Pending home sales up
The Pending Home Sales Index (PHSI) increased in June following a wide swing down in April and then up in May, according to the National Association of Realtors (NAR). Activity increased in the West and South but declined in the Midwest and Northeast; all regions show strong double-digit gains from a year ago. The PHSI in the Northeast slipped 0.4% to 68.9 in June but is 19.4% higher than June 2010. In the Midwest the index fell 3.7% to 79.7 in June but is 26.4% above a year ago. Pending home sales in the South increased 4.4% to an index of 99.2 and are 19.1% higher than June 2010. In the West the index rose 6.4% to 107.0 in June and is 16.4% above a year ago. Existing-home sales this year are expected to total 5.0 million, slightly higher than 2010. Similarly, little change is forecast for aggregate home prices with several indicators, including NAR's median prices, showing recent signs of stabilization.
GDP much worse than thought
Gross domestic product (GDP), the broadest measure of the nation's economic health, rose at an annual rate of 1.3% in the second quarter, the Commerce Department said. While that's an increase from the revised 0.4% growth rate in the first three months of the year, it is hardly good news. The government originally reported that the economy grew at a 1.9% annualized rate in the first quarter. Dubbed a "soft patch" by economists and even Federal Reserve Chairman Ben Bernanke, the economy's sluggishness was due to a variety of factors that weighed on consumers and businesses. Higher gas prices for one, hit Americans hard when they peaked at a national average of $3.98 a gallon in May. The aftermath of Japan's earthquake and tsunami also rattled the global supply chain, weighing on the auto industry in particular. Meanwhile, Europe's debt crisis and the debt ceiling debates at home started to once again unnerve investors and employers, and job growth slowed to a trickle. Overall, consumer spending, which accounts for roughly 70% of gross domestic product, picked up only 0.1% in the second quarter -- marking a significant slowdown in consumer spending after it grew 2.1% in the first three months of the year.
Click - pending sales up, cancellations up
"Last month, the National Association of Realtors reported a huge jump in cancellations of pending home sale contracts. 16% of contracts didn't make it to closing, up from a norm of about 4%. The chief economist at the NAR said he was baffled by it, but ask any agent working the nation's neighborhoods, and they'll tell you it is all about confidence and financing-specifically, a lack of both. 'It seems like everybody's got home purchase 'cancel-itis,'' says David Fogg, a real estate agent in Burbank, Calif. 'Currently, we are seeing about 75%, when we close escrow, had been in escrow 2 or 3 times prior.'
Fogg says the higher cancellations recently are most definitely tied to the turmoil in Washington, D.C. over the debt ceiling. Already nervous buyers are suddenly changing course, unsure how the debt crisis will affect the overall economy, and more importantly, their own employment. 'Though a higher than normal cancellation rate can hold back final closing figures, it could well be that some past cancellations are nothing more than delayed buying decisions, rather than outright cancellations,' says the Realtors' chief economist Lawrence Yun. Financing and appraisals are taking far longer, with tighter underwriting restrictions amid the still-simmering foreclosure crisis. Another factor is short sales, which are increasingly popular at the big banks as an alternative to foreclosure. This is when the bank allows a troubled borrower to sell the home for less than the value of the mortgage. These can take far longer and run into more roadblocks that scuttle many deals.
More buyers did sign sales contracts in June than in May, though, according to a new report from the National Association of Realtors. Pending home sales rose 2.4% month-to-month and are nearly 20%* higher than June of 2010, the low point following the end of the home buyer tax credit. 'Three, four, five years ago we could close a home in 10 or 15 days, just approved before [it was] hardly even applied, but it's very different now,' says Fogg. 'It was very easy before, and as a result, a lot of the transactions closed very quickly before people could change their minds.' Buyers also have one more thing to worry about: more talk in Washington about a cut in the mortgage interest deduction. That directly affects purchasing power, as buyers factor that potential into their finances."
Republicans try to reach compromise
House of Representatives Speaker John Boehner is trying to round up enough Republican support for his plan to reach a compromise to raise the U.S. debt ceiling before a Tuesday deadline. One House member who had resisted Boehner's entreaties said early Friday that there has been progress on the measure and predicted it would pass later in the day. "I think we made progress last night," Representative Trey Gowdy, a Tea Party movement-backed first term congressman, told CNN. "What we'll do today, and I predict it will be done today, is for the third time send a plan that raises the debt ceiling in a responsible way." With only four full days left, the Treasury could unveil as early as today an emergency plan explaining how the government would function and pay its obligations if Congress does not agree to raise its borrowing limit from $14.3 trillion.
Boehner's plan, which would cut spending by about $900 billion and raise the debt ceiling for a few months, is sure to be rejected by the Democratic-controlled Senate but could factor into an eventual compromise. Top Senate Democrat Harry Reid wants to raise the debt ceiling by enough to kick the crisis beyond the November 2012 presidential election so Obama doesn't have to face the music again during the election. Reid indicated late on Thursday that he may advance his own bill, which claims to cut spending by $2.2 trillion over 10 years, in the Senate rather than use Boehner's proposal as the basis for a compromise. Critics have called the Reid bill an accounting trick that inflates costs and then "cuts" them. Tea Party lawmakers say they are justified in taking a strong stand after being elected last year on a promise to slash spending.
NAR against home ownership tax hikes
Any changes to the mortgage interest deduction now or in the future could threaten recent progress toward stabilizing the housing market, critically erode home prices and values, destroy middle-class wealth accumulation and hurt economic growth. That was the message delivered by National Association of Realtors (NAR) Chief Economist Lawrence Yun during today's "Rethinking the Mortgage Interest Deduction" forum, where he joined a panel of experts to debate the future of the MID. The event was hosted by the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institute, and the Reason Foundation. "As the leading advocate for housing and homeownership, NAR firmly believes that the mortgage interest deduction is vital to the stability of the American housing market and economy," said Yun. "The MID facilitates home ownership by reducing the carrying costs of owning a home, and it makes a real difference to hard-working middle-class families."
Yun argued that now is the worst possible time to discuss changing the tax laws, which could further impair the housing market's fragile recovery and a broader job market recovery. "One thing that is indisputable is that eliminating the MID will lower the homeownership rate in the U.S.," he said. "While we must ensure that the conditions that led to the artificially inflated home ownership rate of the bubble years do not resurface, we also need to create the conditions for sustainable home ownership, which has been shown to provide myriad social benefits for families and communities." During the debate, Yun challenged recent proposals calling for changes to the tax code, stating that it's a misplaced argument to say the MID was a cause of the housing market bubble and is suddenly part of the deficit problem, when it's been part of the federal tax code for more than 100 years. Reducing or eliminating the MID is a de facto tax increase on homeowners, who already pay 80 to 90 percent of U.S. federal income tax. Yun said the share could rise to 95% if the MID is eliminated.
See you at the top! Chris McLaughlin
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About the author: Chris McLaughlin is widely known as America's top Real Estate Attorney and Investment Consultant.
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