Housing Recovery Increasingly Tied to Job Growth
 Steps to limit price declines
may have helped, but economic growth is now
critical.
Home prices in twenty major
metropolitan markets dropped 1.3% from September to
October, the
third straight month-over-month drop,
according to the December S&P/Case-Shiller
home-price index released in late December. The
decline erases a significant share of the modest
gain in home values since prices hit their bottom
early in 2009, and raises the risk of a double dip
in home values over the next year or two.
Economists have been mixed in
their views of the likelihood of a double dip in
housing values. Peter D. Schiff offered one of the
most pessimistic views in his December 30 Wall
Street Journal opinion piece “Home Prices Are Still
Too High.” He noted that the average annual home
appreciation over the twentieth century was 3.35%.
If you apply that historic appreciation rate to
average 1998 home values (a previous peak), today’s
homes are still overvalued by 20.3%. Schiff argues
that once government programs to prop up home values
are removed, home values will actually drop more
than that, perhaps by another 24 – 28% because of
unfavorable economic factors, including current
unemployment and national debt levels and depleted
personal savings.
There are other reasons that
support Mr. Schiff’s pessimism. Right now there’s
still simply more housing inventory than people who
can afford them. Many potential first time buyers
already made their move when the tax credit was
available. A good share of the remainder probably
still remains cautious and the recent declines in
home prices will not bolster their confidence. Not
everyone is so pessimistic. At the other end of the
economic projections are real estate sector trade
associations, who habitually issue optimistic
projections, perhaps to encourage consumers to buy
now, before the price goes up.
The American Homeowners
Foundation thinks that we are at or fairly near the
bottom of housing prices. Even though prices could
soften a little more during 2011, the prospects for
improvement in the housing market by the end of the
year, and sustained growth thereafter, are better
than 50-50.
Mr. Schiff’s views are overly
pessimistic for several reasons. Applying a long
term growth pattern to a uniform product is
realistic, but single family homes are far different
today than they were in 1900. The average new home
built today is about twice the size of a new home
built in 1950, and as the older homes are replaced
there is an inherent increase in home values that
his analysis does not take into account. If you
compare the share of disposable income spent on food
in the U.S. today compared to 1900, a logical
conclusion might be that most Americans must be
starving. A look at the size of the average consumer
in a local mall on any weekend would absolutely
dispel that notion.
While Mr. Schiff is correct
that employment will be a huge factor in housing
demand, employment increases always lag behind
improvements in other U.S. economic indicators. We
are beginning to see healthy improvements in many of
those. Retail sales improved substantially over the
recent holiday season, and have returned to levels
just prior to the recent recession. U.S.
manufacturing continues to expand and our exports
are back to where they were just before the
financial meltdown. Recent surveys show that
optimism levels of business heads have also returned
to near pre-recession levels. The payroll-tax cut
for most workers in the tax package passed last
month will also fuel employment increases.
The government programs to
help prop up home values were realistically only a
bridge to break the free fall in home values until a
recovery could take hold. The foreclosure rate in
many areas is beginning to decline, most likely
because a large share of those homeowners who were
or will be in trouble have already worked their way
through the system. Some of them are already
beginning to work off their excess housing
inventory. As those temporary government price
support programs begin to expire, there is a good
chance that increased housing demand will kick in
and prevent housing values from dropping further. If
that ends up being the outcome, they will have
accomplished as much as could be expected. As new
jobs are created that will accelerate. The
aforementioned economic indicators suggest than a
recovery is in the offing.
It remains true that
significant increases in housing prices in most
markets will not take place until job growth picks
up substantially. Nevertheless, recent indicators
suggest that we will begin to see healthy job growth
in the coming months, and we predict a healthier
housing market by the end of 2011.
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Healthcare the Likely Seminal Battle in 2011
Will it be repeal,
restructure, or a deadlock?
Important parts of the new healthcare law went
into effect on New Year’s Day. Other parts will
phase in over the next three years, including the
requirement that everyone buys health insurance, the
creation of state insurance exchanges, and subsidies
of the cost of health insurance, all of which take
effect in 2014. The bill begins its implementation
as a new Republican controlled House of
Representatives prepares to assume command and a
weakened Democrat controlled Senate returns to the
nation’s Capitol. Vice President Joe Biden recently
estimated that 32 million more people will have
health insurance because of the law. Many Republican
leaders have called for the repeal of the healthcare
law, and many of the newly elected Republicans have
pledged to make the law’s repeal a top priority.
It should be an interesting year, to say the
least.
Among the twenty provisions taking effect this
year is a national,
voluntary program that will allow employees to buy
long-term care insurance. Healthcare plans must
begin calculating the ratios of premiums to payouts
this year, and give subscribers rebates in cases
where they spend less than 80 percent of premiums on
healthcare services starting in 2012. Many of the
other provisions implemented this year impact
seniors, but many others coming online in future
years will affect everybody.
Among them is a 50% discount on some brand-name
prescriptions for Medicare beneficiaries, the second
step in the gradual closing of the Medicare Part D
"donut" hole that will phase in through 2020.
Primary care doctors will get a 10 percent Medicare
bonus for primary care services through 2015. If
there’s a shortage of surgeons in the area, they’ll
also get the same thing. Medicare prevention
benefits will be enhanced, some Part B eligibility
thresholds will be frozen, and some Part D subsidies
will be reduced. Fees for private Medicare Advantage
plans will be gradually lowered and home healthcare
service benefits have been expanded.
All of the provisions that have become effective
this year and will become effective in future years
are laid out chronologically and summarized in a
Kaiser Family Foundation
timeline.
The anticipated Republican strategy to reverse
the law will be to try to withhold its funding,
which would prevent the implementation of many of
its provisions. With their newfound control of the
House, they may well succeed unless a significant
share of Republican members chooses not to support
their leadership. The bipartisan approach to the tax
package at the end of the last Congress raises
another possibility: a negotiated compromise, likely
involving some concessions in other policy areas by
the Obama Administration and Congressional Democrats
to sweeten the deal. At this time it’s difficult to
anticipate what those policy areas might be.
AHGA believes that the most rational approach
would be to continue to implement the new healthcare
law, and track its effectiveness as it is
implemented. Trends prior to its enactment were a
steady decline in the share of Americans who had
healthcare insurance, and spiraling insurance costs.
That trend should not be allowed to continue in a
developed society. We have in place a new healthcare
law, and at least parts of it will help ease the
problems.
No major policy change has ever been enacted that
did not need to be revisited to correct some parts
that didn’t work out as hoped. This law will be no
different, and the most logical course of action at
this point is to track specific components of the
measure carefully as they are implemented this year
and in coming years, and address any problems as
they become apparent. For example, we may find that
the number of people participating in a voluntary
part of the law is disappointing, or that an
unusually large number of states choose to opt out
of the 80% rebate program this year. If so, Congress
should certainly look at alternatives or ways to
improve those areas, but that needn’t require the
repeal of either the entire law or other components
that are working well, or which haven’t been
implemented and may yet work well.
Our hope is that common sense will prevail, and
that Republicans will be willing to give provisions
a chance to work. In cases where they do not it’s
fair to have a good debate over better alternatives,
and if none can be found, abandoning segments of the
new law that cannot be made to work.
As we said, 2011 should be an interesting year.
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How to Cut Home Heating and Other Energy Costs
Simple, common sense steps can save a lot.
The American Homeowners Foundation has developed a free
Home Energy Audit to help
 homeowners reduce energy
consumption and costs. The audit takes about ten minutes and
identifies
opportunities for homeowners to improve the
energy efficiency of their home in the most cost effective
manner.
It is easy to perform the self-directed audit, requiring
only a flashlight, a ruler, screwdrivers, and a printed copy
of the three page audit questionnaire to keep track of your
score. “It takes about ten minutes to walk through a typical
home and fill out the questionnaire,” according AHF
President Bruce Hahn. “It will help you identify many
inexpensive do-it-yourself opportunities like caulking,
where a few dollars in materials can save hundreds of
dollars this year and into the foreseeable future,” he
added.
A typical U.S. home has over 1/2 mile of gaps and cracks.
Through those cracks around windows, doors, and electrical
outlets flow your hard-earned dollars. More energy is wasted
in many other areas of the home as well. The resulting costs
will continue to mount as energy prices increase. Energy
waste in American homes is also a significant contributor to
global warming.
The federal government, and many states, offer incentives
to encourage homeowners to make their homes more energy
efficient. Although some expired at the end of 2010, some
remain, and many states offer their own incentives. More
details on incentives are available on both the
Internal Revenue Service
and
Department of Energy
websites.
There are many other things homeowners can do to reduce
home energy costs. Many of them are lifestyle related. While
inside your home wear warmer layered clothing in the winter,
and light and loose fitting garments in the summer and
you'll use less energy for heating and cooling. Try to spend
more of your time in warmer parts of your home in the
winter, and in the coolest part of your home in the summer
and you’ll also use less energy as well. The top floor of
the south side of a home is usually the warmest and the
lowest level of the north side is usually coolest.
There are other ways for homeowners to save energy as
well. Today you can buy most products on the Internet for
less than their price at a mall and you’ll save gas costs by
not driving to the mall and avoid wear and tear on your
vehicle. In addition, the postal carrier, UPS and FedEx
trucks are coming down your street anyway, so there’s no
added environmental impact in getting the product to your
home. The gas you’re not using will help to reduce global
warming (and the reduction in gasoline consumption will help
keep gas prices lower).
Many jobs today can be performed effectively in a home
office. More employers are supporting telecommuting now that
technology is friendlier to working at home. Think about
asking your employer if you can telecommute. A big SUV that
remains parked in the driveway is even more energy efficient
than a hybrid vehicle in the middle of a rush hour commute,
and you’ll be helping to reduce rush hour traffic jams and
pressure on your state’s transportation infrastructure.
For a free copy of AHF’s ten minute energy audit, simply
send an email to
AHF@AmericanHomeowners.org
with the words “Free Ten Minute Home Energy Audit” in the
subject line. The Foundation will email it back to you in
word format.
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Congress Extends Tax
Cuts
Political crisis avoided in lame
duck action.
Just prior to its December adjournment, a lame duck session
of Congress broke a deadlock over whether or not to extend
expiring tax provisions. The legislation passed by a
surprisingly large bipartisan margin in both the House and
Senate. The $858 billion bill extends Bush era individual
income tax rate cuts for all taxpayers for another two
years, provides workers a new payroll tax break, and wealthy
heirs a lower estate-tax rate. Individual taxpayers were the
biggest beneficiaries, and their tax cuts account for about
$700 billion of the bill's total cost.
Numerous other special tax breaks were extended in the
package as well. Some new benefits were added and some
existing ones, including several that benefit homeowners,
were reduced or eliminated. Middle-income Americans fared
well overall, thanks in large part to the new payroll-tax
holiday. Those with the largest average gain in after-tax
income, compared with current tax policies, earn between
$35,000 and $64,000. They gain about $613, or 0.9% of their
income. The tax deductibility of mortgage insurance premiums
was extended for a year, but the local property tax
deduction for homeowners who don't itemize their deductions
(usually moderate to middle income homeowners), which
expired in 2009, was not reinstated. Unfortunately many tax
credits that encourage the use of energy-efficient
components in remodeling were also cut back substantially.
Nevertheless, the outcome was a success when you consider
that a failure to act on such a broad array of tax measures
would have created economic chaos, and the intense
partisanship during debate made that a real threat. Even
though the American Homeowners Grassroots Alliance was
disappointed that some provisions that benefit homeowners
did not make it into the final package, it praised both the
Administration and Congress for their efforts.
Ironically, the huge package came on the heels of the
recommendations for severe federal budget austerity by the
President’s Deficit Commission and several other highly
respected groups of economists and political leaders. “We
agree with the need for budget austerity, and believe that
Congress should enact some synthesis of the President’s
Deficit Commission’s recommendations and similar suggestions
by others to bring down the deficit,” said American
Homeowners Grassroots Alliance President Bruce N. Hahn.
“However, the current recovery is still nascent and fragile
at best. The economy needs further momentum before it
regains the strength needed to withstand future budget cuts,
and this package will hopefully provide one last dose of
stimulus that will get us to that point.”
Another positive element of the exercise is the
bipartisanship that led to the resolution of the challenge.
Substantial numbers of both Democratic and Republican
legislators supported the measure. At the same time there
was dissension within both parties from legislators on the
far left and far right who opposed compromise. This may set
the stage for a similar centrist approach to some other
tough issues in the next Congress. Neither the far left nor
the far right will be any happier with such an approach in
2011, but moderate voters – who outnumber both hardcore
liberals and hardcore conservatives, would certainly be
pleased.
In the interest of encouraging a more bipartisan approach
in the future, AHGA encourages its members to thank their
senators and/or representative if they supported the effort,
and remind any who didn’t that a divided Congress will only
be able to do its job in 2011 if both sides give a little.
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Curb appeal is big plus for home
sellers as well.
REMODELING Magazine’s recently released 24th annual Cost
vs. Value Report shows that exterior home improvements are
leading the list of home improvements based on the return on
investment. The free 2010-2011 report covers 80 U.S. cities
and is available for download at
http://www.costvsvalue.com.
The report contains data that compares construction costs
for popular remodeling projects against the share of those
costs recovered at resale. In addition to city data, the
report includes tables with national and regional averages,
as well as complete project descriptions, 3-D images and
QuickTime movies for all 35 projects surveyed.
The best return on investment was a steel entry door
replacement which provides a 102% return on the cost at
resale. A garage door replacement provides an 84% return.
Projects with a 70-80% return included attic bedroom
remodels, basement remodels, wood decks, minor kitchen
remodels, window replacements and siding replacements. It is
interesting that half of the eight best returns on
investments, including the two top ones, were exterior
improvements. This suggests that they might be effective
investments for home sellers looking for an extra edge in
the curb appeal department. The best return on investment
for owners of single family homes will be landscaping in
many cases. Thoughtful landscaping on an under landscaped
home can return more than 100% of the investment, especially
if you plant smaller trees and shrubs and give them a few
years to grow.
The two lowest returns on investment (under 50%) were
home office remodels and backup power generators, both under
50%. The former was somewhat surprising that home office
remodels, which had an average cost of $29,000 yet returned
just over $13,000 at resale have such a low rate of return
given the growing popularity of teleworking. It may be that
more modest permanent home office remodels, or ones that use
available furniture or other alternatives to built ins can
provide better returns.
Homeowners can improve the rate of return on these
projects by doing some of the work themselves. Fairly simple
and end of job tasks such as painting and installing trim
(moldings, baseboards , etc.) are easy enough for most
homeowners. You can also save money by buying kitchen
appliances from discounters or on sale rather than getting
them through a remodeling contractor.
One important word of caution: complaints about
remodeling contractors continue at the top of the American
Homeowners Foundation’s and Better Business Bureaus
complaint list. If you are doing a substantial remodeling
project, always utilize a comprehensive written contract to
protect interests. The Foundation offers an inexpensive 8
page model contact in MS Word digital format. Available on
our
website,
it is written in plain English and intended to reduce
disputes by giving both parties a clear sense of their
respective obligations and responsibilities. Other
organizations offer them as well. An attorney can also draw
up a contract, and if a remodeling contractor wants to use
his own contract form, you should always consult an attorney
if there are any parts you don’t understand.
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Please take the time to contact your legislators and express your
views on pending policy issues covered in this
month’s Home Base. It's easy - you can reach your
legislators by email in a couple of mouse clicks,
and you can use the content in Home Base and
elsewhere on our website to help you develop your
message.
To look up the phone number, email, and/or postal address of your
U.S. Representative or your two U.S. Senators, (or
your state representative or state senator)
click here. You can also look up which
legislators represent your zip code if you don’t
recall their names.
A personal meeting is a particularly effective way
to get their attention and reinforce your message.
Many legislators are also happy to meet personally
with their constituents when they are back home on
weekends or when Congress is not in session. Most
are back in their home states now running hard for
the November election, so they are particularly open
to hearing the views of their constituents.
Please consider also requesting a follow up
face-to-face meeting in their home state or home
district offices near you when you contact their
Washington DC offices on policy issues.
Is there a policy issue that
is particularly important to you which significantly
impacts homeowners or home ownership? We are in the
process of updating our annual issue guide for 2011.
We share this document with federal and state
legislators and with the media. Any member may
propose a position on a policy issue, so please
check the
American
Homeowners Grassroots Alliance's 2010 Issue Guide.
If it isn't on the list, we invite you to send us an
email and tell us why you think the American
Homeowners Grassroots Alliance should take a
position and work on it.
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