2007 Outlook: Don't Sweat Housing
A top economist and market strategist at Citigroup both said Monday morning they did not think the housing slowdown is going to cause the economy to plunge into a recession or the stock market to fall into a tailspin in 2007.
Speaking at a breakfast for financial reporters at the company's headquarters in New York, Citigroup senior economist Steven Wieting said that concerns about a recession due to softness in the housing market are overdone.
In fact, Wieting said that if the housing market had not cooled this year, that would have presented a greater risk to the economy since it most likely would have led to increased inflation and probably more interest rate hikes from the Federal Reserve.
"Without the housing downturn, the economy would be overheating and there would be more inflation and tightening pressures," he said.
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Record Drop in House Prices
According to an industry group, the price of existing homes sold in October fell for the third straight month and posted the biggest drop on record adding it expects weakness in pricing to drag on into next year.
The National Association of Realtors said that the median price of a home sold in October was $221,000, the same as in September, but down 3.5 percent from October 2005.
The previous record drop was a 2.1 percent decline in November 1990, the real estate group said.
While month-to-month declines in home prices are not uncommon, year-to-year drops had been rare before the recent housing slump.
August was the first month in 11 years to see such a decline. September was originally reported as a record 2.2 percent drop, but a revision in those numbers put that price decline at 1.8 percent.
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New Home Building Activity Falling
New home-building activity in the U.S. resumed its decline in October, tumbling to its lowest level in six years as builders dealt with bloated inventories of unsold property.
According to the Commerce Department, housing starts decreased by 14.6% to a seasonally adjusted 1.486 million annual rate. Building permits, an indicator of future building activity, fell a ninth consecutive time.
The government also lowered its original estimate for September starts, a number some economists considered a fluke. Construction rose 4.9% to 1.740 million in September, revised from an originally reported 5.9% climb to 1.772 million. Starts fell 5.7% in August, 4% during July, and 6.1% in June. Construction rose 6.6% in May.
Economists had expected a less-severe drop in October. The median estimate of 22 economists surveyed by Dow Jones Newswires was a 5.6% fall to a 1.672 million annual rate. The 14.6% decline was the largest since 16.1% in March 2005, and it carried starts to their lowest since 1.463 million in July 2000.
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Reducing Income Tax
Because of income tax deductions, the government is basically subsidizing your purchase of a home. All of the interest and property taxes you pay in a given year can be deducted from your gross income to reduce your taxable income.
For example, assume your initial loan balance is $150,000 with an interest rate of eight percent. During the first year you would pay $9969.27 in interest. If your first payment is January 1st, your taxable income would be almost $10,000 less – due to the IRS interest rate deduction.
Property taxes are deductible, too. Whatever property taxes you pay in a given year may also be deducted from your gross income, lowering your tax obligation.
Buying Home in the U.S. by Foreigners
Recent law changes grant non-permanent resident aliens most of the same purchase and home-financing opportunities that American citizens have.
When buying a house, foreigners don't need to worry anymore about their good employment and credit records becoming lost in translation since many major U.S. lenders now use credit-reporting agencies that have reciprocal agreements with European countries and can use a simple currency conversion table to track your current income and assets.
However, a foreigner needs to come up with a down payment of 20 percent to 25 percent of the purchase price, depending on the rules of the lender, which is a little higher than what most Americans pay. Nevertheless, the home-buying process in the U.S. is relatively simple and less bureaucratic for a foreigner than it would be in most countries and there are hundreds of web sites where you can view American properties online from the comfort of your European home to facilitate your search.
Read more about what foreigner should know when buying a house in the U.S. …
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