Californians have a brief window of opportunity to receive up to $18,000 in combined federal and state homebuyer tax credits. To take advantage of both tax credits, a first-time homebuyer must enter into a purchase contract for a principal residence before May 1, 2010, and close escrow between May 1, 2010 and June 30, 2010, inclusive. Buyers who are not first-time homebuyers may use the same timeframes to receive up to $16,500 in combined tax credits if they are long-time residents of their existing homes as permitted under federal law, and they purchase properties that have never been previously occupied as provided under California law.
Under the federal law slated to soon expire, a first-time homebuyer may receive up to $8,000 in tax credits, and a long-time resident may receive up to $6,500, for certain purchase contracts entered into by April 30, 2010 that close escrow by June 30, 2010. Additionally, under a newly enacted California law, a homebuyer may receive up to $10,000 in tax credits as a first-time homebuyer or buyer of a property that has never been occupied. The new California law applies to certain purchases that close escrow on or after May 1, 2010 (see Cal. Rev. & Tax Code section 17059.1(a)(4)). California law generally allows buyers of never-occupied properties to reserve their credits before closing escrow, but buyers seeking to combine the federal and state tax credits will not be able to satisfy the timing requirements for such reservations (see Cal. Rev. & Tax Code section 17059.1(c)(1)(A)). Other terms and restrictions apply to both tax credits.
Source: California Association of Realtors®
Wednesday, March 31, 2010
Thursday, March 25, 2010
C.A.R. Reports Home Prices Rise, Sales Decline
The median home price of an existing single family home in California rose 14.1 percent to $279,840 in February compared with February 2009 and home sales decreased 11.7 percent during the same period C.A.R. recently reported.
“The federal tax credit for home buyers, low mortgage rates, and affordability at record levels have contributed to an unprecedented opportunity for many first-timers in the market for a home of their own,” said C.A.R. President Steve Goddard. “Although sales have declined from the unusually strong levels we experienced a year ago, they’ve remained above the 500,000-unit threshold for 18 consecutive months, while home prices continue to firm in the regions of the state most attractive to buyers taking advantage of today’s favorable market conditions.”
Source: California Association of Realtors®
“The federal tax credit for home buyers, low mortgage rates, and affordability at record levels have contributed to an unprecedented opportunity for many first-timers in the market for a home of their own,” said C.A.R. President Steve Goddard. “Although sales have declined from the unusually strong levels we experienced a year ago, they’ve remained above the 500,000-unit threshold for 18 consecutive months, while home prices continue to firm in the regions of the state most attractive to buyers taking advantage of today’s favorable market conditions.”
Source: California Association of Realtors®
Governor Expected To Sign State Home Buyer Tax Credit Bill
The California legislature has passed AB 183, providing $200 million for home buyer tax credits. The Governor is expected to sign the bill into law this week. C.A.R. supported this important legislation since its inception. Part of a package of four bills passed at the request of the Governor, AB 183 is designed to help stimulate the economy and create jobs. It allocates $100 million for qualified first-time home buyers who purchase existing homes and $100 million for purchasers of new, or previously unoccupied, homes.
The eligible taxpayer who closes escrow on a qualified principal residence between May 1, 2010 and December, 31, 2010, or who closes escrow on a qualified principal residence on and after December 31, 2010 and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010, will be able to take the allowed tax credit.
This credit is equal to the lesser of 5 percent of the purchase price or $10,000, taken in equal installments over three consecutive years. Under AB 183 purchasers will be required to live in the home as their principal residence for at least two years or forfeit the credit (i.e. repay it to the state).
Source: California Association of Realtors®
The eligible taxpayer who closes escrow on a qualified principal residence between May 1, 2010 and December, 31, 2010, or who closes escrow on a qualified principal residence on and after December 31, 2010 and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010, will be able to take the allowed tax credit.
This credit is equal to the lesser of 5 percent of the purchase price or $10,000, taken in equal installments over three consecutive years. Under AB 183 purchasers will be required to live in the home as their principal residence for at least two years or forfeit the credit (i.e. repay it to the state).
Source: California Association of Realtors®
Wednesday, March 24, 2010
10 Places NOT To Use Your Debit Card
Sometimes reaching for your wallet is like a multiple choice test: How do you really want to pay?
While credit cards and debit cards may look almost identical, not all plastic is the same.
"It's important that consumers understand the difference between a debit card and a credit card," says John Breyault, director of the Fraud Center for the National Consumers League, a Washington, D.C.-based advocacy group. "There's a difference in how the transactions are processed and the protections offered to consumers when they use them."
While debit cards and credit cards each have advantages, each is also better suited to certain situations. And since a debit card is a direct line to your bank account, there are places where it can be wise to avoid handing it over -- if for no other reason than complete peace of mind.
Here are 10 places and situations where it can pay to leave that debit card in your wallet:
1. Online
"You don't use a debit card online," says Susan Tiffany, director of consumer periodicals for the Credit Union National Association. Since the debit card links directly to a checking account, "you have potential vulnerability there," she says.
Her reasoning: If you have problems with a purchase or the card number gets hijacked, a debit card is "vulnerable because it happens to be linked to an account," says Linda Foley, founder of the Identity Theft Resource Center. She also includes phone orders in this category.
The Federal Reserve's Regulation E (commonly dubbed Reg E), covers debit card transfers. It sets a consumer's liability for fraudulent purchases at $50, provided they notify the bank within two days of discovering that their card or card number has been stolen.
Most banks have additional voluntary policies that set their own customers' liability with debit cards at $0, says Nessa Feddis, vice president and senior counsel for the American Bankers Association.
But the protections don't relieve consumers of hassle: The prospect of trying to get money put back into their bank account, and the problems that a lower-than-expected balance can cause in terms of fees and refused checks or payments, make some online shoppers reach first for credit cards.
2. Big-Ticket Items
With a big ticket item, a credit card is safer, says Chi Chi Wu, staff attorney with the National Consumer Law Center. A credit card offers dispute rights if something goes wrong with the merchandise or the purchase, she says.
"With a debit card, you have fewer protections," she says.
In addition, some cards will also offer extended warrantees. And in some situations, such as buying electronics or renting a car, some credit cards also offer additional property insurance to cover the item.
Two caveats, says Wu. Don't carry a balance. Otherwise, you also risk paying some high-ticket interest. And "avoid store cards with deferred interest," Wu advises.
3. Deposit Required
When Peter Garuccio recently rented some home improvement equipment at a big-box store, it required a sizable deposit. "This is where you want to use a credit card instead of a debit," says Garuccio, spokesman for the national trade group American Bankers Association.
That way, the store has its security deposit, and you still have access to all of the money in your bank account. With any luck, you'll never actually have to part with a dollar.
4. Restaurants
"To me, it's dangerous," says Gary Foreman, editor of the frugality minded Web site The Dollar Stretcher. "You have so many people around."
Foreman bases his conclusions on what he hears from readers. "Anecdotally, the cases that I'm hearing of credit or debit information being stolen, as often as not, it's in a restaurant," he says.
The danger: Restaurants are one of the few places where you have to let cards leave your sight when you use them. But others think that avoiding such situations is not workable.
The "conventional advice of 'don't let the card out of your sight' -- that's just not practical," says Tiffany.
The other problem with using a debit card at restaurants: Some establishments will approve the card for more than your purchase amount because, presumably, you intend to leave a tip. So the amount of money frozen for the transaction could be quite a bit more than the amount of your tab. And it could be a few days before you get the cash back in your account.
5. You're a New Customer
Online or in the real world, if you're a first-time customer in a store, skip the debit card the first couple of times you buy, says Breyault.
That way, you get a feel for how the business is run, how you're treated and the quality of the merchandise before you hand over a card that links to your checking account.
6. Buy Now, Take Delivery Later
Buying now but taking delivery days or weeks from now? A credit card offers dispute rights that a debit card typically does not.
"It may be an outfit you're familiar with and trust, but something might go wrong," says Breyault, "and you need protection."
But be aware that some cards will limit the protection to a specific time period, says Feddis. So settle any problems as soon as possible.
7. Recurring Payments
We've all heard the urban legend about the gym that won't stop billing an ex-member's credit card. Now imagine the charges aren't going onto your card, but instead coming right out of your bank account.
Another reason not to use the debit card for recurring charges: your own memory and math skills. Forget to deduct that automatic bill payment from your checkbook one month, and you could either face fees or embarrassment (depending on whether you've opted to allow overdrafting or not). So if you don't keep a cash buffer in your account, "to protect yourself from over-limit fees, you may want to think about using a credit card" for recurring payments, says Breyault.
8. Future Travel
Book your travel with a check card, and "they debit it immediately," says Foley. So if you're buying travel that you won't use for six months or making a reservation for a few weeks from now, you'll be out the money immediately.
Another factor that bothers Foley: Hotels aren't immune to hackers and data breaches, and several name-brand establishments have suffered the problem recently. Do you want your debit card information "to sit in a system for four months, waiting for you to arrive?" she asks. "I would not."
9. Gas Stations and Hotels
This one depends on the individual business. Some gas stations and hotels will place holds to cover customers who may leave without settling the entire bill. That means that even though you only bought $10 in gas, you could have a temporary bank hold for $50 to $100, says Tiffany.
Ditto hotels, where there are sometimes holds or deposits in the hundreds to make sure you don't run up a long distance bill, empty the mini bar or trash the room. The practice is almost unnoticeable if you're using credit, but can be problematic if you're using a debit card and have just enough in the account to cover what you need.
At hotels, ask about deposits and holds before you present your card, says Feddis. At the pump, select the pin-number option, she says, which should debit only the amount you've actually spent.
10. Checkouts or ATMs That Look 'Off'
Criminals are getting better with skimmers and planting them in places you'd never suspect -- like ATM machines on bank property, says Foley.
So take a good look at the machine or card reader the next time you use an ATM or self-check lane, she advises. Does the machine fit together well or does something look off, different or like it doesn't quite belong? Says Foley, "Make sure it doesn't look like it's been tampered with."
Source: Creditcard.com
While credit cards and debit cards may look almost identical, not all plastic is the same.
"It's important that consumers understand the difference between a debit card and a credit card," says John Breyault, director of the Fraud Center for the National Consumers League, a Washington, D.C.-based advocacy group. "There's a difference in how the transactions are processed and the protections offered to consumers when they use them."
While debit cards and credit cards each have advantages, each is also better suited to certain situations. And since a debit card is a direct line to your bank account, there are places where it can be wise to avoid handing it over -- if for no other reason than complete peace of mind.
Here are 10 places and situations where it can pay to leave that debit card in your wallet:
1. Online
"You don't use a debit card online," says Susan Tiffany, director of consumer periodicals for the Credit Union National Association. Since the debit card links directly to a checking account, "you have potential vulnerability there," she says.
Her reasoning: If you have problems with a purchase or the card number gets hijacked, a debit card is "vulnerable because it happens to be linked to an account," says Linda Foley, founder of the Identity Theft Resource Center. She also includes phone orders in this category.
The Federal Reserve's Regulation E (commonly dubbed Reg E), covers debit card transfers. It sets a consumer's liability for fraudulent purchases at $50, provided they notify the bank within two days of discovering that their card or card number has been stolen.
Most banks have additional voluntary policies that set their own customers' liability with debit cards at $0, says Nessa Feddis, vice president and senior counsel for the American Bankers Association.
But the protections don't relieve consumers of hassle: The prospect of trying to get money put back into their bank account, and the problems that a lower-than-expected balance can cause in terms of fees and refused checks or payments, make some online shoppers reach first for credit cards.
2. Big-Ticket Items
With a big ticket item, a credit card is safer, says Chi Chi Wu, staff attorney with the National Consumer Law Center. A credit card offers dispute rights if something goes wrong with the merchandise or the purchase, she says.
"With a debit card, you have fewer protections," she says.
In addition, some cards will also offer extended warrantees. And in some situations, such as buying electronics or renting a car, some credit cards also offer additional property insurance to cover the item.
Two caveats, says Wu. Don't carry a balance. Otherwise, you also risk paying some high-ticket interest. And "avoid store cards with deferred interest," Wu advises.
3. Deposit Required
When Peter Garuccio recently rented some home improvement equipment at a big-box store, it required a sizable deposit. "This is where you want to use a credit card instead of a debit," says Garuccio, spokesman for the national trade group American Bankers Association.
That way, the store has its security deposit, and you still have access to all of the money in your bank account. With any luck, you'll never actually have to part with a dollar.
4. Restaurants
"To me, it's dangerous," says Gary Foreman, editor of the frugality minded Web site The Dollar Stretcher. "You have so many people around."
Foreman bases his conclusions on what he hears from readers. "Anecdotally, the cases that I'm hearing of credit or debit information being stolen, as often as not, it's in a restaurant," he says.
The danger: Restaurants are one of the few places where you have to let cards leave your sight when you use them. But others think that avoiding such situations is not workable.
The "conventional advice of 'don't let the card out of your sight' -- that's just not practical," says Tiffany.
The other problem with using a debit card at restaurants: Some establishments will approve the card for more than your purchase amount because, presumably, you intend to leave a tip. So the amount of money frozen for the transaction could be quite a bit more than the amount of your tab. And it could be a few days before you get the cash back in your account.
5. You're a New Customer
Online or in the real world, if you're a first-time customer in a store, skip the debit card the first couple of times you buy, says Breyault.
That way, you get a feel for how the business is run, how you're treated and the quality of the merchandise before you hand over a card that links to your checking account.
6. Buy Now, Take Delivery Later
Buying now but taking delivery days or weeks from now? A credit card offers dispute rights that a debit card typically does not.
"It may be an outfit you're familiar with and trust, but something might go wrong," says Breyault, "and you need protection."
But be aware that some cards will limit the protection to a specific time period, says Feddis. So settle any problems as soon as possible.
7. Recurring Payments
We've all heard the urban legend about the gym that won't stop billing an ex-member's credit card. Now imagine the charges aren't going onto your card, but instead coming right out of your bank account.
Another reason not to use the debit card for recurring charges: your own memory and math skills. Forget to deduct that automatic bill payment from your checkbook one month, and you could either face fees or embarrassment (depending on whether you've opted to allow overdrafting or not). So if you don't keep a cash buffer in your account, "to protect yourself from over-limit fees, you may want to think about using a credit card" for recurring payments, says Breyault.
8. Future Travel
Book your travel with a check card, and "they debit it immediately," says Foley. So if you're buying travel that you won't use for six months or making a reservation for a few weeks from now, you'll be out the money immediately.
Another factor that bothers Foley: Hotels aren't immune to hackers and data breaches, and several name-brand establishments have suffered the problem recently. Do you want your debit card information "to sit in a system for four months, waiting for you to arrive?" she asks. "I would not."
9. Gas Stations and Hotels
This one depends on the individual business. Some gas stations and hotels will place holds to cover customers who may leave without settling the entire bill. That means that even though you only bought $10 in gas, you could have a temporary bank hold for $50 to $100, says Tiffany.
Ditto hotels, where there are sometimes holds or deposits in the hundreds to make sure you don't run up a long distance bill, empty the mini bar or trash the room. The practice is almost unnoticeable if you're using credit, but can be problematic if you're using a debit card and have just enough in the account to cover what you need.
At hotels, ask about deposits and holds before you present your card, says Feddis. At the pump, select the pin-number option, she says, which should debit only the amount you've actually spent.
10. Checkouts or ATMs That Look 'Off'
Criminals are getting better with skimmers and planting them in places you'd never suspect -- like ATM machines on bank property, says Foley.
So take a good look at the machine or card reader the next time you use an ATM or self-check lane, she advises. Does the machine fit together well or does something look off, different or like it doesn't quite belong? Says Foley, "Make sure it doesn't look like it's been tampered with."
Source: Creditcard.com
Sunday, March 21, 2010
Foreclosures Weigh on Builder Confidence in March
Builder confidence in the market for newly built, single-family homes fell back two points to 15 in March as poor weather conditions and distressed property sales posed increasing challenges to both builders and buyers, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI).
“Unusually poor weather conditions certainly had a negative effect on builders’ business in February,” said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. “At the same time, the continual flow of distressed properties priced below the cost of production is having an adverse effect on new-home appraisals and also making it tough for builders’ customers to sell their existing homes.”
“The lack of available credit for new projects, the large number of distressed properties for sale and the continuing hesitancy of potential buyers due to the weak job market are definitely weighing on builder confidence at this time,” said NAHB Chief Economist David Crowe. “That said, the inventory of new homes on the market is at an extremely low level, and we do expect a 25 percent improvement in new-home construction in 2010 over 2009 to rebuild inventory and meet expected pent-up demand.”
Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
In declining two points to 15 this March, the HMI returned to where it was in January 2010, losing the ground it had gained in the intervening month. Each of the HMI’s component indexes fell in March; the component gauging current sales conditions declined two points to 15, while the component gauging sales expectations in the next six months declined three points to 24 and the component gauging traffic of prospective buyers declined two points to 10.
Regionally, the HMI results were mixed in March. While the Northeast posted a five-point gain to 23 and the West posted a one-point gain to 15, the Midwest HMI slid three points to 10 and the South HMI edged down one point to 18.
Source: National Association of Home Builders
“Unusually poor weather conditions certainly had a negative effect on builders’ business in February,” said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. “At the same time, the continual flow of distressed properties priced below the cost of production is having an adverse effect on new-home appraisals and also making it tough for builders’ customers to sell their existing homes.”
“The lack of available credit for new projects, the large number of distressed properties for sale and the continuing hesitancy of potential buyers due to the weak job market are definitely weighing on builder confidence at this time,” said NAHB Chief Economist David Crowe. “That said, the inventory of new homes on the market is at an extremely low level, and we do expect a 25 percent improvement in new-home construction in 2010 over 2009 to rebuild inventory and meet expected pent-up demand.”
Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
In declining two points to 15 this March, the HMI returned to where it was in January 2010, losing the ground it had gained in the intervening month. Each of the HMI’s component indexes fell in March; the component gauging current sales conditions declined two points to 15, while the component gauging sales expectations in the next six months declined three points to 24 and the component gauging traffic of prospective buyers declined two points to 10.
Regionally, the HMI results were mixed in March. While the Northeast posted a five-point gain to 23 and the West posted a one-point gain to 15, the Midwest HMI slid three points to 10 and the South HMI edged down one point to 18.
Source: National Association of Home Builders
U.S. Foreclosure Activity Decreases 2 Percent In February
Foreclosures decreased 2 percent in February compared with January, according to RealtyTrac®’s monthly foreclosure market report. Foreclosure filings were reported on 308,524 U.S. properties in February, a 2-percent decrease compared with January, but up 6 percent compared with February 2009. The report also found nearly one in every 418 U.S. housing units received a foreclosure filing in February.
Foreclosure activity in California decreased nearly 5 percent in February compared with January and was down 15 percent compared with February 2009. One in every 195 housing units in California received a foreclosure filing, according to the report.
Source: RealtyTrac
Foreclosure activity in California decreased nearly 5 percent in February compared with January and was down 15 percent compared with February 2009. One in every 195 housing units in California received a foreclosure filing, according to the report.
Source: RealtyTrac
Permanent Loan Mods Increase To 170,000 Homeowners
As of the end of February, permanent loan modifications were granted to 170,000 homeowners through the Obama administration’s Home Affordable Modification Program (HAMP), the U.S. Dept. of the Treasury and the Dept. of Housing and Urban Development (HUD) announced. An additional 91,800 permanent modifications were approved by servicers and pending borrower acceptance.
Source: Home Affordable Modification Program
Source: Home Affordable Modification Program
Fast Facts
Calif. median home price: January 2010: $287,440
Calif. highest median home price by C.A.R. region January 2010: Santa Barbara So. Coast $760,000
Calif. lowest median home price by C.A.R. region January 2010: High Desert $124,480
Calif. First-time Buyer Affordability Index - Fourth Quarter 2009: 64 percent
Mortgage rates - week ending 3/11/10 30-yr. fixed: 4.95 Fees/points: 0.7% 15-yr. fixed: 4.32% Fees/points: 0.7% 1-yr. adjustable: 4.22% Fees/points: 0.6%
Source: California Associate of Realtors® and Freddie Mac
Calif. highest median home price by C.A.R. region January 2010: Santa Barbara So. Coast $760,000
Calif. lowest median home price by C.A.R. region January 2010: High Desert $124,480
Calif. First-time Buyer Affordability Index - Fourth Quarter 2009: 64 percent
Mortgage rates - week ending 3/11/10 30-yr. fixed: 4.95 Fees/points: 0.7% 15-yr. fixed: 4.32% Fees/points: 0.7% 1-yr. adjustable: 4.22% Fees/points: 0.6%
Source: California Associate of Realtors® and Freddie Mac
Wednesday, March 17, 2010
Real-Estate Recovery Signaled With Homebuilders as Fed Unwinds
The U.S. housing market is poised to withstand the removal of government and Federal Reserve stimulus programs and rebound later in the year, contributing to annual economic growth for the first time since 2006.
Increases in jobs, credit and affordable homes will help offset the end of the Fed’s purchases of mortgage-backed securities this month and the expiration of a federal homebuyer tax credit in April. Sales will rise about 6 percent this year, and housing will account for 0.25 percentage point of the 3.6 percent growth, according to forecasts by Dean Maki, chief U.S. economist for Barclays Capital in New York.
“I would bet even odds that we’re at a bottom and that we’re going to see improvement in the coming months,” said Karl Case, co-creator of the S&P/Case-Shiller Home Price Index and a professor of economics at Wellesley College in Wellesley, Massachusetts.
An improving market would allay concerns at the Fed that sales will relapse after the tax credit expires. It would also give Fed Chairman Ben S. Bernanke and his colleagues, who meet this week in Washington, a freer rein to ultimately raise the interest rate for overnight loans among banks from near zero.
“They’re going to be tightening credit sooner than people expect,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. He forecasts that the Fed’s first increase since 2006 may come as soon as June.
Reflecting Optimism
Homebuilders’ shares reflect the optimism. The 12-member Standard & Poor’s Supercomposite Homebuilding Index hit a five- month high March 9 on speculation the expanding economy will boost sales. The index has gained 14 percent this year, led by a 41 percent jump in Columbus, Ohio-based M/I Homes Inc., a 31 percent increase by Standard Pacific Corp. in Irvine, California, and a 28 percent rise in Miami-based Lennar Corp.
Recent housing data have been mixed. Sales of existing homes fell 7.2 percent in January, while housing starts rose 2.8 percent, according to statistics from the National Association of Realtors in Chicago and the Commerce Department in Washington.
Employment is key to the outlook, according to Patrick Newport, an economist with IHS Global Insight in Lexington, Massachusetts.
“When people get jobs, that’s when they move or decide to buy a bigger house,” he said.
The U.S. may add as many as 300,000 jobs in March, the most in four years, thanks to an improvement in the weather, government hiring of temporary workers for the census and a growing economy, said David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. Payrolls dropped by 36,000 in February, according to the Labor Department, depressed in part by East Coast snowstorms that closed many businesses.
‘Turning Positive’
“The underlying trend is turning positive,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York.
The Senate last week approved a $138 billion measure that would extend unemployment benefits and provide additional aid to states. President Barack Obama praised the bill’s passage, saying it will help put the U.S. back on a solid footing.
Credit conditions may also be improving. A net 13.2 percent of banks surveyed by the Fed in January reported that they tightened standards on prime mortgage loans in the fourth quarter, the smallest percentage since the central bank began tallying such data three years ago.
‘Important Step’
“This is an important step in the right direction,” Peter Hooper, chief economist at Deutsche Bank Securities in New York, and his colleagues wrote in a report to clients last month.
Mortgage originations for the purchase of a home will rise to $745 billion this year and $822 billion next year, the highest since 2008, from $740 billion in 2009, according to forecasts from the Washington-based Mortgage Bankers Association.
Falling home prices and low mortgage rates have made homes more affordable. The median price was $164,700 in January, matching the year-ago level, which was the lowest since May 2002, according to the Realtors’ association. The trade group will report February housing data next week. The average rate for a 30-year fixed mortgage was 4.95 percent last week, up from a record-low 4.71 percent in December, according to Freddie Mac, the McLean, Virginia-based mortgage buyer.
The average household had 177.8 percent of the income needed to purchase a property in January, the highest since a record 184 percent in April 2009, when mortgage rates tumbled to 4.78 percent, according to data from the Realtors’ association.
First Hurdle
The housing market’s first hurdle comes at the end of this month, when the Fed completes its program to purchase $1.25 trillion of mortgage-backed securities and about $175 billion of housing-agency debt.
The move probably won’t have much impact, said Mahesh Swaminathan, a mortgage strategist at Credit Suisse Holdings USA in New York. Private demand will replace the central bank, keeping down the spread at which mortgage-backed securities trade to 10-year Treasury notes, he said. The spread on Friday was about 60 basis points.
“We don’t anticipate a massive widening of spreads once the Fed stops buying,” he said. “It will be a few basis points here and there.”
As a result, he sees mortgage rates remaining “about where they are now.”
Mortgage-Backed Securities
Much of the private buying will come from money managers who are underweight mortgage-backed securities in their portfolios relative to their benchmarks, said Ajay Rajadhyaksha, managing director of Barclays Capital in New York, who sees spreads rising about 15 basis points in the second quarter.
Once the Fed completes its purchases, the next obstacle for the market is the expiration of the tax credit for first-time home buyers. The original credit helped boost existing-home sales by 4.9 percent to 5.16 million in 2009, the first increase since 2005, according to the Realtors’ association. The credit, which was slated to end on Nov. 30, was expanded and extended through April.
The Fed’s Beige Book business survey released March 3 found that some contacts in the housing industry are “apprehensive about future sales” of homes once the credit expires, even though the extension hasn’t helped as much as the initial incentive.
Potential Buyers
“A lot of people moved up their purchases to meet the original deadline and that used up a lot of the pool of potential buyers,” Newport of IHS Global said.
The credit of as much as $8,000 stimulated only 180,000 extra sales from December to April, said David Crowe, chief economist at the National Association of Home Builders in Washington.
It was “certainly positive, but it has not fueled a huge increase in sales,” Ara K. Hovnanian, chairman and chief executive officer of Red Bank, New Jersey-based Hovnanian Enterprises Inc., the nation’s seventh largest homebuilder by revenue, told analysts on March 3.
The final challenge for the housing market this year is the supply of available properties and the prospect that it may rise. Foreclosures may increase to 2.2 million this year from a record 1.7 million last year, according to a forecast by Mark Zandi, chief economist for Moody’s Economy.com in West Chester, Pennsylvania.
The number of vacant homes for sale rose to 2.09 million in the fourth quarter from 1.99 million in the prior period as banks seized property, the U.S. Census Bureau said Feb. 2.
Excess Supply
An improvement in the job market would spur household formation and help absorb the excess supply, said Thomas Lawler, a former economist with Washington-based mortgage company Fannie Mae who now is an independent housing consultant in Leesburg, Virginia.
There may be 1.25 million new households in 2010 if the economy continues to expand, he said. The number has stayed below 1 million for the last three years as adult children lived with their parents and Americans generally conserved cash, he said.
“If we get a rebound, you could see excess supply disappear very quickly,” Lawler said.
“The underlying trend in home sales is for gradual improvement,” Maki of Barclays Capital said. “While activity will remain at low levels for some time, the housing bust is essentially over.”
Source: Business Week
Increases in jobs, credit and affordable homes will help offset the end of the Fed’s purchases of mortgage-backed securities this month and the expiration of a federal homebuyer tax credit in April. Sales will rise about 6 percent this year, and housing will account for 0.25 percentage point of the 3.6 percent growth, according to forecasts by Dean Maki, chief U.S. economist for Barclays Capital in New York.
“I would bet even odds that we’re at a bottom and that we’re going to see improvement in the coming months,” said Karl Case, co-creator of the S&P/Case-Shiller Home Price Index and a professor of economics at Wellesley College in Wellesley, Massachusetts.
An improving market would allay concerns at the Fed that sales will relapse after the tax credit expires. It would also give Fed Chairman Ben S. Bernanke and his colleagues, who meet this week in Washington, a freer rein to ultimately raise the interest rate for overnight loans among banks from near zero.
“They’re going to be tightening credit sooner than people expect,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. He forecasts that the Fed’s first increase since 2006 may come as soon as June.
Reflecting Optimism
Homebuilders’ shares reflect the optimism. The 12-member Standard & Poor’s Supercomposite Homebuilding Index hit a five- month high March 9 on speculation the expanding economy will boost sales. The index has gained 14 percent this year, led by a 41 percent jump in Columbus, Ohio-based M/I Homes Inc., a 31 percent increase by Standard Pacific Corp. in Irvine, California, and a 28 percent rise in Miami-based Lennar Corp.
Recent housing data have been mixed. Sales of existing homes fell 7.2 percent in January, while housing starts rose 2.8 percent, according to statistics from the National Association of Realtors in Chicago and the Commerce Department in Washington.
Employment is key to the outlook, according to Patrick Newport, an economist with IHS Global Insight in Lexington, Massachusetts.
“When people get jobs, that’s when they move or decide to buy a bigger house,” he said.
The U.S. may add as many as 300,000 jobs in March, the most in four years, thanks to an improvement in the weather, government hiring of temporary workers for the census and a growing economy, said David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. Payrolls dropped by 36,000 in February, according to the Labor Department, depressed in part by East Coast snowstorms that closed many businesses.
‘Turning Positive’
“The underlying trend is turning positive,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York.
The Senate last week approved a $138 billion measure that would extend unemployment benefits and provide additional aid to states. President Barack Obama praised the bill’s passage, saying it will help put the U.S. back on a solid footing.
Credit conditions may also be improving. A net 13.2 percent of banks surveyed by the Fed in January reported that they tightened standards on prime mortgage loans in the fourth quarter, the smallest percentage since the central bank began tallying such data three years ago.
‘Important Step’
“This is an important step in the right direction,” Peter Hooper, chief economist at Deutsche Bank Securities in New York, and his colleagues wrote in a report to clients last month.
Mortgage originations for the purchase of a home will rise to $745 billion this year and $822 billion next year, the highest since 2008, from $740 billion in 2009, according to forecasts from the Washington-based Mortgage Bankers Association.
Falling home prices and low mortgage rates have made homes more affordable. The median price was $164,700 in January, matching the year-ago level, which was the lowest since May 2002, according to the Realtors’ association. The trade group will report February housing data next week. The average rate for a 30-year fixed mortgage was 4.95 percent last week, up from a record-low 4.71 percent in December, according to Freddie Mac, the McLean, Virginia-based mortgage buyer.
The average household had 177.8 percent of the income needed to purchase a property in January, the highest since a record 184 percent in April 2009, when mortgage rates tumbled to 4.78 percent, according to data from the Realtors’ association.
First Hurdle
The housing market’s first hurdle comes at the end of this month, when the Fed completes its program to purchase $1.25 trillion of mortgage-backed securities and about $175 billion of housing-agency debt.
The move probably won’t have much impact, said Mahesh Swaminathan, a mortgage strategist at Credit Suisse Holdings USA in New York. Private demand will replace the central bank, keeping down the spread at which mortgage-backed securities trade to 10-year Treasury notes, he said. The spread on Friday was about 60 basis points.
“We don’t anticipate a massive widening of spreads once the Fed stops buying,” he said. “It will be a few basis points here and there.”
As a result, he sees mortgage rates remaining “about where they are now.”
Mortgage-Backed Securities
Much of the private buying will come from money managers who are underweight mortgage-backed securities in their portfolios relative to their benchmarks, said Ajay Rajadhyaksha, managing director of Barclays Capital in New York, who sees spreads rising about 15 basis points in the second quarter.
Once the Fed completes its purchases, the next obstacle for the market is the expiration of the tax credit for first-time home buyers. The original credit helped boost existing-home sales by 4.9 percent to 5.16 million in 2009, the first increase since 2005, according to the Realtors’ association. The credit, which was slated to end on Nov. 30, was expanded and extended through April.
The Fed’s Beige Book business survey released March 3 found that some contacts in the housing industry are “apprehensive about future sales” of homes once the credit expires, even though the extension hasn’t helped as much as the initial incentive.
Potential Buyers
“A lot of people moved up their purchases to meet the original deadline and that used up a lot of the pool of potential buyers,” Newport of IHS Global said.
The credit of as much as $8,000 stimulated only 180,000 extra sales from December to April, said David Crowe, chief economist at the National Association of Home Builders in Washington.
It was “certainly positive, but it has not fueled a huge increase in sales,” Ara K. Hovnanian, chairman and chief executive officer of Red Bank, New Jersey-based Hovnanian Enterprises Inc., the nation’s seventh largest homebuilder by revenue, told analysts on March 3.
The final challenge for the housing market this year is the supply of available properties and the prospect that it may rise. Foreclosures may increase to 2.2 million this year from a record 1.7 million last year, according to a forecast by Mark Zandi, chief economist for Moody’s Economy.com in West Chester, Pennsylvania.
The number of vacant homes for sale rose to 2.09 million in the fourth quarter from 1.99 million in the prior period as banks seized property, the U.S. Census Bureau said Feb. 2.
Excess Supply
An improvement in the job market would spur household formation and help absorb the excess supply, said Thomas Lawler, a former economist with Washington-based mortgage company Fannie Mae who now is an independent housing consultant in Leesburg, Virginia.
There may be 1.25 million new households in 2010 if the economy continues to expand, he said. The number has stayed below 1 million for the last three years as adult children lived with their parents and Americans generally conserved cash, he said.
“If we get a rebound, you could see excess supply disappear very quickly,” Lawler said.
“The underlying trend in home sales is for gradual improvement,” Maki of Barclays Capital said. “While activity will remain at low levels for some time, the housing bust is essentially over.”
Source: Business Week
Sunday, March 14, 2010
Mortgage Rates Drop Slightly In Freddie Mac Weekly Survey
Freddie Mac released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 4.95 percent with an average 0.7 point for the week ending March 11, 2010, down from last week when it averaged 4.97 percent. Last year at this time, the 30-year FRM averaged 5.03 percent.
Source: Freddie Mac
Tuesday, March 2, 2010
Buffett Says U.S. Housing Will Recover By 2011 On Lower Supply
Billionaire Warren Buffett said the U.S. residential real estate slump will end by about 2011, predicting that’s how long it will take demand for homes to catch up with the supply.
“Within a year or so, residential housing problems should largely be behind us,” Buffett wrote Feb. 27 in his annual letter to shareholders of his Berkshire Hathaway Inc. “Prices will remain far below ‘bubble’ levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits.”
The worst housing decline since the Great Depression has left one in five U.S. mortgage holders owing more than their houses are worth. Record foreclosures last year flooded a real estate market already glutted with unsold property, causing new construction to fall to the lowest in at least 50 years. The fall in homebuilding is the only fix unless the U.S. decides to “blow up a lot of houses,” Buffett joked.
“People thought it was good news a few years back when housing starts -- the supply side of the picture -- were running about two million annually,” said Buffett, the chairman and chief executive officer of Omaha, Nebraska-based Berkshire. “But household formations -- the demand side -- only amounted to about 1.2 million.”
Berkshire, which owns a real-estate brokerage, a business that constructs pre-fabricated houses and units that make products used in homebuilding, has suffered amid the slump. Profit at Clayton Homes, the pre-fab housing business, fell about 9 percent to $187 million before taxes, while earnings at carpet manufacturer Shaw Industries fell 30 percent.
“High-value houses and those in certain localities where overbuilding was particularly egregious” will take longer to recover, he wrote.
‘Deeply Invested’
“He’s very deeply invested in this,” said Tom Russo, partner at Gardner Russo & Gardner, which holds Berkshire stock. “Across his industrial companies, he’s massively poised to gain” from a housing recovery, Russo said.
Buffett joked that curbing home construction was the best of three ways to reduce supply. The other two, he said, would be to explode homes in a “tactic similar to the destruction of autos that occurred with the ‘cash-for-clunkers’ program” or “speed up householder formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers.”
Buffett’s annual communications with shareholders have won him a following of professional money managers and the moniker “the Oracle of Omaha.” He’s written passages in past years that compare investing to baseball, derivatives to venereal disease, and Wall Street bankers to Pied Pipers. The letters have been compiled into a book for those who want to study his pronouncements.
Transformative
Buffett, 79, built Berkshire into a $198 billion company through investments in firms he believes have superior management and lasting competitive advantages. His deals transformed Berkshire from a failing textile mill into an enterprise that makes candy, produces power and sells flight time on private jets. The shares traded at about $15 when he took control in 1965; the Class A stock last closed at $119,800.
Still, he and Vice Chairman Charlie Munger passed up opportunities when they weren’t able to evaluate the future of a business, even in a compelling industry, he said. That strategy has allowed the company to perform better than the benchmark Standard & Poor’s 500 in every year when both Berkshire and the index have fallen.
Playing Defense
“In other words, our defense has been better than our offense,” Buffett wrote. Last year, he said, Berkshire should have made more purchases of corporate and municipal bonds because they were “ridiculously cheap” when compared with U.S. Treasuries.
“When it’s raining gold, reach for a bucket, not a thimble,” he said. Corporate bonds returned 26 percent in 2009, compared with negative 11 percent in 2008, according to data compiled by Bank of America Corp. Merrill Lynch. State and local government bonds yielded 14 percent last year, compared with negative 4 percent in 2008.
Berkshire did extend financing to companies including Goldman Sachs Group Inc., General Electric Co. and Dow Chemical Co. during the credit crisis as other investors were withholding funds. The private deals pay dividends and interest of $2.1 billion annually, Berkshire said in a filing disclosing 2009 results. Berkshire’s net income of $8.06 billion rose 61 percent from 2008.
‘Climate of Fear’
“We’ve put a lot of money to work during the chaos of the last two years,” Buffett wrote. “It’s been an ideal period for investors: A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance.”
Buffett has used past letters to discuss plans for his successor, praise Berkshire managers and confess his failings. He admitted this year to a “very expensive business fiasco” with his move to issue credit cards to policyholders at his company’s Geico Corp. auto-insurance subsidiary. Last year, he said the U.S. economy was “in shambles” after reckless lending caused the worst financial “freefall” he ever saw.
He chastised the media in the new letter for “terrible journalism” in seizing on that comment from the prior year without also reporting that he made no predictions about the direction of the stock market.
CEO Responsibility
Buffett said this year that the CEOs and boards of companies that failed during the credit crisis shouldn’t be allowed to pass blame to underlings. Boards should insist on CEOs taking full responsibility for the risk of collapse, he said. “If he’s incapable of handling that job, he should look for other employment,” Buffett wrote.
Shareholders weren’t responsible for the botched operations at some of the country’s largest financial institutions, Buffett said, “yet they have borne the burden with 90 percent or more” of their holdings wiped out in cases of failure.
Still, he said, using year-to-year stock prices to evaluate a company’s progress can be an “extraordinarily erratic” measure. Even a decade can fail to give the proper picture, as Microsoft Corp. CEO Steve Ballmer and GE’s Jeffrey Immelt found when they took over with their shares at “nosebleed” prices.
GE shares have dropped about 60 percent since Immelt took over in September 2001; Microsoft has fallen about 47 percent under Ballmer’s tenure. Berkshire shares have risen more than 160 percent in the past decade, compared with the 17 percent decline in the S&P 500. Buffett’s company joined that index last month when it completed the largest deal of his 40-year tenure, the $27 billion takeover of railroad Burlington Northern Santa Fe Corp.
‘We Sleep Well’
Berkshire had $30.6 billion in cash and so-called near cash like U.S. Treasuries as of Dec. 31, compared with $26.9 billion three months earlier, after Buffett sold stock to add to the company’s cash cushion in advance of the rail deal. Buffett used about $8 billion of that cash to help fund the acquisition.
“We pay a steep price to maintain our premier financial strength,” Buffett wrote. “The $20 billion-plus of cash- equivalent assets that we customarily hold is earning a pittance at present. But we sleep well.”
Source: Business Week
“Within a year or so, residential housing problems should largely be behind us,” Buffett wrote Feb. 27 in his annual letter to shareholders of his Berkshire Hathaway Inc. “Prices will remain far below ‘bubble’ levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits.”
The worst housing decline since the Great Depression has left one in five U.S. mortgage holders owing more than their houses are worth. Record foreclosures last year flooded a real estate market already glutted with unsold property, causing new construction to fall to the lowest in at least 50 years. The fall in homebuilding is the only fix unless the U.S. decides to “blow up a lot of houses,” Buffett joked.
“People thought it was good news a few years back when housing starts -- the supply side of the picture -- were running about two million annually,” said Buffett, the chairman and chief executive officer of Omaha, Nebraska-based Berkshire. “But household formations -- the demand side -- only amounted to about 1.2 million.”
Berkshire, which owns a real-estate brokerage, a business that constructs pre-fabricated houses and units that make products used in homebuilding, has suffered amid the slump. Profit at Clayton Homes, the pre-fab housing business, fell about 9 percent to $187 million before taxes, while earnings at carpet manufacturer Shaw Industries fell 30 percent.
“High-value houses and those in certain localities where overbuilding was particularly egregious” will take longer to recover, he wrote.
‘Deeply Invested’
“He’s very deeply invested in this,” said Tom Russo, partner at Gardner Russo & Gardner, which holds Berkshire stock. “Across his industrial companies, he’s massively poised to gain” from a housing recovery, Russo said.
Buffett joked that curbing home construction was the best of three ways to reduce supply. The other two, he said, would be to explode homes in a “tactic similar to the destruction of autos that occurred with the ‘cash-for-clunkers’ program” or “speed up householder formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers.”
Buffett’s annual communications with shareholders have won him a following of professional money managers and the moniker “the Oracle of Omaha.” He’s written passages in past years that compare investing to baseball, derivatives to venereal disease, and Wall Street bankers to Pied Pipers. The letters have been compiled into a book for those who want to study his pronouncements.
Transformative
Buffett, 79, built Berkshire into a $198 billion company through investments in firms he believes have superior management and lasting competitive advantages. His deals transformed Berkshire from a failing textile mill into an enterprise that makes candy, produces power and sells flight time on private jets. The shares traded at about $15 when he took control in 1965; the Class A stock last closed at $119,800.
Still, he and Vice Chairman Charlie Munger passed up opportunities when they weren’t able to evaluate the future of a business, even in a compelling industry, he said. That strategy has allowed the company to perform better than the benchmark Standard & Poor’s 500 in every year when both Berkshire and the index have fallen.
Playing Defense
“In other words, our defense has been better than our offense,” Buffett wrote. Last year, he said, Berkshire should have made more purchases of corporate and municipal bonds because they were “ridiculously cheap” when compared with U.S. Treasuries.
“When it’s raining gold, reach for a bucket, not a thimble,” he said. Corporate bonds returned 26 percent in 2009, compared with negative 11 percent in 2008, according to data compiled by Bank of America Corp. Merrill Lynch. State and local government bonds yielded 14 percent last year, compared with negative 4 percent in 2008.
Berkshire did extend financing to companies including Goldman Sachs Group Inc., General Electric Co. and Dow Chemical Co. during the credit crisis as other investors were withholding funds. The private deals pay dividends and interest of $2.1 billion annually, Berkshire said in a filing disclosing 2009 results. Berkshire’s net income of $8.06 billion rose 61 percent from 2008.
‘Climate of Fear’
“We’ve put a lot of money to work during the chaos of the last two years,” Buffett wrote. “It’s been an ideal period for investors: A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance.”
Buffett has used past letters to discuss plans for his successor, praise Berkshire managers and confess his failings. He admitted this year to a “very expensive business fiasco” with his move to issue credit cards to policyholders at his company’s Geico Corp. auto-insurance subsidiary. Last year, he said the U.S. economy was “in shambles” after reckless lending caused the worst financial “freefall” he ever saw.
He chastised the media in the new letter for “terrible journalism” in seizing on that comment from the prior year without also reporting that he made no predictions about the direction of the stock market.
CEO Responsibility
Buffett said this year that the CEOs and boards of companies that failed during the credit crisis shouldn’t be allowed to pass blame to underlings. Boards should insist on CEOs taking full responsibility for the risk of collapse, he said. “If he’s incapable of handling that job, he should look for other employment,” Buffett wrote.
Shareholders weren’t responsible for the botched operations at some of the country’s largest financial institutions, Buffett said, “yet they have borne the burden with 90 percent or more” of their holdings wiped out in cases of failure.
Still, he said, using year-to-year stock prices to evaluate a company’s progress can be an “extraordinarily erratic” measure. Even a decade can fail to give the proper picture, as Microsoft Corp. CEO Steve Ballmer and GE’s Jeffrey Immelt found when they took over with their shares at “nosebleed” prices.
GE shares have dropped about 60 percent since Immelt took over in September 2001; Microsoft has fallen about 47 percent under Ballmer’s tenure. Berkshire shares have risen more than 160 percent in the past decade, compared with the 17 percent decline in the S&P 500. Buffett’s company joined that index last month when it completed the largest deal of his 40-year tenure, the $27 billion takeover of railroad Burlington Northern Santa Fe Corp.
‘We Sleep Well’
Berkshire had $30.6 billion in cash and so-called near cash like U.S. Treasuries as of Dec. 31, compared with $26.9 billion three months earlier, after Buffett sold stock to add to the company’s cash cushion in advance of the rail deal. Buffett used about $8 billion of that cash to help fund the acquisition.
“We pay a steep price to maintain our premier financial strength,” Buffett wrote. “The $20 billion-plus of cash- equivalent assets that we customarily hold is earning a pittance at present. But we sleep well.”
Source: Business Week
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