The Warren Report

U.S. Existing Home Sales Rise on Record Price Slump

By Bob Willis

Jan. 26 (Bloomberg) -- Sales of previously owned homes in the U.S. unexpectedly rose from a record low, propelled by the biggest slump in prices since the Great Depression as foreclosures surged.

Purchases rose 6.5 percent to an annual rate of 4.74 million from 4.45 million in November that was less than previously estimated, the National Association of Realtors said today in Washington. The median price dropped 15 percent from a year ago, the biggest decline since records began in 1968 and probably the biggest in seven decades, according to the group.

“You have to put it in the context of an even steeper decline for the previous month,” said David Sloan, a senior economist at 4Cast Inc. in New York, who had the highest projection in the Bloomberg News survey. “The net trend is still negative. It does seem that some cheap prices are attracting buyers. I don’t think it’s a clear sign of a revival in the housing market. The housing market is very weak.”

The housing slump at the center of the global credit crisis and economic downturn is likely to persist well into 2009, hurting companies such as Home Depot Inc. President Barack Obama has pledged to stem foreclosures and boost job creation to break the longest recession in a quarter century.

The index of leading economic indicators unexpectedly increased in December as the money supply expanded, a report from the Conference Board, a New York-based research group, showed today. The 0.3 percent increase was the first gain in six months and masked signs of a worsening recession. The index points to the direction of the economy over the next three to six months.

Better Than Forecast

Resales were forecast to fall to a 4.4 million annual rate, according to the median estimate of 70 economists in a Bloomberg News survey. Estimates ranged from 4.2 million to 4.6 million.

Sales were down 3.5 percent compared with a year earlier. Resales averaged 4.91 million in 2008, down 13 percent from 2007 and the fewest in 11 years.

Home Depot, the world’s largest home-improvement retailer, announced today it will cut 7,000 associate jobs and will freeze the salaries of all its officers as the housing slump persists.

The number of previously owned unsold homes on the market at the end of December represented 9.3 months’ worth at the current sales pace, down from 11.2 months’ at the end of the prior month.

The median price of an existing home decreased 9.3 in 2008 from the prior year, also the biggest decline since records began and the biggest since the Great Depression.

Single-Family Homes

Resales of single-family homes increased 7 percent to an annual rate of 4.26 million. Sales of condos and co-ops rose 2.1 percent to a 480,000 rate.

The rebound last month was led by a distressed-property related jump in the West, including California, Nevada and Arizona, the NAR said. Sales of distressed properties accounted for about 45 percent of all sales last month.

Home sales have been falling since 2005 and prices peaked in 2006. Property values are down by about 23 percent, according to the S&P/Case-Shiller index covering 20 metropolitan areas.

President Obama last week pressed congressional leaders to reach a consensus on an $825 billion stimulus plan that would generate job growth, cut taxes and spur spending on infrastructure, saying, “it appears we are on target” to get legislation passed by mid-February.

Obama Plan

Obama will use up to $100 billion of the remaining half of the $700 billion financial-rescue funds to ease the mortgage- foreclosure crisis, Lawrence Summers, his top economic adviser, said in a letter to lawmakers on Jan. 15.

Mounting foreclosures triggered a credit crisis which in turn has deepened the recession that began in December 2007 and shows no sign of letting up. The economy lost 2.6 million jobs last year and economists surveyed by Bloomberg forecast unemployment will rise to a 26-year high of 8.4 percent by the end of 2009.

Economists surveyed by Bloomberg forecast the economy contracted at a 5.3 percent annual pace in the fourth quarter of 2008, the most since 1982. The government will release its advance estimate on Jan. 30.

Builders

Builders are scaling back as sales slump and foreclosures mount, contributing to the economic slump.

U.S. foreclosure filings jumped 81 percent last year as more than 2.3 million properties got a default or auction notice, or were seized by lenders, according to RealtyTrac Inc., an Irvine, California-based seller of default data.

KB Home, the fourth-largest U.S. homebuilder, on Jan. 9 reported a fourth-quarter loss exceeding analysts’ estimates and predicted more pain for the housing market this year.

“The housing industry continues to confront unprecedented downward pressure,” Chief Executive Officer Jeffrey Mezger said in a conference call. “These conditions persist nationally, with no visible signs of lessening in the near term.”

Centex Corp., the second-biggest U.S. homebuilder by sales, said last week it plans to write down up to $600 million in the fiscal third quarter as land values plummeted. Net sales fell 80 percent from a year earlier to 1,080 units, the Dallas-based company said in a preliminary earnings statement Jan. 23.

“Abrupt and sweeping changes in the economy caused unprecedented homebuyer hesitancy, which severely impacted sales early in the quarter,” Chief Executive Officer Timothy Eller said in the statement. “As housing starts dropped to record lows and unemployment rose, buyers remained firmly on the sidelines early in the quarter.”

To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net

Last Updated: January 26, 2009 10:15 EST

HGTV’s FrontDoor.com Names Buckhead #2 of the Top 10 Dreamy Neighborhoods

Posted: 23 Jan 2009 09:09 AM CST

(BUSINESS WIRE)--In honor of HGTV's 13th Dream Home Giveaway, FrontDoor explores 10 of the dreamiest places to live in the United States. Whether it’s lush acreage, majestic views or exclusivity that you crave, each of these neighborhoods offers all that and more. Perhaps that's why they're in high demand, with buyers willing to pay millions to call them home. Find out what makes them so irresistible. (http://www.frontdoor.com/top10)

1. Sonoma, California. What's not to love about Sonoma? The wine country's rolling hills and sandy beaches make it an all-inclusive place to live. While the median home price is more than $500,000, acreage is in high demand here and buyers pay millions for it. Architecture ranges from Mediterranean to Victorian to Craftsman, and houses come in all sizes, from stunning estates to modest bungalows. No wonder HGTV chose this quaint northern California town to be the site of this year's Dream Home. Don't forget to sign up for a chance to win it.

2. Buckhead, Atlanta, Georgia. This trendy district north of Atlanta is a fascinating blend of old-money mansions and new-money nightlife. Whether it's a cozy cottage in Peachtree Hills or a magnificent estate in Tuxedo Park, you'll find Southern charm on every corner. Buckhead is a shopper's paradise, with two major shopping areas -- Lenox Square and Phipps Plaza -- that offer high-end retailers and great people-watching. The district also boasts the best dining and nightlife in the region, with more than 300 restaurants, bars and nightclubs.

3. Gold Coast, Chicago, Illinois. Old money and stunning lake views characterize this hot neighborhood that runs contrary to the Chicago phrase, "cooler by the lake." Oprah lives on the border of this high-priced community, where homebuyers can pay millions for a two-bedroom condo. The neighborhood offers world-class shopping, dining and entertainment as well convenient proximity to the lake and business district.

4. Scottsdale, Arizona. With upscale shopping, an active nightlife scene and a number of high-end residential golf communities, Scottsdale is the "it" place to be in the Phoenix area. The average home price is $2 million to $3 million, but homes can easily sell for a lot more. Home to more than 70 resorts and hotels, the city has designed itself to be a big tourist draw, creating a high demand for land in this area and raising property values.

5. Coral Gables, Florida. Just eight miles south of Miami, Coral Gables is quintessential old South Florida, featuring historic architecture, good schools and the Miracle Mile, a lively street lined with restaurants, bars and high-end boutiques. Expect to see lush landscaping and charming 1920s stucco homes with red tile roofs, archways and private courtyards.

6. Mercer Island, Washington. Location plays a key part in the high-end real estate market on Mercer Island. Connected to Seattle by two bridges, the island offers incredible views of the city's skyline without the hustle and bustle of urban life. Tranquility and convenience come at a price: a luxury home on Mercer Island can cost up to $40 million.

7. Park Slope, Brooklyn, New York. This neighborhood's historic charm, top-notch restaurants and shopping, and proximity to Prospect Park make it an attractive alternative to Manhattan for families and professionals. Seventh and Fifth avenues are Park Slope's main commercial areas, while other streets are occupied by renovated brownstones, which can sell for millions of dollars.

8. Lower Downtown (LoDo), Denver, Colorado. Looking for a Rocky Mountain getaway? Lower Downtown Denver is perfect for urbanites who love the mountains. The neighborhood is filled with old brick buildings converted into lofts, new condo towers, and a density of restaurants, bars and shops. The Riverfront Park, a rolling, meandering grassy swatch of real estate fronting the Platte River, offers great mountain views, places to barbecue and plenty of space to enjoy the fresh air of the Mile High City. Colorado boasts excellent skiing, world class dining and majestic views, which made Winter Park a great Dream Home location in 2007. And ski havens Aspen and Telluride are within driving distance.

9. Atherton, California. Located on the San Francisco peninsula, this high-end California neighborhood is home to computer company execs and venture capitalists. By preserving the area's wooded scenery and rural charm, Atherton is able to offer a quieter lifestyle than its neighbor, San Francisco. As of December 2008, the median home price in Atherton settles in at more than $4 million.

10. Back Bay, Boston, Massachusetts. One of Boston's priciest neighborhoods, Back Bay is both a residential and commercial area, featuring Victorian brownstones on its northern end and some of Boston's tallest skyscrapers on its southern end. The neighborhood's historic Newbury and Boylston streets offer trendy cafes and upscale shopping, and Copley Square boasts several 19th century landmarks.

The Case for a Quick Recovery

By Chris Isidore, CNNMoney.com senior writer
Last Updated: January 12, 2009: 4:28 PM ET

NEW YORK (CNNMoney.com) -- There is no debate that the U.S. economy is in terrible shape at the moment.
Nearly 2.6 million jobs were lost last year, with the majority of them coming in the final four months of the year. And some economists are forecasting as much as a 5% to 9% drop in economic activity during the fourth quarter, which could be the biggest drop in 50 years.
 
But some economists are starting to believe that there could be a much stronger and quicker recovery than is now widely expected.

 

They say that the sharp drop in production and inventories during this recession will force businesses that are now busy cutting back to quickly ramp up production once the economy starts to improve.

The crisis in financial and credit markets sparked by the Lehman Brothers bankruptcy in September caused businesses to slam the brakes on production much harder than justified by reduced demand alone, according to Joseph Carson, chief economist at AllianceBernstein.

"We were producing 2 million tons of steel a week prior to Lehman. Now we're producing 880,000 a week," Carson said. "The economy has slowed, but it has not fallen by half in the last three months. This kind of significant inventory liquidation is exactly why recoveries take place."

Many also believe that the significant steps being taken by the Federal Reserve and Congress to spur the economy will kick in later this year. That stimulus, coupled with low energy prices, could cause a jump in economic activity.

A V-shaped recovery?

This kind of recovery is known as a V-shaped recovery, because a chart of economic activity would look like the letter V: a steep decline followed by a quick and strong turn around.

"Generally the sharper the recession, the sharper the recovery," said Lakshman Achuthan, managing director of the Economic Cycle Research Institute.

Achuthan said he is not yet ready to call the bottom of the current economic downturn. But he said his firm's weekly index of leading economic indicators has been ticking higher in recent weeks, suggesting that the economy may finally be close to the bottom.

He added that when things start to show signs of improvement, the economy could well be helped by pent-up demand from consumers who sharply curtailed purchases in recent months.

Isakson: Fixing housing crisis key to economic recovery

Submitted by the office of Sen. Isakson

WASHINGTON – U.S. Senator Johnny Isakson, R-Ga., spoke on the Senate floor last week and argued that Congress must take steps to jump-start housing demand in order to boost the slumping economy. On Jan.15, Isakson introduced the Fix Housing First Homebuyer Tax Credit Act to expand the homebuyer tax credit passed by Congress last year.

The text of Isakson’s remarks is below:

“Madam President, to a certain extent I wish to follow up precisely on the remarks the Senator from Washington made at the end of her speech.

"I, too, have been disappointed with the deployment of the first half of the TARP money, and I supported that deployment in the hopes that it would stabilize the marketplace, ease credit for our customers, and help the housing market. While it probably did stabilize the banking system, there has yet to be a loosening of credit and there has yet to be a recovery of the housing market.

“Looking ahead, we continue to look at suggestions that throw money at the problem rather than getting to the root cause of the problem. In fact, with the best of intentions, I think people are struggling to meet the symptoms of a serious illness rather than treat the illness. I wish to direct my remarks tonight to that illness.

“The illness, as the Senator from Washington referred to, is the collapse of the U.S. housing market which began in the last quarter of 2007. In the first quarter of 2008, in January, I introduced a housing tax credit of up to $15,000 for the purchase of any house that was standing vacant or in foreclosure. I did it for a couple of reasons. No. 1, I was in the real estate business for 33 years, and I was in it in 1974, a year in which we had a housing collapse worse than the current situation. While many people think this one is bad, it is not as bad as 1974.

“In December of 1974, there was a three-year supply of unsold, standing new houses in the United States of America. That is a catastrophic inventory. We currently have a supply of about 11 to 13 months, depending on the State. That is not a good market, but it is not 36 months, which is a horrible market.

“President Gerald Ford, a Republican, and a Democratic Congress, came together and passed a $2,000 tax credit to any family who bought and occupied one of those standing homes. Within 1 year's time, which was the limited time of the tax credit, two-thirds of the housing inventory on the market was sold, values stopped declining and started improving, and we had a stabilization of our economy, the end of a recessionary period, and the beginning of prosperity.

“I come here tonight because about an hour and a half ago I dropped a bill known as Fix Housing First, an effort for me and others in this body to rekindle that debate of last January. Now, last year, we did pass a housing tax credit, but it was a now-you-see-it/now-you-don't approach. It was a first-time home buyer credit of $7,500 that was a refundable loan, interest free, because over 15 years you would pay the credit back to the Government in the form of income taxes. It was an incentive, but it was weak. It was not bold.

“The tax credit we introduced last year was scored by CBO at $11.4 billion, and Finance believed at that time--and maybe rightfully so--that was too big a price to pay and too expensive. Well, because we didn't do it, in October of this year, we approved $750 billion to address the symptoms of the problem, which is the failure of the housing market.

“I had the privilege yesterday of meeting with some of President-elect Obama's team, including Rahm Emanuel, Dr. Summers, and others, and told them precisely what I am saying on the floor of the Senate today; that is, I hope they will embrace this concept of incentivizing the housing market so we can stabilize values, stop the continuing erosion of equity, and begin to reflate--not inflate but reflate--the housing market.

“In America today, 20 percent of the houses are underwater, meaning there is more owed on them than they are worth. That means equity lines of credit with our banks are in default. It means students going to college are losing the money their parents had for tuition. It means there is not enough liquidity in households anymore or credit availability to make purchases of durable goods that are important to our system, and our system is continuing to feed in a downward spiral on the illiquidity, the lack of equity, and the lack of a marketplace for housing.

“I was in this business for a long time, and I called 10 people who worked for me a number of years ago last weekend in Atlanta. I asked them, I said: What is going on in the market? Tell me what the buyers are saying or are there any buyers? I talked to a lady by the name of Glennis Beacham.

“She said: Johnny, I had nine people come to my open house last weekend, and that is a good crowd for an open house in this marketplace. Every one of them had the money and they wanted to buy, but they were looking for two things: a short sale, which means somebody selling their house for less than is owed on it and getting a discount from the lender, which means it is a downward price or they are looking for somebody whose house is going into foreclosure that they think they can steal. They don't want to even make an offer on the 80 percent of people's houses in this country who are making their payments, aren't in default, aren't in foreclosure, but might need to sell. So the marketplace has died.

“Now, Fix Housing First proposes the following: Repeal the $7,500 tax credit we passed last year, which is not being used, by the way. That credit has not been used to any extent whatsoever. Replace it with a tax credit that will go from $10,000 to $22,000 depending on the formula. It would be a monetizeable tax credit. What that means is this: you make the tax credit good for this year--January 1 through December 31 of 2009--but you allow the monetization or the claiming of that credit against the 2008 income taxes of that family. The 2008 income taxes come due in April of this year, the 15th. We all know that. By allowing the credit to be taken against 2008 income taxes, you can monetize that money at the closing, use it as a part of the down payment, and immediately incentivize the marketplace. Is that a little costly? Sure. Is it something we would rather not do? Probably. But what are we going to do? Watch the marketplace go down to where four out of every five houses are underwater? Watch sales go down to where there is no viable housing market in this country? It has not stopped spiraling. It is continuing, and everything feeds off of it.

“I don't wish to belabor this point, but I wish to talk for the American people, the people of Georgia. The community bankers are hamstrung right now. Most of their investments are in real estate, residential construction, and acquisition and development loans. With no marketplace to buy the lots or buy the houses, they have no cash flow coming in to service the loans. They are deteriorating in terms of their value. Americans who have been transferred who are making their payments, who have a viable house, who have to sell it to move to the next city of choice, there is no marketplace to buy that house, so that is stagnating.

“Consumer products, take carpets, for example. The State of Georgia, the County of Whitfield, the City of Dalton produces about 85 percent of the domestic carpet in the United States of America. It is shut down. The mills are shut down. Why? People aren't recarpeting. They aren't redoing their houses. New houses aren't selling. The market is gone. I could go on and on with durable products made in the United States of America whose industries are now in trouble because the housing market has taken a severe hit over a protracted period of time.

“So my plea to the President-elect, to my friends on both sides of the aisle, to the Members of the United States House of Representatives, as we are deploying countless billions of dollars to react to problems that are manifesting because of a failed housing market and mistakes that were made in the past, let's put some money out there to incentivize Mr. and Ms. America who want the American dream to buy a home, to buy one for their family, occupy it as their residence, and give them a tax credit for doing it. It is a small price for the Government to pay to begin to restore the industry that got us to where we are and will lead us out of these dangerous and dark times.

“So I come tonight on behalf of the homeowners of the Presiding Officer's State of Florida and mine, the community bankers, the realtors, the homebuilders, the fix-it people, the durable goods producers, the building supply makers, the landscapers--every job that has been lost and gone, in some cases forever, because the housing market in this country has collapsed.

“We have learned our lesson for loose underwriting. We have learned our lesson from loaning money to people who weren't qualified to borrow. We have paid a terrible price for that lesson, both the country and the people. It is time for us to do what we know we should have done: have quality underwriting, available credit, but have accountability in our lending system, make sure values are appraised right, underwriting is done right, and credit is available but people are qualified. If we can do that and incentivize people to come back because of the tax credit, we can solve this problem.

“I don't want to oversimplify the gravity of the problem we face, but the housing market led us in; the housing market will lead us out. It is time for us to fix housing first. Our failure to do so will cost us a lot more than $700 billion of our taxpayers' money, and countless Americans who shouldn't will lose their homes, lose their jobs, and lose their faith in the greatest country on the face of this Earth.

“I ask my colleagues to study this recommendation. I hope the President-elect will embrace it. I hope, quickly, we can fix housing first in the United States of America.”

Realtors Continue Push for Comprehensive Housing Strategy

RISMEDIA, January 20, 2009-While the National Association of Realtors(R) says that the organization is pleased that Congress and the incoming Obama administration are working to ensure that any additional Troubled Asset Relief Program initiatives or economic stimulus package include provisions to stimulate home sales, prevent foreclosures and restore confidence in the housing market, NAR will continue its push for a comprehensive housing strategy.

“The housing sector is at the core of the current economic crisis,” NAR President Charles McMillan said. “A renewed, revitalized and robust housing market is essential to generating commerce and helping families build wealth and stability. We are eager to see this happen and look forward to working with the Obama administration and Congress to quickly implement housing stimulus efforts.”

NAR expressed support for Chairman Barney Frank’s, D-Mass., proposal, H.R. 384, the TARP Reform and Accountability Act, introduced last week. This bill contains key components of NAR’s Housing Stimulus Plan, including enacting a mortgage buy-down program to reduce interest rates below prevailing rates, increasing foreclosure prevention and mitigation efforts, and providing needed liquidity to the residential and commercial mortgage markets to ensure that financing is available. “We also applaud the chairman’s efforts to strengthen accountability and increase transparency in the use of TARP funds,” McMillan said.

NAR has pushed to refocus the TARP to end the credit crisis and jumpstart mortgage lending. “It is imperative to get TARP back on track by targeting funds for mortgage relief, which will help lower mortgage rates and reduce foreclosures,” said McMillan.

Even if H.R. 384 is not enacted, it will provide the Obama administration with a clear statement of congressional intent as Congress moves forward to implement the second half of the TARP. NAR has and will continue to advocate NAR’s positions to the new administration and regulatory agencies.

Realtors pledged to work with Congress and the administration to pass an economic stimulus plan that is expected to include many components championed by NAR to improve housing. “We are pleased that eliminating the repayment feature of the first-time home buyer $7,500 tax credit will be addressed in this proposal. However, we still are working to have the credit expanded to all home buyers, and to extend the program through December 31, 2009. NAR is also working to ensure that any stimulus legislation reinstates the higher 2008 mortgage loan limits for FHA, Fannie Mae and Freddie Mac. These actions will have a meaningful impact on the housing market and will help protect home values,” McMillan said.

NAR’s Housing Stimulus Plan includes both legislative and regulatory fixes. Its focus includes keeping mortgage interest rates low, boosting home buyer confidence, and reducing the current foreclosure rate. It also asks that regulators be encouraged to help financial institutions resolve problems in the short-sale process, make it easier for servicers to modify existing loans, remove unreasonable underwriting guidelines and insist that credit reporting agencies correct errors promptly.

“We must all work together to stimulate and unclog the housing and financial system. Low interest rates, tax credits and higher loan limits will be effective only if people can get a loan. We hear every day from our members that even home buyers with good credit are having trouble getting mortgage loans. This must be corrected,” said McMillan.

NAR expressed hope that the new administration will keeps its focus on a housing recovery as it moves forward with a larger stimulus package.

Democrats Unveil Stimulus Plan Totaling Over $825 Billion

By Kevin G. Hall and David Lightman

RISMEDIA, January 19, 2009-(MCT)-Democrats in the House of Representatives unveiled their economic stimulus plan on Thursday, proposing $275 billion in tax cuts and credits to jump-start the economy and $550 billion in spending for clean energy, road construction, social welfare programs and emergency assistance to states.

Thursday’s rollout was the first step in what’s sure to be a lively debate in the weeks ahead over the proposed $825 billion American Recovery and Reinvestment Bill of 2009, the largest stimulus measure ever.

In a related move on Thursday, the Senate voted to make the remaining $350 billion in Wall Street bailout money available when the Obama administration takes office next week. President-elect Barack Obama’s chief economic adviser, Lawrence Summers, sent a letter to Congress on Thursday promising to use up to $100 billion of that to address the national mortgage foreclosure crisis, something the Bush administration had ruled out for the bailout funds.

The stimulus plan was crafted with input from Obama, who was scheduled to appear at a factory in Ohio on Friday to talk it up.

“This plan is a significant down payment on our most urgent challenges, and it will contain the kind of strict, independent oversight that will allow the American people to hold Washington accountable for how and where their tax dollars are spent,” Obama said in a statement.

House Speaker Nancy Pelosi, D-Calif., said the stimulus package aims at “immediate job creation and continuing job creation,” but the House Republican leader, John Boehner of Ohio, took one look and vowed to fight the plan.

“Oh my God,” he said slowly as he described his immediate reaction. “I just can’t tell you how shocked I am at what we’re seeing … Everything all these agencies want to do is in here. I don’t know how this is going to stimulate the economy.”

Pelosi said Congress hopes to send the measure to Obama by mid-February.

Many mainstream economists favor a large and immediate spending plan, particularly on public works projects that create jobs. They think that government must create demand in an economy suffering from business and consumer retrenchment.

“The stimulus plan as laid out will provide a vital boost to the flagging economy. Without it, the jobless rate is headed well into the double digits-a depression in my nomenclature,” said Mark Zandi, chief economist with forecaster Moody’s Economy.com. “Stimulus is more than dollars and cents, however. It has to be passed quickly and sold well to shore up crumbling confidence.”

As promised, the legislation appears free of earmarks, the pet projects of individual lawmakers. Republicans, however, insisted that it was laden with pork since many of the spending provisions amount to a longstanding Democratic wish list that goes far beyond short-term stimulus.

The measure would provide $79 billion to state and local governments to prevent cutbacks in vital services, including $39 billion to local school districts and public colleges. It would provide $30 billion for highway construction and $19 billion for clean water, flood control and environmental restoration efforts. Another $84 billion is set aside for renewable energy production and enhancing energy efficiency.

Many of the provisions are designed to spark quick job creation in areas such as road building and health care. They also are intended to promote a shift toward “green jobs,” where construction workers retrofit and modify federal buildings, public housing and even “modest-income homes” to enhance their energy efficiency.

“They hit it over the fence,” said Phil Angelides, chairman of the Apollo Alliance, a coalition of business, environment, and labor groups pushing for federal support of clean energy technology.

In a summary of the legislation provided by House Appropriations Committee Chairman David Obey, D-Wis., however, Democrats warned that the bill won’t be a cure-all.

“The economy is in such trouble that, even with passage of this package, unemployment rates are expected to rise to between 8 and 9% this year. Without this package, we are warned that unemployment could explode to near 12 percent,” the summary said.

The Labor Department reported on Thursday that 524,000 people filed jobless claims during the week ending Jan. 10. That underscores that the economy continues to deteriorate rapidly. More than 1 million Americans lost jobs in the final two months of 2008.

The stimulus plan proposes $43 billion for increased unemployment benefits and job training.

It also includes another $39 billion to subsidize and extend the period of government-mandated health-care coverage-called Cobra-for laid-off workers. The measure would extend the 18-month limit of Cobra coverage for laid-off workers who are 55 or older.

Workers who have been employed 10 years or longer by one company would be able to retain Cobra coverage until they find a new job or become eligible for Medicare.

Rep. Charles Rangel, D-N.Y., the chairman of the tax-writing House Ways and Means Committee, rolled out the tax provisions of the stimulus plan separately. There was plenty in his bill designed to win over Republicans and business interests, including a proposal to let business deduct losses retroactively over five years. This allows companies large and small to use the tax code to bolster their balance sheets.

The tax measures also would allow businesses to more quickly write off expenses and equipment. A number of provisions would spark purchases of state and local bonds and extend tax credits for renewable energy production.

House Democrats would fulfill Obama’s promise of a tax credit for most Americans. Single filers with adjusted gross income below $75,000 would receive a $500 tax credit, while joint filers with adjusted gross below $150,000 would get back $1,000.

For employed Americans, this credit would come quickly in the form of less money deducted from their withholding taxes. Because it’s refundable, Americans without income could apply for it. The measure also proposes expanding the earned income tax credit for poorer workers and increasing the child tax credit.

Much in the package appears unrelated to short-term stimulus or long-term competitiveness. For example, it would give $1 billion to aid states in the collection of child support, another $1 billion toward preparations for the 2010 census, $4 billion to support local law enforcement and $800 million to clean up hazardous and toxic waste sites.

However meritorious such items may be, Republicans argue, they don’t stimulate the economy or significantly create jobs. Boehner singled out education funding, especially help for college students.

“Why should taxpayers have to put this money out (for people to) go to universities that have billions of dollars in (private) endowments?” he asked.

Obey, the chairman of the House committee that controls spending, said the package isn’t a spending plan in disguise, as Republicans charge.

“This is not a grand new spending program,” he said, noting that education funding directly helps cash-strapped states. “States have seen the bottom drop out of revenue projections around the country.”

Other features of the package would:

- Provide $20 billion to increase by more than 13% the food-stamp benefit.
- Give $87 billion to state governments for a temporary increase in the matching rate that the federal government pays to support their Medicaid programs for the poor and disabled.
- Designate $32 billion to “transform the nation’s energy transmission, distribution and production systems” to build a “smarter” energy grid that can use more inputs from renewable sources, such as solar, wind and alternative fuels.
- Set aside $16 billion to repair public housing and install energy efficient windows, heating and cooling units and other such improvements.

© 2009, McClatchy-Tribune Information Services.

The Perfect Storm

by Kevin Breeland

The Perfect Storm….hummmm….no this is not about the movie. It is not about George Clooney or Mark Wahlberg, It is about what I believe is possibly a Perfect Storm for a home buyer in today’s market.

 

I have been a Mortgage Loan Officer for 30 years. In that time I have seen down markets, credit tight markets, high unemployment, high interest rates, and low interest rates. When I purchased my very first home my choice was a 30 yr fixed at 19.5% or a negative amortization loan fixed for the first 3 yrs at 11.5%. The year was 1981 and our rent was going from $245.00 a month to a house payment of $503.00 a month. We purchased new construction and in 3 years when it was time for the loan to reset we sold the house for $43,000….$1,000 less than we purchased it for and $7,000 less than we owed on it. That was my first lesson of buying in an up market, selling in a down market and using a negative amortization loan to finance it. Terrible lesson that to this day I remember like it was yesterday.

 

A great number of people have just experienced what I experienced in 1981-83. The difference, rates were lower but property values were going through the roof and of course no thought it would every end. How could it, if it wasn’t for the housing market and the refi activity from 2003-2006 there would have been no recovery from the previous recession. People are losing their homes everyday and it is a terrible situation for those who are caught in it. However, this is not about those people, it is about the buyers of today who may not even realize they are buyers.

 

When I arrive in Alaska in 1985 the statewide recession seemed to have started that day. While in principal I know this is not true what is fact is the real estate market suffered in ways you can not imagine. Starting in 1990 Alaska, or more specifically, the City of Anchorage started on an 18 year run of positive growth. In the early 90’s if you bought a home then prices were very low, rates were in the low 7% range (not seen for years) and in 7 to 10 years you saw you home double in value. What a great investment. I had customers selling their homes and taking all of that money and buying newer bigger homes, with real equity and living the dream that most of us have.

 

Today, I live in Charleston, SC and we have a very similar market nationally…not regionally. Buyers and renters who can become buyers have the opportunity to purchase a home that just 2 to 3 years ago would have cost 25% to 40% more. In some extreme case that number is as high as 60% to 70%. In addition, ask yourself the last time you had a 5% fixed rate mortgage for a term of longer than 3 to 5 years. In some cases it now cost more to rent a home than it does to buy a home. Why??? Simple when foreclosures are on the increase rentals are in greater demand. With this greater demand comes a shortage of housing, and increase of rents, and the cycle begins. Renters who have good credit, and there are many of you out there, should be looking to becoming a home owner and why not? Yes credit is tighter, yes you will actually have to have a job, yes you will actually have your income verified, and yes you do need some money. If you want to be a home owner, have everything but the money, FHA even allows a gift from family members to help you so you can become a homeowner. Homes in established neighborhood, new construction neighborhood, condo and townhouse living. There are available properties in all housing sectors.

 

Is it the Perfect Storm….I think so…..I can not imagine how it could be much better for a buyer.

 

 

Kevin M. Breeland

General Manager

Residential Mortgage of South Carolina, LLC

Decision Analyst U.S. Economic Index for December Holds Steady, Signaling Economic Recovery in 2009

updated 12:20 p.m. ET, Wed., Jan. 7, 2009

ARLINGTON, TX - Decision Analyst's U.S. Economic Index remained essentially flat during the month of December, showing a one point decline to 87. The fact that the U.S. Economic Index has remained relatively stable for the past nine months signals that the U.S. economy is likely to start recovering during the second half of 2009.

 

The Economic Index tends to be a leading indicator, usually foreshadowing Gross Domestic Product by 12 to 18 months. It is quite remarkable, in the face of daunting economic news and dire economic warnings, that the U.S. Economic Index has remained stable for the last nine months of 2008.

"While the media and new services hype the recession and all of the negative economic news, the average man on the street in the U.S. is seeing some positive signs: declining prices of homes, gasoline, and a wide array of retail goods; and declining interest rates.

 

The Economic Index is indicating that the U.S. economy will 'bottom out' during the middle of 2009, if present trends remain in effect," said Jerry W. Thomas, president/CEO of Decision Analyst, a marketing research and consulting firm.

 

"The published economic data are very confusing and difficult to read right now, because of deflationary trends. Falling prices make the reported economic numbers look worse than they actually are. So, we are becoming increasingly optimistic that the U.S. recession will come to an end during the second or third quarters of 2009," said Thomas. "The Great Financial Panic of 2008, however, continues to inject uncertainty into any forecast of future economic activity, because continuing credit contraction may short-circuit the normal economic recovery process."

 (Source: MSNBC.com January 12, 2009)

Metro Atlanta's economic fate tied to real estate

Rise in unemployment lines up with collapse in new home construction

By MICHAEL E. KANELL

The Atlanta Journal-Constitution

Wednesday, January 07, 2009

As new home sales go, so goes hiring in metro Atlanta. It’s a link that’s all too clear to Cameron Smith. Smith sold houses on Atlanta’s south side, earning a pretty good living until she was laid off last month.

"I made it through five rounds of layoffs," she said Tuesday while waiting at a Labor Department office to file for unemployment benefits.

Smith thinks she can go about six months without work while she looks for a job in logistics management. The Labor Department says roughly three job seekers vie for each opening.

A lot has been going sour economy-wise, but in Atlanta perhaps the most painful drag on hiring has been the housing market.

And if history is any guide, the continuing slide of new home sales is a signal that the recession is far from over and the job market is going to keep worsening for a while.

The good news?

Since World War II, no recession has lasted longer than 16 months. That’s a mark the current downturn could pass this spring.

"If you take the historical data to interpret the current situation — and history is all you have — that would suggest that we are in a very deep recession that has yet to find a way to turn around," said economist Michael Reksulak of Georgia Southern University.

The consensus view among economists is that unemployment will worsen this year and level off in 2010. Predictions vary about housing, but in the 10 previous recessions since World War II, new home sales started to ebb before the economy overall turned down. But sales bottomed out and began to pick up a few months before the broader economy was in recovery.

So far, new home sales have shown no sign of a turnaround.

"We are already one year into recession and we haven’t seen that inflection point that would give us hope that we are coming toward the end of the recession," Reksulak said.

It’s not that new home sales alone cause economic recovery and heated-up hiring. But real estate activity is one clue used by the National Bureau of Economic Research — the semi-official arbiter of recessions — in dating the start and end of recessions.

And real estate is a crucial part of the economy, especially in Atlanta.

When building slows, there are layoffs from roofers to brokers and attorneys to air conditioning installers. When building booms, the ripples run in the other direction. In metro Atlanta, the boom in residential real estate crested in mid-2006. The job market continued to grow for about a year longer.

The national economy — and Atlanta with it — slipped into recession toward the end of 2007.

Although Atlanta has some critical growth engines, no one sector dominates economic growth.

Yet more than most regions, where geography or regulation limits building, housing in metro Atlanta looms large.

For more than a decade, metro Atlanta either led the nation or was among the leaders in new home construction.

Even after more than a year of real estate decline, construction in metro Atlanta in 2008 accounted for 128,289 jobs — 5.5 percent of the total, according to the Labor Department. More than 106,133 people worked in finance and insurance, many of them professionals who depend on real estate in various forms. Included in that group are real estate jobs — roughly 35,000 in metro Atlanta.

How many jobs disappeared when new home sales evaporated?

While those numbers are hard to pin down, the slump in Atlanta housing does line up with the deteriorating job market.

From November 2007 to November 2008, metro Atlanta lost 67,800 jobs.

When the housing bubble burst, optimists at first noted that the unemployment rate was only rising modestly and argued that housing’s woes would not drag the economy into the ditch. But it now gets much of the blame.

The unemployment rate in metro Atlanta climbed from 4.1 percent in November 2007 to 7 percent a year later.

Economists now expect the jobless rate to rise through most of this year — a view shared even among those who think the economy will bottom out and start expanding by autumn.

Unemployment generally doesn’t hit a peak until after the recession is over, said Mark Vitner, senior economist with Wachovia Corp. "New home sales are somewhere between a leading and coincident [or concurrent] indicator, while the unemployment rate is a lagging indicator."

It is natural for a rise in new home sales to be one of the signs that things are getting better, said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University.

"When you reach the end of the bad times, people are starting to get jobs. At the point that people are getting jobs, they are in the mood to buy homes."