Economists Predict Housing Recovery
Economic forecasters predict that 2010 will be the first year since 2005 for housing to contribute to the growth of the U.S. economy, according to a survey released by the National Association for Business Economics.
Home prices are expected to rise 2 percent next year, but forecasters don’t believe the increase in prices will discourage homebuyers.
More than 80 percent of economists surveyed by the NABE think the recession is over and recovery has begun, but they expect the expansion to be slow because unemployment persists.
Bank of America Struggles With Loan Modifications
Bank of America could collect about $6 billion if it meets the deadline set by the federal government to help struggling borrowers for the Making Home Affordable program.
But the Treasury Department released a report last week that showed that only 11 percent, about 95,000, of Bank of America’s delinquent borrowers who are potentially eligible for the program have been given a loan modification. That puts Bank of America at the bottom of the list of major banks involved in the program.
“We’re sure working hard,” said Ken Scheller, senior vice president for home retention at Bank of America, when asked about his company’s low success rate. “We don’t want to be down there.”
There appear to be multiple problems, not the least of which is that many of the employees handling the modifications are completely new to the business. Angry investors complicate the issue, with 15 percent of them demanding that the bank get their approval for every single case.
A Historic Time to Buy
Young people just starting to invest and buying their first homes are potentially the winners in this recession.
First-time homebuyers, most between the ages of 25 and 45, accounted for about 45 percent of home sales from January through July 2009, according to the National Association of REALTORS®
“This is a historic time,” says George Jaramillo, a 35-year-old business analyst in Atlanta, who recently bought three homes, two of them foreclosures. “It’s a great opportunity to make some great gains in the future.”
A study by investment company T. Rowe Price points out that investing when prices are low can result in amazing gains. For instance, between 1970 and 1990, the annualized rate of return for the S&P 500 was 11.5 percent.
“We need to be shouting from the rooftops that this is not the time to get out of the market if you’re young,” says Christine Fahlund, a senior financial planner with T. Rowe Price. “This is the time to be in the market.”
IRS Cracking Down on False Tax Credit Claims
The IRS is cracking down on people who don’t qualify for the first-time homebuyer tax credit but try to claim it anyway.
The IRS says it is investigating 24 cases of people who falsely claimed the first-time homebuyer credit on their federal income tax returns. Getting caught making a false claim carries a penalty of up to three years in jail and a fine of as much as $250,000.
The First-Time Homebuyer Credit, enacted in 2008 and modified in 2009, provides up to $8,000 for first-time homebuyers. The purchaser must be someone who has not owned a primary residence in the previous three years. If the taxpayer is married, this requirement also applies to the taxpayer’s spouse.
The home purchase must close before Dec. 1, and the credit may not be claimed on the purchaser’s tax return until after the taxpayer closes and has purchased the home.
Think Tanks Predict More Renters
While most people think the worst of the housing crisis is over, there are some skeptics who predict that the industry will face further serious challenges.
A new analysis compares the cost of renting to the cost of buying and concludes that they are now close to equal. It also predicts that because of persistent joblessness there will be fewer buyers and more renters in the future.
The study, released Thursday by two think tanks — the Center for Economic and Policy Research (CEPR) and the National Low Income Housing Coalition (NLIHC) — also says current home owners with mortgages will remain underwater for “some time,” increasing the likelihood that foreclosures will continue.
“In communities where foreclosure remains a problem, home owners should be given the opportunity to remain in their homes as renters paying the fair-market rent,” says Dean Baker, Co-Director of CEPR and an author of the study.
