Mortgage Applications Are on the Rise

Mortgage applications, an early indicator of sales, rose last week in response to a drop in interest rates to a five-week low. For the week ending August 14, mortgage loan applications to finance the purchase of homes increased 3.9 percent, according to a weekly survey from the Mortgage Bankers Association. Compared to the same week in 2008, mortgage applications increased 25 percent. The drop in mortgage rates is credited with the increase.

Rates on a 30-year fixed-rate mortgages, rates averaged 5.15 percent, which is a decrease over the prior week's 5.38 percent. Average rates for 15-year fixed-rate mortgages were 4.52 percent, a decrease from 4.71 percent. Also, rates on one-year ARMs decreased to 6.66 percent, down from 6.71 percent.

Low mortgage rates, increased affordability, and the government's $8,000 tax credit for first-time home buyers may all help stabilize the U.S. housing market, analysts say. Sales of new homes gained 11 percent in June, the biggest jump in 8 years, and sales of existing homes rose 3.6 percent.

Housing Market Shows Signs of Bottoming Out

Housing prices rose between April and May, the first increase in three years, according to a 20-city home price index released today. Although prices have fallen by 32 percent since last peaking in 2006, the 0.5 percent increase in May was the fourth consecutive month that the decline slowed. The figures could be a sign of improvement in the worst housing market since the Great Depression. However, analysts caution that unemployment and foreclosures could increase again and a stable recovery is not expected until at least 2010. For a rebound to truly emerge, consumer confidence needs to rise and potential buyers need to have a sense that they shouldn't wait for prices to get any cheaper.

Moving On Up: Is There Such a Thing as Affordable Luxury?

If you have been apartment- or house-hunting in the past 6 months, you have probably seen ads promoting luxury living for bargain prices. Sure enough, prices are dropping for units in enormous high-rises with swimming pools, roof decks, onsite gyms, and common areas that would be great for having all your friends over, but can you really afford the upgrade? Before you get caught up in a luxury fantasy, figure out how much you can really afford to spend. Remember, you'll need to factor in expenses like paying utilities, buying food, and furnishing your new place.

Most experts recommend planning to pay 25-30% of your take home pay as rent or mortgage, though in some higher cost areas that could run to 35 or 40%. You must take all of your monthly expenses (including credit cards, transportation costs, and student loan payments) into account.
Set a budget and stick to it when looking for your new home. Knowing how much you can realistically spend will help you weed out places you can't afford, no matter how glamorous they seem.