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It is finally official.  The homebuyers' tax credit has been extended to April 30, 2010.

President Barack Obama approved the extension as part of a $24 billion economic stimulus bill signed Friday.  The bill also includes an extension of unemployment benefits to the longtime jobless and tax credits for some businesses.

The housing tax credit portion of the bill extends the $8,000 tax credit for home buyers who are purchasing their first home from the current November 30 deadline and expands the program to offer a credit of $6,500 to other homeowners who have lived in their current home for at least five years and are seeking to relocate. 

Another modification to the original legislation raises the income limits for program participation from $75,000 for a single purchaser to $125,000 and from $125,000 to $225,000 for a couple.  There are also credits available on a diminishing basis above those income limits.

The bill was passed by the Senate on Wednesday evening and by the House on Thursday.  Both bodies acted in a bipartisan manner which has seldom been seen this year.  The Senate passage was unanimous; the House voted 403 to 12 for the bill.

Housing interests as well as the Obama Administration had lobbied heavily for the extension.  In a statement released after the House passage of the legislation, Mortgage Bankers Association Chairman Robert E. Story, Jr., said, "At a time when we are finally starting to see some signs of life in the housing and mortgage markets, extending and expanding the homebuyer tax credit is a critical step to keeping the momentum.  This has been one of MBA's top single family legislative priorities, and we are very glad to see that policymakers on both sides of the aisle see the importance of this measure.

"The existing credit for first-time homebuyers has helped move a segment of potential homebuyers off the sidelines and into their first homes.  By expanding it to qualified existing homeowners, we can help stimulate even more home purchases for qualified buyers.  I also want to applaud measures in the bill that will help eliminate fraudulent use of the tax credit."    

The Associated Press quoted Rep. Shelley Berkley that the bill "will allow more people to purchase a home in my district and help stop the continued downward spiral in housing prices caused by the foreclosure crisis."  Shelly represents Nevada, a state that has been particularly hard-hit by the housing collapse.

Critics of the bill have said that it is merely accelerating purchases that would have occurred anyway and creating yet another artificial housing bubble.

Mortgage News Daily Managing Editor Adam Quinones said, "It is likely that the prior tax credit's Nov.30 expiration has already stolen a portion of housing demand from 2010. On a broader scale, the extent to which the tax credit extension adds new demand is a function of buyer's perception of home prices, liquidity in the secondary mortgage market, and the health of the labor market. Overall, while the home buyer tax credit extension is a net positive for the industry, there are still several structural ineffficiences that must be addressed before housing can gain recovery momentum".

In signing the bill President Obama stressed that the measure is revenue neutral and will not increase the deficit.

WASHINGTON – The Federal Reserve pledged Wednesday to keep a key interest rate at a record low for an "extended period," in a sign that the economy is growing but remains deeply dependent on government help.

The Fed said economic activity has "continued to pick up" and that the housing market also has grown stronger, a key ingredient to a sustained recovery.

But Fed Chairman Ben Bernanke and his colleagues warned that rising joblessness and hard-to-get-credit for many people and companies could restrain the rebound in the months ahead.

"Economic activity is likely to remain weak for a time," they said.

Against that backdrop, the Fed kept the target range for its bank lending rate at zero to 0.25 percent. And it made no major changes to a program to help drive down mortgage rates.

Commercial banks' prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will stay at about 3.25 percent, the lowest in decades.

Still, some credit card rates have risen over the last several months. Part of that reflects rate bump-ups by lenders in response to escalating defaults on credit card loans. Lenders also pushed through increases before a new law clamping down on sudden rate hikes for credit card customers takes effect early next year.

The average rate nationwide on a variable-rate credit card is 11.5 percent, according to Bankrate.com. Lenders charge more and credit card customers pay rates higher than the prime because the debt they run up is more risky.

In normal times, the Fed controls only short-term rates. But after the financial crisis erupted the Fed began buying longer-term Treasuries, keeping those rates lower than they'd otherwise be.

This is good news for borrowers with auto loans, some student loans, 15- and 30-year fixed-rate mortgages and some adjustable-rate mortgages. But it hurts savers and people dependent on fixed incomes who would normally be enjoying higher yields.

The Fed stuck with its pledge to keep rates at "exceptionally low" levels for "an extended period." Most analysts don't think the Fed would begin to boost rates until the spring or the summer.

Fed policymakers "believe they need to keep rates low to insure that the recovery doesn't falter," said Joel Naroff of Naroff Economic Advisors. "Once the members think the economy is out of harm's way, the path will be clear to start tightening."

The central bank hopes that low rates will entice American consumers and businesses to boost spending, which would give the recovery more traction. The Fed said it has leeway to hold rates low for some time because inflation isn't a problem.

The Fed has now entered into a new phase — managing the recovery rather than fighting the worst recession and financial crisis to hit the country since the Great Depression.

The economy started to grow again last quarter for the first time in more than a year, although much of that came from government-supported spending on homes and cars. There are uncertainties about the strength and staying power of the recovery, especially after government supports are removed.

But those waiting for a shift in the Fed's stance "are going to have to cool their jets," said Chris Rupkey, an economist at the Bank of Tokyo-Mitsubishi. "Growth does not mean a rate hike."

Still, the expected pace of the recovery won't be strong enough to prevent the unemployment rate from rising.

Unemployment — now at a 26-year high of 9.8 percent — will probably hit 9.9 percent when the government releases that report on Friday. It could rise as high as 10.5 percent around the middle of next year before declining gradually, analysts said.

At some point when the recovery is more firmly rooted, the Fed is likely to start signaling that higher rates are coming. One of the clues about eventual rate hikes would be the Fed changing or dropping its pledge to hold rates at super-low levels for an "extended period."

It promises to be a high-wire act for the Fed. Boosting rates and removing supports too soon could short circuit the recovery, while holding rates low and keeping supports intact for too long could unleash inflation.

Though it didn't change a program to help drive down mortgage rates, the central bank did say it will trim its purchases of debt from Fannie Mae and Freddie Mac to $175 billion, from $200 billion, because the supply of that debt has declined.

At its previous meeting in late September, the Fed agreed to slow the pace of a $1.25 trillion program to buy mortgage securities from Fannie Mae and Freddie Mac, wrapping up the purchases by the end of March instead of at year-end. So far, the Fed has bought $776 billion of the mortgage securities.

Its efforts to lower mortgage rates are paying off. Rates on 30-year loans averaged 5.03 percent, Freddie Mac reported last week, down from 6.46 percent last year.

Even though the Fed will slow its purchases of mortgage securities, rates for home loans should remain low — in the 5 percent range_ as long as the purchases continue, analysts say.

Another key program to drive down a range of interest rates on loans taken out by consumers and small businesses ended in October. The Fed at its August meeting had decided to slow down that effort and wrap up purchases of $300 billion worth of government debt, a month later than previously scheduled.

An extension/expansion of the first time home buyer tax credit seems to be all anyone in the housing world is talking about today, and insiders tell me there is much talk about it on Capitol Hill today as well.

Perhaps it was news of the massive fraud in the administration of the credit that was unveiled yesterday, or the Realtor's report this morning of a huge surge in September sales, likely thanks to first time buyers trying to get in on the tax credit before it expires.

In addition to the proposal being hammered out by Senators Christopher Dodd (D-CT) and Johnny Isakson (R-GA), which would extend the $8000 credit through June 30th and expand its income cap as well as open it to all buyers, another proposal is leaking out of the Senate Finance Committee.

Insiders tell me this would be a phase-out plan.

The way it works: The credit would stay exactly as it is through March 31st, then it would go to $6000 from 3/31 through 6/30 and then it would go to $4000 until 9/30 and then peter out somehow around $2000.

"That's politically more palatable," says my insider contact.

But on the negative side, four time frames are pretty confusing for buyers and the IRS to deal with, and we all know now how the IRS has been dealing with confusion in the tax credit so far. Administration of such a credit would be "burdensome" to say the least.

So where are we with the Dodd/Isakson plan? Well it was supposed to be tacked on to the unemployment insurance bill, but a source in the Dodd camp tells me there was concern about what that might do to the extension of unemployment benefits, which are obviously a big deal these days. So it could come up as a freestanding bill and says the source, "I wouldn't be surprised if it came up next week."

RISMEDIA, September 21, 2009—Home values continued to show encouraging signs according to new data released in Zillow.com Real Estate Market Reports ^[1] for the July 2009 time period. The Zillow Home Value Index (ZHVI) was down 9.9% from its level one year ago, compared to a 10.5% and an 11.9% annualized depreciation rate at the end of June and the end of the first quarter of 2009 respectively. While home values nationally are now down 21% from their peak in the second quarter of 2006, July marked the sixth consecutive month of improvement in the annualized depreciation rate for the nation. The ZHVI was down 0.4% from June, so home values were still not flat on a sequential basis. 

Some of the hardest-hit metropolitan areas continued to show weakness. The ZHVI for Las Vegas, NV, down 53% from peak, was down 32% from July of last year (and 3.1% from June 2009) and still hasn’t seen improvement. Moreover, the percent of all homes in Las Vegas that were foreclosed in the month has been increasing again for the past two months after several months of decline. Similarly, depreciation in Phoenix, AZ (down 46% from peak) has stabilized but the metro area is still reporting a 25% decline in home values from levels last year and the percent of foreclosed homes is also rising again. Riverside (down 52% from peak), Miami (down 45% from peak), and Tampa (down 41% from peak) are seeing some improvement in annualized depreciation rates albeit their rates are still quite high (-26%, -21% and -20% respectively) and all three still show substantial declines from the prior month (-1.6%, -1.0% and -1.1% respectively). 

In almost all markets, the worrisome trend to watch is the increasing number of foreclosures. While the foreclosure re-sale ^[1] rate (sales of foreclosed homes as a percentage of all sales) is declining in most markets, this is mostly attributable to increases in the total number of homes sold, not a reduction in the number of foreclosures. Looking instead at the number of homes being foreclosed as a percentage of all homes, most markets are showing a resurgence now in foreclosures. Indeed, even the foreclosure re-sale rate is expected to climb again in most markets as home sales begin to decline in the fall and winter (home sales will taper off seasonally but foreclosures will continue to pick up steam). It’s for this reason (combined with the overall high levels of for-sale inventory still present in many markets) that we expect the monthly change in ZHVI to continue to remain negative for the next few quarters, although we expect annualized depreciation rates to continue to moderate. 

For more information, visit www.Zillow.com ^[2]. 

Existing home sales rose for the fourth straight month in a row, now to the highest pace in two years.  Excellent news that buyers are getting off the fence, but they're only getting off at a certain price point. Just like in retail, where the big bargain stores are showing gains, only the low end of the housing market is moving. As I did last month, I asked the Realtors to break down sales for me by price point. Take a look:

A full one third of all sales in July were of foreclosed properties, and as more foreclosures hit the market, you can only expect more downward pressure on prices.  I spoke with Spencer Rascoff of Zillow.com today, who claims, "this is not a real recovery."  Higher sales on one end of the market do not a full recovery make.  Until foreclosures peak and prices bottom, we can't say housing is on its way back up.  That's not to say that increased sales aren't good.  Just think of where we'd be if sales were still falling on the low end, and nobody was eating up all those distressed properties?

This pricing scenario seems like a no-brainer argument for extending the first time homebuyer tax credit.  Now anyone who reads my blog regularly knows I am not a big fan of government bailouts in the housing market.  But if something's working, which this credit clearly is (30 percent of buyers in July were first timers), then we should give it a little more time.  Foreclosures are only increasing, as we saw from yesterday's Mortgage Bankers Association report, and that will mean more inventory at the low end.  Let's keep it moving.

Investors were in a positive frame of mind this past week while hoping for a better economic outlook ahead. Encouraging economic indicators, as well as better than expected corporate earnings, proved to be major factors influencing investors to believe that the economy has already reached its lowest level. Even The Fed's Beige book, a report card on regional economic health, stated that economic decline is slowing. Still, continuously rising unemployment and rising oil prices gave some investors second thoughts on how fast the economy is recovering. Investors were looking beyond short-term indicators, and that's why in spite of a disappointing consumer confidence report and durable good orders, investors banked on a promising second quarter gross GDP. For the second quarter, GDP increased to a rate of -1 percent, beating the investor's expectation of -1.5 percent.

Rising jobless claims and the rising unemployment rate are putting downward pressure on economic recovery. For the week ending July 25, 584,000 new applications were filed for unemployment assistance. The Employment Cost Index rose by 0.4 percent during the second quarter, with wages rising by 0.3 percent and benefit costs by 0.4 percent; certainly dimming the hope of an improved unemployment rate.

It was a volatile week for stock trading. The stock market saw a tug of war between short sellers and buyers, but in the end, long investors emerged as victorious. For the end of the week, all major indices ended up by nearly 1 percent. Riding high on quarter end profits, the banking sector led the markets with a 4.4 percent gain, while the energy and utilities sector lost 1.6 percent and 2.2 percent respectively. The Consumer Confidence index witnessed some downward movement, but that was due to rising unemployment and oil prices. Treasuries also had a very volatile week. The Treasury auctioned off $115 billion worth of debt this past week to meet government spending demand. Yields on the 2-year went up by 7 bps due to concern of oversupply while the 5-year and 10-year treasury yields went down by 7 bps and 26 bps, respectively. The three-month LIBOR rate also went down by 2 bps.

The housing market gave investors something to cheer about this past week, with better than expected numbers in existing home sales and new home sales. This caused a substantial drop in inventory levels, which declined to 8.8 months. Low interest rates and tax credits were the driving factors for the rise in home sales. 30-year fixed mortgage rates were stuck around 5.25 due to declining 10-year yields.

The coming week will keep investors looking out for rising vehicle sales due to the government-sponsored CARS (Cash for Clunkers) program on Monday, with personal spending and personal income indexes to arrive on Tuesday. Factory orders and ISM non manufacturing composite index will come out on Thursday, which should give investors some insight on the pace of the economic recovery rate.

Thank you for your business and have a wonderful week.

Mortgage Banker Applications Increase by 11%

July 2009

After bottoming out the previous week, the Mortgage Bankers Association Market Composite Index increased by 11% on a seasonally adjusted basis, aided by a 15% increase in the refinance component and a near 7% increase in the purchase component. The MCI, an overall measure of mortgage applications, was 493.1, for the week ended July 3, up from 444.8 one week earlier; the results were adjusted for a shortened week due to Independence Day. On an unadjusted basis, the index decreased 0.5% compared with the previous week and increased 7.2% compared with the same week one year earlier. The refinance index, which had decreased by 30% for the week ended June 26, recovered about half of the loss, going to 1707.7 from 1482.2 the week before. The seasonally adjusted purchase index increased to 285.6 from 267.7 one week earlier. However, refis are still not the majority share of new applications, even though they did increase to 48.4% from 46.4% the previous week. The share of adjustable-rate mortgages applications increased to 4.4% from 4.3% for the previous week, the MBA said. The increase in refis came even though there was no downward movement in rates, as the average contract interest rate for 30-year fixed-rate mortgages remained at 5.34%, with points (including the origination fee) increasing to 1.13 from 1.12 for loans with 80% loan-to-value ratios, the association reported. The average contract interest rate for 15-year FRMs increased two basis points to 4.83%, while for one-year adjustable rate loans, it increased 6 BPs to 6.58%.