Real Estate Outlook: Recession is Over

Now it's official. The chairman of the Federal Reserve Board himself has said it publicly that it looks like the recession is over.
By: Kenneth R. Harney: RealtyTimes.com
Here comes the recovery.

But there was a big footnote in Bernanke's speech on the economy last week in Washington: Don't look for a dramatic recovery.

It'll be more like a slow moving, plodding sort of improvement where the economy inches toward expansion. But there'll be no sudden, splashy return to economic boomtime anytime soon.

Bernanke's point about the end of the recession was underscored by a 2.7 percent jump in retail sales for the month of August, according to the Commerce Department.

That's an important indicator because the key to pumping up the economy again is to get consumers spending, and that appears to be happening. Not just for auto sales, which got a big boost in August from the government's "cash for clunkers" program, but also for other key categories, like food and clothing purchases, department store retail, entertainment and restaurant spending, sporting goods.

They were all up for the month, after having been mainly down for well over a year.

One reason for the pick-up in consumer spending: People feel more confident about the direction of the economy in the months ahead. They see the stock market up, so their retirement funds and 401 K plans are bouncing back.

They see home values stabilizing or growing in most areas, so their equity is beginning to increase again.

The one big negative - and it's definitely a drag for housing - is the unemployment rate, which Mr. Bernanke said won't be coming down fast, even with the end of the recession.

Nonetheless, the vast majority of Americans who do have jobs have seen their real wages rise this year, up five percent. That's the largest annual gain in fifty years.

All of this is feeding into the housing sector in key markets, such as southern California, where August sales were up 11 percent compared with the year before, according to MDA DataQuick. Even prices are rising slightly.

In the combined markets of Los Angeles, San Diego, Orange County, San Bernadino-Riverside and Ventura, the median price of homes sold gained 2.6 percent in August, which is very encouraging for one of the hardest-hit boom-to-bust areas of the country.

Meanwhile, the mortgage market continues to be exceptionally positive for housing sales and values: 30 year fixed rates averaged just above 5 percent last week, according to the Mortgage Bankers Association, and 15 year loans averaged 4.4 percent.
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Housing Seems Set to Aid Economy a Bit

After facilitating the economy's downfall, the housing sector will soon start helping its recovery, though probably not by much.
By: MARK GONGLOFF: WSJ.com
Census Bureau data on August housing starts are due Thursday morning. Economists think starts rose 3.3% from June to an annualized rate of 600,000 units, the fastest pace since November 2008.

A tentative recovery in home construction might be enough to boost annualized gross-domestic-product growth by as much as 0.5 percentage point, according to some estimates, perhaps as soon as this quarter.

That would be an impressive turn of events. Collapsing residential construction slashed nearly one percentage point, on average, from GDP growth for the past 3½ years in a row.

That starts are gaining ground might seem quizzical, as there is still an oversupply of housing on the market, including a large "shadow" inventory of homes that will eventually enter foreclosure or that are being held off the market while their owners wait for prices to recover.

But many unsold homes might be too large for the first-time buyers that have boosted the market in recent months, spurred by government tax credits, suggests Ian Shepherdson, chief U.S. economist at High Frequency Economics. Home builders can make smaller houses to meet that demand.

Still, there are limits to how much activity is likely to be seen. Builders remain cautious. Though their sentiment has improved, it is still near record lows, according to the latest survey by the National Association of Home Builders.

August's expected gain would still leave starts down 29% from a year ago and down 74% from the 2.27 million-unit record pace set in January 2006, at the height of the bubble.

Goldman Sachs economists, weighing population growth, inventory and still-high home-vacancy rates, estimate there might be just 850,000 housing starts in 2010 - roughly the pace before the Lehman Brothers collapse a year ago.

That suggests there mightn't be much more juice in home-builder stocks. The Dow Jones U.S. Home Construction Total Stock Market Index has more than doubled from its November bottom and is near pre-Lehman levels.

It also suggests housing's contribution to GDP will be minimal.

Still, it's a start.
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Housing Starts in U.S. Climb to Nine-Month High

Builders in the U.S. broke ground in August on the most houses in nine months, led by a jump in multifamily dwellings that overshadowed a decrease in construction of single-family homes.
By: Bob Willis: Bloomberg.com
Housing starts rose 1.5 percent to an annual rate of 598,000, as anticipated, figures from the Commerce Department showed today in Washington.
Single-family projects dropped 3 percent, the first decrease since January, while work began on 25 percent more multifamily units, such as apartments.

Builders may be pulling back as the expiration of the government’s tax credit for first-time buyers nears. The incentive, plus foreclosure-driven declines in prices, helped boost sales in recent months, and companies may not want to be caught with excess supply should the program fail to be extended.

“These tax incentives often borrow from future sales and the pickup does not last,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. “This does not throw the recovery idea into a tailspin, but the housing normalization will come at a slow, measured pace.”

Futures on the Standard & Poor’s 500 Stock Index were down 0.1 percent to 1,062.60 at 8:39 a.m. in New York after rising as much as 0.6 percent.

Jobless Claims

A separate report today from the Labor Department showed that the number of Americans filing first-time claims for jobless benefits fell unexpectedly last week, a sign the labor market is deteriorating at a slower pace as the economy pulls out of the recession.

Applications dropped by 12,000 to 545,000 in the week ended Sept. 12, from a revised 557,000 the week before. The total number of people collecting unemployment insurance rose the prior week.

Starts were projected to rise to a 598,000 annual pace from a 581,000 rate initially reported for July, according to the median forecast of 74 economists surveyed by Bloomberg News. Estimates ranged from 570,000 to 640,000.

Permits, a sign of future construction, climbed 2.7 percent to a 579,000 annual rate in August, also led by an increase in multifamily. They were projected to rise to 583,000, economists forecast.

Construction of single-family houses, which account for about 85 percent of the industry, fell 3 percent to a 479,000 rate, the first decline since January. Work on multi-family units, which make up the rest of the market and is often volatile, jumped 25 percent to a 119,000 rate.

Gains in Northeast

The increase in starts was led by a 24 percent increase in the Northeast. They rose 0.9 percent in the Midwest, and fell 2.4 percent in the South. The West was little changed.

Volatility in multifamily projects has obscured the underlying improvement in residential building. Construction of apartments and condominiums surged 56 percent in May only to slump by 21 percent and 15 percent the next two months.

Americans are taking advantage of the Obama administration’s $8,000 tax credits for first-time buyers that expires at the end of November. Those with jobs, cash to make down payments and good credit scores are picking up bargains as record foreclosures have driven down home prices by about 32 percent from their peaks in mid-2006, according to the S&P/Case- Shiller index.

Combined sales of new and existing homes rose in the four months though July.

A report yesterday showed gains in sales and buyer traffic pushed builder confidence this month to its highest level since May 2008.

Toll Brothers

Luxury builder Toll Brothers Inc. is among companies that see demand improving, even as losses mount.

“In the last six months, we see a pretty significant change in some markets,” Chief Executive Officer Robert Toll said in an interview Aug. 27 with Bloomberg Television. “People are now concerned with missing the market.”
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L.A. Buyers Flock to Low-End and Luxury Homes

L.A. homebuyers went to extremes in August, boosting sales in the high- and low-price ranges.
HOUSING: August sales up 45 percent year to year and 5 percent from July.
By: HOWARD FINE: Los Angeles Business Journal.com
People are buying homes again in L.A. County, and not just cheap foreclosed properties: They’re buying at the upper end, too.

Convinced that prices are near the bottom, and drawn by low interest rates and impending deadlines for federal and state tax credits, first-time homebuyers and bargain hunters continued their return to the market, often getting into bidding wars over foreclosed and bargain-rate properties, especially condominiums.

Meanwhile, banks have finally eased the reins a bit for jumbo loans, allowing buyers to step in at the upper end, boosting sales in luxury areas like Calabasas, Manhattan Beach and Palos Verdes Estates.

These trends are evident in the August new and existing residential sales data for Los Angeles County from HomeData Corp. of Hicksville, N.Y. Home sales jumped 45 percent from August 2008 and August 2009, and were even up 5 percent from July levels.

Meanwhile, the median home price held steady at $330,000 between July and August. Also noteworthy: The rate of year-over-year decline is slowing: Between August 2008 and August 2009, the price dropped 18 percent, compared with a 30 percent drop between August 2007 and August 2008.

“We’re either at or near the bottom,” said economist Chris Thornberg, a principal with Beacon Economics in West Los Angeles and a close observer of L.A.’s real estate markets.

The biggest beneficiary has been the condo market, where sales surged 55 percent between August 2008 and August 2009.

What’s more, condo prices posted a 7 percent gain between July and August, hitting $320,000, the highest level since November. The August numbers show a 16 percent decline in year-over-year condo prices.

A federal tax credit of up to $8,000 for first-time homebuyers runs through November, while a state tax credit of up to $10,000 just expired this past week for purchases of new homes and condominiums. These credits – combined with mortgage interest rates in the 4 percent to 5 percent range for 30-year fixed-rate loans less than $417,000 – have spurred many buyers who had been sitting on the sidelines during the housing market meltdown.

This has boosted sales in the county’s urban core, with communities such as El Sereno and Exposition Park recording year-over-year sales jumps of 200 percent or more. Many of the county’s suburban markets, including Mission Hills, Pomona and West Covina, saw sales volumes double between August 2008 and August 2009.

Yet sales are also hopping in many areas at the opposite end of the price spectrum. Several ZIP codes with median home prices exceeding $1 million saw their sales volumes increase by more than 100 percent over the past year, including areas of Calabasas, the Hollywood Hills, Manhattan Beach and Palos Verdes Estates.

“The prices have finally dropped enough to where buyers are stepping in and the banks are doing better at making loans,” said Syd Leibovitch, owner of Rodeo Realty in Beverly Hills.

Leibovitch said few banks were making jumbo loans of more than $730,000 earlier this year, and the few that were required down payments of 50 percent or more and were charging interest rates of 8 percent or 9 percent.

“Now, with the price coming down and the interest rates more like 5.5 percent, a home that was on the market for $3 million six months ago is now being sold for, say, $2.2 million,” he said.

Tightening supply

In Manhattan Beach, tightening supply is also an issue. Six months ago, there were seven months’ worth of unsold homes on the market. Today, that figure has been cut in half, said Steve Goddard, broker-manager for ReMax Marquee Partners in Manhattan Beach and president-elect of the California Association of Realtors.

In Long Beach, the supply of residential units is so tight that one brokerage house has started sending out mailers to see if residents would be willing to sell their homes.

“We’re actually doing mailings into certain areas of Long Beach inquiring if anyone is looking to sell,” said Phil Jones, managing partner of the Coldwell Banker Coastal Alliance, which has three offices in Long Beach. “This has been very surprising; a few months ago, we would never have dreamed of this situation.”

Yet despite all these encouraging signs, few are willing to say the local housing market is in recovery mode.

“The real estate market is now bouncing along the bottom,” Goddard said.

Looming over everything is the huge number of foreclosures, both current and expected. As has been the case for the past year, many of the bargain properties now on the market are foreclosures.

But nearly everyone expects thousands of new foreclosures to be dumped into the L.A. market in coming months now that a federal moratorium on foreclosures has been lifted.

“This halting, temporary recovery we’re seeing right now could be cut short by future foreclosures coming onto the market,” said Joe Breckner, sales associate with Coldwell Banker of Studio City.

Also in question is the impact that the expiration of the federal tax credit for first-time homebuyers in November will have on the market.

“It’s like the Cash for Clunkers program,” said Stephen Cauley, director of research at the Ziman Center for Real Estate at UCLA. “It was very good while it lasted, but what it ended up doing was stealing sales from the future.”
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Yes, the Housing Market Has Rarely Looked Better

Passing through the Fort Myers, Fla., airport a few weeks ago, I noticed people eagerly signing up for a free bus tour of foreclosed real estate—with all properties offering water views.
By: JAMES B. STEWART: WSJ.com
During the ride to my hotel, the young driver volunteered that he had just bought his first house, paying $65,000 for a foreclosed property in nearby Cape Coral that last sold for over $250,000. He said he had never expected to be able to buy anything on a driver's salary, let alone something that nice.

Last week, Standard & Poor's reported that its S&P/Case-Shiller U.S. National Home Price index of real-estate values increased this past quarter over the first quarter of 2009, the first quarter-on-quarter increase in three years. Its index of 20 major cities also rose for the three months ended June 30 over the three months ended May 31, with only hard-hit Detroit and Las Vegas experiencing declines. The week before that, the National Association of Realtors reported that sales volume of existing homes was up 7.2% in July from June.

In short, the data suggest that real-estate prices hit a bottom some time during the second quarter, and have now begun to rise. There's no way to be certain that this marks the end of the long, painful correction that followed the real-estate bubble, but clearly prices are no longer in free-fall. That means if you've been sitting on the fence, it's time to act.

Ordinarily I'd never try to time the real-estate market, but I can understand why buyers have been cautious. Few want to buy in down markets, just as stock buyers avoid bear markets. And for most people, of course, buying a house is a much bigger decision than buying a stock. But with real-estate prices nationally now down about 30% from their 2006 peak and showing signs of turning up, the prices aren't likely to go much lower. Every real-estate market is local, and so there may be a few exceptions. Overall, though, I can't imagine a better time to buy than now.

In addition to bargain prices, buyers also should find plenty of homes to choose from. The inventory of unsold homes was 4.09 million units in July, up 7.3% from June, according to the National Association of Realtors. And mortgage rates this week were at a two-month low of close to 5%, according to Zillow. Even the stricter appraisal process is working to the advantage of buyers. Appraisals are coming in far lower than most sellers have been expecting, forcing them to face the new reality of sharply lower prices. And with stricter standards, lenders aren't going to let buyers borrow more than they can afford, which protects buyers and helps to keep prices down.

Unless you're really prepared to accept the demands (and headaches) of being a landlord, I don't recommend direct ownership of real estate as an investment. The days of buyers lining up to flip Miami Beach and Las Vegas condos are mercifully gone.

There are much easier ways to make money in real estate, such as real-estate investment trusts or buying shares in home builders and other housing-related businesses (such as Home Depot). Historically, the mean rate of return on real estate has been around 3%, according to research from Yale economist Robert Shiller, who co-developed the Case-Shiller index. Shares in REITs and other stocks have often done much better.

But there's a good reason homeownership has been such a central part of the American dream. It delivers security, pride of ownership, a sense of community and decent investment returns as a bonus. I felt glad for my driver in Florida. He represents the other side of the foreclosure crisis. For every hardship story, and no doubt there are many, others are realizing their dreams of home ownership and getting what may well turn out to be the deals of their lives.

James B. Stewart, a columnist for SmartMoney magazine and SmartMoney.com, writes weekly about his personal investing strategy. Unlike Dow Jones reporters, he may have positions in the stocks he writes about.
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U.S. Housing May Be Turning Around, Shiller Says (Update1)

An improvement in home prices suggests the U.S. property market may be recovering, said Robert Shiller, a professor of economics at Yale University in New Haven, Connecticut.
By: Vincent Del Giudice: Bloomberg.com
“We might be seeing a turnaround,” Shiller said today in an interview on Bloomberg Radio and Bloomberg Television. “I say ‘might’ because there’s still a pretty weak economy out there.”

Shiller is co-creator of the S&P/Case-Shiller home-price index, which fell 15.4 percent in June from a year earlier, the smallest decline since April 2008. On a month-over-month basis, the index rose by the most in four years. The report was issued yesterday.

The month-over-month increase in home prices is “quite striking,” Shiller said. “The sense that something is changing is definitely in the air.”

Speaking about the broader economy, “recessions are generally ‘V’ shaped,” Shiller said. “Probably something like that will happen again,” even though a “disappointing recovery” is possible, he said.

The longest economic contraction since the end of World War II has claimed 6.7 million jobs since December 2007. Stocks are “a tad overpriced by historical standards,” Shiller said. The Standard & Poor’s 500 Index has surged about 51 percent from a 12-year low on March 9.
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Positive Signs: Home Prices on an Upswing in Second Quarter 2009

Data through June 2009, released by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index improved in the second quarter of 2009.
RISMEDIA
The S&P/Case-Shiller U.S. National Home Price Index- which covers all nine U.S. census divisions- recorded a 14.9% decline in the 2nd quarter of 2009 versus the 2nd quarter of 2008. While still a substantial negative annual rate of return, this is an improvement over the record decline of 19.1% reported in the 1st quarter of the year. The 10-City and 20-City Composites recorded annual declines of 15.1% and 15.4%, respectively. These are also improvements from their recent respective record losses of -19.4% and -19.1%.

“For the second month in a row, we’re seeing some positive signs,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “The U.S. National Composite rose in the 2nd quarter compared to the 1st quarter of 2009. This is the first time we have seen a positive quarter-over-quarter print in three years. Both the 10-City and 20-City Composites posted monthly increases, as did most of the cities. As seen in both seasonally adjusted and unadjusted data, there are hints of an upward turn from a bottom. However, some of the hardest hit cities, especially in the Sun Belt, show continued weakness.”

As of the 2nd quarter of 2009, average home prices across the United States are at similar levels to what they were in early 2003. From the peak in the second quarter of 2006, average home prices are down 30.2%.

The 10-City and 20-City Composites posted their second consecutive monthly increases. Both indices were up 1.4% in June over May, and up 0.5% in May over April. Eighteen of the 20 metro areas saw improvement in their annual returns compared to those of May. Looking at the monthly data, the same 18 metro areas reported positive returns in June.

In spite of the recent positive data, the overall numbers remain weak, with all metro areas and the two composites posting negative annual returns, and 15 out of the 20 metro areas reporting double digit annual declines. While not alone, Las Vegas and Detroit continue to be two markets that are struggling severely. These are the only two markets that fell in June and saw deterioration in their annual rates of return. Since their relative peaks they have fallen 54.3% and 45.3%, respectively.

More upbeat news is seen in the monthly data across other markets; Dallas and Denver have reported four consecutive months of positive returns. In addition to the two composites, 13 of the MSAs reported positive monthly returns for June that were greater than +1.0%.

The table below summarizes the results for June 2009. The S&P/Case-Shiller Home Price Indices are revised for the 24 prior months, based on the receipt of additional source data.

2009 Q2 2009 Q2/2009 Q1 2009 Q1/2008 Q4 1-Year
Level Change (%) Change (%) Change (%)
U.S. National
Index 132.64 2.9% -7.4% -14.9%
June 2009 June/May May/April 1-Year
Metropolitan Level Change (%) Change (%) Change (%)
Area
Atlanta 107.52 1.5% 0.5% -13.7%
Boston 152.71 2.6% 1.6% -5.9%
Charlotte 120.66 0.7% 0.9% -9.6%
Chicago 124.99 1.1% 1.1% -16.7%
Cleveland 106.38 4.2% 4.1% -3.0%
Dallas 119.68 2.7% 1.9% -2.2%
Denver 126.92 2.5% 1.3% -3.6%
Detroit 69.49 -0.8% 0.2% -25.0%
Las Vegas 107.31 -2.0% -2.6% -32.4%
Los Angeles 160.90 1.1% -0.1% -17.8%
Miami 145.37 0.5% -0.8% -23.4%
Minneapolis 113.48 3.1% 1.1% -19.8%
New York 171.49 0.4% 0.2% -11.9%
Phoenix 104.73 1.1% -0.9% -31.6%
Portland 148.47 1.0% 0.1% -15.2%
San Diego 147.31 1.6% 0.4% -16.0%
San Francisco 124.70 3.8% 1.4% -22.0%
Seattle 149.53 0.4% -0.3% -16.1%
Tampa 140.90 0.4% 0.0% -19.5%
Washington 174.32 2.8% 1.3% -11.8%
Composite-10 153.20 1.4% 0.5% -15.1%
Composite-20 141.86 1.4% 0.5% -15.4%
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.California Existing-Home Sales Up 12% in July

Sales of existing single-family homes in California increased 12% in July from the same time a year ago, as the state’s median price rose for the fifth straight month.
By: Jim Carlton: WSJ.com
Sales increased to 553,910 on a seasonally adjusted, annualized basis from a revised sales pace of 494,390 in July 2008, according to a report released Tuesday by the California Association of Realtors. The inventory of unsold houses continued to drop, to 3.9 months supply in July from 6.9 months at the same time a year ago.

Median prices were off 19.6% from July 2008 to $285,480, but were up 3.9% from June—continuing a string of back-to-back sequential price increases that began in March. Officials with the Realtors’ group credited first-time buyers for much of the buying volume, helping the under-$500,000 segment of the market to jump to include 74% of statewide sales from 43% when the California housing market went into a slump two years ago.

Few experts say California’s housing market is out of the woods, though. One threat is the prospect of more foreclosures flooding the market, as the state struggles with an unemployment rate of 11.9% as of July.

And Realtors’ officials say they are concerned sales have become overly tied to first-time buyers and a federal tax credit they have used for their purchases. Indeed, James Liptak, president of the association, said nearly 40% of first-time buyers said they would not have purchased a home without the tax credit, and called for Congress to extend it beyond a Dec. 1 deadline as well as open it up to all buyers, not just first-timers.

Leslie Appleton-Young, chief economist of the association, said the high end of the California market remains soft with weak sales and prices as credit remains tight for jumbo loans.
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Start house-hunting now to qualify for tax credit for first-time home buyers

First-time home buyers had better get a move on if they hope to take advantage of the $8,000 federal tax credit.
By: Lew Sichelman: latimes.com
The window of opportunity is closing rapidly.

To qualify for the credit, any transaction involving a first-time buyer must close before midnight Nov. 30, when the valuable tax benefit expires. And because the buying and lending processes can be slow, you're going to need every bit of that time to close escrow.

Although the end of November might seem a long way off, Diane Dilzell, president of the New Jersey Assn. of Realtors, rightly points out that it takes weeks, if not months, to manage the logistics involved in a real estate transaction. It's also important to realize that any of a number of things can go haywire along the way.

"Unique circumstances can be encountered in any transaction, so it is important to account for those factors," said Dilzell, a broker at Pinnacle Realtors in Bedminster, N.J. "Since numerous third parties are involved, delays can be expected no matter how swiftly you act."

Another complicating factor: closed offices during the Thanksgiving holiday. With Thanksgiving this year falling on Nov. 26, that removes four days right before the deadline.

Undoubtedly, some escrow agents will scrap vacation plans to handle what is expected to be a crush of settlements. But that highlights yet another potential pitfall: There may be so many buyers trying to close at the last minute that there might not be enough room for them all.

Moreover, if you're banking on Congress to extend the tax credit or possibly even expand it, the odds are against you, at least right now.

Even though there's always a chance that lawmakers will do the unexpected, House and Senate leaders have said they will not take up any expiring provisions until they have completed work on healthcare-reform legislation. Moreover, with many signs indicating that the moribund market is starting to awaken, many legislators might decide that housing no longer needs a shot in the arm.

And don't expect to sneak a Dec. 1 closing past the Internal Revenue Service either. That's fraud, and the nation's tax collector has any number of sophisticated screening tools to quickly identify returns that may contain fraudulent claims.

What's more, the IRS has vowed to go after taxpayers who try to pull a fast one. "We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction," says Eileen Mayer, the agency's chief criminal investigator.

Buyers with specific questions about the tax credit should consult with a qualified tax advisor. But here's a brief rundown of the rules.

A first-timer is defined as anyone who has not owned a principal residence during the three years immediately before the purchase. The house doesn't qualify for the credit, though, if the buyer sells it before the end of the year.

Vacation homes and investment properties do not qualify; only main residences, new or resale, which can be a single-family house, town house, condominium, manufactured (or mobile) home or even a houseboat. If you hire a contractor to build the house rather than buy from a builder, the house is still treated as having been purchased.

Purchases must be arm's-length transactions. The seller cannot be a parent, grandparent, child, grandchild or spouse. Legal residents who file U.S. tax returns qualify for the credit, but those who are undocumented immigrants or nonresidents do not.

Married people filing as such cannot claim the credit if either spouse has owned a main residence within the last three years, but unmarried joint purchasers - say, a parent and his son - may allocate the credit in any way they see fit as long as it does not exceed the $8,000 maximum.

Speaking of maximum, the tax credit is equal to 10% of the purchase price up to $8,000. But there are income limits. For single taxpayers, the ceiling is $75,000; for married taxpayers filing jointly, it is $150,000. For those with modified adjusted gross incomes above those limits, the tax credit is reduced on a sliding-scale basis to zero when the income exceeds $95,000 for single payers and $170,000 for married payers.

To assist would-be buyers who need help with down-payment and closing costs, the government will allow those who finance their purchases with a federally insured loan to apply their anticipated credit immediately toward the transaction rather than waiting until they file their 2009 taxes to receive a refund.

Under guidelines announced by the Federal Housing Administration, nonprofits and FHA-approved lenders are permitted to make short-term loans to qualified borrowers in the amount they would otherwise receive as a refund.

The law permits taxpayers to treat purchases that take place this year as though they occurred on Dec. 31, 2008. You can apply the tax credit against your 2008 return if that will bring you the largest credit amount (depending on your modified adjusted gross income). To do so, you must file an amended return for 2008.
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Economists Call for Bernanke to Stay, Say Recession Is Over

Economists are nearly unanimous that Bernanke should be reappointed to another term as Fed chairman, while most said the recession has ended.
By: PHIL IZZO: WSJ.com
Economists are nearly unanimous that Ben Bernanke should be reappointed to another term as Federal Reserve chairman, and they said there is a 71% chance that President Barack Obama will ask him to stay on, according to a survey.

Meanwhile, the majority of the economists The Wall Street Journal surveyed during the past few days said the recession that began in December 2007 is now over. Battling the downturn defined most of Mr. Bernanke's term, which began in early 2006 and expires in January, and economists say his handling of the crisis has earned him four more years as Fed chief.

"He deserves a lot of credit for stabilizing the financial markets," said Joseph Carson of AllianceBernstein. "Confidence in recovery would be damaged if he was not reappointed."

The Journal surveyed 52 economists; 47 responded.

After months of uncertainty, economists are finally seeing a break in the clouds. Forecasts were revised upward for every period, with 27 economists saying the recession had ended and 11 seeing a trough this month or next. Gross domestic product in the third quarter is now expected to show 2.4% growth at a seasonally adjusted annual rate amid signs of life in the manufacturing sector, partly spurred by inventory adjustments and strong demand for the "cash for clunkers" car-rebate program.

A better-than-expected employment report for July, where employers cut 247,000 jobs and the jobless rate fell for the first time in 15 months, suggests the worst is over. The unemployment rate is still expected to rise to 9.9% by December, but economists forecast that the economy will shed far fewer jobs over the next 12 months than they had forecast last month.

Many of the economists said there is little to be gained by changing the Fed chairman, especially considering the massive task at hand for the central bank as the economy emerges from the recession.

"Continuity is critical as we emerge from this crisis. Otherwise we could slip back in again," said Diane Swonk of Mesirow Financial. "Bernanke is the best suited to undo what has been done when the time comes."

The Fed has taken unprecedented steps in an effort to avoid another Great Depression, and its exit strategy remains a key question. Some hints may emerge as the central bank's August policy meeting comes to an end Wednesday. The Fed's key policy-making tool, the federal-funds rate, isn't likely to change at this meeting or any time soon.

Only six economists expect the Fed to raise the federal-funds rate, now between 0% and 0.25%, this year. Most expect an increase at some point in 2010, but more than a quarter of respondents don't see the rate moving until 2011 or later.

"The exit strategy will be very, very slow and cautious," said John Silvia of Wells Fargo. "The Fed will unwind the balance sheet before they raise the fed funds rates."

The Fed's balance sheet - the total value of all its loans and securities holdings - had more than doubled during the course of the crisis to more than $2 trillion, as lending facilities expanded in an effort to unfreeze credit markets. But as markets get back to normal, demand already has begun to wane, and the balance sheet has started to shrink. Now the composition of the balance sheet has begun to shift to Treasurys, mortgage-backed securities and agency debt as the Fed moves through a $1.75 trillion program announced in March to bring down long-term interest rates.

The Fed is deciding at this week's meeting whether to let that program run its course and how best to communicate its intentions to markets.

Whatever the Fed decides, the economists expressed some confidence that the central bank will be dealing with how to manage a recovery, not another recession. They expect GDP growth to remain above 2% at an annualized rate through the first half of next year, and they put the chances at just 20% of a "double-dip" second downturn before 2010.

But some said a recovery could make Mr. Bernanke's road to reappointment more rocky. "Once it is perceived that the economy is on its way to recovery, it gives Obama the opportunity to put in his own person," Mr. Silvia said. "It could be like Great Britain at the end of World War II. 'Thank you for all the hard work, Mr. Churchill, but we're going to bring someone else in to handle the next phase.'" Former president George W. Bush appointed Mr. Bernanke to succeed the departing Alan Greenspan. Presidents appoint Fed chiefs to four-year terms, and there are no term limits. Mr. Bernanke's term expires Jan. 31.

Though the economists were overwhelmingly supportive of Mr. Bernanke, they don't think his tenure was without mistakes. A slow initial response to the credit squeeze and the decision to let Lehman Brothers fail were cited as the biggest errors.
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6 Real Estate Investment Basics

Miami real estate investor Kenneth D. Rosen outlines his “Big Six” investing guidelines in his new book, Investing in Income Properties.
By: Matthew Haggman: REALTOR®Magazine
Here are his six principles in a nutshell. He says all of them need to be present to make a deal worth doing. “If one’s not there, you stop and you don’t buy,” he says.

Location. “A” locations are in areas where there is little land left to build on and the neighborhood has a certain prestige.

No-frills design with quality construction. He looks for three or four parking spaces per 1,000 square feet, no more than 15 percent of space devoted to common areas, and simple but visually pleasing design.

Few or no vacancies. Buildings with lots of small offices are easier to keep full than those that rely on renting out entire floors to one tenant.

Potential for appreciation. Older buildings with lower rents have the most upside potential. As leases expire, the new owner can raise the rent.

Available financing. Find a financial pro to help negotiate the right provisions.

Sale price based on existing income. Avoid buying based on projected income.
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U.S. Economy: New-Home Sales Climb 11%, Most in Eight Years

Purchases of new homes in the U.S. climbed 11 percent in June, the biggest gain in eight years, underscoring evidence that the deepest housing slump since the Great Depression is starting to stabilize.
By: Courtney Schlisserman and Bob Willis: Bloomberg.com
Sales increased to a 384,000 annual pace, higher than every forecast in a Bloomberg News survey and the most since November, figures from the Commerce Department showed today in Washington. The number of houses on the market dropped to the lowest level in more than a decade.

Deutsche Bank Securities Inc. and Goldman Sachs Group Inc. economists said today’s figures signal an end to the slide in home construction and sales. While that means the drag on economic growth will turn to a stimulus in the second half of the year, property values are likely to continue falling and rising unemployment will temper the recovery, analysts said.

“We’re barely past the housing bottom, this thing is still fragile,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. “It’s not premature to talk about home prices bottoming - it’s somewhere in the next three to six months. There is light at the end of the tunnel.”

Builders’ stocks jumped, with the Standard and Poor’s Supercomposite Homebuilding Index gaining 2.3 percent. The broader S&P 500 Stock Index was up 0.1 percent at 980.35 at 10:10 a.m. in New York. Treasuries, which fell earlier in the day, remained lower, with benchmark 10-year note yields rising to 3.75 percent from 3.66 percent at last week’s close.

Construction Recovers

The Commerce Department earlier this month reported that builders began work on 582,000 residential properties at an annual rate in June, the most since November. Home construction has subtracted from U.S. gross domestic product every quarter since the start of 2006.

The jump in sales signals the U.S. economy is on the way to recovery, said Rebecca Blank, under secretary for economic affairs at the Commerce Department.

“Across the board this is good news,” Blank, formerly a fellow at the Brookings Institution in Washington, said in an interview. “It’s what you would expect to see at the beginning of a recovery.”

Standard Pacific Corp., the U.S. homebuilder that gets most of its revenue from California, is among companies seeing stabilization. It’s net loss, the 11th consecutive drop, narrowed to $23.1 million in the second quarter from $249 million a year earlier, the Irvine, California-based company said last week. Revenue fell 29 percent.

Smaller Losses

“While we still obviously have not achieved the level of profitability that we ultimately need, we are a lot closer than we were a couple of quarters ago and believe that we are in pretty good shape in the short run,” Chief Executive Officer Ken Campbell said in a July 22 statement.

While prices continue to fall, the pace of the decline is easing. The S&P/Case Shiller index of 20 major metropolitan areas tomorrow may show property values fell 17.9 percent in May from a year earlier, according to the median forecast in a Bloomberg survey. The measure was down 18.1 percent in the 12 months ended April.

“In terms of residential investment and home sales and housing starts, I think it has” bottomed, said Jan Hatzius, chief U.S. economist at Goldman Sachs in New York, referring to the housing slump. “We still have a period of declines ahead of us” in prices, he also said.

The decline in prices and a drop in mortgage rates have started to lure buyers even amid the surge in unemployment, which reached a quarter-century high of 9.5 percent in June.

Economists’ Forecasts

Economists had forecast new home sales would rise to a 352,000, according to the median of 62 projections in a Bloomberg News survey. Estimates ranged from 335,000 to 377,000. Commerce revised May’s reading up to a 346,000 rate from a previously reported 342,000.

The median price of a new home decreased 12 percent to $206,200 from $234,300 in June 2008. Last month’s value compares with $219,000 in May.

Builders had 281,000 houses on the market last month, down 4.1 percent from May and the fewest since February 1998. The number of unsold properties fell a record 36 percent from June 2008. It would take 8.8 months to sell all homes at the current sales pace, the lowest level since October 2007.

Foreclosure filings reached a record in the first half of the year, providing competition for homebuilders and pushing down the value of all houses. Also, rising unemployment, which economists forecast will top 10 percent by early 2010, threatens to restrain any recovery in housing.

Fed Efforts

Federal Reserve policy makers have committed to a $1.25 trillion program to purchase securities backed by home loans in an effort to put a floor under the housing market and lower borrowing costs. Those purchases, as well as direct government purchases of Treasuries, drove the rate on 30-year mortgages to a record-low 4.78 percent in April, according to figures from Freddie Mac. Rates have since hovered around 5 percent.

Fed Chairman Bernanke said July 21 that the economy is showing “tentative signs of stabilization” and the “decline in housing activity appears to have moderated.”

Another incentive is the $8,000 tax credit for first-time buyers that is part of the Obama administration’s economic stimulus plan. Purchases have to be completed before Dec. 1.
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Energy efficiency incentives likely to grow

An unprecedented push by the U.S. government to widen rewards for energy-conscious homeowners is underway. An example: FHA loans offering 5% larger mortgages to buyers who plan on making renovations.
By: Kenneth R. Harney: latimes.com
You're probably familiar with some of the federal government's incentives for home energy efficiency - heftier tax credits for solar panels, solar water heaters, geothermal heat pumps, heavy-duty insulation, windows, air conditioning and the like.

But these are just the beginning of an unprecedented push by the government that's getting underway for energy conservation in housing.

At the Department of Housing and Urban Development, a new generation of mortgages designed to encourage energy efficiency is being rolled out, starting with Federal Housing Administration loans that offer 5% larger mortgages to people who plan on making energy-efficiency improvements.

For example, if you qualify for a $300,000 FHA mortgage, the FHA might now be able offer you an additional $15,000 if the extra money is used to substantially lower the property's annual energy consumption.

HUD Secretary Shaun Donovan wants the FHA to offer additional incentives. One of the possibilities: Give loan applicants credit on their qualifying incomes for a home loan in exchange for documentable savings in annual energy expenditures.

Meanwhile, the House of Representatives has passed a massive energy conservation and emissions control bill. Though the American Clean Energy and Security Act is better known for its more controversial "cap-and-trade" carbon emissions program, the bill also contains a section devoted to creating incentives for consumers and federal agencies to build and finance energy-efficient dwellings.

Among the key housing-related provisions in the bill:

* The FHA is directed to insure a minimum of 50,000 new energy-efficient mortgages during the coming three years. An energy-efficient house is defined as one in which energy consumption is reduced by 20% following renovations.

* Fannie Mae and Freddie Mac are directed to develop mortgage products and more flexible underwriting guidelines to reward energy-conscious borrowers and builders.

The two companies also would be required to help establish a secondary market for energy-efficient and location-efficient mortgages for moderate- and lower-income home buyers. The new generation of loans would increase the qualifying incomes of applicants by at least one dollar for every dollar of projected energy savings from renovations, green construction or efficient design.

Similar concessions on loan applicants' incomes would be extended for properties located in areas close to employment centers or mass transit lines. No concessions would be made for homes in far-flung neighborhoods that eat into family incomes because of long commutes, which would add to carbon emissions.

* Real estate appraisers would be required to take energy improvements and the money they save into account as they value houses. For example, if you spent $30,000 on a series of major upgrades, an appraiser would need to consider the annual cost savings in energy produced and the effect, if any, on market value. States would require licensed appraisers to undergo additional professional training to equip them for their new energy-efficiency valuation responsibilities.

* Federal financial regulators would be directed to support the establishment of privately run "green banking centers" inside banks and credit unions. The centers, which presumably could be unmanned kiosks or staffed offices, would help consumers understand how best to obtain financing for energy-conserving home improvements, second and primary mortgages, and energy audits and ratings.

HUD would also be authorized to conduct "renewable energy home product expos" to educate the public about the latest technologies and financing concepts.

* State governments would be required to ensure that homeowners whose energy technologies allowed them to get "off the grid" - no longer fully dependent on utilities to provide them power - are not denied property hazard coverage by insurance companies.

With all this emphasis on energy efficiency and reduction of real estate-related emissions, is there any evidence that home buyers will take part? Will they use mortgages that encourage energy efficiency or even pay more for houses that are loaded with the latest energy-saving technologies? The jury is out because much of this is prospective and hasn't yet been signed into law.

But maybe there's going to be some extra green in green.

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Home Resales, Leading Index Probably Rose: U.S. Economy Preview

Home resales in the U.S. probably rose in June and a gauge of the economic outlook improved, signaling the recession may soon be over, economists said before reports this week.
By: Shobhana Chandra: Bloomberg.com
Purchases of previously owned homes climbed to an annual rate of 4.83 million, the highest level since October, according to the median of 57 estimates in a Bloomberg survey before the National Association of Realtors’ report on July 23. Figures tomorrow may show the index of leading indicators climbed for a third consecutive month.

Mounting evidence that housing is stabilizing is bolstering forecasts that government stimulus efforts will gain traction in coming months and lift the economy from the worst slump in five decades. Other reports may show rising joblessness is weighing on Americans’ moods, tempering optimism about any rebound.

“The end of the recession could be pretty close,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “We’re getting near the bottom in housing. It’ll still be a very gradual recovery for the economy, with a labor market that’s very weak.”

Reports last week corroborated that the housing slump, now in its fourth year, is dissipating. Housing starts unexpectedly jumped in June to the highest level since November as construction of single-family dwellings climbed by the most since 2004. Building permits, indicating future construction, rose the most in a year.

Signs of Stability

The National Association of Home Builders/Wells Fargo index of builder confidence increased this month to the highest level since September.

One reason for the projected increase in home resales is that prospective buyers are taking advantage of the plunge in prices caused by the foreclosure crisis. Filings reached a record in the first half of 2009, according to RealtyTrac Inc., an Irvine, California-based seller of default data. More than 1.5 million properties got a default or auction notice or were seized by banks in the six months through June.

The New York-based Conference Board’s leading index, which points to the direction of the economy over the next three to six months, rose 0.5 percent last month after a 1.2 percent increase in May, according to the survey median.

The jump in building permits was probably one of the biggest contributors to the predicted gain in the leading index, economists said. Fewer jobless claims and higher stock prices were also likely drivers.

Stocks Rise

Stocks have gained on optimism an economic recovery is at hand. The Standard & Poor’s 500 Index is up 39 percent since reaching a 12-year low on March 9.

A July 24 report may show the Reuters/University of Michigan final index of consumer sentiment fell in July after four consecutive gains, economists predicted. A preliminary reading dropped to the lowest level since March.

The U.S. has lost about 6.5 million jobs since the recession began in December 2007. Economists in a separate survey taken by Bloomberg this month predicted the jobless rate will reach 10 percent by year-end from 9.5 percent in June.

Federal Reserve officials thought the economy was “still quite weak and vulnerable to further adverse shocks,” according to minutes of their June meeting released last week. Even so, the report also said “the economic contraction was slowing and that the decline in activity could cease before long.”

Companies seeing an improvement include CSX Corp., the third-largest U.S. railroad. Jacksonville, Florida-based CSX reported second-quarter profit that topped analysts’ forecasts, and said demand for hauling most freight is stabilizing. Railroad traffic is considered an economic bellwether.

“We’re seeing pretty good stabilization in our markets,” Chief Executive Officer Michael Ward said in an interview last week. “We don’t see any further deterioration, and we see some incremental improvement in the near future.”



Bloomberg Survey

================================================================
Release Period Prior Median
Indicator Date Value Forecast
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LEI MOM% 7/20 June 1.2% 0.5%
Initial Claims ,000’s 7/23 18-Jul 522 560
Cont. Claims ,000’s 7/23 11-Jul 6273 6390
Exist Homes Mlns 7/23 June 4.77 4.83
Exist Homes MOM% 7/23 June 2.4% 1.3%
U of Mich Conf. Index 7/24 July F 64.6 65.0
================================================================
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