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Hopes are rising that the housing market has finally hit bottom. In addition to better-than-expected home sales reports, many homebuilder stocks are surging.

NEW YORK ( -- Has the housing market finally hit bottom? It's probably too soon to say -- but Wall Street sure seems to think so.

The Commerce Department reported Wednesday that new-home sales rose almost 5% last month after hitting their lowest point ever in January. Economists were expecting a decline of about 3%

This comes on the heels of two reports showing a better-than-expected gain in existing-home sales and the first increase in construction of new homes since June.

Investors have taken notice. The SPDR S&P Homebuilders (XHB) exchange-traded fund spiked about 8% higher Wednesday morning. The ETF includes several leading homebuilders, as well as companies with strong ties to the housing market like Home Depot (HD, Fortune 500) and Lowe's (LOW, Fortune 500) and paint maker Sherwin Williams (SHW, Fortune 500).

Talkback: Do you think housing has finally hit bottom?
Over the past two and a half weeks, a period when the entire market has surged, the homebuilders ETF has been one of the big leaders -- it is up more than 40% compared to about 20% for the S&P 500.

In fact, even though the broader stock market is still down sharply this year, several homebuilding stocks are actually in the black, including D.R. Horton (DHI, Fortune 500), Lennar (LEN, Fortune 500) and Pulte Homes (PHM, Fortune 500).

Now what does all this mean? Are savvy investors declaring that the worst is over for housing and that it's time to start plowing back into homebuilders? Perhaps. Still, it's hard to get overly excited about the recent housing data.

Investors have to be cautious.

Even though some of the February numbers suggest that the that the credit markets may be finally thawing after the Lehman Brothers collapse-induced freeze, many experts warn that isn't the same thing as a healthy housing market -- especially since home prices continue to fall.

In addition, the unemployment rate has risen sharply in the past few months and many economists expect that trend to continue.

So even though mortgage rates have been falling and banks may be more willing to lend now that the Treasury Department has a plan to help them unload some of their most troubled assets, that may not be enough to counter the growing ranks of unemployed who can't buy under any circumstances.

Nonetheless, one fund manager who owns several homebuilder stocks said that even though it's premature to predict a housing recovery, the group has been beaten down so far that it won't take a significant real estate upturn for more share-price gains.

"One month does not a trend make. We're hopefully bouncing along the bottom but happy days are not here again," said John Buckingham, manager of the Al Frank fund. "Still, many of the stocks have been priced for the Great Depression 2. Lots of homebuilders have been generating cash during the downturn and their balance sheets, believe it or not, are in good shape."

Buckingham said he's a little concerned by the sharp recent run-up in the stocks. But he said he still likes shares of several of the larger builders, including MDC Holdings (MDC), Ryland (RYL), D.R. Horton and KB Home (KBH, Fortune 500), for the long-term.

At the end of the day, stabilization in the market is what is needed before a recovery. It's the classic case of learning to crawl before you can walk, let alone run.

Buckingham said that as long as the housing numbers are "getting less worse" that should be treated as encouraging news by investors. He added that even though some may dismiss February's surprising sales strength as a byproduct of more demand for foreclosed homes, any boost to sales is a good sign.

"Clearly there is interest in homes. Whether it's in foreclosure or not, there's still a buyer. That helps put in a floor on prices and could boost confidence," he said.

Another investor in several housing-related stocks agreed that the housing picture looks less bleak. But he added that investors will need to be patient. Just as the housing market didn't collapse overnight, a rebound won't take place quickly either.

"It's exciting that the numbers are perking up and the government's efforts to bring mortgage rates down are helping," said Doug Ober, chairman and CEO of Adams Express (ADX), a closed-end fund that invests mainly in U.S. stocks and owns Ryland, Lowe's and cabinet and plumbing fixtures maker Masco (MAS, Fortune 500). "But I think that probably the market is a little early on this. This is going to be a recovery that will take several years.



While all the cameras are pointed toward the White House for how the new administration will solve the housing crisis -- the market has decided to not wait for bail out money and move forward across the whole state of Florida.

 A report in the Orlando Business Journal points out sales are headed upward in the Sunshine State. "Statewide, sales of existing, single-family homes were up 13 percent in the fourth quarter, compared to the same period a year prior, according to the latest statistics from the Florida Association of Realtors. It marks the second consecutive quarter that the Sunshine State has reported a rise in home sales."

The FAR President Cynthia Shelton says consumers are picking up good deals. "Many people are looking at today's market and seeing opportunities to find the home or business they've always wanted."

The fourth quarter showed extraordinary signs of strength, with more than 30,000 existing homes selling statewide, up from 26,635 existing homes sold during the same quarter in the previous year – a 13 percent jump.

For January, sales of existing homes were up 24 percent statewide, raising hopes that the bottom was hit and sustained recovery is on its way. The Business Journal reported "Only six of the 20 metropolitan areas covered by FAR saw declines with sales going up 24 percent statewide to 8,450 units. Median sales prices fell to $138,500 across Florida, down 33 percent from the $206,900 median price a year before."

Published: March 13, 2009


Officials release details of $75 billion loan modification and refinancing programs. Borrowers can start contacting loan servicers, though companies will need time. 

NEW YORK ( -- The Obama administration's foreclosure prevention program was launched Wednesday.

The multipronged fix calls for companies to help as many 4 million struggling borrowers by modifying loans so housing payments are no more than 31% of monthly gross income. Separately, homeowners who haven't missed a payment can refinance into lower-cost loans even if they have little or no equity. This is expected to help up to 5 million homeowners.


While borrowers are being encouraged to contact their loan servicers, companies said it would be several weeks before they can start processing applications.

The $75 billion loan modification plan will provide incentives to borrowers, servicers and mortgage investors. The government will also subsidize interest rate reductions to get borrowers to affordable monthly payments.

"This plan will help make home ownership more affordable for nine million American families and in doing so, help to stop the damaging impact that declining home prices have on all Americans," said Housing Secretary Shaun Donovan.

Administration officials once again stressed that they are not using taxpayer money to bail out irresponsible homebuyers, listing those who will not qualify for assistance: people who bought investment properties, lied on their mortgage documents or purchased multimillion dollar homes.


iReport: Would you walk away from your home?
"The cost of not acting outstrips that of acting boldly," said a senior administration official.

Borrowers can now contact their servicers to see whether they are eligible for assistance. Federal officials have posted additional information for borrowers to determine their eligibility at . They will also promote the program at homeownership events nationwide.


However, servicers, who just received the guidelines on Wednesday, said it will take them some time to upgrade their systems and train their staffs to handle borrower calls. Fannie Mae, for instance, said the lenders and mortgage brokers it works with will be able to process refinancing applications starting in April.

Many firms, however, have said they will put foreclosures on hold until they can implement the guidelines.

Who's eligible?
The administration Wednesday released additional eligibility criteria and guidelines for the refinancing and modification prongs of the program.


The refinancing portion, which is open to homeowners who took out loans from Fannie Mae and Freddie Mac, allows borrowers with less than 20% equity in their homes to refinance to the current prevailing rate. However, borrowers cannot owe more than 105% of the value of their home and must be current on their payments.

The program ends in June 2010. Each servicer will provide details on the terms and costs associated with refinancing, which is aimed at helping borrowers suffering from the decline in home values.


The government provided far more information on the loan modification plan, which it is spearheading. This portion focuses on people who are behind in their payments or are at risk of default.

Federal officials clarified the definition of "at risk" as those: suffering serious hardships, declines in income or increase in expenses; facing an interest rate hike; having high mortgage debt compared to income; owing more than their house is worth, or demonstrating other reasons for being close to default.

The modification program will be in effect until the end of 2012, but loans can only be adjusted once.

Officials also unveiled more details on how servicers will modify the loans. First, they must reduce interest rates so that borrowers' total house payments are not more than 38% of their monthly income. The government will then subsidize servicers dollar-for-dollar to lower that ratio to 31% - but the interest rate can't go below 2%.


The new interest rate would then remain in place for five years, after which it will increase by 1 percentage point a year until it reaches either the original rate or the prevailing mortgage rate at the time of the modification, whichever is lower. This should prevent borrowers from suffering the "payment shock" that sent many borrowers with adjustable-rate mortgage into default in recent years.

If rate reductions aren't enough to get payments to 31% of income, a lender can extend the term up to 40 years, or shift part of the principal to the end of the loan at no interest. Servicers also have the option of reducing the loan's balance.

Servicers will receive $1,000 for each loan modified, as well as additional annual bonuses if borrowers keep up with payments. Mortgage investors will receive one-time $1,500 incentive payments for restructuring qualifying loans that are not yet delinquent. Finally, borrowers who keep up with their new payments will receive up to $1,000 a year in principal reduction, for up to five years.


While the program is voluntary, once servicers commit to participating, they must evaluate all loans that may be eligible. Financial institutions that receive government money going forward must participate.

Only loans where the cost of the foreclosure would be higher than the cost of modification would qualify.

The government is also providing incentives to servicers and borrowers to enter into "short sales" or "deed-in-lieu of foreclosure" agreements with those who can't afford to stay in their homes. In these cases, the bank agrees to take back the home for less than what's owed without filing for foreclosure.


The program also includes a new provision to eliminate borrowers' second mortgages, which will reduce their overall debt levels. Investors in those mortgages, who at times have blocked modifications because they don't benefit from the adjustments, will be paid to eliminate those claims. Details on how much they'll receive will be announced in coming weeks, senior government officials said. Servicers that get second-mortgage holders to participate will receive an additional $250.

Be patient
While borrowers can now start contacting servicers, it may take several weeks for companies to implement the guidelines, said a senior mortgage industry official in a conference call with reporters.

Servicers are adding staff to handle the expected deluge of calls. Bank of America, for instance, just boosted its servicing staff by 1,000 people.

JPMorgan Chase, which said it "strongly supports" the president's plan, will need a few weeks to get the program up and running, a spokesman said.

Officials warned borrowers - many of whom have complained of long waits and unresponsive staff at servicers - to be patient. Until then, they can find out whether they meet the basic criteria and can start gathering the financial documents they'll need to give their servicer.


"There will definitely be a flood of activity, so it's important for consumers to be patient and be persistent and to take a hard look at their own personal financial situation so they can come prepared to really move the process forward as rapidly as possible," the official said.


WASHINGTON, D.C. The $787 billion stimulus package passed in February and President Barack Obama's budget plan released on Thursday contain a confusing assortment of changes to the tax code.

Some will see their taxes go down this year, especially those earning less than $100,000 a year. Beginning in 2011, when Obama hopes the recession will be a fading memory, some people, especially those earning more than $200,000 a year, will see their taxes go up.


In Depth: How Obama Tax Plan Affects Eight Families


For the vast majority of Americans, the biggest change is the Making Work Pay tax credit, included in the stimulus. Individuals earning up to $75,000 will receive $400 back from the government. Families earning up to $150,000 will get $800 back. (For individuals earning between $75,000 and $95,000 and couples earning between $150,000 to $190,000, the credit will gradually phase out.)

This is almost exactly the tax cut Obama promised on the campaign trail--the size of the cut was reduced by Congress to $400 from the $500 Obama had wanted. The tax cut is structured so that families that already pay no income tax still receive the credit. A family earning $35,000 with two children would owe no income tax and would, in fact, receive $4,100 in refundable tax credits under the administration proposal. Under prior law--before the stimulus--they would have received just $2,900 from the government.

At higher income levels, however, taxes will get complicated quickly. Many of the specific tax breaks in the stimulus package phase out at different tax levels (see "So What's in the Stimulus for You? Nothing!"). The stimulus also includes a fix to the Alternative Minimum Tax--without the fix, millions of middle income taxpayers would have been hit by the AMT and forced to pay a higher tax bill.

But for high-earners, the biggest change will come from the tax increases the president proposed as part of his budget. (See "Who Will Pay for Obama's Plans?") Obama wants to allow the Bush tax cuts to expire at the end of 2010. If Obama gets Congress to cooperate, then beginning in 2011 single taxpayers earning more than $200,000 (more than $250,000 for couples) would see the top ordinary income tax rate rise to 39.6% from 35%.

Another tax code tweak unveiled in Obama's budget is a change to itemized deductions. Families earning more than $250,000 would take deductions against a 28% tax rate, instead of the tax rate they're actually paying. For many upper-income tax payers, this not only increases their tax burden but reduces their incentive to give to charities (see "Short-Changing Charities"). These changes too would require Congress to go along with it, something it might be less than thrilled to do if it hurts charities


Ben Bernanke, the chairman of the US Federal Reserve, said today that bold Government action was needed to steer America's economy out of a deepening slump - even if the result was a rise in federal debt.

Speaking in front of the Senate Budget Committee in Washington, Mr Bernanke said that the country would be better of "moving aggressively to solve our economic problems."

President Barack Obama’s recently enacted $787 billion stimulus package of increased federal spending and tax cuts should help revive moribund consumer demand, boost factory production over the next two years and “mitigate the overall loss of employment and income that would otherwise occur,” Mr Bernanke said.

His comments came a day after AIG, the embattled insurer, announced record losses of more than $61 billion and a further $30 billion in funds from the Government, sending the Dow Jones plunging to the lowest level in more than 12 years.

At the same time, Gordon Brown is meeting with President Obama to discuss ways of stabilising the global economy.

Mr Bernanke said that the massive government bailout of AIG was the best chance for financial stability, but did not mince his words about his feelings on the near collapse of company, saying it was this situation which had made him most angry during the financial crisis.

Just days ago the true extent of the recession gripping the US was revealed as official figures showed that GDP dropped at an annual rate of 6.2 per cent in the final three months of last year, a massive revision from the 3.8 per cent drop initially estimated.

Mr Bernanke was frank about the repercussions if the Government failed to act. “The alternative could be a prolonged episode of economic stagnation that would not only contribute to further deterioration in the fiscal situation, but would also imply lower output, employment, and incomes for an extended period,” he said.