Tuesday, November 24, 2009

Home Prices in 20 U.S. Cities Rise for Fourth Month

Nov. 24 (Bloomberg) -- Home prices in 20 U.S. cities rose for a fourth straight month in September, pointing to improvement in real estate that’s helping the economy emerge from recession.

The S&P/Case-Shiller home-price index increased 0.27 percent from the prior month on a seasonally adjusted basis, after a 1.13 percent rise in August, the group said today in New York. The gaugefell 9.36 percent from September 2008, more than forecast, yet the smallest year-over-year decline since the end of 2007.

Rising home sales, aided by government programs and a decline in mortgage rates this year, have helped stem the slump in property values that precipitated the worst recession since the 1930s. Home buying and consumer spending may still be hampered by higher unemployment, which may prompt more foreclosures.

“The reduction of inventories we have seen has helped stabilize prices,” saidMichael Gregory, a senior economist at BMO Capital Markets in Toronto. “The reason you have to be a little more nervous or cautious is because some of the demand we’re seeing for homes was from a push to get the transactions to close in anticipation of the tax credit expiring.”

Stocks declined as a separate report on third-quarter gross domestic product from the Commerce Department showed consumer spending during the three months was weaker than first estimated. The Standard & Poor’s 500 Indexfell 0.2 percent to 1,103.70 at 10:44 a.m. in New York.

Economists’ Forecasts

Economists forecast the 20-city home-price index would decline 9.1 percent from September 2008, after a previously reported 11.32 percent drop in the 12 months ended in August, according to the median forecast of 30 economists in a Bloomberg News survey. Estimates ranged from decreases of 8.3 percent to 10.3 percent. Year-over-year records began in 2001.

The Federal Housing Finance Agency reported today that its purchase-only home price index was unchanged in September after a 0.5 percent drop in August. In the third quarter, home prices rose 0.2 percent from the previous three months, the agency’s figures showed.

The U.S. economy grew at a 2.8 percent annual rate in the third quarter, less than the government reported last month, reflecting a smaller gain inconsumer spending and a bigger trade deficit. Americans’ spending, which accounts for about 70 percent of the economy, rose at a 2.9 percent rate, compared with a previously reported 3.4 percent pace.

Corporate Profits

Corporate profits climbed by the most in five years, the Commerce Department in Washington also reported.

Nineteen of the 20 cities in the S&P/Case-Shiller index showed a smaller year-over-year decline in home prices than in August.

Compared with the prior month, nine of the 20 areas covered showed an increase while 10 had a decline. The biggest month-to- month gains were in Detroit and Minneapolis, where prices increased 1.8 percent.

Existing home sales in October rose to the highest level in more than two years, National Association of Realtors data showed yesterday. The median sales price decreased 7.1 percent from a year earlier, the smallest decline in more than a year.

Housing has been among the industries leading to stabilization in the U.S. economy. To ensure the recovery in housing continues, President Barack Obama and Congress this month extended a tax credit of as much as $8,000 for first-time homebuyers until April 30, from Nov. 30. They also expanded it to include some current owners.

Purchase Applications

Concern about the looming expiration of the credit earlier this month weighed on builder sentiment and may have been the reason the Mortgage Bankers Association’s purchase applications index fell to a 12-year low in the week ended Nov. 13. The bankers group is scheduled to release last week’s applications report tomorrow.

While the erosion of house prices is starting to end, it will take “a considerable amount of time” for the housing market to recover fully, Federal Reserve Bank of Cleveland President Sandra Pianalto said in a speech Nov. 17.

“Though we have seen some signs that the worst may be over, the housing industry is not out of the woods yet,” Pianalto said at a housing conference sponsored by the Ohio Housing Finance Agency and Ohio Capital Corporation for Housing. “Nor is the broader economy.”

More Foreclosures

Two risks to stabilization in housing are rising unemployment and foreclosures. Foreclosures on prime mortgages and home loans insured by the Federal Housing Administration rose to 30-year highs in the third quarter, the Mortgage Bankers Association said Nov. 19.

Almost 23 percent of U.S. homeowners in the third quarter owed more on their mortgages than their properties are worth, according to First American Core Logic, a real-estate information company based in Santa Ana, California.

The unemployment rate rose to a 26-year high of 10.2 percent in October, according to the Labor Department. More joblessness may lead to more mortgage defaults, bringing more foreclosed properties onto the market and pushing down prices. Higher unemployment will also limit demand.

D.R. Horton Inc., the second-largest U.S. homebuilder, on Nov. 20 reported a fourth-quarter loss that exceeded analysts’ forecasts and said the housing outlook remains difficult.

“The thing that drives our business the most is job creation,” Chief Executive Officer Donald Tomnitz said on an earnings call for analysts. “If we look at the macroeconomic environment, it’s not good for us.”

Karl Case, an economist professor at Wellesley College, and Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, created the home-price index based on research from the 1980s.

Source: Bloomberg.net by Courtney Schlisserman

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Thursday, November 5, 2009

SENATE PASSES DODD LEGISLATION TO EXTEND HOMEBUYER’S TAX CREDIT

Dodd: A “Double Victory” for Connecticut Workers and Middle Class Families

WASHINGTON, DC – Senator Chris Dodd's legislation to extend the homebuyer’s tax credit and expand it to more middle class families passed the Senate tonight as part of a bill that will also extend unemployment insurance. Dodd was an original co-sponsor of the bill, which will provide 14 additional weeks of jobless benefits for Connecticut workers.

“This is a double victory for families in Connecticut,” said Dodd. “Extending unemployment insurance benefits will help Connecticut families make ends meet in a tough economy. And thousands more middle class Connecticut residents may now be eligible to take advantage of the successful homebuyer’s tax credit. By helping unemployed workers keep from falling further behind, and helping middle class families get ahead, we’re taking positive steps to get our economy back on track.”

Dodd was joined by Senator Johnny Isakson (R-GA) in support of extending the homebuyer’s tax credit. The provision also expands it to cover people looking to buy a new home after having owned and lived in a home for more than five years. More than 70 percent of existing homeowners will now be eligible to take advantage of this program and use the credit to buy a new home.

The House version of the bill provided a 13-week extension in unemployment benefits for workers in states where the three-month unemployment average was above 8.5 percent. Dodd co-authored the Senate version, which provides a 14-week extension for workers in all states, including Connecticut, and an additional six weeks for workers in states where the three-month unemployment average is at or above 8.5 percent. Connecticut's three-month average is 8.1 percent.

Summary of Dodd’s Homebuyer’s Tax Credit Provision:

· Extends the $8,000 first time Homebuyers Tax Credit and creates a new $6,500 tax credit for qualifying “move-up buyers” purchasing a home before April 30, 2010.

· Qualifying “move-up” buyers include homebuyers who already own a home that they have used as a principal residence for 5 years or more.

· Homebuyers with binding contracts as of April 30th will also qualify for the credit so long as they complete the transaction within 60 days.

· Available to homebuyers with incomes of up to $125,000 for a single return or $225,000 for a joint return.

· Available for homes which cost less than $800,000.

· Provides authority to the IRS to do greater oversight while processing the return and requires that the taxpayer claiming the credit be 18 or older.

· Members of the military, military intelligence, and foreign service who are on qualified extended official duty are not subject to the recapture fee and individuals who have been deployed overseas for 90 days or more in 2008 or 2009 can claim the credit through April 30, 2011.

Source: Charles A Ferraro, President – William Raveis Mortgage LLC

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Wednesday, November 4, 2009

Fed Sees No Need to Raise Rates Soon

WASHINGTON — The Federal Reserve signaled on Wednesday that it was not close to raising interest rates, saying the economy remained weak even though the recession appeared to be over.

In a statement after a two-day policy meeting, the central bank said it would keep its benchmark interest rate at virtually zero, repeating its long-standing mantra that economic conditions were likely to warrant “exceptionally low” rates for “an extended period.”

For practical purposes, analysts said, that means policy makers are still at least six months away from tightening monetary policy.

It was unclear whether Fed policymakers even discussed modifying their language on interest rates, which would be a first step toward a shift in policy. Some officials have worried that even discussing a change in language, which would be disclosed when minutes of the meeting are published two weeks from now, would send the premature signal that higher rates were imminent.

“Economic activity has continued to pick up,” the central bank said, barely acknowledging the jump in economic growth that the government reported last week. As it had said after its meeting in September, the central bank said consumer spending remained constrained by continuing job losses, sluggish growth, reduced wealth and tight credit.

Predicting that economic growth will “remain weak for a time,” the Federal Reserve said that inflation would remain “subdued.”

Over all, the Fed’s statement was on the dour side, no more upbeat than the one it issued after its policy meeting in late September.

The government estimated last week that the United States economy grew at an annual pace of 3.5 percent in the third quarter, its first quarterly expansion in a year.

But the Fed chairman, Ben S. Bernanke, has repeatedly warned that the recovery is fragile, that growth will be sluggish and that unemployment will remain very high, above 9 percent, until some time in 2011.

Within the central banks, officials have begun debating when they should start signaling an eventual shift toward tighter policy. Though a few of the Fed’s more hawkish policy makers have rumbled in public about the need to head off future inflation, Mr. Bernanke and other officials have made it clear that it was still too early to hint about changes.

“The one consistent theme with all the Fed speakers is that they’re not going to raise rates any time soon,” said Drew Matus, an economist at Bank of America-Merrill Lynch. “That is the one consistent theme that gets hammered home time and again.”

Fed officials face competing challenges as they try to get monetary policy back to normal over the next several years, and they need to make a judgment about timing. Tightening too early could send the economy back into a downturn, as happened during the late 1930s; waiting too long would set the stage for inflation.

In their statement on Wednesday, Fed officials made it clear they still saw little risk of higher inflation, noting that “substantial resource slack” — a euphemism for high unemployment and unused factory capacity — would keep inflation, and expectations of inflation, “subdued.”

The Fed’s preferred measure of inflation, which excludes prices of food and energy, has climbed by less than 1.5 percent over the past year — well within Mr. Bernanke’s unofficial comfort range of 1 to 2 percent.

The overnight Federal funds rate, the interest rate that banks charge for lending their reserves to each other, has been held between zero and 0.25 percent since last December.

In addition, the Fed has tried to pump up financial markets and the economy by more than doubling the size of its balance sheet — creating more than $1 trillion in new money out of thin air for its emergency credit programs — and to drive down long-term interest rates by purchasing Treasury bonds and mortgage-backed securities.

Fed officials have already cut back some of their emergency loan programs and stopped buying Treasury bonds, and they have said they will stop buying mortgage securities by next March.

To tighten monetary policy, Fed officials will have to both raise interest rates and start reducing the size of its balance sheet by selling all the securities it has acquired.

Source: By EDMUND L. ANDREWS - NYTimes

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