Homebuyer Tax Credit is a Mixed Blessing

Advisory Board Opinion

Homebuyer Tax Credit is a Mixed Blessing

Peter P. Casey, GRI, CRB, RECS

12-7-2009 (Publication Date)

The Worker, Homeownership and Business Assistance Act of 2009, signed into law on November 6, extends the American Recovery and Reinvestment Act and expands homebuyer tax credits to some current homeowners. The Act became effective on November 7, 2009.

First time homebuyer tax credits continue to be available, up to the original $8,000 maximum credit, but income limits have been raised $50,000 to $125,000 if single or $225,000 for married couples. The original deadline of November 30 has been extended to April 30, 2010.

Under the Act, current homeowners, if they owned their primary residence for five consecutive years out of the last eight years, are now eligible for a credit of up to $6,500 if married or $3,250 if single. Income limits are the same as for first time buyers. There is absolutely no tax credit for the purchase of any home exceeding $800,000.

Homebuyers are only eligible if a binding contract is signed by April 30, 2010, even if the purchase closes as late as July 1, 2010. Any future claims for tax credits will require that documentation be filed with claimants’ tax returns. Eleven state housing finance agencies (FHA’s), not including Massachusetts, offer products that allow buyers to apply tax credits as down payments. As with all tax laws, things are never so simple and the actual credit will depend on the specific facts of each particular case.

Has the homebuyer tax credit worked? Will it positively impact our economy? As you might guess, it depends on whom you ask.

The National Association of Homebuilders claims that the new law will create nearly 325,000 jobs, $16 billion in wages, $12 billion in business income, $8.4 billion in Federal tax revenue and $3.2 billion for state and local governments. They also conclude that the excess stock of homes for sale will be absorbed and home prices will begin to move up again.

National Association of Realtors economists estimate that two million people took advantage of the original tax credits contributing some $22 billion to the general economy. “Now”, to quote a famous radio host, “for the rest of the story!”

Bloomberg news, along with other media sources, reports that key controls were missing in the rush to distribute credit checks and, as a result, significant fraud occurred. The Internal Revenue Service has identified more than 74,000 fraudulent claims totaling more than half a billion dollars; this out of the roughly 1.2 million credit claims totaling $8.5 billion.

Goldman Sachs estimates that all but 200,000 home sales, of those 1.2 million, would have occurred without the homebuyer credit. The National Association of Realtors puts the estimate at 350,000. One MIT professor concludes that, at a marginal cost of between $43,000 and $80,000 per incremental sale, the ratio of new economic activity to spending is far too low. He also concludes that homebuyer credits raise the cost of housing which, in his view, is already too high.

Recent Rasmussen surveys find that 57% favor the credit of $8,000 for first time homebuyers. “But support falls to 42% when respondents are informed that the program will cost several billion dollars. With the price tag attached,” Rasmussen says, “a plurality of voters (45%) are opposed to the plan.”

Where do you stand? Is this a good way to spend taxpayer dollars or is it a bad idea? Will you take advantage of the opportunity or not? Is this good for the housing markets or does it artificially inflate housing prices?

I have mixed feelings. In the short term it could improve my business, a very good thing! Long-term I prefer an economy where expansion results naturally from lower taxes.

END

Banker & Tradesman ©2009 All Rights Reserved

A Stimulus Or A Tax Grab?
By Peter P. Casey, GRI, CRB, RECS


More than four decades of business experience, and a couple more of life experience, have taught me that when income declines we have two choices: cut expenses or borrow money to cover the shortfall. Bailouts were not an option!

Conveniently, our government can also print money or turn to its preferred method of solving all problems, raise taxes! Borrowing money has become an all too popular government-funding source while cutting expenses at all levels is the last resort, clearly unacceptable to most officials.

Housing markets in Massachusetts and across the country are in trouble and they need to improve before the general economy can recover. If you agree, you probably also agree that the 2009 Homebuyer Tax Credit is a good idea, at least conceptually if not in scope. After all, this generally accepted prescription for recovery only amounts to .8% of the $787 billion stimulus package.

Ok, at least they’re trying. The credit does contribute to improving the affordability of housing and may start things moving in the right direction. Is it enough? Well, lets see what else government is doing to help.

Well, there’s energy scoring, a statewide sales tax on services, deeds excise tax increases, rental taxes on seasonal rentals and transfer taxes (again). Now, I’m no Albert Einstein but I am good at math and pretty sure these ideas will not help make housing more affordable! In fact, my calculus suggests that they will easily offset the Homebuyer Tax Credit.

Take energy scoring, for example. Defeated in Massachusetts last year, it is now a hot item on the minds of Congressmen Markey (D-MA) and Waxman (D-CA). They propose requiring point of sale (at closing) energy star labels for homes and commercial properties and providing funds to states to develop the labeling program.

Labels will not improve energy efficiency! They will stigmatize properties (especially older properties found in Massachusetts) and likely cause a loss of property value thereby reducing family wealth and weakening the overall economy. A pre-sale audit would be required, further increasing the cost to sell. A more constructive use of these funds might be to offer incentives (i.e. tax credits) for actually making buildings more energy efficient.

Consider the proposed 5%+ statewide sales tax on services, including real estate commissions. Although withdrawn as an amendment to the House proposed budget, it would have increased the cost of selling a $400,000 home by approximately $1,400! Stay tuned as the Senate’s budget is released!

Barnstable County has proposed a $.43 per thousand increase in the deeds excise tax. Martha’s Vineyard and Nantucket are back with yet another Transfer Tax in addition to the 2% tax already in place. A Rental Tax of up to 9.7% of income has been proposed for short-term rentals of single-family homes and there is even talk of imposing a “hotel/motel” like tax on seasonal private homes.

Why is it that government, while claiming to “feel our pain”, seems unwilling or unable to act in furtherance of alleviating it? Why is it that we, the people directly affected by these tax grabs, are not screaming form the rooftops to stop them? Perhaps it is because all these fees and taxes by other names may not appear to affect us as individuals.

It seems to me that all government entities should be required to quantify and regularly report on the total cost of taxes and fees charged by them as a percentage of our household income. I call it “truth in taxation”. A good friend of mine suggested that a “household income impact statement” be required before any new or increased taxes or fees are adopted. I would be happy with either but both requirements would be better. Maybe then we will know when enough is enough!

END

This Advisory Board, Editorial Opinion was written for Banker & Tradesman Newspaper, a New England Banking and Real Estate Weekly, and for its Online Edition. All Rights Reserved.

UNBALANCED REPORTING DRIVES HOME SALES DOWN

(Advisory Board Opinion)

By: Peter P. Casey, GRI, CRB, RECS
Prudential Wilmot Whitney Real Estate
3/2/2009 Edition


The answer must be pride! Surely pride is the reason
residential real estate is not selling as briskly as it
once did. Certainly sellers don’t want to admit to
taking a loss if they sell and buyers each want to
believe they bought at the bottom of the market.

If not pride, perhaps sellers are simply unreasonable
for refusing to reduce prices and bargain-hunting
buyers are simply enjoying the hunt for a bargain.
No, it must be that the laws of economics are so
inexorable that they alone control market conditions.

Yet another possibility is that published speculation
about the desirability of available properties, or about
properties being overpriced and not worth buying, or
about the declining market lasting for years to come
all have something to do with a buyer’s willingness
to buy or a seller’s willingness to offer a property for
sale. Are such proclamations, mostly claiming to be
news or expert testimony, the driving force behind
buyer and seller decisions or are their decisions made
independent of such influence?

Much of the statistical housing information being
published daily seems accurate. Inventory is down,
sales and median prices are down and homes take
longer to sell than they once did. All true!

Also true, but not often repeated, is that interest rates
are among the lowest in the past forty years and there
are plenty of very nice homes for sale at fairly
reasonable, perhaps not bargain, prices. Why is it,
do you suppose, that the bad news is reiterated ad
nauseam while seemingly good news is lost in a
barrage of negativisms?

Consider the content of much of the published
commentary on housing, and on many other issues
for that matter. Most accurately report the facts but,
unfortunately, most also add discussion more akin to
editorial opinions. At least editorial opinions are
clearly labeled as opinions, just like this one! The
reader or listener understands that not all opinions are
valid or correct and decides for him or herself how to
value each. On the other hand, opinions mixed with
facts and labeled as reporting or expert testimony are,
in my opinion, typically misleading and potentially
dangerous.

So, now I return to the question asked earlier: are
published proclamations claiming to be news or
expert testimony the driving force behind decisions
or are buyer and seller decisions made independent of
such influence? I leave the answer to you.

We clearly have a serious housing problem. Why the
problem occurred or why it continues to exist will be
the subject of much public and private commentary
long after the problem is solved. It is clear to me,
however, that ill-founded speculation will not solve it
and may forestall our willingness to adopt helpful
solutions.

My purpose here is simply to suggest that the
suppliers of the public discourse take a critical look at
their contribution to the problem and that consumers
hone their critical evaluation skills for what they read
and hear. If erroneous facts and misinformed and ill-
founded speculation do, in fact, drive some segment
of the decision process undertaken by buyers and
sellers, a more balanced approach by contributors and
a far more critical analysis by consumers may be
important elements of a housing recovery.

END

Banker & Tradesman ©2009 All Rights Reserved

November 2008 Housing Release

Massachusetts Home Sales Down in November

After Two Straight Months of Increases

FOR IMMEDIATE RELEASE

Contact:
Eric Berman
Massachusetts Association of Realtors®
eberman@marealtor.com
781-839-5507

WALTHAM, Mass. – December 23, 2008 - The Massachusetts Association of REALTORS® (MAR) reported today that single-family home sales were down 21.8 percent in November compared to the same time last year after two straight months of year-over-year increases. Condominium sales were down 27.3 percent in November compared to the same time last year. The median price for a single-family home in November was $283,000 while the median price for a condominium was $250,000.

“While prices still continue to be affordable, the uncertainty created by the September financial crisis on Wall Street caused many would-be-buyers to once again stay out of the housing market,” said MAR President Susan R. Renfrew, broker/co-owner of Renfrew Real Estate in Greenfield. “We need a vibrant housing market to help get the economy moving and the recent steps by the Federal Reserve to reduce interest rates combined with affordable home prices are the type of action we need.”

There were 2,339 detached single-family homes sold this November, a 21.8 percent decrease from the 2,991 homes sold the same time last year. On a month-to-month basis, home sales were down 28.1 percent from 3,251 homes sold this past October. Sales traditionally go down from October to November.

The median selling price for single-family homes in October was $283,000, a decrease of 14.2 percent compared to $330,000 in November 2007. Median prices have remained below $300,000 for the third consecutive month. On a month-to-month basis, the November median selling price was down 4.0 percent from $294,900 in October 2008.

The condominium market experienced a 27.3 percent decrease in the number of units sold this November, compared to the same time last year (from 1,246 units sold in 2007 to 906 units sold in 2008). On a month-to-month basis, condominium sales were down 30.1 percent compared to the 1,296 units sold this past October.

Condominium median selling prices in November were down 9.1 percent from $275,000 in 2007 to $250,000 in 2008. Compared to this past October, the median selling price of a condominium has remained the same at $250,000.

Inventory and Days on Market:

The inventory of residential properties on the market as of November 30, 2008 decreased 16 percent compared to the same time last year (from 48,036 listings in 2007 to 40,590 listings in 2008). At the current sales pace, this represents approximately 12.5 months of supply, an increase from 11.3 months of supply in November 2007. On a month-to-month basis, the average months of supply is up from 9.9 months in October 2008. It is considered a balanced market when there are between 7.5 and 8.5 months of supply.

The inventory of single-family homes decreased 13.0 percent from November 2007 (32,786 listings in 2007 to 28,607 listings in 2008) which translates into 12.2 months of supply in November 2008. This is up from 11.0 months of supply last year and up from 9.8 months of supply in October 2008.

The condominium market saw October inventory decrease by 21 percent from last year (15,250 listings in 2007 to 11,983 listings in 2008), which translates into 13.2 months of supply, up from 12.2 months in 2007 and up from 10.2 months this past
October.

Detached single-family homes stayed on the market an average of 137 days in November 2008 compared to an average of 133 days in November 2007, while condos stayed on the market an average of 149 days, up from an average of 141 days in November 2007. On a month-to-month basis, days on market for single-family homes were down from 140 days and condos were up from 141 days in October.

About the Massachusetts Association of REALTORS®:

Organized in 1924, the Massachusetts Association of REALTORS® is a professional trade organization with more than 21,000 members. The term REALTOR® is registered as the exclusive designation of members of the National Association of REALTORS® who subscribe to a strict code of ethics and enjoy continuing education programs.

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Editors and reporters: Please note that the term Realtor is properly spelled with an initial capital “R”, per the Associated Press Stylebook.

SEPTEMBER AND 3RD QUARTER 2008 HOUSING REPORT

MASSACHUSETTS ASSOCIATION OF REALTORS®

Single-Family Home Sales Increase in September as
Median Prices Now Under $300,000

Third quarter sales down for single-family and condos
while multi-family sales increase by 40%

WALTHAM, Mass. – October 27, 2008 - The Massachusetts Association of REALTORS® (MAR) reported today that single-family home sales were up five percent in September compared to the same time last year. This is the first year-over-year increase in monthly home sales in 2008. Condominium sales were down 6.2 percent in October compared to the same time last year. The median price for a single-family home in September was $295,000, the first time median prices have dipped below $300,000 since April 2003.
In the third quarter of 2008, single-family home sales were down 7.9 percent while condominium sales were down 11.5 percent compared to the same quarter last year.
“With median prices down below $300,000 for the first time since 2003, buyers are taking advantage of the affordable prices and starting to get back into the market,” said MAR President, Susan M. Renfrew, broker/co-owner of Renfrew Real Estate in Greenfield. “While transactions are up, we will still need to see how the changes in the financial markets and the upcoming election will impact sales going forward.”
There were 3,272 detached single-family homes sold this September, a five percent increase from the 3,116 homes sold the same time last year. On a month-to-month basis, home sales were down 18.8 percent from 4,032 homes sold this past August. A double digit percent decrease from August to September is typical.
The median selling price for single-family homes in September was $295,000, a decrease of 13.2 percent compared to $340,000 in September 2007. This is the first time the median price has dropped below $300,000 since April 2003, when the median price was $291,750. On a month-to-month basis, the September median selling price was down 9.2 percent from the August 2008 median of $325,000.
The condominium market experienced a 6.2 percent decrease in the number of units sold this September, compared to the same time last year (from 1,386 units sold in 2007 to 1,300 units sold in 2008). This is the smallest decrease since August 2007 when there was 3.0 percent gain. On a month-to-month basis, condominium sales were down 28.2 percent compared to 1,811 units sold this past August. Similar to single-family home sales, a double digit percent decrease from August to September is typical.
Condominium median selling prices in September were down 7.3 percent from $275,000 in 2007 to $255,000 in 2008. Compared to this past August, the median selling price of a condominium is down 12.8 percent (from $292,450).
“Despite all the financial turmoil of the past weeks and months, it continues to be a very good time to buy for qualified first-time homebuyers. In addition to the reduced prices and still-favorable interest rates, programs such as first-time homebuyer tax credit, increased FHA loan limits and affordable loan products from MassHousing are easily accessible,” said Renfrew.

Inventory and Days on Market:
The inventory of residential properties on the market as of September 30, 2008 decreased 13.6 percent compared to the same time last year (from 53,957 listings in 2007 to 46,598 listings in 2008). At the current sales pace, this represents approximately 10.2 months of supply, a decrease from 12.0 months of supply in September 2007. On a month-to-month basis, the average months of supply is up from 8.1 months in August 2008. It is considered a balanced market when there are between 7.5 and 8.5 months of supply.
The inventory of single-family homes decreased 12.0 percent from September 2007 (37,232 listings in 2007 to 32,757 listings in 2008) which translates into 10.0 months of supply in September 2008. This is down from 11.9 months of supply last year and up from 10.3 months of supply in August 2008.
The condominium market saw September inventory decrease by 17.2 percent from last year (16,725 listings in 2007 to 13,841 listings in 2008), which translates into 10.6 months of supply, down from 12.1 months in September 2007 and down from 7.6 months this past August.
Detached single-family homes stayed on the market an average of 134 days in September 2008 compared to an average of 129 days in September 2007, while condos stayed on the market an average of 143 days, up from an average of 134 days in September 2007. On a month-to-month basis, days on market for single-family homes were up from 138 days and condos were up from 136 days in August.

Quarterly Information:
The number of single-family homes sold in the third quarter of 2008 was down 7.9 percent compared to the same time last year (12,195 homes sold in 2007 to 11,235 homes sold in 2008). Median selling prices were down 10.4 percent from $355,000 in 2007 to $318,000 in 2008.
The condominium market experienced a drop of 11.5 percent in the number of units sold in the third quarter compared to the same quarter last year with 5,555 units sold in 2007 to 4,914 units sold in 2008. Median selling prices were down 2.8 percent from $288,000 in 2007 to $280,000 in 2008.
The multi-family market saw a 40.3 percent increase in the number of third-quarter sales compared to the same time last year with 1,304 homes sold in 2007 and 1,830 homes sold in 2008. Median selling prices were down 34.7 percent compared to the third quarter last year from $325,500 in 2007 to $212,500 in 2008.
Due to changes in reporting at local boards, second quarter multi-family data was not available previously. During the second quarter, multi-family home sales increased 22.9 percent from last year with 1,311 homes sold in Q2 2007 and 1,611 homes sold in Q2 2008. Multi-family median selling prices decreased 32.8 percent from the second quarter last year from $340,000 in Q2 2007 to $228,500 in Q2 2008.

Quarterly Regional Sales Data:
Regionally, every part of the state saw a decrease in sales of single-family homes compared to the same quarter last year, except Cape Cod, which saw an increase of 6.2 percent (801 homes sold in 2007 compared to 851 homes sold in 2008). Of the seven regions, the Western region experienced the largest drop in sales at 12.9 percent with 1,703 homes sold in Q3 2007 compared to 1,484 homes sold in Q3 2008.
While the Western region experienced the largest drop in home sales, it also experienced the lowest drop in median prices at four percent from $215,900 in 2007 to $207,250 in 2008. Conversely, while Cape Cod had the only increase in sales, that region of the state that had the largest drop in median prices at 16.3 percent from $409,000 in 2007 to $342,500 in 2008.
In the condo market, the Western region had the smallest drop in sales, with a 6.9 percent decrease compared to the same quarter last year with 275 units sold in 2007 to 256 units sold in 2008. The Southeast region had the biggest decrease in condo sales at 26.2 percent, going from 61 units sold in 2007 to 45 units sold in 2008.
The Western region had a 6.6 percent increase in median prices (from $160,000 in 2007 to $170,500 in 2008). The Southeast region experienced the biggest drop in median prices, with a significant 25.2 percent drop compared to the same quarter last year (from $189,900 in 2007 to $142,000 in 2008).
In the multi-family market, there were extreme increases in sales activity during the third quarter, with only the Southeast seeing a decline of 6.4 percent compared to last year (110 homes sold in 2007 to 103 homes sold in 2008). The Northeast region had an 85.8 percent increase in the Q3 compared to the same time last year with 226 homes sold in 2007 compared to 420 sold in 2008. Second quarter multi-family sales activity showed large increases for all regions except the Western region with a 0.5 percent decline from Q2 2007, and Cape Cod with a 15 percent decline from Q2 2007.
Despite the sales increases in Q3 and declines in Q2, only Cape Cod saw median price increases for multi-family homes. The median price on Cape Cod went up 7.2 percent in Q3 from $368,500 in 2007 to $395,000 in 2008, and 9.6 percent in Q2 from $375,000 in 2007 to $411,000 in 2008. The Northeast region saw the largest median prices decreases for both quarters, with a 42.8 percent drop in Q3 from $314,750 in 2007 to $180,000 in 2008, and a 33.5 percent drop in Q2 from $310,000 in 2007 to $206,000 in 2008. In Q2 the Central region also saw a 33.5 percent drop in median prices from $248,000 in 2007 to $165,000 in 2008.
“I feel it is a positive sign to see that investors are coming back into the multi-family market,” said Renfrew. “Two- and three-family homes are an important part of many communities in Massachusetts, and qualified ownership of these properties is an important step in stabilizing these neighborhoods.”

About the Massachusetts Association of REALTORS®:
Organized in 1924, the Massachusetts Association of REALTORS® is a professional trade organization with more than 21,000 members. The term REALTOR® is registered as the exclusive designation of members of the National Association of REALTORS® who subscribe to a strict code of ethics and enjoy continuing education programs.

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“The Shortest Path To Foreclosure Relief”

“The Shortest Path To Foreclosure Relief”

By: Peter P. Casey, GRI, CRB, RECS
Prudential Wilmot Whitney Real Estate


Some time ago, probably three or four years now, my colleagues and I began to notice an increasing trend toward what we saw as risky mortgages; risky for lenders and borrowers alike.

Interest rates were in the low to mid 5% range, money was easily available and many borrowers were encouraged to choose variable rate, interest only loans. It allowed them to buy larger homes, make lower monthly payments or both or refinance, using available equity to generate cash. Such loans, possibly appropriate for a few financially strong short-term borrowers, are almost always ill advised for others. Rate increases of just two or three points could, and in many cases did, force far too many borrowers into default.

In addition, substantial political pressure was brought against lenders to lower mortgage qualification standards for unqualified buyers. While lowered standards increased homeownership opportunities, it left those borrowers vulnerable to default. In either case, default rates substantially higher than normal, not surprisingly, have been the result.

As most of these loans were sold to Fannie and Freddie and later packaged as securities by Wall Street, the crisis partially caused by unwise and overly aggressive mortgage lending has escalated far beyond housing. It was never supposed to get this far, however. “Short sales” were one solution expected to prevent a rash of foreclosures. Yes, there would be losses but those losses would be substantially lower than losses resulting from a lengthy foreclosure process. But have short sales, a “foreclosure mitigation tool” if you like, worked?
A short sale, for clarity, is a sale that occurs when the sale price of a property is not sufficient to pay the total of all mortgages, liens and costs of a sale and when a seller cannot bring sufficient liquid assets to the closing to cure all deficiencies. It can also occur when a borrower is in arrears or headed for foreclosure or when the value of a property has fallen below the outstanding balance of the mortgage.

Short sales, by design, should prevent foreclosures. They would relieve borrowers of obligations they are no longer able to fully satisfy and preserve some modest credit worthiness while, at the same time, would reduce losses suffered by lenders. On average, the Towers Group estimated in a 2002 study, foreclosures result in costs of $58,759 and take eighteen months to complete. Short sale properties sell faster, attract higher prices and reduce costs and time delays associated with foreclosures.

When successful, short sales help stabilize housing prices by avoiding typically lower foreclosure sales prices. Neighbors are less affected by falling values in the neighborhood and the communities tax base remains relatively stable.

Unfortunately, Realtors® are experiencing roadblocks to their attempts to assist with short sales primarily with lender response times. It is not unusual to wait months for a response to an offer or to have a lender reverse its acceptance of an offer at the last minute. The process has so frustrated buyers that they approach short sales with great caution or avoid them in favor of other properties.

Short staffs, inexperienced lenders’ officials and artificially inflated appraisals resulting from a failure to properly calculate the effect of neighborhood foreclosures on property values are part of the problem. Approvals from second mortgage holders and others with financial interests in the transaction have also contributed to the problems. Short sales are clearly not working as expected but, if the problems can be resolved, short sales could continue to represent part of the solution.

On September 17th, Congressman Barney Frank, Chairman of the House Financial Services Committee, having heard Realtor® concerns, quickly convened a hearing to look into this and related issues. I sincerely hope the Committee, working with mortgage lenders, manages to find ways to improve the success rate for short sales. At risk homeowners and lenders should both benefit from the discussion and taxpayers might come out of this crisis with limited damage.

(END)

National Association of REALTORS® Story:

Pending Home Sales Rise, Wider Gains Anticipated as Buyers Tap Housing Provisions

WASHINGTON, August 07, 2008

Some improvement is projected for existing-home sales in the months ahead, with broader gains seen by the fourth quarter as buyers take advantage of new provisions provided through the recently passed housing stimulus bill, according to the latest forecast by the National Association of Realtors®.

The Pending Home Sales Index,¹ a forward-looking indicator based on contracts signed in June, rose 5.3 percent to 89.0 from a downwardly revised reading of 84.5 in May, but remains 12.3 percent below June 2007 when it stood at 101.4.

Lawrence Yun, NAR chief economist, said sales have been in a pattern of rising and falling within a fairly narrow range. “The vacillation of data from one month to the next indicates a housing market in transition,” he said. “The rise in pending home sales was broad-based with all four regions showing gains. This is welcome news because a rise in contract activity is necessary for an overall housing recovery. With a tax credit now available to first-time home buyers, increases in home sales could be sustained with the momentum carrying into 2009.”

The PHSI in the South jumped 9.3 percent to 92.4 in June but is 16.6 percent below June 2007. In the West, the index rose 4.6 percent to 101.0 in June but remains 1.7 percent below a year ago. The index in the Northeast increased 3.4 percent to 79.6 but is 15.4 percent below June 2007. In the Midwest, the index rose 1.3 percent in June to 79.6 but is 13.3 percent below a year ago.

Sales gains have been consistently strong in recent months in Sacramento, Calif.; Las Vegas; and Ft. Myers, Fla., where affordability conditions have greatly improved.² The pickup in contract signings appears to be broadening with many affordable markets in mid-America now showing year-over-year gains, including Columbus, Ohio; Charleston, W.V.; Oklahoma City; and Colorado Springs, Colo. Pending sales have fallen significantly in Texas markets and in the Pacific Northwest - two regions with very strong local economies.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said the housing stimulus package will provide long-term relief. “Provisions to stem foreclosures are helpful, but a greater lift to the economy should come from higher mortgage limits, enhancements to the FHA loan program and the first-time home buyer tax credit,” he said.

“These are excellent tools that will help buyers get into the market to take advantage of the unprecedented drop in home prices in many areas, as well as a wide selection of inventory, to make an investment in their future,” Gaylord said.

With roughly 2.5 million first-time home buyers taking advantage of the temporary tax credit, existing-home sales are likely to rise 7.0 percent to 5.51 million in 2009 from a expected total of 5.15 million this year.

Yun said home prices did not fall as much as anticipated in the second quarter. “Buyers entering the hardest-hit markets, in some cases with multiple-bid offers, may have put a floor on prices,” he said. “ In addition, rising commodity prices and higher construction costs have resulted in a very unusual market today with existing-home prices being less than replacement building costs in some areas. Home prices are projected to increase 3 to 6 percent in 2009.”

“Builders need to further cut production to help trim inventory. However, new-home sales are expected to bottom around the second quarter of next year with slight gains in the second half of 2009,” Yun said. New-home sales are forecast to drop 8.8 percent to 464,000 in 2009 from 509,000 this year. Housing starts, including multifamily units, should fall 17.2 percent next year to 795,000 from 960,000 in 2008.

The 30-year fixed-rate mortgage, which also has been vacillating, is likely to trend up to 6.5 percent by the end of 2008, and then hold at that level for most of next year. NAR’s housing affordability index is forecast to remain favorable this year, averaging 13 percentage points higher than in 2007.

Growth in the U.S. gross domestic product (GDP) is expected to be 1.7 percent this year and 1.5 percent in 2009. The unemployment rate is projected to average 5.5 percent in 2008 and 6.0 percent next year.

Inflation, as measured by the Consumer Price Index, is seen at 4.1 percent in 2008 and 2.6 percent next year. Inflation-adjusted disposable personal income is estimated to grow 1.7 percent this year and 1.1 percent in 2009.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

# # #

¹The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.

²Market information is from unpublished snapshot data; please contact your local association of Realtors® for more information.

Second quarter metropolitan area home prices and state home sales will be published August 14. Existing-home sales for July will be released August 25; the next Forecast / Pending Home Sales Index will be released September 9.

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