From the Record:
Decline in home prices slows
Home prices are still falling, but not as quickly, the Standard & Poor’s Case-Shiller home price index said Tuesday. Prices nationwide were down 13.3 percent in July from July 2008, while prices in the New York metropolitan area, which includes North Jersey, were down 10.3 percent.
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“We believe that once the tax credit expires, prices will resume their downward trend, falling another 5 percent from current levels, as rising foreclosures and a glut of unsold homes come back to center stage,” said Patrick Newport, an economist with IHS Global Insights in Lexington, Mass.
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“There are considerable impediments to any robust rebound in [housing] prices,” he said. “Prices are not getting back to where they were at their peak anytime soon.”
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In Bergen County, according to separate data from the RealSource Association of Realtors, the median price of a single-family home declined 13.4 percent from July 2008 to July 2009, to $447,500. The number of home sales rose from 503 in July 2008 to 547 in July 2009.
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In Passaic County, according to data from the Garden State Multiple Listing Service, the average home price in July fell to $349,000, 10.5 percent below a year earlier. The number of home sales was stable year over year, with 267 condos and single-family homes sold, an uptick from the 262 sold in July 2008.
From CNBC:
Home Price Gains Are Seasonal and Federally Fueled
I’m not a bear, I’m a realist. Let’s get that out first.
Today’s headlines from the folks at S&P/Case Shiller are not untrue, they’re just not the whole picture. Yes, home prices, in most areas (and by no means everywhere) are no longer in freefall. Some local markets have hit bottom, others are falling less precipitously, and still others are showing some strength.
But if we’re going to be forced to spew these national numbers, that the markets seem to crave (for some reason that I generally and specifically don’t understand), then we have to take them with not a grain, but a shaker of salt.
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Because whether we’re in a housing boom or bust, home prices always rise in the spring/summer months, due to the type of buyer largely in the market.
Families, i.e. move-up home buyers, looking to close and move over the summer so as not to disrupt school, dominate the market in the spring and summer.
They are, for the most part, buying larger, more expensive homes, and they therefore skew the median home price in their market higher.
In the fall and winter, you tend to see more first-time buyers as well as more single buyers who want smaller, lower-priced homes.
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So, the question going into the fall, as that tax credit nears expiration Nov. 30th, is can this price trend continue? I doubt it. The other issue of course is foreclosures, which fell in June and July due to a process delay by banks, as they ramped up the government’s loan modification program. There were also some state moratoria in effect as well.
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There is now an estimate out there that rising foreclosures will add 7 million homes to the for-sale inventory over the next two years. Inventories of new and existing construction have been falling, but that could U-turn this fall, as foreclosures rise, banks let go of the homes that didn’t qualify for modifications, and job losses push good quality borrowers into default. Pile that on top of seasonality, and I’d watch for home prices to dip again as we get readings on the fall months.
From Bloomberg:
U.S. Economy: Home Prices Increase by Most Since 2005
Home values in 20 U.S. cities climbed in July by the most in almost four years, helping stem the record plunge in household wealth that’s depressed spending.
The S&P/Case-Shiller home-price index rose 1.2 percent in July from the prior month, the biggest gain since October 2005, the group said today in New York.
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From a year earlier, the S&P/Case Shiller index was down 13.3 percent, less than economists anticipated and the smallest decrease in 17 months.
The measure was forecast to fall 14.2 percent, according to the median projection of 36 economists surveyed by Bloomberg News. Estimates ranged from declines of 12.5 percent to 15 percent. It was down 15.4 percent in the 12 months ended in June.
Compared with the prior month, 17 of the 20 cities covered showed an increase, led by a 3.1 percent jump in Minneapolis and a 2.9 percent increase in San Francisco. Las Vegas suffered the biggest one-month decrease at 1.9 percent.
From the Wall Street Journal:
Would-Be Hovnanian Condo Buyer Lost Bid, But Saved Cash
David Bartz doesn’t regret the one that got away.
About a year ago, Bartz wanted to buy a $1.4-million unit at 77 Hudson, a 48-story condo project now being finished in Jersey City, N.J., across the river from New York City. But another buyer, he says, snapped it up just days before he was set to sign a contract and plunk down his 10% deposit.
The project is one of many local high-end condo developments - gleaming with granite, concierges and rooftop decks - launched during the housing boom, when easy financing fueled what seemed to be insatiable consumer demand. Bidding wars weren’t uncommon between buyers.
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While he was disappointed someone beat him to the dotted line, that person probably did him a favor. The sizzling real-estate market cooled after last fall’s collapse of Lehman Brothers. With New York transformed into a buyers’ market, buyers are trying to get out of those pricey contracts they inked during the bubble, fearful of closing on a unit already worth less than what they paid. Even committed buyers are having trouble lining up financing, and condos across New York and New Jersey are sitting empty.
Hovnanian, the nation’s sixth-largest builder by annual closings, won’t say how many of its units are sold or under contract.
Bartz, who decided to stay in the townhouse he’s now owned for five years, says his desired condo’s price would be “far away” from $1.4 million today.
“I was taken in by the emotion of the project and the views,” he says. “It would have been a tough financial hit.”
From Bloomberg:
Fed Says New York, New Jersey May Lag National Recovery Trend
New York Federal Reserve Bank economists said that while the worst of the recession in New York and New Jersey may be over, a recovery in the region’s economy will probably lag the national trend.
“A downsizing of the area’s critical financial sector could pose a major risk to the economic outlook going forward, particularly for New York City,” the economists said in a paper posted on the New York Fed’s Web site.
Consolidation and restructuring among financial firms, along with possible regulatory changes that could limit the size of firms, their business lines and pay structure, “have the potential to dramatically reshape this sector” and slow a recovery, the district bank economists said.
The bank’s regional studies group constructed a coincident economic indicator comprising payrolls, unemployment, earnings and hours worked to calculate the impact of the recession on New York City, New York state and New Jersey.
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Once the regional economy began to decline, the near collapse of the financial system had a “severe” effect, the economists found. In New York City, the economy contracted 4.9 percent in the twelve months to June. In New York state, the contraction was 5.7 percent, and in New Jersey, 5 percent.
Financial services account for about 12 percent of New York City’s employment, and as much as 30 percent of total wages, the bank said. Each Wall Street job is estimated to generate two additional jobs in the city supporting the industry, including advertising, restaurants or real estate.
The economists count a total of 42,000 financial jobs lost in New York City from early 2008 to July 2009. New Jersey has lost 25,000 jobs in the financial industry since September 2005.
“Job losses in the city’s securities industry have a disproportionate impact on the region’s total activity,” the economists’ report said.
From the Vineland Daily Journal:
Property taxes are stealing our way of life
New Jersey’s property tax system is broken. But you already know that.
What is not well known is that property taxes promote disparities among economic and racial groups. Those who miss tax payments are almost instantly pushed deep into debt.
The system punishes the poor and middle class, yet offers corporations and the super-rich vast tax break opportunities.
It is an archaic tax that preserves New Jersey’s fragmented system of government — 566 municipalities, 605 school districts, and more than 400 other local taxing authorities. That’s the most per square mile of any state.
It is a tax driven by runaway local government spending, political paralysis at all levels by both parties and patchwork budget remedies.
And it is a tax that ultimately hurts you.
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Although New Jersey governors and legislators have talked about reform for the past half-century, little has been done to correct the vast inequities of the property tax system.
With the deepest recession in 70 years forcing thousands of people out of jobs, and hammering countless others, property taxes have become the No. 1 issue voters want addressed by the gubernatorial candidates this election year, according to Monmouth University/ Gannett New Jersey polls.
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New Jersey’s tax system is dysfunctional because it deters job growth and long-term economic planning, said Joseph Henchman, director of state programs for the Washington-based Tax Foundation, which has studied state tax policies since 1937.
“There is no bright spot in New Jersey,” he said. “Most Americans gripe about property taxes, but New Jersey residents genuinely have a broken property tax system.”
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There is no end in sight for the nation’s highest average annual property tax, which was $7,045 per household last year.
At the current pace, the average homeowner will see a $9,200 tax bill by 2015, $10,000 by 2017.
This is happening in a state in which the economy is stalled and the median household income dropped 10 percent — about $7,200 — from 2006 to 2008.
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But the trouble for many homeowners is that the property tax has no heart.
It is a tax based on what your town says your property is worth, not your income.
If you lose your job, if you fall ill, if your stock market nest egg evaporates or if some other financial calamity befalls you, you at least will get a break from the income tax because you’ll drop into a lower income bracket.
There is no such break with property taxes. A $7,000 bill is still due regardless of your income or financial straits. Miss a couple tax payments and you could find your dream home on the market in a tax-lien sale.
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“What’s happening in this recession … is people are very hard pressed to pay the highest property taxes in the nation,” said Joseph J. Seneca, a professor at Rutgers University’s Edward J. Bloustein School of Planning and Public Policy, who has studied New Jersey’s economy for decades. “You have understandable frustration. … As a percentage of income, the burden gets higher and higher.”
From the WSJ:
New Jersey Moves Up The Property Tax Charts
New Jersey, infamous for having some of the highest property taxes in the U.S., is only getting more so. The state has inched its way up on a list of places with steep taxes as a slice of home value.
That move, reported in new census data, reflects that property taxes overall remain steepest in the Northeast and a few other pockets of the U.S.
Gerald Prante, an economist at The Tax Foundation in Washington who has written about the data based on the 2008 American Community Survey, says New Jersey is second from the top on the list of states with high median real estate taxes divided by median home value - up from fifth on that list in 2007. (Texas remains at the top).
The change seems largely due to New Jersey home values dropping, according to Prante.
As if that isn’t distinction enough, New Jersey continues as the overall property tax champ: It again tops the list of states with highest property tax by dollar amount. Right behind it are Connecticut, New Hampshire, New York and Rhode Island.
On the other end of the spectrum are Tennessee, New Mexico, Kentucky and Oklahoma, which have some of the lowest taxes.
In New Jersey, median real estate taxes paid in 2008 were $6,320; in Connecticut, $4,603; in New Hampshire, $4,501; and New York, $3,622, according to the data.
Strikingly lower are the numbers in states at the bottom of the list: In Louisiana, for example, which ranked 50th, median taxes were $188. In Tennessee, the figure was $924; in New Mexico, $843; in Kentucky, $823; and Oklahoma, $762.
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In the Northeast, high property tax states also have high per capita income. In fact, the highest property tax bills are usually found where incomes are highest, according to Prante.
That is borne out by new data on counties where taxes are high. New York’s Westchester County topped the list, with a median of $8,890, followed by Nassau, also in New York, with $8,628, and Hunterdon, in New Jersey, with $8,492.
From MarketWatch:
Existing-home sales drop 2.7% in August to 5.1 million pace
Resales of U.S. homes dropped 2.7% in August to a seasonally adjusted annual rate of 5.1 million, the first decline in five months, prompting the National Association of Realtors to again plead for more taxpayer subsidies for their business.
The August existing-home sales figures represent “a mild retreat from a very strong gain in July,” when sales rose 7.2%, said Lawrence Yun, chief economist for the real estate trade group, which reported the August sales figures on Thursday. The August sales pace was the second highest in 23 months, he said.
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The median price of a home sold in August was $177,700, 12.5% lower than in August 2008. That’s the smallest year-over-year decline in prices in 10 months.
Sales fell in three of four regions last month, with only the West showing a small increase — 2.7%.
Sales of single-family homes fell 2.8% in August to a 4.48 million rate, up 2.5% compared with a year earlier. Sales of condos fell 1.6% in August and were up 10.1% compared with August 2008.
Sales were concentrated in the low end of the market. About a fifth of sales were for less than $100,000, and 70% were for less than $250,000.
From the WSJ:
Rebound in Home Sales Hits a Bump
U.S. existing-home sales slipped in August, as the housing market stumbled on its path to recovery.
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Sales of existing homes declined 2.7% last month to a seasonally adjusted annual rate of 5.10 million units, after four straight months of increases, the National Association of Realtors said Thursday. That represented a swift change from July, when sales rose at the fastest rate in 10 years to a pace of 5.24 million.
From the NYT:
Northeast August Home Sales Post Monthly Decline
Home resales in the Northeast dropped off in August, reversing four straight months of gains and echoing the national trend.
The nine-state region registered 92,000 home resales last month, down more than 12 percent from July, but nearly 6 percent higher than a year ago, the National Association of Realtors said Thursday.
The median price tumbled almost 11 percent from the year before to $241,100.
Nationally, sales of existing homes fell from July to August but were up 2 percent from the previous year, without adjusting for seasonal factors, while the median sales price slid almost 13 percent to $177,700.
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Eight of nine major Northeast cities tracked in the Associated Press-Re/Max Monthly Housing Report showed annual decreases in home sales in August, while all registered price declines. The report analyzed sales transactions in the metropolitan statistical areas recorded by all real estate agents, regardless of company affiliation.
Estimated NJ foreclosures: 60,000
Estimated helped by the program: 16,000
Actual helped by the program: 854 (5% of estimate)
Cost: Priceless
No, really: $12,500,000 (~$15,000 per case)
Just for reference, according to RealtyTrac, there were 6,043 Notices of Delinquency, 1,396 Notices of Sheriff Sale and 877 Sheriff Sales in August.
From the NJ Office of the Attorney General:
Statewide Mortgage Foreclosure Mediation Program Launched
Initiative aimed at helping thousands of homeowners facing foreclosure
A new state-supported mortgage foreclosure mediation program is in place to help the thousands of New Jersey homeowners facing foreclosure throughout the state, Gov. Jon S. Corzine, Chief Justice Stuart Rabner and Attorney General Anne Milgram announced today.
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Gov. Corzine signed legislation in December supporting the program with $12.5 million in state funds.
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Planners anticipate as many as 16,600 homeowners will participate in the foreclosure mediation program this year. It is estimated that as many as 60,000 homeowners may go through foreclosure this year.
From the Record:
NJ foreclosure mediation program criticized
A state initiative to help troubled homeowners has aided only a small percentage of the estimated 60,000 homeowners who face foreclosure this year, a study from the National Consumer Law Center said Wednesday.
The study looked at foreclosure mediation programs in 14 states, including New Jersey. The study said mediations were completed in 854 New Jersey cases from mid-January, when the program started, to the end of June.
The report said that New Jersey provides “considerable financial support for foreclosure mediations” – paying for housing counselors, attorneys and outreach.
David Wald, a spokesman for the state attorney general, defended the mediation effort.
“We think we have a pretty effective program,” he said, adding that it has helped more than 500 homeowners keep their homes so far this year.
From Bloomberg:
New Jersey, New York Taxes Are Worst for Business, Study Says
New Jersey and New York are the worst of the 50 U.S. states for business because of their tax burdens, a study by the Tax Foundation says.
The two ranked 50th and 49th respectively in the analysis of state personal, corporate, sales, property and unemployment- insurance taxes in the year that ended June 30. The study, released today by the Washington, D.C.-based institute, said South Dakota and Wyoming, which have no corporate or individual income taxes, have the best business climates.
As tax receipts fell in the economic recession, U.S. states faced a combined $165 billion shortage in revenue for the fiscal year that started for most on July 1. New Jersey and New York boosted personal tax rates to help close their gaps.
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New Jersey’s corporate income tax is an impediment to business because of its low threshold — $100,000 — and because the state doesn’t index corporate brackets for inflation, according to the study.
New Jersey was also among states that enacted “disproportionately high” tax rates on personal income, the study found. Maryland was first to move in that direction in 2007 with a new top rate of 6.35 percent on couples with incomes over $1 million, the study reported.
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Property taxes also pulled down the rankings of New Jersey and New York. Residents of New York’s Westchester and Nassau counties, outside New York City, paid the highest property tax bills in 2008, a separate study by the Heritage Foundation, released today, showed. New Jersey’s Hunterdon and Bergen counties were next.
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Westchester had the biggest median property tax bill on the U.S. list, at $8,890, the study said. Hunterdon residents paid $8,492.
Among the states, New Jersey ranked first with a $6,320 median property tax bill, said the study, based on U.S. Census Bureau data. States with the lowest median real-estate taxes were Louisiana, $188; Alabama, $383, and West Virginia, $457.
“States with the best tax systems will be the most competitive in attracting new businesses,” Padgitt said in his report. “Companies will locate where they have the greatest competitive advantage.”
Some Seneca and Hughes (and Mantell) from NJBIZ:
Economic Heartbeat: Revised jobs data forecast a gloomy future for N.J.
This may be the case for some time to come if the United States repeats the employment change pattern of the aftermath of the last recession — a period of job-loss economic growth. During that official recession, which lasted eight months (March to November 2001), the nation lost approximately 2 million private-sector jobs, but an additional 1.3 million private-sector jobs were lost during the following 21 months. These losses occurred even though GDP showed sustained growth. This precedent-setting pattern, which New Jersey closely followed, suggests a turnaround in employment may not occur until sometime in 2010.
It is in these contexts, both short-term and historic, that New Jersey’s August payroll employment report from the employer survey should be viewed. There is good news and bad news. The good news is that the state added 2,900 private-sector jobs in August, despite national economic headwinds. The bad news is that the previously reported gain of 13,000 private-sector jobs in July was revised sharply downward to a gain of 5,600 jobs — a 57 percent reduction. At the same time, an equally significant downward revision to total employment in July transformed a previously reported monthly gain of 5,900 jobs to an actual loss of 500 jobs. We warned in this column last month that the July numbers seemed too good to be true.
During August, New Jersey gained 800 total jobs, with most individual sectors showing just small changes. The most significant were the loss of 2,400 manufacturing jobs, nearly erasing the unusual gain of 2,700 jobs recorded in July (revised), and the loss of 2,100 government jobs. Despite the overall positive employer-based payroll employment gain during August, the household survey painted quite a different picture of the state’s labor market. The sharp jump in the unemployment rate to 9.7 percent in August, from 9.3 percent in July, affirms that New Jersey households continue to be hurt by weak labor market conditions, with the household survey indicating a decline of 34,600 jobs.
On a year-to-date basis, the state’s unemployment rate has risen from 6.8 percent in December 2008 to 9.7 percent in August, an increase of 2.9 percentage points. This increase exceeds the national rate of increase over the same period of 2.5 percentage points (from 7.2 percent to 9.7 percent).
From Reuters via CNBC:
Mortgage Delinquencies Rise Alongside Unemployment
High U.S. unemployment keeps pushing up the rate of mortgage delinquencies, which could in turn drive personal bankruptcies and home foreclosures, monthly data from the Equifax credit bureau showed on Monday.
Among U.S. homeowners with mortgages, a record 7.58 percent were at least 30 days late on payments in August, up from 7.32 percent in July, according to the data obtained exclusively by Reuters.
August marked the fourth consecutive monthly increase in delinquencies, and the report showed an accelerating pace. By comparison, 4.89 percent of mortgages were 30 days past due in August 2008, while in August 2007, the rate was 3.44 percent, Equifax data showed.
The rate of subprime mortgage delinquencies now tops 41 percent, up from about 39 percent in each of the prior five months.
The results, which correlate with consumer bankruptcy filings, suggest U.S. homeowners remain under financial stress despite signs of improving sentiment and fundamentals in the U.S. housing market.
August bankruptcy filings were up 32 percent from a year earlier, compared with a 35 percent year-over-year increase in July.
From Bloomberg:
Housing Suffering Relapse Confronts Bernanke Credit Conundrum
The recovering housing market may be heading for a relapse as President Barack Obama and Federal Reserve Chairman Ben S. Bernanke consider ending support for the source of the global financial crisis.
The Obama administration is studying whether to let a first-time home buyers’ tax credit expire as scheduled at the end of November. Bernanke and his Fed colleagues may continue talking this week about how to wind down purchases of mortgage- backed securities, according to Peter Hooper, chief economist at Deutsche Bank Securities Inc. in New York. The two programs have helped stabilize real-estate demand, with new-house sales rising 9.6 percent in July from the prior month, the most since 2005.
Ending these efforts may stifle the housing rebound by depressing sales and pushing up both mortgage-backed bond yields and interest rates on home loans, even in the face of the record-low zero to 0.25 percent short-term rates the Fed has engineered, said economist Thomas Lawler. A weaker housing market would likely dampen the economic recovery and undercut shares of builders including Fort Worth, Texas-based D.R. Horton Inc. and Miami-based Lennar Corp., that have risen 40 percent this year, based on the Standard and Poor’s Supercomposite Homebuilding Index of 12 companies.
“Things could get ugly,” said Lawler, an independent consultant in Leesburg, Virginia, who spent 22 years at Fannie Mae, a Washington, D.C.-based government-controlled mortgage- finance company. “We could be facing a triple whammy at the end of the year: the expiration of the tax credit, the end of the Fed mortgage-buying program and rising foreclosures.”
From MarketWatch:
Moody’s bearish on housing recovery
Moody’s Investors Service threw cold water on optimistic projections of a V-shaped recovery in the battered U.S. housing market, predicting it could take more than 10 years to get back to boom-level prices.
“For many reasons, the rebound will be disproportionately small compared to the decline,” Moody’s said this week in its latest outlook on the residential market. “It will take more than a decade to completely recover from the 40% peak-to-trough decline in national home prices.”
The housing market is in the third year of the current downturn, one of the worst corrections in U.S. history as a result of the economic recession and the mortgage industry nearly grinding to a halt during the credit crunch.
“The bursting of the housing bubble precipitated a crisis in financial markets the likes of which have not been seen since the Great Depression and plummeted the nation into recession,” Moody’s said.
“The scars that this downturn will leave on the economy and the housing market will be long lasting and persist in nearly all facets of the housing industry, including the demand for homes, ownership patterns, homebuilding, and house price appreciation,” the analysts forecast.
“It will take more than a decade for many measures of housing activity to regain ground that has been lost as a result of the correction: The intense downturn will overcorrect for the excesses in the housing market generated by the boom years,” they added.
From New Jersey Newsroom:
N.J. jobless rate climbs to 9.7 percent, highest in 33 years
New Jersey unemployment climbed to a 33-year-high of 9.7 percent in August but preliminary estimates show that job growth continued for a second month after 17 months of job losses.
As the jobless rate increased from 9.3 percent, 2,900 people found private sector jobs but 2,100 others lost government and schools position, making the overall jobs gain 800.
The state’s unemployment rate of 9.7 percent now equals the national jobless rate.
According to preliminary estimates from the Labor Department’s monthly survey of employers, nonfarm wage and salary employment in the Garden State increased to a total of 3,930,500 in August.
“In August, New Jersey’s private sector employers continued to add workers to their payrolls,” said Labor Commissioner David j. Socolow. “It is encouraging that New Jersey continued to see a four-month trend of private sector employment stabilizing and moving in a positive direction. But the unemployment rate demonstrates that there is much more to do to put New Jersey back to work.”
From the Star Ledger:
N.J. unemployment jumps to 9.7 percent, matches U.S. rate
The unemployment rate in New Jersey jumped from 9.3 percent to 9.7 percent in August, matching the national figure, the state said today.
“That is significant because we’re now at the same level as the nation, and we’re just shy of double-digit unemployment,” said James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University. “There’s nothing positive. Most of the individual components are moving in the wrong direction.”
The state Department of Labor and Workforce Development said the total number of jobs rose by 800, though that number can be volatile. In the July report, the state said jobs rose by 5,600, but revised figures released today indicate the state actually lost 500 jobs in that month.
The private sector saw job growth of 2.9 percent in its second straight month of increases. Meanwhile, in the public sector — which is about a fifth of the size of the private sector — jobs fell by 2.1 percent.
From the NJ Department of Labor:
Private Sector Job Growth Continued in August Adding 2,900 Jobs; Unemployment Rate at 9.7 Percent, Continues to Match National Trend
August preliminary estimates showed that private sector employment in New Jersey continued an encouraging trend, as employers added 2,900 private sector jobs. Overall, employment rose by 800 jobs, as public sector employment declined by -2,100.
The state’s unemployment rate rose 0.4 percentage point in August to 9.7 percent, mirroring the national trend.
From the APP:
More jobs in N.J., but not enough
The monthly unemployment report showed the state added 2,900 private-sector jobs and lost 2,100 public sector jobs for a net gain of 800 jobs. It also showed the unemployment rate jumped from 9.3 percent in July to 9.7 percent in August, the highest rate since April 1977.
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One caution flag: The state revises the figures each month, which can turn a stellar report into a lousy one. In July, for example, the state initially reported that the economy added 5,900 jobs. On Wednesday, it revised the figure and said the state lost 500 jobs.
From the NY Times:
Fight Looms in Congress on Tax Break for Home Buyers
When Congress passed an $8,000 tax credit for first-time home buyers last winter, it was intended as a dose of shock therapy during a crisis. Now the question is becoming whether the housing market can function without it.
As many as 40 percent of all home buyers this year will qualify for the credit. It is on track to cost the government $15 billion, more than twice the amount that was projected when Congress passed the stimulus bill in February.
In the view of the real estate industry and some economists, all that money is well spent. They contend the credit is doing what it was meant to do, encouraging a recovery in the housing market that is gathering steam. Analysts say the credit is directly responsible for several hundred thousand home sales.
Skeptics argue that most of the money is going to people who would have bought a home anyway. And they contend that unless it is allowed to expire on schedule in late November, the tax credit is likely to become one more expensive government program that refuses to die.
The real estate industry, including the powerful 1.1 million-member National Association of Realtors, wants Congress to extend the credit at least through next summer. The group hopes to expand the program to $15,000 and to allow all buyers, not just those who have been out of the market for at least three years, to qualify. The price tag on that plan: $50 billion to $100 billion.
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Now the sponsor of the original Senate bill, Johnny Isakson, Republican of Georgia, is back with a new bill that would give a maximum $15,000 credit to any buyer who stays in a home for at least two years.
“The problem now is not first-time buyers, it’s the move-up market — the guy transferred from Chicago to Atlanta who can’t sell his house,” said Mr. Isakson, a former real estate agent.
Without a new and more generous credit, he warned, there would be a downward spiral of home sales and more foreclosures, provoking a second recession.
The real estate industry is lobbying heavily for the bill, but acknowledges that in an atmosphere that is less crisis-driven than last winter it will almost certainly have to settle for less.
From the WSJ:
No Easy Exit for Government as Housing Market’s Savior
After a year of extraordinary interventions in the economy, the federal government is starting to pare its support for the private sector. It doesn’t look that way to Peter Lansing, president of mortgage firm Universal Lending.
The Denver home lender sees every day how dependent the housing market has become on the government. At the height of the boom, just 20% of Universal’s mortgages were backed by the Federal Housing Administration, an arm of the government that guarantees loans to borrowers who can’t afford big down payments. Today, the FHA accounts for more than 80% of his business. For Mr. Lansing, this represents a new way of life — more government, more paperwork, but also a lot of sales that wouldn’t have happened otherwise.
“Over 29 years in business, we’ve always thought of ourselves as being in the free-enterprise system. Today I think of myself as a government contractor,” Mr. Lansing says. “My business strategy is to get more of my employees to embrace that idea. Plan B would be to sell pencils on the corner.”
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Over the past year, the government has intervened heavily at essentially every stage of the home-buying process. In fact, more than 80% of the new residential mortgage loans made this year benefited from some form of government support, according to the trade publication Inside Mortgage Finance.
To keep funds flowing to the housing market, the government bailed out Fannie Mae and Freddie Mac last year and now effectively owns the mortgage finance giants and their combined $5.4 trillion in loan portfolios. To keep mortgage rates low, the Federal Reserve is on track to purchase nearly $1.5 trillion in debt issued or guaranteed by the government’s various mortgage arms and another $300 billion in Treasurys, which set the benchmark for home lending.
And to boost sales, the government also is offering $8,000 tax credits to first-time home buyers.
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Yet the government’s efforts are the primary reason the housing market is functioning at all, economists and housing experts say, which makes an exit unlikely any time soon. Despite the signs of improvement, the housing market is still a shell of what it was during headier times. U.S. home prices are back around 2003 levels, having fallen by about one-third since their peak in the second quarter of 2006, according to Standard & Poor’s. Sales of distressed homes still account for about one-third of existing home sales, and prices continue to fall in some markets such as the Sun Belt states. In addition, relatively few “jumbo” loans are being made — those above the limits of what Fannie and Freddie will buy or guarantee.
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The government’s role in housing has a long pedigree. The 1930s gave birth to Fannie Mae and the FHA, which traditionally insured loans aimed at low-income borrowers. Freddie Mac was created in 1970. Since the housing crash, these players are in some spots the only game in town.
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That seems to have helped to put a floor under housing sooner than many officials expected. At the same time, it has created distortions in the market.
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If the Fed stops sooner than expected, it could jolt the mortgage market and short-circuit a housing recovery. Barclays’s Mr. Rajadhyaksha estimates that even if the Fed carries on as planned, mortgage rates will rise by half to three-quarters of a percentage point, simply because the Fed will cease to be as a big a presence in the market.
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Still, Ms. Gifford fears that the U.S. will pull back when the loans it’s backing start going bad. “I’m worried what the future could hold if we put all the eggs in one basket,” she said.