people are responding, sales of single family homes in January were up 120% from January of 2008 and 154% for condominiums.

Source: Mlxchange, Coldwell Banker Premier Realty.