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The Capital Gains Tax Scourge

Dec 28

Posted by admin in Real Estate

The combination of an ailing economy and a struggling housing market during an election year has created the perfect storm to once again bring issues concerning the federal capital gains tax rate to the forefront of the public’s attention. As our nation’s government continues to further empty its coffers in an attempt to protect and stimulate the economy, many political figures and members of the media are forcefully asserting that an increase in the capital gains tax rate is needed to offset the government’s proposed massive expenditures. Unfortunately, this theory is fatally flawed according to both economic principle and common sense. In fact, an increase in the capital gains tax rate during these difficult times will likely enhance the need for further government intervention and expenditures to remedy the damage that a rate increase would generate.

For clarification, the current federal capital gains tax rate of 15% does not pertain to ordinary income, but instead is applied against gains achieved through investments in real estate and securities such as stocks & bonds. Additionally, the state governments typically tack on additional capital gains taxes for their respective residents. Also understand that national residential real estate values have dropped by more than 35% over the past few years with an unprecedented amount of inventory still on the market for sale. The Dow Jones Industrial Average, our nation’s key stock index, decreased by more than 40% in the year 2008 alone.

By applying the fundamental economic principle of supply and demand it is easy to see that the supply of real estate and securities for sale drastically exceeds the consumer’s current demand to purchase. The inevitable result from such an unbalanced relationship between supply and the corresponding demand is a decrease in the perceived value of real estate, stocks and bonds. This is precisely why the federal government, economists and prominent members of the business world are constantly attempting to increase demand by acting to encourage the public to once again muster the confidence to invest in real estate and securities.

It is therefore unfathomable to suggest that the United States’ economy will be better served by increasing the capital gains tax rate for those that courageously make these investments. This is especially true at a time when confidence in investment is more direly needed than it has been for generations. The way to our economic salvation is undisputedly through reducing supply, so it is important that we don’t punish those individuals that could represent the much needed demand.

The very existence of a capital gains tax surely has Alexander Hamilton continuously turning in his grave. Our country’s founding fathers were generally of the mindset to tax primarily those activities that the public and the government wanted to discourage. Taxing the purchase or sale of foreign made goods, tobacco, luxury items and alcohol made sense to these brilliant architects of a new nation. However, the imposition of taxes on activities that directly promote the interests of the nation as a whole was certainly not what they had in mind.

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4.5 Percent Interest Rates Provide Hopeful Outlook For Home Buyers

Dec 21

Posted by admin in Real Estate

There is a plan in the works to lower the rate on 30-year home mortgages to 4.5 percent, a number not seen in decades for home loans. The plan by the Treasury Department to help the hurting housing industry would be accomplished through purchasing mortgage-backed securities from Fannie Mae and Freddie Mac. For those with good credit and some money for a down payment, it is a great time to buy a house. The downside to this plan is that it does little to help those who are struggling to pay their existing mortgage. While Federal Reserve chairman Ben Bernanke gave new warnings last week about how the growing number of foreclosures is adversely affecting the economy, there seems to be little agreement on how to help.

The Treasury Department plan could only be available to people buying houses, not to those who want to refinance. Thus someone moving in next door could pay considerably less in mortgage payments each month than the person who has owned his house and struggled to keep up the payments at a higher interest rate. It doesn’t seem fair and it only addresses half of the housing market problems. According to the Associated Press, the man in charge of the $700 billion bailout, Neel Kashkari, told a congressional panel last Thursday that the user was reviewing the 4.5 percent mortgage plan. What remains unclear at this point is if the Treasury Department’s proposal would end up applying only to new mortgages or to refinanced loans, as well.

Some economist seemed to believe that a government lending plan that applies only to new loans would not do enough to help the overall economy. But those in the home building, real estate and other related home industries seemed to welcome the proposal. Lawrence Yun, chief economist at the National Association of Realtors, said by spurring new buyers the housing market and the economy would be stabilized. If the Treasury Department does end up using some of the bailout funds to offer help to current mortgage owners, it may or may not be a good idea to refinance. According to Bankrate, good reasons to refinance include getting a lower interest rate, shortening the term of the mortgage to build equity faster, lowering monthly payments or switching from an adjustable rate to a fixed-rate mortgage.  However, homeowners need to consider the cost of refinancing before rushing to the bank. Since getting a new loan can cost around 2-3 percent of the total loan amount, it is important to weigh the cost against the benefits. For instance, if a homeowner plans to be in the house for years to come, refinancing is probably a good idea. But if the outlook for owning a home is less than 3 years, refinancing may not be worth it.

And then of course, there are those really hurting who owe more than their house is worth. This is where the bailout gets very tricky. It seems the logistics of helping those truly facing foreclosure is difficult at best and a losing proposition for lenders at worst. While there are no easy solutions to the current financial crises, at least there are some silver linings. The hope is that a spree of new home buying could help the housing market and eventually stabilize home prices.

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Mortgage refinance for jobless: Is it still possible

Nov 25

Posted by admin in Mortgage Refinance

TheLoansStore offer best mortgage refinancing rate for refinancing mortgage loan, countrywide loan and home loan for the people with all credit situation.

Do lenders concern a mortgage refinance to people who lost their job?

As USA is passing through economical recession many US citizens have already lost their jobs because of this recession. Some companies are reducing their employees and some are reducing the salary. Is a refinance possible for the unemployed people? I would say ‘No’ because the lenders are not ready to take risks. Most of the major lenders were giving the mortgage refinance earlier but since people have defaulted on the mortgage, they have stopped giving the refinance to people with no job.

Is a refinance achievable for people who have made the mortgage payments even after being laid off?

This is one of the most frequently asked questions about the home loan refinancing. Many people are making the mortgage payments regularly after losing their jobs. So they are wondering if the lenders would be ready to give them a refinance despite the unemployment. I know some people who have lost their jobs and they were paying the mortgage promptly. So they asked the lender about a refinance. They understood that the mortgage rates are very low and this is the best time to get a refinance. But their efforts went in vain.

The lender did not accept even after looking at the perfect credit report. So this clearly explains that employment is a very important factor to get a refinance and there is no way that you are going to get approved without a job. Some strange things have also happened to borrowers. Some of them were laid off during the refinance process. Recession has made several people’s lives hard. Since several plans have been introduced by the federal government to stimulate the housing market, let us hope for the best and wait patiently.

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Zillow Says Current Mortgage Rates Decline

Nov 24

Posted by admin in Real Estate

Today Zillow released its survey results about the current mortgage rates, which are based on the polls that were conducted last week. According to it, today’s mortgage rates for the 30-year fixed mortgages are lower and the low interest rates continue to inspire home buyers.

Last week the average mortgage rates decline from 5.19 percent to 5.17 percent. This numbers regard to the 30 years fixed mortgages. However, today’s mortgage rates are even lower. Zillow shows that on today (Monday, September 1) rates for 30-year fixed purchase mortgages decreased further, with the average interest rate on Zillow Mortgage Marketplace at 5.04 percent.

Current mortgage rates on Lending Tree seem to be lower. Today on it’s website we can see that LendingTree Network interest rates for the 30-year fixed is 5.00%. The 15-year fixed is 4.38%. The 5/1 ARM rate is 4.13% currently.

In the case of Zillow, the rate declines varied by state. The lowest decline of the current mortgage rates is registered in Florida and Maryland. For example, in Florida the 30-year fixed rate declined last week from 5.33 to 5.24 percent. In New York last year the rates fell from 5.31 to 5.28.

On the West coast the movement in the current mortgage rates is not big. For example, in Arizona last week the 30-years fixed rates fell from 5.23 to 5.22 percent. In Colorado they are down from 5.15 to 5.14 percent. In California the rates last week were 5.12 percent, which were down from the previous week’s 5.16 percent.

We can conclude that the low mortgage rates are back for a little while in today’s housing market. This is a good chance for the home buyers to refinance or take advantage by filling an application for a new house. However, I am wondering will the current rates go up when the Mortgage Bankers Association reports increase in applications and that in turn drives up the demand?

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New Home Sales: A Stunning Slide

Nov 15

Posted by admin in Real Estate

Sales plunged last month to their lowest level in more than 12 years, a grim testament to the problems plaguing the housing sector.

A Commerce Dept. report released on Dec. 28 showed U.S. new-home sales plunged 9%, to a 0.647 million unit annual rate in November, from a downwardly revised 0.711 million in October (from 0.728 million previously). Market forecasters had expected a more modest decline to 0.715 million. Following downwardly revised numbers for August and September, new-home sales are stuck in a steep downtrend.

New-home sales dropped by 19.3% in the Northeast, 27.6% in the Midwest, and 6.4% in the South. However, sales increased by 4% in the West. Over the last 12 months, new-home sales nationwide have tumbled by 34.4%, the biggest annual slide since early 1991, and stark evidence of the painful collapse of the once high-flying housing market.

The supply of homes for sale rose to 9.3 months’ worth from 8.8 (revised from 8.5). Whereas earlier sales and price data had suggested big price cuts by homebuilders were clearing inventory, this pattern has been reversed with the November data and revisions.
Stocks Retreat From Earlier Highs
The median price figures were surprisingly firm, according to Action Economics, rising to $239,100, vs. an upwardly revised $229,500 in October (previously $217,800). Prices are down 0.4% over last year, however. Bear Stearns economist John Ryding called the report “miserably weak.” “[The report] shows, once again, it is too soon to talk about stabilization in housing activity,” he wrote in a Dec. 28 note.

Treasury yields sprinted lower on Dec. 28 following news of the plunge in new-home sales. Stocks retreated from earlier highs, while the U.S. dollar edged lower vs. other major currencies. Fed funds futures prices climbed on the back of the worse-than-expected new-home sales data. Traders have priced in an 84% chance for a 25-basis-point rate cut by the Federal Reserve in January, which would put the Fed funds rate target at 4%.
Problems Likely to Persist
The housing market has been suffering through a severe slump following five years of record-breaking activity from 2001 through 2005. Sales turned weak as did prices. The boom-to-bust situation has increased dangers to the economy as a whole and has been especially hard on some homeowners.

Foreclosures have soared to record highs and probably will keep rising. A drop in home prices left some people stuck with balances on their mortgages that eclipsed the worth of their home. Other homebuyers were clobbered as low introductory rates on their mortgages jumped to much higher rates that they couldn’t afford.

With credit now harder to get to finance a home purchase, the problems in housing have grown worse. Unsold homes have piled up, and the problems are expected to persist well into next year.

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How Lower Home Prices Hurt Everything

Nov 14

Posted by admin in Real Estate

Words like “stabilization” and “contained” have all but evaporated from the housing economist’s lexicon in the past few months. If anyone was still clinging to the hope that the housing market had stabilized, he probably let go after seeing the latest data. In the second quarter, U.S. single-family home prices suffered their biggest decline in at least 20 years, according to an Aug. 28 report from Standard & Poor’s. And the number of new and existing single-family homes for sale reached almost 4.4 million, the most ever. The glut of unsold homes almost guarantees that prices will continue to drop in the months ahead.

The latest numbers weren’t exactly a surprise-economists have been predicting a worsening housing market for months. Then again, a Category 5 hurricane may not be a surprise, either, but it still hurts when it hits. The housing market’s troubles are currently the source of a passel of seemingly unrelated problems, from stock market weakness to uncertain consumer spending. The housing market’s continued decline is making all of those problems worse.
Consumer Spending on Hold

Automakers and dealers, for example, are directly affected by the housing downturn. A year ago, consumers were still taking out home equity loans and using the tax-deductible cash to buy new cars. That’s drying up, says Mike Jackson, chief executive officer of AutoNation (AN), the nation’s largest car dealer chain. To make matters worse, consumers with adjustable-rate mortgages are paying more every month in interest, causing many to put off buying big-ticket items such as cars and appliances. Says Jackson: “It’s a nitroglycerine combination.”

Businesses like AutoNation can’t easily plan for the worst because they don’t know when housing will finally bottom out. That’s partly because falling housing prices can create a self-reinforcing downward spiral: Lenders pull back when they fear prices will fall, so would-be borrowers can’t buy homes, and prices fall even more. Even well-financed buyers back away when they see prices falling. “There is really no line of sight as to when this will be over,” says Brian Bethune, director of financial economics for the U.S. Macroeconomics Group at Global Insight, a consulting firm. Bethune thinks housing prices could fall an additional 5% or more. Mark Zandi, chief economist at Moody’s (MCO) Economy.com recently raised his estimate for the decline in home prices by the end of 2008 to 10% (peak to trough), from 5%.

While the figures on unsold homes came from the Census Bureau and the National Association of Realtors, the quarterly price figures were from Standard & Poor’s (which, like BusinessWeek, is a division of The McGraw-Hill Companies (MHP)). It reported that the S&P/Case-Shiller 10-City Home Price index fell 3.2% in the second quarter of 2007 from a year earlier. While regional slumps are relatively common, nationwide annual declines in home prices are rare.
Affordable Mortgages? Forget It

When home prices fall, defaults and foreclosures rise. “Home prices have historically been the biggest factor in determining the levels of default,” says Jay Brinkmann, vice-president for research and economics at the Mortgage Bankers Assn. One reason is that homeowners hit by life events such as divorce, a major illness, or the loss of a job are less able to get out from under a mortgage to cover the expense if the value of the home is falling. Also, borrowers who had intended to refinance into more affordable mortgages can’t do so when they have little or no equity. According to RealtyTrac, foreclosures in July rose 9% from June and 93% from July, 2006.

Falling prices also cause buyers to back off. The most direct hit to the economy is through the downturn in housing construction, which was a major source of job growth during the boom. Economists at JPMorgan Chase (JPM) now see additional contractions in residential construction taking a full percentage point off of growth for the next three quarters. The indirect hit to the economy is through consumer spending on everything from cars to dishwashers to holiday presents. An outright recession remains unlikely, but it can’t be dismissed. A lot depends on when the housing market finally stabilizes, which no one can say for sure.

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Did Countrywide Get a Hand from the Fed

Nov 13

Posted by admin in Real Estate

The question was all over Wall Street last week: Was the credit crunch threatening the survival of Countrywide Financial (CFC) (see BusinessWeek, 8/15/07, “Mortgage Lenders: Close to the Edge?”)? A bankruptcy filing by the largest U.S. mortgage lender would have jolted the economy, squeezing Countrywide’s many creditors and tormenting the already wounded mortgage and housing markets.

Then the Federal Reserve acted on Aug. 17, temporarily cutting the primary discount-window rate by 50 basis points. The move let banks know that the Fed was willing to add liquidity to the financial system, loosening up increasingly tight credit conditions. That eased, at least for now, some of the worries about mortgage lenders that have been stung by deteriorating conditions in the housing market.

Was the Fed action on Aug. 17 effectively a Countrywide bailout, saving a company many saw as too big to fail? Fed watchers and banking experts say far more is at work here. The Fed wasn’t reacting to Countrywide’s plight as much as the conditions that put the lender in such deep trouble.

“What happened with [Countrywide] is just a reflection of how quickly markets seized up,” says Nancy Vanden Houten, an economist at Stone & McCarthy Research Associates.
Fears of a Failure

Despite the worries and rumors, many thought a Countrywide bankruptcy remained quite unlikely.

Until recently, Countrywide was seen as one of the strongest and most durable of players in an industry stretched by rising delinquencies on subprime and other risky mortgages. Even as a Merrill Lynch (MER) analyst warned last week that Countrywide could be approaching bankruptcy, several other analysts were saying the firm would survive even a bad credit crisis.

“We thought they were overblown,” Morningstar (MORN) equities analyst Erin Swanson says of bankruptcy fears.

True, Countrywide’s creditors were getting nervous. Many mortgage lenders have been a victim of the freezing-up of certain parts of the credit market. Lenders raise cash to fund operations by reselling mortgages to investors on secondary markets. But many investors were simply refusing to buy up riskier debt.

With fewer chances to resell mortgages and nervous creditors, Countrywide had to call on an $11.5 billion credit line. Ratings agencies downgraded Countrywide debt. But Countrywide’s finances and earning prospects still looked good to many analysts. Deposits in Countrywide’s bank gave it stability lacking in other stand-alone mortgage lenders (several now bankrupt).
Dysfunction in Lending

Though Countrywide made its share of risky loans, it also handles billions of dollars in conventional and prime loans. It’s not as if the market was punishing Countrywide for “bad choices,” Vanden Houten says. Rather, the credit markets seemed to be panicking, punishing all mortgage lenders.

“While the housing and mortgage markets are severely challenged,” Piper Jaffray (PJC) analyst Robert Napoli wrote Aug. 17, “we believe the prevailing fear in the credit markets eclipses the actual credit and housing problems.” (Piper Jaffray makes a market in Countrywide stock.)

Countrywide’s problems were the latest signs of real dysfunction on credit markets, the so-called credit crunch, which threatens to crimp lending by banks and the issuance of commercial paper. Those are key foundations of the U.S. financial system, and threats to those foundations caused the Fed to act, experts say.

The Fed lowered the rate on borrowing from its discount window. That money is available to banks who need cash short-term. Lowering the rate “gives the banks another place to go to get liquidity,” says Donald Dutkowsky, a professor of economics at Syracuse University who has studied the discount window.
Fed Soothing

The direct effect on Countrywide is limited. However, as a bank, it could also use the discount window if it wanted.

The indirect effect, however, is to defuse the panic that has gripped credit and stock markets.

“Overall, it’s having a calming effect,” Swanson says. “That’s probably the biggest benefit right now.”

The Fed made clear it’s willing to intervene to deal with credit issues, and it hinted it is changing its stance on interest rate cuts. The fact that the Fed is more willing to lend itself “may lend a sense of calm that allows other institutions to feel more comfortable to borrow and lend from one another again,” Vanden Houten says.

Countrywide shares were up almost 12% by midday on Aug. 17.

But plenty of worries remain about Countrywide. The stock is still being punished by the last week of credit problems and bankruptcy worries. Before Aug. 17, it had fallen more than 33% in a week.
Countrywide Concerns

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