IRS paid $23.5 billion in homebuyer tax credits and related

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http://www.reoi.com/news/irs-paid-23-5- ... ated-loans

IRS paid $23.5 billion in homebuyer tax credits and related loans

Posted By Jacob Gaffney On September 3, 2010 @ 10:06 AM In Government and Regulation, News | No Comments

The total bill for the homebuyer tax credit so far, as reported by the Internal Revenue Service, stands at $23.5 billion.

About $16.2 billion of that is for the $8,000 (Recovery Act) and $6,500 (Assistance Act) grants shelled out to first and second-time homebuyers, respectively. The other $7.3 billion is for interest-free loans through the Housing Act provision. Americans who qualified for these loans will begin repaying them next tax season, which starts in January.

The numbers are based on IRS filings through July 3.

The Government Accountability Office estimates that with all of the first-time homebuyer tax credits, the total revenue loss to the federal government will be about $22 billion.

California, being the most populous state with nearly 37 million residents, received the largest chunk of the money — $814 million, the GAO said in a letter yesterday to John Lewis (D-Ga.), chairman of the oversight subcommittee of the House Ways and Means Committee.

Florida came in second with $455.5 million in homebuyer tax credit dollars received so far. Georgia is third with $295.8 million, followed by New York with $276.9 million and Illinois with $268.7 million.

On a per-resident basis, Nevada took the top spot, but the overall pay out is considerable less at $104 million.

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http://www.washingtonpost.com/wp-dyn/co ... 06764.html

Decline in foreclosures likely to be temporary

By Frank Ahrens
Washington Post Staff Writer
Friday, August 27, 2010

Foreclosures and late payments on home mortgages dropped slightly in the second quarter of this year, but sustained high unemployment and a stalled economic recovery could make the improvement short-lived.

Although one in 10 mortgages in the United States is still behind by at least one payment, the number of "seriously delinquent" loans - those that are at least 90 days late - dropped compared with the first three months of this year, the Mortgage Bankers Association said Thursday.

Also, the percentage of homes in foreclosure dropped to 4.57 percent in the second three months of this year, compared with 4.63 percent in the first quarter.

However, the number of seriously delinquent mortgages is still higher than it was during the comparable period last year.

"When I'm asked, 'Are things getting better or worse?' my answer is like most things these days," Mortgage Bankers Association chief economist Jay Brinkmann said in a conference call Thursday. "It is a combination of good news and not-so-good news. And there are areas of concern even with the good news."

The nation's foreclosure and mortgage-delinquency statistics are dominated by depressed markets in the "sand states:" Nevada, Arizona, California and Florida. In the second quarter of this year, California had 13.2 percent of all outstanding mortgages and 14.7 percent of all foreclosures, the association said.

The positive numbers are the result of three shifts, Brinkmann said. Last year, there was a drop in the number of mortgages that were only one payment past due, Brinkmann said. Moving to this year, that means the number of mortgages that are several payments past due has decreased. However, the association has seen a recent uptick this quarter in new delinquencies.

Second, a number of homes with distressed mortgages have been sold, thanks to the federal homebuyer tax credit. But when that credit expired at the end of April, home sales predictably tumbled, with sales last month of previously owned homes hitting a 15-year low.

Third, some of the mortgage-relief programs appear to have worked, chiefly those engineered by banks in the private sector. Government efforts to keep troubled homeowners from defaulting on their mortgages have had little effect. President Obama's signature mortgage-relief plan has a dropout rate of nearly 50 percent, the government reported last week. Historically, 40 to 60 percent of all reworked mortgages fall back into delinquency, Brinkmann said.

The State Foreclosure Prevention Working Group, a collection of state attorneys general and state banking regulators, said this week that homeowners who had recently reworked their troubled mortgages were faring better than those who did so earlier during the financial crisis, giving hope that a second wave of mass defaults can be avoided.

Brinkmann said that the report provided "cautiously optimistic news" about the mortgage market but that as long as unemployment remains near 10 percent, Thursday's good news will probably be short-lived.

"A number of us are having to rethink our forecasts based on numbers that have come in in the past month or so," Brinkmann said, referring to last week's higher-than-expected new jobless claims, the stock market's dismal performance this month and downgrades in estimated economic growth for the year.

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http://www.nytimes.com/2010/09/06/busin ... &src=busln

September 5, 2010
Housing Woes Bring a New Cry: Let the Market Fall
By DAVID STREITFELD
The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.

Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

When prices are lower, these experts argue, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve.

“Housing needs to go back to reasonable levels,� said Anthony B. Sanders, a professor of real estate finance at George Mason University. “If we keep trying to stimulate the market, that’s the definition of insanity.�

The further the market descends, however, the more miserable one group — important both politically and economically — will be: the tens of millions of homeowners who have already seen their home values drop an average of 30 percent.

The poorer these owners feel, the less likely they will indulge in the sort of consumer spending the economy needs to recover. If they see an identical house down the street going for half what they owe, the temptation to default might be irresistible. That could make the market’s current malaise seem minor.

Caught in the middle is an administration that gambled on a recovery that is not happening.

“The administration made a bet that a rising economy would solve the housing problem and now they are out of chips,� said Howard Glaser, a former Clinton administration housing official with close ties to policy makers in the administration. “They are deeply worried and don’t really know what to do.�

That was clear last week, when the secretary of housing and urban development, Shaun Donovan, appeared to side with current homeowners, telling CNN the administration would “go everywhere we can� to make sure the slumping market recovers.

Mr. Donovan even opened the door to another housing tax credit like the one that expired last spring, which paid first-time buyers as much as $8,000 and buyers who were moving up $6,500. The cost to taxpayers was in the neighborhood of $30 billion, much of which went to people who would have bought anyway.

Administration press officers quickly backpedaled from Mr. Donovan’s comment, saying a revived credit was either highly unlikely or flat-out impossible. Mr. Donovan declined to be interviewed for this article. In a statement, a White House spokeswoman responded to questions about possible new stimulus measures by pointing to those already in the works.

“In the weeks ahead, we will focus on successfully getting off the ground programs we have recently announced,� the spokeswoman, Amy Brundage, said.

Among those initiatives are $3 billion to keep the unemployed from losing their homes and a refinancing program that will try to cut the mortgage balances of owners who owe more than their property is worth. A previous program with similar goals had limited success.

If last year’s tax credit was supposed to be a bridge over a rough patch, it ended with a glimpse of the abyss. The average home now takes more than a year to sell. Add in the homes that are foreclosed but not yet for sale and the total is greater still.

Builders are in even worse shape. Sales of new homes are lower than in the depths of the recession of the early 1980s, when mortgage rates were double what they are now, unemployment was pervasive and the gloom was at least as thick.

The deteriorating circumstances have given a new voice to the “do nothing� chorus, whose members think the era of trying to buy stability while hoping the market will catch fire — called “extend and pretend� or “delay and pray� — has run its course.

“We have had enough artificial support and need to let the free market do its thing,� said the housing analyst Ivy Zelman.

Michael L. Moskowitz, president of Equity Now, a direct mortgage lender that operates in New York and seven other states, also advocates letting the market fall. “Prices are still artificially high,� he said. “The government is discriminating against the renters who are able to buy at $200,000 but can’t at $250,000.�

A small decline in home prices might not make too much of a difference to a slack economy. But an unchecked drop of 10 percent or more might prove entirely discouraging to the millions of owners just hanging on, especially those who bought in the last few years under the impression that a turnaround had already begun.

The government is on the hook for many of these mortgages, another reason policy makers have been aggressively seeking stability. What helped support the market last year could now cause it to crumble.

Since 2006, the Federal Housing Administration has insured millions of low down payment loans. During the first two years, officials concede, the credit quality of the borrowers was too low.

With little at stake and a queasy economy, buyers bailed: nearly 12 percent were delinquent after a year. Last fall, F.H.A. cash reserves fell below the Congressionally mandated minimum, and the agency had to shore up its finances.

Government-backed loans in 2009 went to buyers with higher credit scores. Yet the percentage of first-year defaults was still 5 percent, according to data from the research firm CoreLogic.

“These are at-risk buyers,� said Sam Khater, a CoreLogic economist. “They have very little equity, and that’s the largest predictor of default.�

This is the risk policy makers face. “If home prices begin to fall again with any serious velocity, borrowers may stay away in such numbers that the market never recovers,� said Mr. Glaser, a consultant whose clients include the National Association of Realtors.

Those sorts of worries have a few people from the world of finance suggesting that the administration should do much more, not less.

William H. Gross, managing director at Pimco, a giant manager of bond funds, has proposed the government refinance at lower rates millions of mortgages it owns or insures. Such a bold action, Mr. Gross said in a recent speech, would “provide a crucial stimulus of $50 to $60 billion in consumption,� as well as increase housing prices.

The idea has gained little traction. Instead, there is a sense that, even with much more modest notions, government intervention is not the answer. The National Association of Realtors, the driving force behind the credit last year, is not calling for a new round of stimulus.

Some members of the National Association of Home Builders say a new credit of $25,000 would raise demand but their chances of getting this through Congress are nonexistent.

“Our members are saying that if we can’t get a very large tax credit — one that really brings people off the bench — why use our political capital at all?� said David Crowe, the chief economist for the home builders.

That might give the Obama administration permission to take the risk of doing nothing.

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http://www.nytimes.com/2010/09/08/busin ... hardt.html


September 7, 2010
The Bears and the State of Housing
By DAVID LEONHARDT
Of all the uncertainties in our halting economic recovery, the housing market may be the most confusing of all.

At times, real estate seems to be in the early stages of a severe double dip. Home sales plunged in July, and some analysts are now predicting that the market will struggle for years, if not decades.

Others argue that the worst is over. As Karl Case, the eminent real estate economist (and the Case in the Case-Shiller price index), recently wrote, “Buying a house now can make a lot of sense.�

I can’t claim to clear up all the uncertainty. But I do want to suggest a framework for figuring out whether you lean bearish or less bearish: do you believe that housing is a luxury good and that societies spend more on it as they get richer? Or do you think it’s more like food, clothing and other staples that account for an ever smaller share of consumer spending over time?

If you believe housing resembles a luxury good, then you’ll end up thinking house prices will rise nearly as fast as incomes in the long run and that houses today aren’t terribly overvalued. If housing is a staple, though, prices will rise more slowly — with general inflation, as food tends to.

The difference between these two views ends up being huge, and it’s become the subject of an intriguing debate.

After digging into it, I come down closer to the luxury good side, which is to say the less bearish one. To me, housing does not rank with unemployment, the trade deficit, the budget deficit or consumer debt as one of the economy’s biggest problems. But you may disagree.

•

No one doubts that prices rose roughly with incomes from 1970 to 2000. The issue is whether that period was an exception. Housing bears like Barry Ritholtz, an investment researcher and popular blogger, say it was. The government was adding new tax breaks for homeownership, and interest rates were falling. These trends won’t repeat themselves, the bears say.

As evidence, they can point to a historical data series collected by Mr. Case’s longtime collaborator, Robert Shiller. It suggests that house prices rose no faster than inflation for much of the last century.

The pattern makes some intuitive sense, too. As people become richer, they spend a shrinking share of their income on the basics. Think of it this way: someone who gets a big raise doesn’t usually spend it on groceries. You can see how shelter seems as if it might also qualify as a staple and, like food, would account for a shrinking share of consumer spending over time. In that case, house prices should rise at about the same rate as general inflation and well below incomes.

Here’s the scary thing, at least for homeowners: if this view is correct, house prices may still be overvalued by something like 30 percent. That’s roughly the gap between average household income growth and inflation over the last generation.

It’s also the overvaluation suggested by Mr. Shiller’s historical index. Today, it is around 130, which is way down from the 2006 bubble peak of 203. But it’s still far above the 1890 to 1970 average of 94.

In effect, the bears are arguing that housing was in a multidecade bubble and has now entered a multidecade slump.

The second, less bearish group of economists doesn’t buy this. This group includes Mr. Case, Mark Zandi of Moody’s Analytics and Tom Lawler, a Virginia economist who forecast the end of the housing boom before many others did. They say they believe that house prices rise nearly as fast, if not quite as fast, as incomes, and that real estate is no longer in a bubble.

This side can also make a case based on history. Mr. Case points out that all pre-1970 housing statistics are suspect. By necessity, Mr. Shiller’s oft-cited historical index is a patchwork that relies on several sources, like Labor Department surveys. These sources happen to paint a more negative picture of past house prices than some other data.

For example, the Census Bureau has been asking people since 1940 how much they think their houses are worth, as Mr. Lawler noted in one of his newsletters. The answers suggest that house values rose faster than general inflation — and about as fast as incomes — not just from 1970 to 2000, but from 1940 to 1970, as well.

Likewise, Mr. Case has dug up sales records for houses in the Boston area that were built in the late 19th century and are still around. The records show prices rising 2.5 percentage points a year faster than inflation, which is just about what income has done.

Perhaps most persuasive is a statistic that Mr. Shiller sent me when I asked him about this debate. It shows that the share of consumer spending — and, by extension, of income — devoted to housing has not fallen over time. It has hovered around 14 or 15 percent for the last 60 years. The share of spending devoted to food, by contrast, has dropped to 13 percent, from 25 percent.

These numbers make a pretty strong argument that the post-1970 period is not one long aberration. As societies get richer, they do spend more and more on housing.

Some of this spending, Mr. Shiller notes, comes in the form of bigger, more expensive houses. These houses don’t do anything to lift the value of a smaller, older house — which is what matters to individual homeowners. But McMansions are not the only factor.

To see this, you can look at the share of consumer spending devoted to things inside houses, like furniture. As with houses, they have become fancier. But they haven’t become so much fancier that they make up anywhere near as large a share of consumer spending today as in the past. That’s a strong clue that the upgrading of houses themselves isn’t enough to explain the increased spending on housing.

What is? The value of the underlying land. Those Boston-area houses that Mr. Case studied did not change much over time. Yet their value did.

For a house whose location has any value — in a major city or a nearby suburb, where a builder can’t simply put up a similar house down the street — the land is a big part of the equation. Over time, Mr. Zandi says, the value of that land should grow almost as fast as the local area’s economic output or, in other words, with incomes.

The best advice for homeowners and would-be buyers may be to think of a house not as an investment, first and foremost, but as a place to live. If there is a good chance you will move in the next three years or so, you should probably rent. The hassles of buying and the one-time costs are just too big. Plus, house prices are not low in most places today.

The ratio of median house price to income is about 3.4, compared with a prebubble average of about 3.2. Given the economy’s weak condition and the still high number of foreclosures, prices may well fall more in the next year or two. They look especially high in places where rents are comparatively cheap, like San Diego and San Francisco. And maybe income growth will remain weak for years, holding down home-price growth.

But if you can imagine staying much longer than a few years, you should take some comfort in the fact that the bubble seems mostly deflated. Sometime soon, prices should begin rising again. They may not quite keep up with incomes, but they will probably outpace the price of food and clothing.

Now, if only it were possible to be as sanguine about the economy’s other problems.