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House prices up for the month, down for the year

S&P/Case-Shiller composite index of house prices in 20 metropolitan areas rose 1.6 percent in July from June — more than triple the estimate of a 0.5 percent rise found in a recent Reuters poll. The monthly price increases helped the annual rates, with the yearly pace of declines in home prices slowing to a 12.8% drop in the 10-city index and 13.3% downturn in the 20-city index. “These figures continue to support an indication of stabilization in national real estate values, but we do need to be cautious in coming months to assess whether the housing market will weather the expiration of the Federal First-Time Buyer’s Tax Credit in November, anticipated higher unemployment rates and a possible increase in foreclosures,” said David Blitzer, chairman of the index committee at S&P. Despite the overall improvement, annual rates for all metro areas and the two composites remain in negative territory, with 14 of the 20 metro areas and both composites in double digits, S&P said.

Tax credit lures nearly half of all first-time buyers

According to a survey conducted by Harris Interactive on behalf of Zillow.com, 18% of prospective first-time homebuyers said extending the credit from Dec. 1, 2009 to Nov. 30, 2010 would be the “primary influence” in their decision to purchase a home. An additional 25% said it would be a “significant influence,” 27% said it would have “some influence,” and 31% said it would have “no influence.” Zillow projects 1.86m homebuyers stand to take advantage of the program if it is extended, and if all potential buyers took the full tax credit, extending the program could cost $14.86bn. Zillow.com chief economist Stan Humphries said of all homebuyers expected under the 12-month extension through 2010, only one in five homebuyers will enter the market specifically because of the extended tax credit. In other words, 334,000 mortgages will open because of the tax credit extension. “While 334,000 may seem like a small number relative to the total number of homebuyers who would claim the credit, their addition to the market next year could make the difference between a robust annual increase in home sales next year and a flat or negative change in home sales relative to this year,” Humphries said.

Treasury to fund Housing agencies

According to Treasury officials, the US Treasury Department is in discussions to finalize a program to provide liquidity for state housing finance agencies (HFAs), like the New York State Housing Finance Agency, which originates mortgages for low and moderate income borrowers. Treasury will also sell mortgage related bonds to keep liquidity flowing. Details on the Treasury’s program may arrive as soon as this week. The program is part of an initiative announced in February within the Homeowner Affordability and Stability Plan. The program would be implemented through mortgage giants Freddie Mac and Fannie Mae. “The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers,” the Treasury said in February.

Delinquencies rise

Fannie Mae says that delinquencies on loans accelerated and its mortgage investment portfolio stayed unchanged in August from the previous month. Delinquency on loans in its single-family guarantee business jumped by 0.23 percentage points to 4.17 percent in July, the most recent data available, and multifamily delinquencies also rose, up 0.05 percentage points to 0.56 percent in July. The mortgage investment portfolio was at $779.4 billion in August, for an annualized 1.5 percent decrease year to date.

Oil down

Weak demand and rising inventory in the United States dropped oil below $66 a barrel today. As of 1305 GMT, U.S. crude futures fell $1.01 to $65.83 a barrel after rising 82 cents on Monday. North Sea Brent crude futures fell 65 cents to $64.89. Prices have remained at the bottom end of a $65-$75 trading range in place since around July. A Reuters poll showed that U.S. crude inventories rose 500,000 barrels in the week to September 25, and many analysts expect increases in crude and fuel inventories in the United States, the world’s top energy consumer, to continue. “Crude will continue to move according to the stock markets and inversely to the dollar, which will remain weak,” said Tony Nunan, risk manager at Mitsubishi Corp in Tokyo. Of course, all of this may be out the window, depending on Iran, which is unveiling new nuclear fuel facilities, firing test rockets, and threatening its neighbors…

Consumer confidence down

The Conference Board, a New York-based business research group, said its Consumer Confidence Index fell to 53.1 in September from an upwardly revised 54.5 in August. Economists at Briefing.com were expecting a reading of 57. The index that measures consumers’ assessment of the present situation fell to 22.7 from 25.4. The expectation index, which measures consumers’ outlook over the next few months, dropped to 73.3 from 73.8 last month. Lynn Franco, director of the Conference Board Consumer Research Center, summed it up: “While not as pessimistic as earlier this year, consumers remain quite apprehensive about the short-term outlook and their incomes…with the holiday season quickly approaching, this is not very encouraging news.”

Now on to our real estate educational section…

Are You Living a Financial Fairy Tale?

Once upon a time, there lived a red-blooded American who was taught to study, work hard and save money in order to succeed. Assured that health, wealth and happiness would soon follow he set out to earn his way in the world with a blushing bride and bouncing baby by his side.

On the path to progress he found it increasingly more difficult to accommodate the ever changing workforce but thanks to modern machinery, his blushing bride was able to join him in the work force while leaving the baby with relatives. Their combined income was sufficient to take an annual vacation, send junior to summer camp and still have enough remaining for a few luxuries now and then.

But alas, all was not well in the land of the red, white and blue. Each year taxes took more of the combined household income while the cost of living continued to rise. The “tax free” date moved from March to April and eventually to the end of May before the average American began to earn money that would not go toward paying taxes. The husband and wife worked harder than ever as they were forced to become more productive and do the job that used to take two or even three workers. Left to his own, Junior skipped school, didn’t do his homework and routinely got into trouble. The once happy household was left tired, tense and terrified of their financial future….but why? Simple. They failed to understand the changes taking place in the world around them.

Find out if you are living a financial fairy tale or truly understand the economic reality surrounding you and your family with these simple questions:

Do you have more than one source of income that is not based upon working for a living?
Are you financially dependent upon two or more people in the household earning an income in order to pay your basic bills and set aside funds for investing?
Do you regularly sit down and calculate the tax consequences of working over-time, accepting a promotion or other “wage increase”.
Are you properly positioned for defensive economic earnings should the government increase taxation or withholding on benefits like health insurance, 401k or other long term investments?
Do you regularly calculate the cost of inflation five, ten and even twenty years into the future when establishing your savings and investment goals?
Are you hedged against liability, lawsuits and the threat of loss for both your personal and private investments?
Do you understand the “need for speed” when it comes to investing in tough times? Remember, the time value of money changes…make sure your investment methodology does too.

Short sales can help you achieve financial self-sufficiency without working yourself into an early grave. It’s one of the last remaining avenues available to average Americans searching for sensible investments in uncertain times. Try out a free webinar and see for yourself!

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See you at the top!

Chris McLaughlin

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Real Estate News & Commentary by Chris McLaughlin, September 29, 2009