Housing to gradually improve in 2012, NAR economist says

Gradual improvement in the housing market is expected next year, with existing-home sales edging up 4% to 5% and new home sales getting an even bigger boost off this year's record lows, the chief economist of the nation's largest real estate group said Friday.

"Tight mortgage credit conditions have been holding back homebuyers all year, and consumer confidence has been shaky recently," Lawrence Yun, chief economist of theNational Association of Realtors, said. "Nonetheless, there is a sizeable pent-up demand based on population growth, employment levels and a doubling-up phenomenon that can’t continue indefinitely."

Yun, who made his comments during the annual NAR conference for real estate agents under way in Anaheim, Calif., projected gross domestic product growth of 1.8% for 2011, rising to 2.2% in 2012 with the unemployment rate declining to 8.7% by the second half of 2012.

Mortgage interest rates, he predicted, would gradually rise from record 2011 lows to 4.5% by the middle of 2012.

"Very favorable affordability conditions will dominate next year as well, which will probably be the second best year on record dating back to 1970. Our hope is that credit restrictions will ease and allow more homebuyers to take advantage of current opportunities."

Existing-home sales are forecast to edge up about 1% this year. Based on NAR’s current projection model, existing-home sales would total 4.96 million in 2011. NAR is revising downward existing-home sales totals in recent years although it expects little change to previously reported comparisons based on percentage change.

New-home sales for 2011 are projected at 302,000 this year, a record low, with expectations that they will rise about 23% to 372,000 in 2012.

Housing starts are forecast to rise about 8% to 630,000 from 583,000 in 2011.

With falling inventory, the median home price should rise in 2012, he said.  "Home prices have yet to show a definitive stabilization pattern in most areas. Still, given an over-correction in prices, there likely will be moderate appreciation in 2012," Yun said.

Richard Peach, senior vice president at the Federal Reserve Board of New York, said the economy continues to disappoint. "Among the significant structural impediments are the legacy of the housing boom and bust, and fiscal contrition at the state and local level."

He promoted moving foreclosures by giving incentives to military service members.

"My idea is to allocate certificates to 2.5 million service members who served in Afghanistan and Iraq that could be used as a down payment on a foreclosed home in the Fannieor Freddie portfolio," he said.  This would help to absorb the inventory and stabilize the housing market.

Take advantage of expiring tax deductions

There are several tax credits and deductions set to expire at the end of the year, and given the federal deficit problem, there's a good chance they won't be extended. If you want to take advantage of them, you need to act before Jan. 1, 2012.

Mortgage insurance premium deduction

If you itemize deductions, you may deduct the premiums you pay for mortgage insurance, just like you do mortgage interest. However, this deduction is phased out if your income exceeds certain levels. To qualify for the full deduction, a couple or a single taxpayer must have an adjusted gross income of $100,000 or less. The deduction is phased out completely if AGI exceeds $109,000.

This deduction, which was first enacted for 2007, is scheduled to expire at the end of 2011. Thus, your payments are deductible only if you pay them during 2011; a payment after 2011 is not deductible.

Education expenses deduction

A deduction of up to $4,000 for qualified education expenses is available for 2011. All or part of the amount you pay can be for classes beginning in 2012. But you must make your payments during 2011, because the deduction expires at the end of the year. This deduction is not available if your modified adjusted gross income is more than $80,000 ($160,000 if filing a joint return). Nor is it available if any of education tax credits are claimed.

Home energy credit

First, any homeowner may qualify for an energy credit of up to $500. You can qualify for the credit if you purchase during 2011 solar panels to generate electricity or for water heating, or install wind energy equipment, a geothermal heat pump, or certain types of fuel cells to generate electricity. The credit is up to 30 percent of the amount you spend, up to the $500 limit. This credit is not available for purchases in 2012.

Sales tax deduction

If you itemize, you can deduct either your state and local taxes or your sales taxes paid during the year. This deduction is a boon for people who live in states with no or low income taxes. However, the deduction for sales and use taxes instead of state income taxes is scheduled to expire at the end of 2011. To maximize this deduction, you should make any large purchases before the end of the year.

Adoption credit

A tax credit for adoption expenses (adoption fees, court costs, attorney fees, travel, etc.) has been available for many years. However, an enhanced adoption credit is available for adoptions finalized before 2012. The credit is up to $13,360 of adoption expenses. For 2011, this is a nonrefundable credit, meaning you qualify for it even if it exceeds the amount of your 2011 tax liability. This means that you could qualify for a tax refund even if you did not have federal income tax withheld.

Sales of new homes up in October, but prices fall

WASHINGTON – Americans bought slightly more new homes in October, a hopeful sign for the troubled housing market. But the median sales price fell to its lowest level of the year, and the overall sales pace is trailing last year's — the worst in half a century.

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  Gene J. Puskar, AP
  New home construction in Canonsburg, Pa.

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Gene J. Puskar, AP

New home construction in Canonsburg, Pa.

The report suggests housing continues to drag on theU.S. economy and is a long way from recovering.

New-home sales increased 1.3% last month to a seasonally adjusted annual rate of 307,000, theCommerce Department said Monday. That's less than half the 700,000 that economists say must be sold to sustain a healthy housing market.

Last year's 323,000 new homes sold were the fewest since the government began keeping records in 1963. This year isn't faring much better.

While new homes sales represent a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.

For many Americans, buying a home is too big a risk more than four years after the housing bubble burst.

Home prices have tumbled, the job market remains weak and unemployment has been stuck near 9% for more two years. Some people who want to buy can't qualify for a loan or make the higher down payments that banks are demanding.

Sales are slumping even though mortgage rates are hovering above historic lows.

Builders are struggling to compete with foreclosures and short sales — when lenders accept less for a house than the mortgage on the home — which are at an average discount of 20%. That has made many re-sales a bargain compared with new homes.

Yet sales of previously owned homes are also dismal. They rose slightly last month to a seasonally adjusted annual rate of 4.97 million units, the National Association of Realtorssaid last week. That's below the 6 million that economists say is consistent with sales in a healthy market and barely ahead of last year's totals, which were the fewest since 1997.

Keep Your Home Warm

Heating expenses have skyrocketed in the past few years and many homeowners are finding it hard to make ends meet while keeping toasty. Here are some simple tips you can try in order to keep warm and on budget.



First, consider your options when it comes to what method of heating you use. Gas, both natural and propane, can easily break the bank when temperatures dip.

Many homeowners are switching to energy efficient infrared heaters that can be moved from room to room as needed. These homeowners swear by these small units and note that their heating bills dropped dramatically after starting their use.

If there are multiple electric companies offering services to your area be sure to check and see who has the cheapest rates. You'd be surprised how much their charges can vary!

Next, do you have the option to burn wood? Many homes come equipped with wood-burning fireplaces and wood stoves. With the proper fans or duct-work you can heat an entire home.

If you live in a rural area and have access to trees, you may have free firewood at your disposal (after putting in a little sweat and time). Otherwise, most cities have local businesses that sell wood by the bundle or rick.

It's not all about what heaters you use, though. Sometimes it's about keeping cold air out and warm air in. First, check around all your windows and doors for places that need recaulked. Be sure all windows are firmly closed and if you have a drafty door, consider installing an outside storm door.

The same maintenance check goes for older homes' insulation. Insulation can be insufficient or entirely lacking. Take a good look at your attic and decide if you need to install do a little upgrading.

There are multiple options, including those large fluffy rolls (in varying grades for varying temperatures), spray insulation, and even thin sheets that can reflect cold air out.

Insulated curtains can also be a beautiful way of keeping warm air inside your home. Some claim to reduce energy loss by as much as 40 percent.

These are just a few tips! Keeping warm can be difficult in the coldest of days this season. Take a few precautions and do research on the latest energy prices and you're sure to stay on budget.

Existing-Home Sales Improve

Amidst turmoil in the stock market and continued crisis in both our own and European debts, the latest figures from the National Association of Realtors show that existing-home sales improved slightly in October.



Though this rise was marginal, any upward movement is reason for some holiday cheer in the real estate market.

The NAR reports that existing-home sales were up 1.4 percent in October and are a promising 13.5 percent above October 2010.

Three of four regions saw growth last month, with the West leading the way at a 4.4 percent rise.
The Midwest and South rose 2.8 and 2.1, respectively. The Northeast was the only region to see a decline in October, falling 5.1 percent.

Lawrence Yun, NAR chief economist, said the market has been fairly steady but at a lower than desired level. "Home sales have been stuck in a narrow range despite several improving factors that generally lead to higher home sales such as job creation, rising rents and high affordability conditions. Many people who are attempting to buy homes are thwarted in the process," he said.
The numbers could be higher for October had a large number of contract failures not held back a recovery. These contract failures are due in part to appraised values ending up less than negotiated prices, meaning the loan falls through.

Many would-be buyers are also sidelined by tight credit standards.

NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said consumers can increase their odds of obtaining a mortgage by being aware of how credit scores are determined. "If you want to get a mortgage, don’t buy a car or take on new installment debt or credit cards," he said.

"Pay all your bills on time, maintain old credit lines and don’t use more than 30 percent of your credit limit," he said.

Home sales could be on the rise, additionally, due to buyers taking advantage of affordability.
According to the NAR, the national median home price for existing-homes is currently $162,500. This is down another 4.7 percent from October 2010. Distressed properties are accounting for less of the market, which means prices are falling in response to other economic conditions.

Short Sales Offer Significant Discounts in Several Major Cities

With 9,145 completed short sales, the Los Angeles area had more short sale transactions than any other metropolitan statistical area (MSA) in the second quarter of this year, according to a recent blog post from RealtyTrac.

Short sales are growing throughout the nation as distressed homeowners and servicers continue to seek alternatives to foreclosure and home buyers increasingly opt for the significant discounts that come with short sales.

These short sales came with an average discount of 32 percent and at an average price of $350,237.

Phoenix ranked second in number of short sales for the second quarter with 8,434 short sales, which came withan average discount of 27 percent and an average price of $133,793.

According to the RealtyTrac blog post, the metros with the highest numbers of short sales in the second quarter were:

1. Los Angeles
2. Phoenix
3. Cape Coral – Fort Myers, Florida
4. Oxnard – Thousand Oaks – Ventura, California
5. Reno – Sparks, Nevada
6. San Francisco
7. San Jose
8. Portland
9. Atlanta
10. Milwaukee

Short sale savings averaged more than 30 percent in Cape Coral – Fort Myers, Florida; San Francisco; San Jose; and Milwaukee.

Reno – Sparks, Nevada, experienced a 50 percent rise in short sales from the first quarter to the second quarter of the year, while San Francisco saw a 47 percent rise in short sales.

Atlanta and Milwaukee also saw significant increases in short sales over the quarter – 21 percent and 20 percent respectively.

Recession Fears Eased: Economy Grows at 2.5 Percent in Third Quarter

The economy grew at an annual rate of 2.5 percent in the three months ending Sept. 30, the government reported, easing fears that the nation would fall into a second recession but still too slow a pace to cut significantly into the high unemployment rate.

“We’re inching our way forward,” says Diane Swonk, chief economist at Mesirow Financial.

The new data from the Commerce Department on Thursday showed slow but steady improvement in the economy throughout 2011. The third-quarter data was in line with economists’ projections.

Consumer spending, particularly on automobiles, helped boost growth. Personal consumption increased by 2.4 percent, compared with just a 0.7 percent increase in the second quarter.

Much of that increase, as well as other economic activity, was consumers and businesses catching up after the extremely slow growth of early this year, caused in part by the supply-chain disruptions of the Japanese earthquake and tsunami, Swonk said.

But even trying to make up for the slow growth in early 2011, the “re-acceleration” of the economy in the third quarter was not at breakneck speed, Swonk said.

“Given the weakness we saw earlier in the year, this is catch-up with not a lot of catch-up,” she says. “Two steps forward with one step back.”

Kathy Bostjancic, director for macroeconomic analysis at the Conference Board, called the third-quarter growth “an unsustainable spurt.” She noted the group’s closely watched index of consumer confidence plunged this month to levels not seen since the recession ended in 2009.

“Continued woes in the housing market are overshadowed by consumer concern over the anemic labor market, as highlighted by the decline in consumer sentiment back to 2008-09 levels,” Bostjancic says in a statement. “Sustained economic growth above 2.0 percent is simply unlikely.”

Still, the threat of a double-dip recession is on hold for now, although the economy is “still muddling along, not cruising along,” Swonk said.

Fears of a second recession were stoked when the economy barely grew in the first three months of the year, expanding at an annual rate of just 0.4 percent. A recession is two consecutive quarters of economic contraction.

Things were looking only slightly better in the summer, when the government estimated that the economy grew at an anemic 1 percent rate in the second quarter.

That reading in August, combined with continued poor job creation and the historic downgrade of the U.S. credit rating by Standard&Poor’s after the bitter debt-ceiling debate, led economists to warn the nation was in danger of slipping into a second recession a little more than two years after the last one ended.

But last month the government revised second-quarter economic growth up to 1.3 percent. And increased consumer spending and other data began pointing away from another downturn.

Pending home sales index rises from one year ago

A monthly index that trackspending sales of U.S. resale homes rose in September compared to a year ago, while falling on a month-to-month basis, the National Association of Realtors reported today.

Also today, NAR released its latest forecast report for 2011 and 2012, revising up an earlier prediction for U.S. real gross domestic product growth in the wake of third-quarter GDP data released today.

Third-quarter data showed a 2.5 percent rise in GDP, compared with 1.3 percent in the second quarter. NAR expects U.S. GDP growth of 1.8 percent for the full year in 2011, with 2.3 percent GDP growth in 2012. A previous NAR forecast, released last month, anticipated U.S. GDP growth of 1 percent this year and 1.3 percent in 2012. Actual U.S. GDP rose 3 percent in 2010 and declined 3.5 percent in 2009.

NAR's Pending Home Sales Index, which measures real estate sales contracts signed but not yet closed, increased 6.4 percent year over year, to 84.5, in September. On a monthly basis, the index declined 4.6 percent. The index typically represents about 20 percent of all existing-home transactions. An index score of 100 is equal to the average level of sales contract activity in 2001, which was the first year examined by the trade group.

The index rose on an annual basis in all four U.S. regions. The Midwest saw the greatest increase, up 12.3 percent to 71.5. The region also saw the greatest month-to-month index decline, down 6.2 percent.

In the West, the index jumped 5.6 percent on a year-over-year basis in September, to 105.8 -- the highest index value of any region. The region also saw the smallest monthly index drop, down 2.1 percent.

In the South, the index rose 5 percent year over year, to 91.6. On a month-to-month basis, the index slipped 5.5 percent in the region.

The Northeast saw a 4 percent index increase compared to a year ago, to 60.6, and a monthly decline of 4.7 percent.

In its latest economic forecast, NAR projects 4.955 million sales of resale homes this year (up 1 percent compared to 2010), and 5.169 million existing-home sales in 2012 (up another 4.3 percent), with the existing-home median price falling 4 percent this year, to $165,900, and rising 2.6 percent in 2012.

Sales of new, single-family homes, meanwhile, are forecast to fall 4.7 percent this year, to 307,000, and to rise 21.3 percent next year, to 372,000. The median price of a new home is projected to rise 1.8 percent this year, to $225,000, and jump 3.5 percent in 2012.

The interest rate for a 30-year fixed-rate mortgage is not expected to change much. The rate was 4.7 percent in 2010, and NAR forecasts a rate of 4.5 percent for the full year in 2011, and 4.7 percent in 2012.

NAR forecasts the unemployment rate to average 9 percent in 2011, and to improve to 8.7 percent in 2012; last year's unemployment rate was 9.6 percent.