First-Time Homebuyer Tax Credit Hangover

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An ugly trend in the Mortgage Bankers Association's Weekly Applications Survey has real estate warning sirens blowing again. As the result of a relationship we see between mortgage activity and the First-Time Homebuyer Tax Credit, we are looking for a near-term pull back in the residential real estate marketplace.

First-Time Homebuyer Tax Credit

Before we tie the information together, we think it best to ensure the reader understands the First-Time Homebuyer Tax Credit. The Worker, Homeownership and Business Assistance Act of 2009 extends and expands the First-Time Homebuyer Tax Credit allowed by previous acts. Most importantly to new homebuyers, Congress extended the tax credit, which was set to expire this year. Prospective purchasers of a principal residence can now benefit from the tax incentive if they enter into a binding contract to buy a home before April 30, 2010, and close on the home by June 30, 2010. The credit, which remains $8,000, can be applied to reduce your tax bill dollar for dollar, or to boost your tax refund, in either the reported 2009 or 2010 tax year (for qualifying 2010 purchases).

A new facet of the legislation allows long-time homeowners to benefit as well. Those who have lived in the same principal residence for any five consecutive year period during the eight-year period ended on the date the replacement home is purchased, may take a $6,500 credit (up to $3,250 for married filing separately). Also, the income limit has been raised to allow more Americans to qualify. Tax credit phase out now occurs at individual income levels of $125K to $145K ($225K to $245 for joint filers).

As you can see, the First-Time Homebuyer Tax Credit provides great incentive to buy a home. Thus, a great many Americans, some advised by clever and perhaps starving real estate agents, rushed to buy homes before the previous credit would expire on December 1st. Since home closings typically take 60 days, early October marked the effective deadline for entering into contract. We think this factor drove a burst of home sales, as was intended, up to and ending in early October.

The Evidence is Clear

The last six weeks of Mortgage Activity highlighted the effect of the legislation in vivid color. Despite a favorable and consistent drop in the average contracted rate on 30-year and 15-year fixed rate mortgages, mortgage activity for the purchase of homes has declined decisively. Up until the latest reading of the Mortgage Bankers Association data, the Refinance Index, which measures contract volume for mortgage refis, had shown refinance activity benefiting from lower rates; during the same period though, the Purchase Index deteriorated consistently. In fact, purchase activity has decreased for six consecutive weeks now, and sits at its lowest point since November of 1997.

Tying the Setback in Housing to its Cause

If the then pending expiration of First-Time Homebuyer tax incentive (before its renewal) and the push of real estate and tax agents to help sales along, helped to drive home purchase activity ahead of the decline begun in early October, then perhaps significant demand has been pushed forward. Thus, similarly to the effect of the "Cash for Clunkers" program, we would expect home sales to teeter off in the coming month or so. While this article comes to you after the latest Housing Starts data, which showed a precipitous decline in the pace of Starts in October, the report now seems to only confirm our assumption that the housing recovery benefited significantly from the First-Time Homebuyer Tax Credit. Furthermore, the previous gains in home sales may have been due to pushed forward purchases that may now limit near-term sales in their absence.

Add to this the burdensome weight of still rising unemployment and tightly squeezed credit standards, and the real estate market seems set for a longer near-term retrenchment. Perhaps offering a counter to this, however, is the expansion of the legislation to bring higher income and existing homeowners into play. This wise decision seems clearly construed for the purpose of floating the housing market further down the economic stream. November Starts should provide telling results as to whether the effort was effective or not.

Editor's Note: This article should interest real estate industry participants, perhaps including in Bank of America (NYSE: BAC), Freddie Mac (NYSE: FRE), Fannie Mae (NYSE: FNM), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Company (NYSE: XIN), Rydex Real Estate H (Nasdaq: RYHRX), T. Rowe Price Real Estate (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Home (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR, Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO) and Orleans Homebuilders (NYSE: OHB).


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Wall Street News 11-20-09

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(Tickers: Nasdaq: DELL, NYSE: HPQ, IBM, AAPL, MDT, ORCL, JAVA, DHI, ANN, CRMT, SJM, JOUT, KIRK, MPR, SCORE.OL, DIA, SPY, QQQQ, NYX, DOG, SDS, QLD, XLF, IWM, TWM, IWD, SDK)

Today's Wall Street news schedule highlights the earnings of Dell Computer, D.R. Horton, AnnTaylor and J.M. Smucker in the US. With an absence of economic data, overseas activity took some focus. The EU selected its first president and begins seeking its next ECB chief. The Bank of Japan weighed in with its own rate decision and raised concern about falling prices.

Wall Street News

Corporate News Drivers

Dell (Nasdaq: DELL) reported earnings last night and is down about 7% in early Wall Street trading. DELL is down due to its reporting weaker than expected Q3 revenue and earnings. The stock's hit this morning is largely due to Wall Street's surprise, since many of the company's peers, including Hewlett-Packard (NYSE: HPQ), Apple (Nasdaq: AAPL) and IBM (NYSE: IBM), reported a strong quarter on improved global technology spending. Excluding one-time items, Dell posted $0.23 per share against analysts' expectations for $0.28, based on Thomson Reuters data. Adding salt to its wound, Dell was also passed by Acer in market share, as the Taiwan based company moved to #2 in the world.

D.R. Horton (NYSE: DHI) shares are lower in morning Wall Street trade, as the homebuilder missed consensus estimates on both revenue and EPS lines. Revenue of $1.01 billion, down 42% from the prior year, compared against analysts' consensus for $1.11 billion, based on Thomson Reuters survey. DHI's loss per share narrowed versus the prior year, but at $0.73 still missed analysts' view for a $0.30 loss.

An FDA panel takes up a Medtronic's (NYSE: MDT) new epilepsy treatment. Friday's Wall Street EPS schedule includes reports from America's Car-Mart (Nasdaq: CRMT), AnnTaylor Stores (NYSE: ANN), D.R. Horton (NYSE: DHI), J.M. Smucker (NYSE: SJM), Johnson Outdoors (Nasdaq: JOUT), Kirkland's (Nasdaq: KIRK), Met-Pro (NYSE: MPR), Scorpion Offshore (SCORE.OL) and a few others.

Overseas News

The European Union (EU) extended its antitrust review deadline for Oracle's (Nasdaq: ORCL) acquisition of Sun Microsystems (Nasdaq: JAVA) to January 27, 2010. Oh, and by the way, that conglomerate of nations across the pond also picked its first President, Belgian Herman van Rompuy. Jockeying is already under way to find the replacement for ECB President Jean-Claude Trichet, for when he steps down in 2011. European shares were in decline at hour of publishing, with the Dow Jones Euro Stoxx 50 off 0.66%.

The Bank of Japan (BOJ) decided to leave its key rate unchanged at 0.1%. The BOJ announced that its economy was improving both due to exports and domestic gains on stimulus efforts. However, Deputy Prime Minister Naoto Kan said Friday that Japan is in deflation, while Finance Minister Hirohisa Fujii expressed grave concern over falling prices. The NIKKEI 225 fell 0.54% on the day, and broader Asia declined as well.

Philly Fed President Plosser is in Singapore today, giving a speech on global interdependence, especially in regard to food and water. The World Economic Forum is meeting to discuss the global agenda.

In Washington, the Senate will meet Saturday to deliberate on whether to debate on health care reform or not. Yes, the Senate is meeting to decide whether to meet. Ah politics...


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Financial News 11-19-09

We See Signs of Economic Pace Ease

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(Relative Tickers: PG, CL, CDY, CLD, ACTI, ADCT, ARUN, BONT, BAMM, BRC, CMRG, CENT, CMED, CHRD, DWCH, DKS, DITC, DOLE, DBRN, EFUT, FL, GME, GPS, GFF, HP, HIBB, IGLD, INTU, KITD, KLIC, MTSC, NGG, NWY, OMER, PDCO, RAVN, ROST, SBH, SCHS, SHLD, SCVL, SKIL, SSI, SMRT, STP, SCMR, BKE, CATO, PLCE, WTSLA, TWMC, TDG, TSL, TTIL, VRGY, WSM, ZUMZ, DIA, SPY, QQQQ, NYX, DOG, SDS, QLD)

The day's financial news offered what seems a non-starter in the Weekly Jobless Claims data, with the count little changed. The report is more likely to be a negative influence on stocks this morning than positive, as "little-to-no change" is now a bad thing, which varies greatly from this spring when "less bad news" was good.

Financial News

Jobless Claims

The day's financial news produced the regular Weekly Initial Jobless Claims data. For the week ending November 14, first-time filers for unemployment benefits amounted to 505K. The weekly count matched against a revised prior week tally of the same result. Expectations stood at 504K, but are inconsequential, as economists simply do not spend much time on this short-term forecast. The four-week moving average declined 6,500, to 514,000. Insured unemployment stuck at 4.3%. Traders are not going to like this data until it makes a decisive move below 500K or deeper, so we view the report a non-starter or negative director for stocks within the day's financial news flow.

Leading Economic Indicators

The Conference Board will release its October data on Leading Indicators at 10:00 AM this morning. The September LEI reading showed the sixth gain in a row, as Indicators improved 1.0%. In fact, the LEI sixth month growth rate reached its fastest pace since 1983 last month. However, economists asked by Bloomberg expect an October read of +0.4%. We read this as a negative even if the data falls in line, since a slower rate of improvement might be construed as an indicator of the start toward double-dip recession, something we're concerned about here.

Philadelphia Fed Survey

On Monday, The Empire State Manufacturing Survey fell to 23.51 for November, down from 34.57 in October. The reading still showed decent growth, but the pace ease is consistent with other features of this economy. It may be natural, but it's still concerning to investors and troubling to stocks' progress. This morning at 10:00 AM, look for the Philadelphia region's version of this data in financial news flow. After an October take of 11.5 on the Philly Fed's General Business Conditions Index, economists are looking for about the same result this month. According to Bloomberg's survey, November should read 12.0. A positive for this month's data point - its New Orders Index posted improvement in October.

Natural Gas Report

Earlier this week, we noted that natural gas prices had advanced 16.3% in October, based on the Producer Price Index (PPI). This morning at 10:30, the Energy Information Administration (EIA) produces its weekly Natural Gas Report on gas storage activity. Last week's report for the week ending November 6, 2009 showed working gas in storage increased by 25 Bcf. Stocks of natural gas stood well above both the mark set last year and the five-year average for this time of year. Still, economic growth and the closing of the difference between oil and natural gas pricing has spurred renewed interest in the energy resource.

Washington Drivers

Senate Democrats say their Health Care Reform proposal released last night would cost $849 billion over 10 years, cutting the deficit while making sure that 94% of Americans have health insurance. Join our Health Care Reform Debate Forum.

Treasury Secretary Timothy Geithner testifies today before the Joint Economic Committee on Financial Reform. The Fed reports on its Balance Sheet this afternoon. The Fed's balance sheet is a report showing factors supplying reserves into the banking system and factors absorbing (using) reserve funds. President Obama met with South Korean President Lee Myung-bak today, and he noted the most fantastic greeting he has received from any nation since becoming president. The SEC will host a gathering today on small business capital formation.

Corporate News Drivers

Finally, the financial news day is flooded with corporate news drivers. Morgan Stanley (NYSE: MS) kicks off its global consumer conference, with presenters including Proctor & Gamble (NYSE: PG), Colgate (NYSE: CL) and Cadbury (NYSE: CBY). Cloud Peak Energy (NYSE: CLD) is seen raising $500 million today in its IPO.

Thursday's earnings schedule includes ActivIdentity (Nasdaq: ACTI), ADC Telecommunications (Nasdaq: ADCT), Aruba Networks (Nasdaq: ARUN), Bon-Ton Stores (Nasdaq: BONT), Books-A-Million (Nasdaq: BAMM), Brady Corporation (NYSE: BRC), Casual Male Retail Group (Nasdaq: CMRG), Central Garden & Pet (Nasdaq: CENT), China Medical Technologies (Nasdaq: CMED), Chordiant Software (Nasdaq: CHRD), Datawatch (Nasdaq: DWCH), Dick's Sporting Goods (NYSE: DKS), Ditech Networks (Nasdaq: DITC), Dole Food Co. (Nasdaq: DOLE), Dress Barn (Nasdaq: DBRN), eFuture Information Technology (Nasdaq: EFUT), Foot Locker (NYSE: FL), Gamestop (NYSE: GME), The Gap (NYSE: GPS), Griffon (NYSE: GFF), Helmerich & Payne (NYSE: HP), Hibbett Sports (Nasdaq: HIBB), Internet Gold (Nasdaq: IGLD), Intuit (Nasdaq: INTU), KIT digital (Nasdaq: KITD), Kulicke & Soffa (Nasdaq: KLIC), MTS Systems (Nasdaq: MTSC), National Grid plc (NYSE: NGG), New York & Company (NYSE: NWY), Omeros Corp. (Nasdaq: OMER), Patterson Dental (Nasdaq: PDCO), Raven Industries (Nasdaq: RAVN), Ross Stores (Nasdaq: ROST), Sally Beauty Co. (NYSE: SBH), School Specialty (Nasdaq: SCHS), Sears Holdings (Nasdaq: SHLD), Shoe Carnival (Nasdaq: SCVL), SkillSoft Corp. (Nasdaq: SKIL), Stage Stores (NYSE: SSI), Stein Mart (Nasdaq: SMRT), Suntech Power (NYSE: STP), Sycamore Networks (Nasdaq: SCMR), The Buckle (NYSE: BKE), The Cato Corp. (Nasdaq: CATO), The Children's Place (Nasdaq: PLCE), The Wet Seal (Nasdaq: WTSLA), Trans World Entertainment (Nasdaq: TWMC), Transdigm Group (NYSE: TDG), Trina Solar (NYSE: TSL), TTI Telecom (Nasdaq: TTIL), Verigy Ltd. (Nasdaq: VRGY), Williams-Sonoma (NYSE: WSM) and Zumiez (Nasdaq: ZUMZ).

See yesterday's Business News.


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Business News - 11-18-09

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(Tickers: Nasdaq: SMLC, TRMD, ATGN, CSCO, AMTC, CSUN, CYBX, DEST, GYMB, HOTT, JACK, NTAP, NTES, PNNT, PERY, PETM, ESLT, SMTC, SHMR, SOLF, VVTV, WGOV, NYSE: BJ, CHS, DCI, GU, LTD, MTU, TOT, DNA, CF, NM, PVH, AMEX: BMJ, DIA, SPY, QQQQ, NYX, DOG, SDS, QLD, XLF, IWM, TWM, IWD, SDK)

Today's early business news showed that Housing Starts stopped and mortgage activity continued its slide, and we know why! You'll see exactly why when we publish our feature article on the subject later today. This report on the day's business news includes coverage of Housing Starts, Mortgage Activity, Consumer Prices, Petroleum Status, Corporate Earnings, and more. Stocks are only off modestly to start the day, as this bad news is absorbed into a base of recent past improved economic data across the board. However, turns in trend start somewhere, and we may be sitting at the precipice of return to recession, ala double-dip fashion.

Business News

Housing Starts Stopped!

The day's business news highlights the monthly Department of Housing report showing Housing Starts fell to an annual pace of 529K in October, versus misguided expectations for a pace of 600K. We say misguided for good reason, and boy are we itching to tell you why, but that article is prepared and scheduled for publishing later this day. Just come back a little later...

The slower pace of starts represents a 10.6% fall from September's revised rate of 592K, and is off 30.7% from last year's pace. Single family Starts were down 6.8% from September. Permits did better, though also slipped. Privately owned housing units authorized by building permits, a forerunner to actual starts, ran at a pace of 552K, versus September's revised pace of 575K.

Mortgage Activity Falls Further

The day's business news also highlights a trend we have well-noted previously that continued again in the week ended November 13. Despite lower contracted rates for 30-year and 15-year fixed rate mortgages to 4.83% (from 4.9%) and 4.32% (from 4.33%), respectively, mortgage activity declined. The Market Composite Index measuring overall mortgage volume fell 2.5% on a seasonally adjusted basis. The Purchase Index, which measures loans taken out for home purchases, dropped another 4.7%. The Refinance Index fell 1.4%. Take Note: The MBA's Index has not been this low since 2000.

Consumer Price Index (CPI)

A day after the Producer Price Index (PPI) offered a nice bit of business news for inflation watchers, the government released information on consumer level pricing. This data, however, was a bit salty. Headline Consumer Prices rose 0.3% in October, against expectations for a 0.2% increase, according Bloomberg's survey of economists. The government noted the key drivers as energy and new and used motor vehicle price increase. That information led "The Greek" to scratch his head (or my head if I were sane), because we were under the impression that automakers were slashing prices post "Cash for Clunkers." We welcome your thoughts here auto market enthusiasts. Comment below. The renewal of energy price inflation is no surprise though, as the energy index has now risen five of the last six months. Headline CPI is now only down 0.2% from the prior year check...

Ex-food and energy, or Core CPI, rose a troubling 0.2%, against expectations for a slighter 0.1% increase. We worry about this figure more, because it excludes the wild swings in energy pricing. This represents a more accurate current metric of inflation, and it's on the rise at a decent pace for a recessionary period. Core prices also increased 0.2% in September.

Petroleum Status Report

At last check - for the week ended November 6, crude oil inventory increased by 1.8 million barrels and stood slightly above the upper limit of the average range for this time of year. Gasoline stores also increased by 2.5 million barrels and stood above the upper limit of the average range. Distillate fuel inventories rose 0.3 million barrels, and also stood at above average levels. Look for the latest data at 10:30 AM.

Corporate News Drivers

Agrium's (NYSE: AGU) offer of $97.47 for the shares of CF Industries (NYSE: CF) expires today. The shares trade at $85, so the deal is apparently not happening. We have not followed this story, but the price action tells us that - the shares would trade at about $97.47 otherwise. Cisco Systems' (Nasdaq: CSCO) offer for Tandberg is also set to expire today.

An FDA committee will review Genentech's (NYSE: DNA) and Novartis' childhood asthma treatment. Also, a French court rules on Total's (NYSE: TOT) appeal against environmental damages ruled its fault from a '99 incident.

Wednesday's EPS schedule includes reports from 012 Smile.Communications (Nasdaq: SMLC), TORM A/S (Nasdaq: TRMD), AltiGen Communications (Nasdaq: ATGN), Ameritrans Capital (Nasdaq: AMTC), Birks & Mayors (AMEX: BMJ), BJ's Wholesale Club (NYSE: BJ), Chico's FAS (NYSE: CHS), China Sunergy (Nasdaq: CSUN), Cyberonics (Nasdaq: CYBX), Destination Maternity (Nasdaq: DEST), Donaldson (NYSE: DCI), Elbit Systems (Nasdaq: ESLT), Gushan Environmental Energy (NYSE: GU), Gymboree (Nasdaq: GYMB), Hot Topic (Nasdaq: HOTT), Jack in the Box (Nasdaq: JACK), Limited Brands (NYSE: LTD), Mitsubishi UFJ Financial Group (NYSE: MTU), Navios Maritime (NYSE: NM), NetApp Inc. (Nasdaq: NTAP), NetEase.com (Nasdaq: NTES), Pennantpark Investment (Nasdaq: PNNT), Perry Ellis Int'l (Nasdaq: PERY), PetSmart (Nasdaq: PETM), Phillips-Van Heusen (NYSE: PVH), Semtech (Nasdaq: SMTC), Shamir Optical Industry (Nasdaq: SHMR), Solarfun Power Holdings (Nasdaq: SOLF), ValueVision (Nasdaq: VVTV), Woodward (Nasdaq: WGOV) and a few others.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.