Existing-Home Sales Jump To Highest Level in 2-1/2 Years

Published: Monday, 23 Nov 2009 | 10:46 AM ET
By: Reuters

Sales of previously owned U.S. homes rose in October at a faster-than-expected pace to the highest in more than 2-1/2 years as buyers rushed to take advantage of a popular tax credit, a survey showed Monday.

The National Association of Realtors said sales surged a record 10.1 percent month-over-month to an annual rate of 6.10 million units, the highest since February 2007, from a downwardly revised 5.54 million-unit pace in September.

Analysts polled by Reuters had expected October sales to jump to a 5.70 million-unit pace from the previously reported 5.57 million units in September. Compared to October last year, home sales were up by a record 23.5 percent. U.S. stock indexes extended gains on the data, while Treasury debt prices were little changed.

"Many buyers have been rushing to beat the deadline for first-time buyer credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November," said Lawrence Yun, NAR's chief economist.

Distressed transactions accounted for 30 percent of sales last month and continued to weigh on house prices. First-time buyers made up a third of sales in October.

The national median home price fell 7.1 percent from October last year, the smallest decline in over a year, to $173,100. Homes in foreclosure typically sell for 15 to 20percent less than traditional homes.

"Existing home sales have already bottomed. Home prices are almost there. We are seeing a less of a decline in house values," said Yun.

The housing market is slowly mending after a three-year decline, which contributed to tipping the U.S. economy into its worst recession in seven decades. Housing construction contributed to economic growth in the third quarter for the first time since 2005.

Recovery is being supported by the $8,000 tax credit for first-time buyers, low mortgage rates and falling house prices. The government this month extended the incentive into next year and added a $6,500 credit for home owners buying a new residence. It had been due to expire on Nov. 30.

"The tax benefits going into the housing market are working, and that's a relief," said William Larkin, portfolio manager at Cabot Money Management in Boston. "Everything is about housing and jobs right now."

The improvement in October sales was broad-based, with sales of single-family homes, the biggest segment of the market, rising 9.7 percent to an annual rate of 5.33 million units, while condominium and co-ops increased 13.2 percent to a 770,000-unit rate.

Sales were up in all four regions of the country. Prices rose 1.1 percent in the Midwest, which didn't see the same boom as the rest of the country, while declining in the other three. The rise in the Midwest was the first price increase in any region since November 2008.

Analysts are cautiously hoping a sustained housing market recovery will help to improve the psychology of households, which has been shaken by rising unemployment.

While the economy resumed growing in the July-September period after four quarters of decline, sluggish consumer spending is seen slowing the momentum.

The inventory of existing homes for sale in October fell 3.7 percent to 3.57 million units from the previous month, NAR said. At October's sales pace, that represented a supply of 7.0 months, the lowest in 2-1/2 years, from September's revised 8.0 months.

Copyright 2009 Reuters.

Low Interest Rates Spur Refinancing, Buying Interest

by Broderick Perkins

If you purchased a home a year ago and have the equity and creditworthiness to swing it, a refinance today could save you hundreds of dollars a month.

Or, if you are in the market to buy a home, interest rates will make for a more affordable deal.

Freddie Mac's Primary Mortgage Market Survey for Nov. 12 put the average fixed interest rate for 30-year conforming mortgages at 4.91 percent.

Last year at the same time, the 30-year fixed rate mortgage (FRM) averaged 6.14 percent.

"Keeping rates at historically low levels for a sustained period of time has to remain a cornerstone of Fed policy until the economy gets back on track," said Nancy Osborne, chief operating officer of Erate.com.

On a $300,000 mortgage the principle and interest payment at today's average rate would be about $1,594, compared to $1,825 a year ago, according to Erate's calculators.

That's a monthly savings of $231. Put another way, a year's worth of the savings -- $2,772 -- amounts to almost two mortgage payments on a $300,000 mortgage at today's average rate.

Both home buyers and owners who want to refinance may have some time yet to shop around and dicker for the best interest rate deal.

"I don't suspect rates will begin to rise until we see at least three consecutive months of solid employment growth," Osborne said.

Freddie Mac also said the 15-year FRM averaged 4.36 percent, down from 5.81 percent a year ago.

Adjustable rate mortgages (ARMs)

The five-year Treasury-indexed hybrid adjustable rate mortgage (ARM) averaged 4.29 percent this week, down from 5.98 percent a year ago. The one-year Treasury-indexed ARM averaged 4.46 percent, down from 5.33 percent in 2009 at this time.

Published: November 19, 2009

Congress Poised to Keep Homebuyers’ Tax Credit

By JACKIE CALMES
Published: November 3, 2009

WASHINGTON — The Senate and House are poised to agree on a compromise measure to extend unemployment benefits that also would expand a popular $8,000 tax credit for homebuyers, despite a recent government report on extensive mistakes and suspected fraud in the program.

The Senate might pass its version as early as Wednesday, and aides to Congressional leaders say the House could accept it this week, sending the bill to President Obama to sign into law. After weeks of partisan delay in the Senate, Democrats are eager to show progress before Friday, when the October jobless report is again expected to show high unemployment.

The homebuyers’ credit — enacted last year, expanded this year and scheduled to expire Nov. 30 — would be extended to cover homes under contract by April 30. Also, it no longer would be limited to first-time buyers; people who have owned a home for at least five years could get a $6,500 credit on a new residence. Income limits for eligibility would be raised, making many more people qualify.

Extending and expanding the credit would cost an estimated $11 billion, on top of the $10 billion spent so far. It would be a big victory for the housing and real estate lobby and for the Senate majority leader, Harry Reid, Democrat of Nevada, who faces a tough re-election race next year in the state with the most claims for the credit per capita.

Critics complain that most of the credits go to taxpayers who would have bought their homes anyway, which even the industry acknowledges. Also, a Congressional subcommittee released a Treasury Department report last month about suspected criminal and civil abuses of the program.

Government officials testified, however, that many of the problems may be due to confusion among taxpayers and the Internal Revenue Service about the overlapping 2008 and 2009 versions of the tax credit. With Congress likely to change the eligibility provision again, the new measure could present further administrative problems for the I.R.S., although the measure does include several new safeguards.

“It’s not unreasonable to think that this is going to provide some further challenges for them, both in terms of implementing a third version of it and in terms of ensuring taxpayers’ compliance,” said James R. White, director of tax issues for the Government Accountability Office.

The Treasury Department report said that as of Sept. 30, the I.R.S. had identified 167 suspected criminal schemes and was examining nearly 107,000 cases of potential civil violations.

The first person to be convicted of defrauding the tax credit program was a tax preparer in Jacksonville, Fla., who was sentenced last month to 30 months in prison. According to the Justice Department, he claimed the credit for ineligible clients, many of whom were unsuspecting, and electronically paid himself $1,000 of the credit’s value each time.

Investigators found that more than 500 claimants of the tax credit nationwide were minors as young as 4, so the new measure will require applicants to be at least 18. Homes cannot be acquired from relatives, and taxpayers must submit a settlement statement as proof of purchase, though officials acknowledge that could be a problem for those who file tax returns electronically.

While real estate groups and some economists say the credit has helped stabilize the housing market, critics say it is too costly a subsidy when low interest rates and home prices are incentives enough for most.

Of the 1.4 million claimants of the credit, fewer than a third — about 350,000 to 400,000 — are believed to have bought their homes because of the credit, according to independent and industry-affiliated economists.

Under the new legislation, individuals with income up to $125,000 a year and couples earning up to $225,000 would be eligible. The current income limits are $75,000 for individuals and $150,000 for couples. Under both the House and Senate versions, smaller amounts are available to people of slightly higher incomes until the credit phases out.

The expanded homebuyers’ tax credit was attached to a bill intended to extend unemployment compensation for up to 20 weeks for people who have been out of work for long periods. Another amendment would sweeten a tax break for businesses with net operating losses in 2008 and 2009.