Aaron Gallagher

The Obama administration introduced an $8000 tax credit for first-time homebuyers in February in order to stimulate the housing market. Some believe the government should do more and offer incentives to all homebuyers. Johnny Isakson, a Republican Senator, has submitted a proposal to offer all buyers a $15,000 tax credit for home purchases. Isakson said the rising number of foreclosures "is continuing to precipitate a downward spiral in values, loss of equity by the American people and a protracted, difficult economic time." Analysts believe that the proposal may not find favor with Congress.

"There is bailout burnout across the country," said Brian Gardner, senior vice president at Keefe, Bruyette & Woods. "There's an argument for the stimulus, but the possibility of the bill passing is unclear," said Gardner. The proposal will cost the government $30 billion. Jaret Seiberg, a policy analyst for Concept Capital's Washington Research Group, said that "in an era of record deficits, it will be hard for lawmakers to accept that cost." The National Association of Realtors and National Association of Homebuilders have welcomed the bill since they expect the proposal to eliminate oversupply of homes and stabilize the property market.

Foreclosure filings fell 6% in May from April, according to RealtyTrac, a provider of foreclosure data. "A total of 321,480 properties received a default or auction notice or were repossessed in May, up 18% from a year earlier," said RealtyTrac in a statement. The 18% rise is the smallest annual gain since mid-2006. Foreclosure filings have crossed 300,000 in each of the 3 months until May, and according to experts the total number of foreclosure filings may cross 1.8 million in the first half of this year. Nevada had the highest foreclosure rate with one in every 64 households, more than six times the national average. California ranked second at one in 144 households and Florida had the third-highest rate at one in 148 households. The national average is 1 in 398 households. With unemployment reaching a 25-year high, economists do not expect any reduction in foreclosures in the near-future. "The foreclosure bucket is filling faster than it's emptying," said Jay Brinkmann,chief economist of the Mortgage Bankers Association. "It will continue through next quarter at least." According to analysts at JPMorgan Chase & Co., home foreclosures in the U.S. will total 6.4 million by mid-2011, and inventories of foreclosed homes awaiting sale will peak in mid-2010 at 2 million properties.

Unsold homes cost builders money, and hence builders are looking at ways of selling homes as quickly as possible by offering incentives. "Builders used up all their construction loan money, and they're sitting on properties. So they can't build any more houses because they've got to sell these first," says Rhonda Duffy, owner of Duffy Realty. In addition to offering 5% to 20% discounts off the asking price, builders are giving away freebies to sweeten the deal. Some of the freebies offered are upgrades and appliances (nicer marble, hardwood floors, microwaves, freestanding ranges, cooktops, refrigerators, and washers), vacations to places such as Cayman Islands and Mexico, and cars such as E-Class Mercedes. Builders are also offering to pay for closing costs, fencing and landscaping, home inspection, and parking and association fees. Brian Lewis, executive vice president of Halstead Property, says buyers are feeling powerful, and they're using the current downturn to get great deals. "They are not necessarily falling in love with homes. They are falling in love with deals," said Lewis.

ccording to Freddie Mac, the 30-year fixed mortgage rate jumped to an average 5.32% this week, from 4.91% last week. While refinancing activity has been hit by the rising rate, home purchases continue to rise. It looks as though home buyers are jumping in now, in case the rates rise further. Diane Saatchi, senior vice president with the Corcoran Group, says, "In the short run, there's an increase in activity to lock in rates. We're seeing a bit of a frenzy to buy." A further rise in rates could slow housing recovery, but the current rates are not high enough to dampen home buyers' interest. Greg McBride, senior analyst at bankrate.com, says the recent rise in rates is not a "barrier to affordability," and home buyers "don't need to panic," as yet. "Down payments and the ability to sell existing homes are the main impediment for home buyers now," said McBride. "There's also the more stringent underwriting rules. If you can get past those, mortgage rates are not a problem." It is important for home buyers not to lose sight of what they are trying to achieve when they shop around for the best rates and prices. "Don't get caught in the trappings of the negotiations and lose the whole package," says Saatchi. "People want a great deal and they forget about the house they're trying to buy."

According to the Mortgage Bankers Association (MBA), its Market Composite Index, a measure of mortgage loan application volume, decreased 16.2% to 658.7 from 786.0 a week earlier. Refinancing in mortgages decreased to 62.4% of total applications from 69.3% the previous week. Analysts are concerned about the negative impact of the recent rise in mortgage rates on the housing market. GMAC, a large financial services firm, has stated that the home loan volume at GMAC is now about 75% lower than a few months ago when mortgage rates hit their lows. MBA, in a separate report released yesterday, reported an increase in commercial and multifamily mortgage delinquencies during the first quarter of 2009. Jamie Woodwell, Vice President of Commercial Real Estate Research at MBA, said the delinquency rates on commercial and multifamily mortgages "are all now at levels higher than at any time since the 2001 recession." Economists believe that housing market has to stabilize for the economy to recover, and for housing market to stabilize, interest rates have to stay low.