First-time home buyers will now be eligible for the tax credit if they sign a contract by April 30, 2010, and settle on their home no later than June 30. Likewise, move-up/repeat home buyers (existing home owners) who have lived in their primary residence for five of the last eight years will now be eligible for a tax credit of up to $6,500.

The tax credits are expected to boost new and existing home sales by180,000, including sales of about 40,000 new homes and 26,000 sales vacant homes. These sales are also expected to generate more than 200,000 new jobs, primarily in residential construction and related fields but also through the jobs created by the ripple effect of the new construction jobs and the additional spending power of the tax credit recipients. While the boost will be temporary, this is just the medicine that housing needs at present.

In addition, other segments of the economy are beginning to show signs of improvement.

The Commerce Department’s Bureau of Economic Analysis reported in its advanced estimate that real (inflation-adjusted) gross domestic product (GDP) for the third quarter rose by 3.5% at a seasonally adjusted annual rate after four consecutive quarters of decline. In addition, industrial production advanced for three months, from July through September, pushing up capacity utilization.

While the nascent recovery is gaining some footing, the economy is still losing jobs — 190,000 in October as the national unemployment rose to 10.2% for the month — up from 9.8% in September. 

The construction unemployment rate, which includes residential and commercial construction, increased to 18.7% in October, up from 17.1% the month before. This included a drop in residential construction employment of 15,000.

However, the drop in residential construction employment may not fully reflect residential construction activity spurred by the first-time home buyer tax credit. In our view, when residential construction slowed markedly in 2006, many building firms shifted from residential projects to nonresidential projects without properly reporting the change in classification to the Bureau of Labor Statistics (BLS). Consequently, because those firms were building, the loss in residential construction employment did not appear to totally reflect that slowdown.

Conversely, now that residential construction is showing some improvement with nonresidential construction still in decline, many of the steep job losses from nonresidential construction that are occurring may still classified and reported to the BLS as residential construction losses, inflating those figures. 

There is a little positive news that can be eked out of the overall employment report. Total job losses in October were the smallest recorded since August 2008. In addition, September job figures indicated an increase in the hiring of temporary employees.

Temporary workers are often hired during the early stages of a recovery because, even though business is improving and employers have to hire more people to meet increased demand, they are reluctant to hire permanent, full-time employees until the demand and recovery grow stronger.

The home buyer tax credit will help the housing industry bridge the gap of uncertainty about the recovery path — which promises to be a very long road. It may help calm some of the fear that is keeping many consumers on the sidelines and will help stabilize house prices, which, together with a recovering economy, will help stem the tide of foreclosures.
 

The Federal Reserve’s October Senior Loan Officer Opinion Survey on Bank Lending Practices revealed that the majority of banks are continuing to tighten lending standards for mortgages, as they have every quarter for the last four years.

However, the tightening is significantly below its peak in July 2008. Most banks this quarter reported that they neither tightened nor loosened their standards, those that tightened them reported raising their standards only somewhat and one bank reported that it had loosened its standard for issuing prime mortgages somewhat.

Conditions for builders and developers have continued to tighten in the markets for loans to acquire and develop land and to construct homes — the AD&C credit markets. Not only have they found it increasingly difficult to obtain these loans, in many cases they have faced reductions in lines of credit, demands for increased equity for outstanding loans and, in some cases, demands for full repayment of outstanding loans. In many instances, these increased requirements transformed a performing loan into a non-performing loan.

Nearly three-quarters of the builders surveyed on the state of AD&C lending indicated that obtaining financing for land acquisition and land development was more difficult in the third quarter this year than it was the previous quarter.

Similarly, a high percentage of respondents said that it was more difficult to obtain loans for construction of multifamily projects. For single-family construction, builders generally reported that the financing construction was not quite as difficult it was for multifamily builders, with 57% reporting they had greater difficulty obtaining loans.

Faulty appraisals — appraisals that don’t properly account for foreclosures, short sales or dissimilar neighborhoods — also are hindering the housing recovery. One-third of builders responding to an NAHB survey indicated that they lost sales to low appraisals and 63% said they had appraisals coming in below their sales prices.

While only 10% of builders reported that the sale of foreclosed homes had no impact on their sales, 47% said they were somewhat impacted and 35% said they were significantly impacted by them. Many of these foreclosures are concentrated in the formerly hot markets in California, Las Vegas, Phoenix and South Florida and in the economically distressed markets, primarily the Great Lakes region of the Upper Midwest. Foreclosures are expected to continue to rise, especially in these areas, through early 2010. [return to top]
 

While single-family home construction was up 2.4% in September from the month before, production was down 47.6% from September 2008.

Multifamily construction, which faces stiff competition from the single-family market and significant obstacles to obtaining financing, decreased 4.1% in September from August. Compared to September 2008, construction was down 28.9%. [return to top]
 

The number of units for rent that are vacant year-round rose from just under 4 million units in third quarter 2008 to 4.6 million units in third quarter 2009. These figures include apartments and single-family homes for rent. The glut undoubtedly includes for-sale units that could not sell and were eventually placed in the rental market — creating more pressure for the market. [return to top]
 

The webcast fee includes access to the webcast archive and electronic copies of the conference handout and presentation materials. Multiple viewers in one office can purchase the webcast for one fee.

The on-demand webcast also gives viewers complete flexibility in their viewing experience — pause, skip forward and backward, or jump directly to your topics of interest. The webcast is available for $250.

To view the webcast schedule, topics of discussion and a list of the presenters, click here.

To purchase and download the webcast, click here. [return to top]
 

Subscribe and get downloadable Excel tables that feature the housing starts forecast, gross domestic product (GDP), demographics and more. 

To learn more, visit www.housingeconomics.com. [return to top]