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Apr 28, 2010 | No Comments | Sean Mills
From David Kocieniewski at the NY Times: Home Tax Credit Called Successful, but Costly
Though the Treasury Department and the real estate industry have termed the program a success, helping 1.8 million people buy homes, many tax policy experts say it has been singularly cost-ineffective: most of the $12.6 billion in credits through end of [...]
From David Kocieniewski at the NY Times: Home Tax Credit Called Successful, but Costly
Though the Treasury Department and the real estate industry have termed the program a success, helping 1.8 million people buy homes, many tax policy experts say it has been singularly cost-ineffective: most of the $12.6 billion in credits through end of February was collected by people who would have bought homes anyway or who in some cases were not even eligible.
There is no question this program was very costly. And why is the Treasury confusing activity with accomplishment? Sure sales briefly surged, but were new households formed? How many new jobs were created?
“We were happy in our apartment, but $8,000 was just too much to pass up,” said [Mr. James Green, a student at Purdue University], 29, who shopped furiously with his wife for two months before signing a contract in March to buy a three-bedroom ranch.
“We bid on a couple places that didn’t work out,” he said, “but we always made sure we had a backup plan because we didn’t want to miss the deadline for the credit. And when we finally agreed to a contract, it was this huge relief.”
For every home buyer like the Greens, real estate agents say there are at least three others who collected the credit even though they would have bought without it. That means for each new buyer who was truly lured into the market by the credit, the federal government paid more than $30,000.
This is very optimistic – the ratio was probably 5-to-1 for the initial credit and even higher for the extension. But this shows two failures of the tax credit: 1) the high cost, and 2) it was just moving people from apartments to homes and didn’t reduce the excess housing inventory (yes, rentals count as housing inventory too).
“The tax credit helped to stanch the price declines, which had substantial benefit for the entire economy,” said Mark Zandi at Moody’s Economy.com.
And this has been the policy – support asset prices by limiting the supply (all the foreclosure delays), and pushing demand (low mortgage rates and the tax credit). This has helped the banks significantly, and Zandi argues this has boosted confidence. Maybe … but I’m not convinced that supporting house prices above the market clearing level to help the banks and boost consumer confidence makes sense. I think targeting jobs – and therefore household formation – would have been a far more cost effective program.
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Nov 20, 2009 | No Comments | Sean Mills
SAN FRANCISCO — In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.
Policy changes in insurance, while introduced on a temporary basis, are becoming so popular that they could prove difficult to undo.
Back to Business
Risky IncentivesThis series examines the battles taking place to reshape [...]
SAN FRANCISCO — In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.
Policy changes in insurance, while introduced on a temporary basis, are becoming so popular that they could prove difficult to undo.
Nov 10, 2009 | No Comments | Sean Mills
Last fall, as the financial system was teetering and the biggest banks were tightening credit, Karen DeForte couldn’t find a lender to refinance the two mortgages on her New York home, until she received a phone call from Lend America.
Most banks rejected Ms. DeForte because her debt level was too high and her credit score [...]
Last fall, as the financial system was teetering and the biggest banks were tightening credit, Karen DeForte couldn’t find a lender to refinance the two mortgages on her New York home, until she received a phone call from Lend America.
Most banks rejected Ms. DeForte because her debt level was too high and her credit score too low. But Lend America put Ms. DeForte into a $402,000 loan backed by the Federal Housing Administration, a New Deal-era agency that Washington and Wall Street were relying upon to pick up the slack in the mortgage market as private lenders pulled back. Ms. DeForte fell behind on payments six months later and is seeking a loan modification. Taking the loan was “a stupid mistake,” the 46-year-old office manager said.
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Nov 9, 2009 | No Comments | Sean Mills
Note: The Sacramento Association of REALTORS® is now breaking out monthly resales by equity sales (conventional resales), and distressed sales (Short sales and REO sales). I’m following this series as an example to see changes in the mix in a former bubble area.
Click on graph for larger image in new window.
UPDATE: percentages corrected.
Here is [...]
Note: The Sacramento Association of REALTORS® is now breaking out monthly resales by equity sales (conventional resales), and distressed sales (Short sales and REO sales). I’m following this series as an example to see changes in the mix in a former bubble area.
Click on graph for larger image in new window.
UPDATE: percentages corrected.
Here is the October data.
They started breaking out REO sales last year, but this is only the fifth monthly report with short sales. About 63.2 percent of all resales (single family homes and condos) were distressed sales in October.
The second graph shows the mix for the last four months. REO sales declined, but short sales and conventional sales were up. It will be interesting to see if foreclosure resales pick up later this year – or early next year – when the early trial modifications period is over.
Total sales in October were off 17.5% compared to October 2008; the fifth month in a row with declining YoY sales.
On financing, over half the sales were either all cash (24.6%) or FHA loans (28.9%), suggesting most of the activity in distressed former bubble areas like Sacramento is first-time home buyers using government-insured FHA loans (and taking advantage of the tax credit), and investors paying cash.
This is a local market still in distress.
Source Article
Nov 5, 2009 | No Comments | Sean Mills
Last fall, as the financial system was teetering and the biggest banks were tightening credit, Karen DeForte couldn’t find a lender to refinance the two mortgages on her New York home, until she received a phone call from Lend America.
Most banks rejected Ms. DeForte because her debt level was too high and her credit score [...]
Last fall, as the financial system was teetering and the biggest banks were tightening credit, Karen DeForte couldn’t find a lender to refinance the two mortgages on her New York home, until she received a phone call from Lend America.
Most banks rejected Ms. DeForte because her debt level was too high and her credit score too low. But Lend America put Ms. DeForte into a $402,000 loan backed by the Federal Housing Administration, a New Deal-era agency that Washington and Wall Street were relying upon to pick up the slack in the mortgage market as private lenders pulled back. Ms. DeForte fell behind on payments six months later and is seeking a loan modification. Taking the loan was “a stupid mistake,” the 46-year-old office manager said.
In late 2007 and early 2008, thousands of borrowers with marginal credit were allowed to refinance via the government-insured FHA program, just as home-price declines began to accelerate. Policy makers were urging the agency to fill the gap left by the exit of private lenders, refinancing subprime borrowers out of loans that threatened to reset to unaffordable payments.
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Nov 2, 2009 | No Comments | Sean Mills
Congress is working on a new and even more generous set of perks for house buyers. A tentative deal in the U.S. Senate would extend the closing deadline for an $8,000 subsidy for first-time buyers to July 1 from Nov. 30. It would also boost the program’s income limits for singles to $125,000 from $75,000 [...]
Congress is working on a new and even more generous set of perks for house buyers. A tentative deal in the U.S. Senate would extend the closing deadline for an $8,000 subsidy for first-time buyers to July 1 from Nov. 30. It would also boost the program’s income limits for singles to $125,000 from $75,000 and for couples to $250,000 from $150,000, and would offer a new $6,500 reward for existing homeowners who buy again. (More details here.)
The National Association of Realtors has called such an extension “essential.” The Mortgage Bankers Association agrees. The National Association of Home Builders says, “Failure to act now could derail the fragile housing recovery even before it has time to take root.”
I respectfully disagree for perhaps a dozen reasons. Let me offer five.
1. Subsidies raise prices, and house prices are already too high.
Consumer subsidies puff up buying power, which artificially increases demand, which raises prices. With most goods, manufacturers respond by increasing supply, which brings costs back down. Some goods face constraints to new supply, though. We can build more colleges, but we can’t magically make more of the longstanding, prestigious kind. We can make more pills, but we can’t violate drug makers’ patents on popular ones. And we can build new houses, but there’s only so much space (or building permission) in the choicest locations. That produces a paradox: America’s government has for decades spent mightily on affordability initiatives for college courses, health care and houses, and yet prices for all three goods have increased faster than the rate of inflation, resulting in less affordability.
In April 2007 I wrote that houses had gotten so expensive that renting had come to make more financial sense. In July, with prices down about 30% nationwide, I charted them against rents and incomes to show that the country was closing in on its historical level of housing affordability, but wasn’t quite there yet. It never did get there. Prices in most markets have increased each month since then. We’re moving away from normal, not toward it. When the National Association of Home Builders speaks of a “fragile housing recovery,” it means an increase in prices. But what about a recovery of the ability of ordinary Americans to buy houses at fair prices? That recovery might have to wait.
2. The house subsidy has little value as economic stimulus.
The current $8,000 payment to house buyers was proposed as more than a simple perk. The law that created it is titled the American Recovery and Reinvestment Act of 2009. Proponents cited the spillover effect of house purchases on the rest of the economy. Putting aside the matter of whether stimulus spending helps (until item No. 3), the most useful stimulus spending does one or both of these two things well: It begets more spending then it provides, or it leaves behind something useful. Food stamps create $1.73 in economic activity for every $1 we spend, reckons Moody’s Economy.com. That makes sense. The poor spend just about everything that falls into their hands, and the money they spend at food markets leads grocers to spend with suppliers, and suppliers to spend with farmers, and so on. A dollar spent on unemployment benefits creates an estimated $1.63 in economic activity and one spent on infrastructure, $1.59. The result of these things? Bellies are filled, the jobless are given a lift and roads and power grids are upgraded (and, of course, a bit is wasted along the way).
Ted Gayer of the Brookings Institution, a think tank, estimates that only about 15% of house buyers who’ve received $8,000 payments to date wouldn’t have bought houses without the payments. The good news is that suggests the payments have played only a minor role in house prices reversing, and so we might not get much more of a run-up in prices from extending the plan. The bad news is that we’re wasting money. A dollar spent on the housing credit creates an estimated 90 cents of economic activity. That’s not a multiplier effect. It’s a divisor effect.
3. The benefits of stimulus spending are unproven.
There’s a reason economics is categorized as a social science in course catalogs and such. It’s to differentiate it from actual sciences, like physics and chemistry. While economists use scientific methods, much of what they study can’t be tested in a highly controlled setting, and so can’t be known for sure. On the subject of large, industrialized nations spending government funds to hasten the end of a severe economic slowdown, there are only two applicable case studies. One is Japan over the past two decades and the other is America during the Great Depression. Japan’s economic woes haven’t ended. And the Great Depression isn’t called “great” because of how quickly we fixed it.
Maybe the sudden rise in gross domestic product reported Thursday is a sign the stimulus efforts have worked, or maybe it means we’ve paid dearly for a temporary blip in the numbers.
Perhaps I should have mentioned this earlier. America was last debt-free in 1835. The last year it spent less than it collected from taxpayers was 2001. In the government’s fiscal 2009, which ended Sept. 31, it overspent by an estimated $1.4 trillion, more than ever before in dollars, and more than any year since 1945 in proportion to the size of the economy. Perks for house buyers don’t come from the government, ultimately. They come from taxpayers, either this year or in future years when the debt is paid.
By Nov. 30, the government will have spent an estimated $8.5 billion on its current round of house-buyer payments. (A Treasury Department inspector estimates that $139 million of that went to fraudsters who didn’t actually buy houses, but I’m trying to keep my list of grievances to five.) Early projections for the proposed extension say it will cost close to $12 billion. Together, the programs would cost the average household more than $170 if the bill were paid right away. But it’s borrowed money. The interest rates charged to America for its debt at the moment are blessedly low–about 3.5% on 10-year loans. The average since the 1960s is 6.9%. Let’s split the difference and assume the nation will pay roughly 5% on its debt over the next 30 years, the time it might take one of those $8,000 subsidy recipients to pay off the mortgage. By then the program’s true cost will have increased more than fourfold.
5. We already spend plenty on housing stimulus.
We already have programs that draw funds from all taxpayers and divert them to house buyers. The mortgage interest deduction does just that, only its benefits are reserved for those who borrow to buy houses, and for those whose incomes are high enough to make hunting for deductions come tax time more worthwhile than claiming the standard deduction. The interest deduction is what’s called a tax expenditure. It will cost just over $100 billion this year, or about $850 per taxpaying household. Not enough? There’s more. Interest rates are kept low at the moment by aggressive buying of mortgage securities by the Federal Reserve. We can’t say for sure how much that will cost. It depends on how many of the underlying borrowers make good on their payments, which depends in part on how much of their own money they put into the deal to begin with. Did I mention that the $8,000 house-buyer perk can be used for a down payment?
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Oct 28, 2009 | No Comments | Sean Mills
Sorry there have been no posts lately I have been traveling and have been sick I will resume my normal posts.-Sean
(Calculated Risk)
Yesterday I heard a compromise had been reached on extending and expanding eligibility for the home buyer tax credit, and that the housing tax credit would be attached to the extension of unemployment benefits, [...]
Sorry there have been no posts lately I have been traveling and have been sick I will resume my normal posts.-Sean
(Calculated Risk)
Yesterday I heard a compromise had been reached on extending and expanding eligibility for the home buyer tax credit, and that the housing tax credit would be attached to the extension of unemployment benefits, and that the Senate would vote today – and a House vote would follow shortly.
Hold on …
Albert Buzzo at CNBC reports: Senate Vote On Home-Buyer Tax Credit Unlikely Today. Buzzo says there is “no chance” the Senate will vote today on the home buyer’s tax credit.
There was hope last night that a vote on one of several versions might be voted on Wednesday but a battle over legislation extending unemployment benefits is taking priority and right now there’s “no agreement” on that issue …CNBC’s Diana Olick provides the same details that I heard on the tax credit: A Compromise on Home Buyer Tax Credit? and adds:
[T]here may have been a bit of a revolt among Democrats who didn’t want the controversial measure attached to the Unemployment Insurance bill.And from Andy Sullivan and Corbett Daly at Reuters:
Reid had wanted to attach a bill to extend the homebuyer credit as an amendment to a bill to lengthen insurance benefits for unemployed workers. The Senate voted 87-13 on Tuesday to take up the insurance benefit bill, but did not attach the homebuyer tax credit to the measure as Reid had wanted.
Despite that apparent roadblock, Senate Finance Committee Chairman Max Baucus, who has been involved in negotiations over the tax credit, told Reuters late on Tuesday that he expected the Senate would vote on the bill sometime this week.As Ms. Olick concluded: “Stay tuned. It could all change dramatically.”
Yesterday I heard a compromise had been reached on extending and expanding eligibility for the home buyer tax credit, and that the housing tax credit would be attached to the extension of unemployment benefits, and that the Senate would vote today – and a House vote would follow shortly.
Hold on …
Albert Buzzo at CNBC reports: Senate Vote On Home-Buyer Tax Credit Unlikely Today. Buzzo says there is “no chance” the Senate will vote today on the home buyer’s tax credit.
There was hope last night that a vote on one of several versions might be voted on Wednesday but a battle over legislation extending unemployment benefits is taking priority and right now there’s “no agreement” on that issue …CNBC’s Diana Olick provides the same details that I heard on the tax credit: A Compromise on Home Buyer Tax Credit? and adds:
[T]here may have been a bit of a revolt among Democrats who didn’t want the controversial measure attached to the Unemployment Insurance bill.And from Andy Sullivan and Corbett Daly at Reuters:
Reid had wanted to attach a bill to extend the homebuyer credit as an amendment to a bill to lengthen insurance benefits for unemployed workers. The Senate voted 87-13 on Tuesday to take up the insurance benefit bill, but did not attach the homebuyer tax credit to the measure as Reid had wanted.
Despite that apparent roadblock, Senate Finance Committee Chairman Max Baucus, who has been involved in negotiations over the tax credit, told Reuters late on Tuesday that he expected the Senate would vote on the bill sometime this week.As Ms. Olick concluded: “Stay tuned. It could all change dramatically.”
Oct 21, 2009 | No Comments | Sean Mills
Another great idea eh? The only late I have ever had on my credit, yep you guessed it, Aurora. Loan servicing transfer twice in a month finally landed at WaMu. Everyone is paid and happy except Aurora. By the way it was never late and I have documentation to prove it but with the great [...]
Another great idea eh? The only late I have ever had on my credit, yep you guessed it, Aurora. Loan servicing transfer twice in a month finally landed at WaMu. Everyone is paid and happy except Aurora. By the way it was never late and I have documentation to prove it but with the great credit reporting system we have it is still on there. 9 years later I am still fighting this and requesting for it to be removed.-Sean
Oct. 21 (Bloomberg) — Lehman Brothers Holdings Inc., the investment bank brought down by the U.S. mortgage crash after 158 years, is set to return to funding home loans through its Aurora Loan Services unit, people familiar with the matter said.
Aurora, which helped make Lehman the top underwriter of mortgage bonds during the housing boom, has started hiring staff for the effort, said the people who declined to be identified because the plan isn’t public.
The expansion comes even as New York-based Lehman is shrinking through asset sales, 13 months after filing for the biggest bankruptcy in history and selling its North American investment-banking unit to Barclays Plc. While Aurora will be forced to focus on the government-backed mortgages now accounting for 90 percent of new home loans, rather than the riskier debt it specialized in as recently as two years ago, reduced competition has made that market more profitable.
“For the ones that are left, there’s opportunity,” Steve Jacobson, chief executive officer of Madison, Wisconsin-based Fairway Independent Mortgage Corp., said in an interview. His originations soared 67 percent from a year earlier to $2.6 billion in the first nine months of 2009.
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Oct 21, 2009 | No Comments | Sean Mills
(Yahoo)
If you thought home prices were bottoming out, you may be wrong. They’re expected to head a lot lower.
Home values are predicted to drop in 342 out of 381 markets during the next year, according to a new forecast of real estate prices.
Overall, the national median home price is predicted to drop 11.3% by June [...]
(Yahoo)
If you thought home prices were bottoming out, you may be wrong. They’re expected to head a lot lower.
Home values are predicted to drop in 342 out of 381 markets during the next year, according to a new forecast of real estate prices.
Overall, the national median home price is predicted to drop 11.3% by June 30, 2010, according to Fiserv, a financial information and analysis firm. For the following year, the firm anticipates some stabilization with prices rising 3.6%.
In the past, Fiserv anticipated the rapid decline in home-sale prices over the past few years — though it underestimated the scope.
Mark Zandi, chief economist with Moody’s Economy.com, agreed with Fiserv’s current assessments. “I think more price declines are coming because the foreclosure crisis is not over,” he said.
In fact, those areas with high concentrations of foreclosure sales will experience the steepest drops, according to Fiserv. Miami, for example, is expected to be the biggest loser. Prices are forecast to plunge 29.9% by next June — after having already fallen a whopping 48% during the past three years.
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Oct 15, 2009 | No Comments | Sean Mills
To tell you the truth all is pretty quiet on the CRE end of real estate with a wait and see attitude of everyone holding their breath. The squeaky wheel is residential right now and for at least a while.-Sean
SUDBURY, Mass. — Jon Davis handles 10 percent of the state’s foreclosure auctions. The Marshfield lawyer [...]
To tell you the truth all is pretty quiet on the CRE end of real estate with a wait and see attitude of everyone holding their breath. The squeaky wheel is residential right now and for at least a while.-Sean
SUDBURY, Mass. — Jon Davis handles 10 percent of the state’s foreclosure auctions. The Marshfield lawyer has been watching these auctions migrate from places such as Dorchester and Lowell.
Now you’ll see them in the Sudburys, the Hinghams and the Westons,” Davis said, “where you wouldn’t have in the past expected to see foreclosures.”
The reason for these auctions is not the crazy interest-rate mortgages. It’s the recession. Nowadays, people are losing their homes the way they used to before the sub-prime crisis.
“Historically, people lost their home when they lost their job, they lost their health or they lost their spouse,” said Nick Retsinas, a housing market economist at Harvard University.
Unemployment is to blame again today. The number of foreclosure proceedings in Massachusetts has jumped an alarming 150 percent.
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