KeNo's Housing and Economic Portal: Thursday January 21 Housing and Economic stories

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TOP STORIES:

Homebuyer Tax Credits Exceptionally Inefficient - (www.bloomberg.com) Tax credits designed to revive the U.S. housing industry are costing taxpayers as much as $80,000 for every additional home sold, according to Michael R. Widner, a Stifel Nicolaus & Co. analyst. The federal program is “an exceptionally inefficient use of tax dollars,” Widner wrote yesterday in a report. He estimated the total cost through last November at $17 billion, “a high price to us for relatively little benefit.” The CHART OF THE DAY shows existing-home sales would have fallen at a 2 percent annual rate in the three months ended in November without the credits, based on his estimates. Instead, the pace rose 28 percent, according to data from the National Association of Realtors. Resales accounted for 92 percent of homes sold during the past 12 months. Widner estimated that 1.83 million new and existing homes were sold to first-time buyers last year through November, and only 303,000 of them changed hands because of the tax benefit. The $80,000 figure reflects his assumption that 30 percent of the added sales would have been made this year, not in 2009. President Barack Obama’s extension and expansion of the program in November will do little to bolster this year’s sales, the analyst wrote yesterday in an e-mail. First-time buyers got another five months, until April 30, to obtain an $8,000 credit. Buyers who owned a home became eligible for a $6,500 credit.

Iceland Won't Pay English Depositor Losses? That makes them TERRORISTS! - (www.patrick.net) Amazing misuse of anti-terror legislation! England used anti-terror laws to freeze the England assets of Icelandic bank Icesave back in October 2008. I’m not making this up: http://www.bloomberg.com/apps/news?pid=20601102&sid=aXjIA5NzyM5c; http://news.bbc.co.uk/2/hi/uk_news/politics/7662027.stm; http://www.independent.co.uk/news/world/europe/who-are-you-calling-terrorists-mr-brown-971471.html. Despite the collapsing economy and a worthless currency, the population of Iceland (about the population of a small city) is forced to pay $5.4 billion i.e. 16,000 dollars per man, woman and child in 14 years. Why ? To pay for the damaged caused by its privately owned finance industry. Lets put the $16,000 per capita in some perspective. After WW1, Germany was told to pay 269 billion Goldmarks in reparation. This was later reduced to 132 billion with the expectation that only 50 billion would be paid (source: http://en.wikipedia.org/wiki/World_War_I_reparations). 132 billion goldmark is equivalent to about $200 billion in todays money. The German population after the war was about 60 million i.e. it was told to pay $3300 per person. And Germany is just in the process of finishing paying this 90 years after WW1. Conclusion: The population of Iceland is told to pay five times as much for comitting the crime of living in a country with a large, high-flying and undercapitalized finance industry than the population of Germany was told to pay for starting the war that killed millions of people and that devastated large parts of Belgium and France.

Commercial Vacancy Rates at Record Heights at 10 Percent - (www.mybudget360.com) With commercial real estate, you can learn a lot from what isn’t happening. We all know that the $3 trillion commercial real estate market is already taking a drubbing in terms of pricing. CRE prices are down over 40 percent from their peak elevated levels. Yet with commercial real estate you don’t have the typical headline grabbing stories of individuals being forced out of their homes in foreclosures. With CRE it is seen as a more calculated business move and those losing their shirts are those who should have known better. Now this is how things should be but the U.S. Treasury and Federal Reserve have already back stopped the entire banking system so implicitly, the failing of any real estate is now a direct burden to all taxpayers. What is not happening is a natural stable demand from the market. Why? Just like the residential market, commercial properties were over built. We have years of excess to work off. That is why I simply don’t buy the notion that we will somehow be back on the run by tweaking a few balance sheet numbers. The problem is many structures are now built and are sitting vacant yet the loans still need servicing. Who is going to pay for it? The U.S. Treasury has already had low key talks about a preemptive bailout for this industry labeled Plan C.

Massive Jump In Emergency Unemployment Compensation Benefits - (Mish at globaleconomicanalysis.blogspot.com) I was intrigued by a post by Zero Hedge asking Is The Government Misrepresenting Unemployment By 32%? "...government spent a record $14.7 billion on Unemployment Insurance Benefits as of December 30, a 24% jump sequentially from the $11.8 billion in November. Yet the DOL has disclosed a mere 1.7% increase in those to whom insurance benefits are paid: from 9.4 million to just under 9.6 million. To put the $14.7 billion number in perspective, in December the Federal Government paid a total of $14 billion ($700 million less) in Federal Salaries! And some more perspective: in calendar 2009 the government has paid $140 billion in Unemployment Insurance Benefits. This is yet another economic stimulus that nobody in the administration discusses, yet which undoubtedly has the biggest impact on the economy, as all those millions unemployed can moderate their pain courtesy of a passable weekly check from the government which should just about cover the rent and beer. Which is why more than anything, Obama is dead set on extending insurance benefit payments in perpetuity: because if the 10 million official and 14 million unofficial people who are on benefits (not to mention the tens of millions of unemployed unlucky enough to even get their weekly allowance from Uncle Sam) start thinking about their true predicament and their real "employability", then a landslide loss by this administration at the mid-term elections will actually be an upside surprise to what it can objectively expect.

Fed May Extend Crap Mortgage Purchases With Counterfeit Money - (www.housingwire.com) The Federal Reserve, in notes from its mid-December meeting, considered extending and expanding government-led initiatives to buy assets from mortgage agencies Fannie Mae, Freddie Mac and Ginnie Mae. The FOMC also confirmed plans to buy $1.25trn of agency mortgage-backed securities (MBS) and $175bn of agency debt by the end of the first quarter, according to minutes released Wednesday. The size of these purchases are being reduced gradually with time, with the aim of preparing private investors to return to the market. Questions abound, however, as to the effect of a potential exit by the government from the mortgage securities market. A few committee members considered the possibility of at some future point providing more policy stimulus through an expanded scale and time line of large-scale asset purchases extending beyond Q1 2010. This scenario, according to the Fed minutes, would be especially applicable in situations where economic growth were to weaken or mortgage market functioning were to deteriorate further. Such a scenario — the so-called double dip — is expected by many in the financial markets, including PIMCO bond chief Bill Gross, who in an interview with TIME Magazine this week said he expects economic growth in the U.S. to weaken in Q3 and Q4 of 2010, “which would basically call for some additional help.”

65% Predict Three Years or More For Housing Market To Recover - (www.rasmussenreports.com) Americans start the new year with a bleak assessment of the housing market’s prospects for recovery. A new Rasmussen Reports national telephone survey finds that just two percent (2%) of adults believe housing prices will recover in the next year. Seventeen percent (17%) predict it will take two years, while 15% are not sure. But 65% think it will be three years or more before housing prices recover. Throughout 2009, the numbers who expected a turnaround in one year ranged from a high of nine percent (9%) in September to a low of five percent (5%) in January and April. Those predicting three years or more was in the equally narrow 57% to 60% range for the entire year. Men are less optimistic than women. Seventy-one percent (71%) of men say it will take three years or more for the housing market to come back, compared to 60% of women. Similarly, 70% of investors think it will be three years or more before the housing market recovers versus 61% of non-investors.