Beware the $7,500 'tax credit'
The housing rescue credit may prod some new homebuyers. But the money must be repaid, and the program probably won't be enough to jump start housing market.
NEW YORK (CNNMoney.com) -- Washington policy makers and housing industry insiders hope a new tax credit for first-time home buyers will get the moribund housing market moving again.
But most analysts agree that the program is more of a band-aid than a cure-all for the battered real estate market. What's more, others are quick to point out that the credit must be repaid, which means it's actually an interest-free loan that could get some homeowners in trouble.
"It's one of those things that are more complicated than it seems at first blush, said Allen Fishbein, director of housing and credit policy for the Consumer Federation of America. "Consumers have to make sure they understand the credit thoroughly.
The $7,500 credit is for people buying their first homes, and was passed as part of the Housing and Economic Recovery Act of 2008 and signed into law in July. To qualify for the full $7,500, individuals must earn less than $75,000 annually, while couples may earn up to $150,000. Individual buyers with income of up to $95,000 and couples with income up to $170,000 are eligible for a partial credit.
The Senate Finance Committee estimates that about 1.6 million people will use the credit.
The housing industry pushed for the program. "Breaking the log jam of unsold homes is something we are very much behind," said Richard Dugas, president of builder Pulte Homes, at a news conference to discuss the program. First time home buyers represented about 20% of the market for new homes in 2007.
Realtors are also behind the credit. "[It] will help chip away at inventory levels, stabilize prices and spur [sales] activity," said Richard A. Smith, CEO of Realogy, the parent company of both Coldwell Banker and Century 21.
The industry has had success with tax credits in the past. In 1975, Congress passed a $2,000 credit for home buyers (about $8,200 in today's dollars).
"Buyers flocked to market and cleared out a then-record inventory of homes," said NAHB president Sandy Dunn. But that credit did not have to be repaid.
And the impact should extend beyond first time home buyers, according to Lawrence Yun, chief economist for the National Association of Realtors. A boost in demand for starter homes means that those sellers will be able to trade up to bigger, more expensive places, and so on up the chain.
How it works
Buyers who have not owned a home in the past three years can take a tax credit worth 10% of a home's sale price, up to $7,500, whichever is smaller.
The credit is good for homes closed on after April 9, 2008 and before July 1, 2009, and can be taken on taxes filed during 2008 or 2009. Even buyers who bought a home before the bill passed, but after April 9, can claim the credit.
Unlike tax deductions, which only offset taxes by lowering taxable income, the tax credit is a straight dollar-for-dollar deduction of your tax bill. So a buyer who would ordinarily pay $8,000 in taxes would pay just $500.
It's also "refundable," which means if a buyer's taxes are less than $7,500, the government will send them a check for the difference. For example, if a couple's income generates a tax bill of $5,000, the government will refund all of that plus $2,500.
Buyers must start paying back the loan within two years, at a rate of no more than $500 a year for 15 years. When the the home is sold, any outstanding balance will be repaid from the profit; if it's sold at a loss and the difference will be forgiven.
And some argue that mortgage lenders will take the credit into consideration, making it easier for buyers to get a loan.
"[The $7,500 reserve] will make borrowers less likely to fall into default," said Ken Goldstein, an economist with the Conference Board, since it gives them a nest egg should they run into trouble. Still, that assumes that buyers will sock the $7,500 away rather than spend it.
No cure
Indeed, the credit comes with plenty of caveats from economists and industry analysts.
"It's not going to provide first-time home buyers with cash up front," said the Consumer Federation of America's Allen Fishbein. "You have to apply to get the credit after the fact. There's a delay before you get the financial advantage."
And there are concerns that borrowers may treat the credit as a windfall, spending it as if it doesn't have to be repaid.
"It may appear to be free money," said Fishbein. "Consumers have to have their eyes open about how this works."
Other economists caution that while the credit may be helpful, it's hardly a solution to the crisis.
"It will not turn things around," said Jared Bernstein, an economist with the Economic Policy Institute. "Given the economy, it will only push a precious few first-time home buyers over the edge right now."
Plummeting home prices will blunt any impact that the credit may have, according to Nicholas Retsinas, director of the Harvard University's Joint Center for Housing Studies. As far as he's concerned, the market is simply too soft right now for a modest measure like this to make a big difference.
"The challenge right now is as much willingness to buy as affordability," he said. "The market still has this psychological barrier because people think prices will be lower tomorrow. I don't think this can overcome that barrier."
http://money.cnn.com/2008/08/15/real_estate/buyers_tax_credit/index.htm?postversion=2008081811&eref=yahoo

Housing starts dip to lowest level since March '91
By CHRISTOPHER S. RUGABER, AP Business Writer 1 hour, 16 minutes ago
WASHINGTON - Construction of homes and apartments fell in July to the lowest level in more than 17 years, the government reported Tuesday.
The Commerce Department said that builders broke ground on 965,000 housing units on an annualized basis. That was down from a pace of 1.08 million in June and the weakest showing since March 1991.
However, July's performance was better than analysts expected. Wall Street economists forecast that housing starts would drop to a pace of 950,000.
Still, the latest housing figures continue to show a badly battered housing market, one of the biggest problems plaguing the already shaky national economy.
The report showed that construction of single-family homes in July fell by 2.9 percent from the previous month to a pace of 641,000. That was the lowest since January 1991, when the economy also was in distress.
New home construction last month was down a sharp 39.2 percent compared with July 2007, illustrating how much ground the housing market has lost in the past year.
Construction of apartments and other multifamily dwellings also fell sharply in July, after a large jump in the previous month due to a change in New York City's building codes. That change, which went into effect July 1, gave a rare lift to overall housing construction in June.
Housing permits in July fell to a rate of 937,000, a 17.7 percent drop from June, but still above analysts' expectations of 925,000. Permits are considered a reliable sign of future activity.
Homebuilders are hoping the housing rescue package approved by Congress last month will boost the dismal real estate sector. The law includes a temporary $7,500 tax credit for first-time homebuyers that essentially works out to a 15-year, interest-free loan.
The National Association of Home Builders/Wells Fargo housing market index, released Monday, remained at a record low of 16 in August for the second consecutive month. Readings below 50 indicate negative sentiment about the market.
But one measure of longer-term sentiment improved slightly: a measure of builders' sales expectations in six months rose two points to 25.
Still, homebuilder Toll Brothers Inc. reported dismal quarterly results last week when its revenue fell 34 percent and its order backlog plunged 52 percent.
Shares of several homebuilders, including Toll Brothers, D.R. Horton Inc. and Pulte Homes Inc., dropped Monday, partly due to renewed fears about the financial health of mortgage giants Fannie Mae and Freddie Mac.
http://news.yahoo.com/s/ap/20080819/ap_on_bi_go_ec_fi/housing_starts_8;_ylt=AmwruSrUYUV2AbqkBUgbCkNv24cA

Wholesale prices rising at fastest pace since 1981 By MARTIN CRUTSINGER, WASHINGTON - Wholesale inflation surged in July, leaving prices for the past year rising at the fastest pace in 27 years, according to government data released Tuesday. The Labor Department reported that wholesale prices shot up 1.2 percent in July, pushed higher by rising costs for energy, motor vehicles and other products. The increase was more than twice the 0.5 percent gain that economists expected. Core prices, which exclude food and energy, rose 0.7 percent. That increase was the biggest since November 2006 and more than triple the 0.2 percent rise in core prices that had been expected. In other economic news, the Commerce Department reported that housing construction fell in July to the lowest pace in more than 17 years. Builders broke ground on 965,000 housing units at a seasonally adjusted annual rate last month — the weakest showing since March 1991 — as the housing industry continues to struggle with falling sales and rising mortgage foreclosures. The bad news on wholesale prices followed a report last week that consumer prices shot up by 0.8 percent in July, leaving consumer inflation rising at the fastest pace in 27 years. The July price pressures reflected in part the big surge in energy costs during the month that pushed crude oil prices to a record of $147.27 per barrel and sent gasoline pump prices to an all-time high of $4.11 per gallon. Crude oil prices have fallen by more than $30 per barrel since then, raising hopes that the surge in inflation will soon abate. However, the price spikes in a number of areas seen in July raised concerns that the prolonged surge in energy prices was beginning to show up more broadly throughout the economy. Such a development would put the Federal Reserve in a severe bind. The central bank would like to keep interest rates low to give a boost to the badly lagging economy, but Fed officials may feel pressured to start raising rates in an effort to make sure inflation does not get out of control. For July, wholesale energy prices jumped by 3.1 percent following a 6 percent gain in June. That increase reflected big jumps in the price of natural gas, home heating oil and liquefied petroleum gas, which offset a 0.2 percent dip in gasoline costs. Food prices rose by 0.3 percent in July after a 1.5 percent surge in June. Beef prices jumped by 7.4 percent, the biggest increase in nearly four years. Milk prices shot up by 5 percent, the biggest gain in a year, while soft drink prices rose by 2.4 percent, the largest increase in four years. Excluding energy and food, the 0.7 percent rise in core inflation reflected big gains in the prices of passenger cars and light trucks, pharmaceutical preparations and plastic products.http://news.yahoo.com/s/ap/20080819/ap_on_bi_go_ec_fi/economy


Man at center of gun ban case registers revolver
August 18, 2008 - 1:56pm

WASHINGTON - The man who sued to overturn Washington's handgun ban has successfully registered his revolver, ending a more than 30-year wait to keep the weapon in his home.

Dick Heller walked out of D.C. police headquarters Monday, clutching a yellow firearms registration certificate stamped "approved." He gave the thumbs-up sign, grinned and said, "Victory!"

Heller won approval for his .22-caliber revolver a month after coming to police headquarters to be fingerprinted and take a firearms proficiency test. Police approved the weapon after completing a background check.

Heller was the plaintiff in the Supreme Court case that struck down the city's 32-year-old handgun ban in June. He has since sued the city again, saying its revised regulations remain too restrictive.


http://wtop.com/?nid=596&sid=1441828

Rice warns of new Iron Curtain
Analysts see few options for penalties
Kelly Hearn (Contact)
Tuesday, August 19, 2008
Despite harsh warnings by U.S. officials, Western nations have a slim range of options for punishing Russia for invading Georgia without damaging international institutions and their own interests, former U.S. officials and analysts say.

Secretary of State Condoleezza Rice said Monday that Washington and its NATO allies would not let Moscow destabilize Europe or split the Continent with a new Iron Curtain.

"We have to deny Russian strategic objectives, which are clearly to undermine Georgia's democracy, to use its military capability to damage and in some cases destroy Georgian infrastructure and to try and weaken the Georgian state," she told reporters on her way to a meeting of NATO foreign ministers in Brussels.

NATO is expected to issue a statement Tuesday condemning Russia for responding to Georgian attacks in the disputed region of South Ossetia with a full-scale invasion. Washington has excluded Moscow from discussions among the Group of Eight industrial nations over Georgia, and Miss Rice and President Bush have made clear Moscow's application for membership in bodies such as the World Trade Organization (WTO) could be at risk.


A member of the Russian Emergency Ministry carries a bag of flour delivered as food aid on Monday to the Georgian city Gori. (Agence France-Presse/Getty Images)

NATO has already barred a Russian ship from joining a multinational anti-terrorism exercise in the Mediterranean and did not agree to a Russian request for an emergency meeting of ambassadors on the crisis in the Caucasus.

Asked whether such steps would have an impact on Moscow, Toby Gati, a former special assistant to President Clinton for Russia, said she doubted it. "You can't punish people when punishment means denying them something they wanted but weren't getting," she said.

Ms. Gati said the Russians think that Western nations for years have offered them empty promises for membership in international institutions such as the WTO.

"The Russians are at the point where they don't believe we will give them any benefits," she said. "In that context, threatening to withhold something doesn't give you any additional leverage."

Critics of the Bush administration's response to the Russian attacks have also called for Russia to be banned from the G-8. But Ms. Gati said denying a major economic power membership in the body would only weaken the institution and reduce Western leverage over Russia.

Others said Congress could vote down pending legislation dealing with civilian nuclear cooperation between Washington and Moscow, meant to bolster nuclear research in both countries, or oppose future arms control talks.

This might hurt the United States as much as Russia.

"Nuclear negotiation should not be held hostage," said Strobe Talbott, a Russia expert and president of the Brookings Institution. "It is in our own interest that strategic arms reductions talks and other forms of arms proliferation and arms control measures continue."

Dimitri Simes of the Nixon Center, another Washington think tank, said the Bush administration could play hard ball by asking Interpol to investigate money laundering by Russia's ruling elite. But that could cause blowback for U.S. companies, he said.

"If Interpol were to look at accounts and properties of Russian officials, such as mansions in Miami beach, or brownstones in Kensington, the Russian ruling group would take it personally and there would be retaliation against European and U.S. investment and business people in Russia," he said.

Georgian officials have listed a number of possible responses to the Russian attack including a request that the 2014 Winter Olympics not be held in the Russian Black Sea resort of Sochi.

The European Union could also terminate a visa program that facilitates Russian travel to EU member states, said a senior adviser to Georgia's president, who spoke on the condition of anonymity.

"There should be a positive carrot and stick approach," the adviser said. "Punishment isn't the right word. The West needs to show this kind of behavior has costs."

http://www.washingtontimes.com/news/2008/aug/19/rice-warns-of-new-iron-curtain/

A New Way To Buy A Home: Online

WASHINGTON - Homes are sitting longer on the market, and the inventory is piling up. One man sees it as a business opportunity.

At bidEup.com, people can actually buy or sell a property with the click of a mouse.

David McNairy, a former attorney, says he invented bidEup after seeing all the inventory sitting on the market unsold.

Just like eBay, you can choose a buy-now option -- or put in an offer that is legally binding. You can also email the seller questions, apply for a mortgage or put in an offer.

"For the first time, an online transaction of a high price good is as legally binding as if it took place off-line," McNairy says.

The site has only been up for a few months, so there are just a few properties up for sale. But McNairy says the concept is "a real powerful tool for the future."