July home sales lowest in 15 years
LOS ANGELES – The end of a popular government stimulus program drove home sales in July to their lowest levels in more than a decade, fueling fresh concerns about the economic recovery.
Home sales fell 27.2 percent from a month earlier, a much bigger drop than expected, as the boost evaporated from a now-expired federal tax credit that had been driving sales this spring. The plunge came despite rock-bottom rates on home loans.
Concern over the summer swoon reverberated from Wall Street to the White House. The Dow Jones industrial average fell more than 1 percent, briefly falling below 10,000.
“You are seeing the sales drop off a cliff again, and that is really starting to scare people,” C.J. Jones, head of institutional trading at Nollenberger Capital Markets said Tuesday. “Are we going to have a double dip? Nobody knows.”
White House deputy press secretary Bill Burton acknowledged that the drop-off was likely largely due to the expiration of the home-buyer tax credit and called the 27.2 percent decline a “tough number.”
“There’s a lot more work yet to do,” Burton said.
The National Association of Realtors said the seasonally adjusted annual rate of sales was 3.83 million units in July, not only a big drop from June but a 25.5 percent drop from July 2009.
It was the lowest sales level since 1999. The sales rate for single-family homes, which accounts for the bulk of sales, was at its lowest level since May 1995, the group said.
Dan Greenhaus, chief economic strategist for Miller Tabak & Co., called the July plunge “a near, if not outright, collapse in housing.”
Nigel Gault, chief U.S. economist for consultant IHS Global Insight, said the future for housing looked bleak for the rest of the year without a pickup in job growth. “The most worrying feature of the recent housing data is the absence of evidence of any underlying improvement in sales,” Gault said. “All of the action earlier this year appears to have been driven by the tax credit.”
The July plunge was the third consecutive monthly decline after the April 30 expiration of the federal tax credit, which offered up to $8,000 for certain buyers.
Many buyers who rushed to beat the April 30 deadline to sign a sales contract were closing their deals in May and June, helping to propel the market. With many of those deals now apparently closed, the market is faced with standing on its own.
Real estate experts said the tax credits led many buyers to speed up their plans to buy houses, boosting sales this spring, but sapping demand over the summer.
A few months ago, “we were getting eight or nine offers on every property, and we knew that we would have a tremendous drop-off, because it was being artificially stimulated,” said Gary K. Kruger, a real estate agent with HomeStar Real Estate Services in Hemet.
“Buyers were borrowing the money from a family member and promising to pay it back when the tax credit came through,” he said. “People still do not have cash to make a down payment.”
The worst sales drop was in the Midwest, which recorded a 35 percent decrease in sales of previously owned homes from June to July. The West fared better with a 25 percent decline. Sales tumbled 29.5 percent in the Northeast and 22.6 percent in the South.
The one bright spot of the report was that the national median home price for all housing types was $182,600 in July, up 0.7 percent from a year ago. Sales of distressed homes — those sold out of a foreclosure or when the seller is in default — accounted for 32 percent of sales in July, unchanged from June.
But economists and professionals are increasingly predicting a difficult market for months to come.
“It’s an absolute standoff. Buyers know that time is on their side and sellers are hard up against their mortgage; they just can’t lower their price any more, so it’s hard to put deals together,” said Glenn Kerman, chief executive of the online brokerage firm Redfin.
Recovery in danger as firms, homebuyers cut back
WASHINGTON – The economic recovery appears to be stalling as companies cut back last month on their investments in equipment and machines and Americans bought new homes at the weakest pace in decades.
Overall orders for big-ticket manufactured goods increased 0.3 percent in July, the Commerce Department said Wednesday. But that was only because of a 76 percent jump in demand for commercial aircraft.
Taking out the volatile transportation category, orders for durable goods fell at the steepest rate since January. And business orders for capital goods took their sharpest drop since January 2009, when the economy was stuck in the deepest recession in decades.
Separately, Commerce said new home sales fell 12.4 percent in July from a month earlier to a seasonally adjusted annual sales pace of 276,600. That was the slowest pace on records dating back to 1963. Collectively, the past three months have been the worst on record for new home sales.
The weak sales mean fewer jobs in the construction industry, which normally powers economic recoveries. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.
The two reports are likely to stoke fears that the economy is on the verge of slipping back into a recession. They follow Tuesday’s report that showed sales of previously owned homes fell last month to the lowest level in decades. Unemployment remains near double digits and job growth in the private sector is slowing.
“The rebound in manufacturing was one of the bright spots in an otherwise disappointing recovery,” said Paul Ashworth, senior U.S. economist at Capital Economics. “Take it away, throw in a relapse in housing, and you don’t have much left.”
Factory orders are a key measure of the economic recovery. Manufacturers have helped to lead the rebound. They filled orders for businesses that were building up stocks after whittling them down during the recession.
But many companies are done restocking, cooling demand for factory goods.
Demand for durable goods has mostly risen in recent months. Orders are 15.6 percent higher than they were a year ago. Excluding transportation, demand has increased in all but two months this year.
Overall orders in June declined by a revised 1.0 percent. But excluding transportation, orders rose 0.2 percent. Spending by businesses increased 3.6 percent that month — a rare bright spot.
Durable goods are expected to last three years or more. The full survey of factory orders will be released next week.
Housing has never fully recovered from the recession. Builders have been forced to compete with foreclosed properties offered at significantly lower prices.
New home sales made up only about 7 percent of the housing market last year. That’s down from about 15 percent before the bust.
The industry received a boost this spring when the government offered tax credits to homebuyers. But since they expired in April, the number of people looking to buy homes has dropped, even with bargain prices and the lowest mortgage rates in decades available.
More than 600,000 new homes were sold annually from 1983 through 2007. After the housing bubble popped, sales plunged to 375,000 last year. That was the weakest yearly total on record.
Builders have sharply scaled back construction in the face of weak sales. The number of new homes up for sale at the end of July was unchanged at 210,000, the lowest level in about 40 years.
Due to the sluggish sales pace, it would still take more than nine months to exhaust that supply, above a healthy level of about six months.
New home sales were down nationwide. They fell by more than 25 percent from a month earlier in the West, 14 percent in the Northeast, 9 percent in the South and 8 percent in the Midwest.
The median sales price in July was $204,000. That was down 4.8 percent from a year earlier and down 6 percent from June.
Fed, worried about recovery, will buy US debt
The Fed takes a small step to buy government debt, signaling worry about the recovery
A television screen on the floor of the New York Stock Exchange shows the Federal Reserve interest rate decision, Tuesday, Aug. 10, 2010. The Fed, citing “subdued” inflation, said it would keep its target for a key interest rate at zero to 0.25 percent for a “extended period.”(AP Photo/Richard Drew)
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WASHINGTON (AP) — As recently as two months ago, the Federal Reserve sounded optimistic about the economic recovery. Now the central bank is clearly more worried, and economists say there’s not much more it can do to help.
The Fed said Tuesday that it would spend a relatively small amount of money — about $10 billion a month, economists estimate — buying government debt. The move is designed to drive interest rates on mortgages and corporate borrowing at least a little lower and help the economy grow faster.
In a statement after a one-day meeting, the Fed said the pace of the recovery “has slowed in recent months.” After its last meeting in late June, the Fed was rosier, saying that the recovery was “proceeding” and the job market actually improving.
The decision to buy government debt, using proceeds from Fed investments in mortgage bonds, was a shift from earlier this year, when the Fed was laying out plans to roll back some of the measures it took during the financial crisis.
At that time, the Fed was also preparing a strategy to begin raising interest rates again, a step taken to keep a growing economy from overheating. Now, though, the Fed has decided to keep its benchmark interest rate near zero.
“I don’t think they are going to raise interest rates until it is very clear that unemployment is moving definitively lower and that doesn’t look likely until late 2011,” said Mark Zandi, chief economist at Moody’s Analytics.
Economists pointed out that buying $10 billion of government debt in a $14 trillion economy is a relatively small move, and they said they did not expect it to have a dramatic impact.
“The Fed talked loudly but carried a small stick,” said Joel Naroff, president of Naroff Economic Advisors.
He said that while the financial system has the money to lend, banks are unwilling or unable to find suitable loans to make. Until they do, he said, “the recovery will be softer than anyone hoped for and there may be little the Fed can do about it.”
With interest rates so low, Congress, economists note, has more power than the Fed to stimulate the economy. But with midterm elections nearing, Congress is divided on whether the best move is short-term government spending, tax cuts or some combination.
On Tuesday, the House, called back from its summer break for a one-day session, pushed through a $26 billion bill to protect 300,000 teachers, police and other workers from layoffs this year. President Barack Obama signed it almost immediately.
The Fed action also came on a day when new figures showed worker productivity in the U.S. dropped this spring for the first time in more than a year — a sign that companies that want to grow may need to hire more people.
Investors reacted positively to the Fed statement. Stocks were down sharply before the announcement but made up ground after it was announced at mid-afternoon. The Dow Jones industrial average finished down about 55 points.
Treasury prices rose slightly because the Fed plan would reduce the amount of government debt on the market for others to buy.
The Fed said it would buy two-year and 10-year Treasurys by using the proceeds from debt and mortgage-backed securities it bought from Fannie Mae and Freddie Mac. It said that it would buy additional government debt as its existing Treasury bonds mature.
The effect is that the Fed will keep its $2.3 trillion balance sheet steady — rather than rolling it back, as it had hoped to do as the economy improved — while shifting its holdings out of mortgage securities and into more government debt.
“The news is positive but not meaningful,” said John Merrill, chief investment officer of Tanglewood Wealth Management in Houston. “The money is a pittance.”
The central bank said it expects to start buying the government debt Aug. 17 and planned to publish details Wednesday.
From March 2009 to this March, the Fed bought up $1.25 trillion in mortgage securities and $175 billion in debt from Fannie Mae and Freddie Mac. The goal of these purchases was to drive down mortgage rates and bolster the crippled housing market. The Fed also bought $300 billion of government debt between March and October 2009.
The Fed’s balance sheet has stayed at roughly $2.3 trillion since March.
Economists are skeptical that cheaper credit or even more government aid will get Americans shopping more and businesses to hire. They also say some jobs in construction and other housing-related fields, and in manufacturing, will never return to pre-recession levels — a shift in the basic structure of the economy.
High unemployment, lackluster income growth, sagging home values and tight credit are all restraining the pace at which Americans are spending, usually a major source of powering the economy.
AP Business Writers Martin Crutsinger in Washington, David Pitt in Des Moines, and Bernard Condon in New York contributed to this report.
Treasury to hold conference on Fannie,Freddie
Treasury to hold conference on future of mortgage funding system next month
WASHINGTON (AP) — The Treasury Department, under fire for not developing a concrete plan for mortgage giants Fannie Mae and Freddie Mac, says it will hold a conference in next month to discuss their future.
The administration says it will hold a conference on the future of the mortgage funding system on Aug. 17 at the Treasury Department.
The financial overhaul didn’t address their future, despite protest from Republicans that it was incomplete without a plan for the two companies. The Obama administration has said it wants to wait until next year to determine their future.
So far stabilizing the pair of mortgage buyers has cost taxpayers $145 billion.
Nearly $30 million stolen from Homebuyer Credit: report
More than 1,200 prison inmates, including 241 serving life sentences, defrauded the government of $9.1 million in tax credits reserved for first-time homebuyers, according to a Treasury Department report released Wednesday.
Treasury’s inspector general also found that thousands of people filed multiple claims or made claims outside the allotted time period. In all, more than $28 million was improperly doled out.
The Internal Revenue Service program at issue is meant to stimulate the housing market by giving tax credits of as much as $8,000 to qualifying first-time home buyers.
“Additional controls are necessary to address erroneous claims for the credit,” the report stated. “Further, fraudulent and questionable claims processed prior to implementation of controls will need follow-up action by the IRS.”
According to the report, 4,608 state and federal inmates filed for these tax credits, and that fraudulent refunds were doled out to 1,295 of them.
The inspector general’s report said the most “egregious” fraudsters were 715 prison lifers, including 174 who filed with the help of paid preparers. From this group, 241 lifers were awarded $1.7 million.
The problem was particularly bad in Florida: 61% of the lifers who got credits were incarcerated in the Sunshine State.
“It is possible for an inmate to buy a house while in prison,” said Jo Ellyn Rackleff, spokeswoman for the Florida Department of Corrections. “We have inmates in Florida prisons who still have businesses outside. Many of the inmates have families with children who live outside.”
She said that one of the reasons why Florida inmates feature prominently in the Treasury report is because the Florida prison system is transparent in providing inmate information to the IRS.
“We provide [the IRS] with data quarterly,” she said. “If we receive an IRS check in the Post Office of an institution, the IRS will receive a call that we received a check, to make sure it’s all legitimate.”
The homebuyer tax credit program was very specific about the time period in which homebuyers were allowed to participate, though this rule seems to be the most widely violated. The credit was for home purchases that happened after April 8, 2008, with a cut-off date that was eventually extended to May 1, 2010.
The report found that the IRS awarded $17.6 million to 2,555 filers who had bought their homes before the credit program kicked in.
The inspector general also identified 206 filers who claimed the credit for multiple addresses; these fraudulent filers were awarded a total of $1.4 million.
The report also found that improper filers included 34 employees of the IRS. This is in addition to 53 IRS employees that the inspector general identified last year as improper filers.
The report included a response from the IRS, which highlighted the huge scope of the program, with $12.6 billion in claims awarded to 1.8 million participants. The IRS said it had ramped up efforts to crack down on criminal activity and would continue to review claims and “recapture” pay-outs determined to be fraudulent.
The IRS said it “has devoted substantial resources to working with state and federal prison systems to collect and maintain information on the prison population.”
But the agency added, “The prison population changes frequently and it is simply not feasible for the IRS to maintain 100% accurate records based on information that is reported to us voluntarily by the various prison authorities.” The agency suggested that Congress require prisons to report inmates’ status to the IRS.
In an e-mail to CNNMoney.com, IRS spokesman Anthony Burke said the agency had “successfully blocked or denied nearly 400,000 questionable homebuyer claims and opened more than 150 criminal investigations. These aggressive efforts have saved taxpayers more than $1 billion.”
As for the IRS employees, the agency said that it was working to identify those at fault.
Assistant Treasury Secretary Michael Mundaca said that, despite its problems, the homebuyer tax credit helped to spur more than 2.5 million new home purchases and helped to stabilize the housing market.
“These fraudulent claims, which are being pursued to the fullest extent of the law, represent less than half a percent of the credits paid out under this program,” he said, in an e-mail to CNNMoney.com. “As with all new and expanded programs, we are constantly working to improve implementation, and the IRS has already begun to take additional steps to prevent fraud in this program.”
