Mortgage Rate News

Image by tamaki via Flickr

After holding relatively steady for months, housing starts fell in October. One of the main reasons for the drop, say many analysts, is the fact that the fate of the first time home buyer tax credit was in doubt. As a result, builders slowed their projects. However, with the extension and expansion of the home buyer tax credit, there is a good chance that things will pick up again — at least until the end of April 2010, which marks the new deadline. MarketWatch reports on the expectations going forward:

“We believe housing starts’ strong decline to be only temporary, and should resume modest growth and stabilization over the next several months, as the tax credit extension should support market demand and perhaps offset some of the seasonal slowness in the winter months,” said Michael Rehaut, economist at JP Morgan Chase in a note to clients.

The tax credit, though, can’t protect the housing market from the economic realities of a weak labor market and slow economic recovery. Indeed, this morning President Barack Obama warned that conditions may be setting up for a double-dip recession. He did say that his administration was working on programs and ideas to prevent such a thing from happening, but he has put everyone on the alert.

Economic recovery has been slowed due to problems with joblessness. Companies are reluctant to hire, and that is causing some concern. Without jobs, people can’t buy new homes and help the housing market.  Additionally, lack of employment makes consumer spending – which accounts for approximately 2/3 of the U.S. economy — difficult to boost.

It will be interesting to see how things play out going forward. Will Obama’s honesty about the possibility of a double-dip recession help people prepare for an eventuality? Or will his early warnings be heeded and a back slide completely averted? Only time will tell.

Image via Wikipedia

One of the things that has many people steamed right now is the fact that, while personal bankruptcy is on the rise, big banks have been getting special help staying afloat from the taxpayers via the government. These policies started in the Bush Administration, and have continued in the present Obama Administration. However, Congress is trying to do something to prevent so much help going to prop up the financial system in the future. President Obama has been pushing Congress to engage in bank reform, but the deal is far from done — even as the House and the Senate wrangle about what should be done.

CNN Money offers three major points of controversy that could serve to derail bank reform:

1. Role played by the Federal Reserve: Here is what CNN Money reports about the difference in how the Fed is regarded:The House proposes stripping away the Fed’s consumer protection powers, leaving in place its banking regulatory powers. In fact, the House would make the Fed the principal overseer of financial firms tied to the global economy.

   The Senate, by contrast, would limit the Fed’s powers to mostly monetary policy. Sen. Chris Dodd, D-Conn., is proposing stripping the Fed of its banking regulatory authority and giving that power to a new consolidated agency.

2. What to do with companies that are “too big to fail”: This issue is an important one, since large companies found that they could avoid true accountability for their actions for being so large that their failure could bring down everything. Here is what CNN Money reports on how this might be handled:
   The White House and congressional Democrats want to create a mechanism for monitoring large financial firms, like American International Group (AIG, Fortune 500), and unwinding them with a new power called “resolution authority.”

   Both chambers would charge the Federal Deposit of Insurance Corp. with such unwinding. But some lawmakers from both parties are worried about giving such broad powers to the executive branch.

   A related - and contentious - debate is emerging over whether a government agency should have the power to break up companies that could threaten the economy before they do damage.

3. Consumer protection agency for finances: The White House wants an agency that oversees financial consumer protection in the case of financial products and services. Here is CNN Money’s take on this issue:
   The agency faces a more familiar problem for financial-related legislation in Congress: opposition from the minority party and big business. That push-back could be a deal breaker in the Senate.

   The agency would put new regulators in charge of keeping an eye out for consumers, while requiring more disclosure and scrutiny over some of the financial products, like mortgages, credit cards and auto loans, that contributed to last year’s crisis.

   A wave of populism propelled credit card legislation earlier this year. But Republicans are mostly united against the creation of the consumer agency, calling it an added layer of bureaucracy that could threaten bank soundness.

Clearly, there is going to need to be a delicate balancing act in order to make effective regulation that halts problems, but doesn’t cross the line of being overly restrictive to the markets.

Image via Wikipedia

The first time home buyer tax credit has been extended — and expanded. The $8,000 credit has been extended by six months, and there has been an expansion to include current home owners who want to buy. Current home owners can get a $6,500 tax credit when they look for a new home. This is along the lines of the tentative agreement reached last week. Bible Money Matters offers a great summary of the main points for the new $6,500 tax credit:

• The credit is available for homes that go under contract by April 30, 2010 and close by June 30th, 2010.
• Current homeowners can claim a $6,500 credit as long as the property they are vacating has been their primary residence for at least five consecutive years out of the last eight years.
• Income limits: $125,000 a year for individuals, $225,000 a year for married couples. (these are higher limits than before)
• Homes that cost more than $800,000 aren’t eligible for the credit.
• $6500 tax credit is not retroactive.  (from the language of the bill: “shall apply to residences purchased after the date of the enactment of this Act.”)

Sadly, I don’t qualify. Which is okay, I suppose. We weren’t planning on moving any time soon, so it’s not like we would use it anyway. But it would still be nice to know that if we wanted to take advantage of such a great deal, we could. It’s not $15,000, but it’ll do. It’s better than nothing.

However, the tax credit extension is also expected to help keep home prices higher. The Wall Street Journal reports on the first time home buyer tax credit and its results:

Goldman Sachs estimates that the credit resulted in 200,000 sales this year, but that many of those sales were front-loaded—driven by a surge in sales shortly after the tax credit took effect. The simple extension “should result in fewer incremental first time purchases than the first round of the credit did,” writes Goldman economist Alec Phillips.

While the tax credit won’t reduce excess inventory, the incentives could keep prices up because “potential sellers are likely to incorporate a fraction of the credit amount in their sale price—with the knowledge that the majority of buyers will qualify for either the first time or move-up credit,” writes Mr. Phillips.