Economists Predict Economic Growth in 2010

As economists put forth their forecasts for the coming year, the good news is many expect to see the economy grow by as much as 5 percent in 2010, according to a recent story on CNBC.com, but most are not as optimistic in their outlooks for the critical employment and housing sectors. 

“You have to remember that you’re starting from a low base,” Chris Varvares, president of the economic consulting firm Macroeconomic Advisers, told CNBC.com. Varvares’ firm is forecasting a four percent growth in the GDP next year. “We’re getting a snapback that, when judged with those from other deep recessions, is pitiful.”

The National Association of Business Economists (NABE) and the White House both predict economic growth in the mid-3 percent range.

Economists at Global Insight expect economic growth of 2-2.5 percent but, like many experts, don’t see unemployment following suit. Most forecasters put the unemployment rate at 9 percent or higher for the entire year – but Global Insight is less optimistic, predicting unemployment to edge higher to 10.5 percent.
Michael Mussa, a former International Monetary Fund economist now with the Peterson Institute for International Economics, predicts a 5 percent GDP growth rate for next year and sees job creation up monthly as well.

“The biggest drawback, the big unknown, is the massive amount of debt households have,” Christian Weller of the University of Massachusetts and the Center for American Progress told the news organization. “A combination of employment and wage growth should help, but it’s an unknown. We've never had this much debt before.”

Modest growth is expected in the housing sector, where most experts agree that home prices have hit bottom. While the numbers are below 2008 levels, most forecasters (including NABE and Varvares) expect housing starts at 700,000-900,000 for the year, with much of that recovery evident in single family homes.

Ram Bhagavatula, managing director at the hedge fund Combinatorics Capital, is more bullish on housing, forecasting starts of one million. “There’s been a lot of postponed housing consumption,” he told CNBC.com. Bhagavatula is currently estimating a 3.5 GDP growth, but said he’ll probably revise it to 4.0-4.5 percent next month.

Read the full story at CNBC.com

It Really Is As Small As A Postage Stamp

Ever look around your home and think, “this place is just not big enough”? Chances are, Zaarath and Christopher Prokop’s home may make yours look like a mansion in comparison.

The Prokops, who live in what The New York Post’s December 6th story dubbed “the smallest apartment in New York City,” have just 175 square feet to call home. To give you an idea of just how small that is – the couple’s queen size bed takes up 1/3 of the main living space in their “microstudio.”

The unit’s main living area, which triples as a bedroom, kitchen and living room, is just 10 feet wide and not quite 15 feet long. A tiny bathroom that houses a small sink, shower and toilet, is just three feet wide and nine feet long. The couple bought the condominium a few months ago for $150,000.

The Prokops utilize creative space-management and have few appliances -- just a mini refrigerator, a hotplate and a cappuccino maker. "We don't cook," Zaarath Prokop told The Post. "So when you don't cook, you don't need plates or pots or pans. So we use that space for our clothes."

A small television, a wine rack that doubles as a shelving unit and a storage trunk that serves as seating fill out the unit. They don’t have a trashcan, they use the trash chute in the hallway.

"Every bit of space is utilized," Christopher Prokop told the newspaper. "We really have everything we need."

The unit is part of a prewar building that originally consisted of nine maids’ quarters. Eight of the units were reconfigured into four larger condos – each of which sold for about half a million dollars – but the Prokops’ unit just didn’t fit in the plans.

The couple is planning to do some renovations on the unit, such as adding a Murphy bed, and they expect to have their mortgage paid off in just two years.  

"We're going to own something in Manhattan in two years,” Zaarath said. “How many people can say that? And we're very happy doing more with less."

Click here to read the complete story.

650,000 Borrowers Benefit From Government Loan Modification Program

To-date 650,000 borrowers have received trial loan modifications through the Obama Administration’s foreclosure relief plan, Making Home Affordable.

When the $75 billion program was initiated in early 2009, the Administration said it hoped to modify or refinance as many as 4 million mortgages, affecting as many as 9 million distressed homeowners, over the course of two years. That goal has since been adjusted upward to span three years.

The largest numbers of modifications have occurred in California (135,000) and Florida (82,000) – two states that have high rates of foreclosures.

“The program is having a pronounced impact in areas particularly hard hit by the housing crisis," Treasury Assistant Secretary Michael S. Barr said yesterday.

First-Time Homebuyer Funds May Have Been Paid Out Incorrectly

Congress spent this week debating whether to extend the Nov. 30 deadline on the $8,000 first-time homebuyer tax credit amid revelations that millions of taxpayer dollars may have been paid out incorrectly to people who did not properly qualify for the credit.

A report issued by the Treasury inspector general for tax administration indicated that nearly 74,000 buyers who may have previously owned homes claimed a combined $500 million in tax credits for first-time homebuyers. The credit is intended for people who have not owned a home in the previous three years.

An additional 580 taxpayers under age 18 -- including some as young as 4 years old -- claimed $4 million, possibly so their parents could skirt the program’s income limitation of $95,000 a year. The IRS is currently investigating more than 100,000 claims.

While the program has had its merits, it clearly has had its problems as well. But opening the program up to all credit-worthy homebuyers, not just first-time buyers, would be an expensive proposition for American taxpayers.

There is clearly a need – potential homebuyers with good credit, who can afford a monthly mortgage payment but may need help with a lump sum payment; and there are plenty of homes on the market.

So AHAA suggests: Let’s do it right and put this program back in the private sector where it belongs, where it was so ably carried out for years until Congress shut it down last fall. Reinstate privately funded nonprofit down payment assistance programs and let more credit-worthy Americans have a chance to own their own homes.

Buying From Mom and Dad? Sorry, You Don't Qualify

While skimming through The Washington Post’s Real Estate section this weekend, I came across a Q&A piece with the headline: “You Miss Out on $8,000 Credit When Buying From Parents.” And I thought … here’s yet another reason we need to reinstate down payment assistance.

The reader was recently divorced and his daughter wished to buy the house that belonged to her parents, perhaps using the $8,000 first-time homebuyer credit. In instructing the reader on his options, writers Ilyce R. Glink and Samuel J. Tamkin said, “…[Your daughter] will not qualify for the $8,000 tax credit. The Internal Revenue Service specifically excludes parents, grandparents, children and grandchildren buying from each other.”

It reminded me yet again that we have a serious need for the return of privately funded down payment assistance. As we’ve outlined here in past blog posts, there is a significant segment of qualified buyers who aren’t able to take advantage of the government’s first-time homebuyer credit. With privately funded down payment assistance, qualified buyers who wish to purchase a home from a family member can still receive down payment help.

And, as Glink and Tamkin went on to remind us later in the piece, the clock is ticking on the first-time homebuyer credit: “If you haven't found the property you want to buy by the end of September, you'll run out of time to use the $8,000 first-time-buyer tax credit because of the time it takes to get qualified and approved for your mortgage and to schedule the closing.”

As I’ve mentioned before, nonprofit down payment assistance doesn’t have an expiration date, nor is it limited to first-time homebuyers. There’s just one big problem – it’s not available right now. So, we’ll continue to ask Congress to consider reinstating these programs for the nation’s homebuyers, and we’ll ask you to do the same.

Tax Credit Deadline Approaches, But Down Payment Assistance Never Expires

A Reuters story caught my eye today – it was titled “Homebuyers Scramble to Beat Deadline for $8,000 Tax Credit.” The headline sums it up neatly – it was all about how homebuyers hoping to qualify for the $8,000 first-time buyer tax credit are trying to force through home purchases by the end of September so they have enough time to close on these homes by November 30th – the date the federal program expires.

One buyer in the story says she’s “willing to settle for something” in order to make the deadline.
The article goes on to say that the National Association of Realtors estimates that 350,000 new buyers will purchase homes because of the tax credit. Because the housing market has taken such a beating, and because it’s such a critical factor in our overall economy, it’s good to see it get a boost.

But, as buyers scramble to “settle for something,” it begs the question – when November 30th comes, then what?

We here at AHAA wonder: Wouldn’t it just be easier to give these first-time buyers a bit more time to find just the right home instead of having to “settle for something”? And wouldn’t it be better to give young buyers, who maybe aren’t quite ready for the responsibility of owning a home but feel a time crunch to buy because of the approaching deadline, another option down the road when they do feel they are ready to become homeowners?

We think so.

Furthermore, there was hope that some of these first-time buyers who took advantage of the tax credit would purchase foreclosed homes or those sold by distressed buyers. But with more scrutiny and the lengthy process involved with purchasing short-sales or foreclosures, a finite deadline looming not too far in the future discourages new buyers from taking these numerous properties off the market.

Clearly, homebuyers (and not just those buying for the first-time) need to have a source of down payment assistance available to them after November 30 comes and goes. This is why AHAA supports privately funded down payment assistance, and we ask the Obama Administration and Congress to consider reinstating these programs. 
 

The Double-Edged Sword of An Improving Housing Market

This week the Commerce Department reported new home sales were up 11 percent in June, and combined with last week's data showing an uptick in existing home sales, we're seeing a slightly healthier image of an industry that had been in a freefall for some time.

On the surface, we gladly welcome these signs of recovery because as the housing market goes, so often goes our nation's economy. Increases in home sales mean more demand for home builders, rehabbers and housing-related construction workers, real estate agents, loan officers, landscapers and retail salespersons. More jobs mean more people who are unemployed can go back to work. More people working means more people can pay their mortgages again, and therefore less people will lose their homes.

But as we watch the housing market dust itself off and as people return to work or begin to feel more job security, credit lines open up again and people revisit the dream of buying a home that may have been deferred as a result of the recession, AHAA foresees a glaring problem unfolding.

Simple economics tell us that as demand begins to go up, so too eventually will prices. Sure, there's an excess supply of inventory right now, and frankly, we could all use a boost to our property values. However, rising home prices this time around will mean that many, many more people than in years past will be shut out of the market because they lack the lump sum of cash needed for a down payment.

So what do we mean by "this time around"? We mean that these buyers, who are able to pay a monthly mortgage and have solid credit scores but simply lack that lump sum of cash, no longer have a valuable tool that they once had -- non-profit down payment assistance (DPA). At HUD's urging, Congress put an end to down payment assistance last fall, after the DPA industry had helped well more than 1 million homebuyers become homeowners.

So at a time when an improving housing market can help to bolster a recovering economy, potential homebuyers and the housing industry as whole are left without a key ally. That's why it's so important that we reinstate down payment assistance ASAP. Please contact your member of Congress today.

RealtyTrac Reports Foreclosures Up Yet Again

Despite increased efforts to stifle the onslaught of foreclosures through government-backed programs and bank moratoriums, foreclosure filings on U.S. homes jumped 9 percent in the first half of this year over the last half of 2008. And when comparing those numbers to the same time period just one year ago, foreclosure filings are up by a full 15 percent. 

Data released this week by RealtyTrac in its U.S. Foreclosure Market Report, showed that more than 1.5 million U.S. properties had received one or more default or auction sale notices, or had been repossessed by banks this year through the end of June. That equates to 1 in 84 U.S. homes, or 1.19 percent of all U.S. housing units that were in some part of the foreclosure process.  

“In spite of the industry-wide moratorium earlier this year, along with local, state and national legislative action and increased levels of loan modification activity, foreclosure activity continues to increase to record levels,” said James J. Saccacio, chief executive officer of RealtyTrac. “Unemployment-related foreclosures account for much of this increased activity, and the high number of borrowers who find themselves owing more on their mortgages than their homes are now worth represent a potentially significant future risk. Stemming the tide of foreclosures is a critical component to stabilizing the housing market, so it is imperative that the lending industry and the government work in tandem to find new approaches to address this issue.”

RealtyTrac has broken the data down by county and state and presents it in a striking graphic. To see how your county and state measure up, click here.

More Gloomy Housing Numbers? We've Got a Suggestion!

The country’s recession has driven household formation levels to their lowest in a generation according to Census Bureau data, meaning that fewer people are setting out on their own and are instead moving in – or back in – with parents, friends and family.

The bureau’s data show that new household growth between March 2007 and March 2008 was less than half that registered in the same time period the year before, rising by 772,000 – far less than the increase of 1.63 million the prior year.

So what exactly does this mean? For one, it means there is less demand for the glut of new homes out there that have been built but not sold. Less demand for new homes affects the need for construction workers and real estate agents. Existing home sales also take a hit, as does demand for housing-related items – appliances, furniture, paint and carpeting, home improvement supplies, and the services provided by handymen, electricians, plumbers and carpenters. It’s yet another sign that we’ve got a long way to go.

And, the numbers aren’t likely to improve anytime soon since there is a strong correlation between household formation and unemployment figures. When unemployment rates go up, household formation goes down because people who can’t find jobs or lose the jobs they have often move in with someone else or delay setting out on their own. Even though we have seen some glimmers of hope that we’re past the worst of the recession, housing experts predict that unemployment numbers haven’t yet hit their peak, so household formation rates aren’t expected to recover soon.

It’s a vicious circle. So how do we get out of it?

AHAA believes there’s a way to help re-stimulate the housing industry, spur the formation of households, reduce the inventory of new homes and in turn create housing-related service jobs. How? Through down payment assistance provided by private sector entities to credit-worthy homebuyers.

Privately funded down payment assistance helps credit-worthy borrowers buy homes without tapping taxpayer dollars. When credit-worthy buyers purchase homes, the result is a snowball effect that boosts all industries that rely on the success of the housing industry.

The time to reinstate nonprofit down payment assistance is long overdue, it's time to pass H.R. 600 and reinstate programs that will help revitalize our economy.  

A Reader De-Clutters and Makes a Few Bucks Too

We're midway through the year and midway through the summer, so it's time to check in on our progress on two big projects we've taken on this year: getting organized and growing our own food.

Today we'll tackle that New Year's resolution we made together so many months ago. How are you doing on getting your home organized and keeping it that way? Carolyn Cross of Hobe Sound, Fla. wrote me to tell me about her progress on getting her home organized.

"As the kids outgrew clothes and toys, I found I would throw them in our 'junk room' and never really get back to them," she said. "One day I decided I'd had enough. I emptied out the room and we had a yard sale. We sold some of the stuff, then I decided to try out taking some things to a consignment store. I was surprised, I ended up making a few dollars on things I would have otherwise thrown out or given away."

Yard sales and consignment stores are wonderful ways to make some money on items you have that still have a lot of use left in them. There are some fun sites online that offer useful tips from people who have had successful and not-so-successful sales. Check out some yard sales and flea markets in your area if you are unsure how to price your items, or better yet, save yourself some time and don't put any prices on the items. Suggest a price if a buyer is interested and negotiate a workable price for both of you.

Consignment stores will take your gently used items and resell them, giving you a portion of the sale price. Such stores often have a particular focus: women's or men's clothing, children's clothing and items, wedding dresses and related items, sporting equipment and uniforms, etc. Search locally for stores that accept the type of items you have. Often such stores require you to make an appointment to bring your items in so they can be evaluated for saleability.

Finally, if you can't find a buyer for your items, there's another great way to find someone who can use them -- join your local Freecycle group (www.freecycle.org). Freecycle enables people to post items they are willing to give away for free to others who will reuse them and keep them out of landfills. Freecycle has thousands of groups all over the country, and there's a good chance one is near you.

The best part of this whole story, however, is what Carolyn told me at the end of her note:

"Three months after I started this whole effort, I no longer have a 'junk room'. It's a beautiful, clean and organized office/music room. I can do work in there in peace and quiet, and my kids can practice their musical instruments in there when they need to -- instead of in the middle of the family room. What a difference it's made! It's like putting an addition on our house."

Please continue to keep us posted on your organizing successes too!