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.

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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Jeannine Aversa, AP Economics Writer, On Tuesday August 10, 2010, 5:40 pm EDT

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.

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.”

NEW YORK (AP) — The housing slump isn’t over.

Tax credits and historically low mortgage rates have failed to lift home prices so far this year. Prices fell 0.5 percent in March from February, according to the Standard & Poor’s/Case-Shiller 20-city index released Tuesday.

That marks six straight months of declines — a sign that the housing market is going in reverse.

“It looks a little like a double-dip already,” economist Robert Shiller said in an interview. “There is a very real possibility of some more decline.”

The co-creator of the Case-Shiller index, who predicted in 2005 that the housing bubble would burst, says he worries that home prices rose last year only because of the federal tax credits. That fear is shared by other economists. They note that weak job growth, tight credit and millions more foreclosures ahead will weigh on the home market.

All that is discouraging for homeowners who have seen the value of their largest asset deteriorate sharply over the past three years. Falling home prices tend to curtail consumer spending. And they make it harder for struggling borrowers to refinance into an affordable home loan.

Prices in 13 of the 20 cities tracked by the index fell. Only six metro areas recorded price gains. One, Boston, came in flat.

In the first quarter of 2010, U.S. home prices fell 3.2 percent compared with the fourth quarter.

The numbers are especially disturbing because they show that improved sales due to the tax credits didn’t translate into higher prices, said David M. Blitzer, Chairman of the S&P index committee.

Still, falling home prices haven’t kept many consumers from maintaining their optimism about the economy.

A separate report Tuesday showed consumer confidence rose in May for the third straight month as hopes for job growth improved. The increase in the Conference Board’s Consumer Confidence Index was boosted by consumers’ brighter outlook for the next six months.

In a healthier economy, extraordinarily low mortgage rates would pump up demand for homes. But employers aren’t creating new jobs fast enough and loans are harder to come by for small businesses and individuals.

On Monday, the National Association of Realtors said sales of previously occupied homes rose 7.6 percent in April. But the sales were aided by the government incentives that have now expired. Economists don’t expect the improvements to last.

New buyers were offered a credit worth up to $8,000. Current owners who bought and moved into another home could get a credit for up to $6,500. To receive them, buyers had to have a signed offer by April 30 and must close by the end of June.

Shiller and other economists worry that prices could fall below the levels of April 2009. That was the lowest point since the peak in July 2006.

IHS Global Insight economist Patrick Newport forecasts prices will fall an additional 6 percent to 8 percent and bottom out in the third quarter of next year. Newport said the glut of homes on the market is the main reason. But he’s also worried about the rate of foreclosures.

“When banks foreclose, they sell the properties at deep discounts,” Newport said. “Foreclosures have either peaked in the first quarter or are going to peak soon, but they will remain very high for several years.”

Mortgage delinquencies reached a record high in the first quarter. More than 10 percent of homeowners with a mortgage missed at least one payment from January through March, the Mortgage Bankers Association said last week.

Since 2006, nearly 5 million homes have been lost to foreclosures or other distressed sales, according to Mark Zandi, chief economist at Moody’s Analytics. Zandi expects 3 million more to hit the market over the next two years.

Zandi noted that 15 million homeowners still owe more than their homes are worth. And 26 million Americans are either unemployed or underemployed. The underemployed include people who have given up looking for work and part-timers who would prefer to be working full time.

Source PA News

Updated on 17 May 2010

Housing market activity bounced back during March with a 25% jump in the number of mortgages advanced to people buying a property, figures have shown.

Around 45,000 mortgages were lent for house purchase during the month, up from 36,000 in February, according to the Council of Mortgage Lenders.

The increase suggests the housing market is regaining momentum following a subdued start to the year due to the end of the stamp duty holiday and January’s severe winter weather.

Lending for house purchase was 45% higher than it had been in March 2009, the ninth consecutive month of year-on-year growth.

But only 112,000 loans were advanced during the whole of the first quarter, down from 171,000 during the three months to the end of December.

However, the CML stressed that no trend could be inferred from this, as the figures were distorted by people rushing through transactions on lower value properties before the stamp duty holiday ended.

First-time buyer activity rebounded quicker than that for home movers during March, with 17,300 first-time buyers taking out a mortgage during the month, 27% more than in February.

A further 27,500 mortgages were taken out by former owner-occupiers, 24% up on the previous month’s figure.

Overall, advances to all people purchasing a property totalled £6.3 billion during March.

Michael Coogan, director general of the Council of Mortgage Lenders, said: “The figures indicate there is currently some momentum to house purchase lending. But for the sake of the future health of the housing and mortgage markets, the new Government will need to focus on the critical issue of funding and how to address the issues arising from the repayment of the emergency support provided during the financial crisis.”

By Tracy Withers

May 17 (Bloomberg) — New Zealand’s government will spend NZ$1 billion ($702 million) over the next five years to help repair rotting homes.

The government will contribute 25 percent of the cost, matched by local councils, to assist home owners repair their homes, Building Minister Maurice Williamson said in an e-mailed statement today. Owners will pay the remainder, with the help of a guarantee from the government for their borrowing, he said.

As many as 89,000 houses built from 1992 to 2008 leak because of poor design and use of materials, causing them to rot, according to a report the government received in July. Assuming 42,000 homes are seriously affected, the cost of repair would be NZ$11.3 billion, the report by PricewaterhouseCoopers showed.

While the government has no legal liability for the faulty construction, the problem is too large to resolve without state involvement, Williamson said today.

“Affected homeowners have been stuck in a complex and costly disputes process for too long with little prospect of being able to fix their leaky home,” he said.

Homes started rotting after a 1992 change in building codes allowed greater use of plastered exterior wall panels that weren’t always properly installed. The problem was compounded by a 1998 decision allowing the use of untreated timber in framing. Councils have also been sued for approving plans that proved deficient and for not spotting faults during construction.

Auckland Properties

About three-quarters of the affected properties are in the greater Auckland area, where an apartment boom was occurring as people moved to the nation’s fastest-growing city. Only about 3,500 homes have been repaired nationwide, the government said today, citing industry estimates.

Today’s package delivers “a big win for home owners throughout the country and in particular Auckland” and will see money spent on reconstruction rather than lawyers, Auckland Mayor John Banks said in a statement.

Fletcher Building Ltd., New Zealand’s biggest construction materials supplier, fell 0.2 percent to NZ$8.16 at the 5 p.m. close in Wellington. The NZX 50 Index fell 0.6 percent.

The cost of today’s package will be included in the May 20 budget and assumes owners of about 16,500 homes take up the offer, Williamson said. Including the cost of administration, the government’s share rises to about 29 percent, he said.

Building codes have been tightened to prevent a recurrence. In 2006, the previous government established a resolution service to speed repairs for property owners unable to borrow against damaged homes to fund refurbishing work. Few settlements were made under the program which imposed a 10-year limit on claims.

That time limit has been retained for the new package, which property owners don’t have to take up, Williamson said. People can still sue builders and councils directly, and can also opt to use the existing resolution service, he said.

Homeowners joining the latest program are barred from taking action against local councils though they can still sue builders, manufacturers and other advisers, he said.

By Brian Clark Howard

As more and more people rebel against ticky-tacky, cookie-cutter homes, options are growing for more unique, satisfying dwellings.

Popular Mechanics‘ Chris Sweeney recently created a great list of 18 of the world’s strangest homes. And though there are arguably some even stranger ones out there (the toilet-shaped home, for one, or the coral castle), one of the things we like about Popular Mechanics’ list is a strong focus on sustainability.

The Popular Mechanics collection focuses on designs that think outside of the box and approach sustainability from a holistic perspective. Some include recycled materials, but recycling itself isn’t usually the central theme.

You don’t have to live in a house built out of discarded tires, bottles, or vehicles to “go green.” There are many ways that we can all go green in our homes, no matter what they look like or where they are located. Switching to more efficient light bulbs and appliances, trying out energy monitoring devices, and boosting insulation are a few examples.

For the greenest of Popular Mechanics’ strange houses, look below:

Photo: Courtesy of Free Spirit Spheres

Free Spirit Spheres

Looking like something from Star Wars, suspended tree houses known as Free Spirit Spheres excite the imagination. Made by Tom and Rosy Chudleigh from British Columbia, the “tree houses for adults” are handmade from local wood.

The spheres are recommended for meditation, photography, canopy research, leisure, wildlife watching and other activities, and they can be ordered fully loaded with plumbing, electricity and insulation. Some are available for rental, and DIY kits are offered. They reportedly sway in the wind.

Photo: www.arquitecturaorganica.com

The Nautilus House

Perhaps what Gaudi would have envisioned if he were asked to decorate a sea shell, the Nautilus in Mexico City was completed in 2006 by architect Javier Sensonian of Arquitectura Orgánica. Sensonian practices what he calls “bio-architecture,” and has designed buildings shaped like snakes, whales and other living things.

The Nautilus was built for a young family who wanted something that felt more integrated with nature, and it is filled with lush vegetation. The front door blends into the colorful mosaic facade.

Photo: RobertBruno.com

The Steel House

One glance at the fantastical Steel House, and you’ll never forget it. Designer Robert Bruno wanted it to look somewhere between animal and machine, and we think he succeeded. The unique home is perched on a bluff near Lubbock, Texas, and minimizes disruption to the area by resting on top of four skinny legs.

Steel is long-lasting and highly recyclable, so green builders have been giving it a second look in recent years, especially for roofing. Inside, the Steel House looks more H.R. Giger than Martha Stewart, and it doesn’t look like the most practical living space, but it definitely is thinking outside of the four-walled box.

Photo: dRRM Architects

The Sliding House

In a final form that quite closely resembles the the Barn House by Belgian architectural and planning firm BURO II (which reworks an existing barn), London-based dRRM Architects created the Sliding House in Suffolk, England.

This unique dwelling is designed to be flexible, allowing the owners to take advantage of fluctuations in light and temperature, maximizing energy savings through passive heating and cooling. The 20-ton outer shell can be retracted in six minutes, revealing an inner layer that’s mostly glass. It’s like layering up in clothing!

Photo: Gigaplex Architects

Montesilo

At Dancing Rabbit Ecovillage in Missouri, residents cobbled together a livable two-bedroom apartment from an old grain bin. Considerably more upscale is the attractive Montesilo in Woodland, Utah, finished in 2006 by Gigaplex Architects.

The Montesilo was made by joining together two corrugated grain silos, and it has a modest, space-efficient size of 1,800 square feet. The home sits in a gorgeous natural setting, near the Provo River, and the ample windows and balcony help bring the outdoors in.

Photo: Christian Patterson for Popular Mechanics

Amory Lovins’ House

Leading green thinker Amory Lovins of the venerable Rocky Mountain Institute lives in a gorgeous home in Old Snowmass, Colorado, that costs a miserly $5 per month to power, thanks to passive solar design, 16-inch-thick walls, xenon-filled windows, and a pair of wood-burning stoves. The home is festooned with solar panels, and there’s a passively controlled greenhouse that yields tropical fruit.

Begun in 1982, the house was way ahead of its time, and has recently been updated with LEDs, the latest energy-monitoring technology, and other green tweaks.

Photo: Future Systems

222 House

The remarkable 222 House in Wales leaves a nearly nonexistent footprint on the region’s southwest coast. According to designers Future Systems, “The soft, organic form of the building is designed to melt into the rugged grass and gorse landscape, the roof and sides of the house being turfed with local vegetation.”

Completed in 1994, the bathroom and kitchen are prefabricated pods that were lifted into the site during construction. The home needs little energy input due to the natural insulation of the ground.

Photo: Wikipedia Commons

Bubble Dream Castle

The space-age Bubble Dream Castle in southern France, near Cannes, was begun in 1975 by Antti Lovag. Inside, the livable sculpture resembles a set from vintage Star Trek, but with more light, since the windows are designed to take advantage of Mediterranean sun.

One of the goals of the visionary designer was to unify the home with its natural surrounding, by bringing outdoor elements inside. Today, the complex boasts 10 suites decorated by different artists, a reception hall seating 350, an outdoor auditorium, and a massive garden.