Economists: Recession to end in 2009

A recovery in the second half of this year will be 'moderate,' according to a report from the National Association for Business Economics.

By Julianne Pepitone, CNNMoney.com contributing writer

May 27, 2009: 3:31 AM ET

NEW YORK (CNNMoney.com) -- The end of the recession is in sight, according to a new survey of leading economists.

While the economy is showing signs of stabilizing, the recovery will be more moderate than is typical following a severe downturn, said the National Association for Business Economics Outlook in a report released Wednesday.

The panel of 45 economists said it expects economic growth will rebound in the second half of 2009. However, the group still expects to see a decline in second-quarter economic activity.

"The good news is that the NABE panel expects economic growth to turn positive in the second half of this year, with the pace of job losses narrowing sharply over the remainder of this year and employment turning up in early 2010," said NABE president Chris Varvares in a written statement.

Almost three out of four survey respondents expect the recession will end by the third quarter of 2009, the report said.

But 19% predicted that a turnaround won't come until the fourth quarter, and 7% said it may not come until early 2010. None of the panelists expected the recession to continue past the first quarter of next year.

GDP: The report predicted a 1.8% decline in real GDP in the second quarter of 2009, bringing the total year-to-date decrease to 3.7%. That's the biggest drop since 1957-1958, the report said.

Still, "a modest second-half rebound in real GDP is expected," the report said, with economic growth turning positive in the third quarter. Real GDP growth over the second half of 2009 is expected to average 1.2%, which is well below average, the report said.

"Growth in 2010 is slated for a return to near its historical trend," the report said, predicting a 2.7% year-over-year increase. The NABE's February outlook had predicted a 3.1% uptick.

Jobs: The panel forecast a total of 4.5 million jobs lost in 2009, pushing the unemployment rate to 9.8%. Modest gains in 2010 will reduce the rate to 9.3% by year's end, the report predicted.

Separate reports this month showed the unemployment rate is currently down in 21 states and stands at 8.9% nationally.

Deficit: Government spending "will provide vital support to the economy," and will be the only expenditure sector to grow in 2009, the report said.

But that spending will help push the federal deficit to a record-high $1.7 trillion in the 2009 fiscal year, before falling slightly to $1.4 trillion in fiscal 2010.

Housing: New and existing home sales are close to their lows, with 72% of NABE panelists expecting sales to hit bottom by the middle of 2009.More than 60% of those surveyed said housing starts would also bottom out at the same time.

The panelists were split on the issue of when home prices will hit their lows: 30% said it would happen by the third quarter of 2009; 30% said the fourth quarter; and 40% said declines will continue into 2010 or later. The median prediction is that home prices will rise 1% in 2010, the report said.

Spending: Widespread job losses and weak income growth have reduced consumer spending and boosted the personal savings rate, the report said. The savings rate has seen two consecutive quarters of sharp increases, holding above 4% through March. More than 70% of the panelists expect "more thrifty behavior is here to stay, at least for the next five years," the report said.

Credit: Obtaining long-term and short-term financing is still difficult, which poses a risk to the economy,but 90% of respondents said actions from the Federal Reserve have helped to ease the credit crunch.

Five-year outlook: More than half of the NABE economists said they expected potential growth of the U.S. economy over the next five years to be between 2% and 2.5%; 37% of respondents forecast growth between 2.5% and 3%, while 7% of the panelists said growth will be higher than 3%. 

$8,000 toward down payment

FHA credit will give first-time home buyers $8,000 toward down payment

Posted by Cami Reister | The Grand Rapids Press May 16, 2009 05:00AM

Matt and Liz Hedges want to be first-time home buyers, and they know the market is ripe.

The couple live on Matt's income while Liz stays home to care for their 9-month-old son. They still are building an emergency fund, so they were looking at a zero-down loan program.

But their plan changed with news this week the Federal Housing Authority soon will allow the $8,000 first-time buyer tax credit to be used as a down payment.

"This really broadens our options and areas where we can look," said Liz, 24. "If we had to wait, we'll wait. But we really want to take advantage of all the incentives right now."

They are among many potential first-time buyers interested in the announcement this week by Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development , that the FHA soon will allow the tax credit to be used as a down payment via a bridge loan from a lender.

Donovan delivered the news Tuesday in a speech at the National Association of Realtors Real Estate Summit in Washington, D.C.

"FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to 'monetize' the tax credit through short-term bridge loans," Donovan said in prepared remarks.

Details have yet to be released, but some real estate agents hope it will be the tipping point to reverse a long-suffering market.

Rick Seese, associate broker and manager of Greenridge Realty's Lowell office, said it will make a huge difference.

"America is probably more cash strapped than they have been at any time in the last 10 to 20 years," Seese said. "This will allow a buyer to put $8,000 down. If they qualify for the whole $8,000, that can represent a 5 percent down payment."

Even buyers who have a down payment saved up are interested in it, said Five Star Real Estate agent Mary Kent.

"Maybe it's going to open up some doors that might not have been opened prior," Kent said.

Cathy Hoppough said the down payment option is good, but even more needs to be done. The broker of Coldwell Banker Hoppough & Associates in Ionia lists foreclosed properties for HUD and several lenders.

"We need about a $15,000 credit for every buyer out there, not just first-time buyers, to stimulate the housing market," Hoppough said.

"There are a lot of other people out there who would be stimulated to buy something if it applied to them."

Waiting for details

Lenders are waiting for the FHA to release details of the down payment plan.

Based on the limited information so far, Rusty Darter of Byron Bank said it has the potential to help several buyers, but it is not for everyone.

"It concerns me a little bit when someone borrows money to be able to come up with a down payment to be able to borrow more money to buy a house," he said.

"What if there are things in that person's life that offset that tax credit and ... their refund becomes less than the down payment?"

Until the details are released, it's hard to know, he said.

"On the face, it does look like a good opportunity."

E-mail Cami Reister: creister@grpress.com

© 2009 Michigan Live. All Rights Reserved.

FHA Plans to Offer $8,000 Upfront to First-Time Buyers

CAUTION:  “Although it remains to be seen how the program is actually implemented, the plan resembles former seller-funded down payment assistance programs,” writes housing analyst Ivy Zelman in a research note Wednesday.

One of the problems during the housing boom was that many people were able to buy a home with little or no money down, giving them little financial incentive to work hard to hold on when times got rough.

Now U.S. housing officials are working on a plan that would essentially allow some first-time buyers to purchase homes by paying little money upfront. Rather, they would be able to put an $8,000 income tax credit for first-time buyers towards their down payment on loans backed by the Federal Housing Administration. The idea is to allow home buyers to “monetize” the tax credit. Right now, home buyers must wait until they file their taxes to receive the credit.

The FHA is finalizing a program that would allow approved lenders, non-profits, and state and local governments to fund short-term loans that could be used as down payments to be repaid once the borrower received the tax credit. Once they received their tax credit, they would pay off the short-term loan and put equity into their home.

The FHA requires a minimum 3.5% down payment on loans backed by the agency, which means that buyers could put little or nothing down on homes up to $230,000. “It is close to having nothing down,” says Thomas Lawler, an independent housing economist.

The proposal, hailed by home builders and Realtors, is drawing some comparisons to the no money down programs that the FHA has worked to shut down. Congress ended a program last year that allowed home sellers to fund down payments to home buyers through nonprofit groups, and the FHA has blamed that program for an outsized share of loan defaults. Under that program, nonprofit groups would “gift” the 3% minimum down payment to a home buyer, often funded by the seller of the home. Buyers would move into the home without paying any of their own money for the down payment.

“Although it remains to be seen how the program is actually implemented, the plan resembles former seller-funded down payment assistance programs,” writes housing analyst Ivy Zelman in a research note Wednesday. “We remain concerned that the lenient underwriting standards, low down-payment requirements and now the ability of FHA borrowers to purchase a home without putting any of their own equity into the purchase is creating a tremendous risk for the program and taxpayers in the future.”

Several states, including Pennsylvania and New Mexico, had already instituted similar programs. Housing Secretary Shaun Donovan outlined the plan Tuesday during a speech to the National Association of Realtors. “We think the policy is a real win for everyone,” he said.

Congress approved the tax credit in February’s stimulus bill, which provides up to $8,000 for first-time home buyers on a new or existing home. The tax credit expires Dec. 1.

Readers, would you be more likely to buy a new home if you could spend this tax credit before you file your tax returns?

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Dow in triple-digit rally on jobs, banks

Wall Street advances after payroll losses in April are not as bad as expected and stress test results are finally released.

By Alexandra Twin, CNNMoney.com senior writer

Last Updated: May 8, 2009: 3:47 PM ET

NEW YORK (CNNMoney.com) -- Stocks rallied Friday, extending the two-month rally, after a government report showed employers cut fewer jobs than expected last month. The release of the long-awaited bank stress test results also gave the market a boost.

The Dow Jones industrial average (INDU) gained 130 points, or 1.6%, with 20 minutes left in the session. The S&P 500 (SPX) index rose 18 points, or 2%. The Nasdaq composite (COMP) added 19 points, or 1.1%.

The major gauges are on track to end higher for the week. For the Dow and S&P 500, it would mark the eighth up week in the last nine. For the Nasdaq, it would mark the 9th up week in a row.

Stocks have been rallying since early March, as investors have bet that the worst for the economy and financial sector has already happened. The S&P has jumped 36% since hitting a more than 12-year low on March 9th.

Although the jobs report was not positive, it could have been worse, said Jim Dunigan, chief investment officer at PNC Wealth Management. That appeared to be sufficient reason to get investors back into the market.

"We seem to be turning a corner here with the pace of the contraction in both employment and the overall economy," he said.

Employment report: Employers cut 539,000 jobs from their payrolls in April, the Labor Department reported Friday morning, surprising economists who were looking for job cuts of around 600,000. Employers cut a revised 699,000 jobs from their payrolls in March.

It was the smallest number of job cuts since last October, when the economy lost 380,000 jobs. However, it brings the total numbers of jobs lost to 5.7 million since January 2008. The recession is considered to have started the month before that, in December 2007.

The unemployment rate, generated by a separate survey, rose to 8.9%, as expected, from 8.5% in March, the worst reading since September 1983.

"In absolute terms it was a pretty poor report," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc.

He said it wasn't as bad as the ones that preceded it, but that it was helped partly by short-term factors such as a big increase in government jobs added to conduct the 2010 census.

"The overall employment picture is still bad, but I think people are looking at leading indicators such as weekly jobless claims, which have been declining," he said. "That could mean a better payrolls report in May."

In other economic news, wholesale inventories shrank for the seventh consecutive month in March, falling to $411.7 billion, the lowest level in 16 months.

Financials: The government released the results of the stress tests late Thursday, saying that 10 of the 19 banks tested will need to raise almost $75 billion in anticipation of a deeper recession.

Leading the list was Dow component Bank of America (BAC, Fortune 500), which needs to raise nearly $34 billion. Wells Fargo (WFC, Fortune 500) needs $13.7 billion and Citigroup (C, Fortune 500) needs $5 billion.

JPMorgan Chase (JPM, Fortune 500), American Express (AXP, Fortune 500) and Goldman Sachs (GS, Fortune 500) were among the banks that won't need to raise any additional money.

All the stocks rose at least modestly as investors breathed a sign of relief that the results weren't worse.

The KBW Bank (BKX) sector index added 10.8%.

"The dollar amounts are in ranges that had either been leaked or suspected and there seems to be a pretty orderly resolution to the outcome," Dunigan said. "The other part is that investors are just happy to have it behind them."

Company news: Fannie Mae (FNM, Fortune 500) reported a loss of $23.2 billion in the first quarter, or $4.09 per share, worse than a year ago. The mortgage finance company also said it needs an additional $19 billion from the government.

After the close Thursday, AIG (AIG, Fortune 500) reported a quarterly loss of 97 cents per share versus a loss of $1.41 a year ago. Analysts thought AIG would report a loss of 6 cents per share. The stock inched higher Friday.

Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.28% from 3.32% Thursday. Treasury prices and yields move in opposite directions.

Other markets: In global trading, Asian markets ended higher. European markets ended higher.

In currency trading, the dollar fell versus the euro and the yen.

U.S. light crude oil for June delivery rose $1.92 to settle at $58.63 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery fell 60 cents to settle at $914.90 an ounce. 

First Published: May 8, 2009: 9:46 AM ET

Pending home sales jump 3.2%

Buyers defy expectations with an increase in sales contracts signed during March.

By Les Christie, CNNMoney.com staff writer

Last Updated: May 4, 2009: 11:25 AM ET

NEW YORK (CNNMoney.com) -- Is the housing meltdown ending?

Pending home sales rose in March for the second consecutive month and are up year over year. The Pending Home Sales Index from the National Association of Realtors showed a 3.2% gain to 84.6 from February, when it was 82. The index stands 1.6% higher than a year ago.

The consensus forecast of industry experts polled by Briefing.com had predicted no increase in the index.

It may still take a while before the market gains enough momentum to firmly state that the downturn has been reversed, according to Lawrence Yun, NAR's chief economist. And, the upturn may have been boosted by the first-time homebuyers tax credit, a temporary measure that will lapse in December.

"We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around," said Yun. "This increase could be the leading edge of first-time buyers responding to very favorable affordability conditions and an $8,000 tax credit, which increases buying power even more in areas where special programs allow buyers to use it as a down payment."

The index is understood to be a forward indicator of home sales trends since it measures contracts signed, not completed sales. The up-tick may indicate that home prices have fallen low enough for buyers to get off the fence.

Feeling for the bottom

Yun is not calling a bottom yet, however, because the index is still at a relatively low level. Instead, he's looking toward the summer selling season to determine what direction the market will take. Plus, he would like the number of homes on the market to drop to a more normal level of six to seven months of supply.

"If inventory goes down - it's at just under 10 months now - to below eight months, that would mean we're on the way to a sustainable recovery," Yun said.

Anecdotal evidence indicates that trend may be happening. Realtors and other industry insiders are seeing rising open house attendance and multiple bids on some particularly desirable properties. Plus, pricing has become sharper, according to Sherry Chris, the CEO of Better Homes and Gardens Real Estate.

"Overpricing seems to be ending," she said. "Properties are coming onto the market and selling quickly."

And buyers are feeling a little more urgency, she added. In many markets, buyers have not felt any pressure to make an offer. "They said to themselves, 'I don't have to act immediately. It will still be on the market two weeks from now,'" she said.

Today, buyers are more likely to bid because they perceive the market as at or near its bottom. An April Gallup Poll reported that 71% of Americans thought it was a good time to buy a house.

They don't, however, believe there will be price increases soon; three of four buyers think prices will stabilize or even decline in their areas over the next 12 months, according to Gallup.

Pat Newport, a real estate analyst for IHS Global Insight, is putting less emphasis on pending home sales than he once did for his housing market analyses. There has been a disconnect lately, he said, between the number of properties going into contract (pending home sales) and the number that actually close (existing home sales).

He speculates that this is because buyers are making offers and signing contracts but, because of financing problems, many deals are falling through.

Regional differences

The South saw the largest gain of any region, with pending home sales jumping 8.5%. Pending sales are 7.7% higher there compared with a year ago.

The Midwest gained 3.9% from February and 1.7% year-over-year. Northeast sales fell 5.7% and are off 24.1% compared with March 2008. The West dropped 1% for the month but are up 8.2% year-over-year.

Low home prices continued to help to drive sales, although NAR's affordability index actually fell 2.3% from February, when it hit a historic high. This index is based on family income, home prices and mortgage rates.

"Compared to a year ago, the typical family can pay much less in mortgage costs for the same home, or buy a better home without necessarily increasing their monthly payment," said NAR President Charles McMillan, in a prepared statement. "For buyers who've been on the sidelines and have good jobs, the market has never looked more favorable.  

First Published: May 4, 2009: 10:00 AM ET