Welcome
Use any metaphor you want: the ticking clock, sands running through the hourglass or pages falling away from the calendar. The fact is, time is running out to claim the $8,000 first-time homebuyers tax credit.
Passed earlier this year as part of the economic stimulus package, the credit is good for up to $8,000, or 10% of the purchase price, and applies to people who have not owned a home in the previous three years. (There are some income restrictions.) The best part: Unlike a similar program from 2008, the credit does not have to be repaid.
The bad part: It ends on Dec. 1.
Because it usually takes around 90 days to close on a house after a contract is signed, buyers have very little time left to act. As of Thurs., Aug. 27, there were only 96 days left before the credit ends.
"Buyers have to get a home under contract very, very soon," said Tom Kunz, CEO of Century 21. "They probably should get out looking."
Sense of urgency
What they will find may surprise them: Many of the prime properties have already been snapped up. Home sales have been on the upswing, and inventories are so depleted in hot markets that first-time buyers are struggling to find homes in their price range. (Check prices in your city.)
In Whittier, Calif., for example, there are few repossessed homes for sale. Those are easy to buy because there isn't a lot of red tape and the bank wants to get rid of them as quickly as possible. Instead, most of the properties are short sales, where the sellers have to convince their lender to let them sell the house for less than they owe.
"That's why there's such a sense of urgency now," said Irma Tapper, a Century 21 real estate agent in Whittier. "The banks have to approve short sales, and they're taking three to six months to do that."
That means a first timer putting a bid on a short-sale might not get an answer form the bank until well after the Dec. 1 deadline for the tax credit. So when an actual repossession listing hits the markets, it creates a feeding frenzy.
Chuck Whitehead, who runs the Coldwell Banker agency in Temecula, Calif., said one recent listing hit the market on a Friday and by Monday there were 57 bids.
The National Association of Realtors attributes much of this activity to the first-time buyer tax credit. It estimates that 1.8 million buyers will file for the credit, and 350,000 of them wouldn't have been able to buy without it.
"It makes a big difference because most of these clients are in a lower price range," said Michelle Edmunds, an agent with Coldwell Banker in Temecula, Calf., who has closed sales for six first-time buyers. "The houses they buy need work and normally they wouldn't want to move in because of the [less than perfect] conditions the homes are in."
That is true for Wesley Forsythe. This June, the 30-year-old computer consultant and his girlfriend bought a row house in the Fishtown section of Philadelphia. Since he paid just $80,000 for the three-bedroom, two-bath place, the credit acted like a 10% discount.
"It allowed us to expand our price range and plan additional renovations," he said. "My mortgage is several hundred dollars less than what my new rent would have been."
Forsythe applied for the credit immediately after closing, filing an amended 2008 tax return. The IRS cut him a check in less than seven weeks. He's spending it now on new hardwood floors, repainting most of the interior and renovating a bathroom. He's stretching the cash by doing much of the work himself.
Cash for Clunkers effect
Of course, analysts worry that this frenzy will dry up once the tax credit expires. They argue that without the incentive, much of the pressure on homebuyers to act quickly will vanish, and the nascent housing recovery could slump.
In many ways the tax credit is similar to the Cash for Clunkers program that ended this week. Already, auto dealers are anticipating that car sales will evaporate after accelerating during the program.
"It's just like Cash for Clunkers," said Robert Dye, a senior economist for PNC Financial Services Group. "It runs the risk of a let-down as the program runs its course."
Johnny Isakson, R-Ga., who is a former real estate broker, is pushing legislation to extend the tax credit through next year, increase it to $15,000, include non-first-time homebuyers, and remove income restrictions.
The effort has drawn strong industry support.
"We need to stimulate the move-up buyer," said Century 21's Kunz, "so it works its way up the pricing food chain. That's what we need to get inventory moving again."
Investors have been putting money back into hedge funds over the last three months as the worst of the credit crisis appears to have passed, but analysts say a return to the industry's heyday is not likely.
For the first time since December 2007, more money has flowed into hedge funds than has been redeemed for three months in a row, data from HedgeFund.net showed Friday.
In July, investors put $6.7 billion into the risky investment vehicles. That came after a more robust $19 billion inflow in June and $16 billion in May.
The slowdown in July came as investors took "more of a wait and see attitude," said Peter Laurelli, head of hedge fund industry research at Channel Capital Group Inc., which operates HedgeFund.net.
"However, I suspect the July performance may have influenced some of those sitting on the sidelines, and I would expect to see modest positive inflows again in August," he said.
Assets managed by the 7,100 funds in HedgeFund.net's database rose 2.6% in July to $1.84 trillion, driven by strong gains in stock and commodity markets.
Off the lows
The renewed interest comes as the financial markets have rallied broadly from the lows hit in March and the most dire economic scenarios have been largely ruled out.
"Investors in general are becoming more optimistic," said Nadia Papagiannis, a hedge fund analyst at Morningstar. "That's part of why we're seeing inflows now."
May was the first month in which Investors put more money into hedge funds than they pulled out since September 2008, when the collapse of Lehman Brothers sparked a mass exodus from the hedge fund industry.
Still, the amount of money flowing back into hedge funds pales in comparison to the amount pulled out earlier this year.
In April, nearly $60 billion flowed out of hedge funds, which eclipsed the inflows in the following months and contributed to a net outflow of $25 billion for the whole second quarter.
A total of $255.5 billion flowed out of hedge funds during the first three months of the year.
0:00 /2:44The danger of asset bubbles
Looking ahead, investors are expected to continue putting money back into hedge funds, although on a small scale.
"The trend is going to be money flowing into hedge funds," Papagiannis said. "But it's not going to be as strong as it was before the credit crisis."
That's because many hedge funds were stuck holding illiquid assets during the credit crisis, and investors, including large institutional funds, could not access their money when they needed it most.
Now, investors are looking for investment vehicles that offer more liquidity and are shying away from strategies that involve a high degree of leverage, which hedge funds are known for, according to Papaginnis.
Leverage involves using borrowed capital to maximize the return of an investment. But the financial crisis showed that leverage can result in spectacular losses when markets unexpectedly turn.
Still, hedge funds remain a viable option for investors looking for strategies that other vehicles don't offer, Papagiannis said.
An index of economic indicators rose in July for a fourth straight month, in another sign that the recession is bottoming, said a report released Thursday.
The Leading Economic Index rose 0.6% in July, after a 0.8% increase the previous month, according to a report from the Conference Board, which has a membership of executives from around the world.
"The indicators suggest that the recession is bottoming out, and that economic activity will likely begin recovering soon," said Ken Goldstein, economist at The Conference Board, in a prepared statement.
The Leading Economic Index is based on 10 components, six of which increased in July: interest rate spread, average weekly initial jobless claims, average weekly manufacturing hours, index of supplier deliveries, stock prices, and new orders for nondefense capital goods. Meanwhile, readings fell for consumer expectations, real money supply and building permits.
This index reading is the latest sign of a nascent recovery. Earlier this month, the Federal Reserve released a statement that said the economy is "leveling out." The central bank cautioned that activity will remain weak in the near term, but it marked the Fed's most bullish assessment of the economy in more than a year.
And this week the International Monetary Fund's chief economist said the global economic recovery has begun, but cautioned that in order to see sustained economic gains the U.S. needs to focus on exports.
While the battered labor market remains weak, the unemployment picture showed some signs of improvement in July. The Labor Department reported the fewest job losses since August 2008, and the unemployment rate fell for the first time since April 2008.
However, no single indicator marks an official recovery. Only the National Bureau of Economic Research can declare when the recession is over. Because it takes so long to crunch the economic data, the NBER generally doesn't announce the date that a downturn ended until at least several months after the fact.
Oil fell towards $70 a barrel on Wednesday after U.S. government inventory data showed a build in crude stocks and weak economic data raised doubts about oil demand recovery in the world's largest energy consumer.
U.S. light, sweet crude fell 81 cents to $70.61 a barrel, giving away some of the gains that helped oil rise 13% since late last week.
U.S. crude inventories rose more than expected last week as refinery runs eased, while distillate stocks showed a surprise draw, according to weekly data from the U.S. Energy Information Administration (EIA) released on Wednesday.
Crude stockpiles in the world's top consumer rose by 1.7 million barrels in the week to July 31, against forecasts for an 800,000-barrel build as refinery utilization fell by 0.1 percentage point to 84.5%.
"The big build on crude caught some people by surprise and shows overall weakness in the economy and the unwinding of economic optimism. Nothing in the numbers was very bullish," said Phil Flynn, analyst at PFGBest Research in Chicago.
The EIA data followed inventory numbers on Tuesday from the American Petroleum Institute, which showed crude stocks fell 1.5 million barrels last week but gasoline stocks rose by a further 2.1 million barrels.
Oil was already lower before the release of inventory figures as doubts over economic recovery and demand for fuel resurfaced after weak U.S. services sector data depressed stock markets both sides of the Atlantic.
Expectations that a turnaround in the global economy could lift sagging oil demand has helped send crude up from lows below $33 a barrel in December, with energy traders keeping an eye on equities markets for signs of an economic rebound.
Investors were awaiting news from a meeting between trade representatives and Britain's financial powers, the UK Financial Services Authority (FSA) and the UK Treasury, which comes before a third Commodity Futures Trading Commission (CFTC) hearing in Washington over how to rein in speculation.
The UK meeting will discuss market transparency and efficiency, according to the FSA invitation to oil market participants, a copy of which has been seen by Reuters.
Energy traders also were watching an area of thunderstorms in the Atlantic Ocean several hundred miles southwest of the Cape Verde Islands associated with a tropical wave. The U.S. National Hurricane Center said it had less than a 30% chance of becoming a tropical storm.
