A double dip in the housing market is imminent, analysts say, as home prices dropped further than expected in October. Image: CC johpan/Flickr

Home prices dipped lower than expected from September to October according to an industry report. The Standard & Poor’s/Case-Shiller home price index released Tuesday also reported that October’s plunge in home prices was the greatest year-over-year drop since December 2009. Analysts blamed the end of the homebuyer tax credit and warned of a double-dip in the housing market.

The Case-Shiller home price index

In October month-to-month home prices fell in 18 of 20 markets surveyed by the Case-Shiller home price index. Housing industry experts had predicted a flat October following a weak September. The decline in value hit faster and harder than expected after the end of the homebuyer tax credit last summer. Home prices in the 20 markets fell 1.3 percent from September to October, an annualized decline of 15 percent. Atlanta was hit hardest with a 2.1 percent drop in home prices. Five other markets, including Charlotte, N.C.; Miami; Portland, Ore.; Seattle and Tampa, Fla., hit all-time lows since the housing market collapsed in 2007.

Housing market double-dip

The chairman of the S&P/Case-Shiller home price index committee said the housing market is poised on the edge of the double-dip analysts have been warning about. Home prices in October have dropped 30 percent since peaking in July 2006. A backlog of foreclosures waiting in the wings will continue downward pressure on home prices in 2011. Inventory of homes for sale is up 50 percent over December 2009. Millions of homeowners planning to sell are standing by for signs that the housing market will recover.

Housing market winners and losers in 2011

The sustained decline in home prices is bad news for Realtors. However, news about a housing market double-dip is good news for homebuyers. The Case Shiller home price index reported that sales volume was down 25 percent from December 2009 as potential homebuyers wait for the housing market to bottom out. But there’s a catch. The depressed housing market is a drag on economic recovery as it is inextricably connected to high unemployment and low consumer confidence. Even though economists are optimistic about 2011 economic growth, home prices are expected to decline as much as 3 percent further in 2011.

Sources

Bloomberg

CNN

Wall Street Journal

Some people who got homebuyer tax credits owe the IRS, as their credit was no refund. Image from Wikimedia Commons.

One of the few things that helped to prop up an anemic housing market was the homebuyer tax credit from the government. The way it worked was that a person that bought a home could get some fast cash from Uncle Sam as a gift for doing their part in stimulating recovery, under certain conditions. A fair portion of those people are going to have to pay that credit back, as the initial tax credit offered for a purchase of a home was no credit; those refunds were essentially low interest loans.

Quick cash from Washington

When the recession began, it hit the housing market like a hurricane. Foreclosures shot through the roof, prices and available capital for home finance loans plummeted. Almost right away, part of the initial stimulus programs was a homebuyer tax credit. In 2008, qualified buyers could deduct the lesser of $7,500 or 10 percent of the purchase price from their income taxes. In 2009, the credit was extended but augmented to a refund, rather than a deduction. The hitch is that the deduction from the initial tax credit, according to CNN, was not just a break on the tax bill. It was a loan.

Due to the IRS in 15 years

Those who claimed the tax credit have 15 years to pay it back. There are 950,000 people who owe for the low cost loans, according to the Internal Revenue Service. However, the IRS does not know exactly who owes and who doesn’t, and is investigating inaccurate and fraudulent paperwork. Among the discrepancies is that there were tax credits filed for people who are dead. There were 1,326 homebuyer tax credits claimed by people listed as deceased by the Social Security Administration, but over 500 were tossed out.

The worth of the stimulus

The effectiveness of the stimulus programs has been questioned rigorously in the past months. Rightly so; the mortgage modification program hasn’t been very successful, and the bonus that 950,000 or more people believed they were getting for a home purchase has to be paid back. There is also the question of whether these people would have bought homes had they known they weren’t really getting a tax break.

Sources

CNN

The real estate market hasn't completely burned to the ground. It's showing some signs of life. Image from Wikimedia Commons.

There doesn’t seem to be a lot of good news when it comes to real estate in the U.S. However, there is a scant glimmer of hope amid the doom and gloom. It turns out that U.S. home prices have been rising, if only slightly, for the last few consecutive months. The Case Shiller Price Index has been showing slight upward trending of home prices, and a gain was recorded across 20 cities for homes sold between May and June 2010. Some good news is appreciated, as real estate is one of the most depressed markets in the U.S. currently.

Slight gain in home prices

Standard & Poor’s Case Shiller price index, which tracks real estate activity in 20 cities, has showed a gain in home prices in the second quarter of 2010. According to the New York Times, the second quarter posted a 4.4 percent gain in home prices. The first quarter of this fiscal year saw a fall in home prices of 2.8 percent. Also, home prices for second quarter of 2010 are 3.6 percent higher than for second quarter of 2009. For July, home prices rose 1 percent over June.

There is a catch

Along with the rise in home prices, sales are trending downward. The homebuyer tax credit helped to spur home sales, but once the credit expired sales began to drop off. It’s likely that home prices will fall again. Economist Karl Case (for whom the index is named) said that while some of the data was positive, a stabilization of financial markets had not occurred yet, according to Bloomberg. Case thinks it will be another year or so before a more stable market emerges, and begins to grow again.

At least it was good news

The bottom line is that the homebuyer tax credit gave a temporary, which is to say artificial, boost to home sales, and also home prices. A truer state of the market can’t really emerge until governmental encumbrance has been removed. However, on the plus side, things are better than they were a year ago.

Sources

New York Times

Bloomberg

Existing home sales are down, thanks to the tax credit expiration and high unemployment numbers, to name just two factors. (Photo Credit: CC BY-ND/David/Flickr)

While new home sales showed an increase in June (but a marked decrease in July), the Association of Realtors has revealed the dirty underbelly of those statistics, reports Bloomberg. Contracts to buy previously owned homes were down that month, something that experts did not predict. The indication here is that as the home buyer tax credit expired, demand spiraled downward.

Economists predicted 4 percent growth in existing home sales

The median forecast by the National Association of Realtors had a much rosier outlook on June 2010. Existing home sales weren’t predicted to fall as far as they did immediately following the April 30 deadline for the government tax credit, when a massive 30 percent drop occurred. Bloomberg reports that 30 percent drop in May 2010 was the largest decrease in existing home sales since the association began the median forecast in 2001.

No more $8,000 credit means people need to earn more

Of course America remains in a recession, which means that unemployment is still high and wage gains remain stagnant. As Treasury Secretary Tim Geithner predicts that unemployment will increase in August, existing home sales probably aren’t going to be trending upward for a while. Stocks are down in anticipation of the bad news, as the Standard & Poor’s 500 recently went down 0.6 percent.

Existing home sales are the bulk of the housing market

In fact, 90 percent of the U.S. housing market consists of existing home sales, so the recent downturn doesn’t bode well for a housing market recovery. Lawrence Yun, chief economist of the National Association of Realtors, told Bloomberg that “There could be a couple of additional months of slow home sales activity before picking up later in the year, provided the job market improves.”

The specter of home seizure

Then there are those pesky foreclosures. Even though 30-year fixed mortgages are down to 4.54 percent at July’s end, foreclosure was up 38 percent from the year previous, according to RealtyTrac, Inc. Donald Horton of home builder D.R. Horton Inc. remarked that market conditions have become quite challenging, and there’s no immediate end in sight.

Sources:

Bloomberg

Homeowners who are staying put

New home sales in June beat forecasts, but they were still the second lowest on record as the U.S. housing market drags on economic recovery. pnrwa/Flickr photo.

New home sales exceeded gloomy forecasts in June, rebounding from a record low in May. But because new home sales fell so low after the home buyer tax credit expired last spring, June’s numbers were still the second lowest on record. Some believe that the worst of the post-tax-credit slump is over. Others think that increasing foreclosures and the stubbornly high U.S. unemployment rate offset the positive news.

New home sales beat forecast, but that’s not saying much

The Commerce Department said on Monday that new home sales jumped 23.6 percent to a 330,000 unit annual rate from a downwardly revised 267,000 units in May. CNBC reports that the pace of new home sales in June was still the second lowest since records started being kept in 1963. However, the percentage increase was the largest increase since May 1980, and partially offset the historic 36.7 percent decline in May. Even so, economists expect a weak U.S. housing market to be a drag on U.S. economic recovery for much of the year.

Record-low mortgage rates stanch the bleeding

New home sales weren’t as bad as expected, in part because of the lowest mortgage rates on record. Bloomberg reports that record low mortgage rates are a serving as a stabilizer for the U.S. housing industry that triggered the worst recession since the 1930s. However, increasing foreclosures are swelling the number of unsold existing homes, putting pressure on prices and keeping buyers on the sidelines as unemployment hovers near 10 percent and the economy cools. New home prices are continuing to fall. The median price for new home sales decreased 0.6 percent from June 2009 to $213,400.

U.S. housing market continues to drag on economic recovery

New homes sales made up about 7 percent of the U.S. housing market last year. Taragana.com reports that number is down from a portion of about 15 percent before the housing crisis. Weak new home sales mean there are fewer jobs in the construction industry, which has historically driven economic recoveries. Each new home built creates, on average, three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders. The effect is felt across multiple industries.

Mortgage rates may be low, but that's meaningless unless people want to buy homes. Image from Wikimedia Commons.

As the real estate market has been closely watched, there are numerous indicators to keep an eye on, one of which is overall mortgage rates — the average interest rate charged on a mortgage loan.  Despite a slight spike in existing home sales, overall mortgage rates are staying down. This may sound like a prelude to greater numbers of home purchases. However, coupled with higher unemployment, it may mean a recipe for a longer road to recovery.

Mortgage rates down to historic lows

Industry mortgage rates are down to near historic lows.  According to the Wall Street Journal, it was anticipated that rates would rise after the Federal Reserve stopped purchasing mortgage securities, but that did not happen. Instead of rising to the predicted 6 percent, the rate dropped through the month of May to 4.86 percent.  In fact, by the middle of May, the number of applications for loans for purchasing new homes was at its lowest level in 13 years.  If rates continue to stay this low, people might be able to avoid needing mortgage loan modification.

Unemployment comes into play

The rates may be down at this point, and they are likely to stay that way if demand stays low because of high unemployment rates. According to CNN, it is believed that the spike in existing home sales had everything to do with the first time homebuyer tax credit, and once that expires, there will be less demand.  According to the WSJ piece, even if there are fewer people looking to borrow, those with existing mortgages would do well to refinance now, while rates are low.

The future for housing

For now, it is apparent that demand was temporarily boosted by the tax credit being offered for homebuyers.  The market currently has lower levels of demand, and as demand lowers, so does scarcity and therefore price. However, this lower demand is coupled with more difficult access and less willingness to commit to a mortgage because of the job market. This means that the housing market may stabilize at a lower point, and we may not see a real estate market at previous levels for years to come.

New statistics on the U.S. unemployment rate were released today, and things haven’t been worse for 26 years. The October unemployment rate was 10.2 percent, more than double normal levels. It’s also the highest unemployment rate the country has seen since 1983, when it hit 10.5 percent.

I have read a lot of things lately that say “economic indicators” say we are in recovery from the recession. I am also familiar with the fact that unemployment rates are “lagging indicators,” and in fact might be the last thing to improve during economic recovery. However, several other current conditions indicate to me that people might have to stay in debt survival mode for a while longer.

Good news before bad

The president signed a bill today that extends unemployment benefits for people whose unemployment insurance is set to expire before the end of the year. People who fit the bill will get an additional 14 weeks of unemployment benefits, and those who live in states with unemployment rates higher than 8.5 percent can get an additional 20 weeks, almost five months, of benefits.

The fact that 8.5 percent is considered a high unemployment rate, and the national unemployment rate is nearly 2 percent higher than that, shows how bad things really are right now. The unemployment rate isn’t the only thing that got worse last month.

More economic indicators

Bloomberg.com reports that payrolls fell 190,000 in October. Factory payrolls fell 61,000, compared to 45,000 the month before. Furthermore, the underemployment rate has hit a staggering 17.5 percent. Underemployment includes people who are working part time but would prefer to work full time.

That number also includes people who want work but have given up looking. Remember, the unemployment rate only includes people who are actively looking for jobs and collecting unemployment insurance. It doesn’t include those whose benefits have already run out. So those who are not collecting unemployment but still jobless and seeking work are included in the underemployment rate.

In short, 27.7 percent of Americans are unemployed or underemployed.

Still trying to help

The bill that extended unemployment benefits also extended the homebuyer tax credit. First time homebuyers can still receive $8,000 if they sign a sales agreement before April 30, 2012.

People who have owned their current house for five years or more can qualify for a $6,500 credit. The tax credit only applies to purchases of primary residences that cost less than $800,000. Also, only individuals with incomes less than $125,000 or couples with incomes less than $225,000 can qualify.

Who says things are getting better?

The consensus that the economy is recovering from the recession comes from the fact that the economy grew in the third quarter, which ended at the end of October. That means the gross domestic product grew over the three month period preceding that.

Economists are referring to the period we’re going through now as a “jobless recovery,” but some experts, including CNN columnist Colin Barr, say a jobless recovery is no recovery at all. Barr writes:

But so far there is no sign of an employment turnaround — and without one, and soon, all the other gains could prove fleeting. … But so far there is no sign of an employment turnaround — and without one, and soon, all the other gains could prove fleeting.

Image from Blogspot.

The unemployment extension, passed November 5, 2009, was included in a bill with the homebuyer tax credit, and now millions of Americans can continue to collect benefits. The homebuyer tax credit was extended to 2010 in April. The unemployment extension means workers whose unemployment insurance was set to run out before the end of the year can collect benefits for an additional 14 weeks.

In states with especially high unemployment rates, the unemployment extension includes six weeks in addition to the 14-week extension. People collecting unemployment in states with rates higher than 8.5 percent will be eligible for a 20-week unemployment extension after the president signs the bill tomorrow morning.

Who is paying for the unemployment extension?

Don’t worry, you won’t have to go into tax debt because of this bill. The government isn’t taking money from tax payers just to turn around and give tax credits to those same taxpayers. The unemployment extension will be paid for the same way unemployment insurance has always been paid. That wouldn’t make any sense. CNN reports:

The proposal would be funded by extending a longstanding federal unemployment tax on employers through June 30, 2011.

How many people does the unemployment extension cover?

Nearly 2 million people collecting unemployment in the U.S. are scheduled to have their benefits expire before the end of the year. The sad thing is, if Congress had agreed on this bill sooner, 200,000 Americans could have gotten their unemployment extension, too. CNN reports:

The Senate had been bickering over the details since September, and that cost more than 200,000 people their benefits. Some 7,000 unemployed Americans run out of benefits each day, according to the National Employment Law Project.

The national unemployment rate now is 9.8 percent, the highest it has been in 26 years. Tomorrow, the day the president signs the bill, new unemployment statistics will be released. I wonder if that had anything to do with Congress finally deciding to pass the unemployment extension on November 5, 2009.