Mark MacKenzie

Jeanne Sahadi, with CNNMoney.com recently wrote an article about how the Senate may propose a broader housing stimulus plan that would include the creation of 4% mortgage rates for a limited period of time, expand the $7,500 home buyer tax credit to all primary residence purchases, not just first time buyers, increase the tax credit to $15,000, and of course the compulsory 90 day foreclosure moratorium.

Here's my two cents:

The "creation" of a 4% mortgage rate is going to be incredibly expensive. The Fed already tried to plunge mortgage rates by purchasing approximately $600 billion worth of mortgage backed securities from Fannie and Freddie. And while the "feature" was that mortgage rates plunged nearly a full point, the benefit was that demand for housing remained virtually unchanged. And while there was a significant and albeit short term refinance boom, and as a result more Americans will have more disposable income, lower mortgage rates won't help the approximately 10 million home owners who are under water on their mortgage.

Now, tell me again why we are going to give a home buying tax credit to people that are "move up" buyers? You know, those people that sell their home and are going to buy another home anyways? Why are you going to give them $7,500 or $15,000 to do what they were already going to do anyways? We want to reward new buyers for entering the housing market, we don't want to just start writing checks for the sake of writing checks. This could easily turn a $7 billion housing stimulus into a $28 or $35 billion housing free for all in which no additional economic or housing benefit is produced and yet four or five times the money is spent. Come to think of it, this does sound like something that Congress would do.

I see the benefit of increasing the home buying tax credit to $15,000 for first time home buyers as they are likely to lose that amount in the value of their home if they purchase one this year, that's what the month's supply of housing trends are telling us, 2009 is going to be very similar to 2008. But with that being said, I think Washington is overestimating exactly how many qualified first time home buyers there are on the fence that have the capital and credit to buy a home right now, the number is a lot less than they think. While at the same time they are underestimating the impact that Americans could have on the housing market by investing in real estate. Larry Bird is not walking through that door.

And finally, the compulsory 90 day foreclosure moratorium which seems to be a part of every housing and economic stimulus plan. Don't get me wrong, it is saddening to see Americans losing their homes, nobody wants to see this. It affects families and surrounding communities, banks and municipalities. But simply continuing to kick the can down the road for another 90 days hardly seems like a viable solution. It sounds great, and it is certainly politically correct, but it's not a solution.

As part of President Obama's economic stimulus plan, a $7,500 first time home buyer tax credit has made its way into the legislation which has already passed in the House this week.

The proposed new $7,500 first time home buyer tax credit is a revised version of the tax credit that was part of the Housing and Economic Recovery Act of 2008 which was made available to first time home buyers that purchased a home between April of 2008 and July of 2009. The original legislation required the tax credit to be repaid over 15 years, basically, it was an interest free loan.

The impact that the original legislation had on demand was that home sales actually declined from April at a pace of 4.89 million seasonally adjusted home sales to 4.74 million in December, according to the NAR. In other words, the tax credit was a waste of legislation, I know, shocking.

Now Obama is proposing first time home buyer tax credit 2.0 which would eliminate the requirement to repay the tax credit. Here's the problem, there are two types of first time home buyers. There are people that actually want to buy a home but are unable to because they don't have the down payment or credit which would allow them to purchase, a $7,500 tax credit won't change this. The other segment of first time home buyers are those that don't want to purchase a home because they think home values are going to fall lower, and they are right. In this case, a nominal $7,500 tax credit is a trojan horse incentive considering home values just fell 15% this past year. The tax incentive looks great until you consider that the home you just purchased will actually lose more value than you gained from the tax credit. Clearly, real estate is a long term investment, as any investment is, but that doesn't mean that you want to "drive it off the lot" only to lose thousands of dollars over the next year.

On a side note, the tax credit is only available to first time home buyers with an income of less than $75,000 or $150,000 for joint tax filers. Why is there the perception that those that make more money are somehow not an integral part of a housing and economic recovery?

The truth is, there simply are not enough qualified, first time home buyers, that have the credit and capital, along with the confidence, to go out and buy a home in this market in order to have a meaningful effect on the supply and demand imbalance. The current homeownership rates of 68% are still hovering well above historic norms of 64%. Withthe exception of the subprime years, more Americans own a home today than ever before. What this means is that a housing stimulus targeted at first time home buyers is a losing proposition. The solution is to target a stimulus at Americans that have the credit and capital that are able to invest in real estate.

Local and long time Phoenix home builder, Fulton Homes, filed for Chapter 11 Bankruptcy on Tuesday, the Phoenix Business Journal announced in an article written by Jan Buchholz.

Chapter 11 will not affect Fulton's ability to provide customer service or home warranties.

Fulton Homes becomes yet another victim of the housing depression that has crippled builders both in Phoenix as well as across the country, and there seems to be very little relief in site.

The home building industry is caught in the middle of an economic and housing crossroads. Good things happen when homes are built, jobs are created, supplies and materials are purchased, and municipalities are provided with an additional source of property tax revenue. On the other hand, the biggest problem facing the housing market is that there are simply too many homes for sale and not enough demand for them. It is this excess supply that is causing downward pressure on home values. It is worth noting however, that the new home inventory represents less than 10% of the overall housing inventory in the United States. The majority of homes for sale are existing homes in the form of foreclosures.

Both the home building industry and the economy would benefit form a housing stimulus that would spark demand, but there seems to be very little coming out of Washington so far that has or will have any meaningful impact on the housing market and the broader economy.

For the first time in eight months, the month's supply of housing increased for the city of Phoenix.

The month's supply of housing is the relationship between the supply (listings) and demand (the number of properties sold in the past 6 months) for real estate; it is the leading indicator of future property values. The lower the number the better.

The market hit a tipping point or a bottom in March with a 19.1 month supply of housing, since that time, the month's supply of housing has continued to decrease, until now.

From March to October, the month's supply of housing declined from a 19.1 month supply of housing to a 11.08 month supply; a 42% decline in seven months.

However, that trend finally broke when we ran the numbers today. The month's supply of housing currently stands at 11.18, a 1% increase from last month.

While this modest increase for the city of Phoenix may not seem significant, we are seeing significant increases in terms of the month's supply of housing for a number of cities throughout the metro area. For instance, Scottsdale inventory has increased now for three consecutive months after bottoming in August of 2008. Scottsdale inventory is up 26.5% over this short period and is actually the highest it has been in six months.

When loking at the raw data, the sales versus the number of listings, it is the rate at which properties are coming to the market that is negatively affecting the month's supply of housing. While demand is not as strong as it could be, it is the supply of housing that continues to present systemic problems for the metro Phoenix housing market. Property values have dropped so aggressively over the past two years that many home owners are unable to sell or refinance their properties outright and are having to result to short sales and foreclosures.

In case you are wondering why I am writing this blog post on Thanksgiving, I do indeed have a life - sort of. I also happen to have three little babies who are nestled all snug in their beds napping after their feast this afternoon. So I have a chance to look into something that I have been wondering about.

I have written quite a bit about the existing home sales market, the one that NAR tracks. Just to give you some context, in 2008, we are expecting to see about 4.98 million existing home sales, according to the NAR. This is down nearly 30% from a peak of 7.076 million in 2005 - a significant decline in just 3 years.

We need to go back to 1998 (4.966 million existing sales) and 1999 (5.183 million existing sales) as the last time so "few" existing homes were sold. So the numbers for 2008 are bad, but they're not THAT bad.

And so that you can better understand home sales trends if you are new to them, typically, all else being equal, home sales should increase every year as our population increases every year. Some years of course will be better than others, but there is clearly an upward trend in home sales over the past several decades.

With that information as a background, take a look at what is going on with NEW single-family home sales. According to a report just put out by the Commerce Department we are on pace to sell 433,000 new homes in 2008. The last time so few new home sales took place was way back in 1982 when there were 412,000 new home sales. In fact, outside of 1982, this 433,000 number would be the smallest amount of new home sales on record since 1970 (source: Department of Commerce). Even in 1970 there were 485,000 new home sales.

Take a look at this:

1970 Existing home sales: 1.612 million

1970 New home sales: .485

2008 Existing home sales: 4.98 million

2008 New home sales: .433

Despite the fact that existing home sales have nearly tripled since 1970, new home sales are down 11% over that same time period.

As I had mentioned before, I am not a proponent of bailouts for car makers, home builders, banks, or even homeowners for that matter. But I have acknowledged that the government needs to provide a fiscal stimulus to jump start the housing market and subsequently the economy. New homes have a significant "GDP" associated with them and when I see new home sales being devastated like this it is no wonder why our municipalities and economy are deteriorating so quickly.