Economic and Market Watch Report

Transcription

1 Economic and Watch Report 2nd Quarter, 2010 *Click on a County to view economic and real estate information at the county and zip code level This product is a collaboration between the MLS Property Information Network, Inc. and the NATIONAL ASSOCIATION OF REALTORS. Listings data are provided by the MLS Property Information Network, Inc., while all statistical calculations, forecasts, analysis, and commentary are provided by the Research Division of the NA TIONAL ASSOCIATION OF REALTORS MLS Property Information Network, Inc. and the NATIONAL ASSOCIATION OF REALTORS Reproduction, reprinting, or retransmission in any form is prohibited without written permission.

2 MLS Property Information Network, Inc. Economic and Watch Report MLS Property Information Network, Inc.,(MLS PIN) is the largest multiple listing service in New England, and provides service to more than 29,000 real estate professionals throughout Massachusetts, as well as parts of Connecticut, New Hampshire, and Rhode Island. MLS PIN offers a comprehensive database of more than 44,000 active listings and one million off-market listings. This database also includes complete statewide assessments, tax and deed transfers. MLS PIN prides itself in its quality customer service and technical support with a professional and experienced staff, evening and weekend support, and complimentary hands-on training at locations throughout the state. We offer state-of-the art technology, which includes our very own in-house products H3MLS and Pinwheel 360 Virtual Tours. It is our goal to connect real estate professionals everyday with our service, technical expertise, credibility, and drive to always offer the best and most up to date services to our customers. Index Local Report Massachusetts Barnstable County... Berkshire County... Bristol County... Essex County... Franklin County... Hampden County... Hampshire County... Middlesex County... Nantucket County... Norfolk County... Plymouth County... Suffolk County... Worcester County... Others Trends... Chief Economist's Commentary*... Economic Monitor* *Reprinted from Real Estate Outlook: Trends and Insights NATIONAL ASSOCIATION OF REALTORS. Used with permission. Reproduction, reprinting, or retransmission of this article in any form (electronic media included) is prohibited without permission. For subscription information please call

3 Buyer's Barnstable County, MA Seller's Labor : In the first two months of the second quarter, 5,570 jobs were added to the payrolls of Barnstable County. As a result of these new jobs, the average monthly unemployment rate fell from 13% during the first quarter to 9.8% for April and May. This steady job creation may help to maintain demand for home purchases. Favorable mortgage rates should support this trend. Housing : Q1' 10 Q2' 10 Q3' 10 $390,900 $388,500 # Homes on the * 1,689 1,886 # ** # New Homes Built Avg # of Days * Available as of Jun. 30, ** May not add to total of zip codes. During the first two months of 2nd quarter. (Forecast) $274, % % % $414,500 N/A 2 N/A % $354, % % % $411, % % % $540, % % % $235, % % % $606, % % % $508, % % % $172,500 N/A 2 N/A % % Change of current quarter compared to the same quarter to year ago. 1

4 Barnstable County, MA $334, % % % $345, % % % $848, % % % $231, % % % $475, % % % $388, % % % $520, % % % $633, % % % $631, % % % $560, % % % $513, % % % $290, % % % $548, % % % $292, % % % $260, % % % $331, % % % $854, % % % $750,000 N/A 1 N/A % $305, % % % $366, % % % $397, % % % $365, % % % $614, % % % $317, % % % $577, % % % $318, % % % $745,400 N/A 1 N/A % $371, % % % $390, % % % $665, % % % $312, % % % $267, % % % $365, % % % OTHER $464, % % % % Change of current quarter compared to the same quarter to year ago. 2

5 Buyer's Berkshire County, MA Seller's Labor : In the first two months of the second quarter, 659 jobs were added to the payrolls of Berkshire County. As a result of these new jobs, the average monthly unemployment rate fell from 10% during the first quarter to 8.9% for April and May. This steady job creation may help to maintain demand for home purchases. Favorable mortgage rates should support this trend. Housing : Q1' 10 Q2' 10 Q3' 10 $356,700 $240,600 # Homes on the * # ** # New Homes Built 2 1 Avg # of Days * Available as of Jun. 30, ** May not add to total of zip codes. During the first two months of 2nd quarter. (Forecast) $115, % % % $181, % % % $188, % % % $232, % % % $389, % % % $147,700 N/A 3 N/A % $280,000 N/A 1 N/A % $165,000 N/A 1 N/A % $224, % % % % Change of current quarter compared to the same quarter to year ago. 3

6 Berkshire County, MA $333, % % % $362, % % % $301, % % % $335,000 N/A 1 N/A % $120,000 N/A 1 N/A % % Change of current quarter compared to the same quarter to year ago. 4

7 Buyer's Bristol County, MA Seller's Labor : In the first two months of the second quarter, 1,972 jobs were added to the payrolls of Bristol County. As a result of these new jobs, the average monthly unemployment rate fell from 13.3% during the first quarter to 11.9% for April and May. This steady job creation may help to maintain demand for home purchases. Favorable mortgage rates should support this trend. Housing : Q1' 10 Q2' 10 Q3' 10 $258,600 $265,000 # Homes on the * 2,532 2,679 # ** # New Homes Built Avg # of Days * Available as of Jun. 30, ** May not add to total of zip codes. During the first two months of 2nd quarter. (Forecast) $349, % % % $459, % % % $399, % % % $289, % % % $254, % % % $297, % % % $268, % % % $229, % % % $269, % % % % Change of current quarter compared to the same quarter to year ago. 5

8 Bristol County, MA $205, % % % $194, % % % $300, % % % $159, % % % $173, % % % $201, % % % $248, % % % $160, % % % $240, % % % $160, % % % $193, % % % $144, % % % $260, % % % $312, % % % $365, % % % $153, % % % $280, % % % $292, % % % $292, % % % $291, % % % $274, % % % $227, % % % $303, % % % $221, % % % $436, % % % OTHER $247,000 N/A 3 N/A % % Change of current quarter compared to the same quarter to year ago. 6

9 Buyer's Essex County, MA Seller's Labor : In the first two months of the second quarter, 1,431 jobs were added to the payrolls of Essex County. As a result of these new jobs, the average monthly unemployment rate fell from 10.4% during the first quarter to 9.7% for April and May. This steady job creation may help to maintain demand for home purchases. Favorable mortgage rates should support this trend. Housing : Q1' 10 Q2' 10 Q3' 10 $389,600 $403,800 # Homes on the * 2,933 3,419 # ** 772 1,446 # New Homes Built Avg # of Days * Available as of Jun. 30, ** May not add to total of zip codes. During the first two months of 2nd quarter. (Forecast) $582, % % % $270, % % % $291, % % % $422, % % % $293, % % % $290, % % % $53,500 N/A 1 N/A % $132, % % % $193, % % % % Change of current quarter compared to the same quarter to year ago. 7

10 Essex County, MA $284, % % % $490, % % % $329, % % % $193, % % % $238, % % % $181, % % % $309, % % % $494, % % % $674, % % % $315, % % % $376, % % % $569, % % % $473, % % % $343, % % % $673, % % % $469, % % % $472, % % % $524, % % % $1,597, % % % $640, % % % $415, % % % $448, % % % $283, % % % $355, % % % $328, % % % $575, % % % $429, % % % $291, % % % $640, % % % $475, % % % $468, % % % $433, % % % % Change of current quarter compared to the same quarter to year ago. 8

11 Buyer's Franklin County, MA Seller's Labor : In the first two months of the second quarter, 317 jobs were added to the payrolls of Franklin County. As a result of these new jobs, the average monthly unemployment rate fell from 9.7% during the first quarter to 8.5% for April and May. This steady job creation may help to maintain demand for home purchases. Favorable mortgage rates should support this trend. Housing : Q1' 10 Q2' 10 Q3' 10 $181,600 $198,400 # Homes on the * # ** # New Homes Built 3 6 Avg # of Days * Available as of Jun. 30, ** May not add to total of zip codes. During the first two months of 2nd quarter. (Forecast) $300, % % % $238, % % % $238, % % % $183, % % % $303, % % % $214, % % % $188,000 N/A 2 N/A % $147, % % % $150, % % % % Change of current quarter compared to the same quarter to year ago. 9

12 Franklin County, MA $268, % % % $165, % % % $150, % % % $145, % % % $139, % % % $206, % % % $170, % % % $170,200 N/A 7 N/A % $223, % % % $127, % % % $215,000 N/A 1 N/A % $239, % % % $298, % % % $377, % % % $158, % % % $158,900 N/A 2 N/A % $96,300 N/A 3 N/A % % Change of current quarter compared to the same quarter to year ago. 10

13 Buyer's Hampden County, MA Seller's Labor : In the first two months of the second quarter, 823 jobs were added to the payrolls of Hampden County. As a result of these new jobs, the average monthly unemployment rate fell from 12% during the first quarter to 10.9% for April and May. This steady job creation may help to maintain demand for home purchases. Favorable mortgage rates should support this trend. Housing : Q1' 10 Q2' 10 Q3' 10 $185,000 $193,800 # Homes on the * 2,115 2,281 # ** # New Homes Built Avg # of Days * Available as of Jun. 30, ** May not add to total of zip codes. During the first two months of 2nd quarter. (Forecast) $210, % % % $315, % % % $235, % % % $172, % % % $166, % % % $180, % % % $135,900 N/A 1 N/A % $272, % % % $268, % % % % Change of current quarter compared to the same quarter to year ago. 11

14 Hampden County, MA $245, % % % $229, % % % $164, % % % $205, % % % $201, % % % $175, % % % $227, % % % $255, % % % $115,000 N/A 1 N/A % $141, % % % $195,400 N/A 5 N/A % $221, % % % $216, % % % $280, % % % $132,000 N/A 1 N/A % $106, % % % $109,700 N/A 4 N/A % $329, % % % $121, % % % $129, % % % $92, % % % $152, % % % $141, % % % $153, % % % $176, % % % $119, % % % $169, % % % OTHER $345, % % % % Change of current quarter compared to the same quarter to year ago. 12

15 Buyer's Hampshire County, MA Seller's Labor : In the first two months of the second quarter, 1,113 jobs were added to the payrolls of Hampshire County. As a result of these new jobs, the average monthly unemployment rate fell from 7.6% during the first quarter to 7% for April and May. This steady job creation may help to maintain demand for home purchases. Favorable mortgage rates should support this trend. Housing : Q1' 10 Q2' 10 Q3' 10 $270,100 $270,500 # Homes on the * # ** # New Homes Built 12 8 Avg # of Days * Available as of Jun. 30, ** May not add to total of zip codes. During the first two months of 2nd quarter. (Forecast) $353, % % % $249, % % % $406, % % % $360, % % % $243, % % % $167, % % % $231, % % % $383, % % % $402, % % % % Change of current quarter compared to the same quarter to year ago. 13

16 Hampshire County, MA $310,800 N/A 4 N/A % $163, % % % $365, % % % $319, % % % $281, % % % $282, % % % $246, % % % $212, % % % $336,300 N/A 2 N/A % $237, % % % $123, % % % $137, % % % % Change of current quarter compared to the same quarter to year ago. 14

17 Buyer's Middlesex County, MA Seller's Labor : In the first two months of the second quarter, 4,201 jobs were added to the payrolls of Middlesex County. As a result of these new jobs, the average monthly unemployment rate fell from 7.9% during the first quarter to 7.5% for April and May. This steady job creation may help to maintain demand for home purchases. Favorable mortgage rates should support this trend. Housing : Q1' 10 Q2' 10 Q3' 10 $459,500 $507,300 # Homes on the * 4,787 5,278 # ** 1,328 2,868 # New Homes Built Avg # of Days * Available as of Jun. 30, ** May not add to total of zip codes. During the first two months of 2nd quarter. (Forecast) $197, % % % $332, % % % $453, % % % $441, % % % $318, % % % $283, % % % $237, % % % $228, % % % $338, % % % % Change of current quarter compared to the same quarter to year ago. 15

18 Middlesex County, MA $324, % % % $475, % % % $560, % % % $371, % % % $629, % % % $691, % % % $868, % % % $467, % % % $532, % % % $319, % % % $310, % % % $323, % % % $439, % % % $751, % % % $1,245, % % % $445, % % % $688, % % % $674, % % % $372, % % % $420, % % % $314, % % % $372, % % % $294, % % % $410, % % % $148, % % % $184, % % % $208, % % % $236, % % % $342, % % % $318, % % % $553, % % % $450, % % % $326, % % % $379, % % % $387, % % % $458, % % % % Change of current quarter compared to the same quarter to year ago. 16

19 Middlesex County, MA $373, % % % $792, % % % $1,523, % % % $626, % % % $936, % % % $433, % % % $428, % % % $662, % % % $448, % % % $285, % % % $246, % % % $377, % % % $431, % % % $403, % % % $917, % % % $824, % % % $405, % % % $477, % % % $436, % % % $410, % % % $716, % % % $826, % % % $666, % % % $786, % % % $878, % % % $779, % % % $773, % % % $786, % % % $1,710, % % % $1,036, % % % $501, % % % $464, % % % $597, % % % $738, % % % $1,419, % % % OTHER $381, % % % % Change of current quarter compared to the same quarter to year ago. 17

20 Buyer's Nantucket County, MA Seller's Labor : In the first two months of the second quarter, 1,290 jobs were added to the payrolls of Nantucket County. As a result of these new jobs, the average monthly unemployment rate fell from 16.3% during the first quarter to 9.1% for April and May. This steady job creation may help to maintain demand for home purchases. Favorable mortgage rates should support this trend. Housing : Q1' 10 Q2' 10 Q3' 10 NA $1,175,000 # Homes on the * NA 2 # ** NA 1 # New Homes Built NA 7 Avg # of Days NA 144 * Available as of Jun. 30, ** May not add to total of zip codes. During the first two months of 2nd quarter. (Forecast) $1,175, % % % % Change of current quarter compared to the same quarter to year ago. 18

21 Buyer's Norfolk County, MA Seller's Labor : In the first two months of the second quarter, 1,919 jobs were added to the payrolls of Norfolk County. As a result of these new jobs, the average monthly unemployment rate fell from 8.5% during the first quarter to 8.2% for April and May. This steady job creation may help to maintain demand for home purchases. Favorable mortgage rates should support this trend. Housing : Q1' 10 Q2' 10 Q3' 10 $470,600 $520,700 # Homes on the * 2,850 3,101 # ** 772 1,537 # New Homes Built Avg # of Days * Available as of Jun. 30, ** May not add to total of zip codes. During the first two months of 2nd quarter. (Forecast) $293, % % % $522, % % % $776, % % % $357, % % % $1,063, % % % $398, % % % $385, % % % $406, % % % $610, % % % % Change of current quarter compared to the same quarter to year ago. 19

22 Norfolk County, MA $391, % % % $344, % % % $440, % % % $392, % % % $418, % % % $380, % % % $298, % % % $439, % % % $607, % % % $442, % % % $304, % % % $353, % % % $362, % % % $371, % % % $565, % % % $312, % % % $295, % % % $341, % % % $273, % % % $271, % % % $230, % % % $250, % % % $1,505, % % % $1,370, % % % $1,124, % % % $1,177, % % % $857, % % % $620, % % % $376, % % % OTHER $941, % % % % Change of current quarter compared to the same quarter to year ago. 20

23 Buyer's Plymouth County, MA Seller's Labor : In the first two months of the second quarter, 2,318 jobs were added to the payrolls of Plymouth County. As a result of these new jobs, the average monthly unemployment rate fell from 10.7% during the first quarter to 9.7% for April and May. This steady job creation may help to maintain demand for home purchases. Favorable mortgage rates should support this trend. Housing : Q1' 10 Q2' 10 Q3' 10 $333,500 $346,100 # Homes on the * 3,162 3,679 # ** 665 1,204 # New Homes Built Avg # of Days * Available as of Jun. 30, ** May not add to total of zip codes. During the first two months of 2nd quarter. (Forecast) $816, % % % $413, % % % $416, % % % $587, % % % $484, % % % $188, % % % $173, % % % $312, % % % $263, % % % % Change of current quarter compared to the same quarter to year ago. 21

24 Plymouth County, MA $567, % % % $264, % % % $265, % % % $509, % % % $294, % % % $243, % % % $283, % % % $181,000 N/A 1 N/A % $302, % % % $321, % % % $330, % % % $354, % % % $245, % % % $281, % % % $283, % % % $259, % % % $205, % % % $300, % % % $197, % % % $230, % % % $624, % % % $397, % % % $328, % % % OTHER $249, % % % % Change of current quarter compared to the same quarter to year ago. 22

25 Buyer's Suffolk County, MA Seller's Labor : In the first two months of the second quarter, 1,952 jobs were added to the payrolls of Suffolk County. As a result of these new jobs, the average monthly unemployment rate fell from 8.9% during the first quarter to 8.6% for April and May. This steady job creation may help to maintain demand for home purchases. Favorable mortgage rates should support this trend. Housing : Q1' 10 Q2' 10 Q3' 10 $342,400 $489,100 # Homes on the * # ** # New Homes Built 6 2 Avg # of Days * Available as of Jun. 30, ** May not add to total of zip codes. During the first two months of 2nd quarter. (Forecast) $2,836, % % % $2,037, % % % $2,150,000 N/A 1 N/A % $1,857, % % % $1,829, % % % $205, % % % $373, % % % $212, % % % $271, % % % % Change of current quarter compared to the same quarter to year ago. 23

26 Suffolk County, MA $288, % % % $307, % % % $201, % % % $368, % % % $221, % % % $777, % % % $617, % % % $339, % % % $452, % % % $580, % % % $467, % % % $289, % % % $218, % % % $239, % % % $322, % % % OTHER $1,075,000 N/A 1 N/A % % Change of current quarter compared to the same quarter to year ago. 24

27 Buyer's Worcester County, MA Seller's Labor : In the first two months of the second quarter, 308 jobs were added to the payrolls of Worcester County. As a result of these new jobs, the average monthly unemployment rate fell from 10.7% during the first quarter to 10% for April and May. This steady job creation may help to maintain demand for home purchases. Favorable mortgage rates should support this trend. Housing : Q1' 10 Q2' 10 Q3' 10 $237,800 $271,100 # Homes on the * 4,632 5,101 # ** 979 1,704 # New Homes Built Avg # of Days * Available as of Jun. 30, ** May not add to total of zip codes. During the first two months of 2nd quarter. (Forecast) $186, % % % $397, % % % $248, % % % $116, % % % $94, % % % $260, % % % $353, % % % $148, % % % $216, % % % % Change of current quarter compared to the same quarter to year ago. 25

28 Worcester County, MA $210, % % % $156, % % % $533, % % % $226, % % % $226, % % % $261, % % % $192, % % % $206, % % % $158, % % % $231, % % % $348, % % % $276, % % % $356, % % % $196, % % % $266, % % % $268, % % % $302, % % % $259, % % % $190,000 N/A 1 N/A % $377,200 N/A 6 N/A % $355, % % % $288, % % % $202, % % % $296, % % % $273, % % % $229, % % % $287, % % % $202, % % % $405, % % % $335, % % % $153, % % % $422, % % % $188,500 N/A 2 N/A % $212, % % % $343, % % % $205, % % % % Change of current quarter compared to the same quarter to year ago. 26

29 Worcester County, MA $263, % % % $429, % % % $162, % % % $396, % % % $216, % % % $296, % % % $281, % % % $399, % % % $293, % % % $200, % % % $231, % % % $438, % % % $247, % % % $155, % % % $274, % % % $325, % % % $199, % % % $155, % % % $164, % % % $188, % % % $206, % % % $179, % % % $312, % % % $92, % % % $116, % % % $275, % % % $560, % % % $263, % % % $303, % % % $291, % % % $644, % % % OTHER $159, % % % % Change of current quarter compared to the same quarter to year ago. 27

30 Others $675,000 N/A 1 N/A % $742,500 N/A 2 N/A % $413, % % % $439, % % % $400,000 N/A 1 N/A % % Change of current quarter compared to the same quarter to year ago. 28

31 Trends Squeezing Every Sale from the Tax Credit By Ken Fears Manager, Regional Economics By most accounts the Federal tax credit succeeded at what it was intended to do; stop the precipitous decline in home prices. But not all would be homebuyers are celebrating. Short sales continue to take longer than other properties to close and some contracts could fall through as a result of delays. Home Sales Drag the Median Price Upward 12 M onth Ch ange in Home Sales (R ed) and Median Price (Blue) 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 10.0% 20.0% 2004 Ja n 2004 Apr 2004 Jul 2004 O ct 2005 Ja n 2005 A pr 2005 Jul 2005 Oct 2006 Jan 2006 A pr 2006 Jul 2006 O ct 2007 Ja n 2007 Ap r 2007 Ju l 2007 Oct 2008 Ja n 2008 A pr 2008 Jul 2008 Oct 2009 Ja n 2009 Apr 2009 Jul 2009 O ct 2010 Ja n 2010 Apr 30.0% Nationally, there was a 5.1% decline in home sales from May to June, but the 2010 sales volume remains much higher than it was in Home sales were 9.8% higher in June of this year compared with the level 12 months earlier. Here in the area covered by the MLS Property Informatin Network there were 24.5% more home sales in the second quarter of 2010 than during the same period in This upward trajectory for sales has provided the basis for the confidence necessary to stimulate modest price growth in many markets around the country. The national median home prices was 1.0% higher in June than 12 months earlier, while locally there was a 9.3% increase in the average home price over the four quarters ending in June. This price growth in turn has helped to stabilized the credit markets and abate the flow of foreclosures from resetting loans. Not all home sales have gone smoothly, though. Many Realtors report problems closing short sales. Anecdotal information suggests that banks are under staffed. In addition, new Federal programs and requirements add to the litany of paperwork required to complete one of these transactions. In early May, just after the deadline for the home buyer tax credit, the NAR began a campaign to have Congress extend the time frame for homebuyers to complete their home sale and receive the tax credit, so long as they were under contract on April 30 th. Near midnight on June 30th, Congress passed a stand alone bill to extend this closing period. Such quick action is a true feat in Washington. Here in the area covered by the MLS Property Informatin Network the time to close after a contract was signed increased over the 4 quarter period ending in June by 2.4% suggesting that banks are having trouble closing deals in this area. A tally of homes showed that 1,110 homes went under contract on or before April 30th, but had not closed as of July 1st. All of these home buyers will benefit from the extension. The tax credit clearly had positive effects for the national and most local markets. Congress ex tension of the closing data will sprinkle home sales over the subsequent three months, helping to smooth the decline from the tax incentive fueled period. Sales are likely to remain lower than during the credit period, but mortgage rates continue to skim along all time lows and sellers desperate to move before autumn will make price adjustments. The result may be modest and localized price adjustments, but steadier sales as employment slowly begins to recover. 29

32 Gearing up for the fight by Lawrence Yun, NAR Chief Economist Commentary3 It hasn t been a pretty sight in the first month without the tax credit. Pending sales for existing homes fell 30 percent in May. New home sales (which measures contracts and not closings) fell by 33 percent to its lowest level in nearly 50 years. Single-family housing starts also took a dip in Ma y, falling 17 percent. The big declines should have been expected because consumers are rational when making purchase decisions and they respond to incentives. Why sign a contract in May when doing so in April will result in an $8,000 check? Going forward, contract signings for June and July could also remain similarly weak. However, even with these short-term setbacks the overall tax credit stimulus can only be called a success in terms having stabilized home prices. Stable home values lessen foreclosure pressure, improve bank balance sheets, and most importantly, help steadily revive consumer confidence about a home purchase. Currently there are signs of home price stabilization in nearly every market. Prices are, surprisingly, rising at a double digit pace in San Francisco and San Diego. Be mindful, however, that low sales activity over the short-term will cause housing inventory to rise, and the months supply of homes available for sale could reach 10 months or higher. Provided such elevated inventory will only be for the short-term and not prolonged, then home prices will not undergo heavy pressure to fall. Experience shows, unlike sales, prices are far less immune to big month-to-month fluctuations. The key test of a sustainable long-term recovery, without the stimulus medicine, will only start to show in the next several months. For this to happen, we need job growth. Not the artificial temporary Census jobs, but true private sector jobs. The net private sector jobs, expanded so far this year to June, were at 593,000. This is relatively small potatoes after the 8 million job cuts in the past two years, but it is nonetheless a start of an expansion. And the latest report from the Bureau of Labor Statistics shows that in June the economy lost jobs for the first time this year. Those temporary Census job additions are over, and state and local governments also cut payrolls. Businesses did add 83,000 payrolls, and surprisingly the unemployment rate declined. Expect one million job additions for the balance of the year and another 1.5 to 2.2 million in Mortgage rates also need to remain favorable. Because of the uncertainty regarding the strength of overall economic expansion and of uncertainty regarding the future of the Euro, many investors have put money into the safe U.S. Treasury bond market. That has pushed down the 10-year Treasury yield to 3 percent as of this writing. The 30-year fixed rate mortgage then can be at around 4.8 percent. That is super favorable for consumers. While jobs expand and rates remain low (fingers crossed), we need to assure that any unnecessary barrier to market recovery be taken down. One of these barriers was the lack of flood insurance. Because the private market has difficulty in providing national flood insurance, the federal government has been involved in the program. This is not a new or simulative federal program, but simply an old program that has been in existence for many decades. Nearly seven percent of all owner-occupied homes require flood insurance in the country. The figures are as high as one-third of all homes in Louisiana and Florida (which as we know are also now being negatively impacted from the oil spills). Without flood insurance, a homebuyer cannot obtain a mortgage. Fortunately, lawmakers listened and understood the damaging impact and a bill to reauthorize flood insurance passed with a strong majority. Another barrier to recovery could have been the psychologically demoralizing impact of not getting the tax credit among those homebuyers who signed their contracts in April and earlier. They responded to government stimulus, yet they were unable to receive the benefit - through no fault of their own. Many homes require a short sale approval from a bank. However, this process is far from being short; it often takes several months and is can be very messy. As a result many home purchases were not able to close by the June 30th deadline. Fortunately, Congress passed legislation on the very last day - June 30th- to extend the closing deadline to September 30th. It is estimated that up to 180,000 homes that were under contract could have fallen out had the extension not occurred. 30

33 Commentary The flood insurance and tax credit deadlines were short-term barriers and they were removed. But another much higher barrier to recovery which could arise is the elimination or a reduction in the mortgage interest deduction (MID). There has been increased chatter among opinion makers about the need to eliminate or trim this deduction, particularly in light of a very high U.S. budget deficit. In addition, after witnessing an unprecedented rise in foreclosures, some commentators are attacking the essence and societal value of homeownership, implying that housing should not get favored tax treatment. As we have painfully learned from the recent housing market debacle, people who are not yet financially qualified should not become home owners, period. However, to blame the housing market collapse in any way or in any part on the mortgage interest deduction is equivalent to suggesting we need to completely scrap the free market system because of the banking crisis. Remember, mortgage interest deductions have been in place for many decades without bringing volatile swings to the housing market. Perhaps we should turn our attention to what was new in the recent unprecedented housing cycle; namely, the very lax mortgage underwriting standards and faulty work of credit rating agencies. If we were to rewrite the tax code beginning with a blank slate, perhaps, a full discussion on the benefits and costs of having MID should take place. But the country is not starting from scratch and we have to contend with history. The mortgage interest deduction has been part of the U.S. tax code since the inception of the income tax nearly a century ago, when the U.S. income tax code came into existence. Under 17 U.S. Presidents and their administrations, hundreds of millions Americans have purchased their homes with the understanding of this important tax break. As a result, many hard-working, tax-paying citizens have been able to realize one of the sacred tenets of the American Dream of owning a piece of America. Homeowners, aside from paying about 80 to 90 percent of all federal income tax, have been an important stabilizing force in the country as they are rooted in the community and the country. Homeowners are already taking on a massive burden of taxation, and to say they need to be taxed more is simply unjustified. In my view, to eliminate or change the mortgage interest deduction a long-running, settled portion of the U.S. tax code would be to change the rules in the middle of a game. It would result in a massive, unexpected redistribution of wealth in the country. While in any particular year only about one-third of taxpayers itemize, most homeowners have resorted to claiming the mortgage interest deduction at some point in their homeownership life. In the most recently available data from IRS tax returns, 63 percent of the families who claim the mortgage interest deduction earn between $50,000 and $200,000 per year. That is only small part of the story, however. Because of the capitalization impact of the expected stream of future mortgage interest deductions, a removal of the mortgage interest deduction will lead to home values falling by 15 percent, equating to a destruction of housing wealth equivalent to $2.5 trillion. That wealth destruction will be felt by all homeowners, including those who purchased homes with cash and those who have fully paid off their mortgages. Even in today s economy that is a lot of dough. Because the mortgage interest deduction has been around for generations and generations, any changes may lead people to doubt about what is settled and what is not? Does a change mean future capricious changes to other well understood contracts? For example, will future opinion makers start mentioning the need to tax ROTH IRA earnings in retirement for those who are able to pay (i.e., the rich) to help reduce future budget deficits? Even though the ROTH IRA was created with expressed purpose of providing tax free earnings (since this retirement contribution is made with after-tax dollars)? A final and very important aspect to consider in the debate about the mortgage interest deduction is positive societal externalities. Academic studies have demonstrated the positive social benefits of ownership, including lower juvenile delinquency rates, lower teen pregnancy rates, and higher student achievement levels among children of homeowners versus those of non-owners who were of similar socioeconomic background. Yes, homeownership is not for everyone. However, for those who are financially qualified, have demonstrated financial responsibility, and are willing to purchase a home that is well within their budget, tilting the field in favor of ownership through the mortgage interest deduction as America has done for the past century can induce immeasurable societal benefits beyond the counting of the dollars. The fight over this well established tax benefit is coming. Be ready. 31

34 Economic Monitor This table reflects data available through July 2, Monthly Indicator Existing Home Sales remained at elevated levels in May, although they declined from the previous month. Resales posted a seasonally adjusted annual rate of 5.66 million units in May 2.2% of f April s upwardly revised pace of 5.79 million units. May resales were 19.2% ahead of a year ago. The national median price for an existing home rose to $179, % higher than in May of New Home Sales declined significantly in May to a seasonally adjusted annual rate of 300,000 units 32.7% off April s rate and 18.3% down from the level in May of The inventory of new homes available for sale at the end of May stood at 213,000 units an 8-month supply at the current sales pace. Housing Starts also declined in May, posting a seasonally adjusted annual rate of 593,000 units 10.0% off April s level, but 7.8% ahead of that in May of Building permits generally a reliable indicator of future starts were down 5.9% from April, but up 4.4% from a year ago. Housing Affordability continued to dip, while remaining at healthy levels. NAR s Housing Affordability Index posted a reading of in May, off April s reading of but comparable to that in June of Increases in the median price of an existing home as well as an increase in the level of qualifying income helped contribute to the decline. Mortgage Rates remain at historically low levels. The average rate on a 30 year fixed rate mortgage dropped 15 basis points in June from last month to 4.74% -- its lowest level since April of 1971 when Freddie Mac started its Primary Mortgage survey. Employment The U.S. economy lost 125,000 jobs in June the first job loss this year so far. Temporary Census jobs and cuts in state and local government payrolls contributed to the negative numbers. On the positive side, businesses did hire an additional 83,000 workers, and the federal government added 27,000 (non-census) jobs. To many analysts surprise, the unemployment rate actually fell from 9.7% in May to 9.5% in June, due primarily to discouraged workers who are no longer looking for jobs. Economic Growth The economy grew at 2.7% annual rate in the first quarter of This is the third and final estimate of GDP growth based on more complete data. GDP increased 5.6% in the fourth quarter of last year. Increased personal consumption expenditures i.e., consumer spending was offset by larger than previously estimated decline in state and local government spending. Recent Statistics May 10 5,660 April 10 5,790 May 09 4,750 May April May May April May May April May June % May % June % June May month total: :I +2.7% 2009:IV +5.6% 2009:I -6.4% Likely Direction Over the Next Six Months Forecast Weak in the short term after the tax credit and a steady climb later Buyers of new homes are less influenced by the tax credit High existing home inventory but very low new home inventory To remain at historic highs Any downward drift is short-term and is pure bonus Good revival signs in the manufacturing sector Steady moderate uneventful expansion Notes: All rate are seasonally adjusted. New home sales, existing home sales, and housing starts are shown in thousands. Employment growth is shown as month-to-month change in thousands. Inflation is shown as the month-to-month change in the Consumer Price Index. Sources: NAR, Bureau of the Census, Bureau of Labor Statistics, Freddie Mac, and the Mortgage Bankers Association. 32