The answer boils down to housing and mobility…

October 26, 2010

Daraius

In the social circles that I often move in and amidst the cacophony of sounds one hears in most establishments that serve adult beverages , many individuals upon finding out what I do for a living ask me “when is the unemployment rate going to fall?”  After giving my usual two handed speech which leaves many individuals looking somewhat bewildered, I tell them it boils down to the housing market.

The goal of increasing the homeownership rate has been on the agenda of both the Republican and Democrat parties for many decades.  Both sides cite studies that supported the notion that increasing the homeownership rate will ensure stability in the communities as many homeowners mow their lawns on Saturday morning (not too early), crime would go down, and essentially all of the societal ills ascribed to a transient population would be eliminated.   As a result, many communities resisted through zoning or other means building additional rental units and pushed builders to build single family homes or townhomes.

However, we have traditionally been a nation built on mobility-“Go West Young Man” was a motto well into the 20th century.  Moreover, this credo of mobility has enabled the workforce to move to where the jobs are and has resulted in the US economy enjoying continued growth and prosperity.   The great recession as it is now being titled had its origins in the housing crash and as a result profoundly changed the mobility of the workforce.

In regions of the country that are experiencing a nascent economic recovery, finding skilled workers has been challenging and in many  cases these positions  remain unfilled as ideal candidates are stuck in other regions of the country with a house they cannot sell. To be clear, it is often not the case that they cannot sell their home; it is more likely that if they are able to sell their homes they would still owe a substantial amount to the bank. It has been stated that at least 20% of the homes are underwater in terms of their mortgage in the US.   In this credit conscious society, abandoning your home to the bank, often referred to as a strategic default will not only affect the individuals’ ability to borrow again, but will affect their ability to get a job. The amounts are non-trivial often amounting to tens of thousands of dollars or more.

As a young child when I came across a deep hole, I would toss a rock in it and wait for the familiar splash of water, letting me gauge how deep the hole was.  I suspect that when it comes to the housing market, many people are on the edge of that hole waiting for the sound of the splash.  However, outside of the fact that the number one asset of most individuals has lost anywhere between 10% and 50% of its pre recession value, the lack of recovery in this market will continue to prevent labor from moving where it is needed and this one of the many reasons why unemployment will continue to remain persistently high in many locations for the foreseeable future.

Leave a Comment » | Economic Analysis | Tagged: , , , , , | Permalink
Posted by Daraius Irani

Short Analysis of the First Time Homebuyer Tax Credit

April 27, 2010

Thomas

Friday April 30th marks the end of the First Time Homebuyer Tax Credit, a policy enacted in 2009 by the Federal Government.  In an effort to spur housing sales, the government allowed first time home buyers to receive up to $8,000 in tax credit if they enter a binding contract by April 30th 2010 and settle by June 30th 2010.  What I wanted to know was whether this policy had an effect on the struggling housing market.

The latest data seem to show that the policy may have helped stimulate the housing market as the number of homes sales has been on the rise.

  • For example, the seasonally-adjusted estimate of the number of new single-family houses sales increased by 26.9 % from February to March, and 23.8 % from March 2009, according to Census Bureau, as new homeowners may have rushed to enter a contract before the credit expires.
  • And, in Maryland, the number of not seasonally-adjusted homes sales increased from 54.1 % from February to March and 29.3 % from March 2009 to March 2010, according to the Maryland Association of Realtors.
  • Therefore, many indicators seem to indicate that people are taking advantage of the credit and the housing market may have been revived.

However, there is a caveat to the good news, as the winter snow may have led to this sudden uptick.  Most markets experienced a decline in housing sales from January to February.

  • For example, the estimate of the number of new single-family houses sales decreased 2.2 %, according to Census Bureau.  The Maryland Association of Realtors also reported that housing sales decreased slightly in Maryland from 2,897 in January to 2,809 in February.
  • Therefore, there is evidence that people may have delayed signing any contracts to March due to the snow.
  • In addition, the estimate is far lower than during the peak of the housing bubble.  The March 2010 Census Bureau estimate of the number of new single-family house sales, for example, was 71.3% lower compared to March 2005.
  • Also, the inventory of houses available for sale is still large as well as the number of foreclosed houses.  In Maryland, the inventory has remained the same through 2009 and the beginning of 2010, between 39,000 and 45,000 units.  The number is largely above the pre-housing market bubble when the inventory was under 25,000 units.

The First Time Homebuyer Tax Credit may have helped the housing market from further depression in the short term as the latest data showed a sale increase.  However, the recent uptick may have been due to the winter storm and people buying now to take advantage of the end of the Tax Credit.  Also, the number of sales is markedly below the peak of the housing market bubble while many people still have their houses on the market.  The end of the Tax Credit may mean that the housing market may struggle even more with fewer housing sales.  However, it may also mean that prospective home buyers may find even better deal as home sellers will need to slash price to compete.


Leave a Comment » | Economic Analysis, Uncategorized | Tagged: , | Permalink
Posted by Past Bloggers

Linking the Federal Reserve Policies to Maryland

January 21, 2010

Thomas

Over the last two years, there has been a crisis in the real estate industry throughout the country and Maryland that has had an impact on the Maryland economy.  Commentators have criticized different actors for this housing crisis and the latest one is the Federal Reserve Bank. The main argument is that the Federal Reserve Bank kept federal interest rates too low for too long, which led people and banks to inflate the market value of houses.

In a monthly survey of business and academic economists done by the Wall Street Journal, 68% of the respondents said that low federal interest rates were partly to blame for overvaluation of the housing market. Interest rates were so low that many people were rushing to buy houses and too many people were in the business of flipping houses while banks were looking for easier ways to lend money which led to the creation of subprime mortgage loans for example.

  • Interest rates were kept under 2 % from the end of 2001 to the end of 2004, and increased slowly to 5.3% until July 2007.
  • At the same time, home prices became inflated in many markets throughout the country.  From the first quarter of 2001 to the first quarter of 2004, Anne Arundel County’s average home price increased from $205,046 to $309,888, a 51.1% increase.
  • A very high increase given that from the first quarter of 1998 to the first quarter of 2001, the average price rose 13.3%.

Since 2007, the average prices of houses sold have declined as well as the number of houses sold.  In Anne Arundel County, the average price of settled house sales was nearly $420,000 in the third quarter of 2006 and 603 houses were sold, while in the third quarter of 2009, the average price was nearly $350,000 and 426 houses were sold.  The difference was a 16.6% decrease in the average price and 29.4 % decrease in the number of houses sold.  Some people believe that this price decrease has been the result of the Federal Reserve Bank keeping interest rates at record low levels for too long leading to the housing bubble burst.

It is hard to pinpoint the exact cause of the housing price inflation that occurred in the real estate market; but there is some truth in criticizing the Federal Reserve Bank for keeping interest rates too low for too long and thus failing to avoid a real estate bubble.  There is one thing many people can agree on, however, the real estate burst has had an impact in many aspects of the Maryland economy and helps explain some of the troubles facing Marylanders, the State government, local governments and many businesses.

Leave a Comment » | Business Analysis, Economic Analysis | Tagged: , | Permalink
Posted by Past Bloggers

SDAT Website…More than looking up how much your neighbors paid for their house

November 24, 2009

Dawn

Okay admit it, when I say Maryland Department of State Assessments and Taxation (SDAT) website, you either have no idea what I am talking about or you think “That’s where I can check to see how much my neighbors, friends, etc. paid for their house.”  But really the SDAT site offers much more than just that.

Experiencing the SDAT website myself…

A few weeks ago my husband was hired as a consultant, but we needed to register the name of his company.  On to the SDAT site I went, downloaded the form and headed out to the SDAT offices.  Now you can mail or fax in your request and not ever have to darken SDATs doors, but we were in a hurry so I physically went there to complete the transaction.   Within less than two hours I went from not knowing what to do, to having a registered company name.

How you can use the SDAT website?

The SDAT site also allows the general public to check to see if a business is in good standing with the State.   This is really useful capability when you are searching for contractors or if you have had a difficult time with a particular business.

It is always good to be a wise consumer and this site makes that a whole lot easier.

Click here to view the SDAT Web site

Some other capabilities available on SDAT site include both property related and business related items.

  • Grounds rents are very common in Maryland and the SDAT site is where you register if you own a ground rent property.  If you need to find the resident agent of company, SDAT’s site helps through that process.
  • The SDAT site can also point you in the right direction when it comes to many tax and business questions.

So the next time you are checking up on a neighbor or friends property check out some of the other really useful information you can find on one of the state’s most active websites.

6 Comments | IT | Tagged: | Permalink
Posted by Dawn Bott

Follow

Get every new post delivered to your Inbox.