Housing Incentives Are Meaningless In Hoboken Market

Govt Car, Housing Incentives Taking Toll On Retail Sales

By Karen Talley and Ann Zimmerman DOW JONES NEWSWIRES NEW YORK (Dow Jones)--The resoundingly poor U.S. retail sales reported Thursday may show the government at work: siphoning spending away from more discretionary purchases by steering consumers to cars and homes through big incentives. The federal "Cash for Clunkers" and home buying programs mean less money for purchases of apparel, electronics and other items that are not must-haves, analysts and consumers say. "Right now we're using whatever we have for necessary back-to-school items; that's about it," said Maria Cordova-Alestra, who just bought a home in Selden, N.Y., with help from the up to $8,000 federal tax credit the U.S. government is providing to qualified first-time home buyers. There certainly seems to be appeal in achieving the American dream of home ownership even if it means sharply curtailing other spending. "If people have less money and are saving more, and are now incented, its very possible to make a case they won't be buying much of anything else," said Kevin Mansell, chief executive of department store chain Kohl's Corp. (KSS). But while there may be some indications, there are no hard numbers to say if the federal programs are impacting retailers and how much of a drain may be occurring. "We haven't really seen anything," said Charles Holley, treasurer at discounter Wal-Mart Stores Inc. (WMT) on the impact of government incentives. "I can't say we have any definitive data." Cordova-Alestra said she, her husband and three children went from an apartment to a five-bedroom home, aided by still-depressed home values, and a long period of savings topped off by a government-supplied subsidy. "The incentive is terrific," she said. Sue Brethel, a realtor with Century 21 Madeleine Bodner in Great Neck, N.Y., said the aid "is giving people the impetus" to make home purchases after they had been fence sitting for some time. The National Association of Home Builders estimates that 192,000 extra home sales will occur during the program period, which started on Jan. 1 of this year and runs through Nov. 30. With the median home price at $174,100, that's billions of dollars being committed thanks to the government program. At the same time, the "Cash for Clunkers" program is now up to $3 billion, thanks to the federal government recently adding $2 billion to the initiative after an initial $1 billion was gobbled up by car buyers. The program provides up to $4,500 to trade in an older, less fuel-efficient car, for a new auto. Through early Tuesday, dealers had requested reimbursement for 292,447 vouchers, totaling about $1.23 billion. Richard Feinberg, a professor of retail management at Purdue University, estimated that if the government winds up spending $3 billion on the program, the money consumers spend on car loans would reduce funds available for retail sales by $300 million a month, or $1.5 billion during the five months of back-to-school and holiday sales. "It is one of those unintended side effects of a federal program that on the surface seems to be all positive," Feinberg said. "We can be sure that if the Cash for Clunker program incentives people to buy new cars and we know the average monthly car payment is $400, that is money that won't be spent in stores and restaurants and the places that drive our economy." The National Retail Federation has projected that, excluding the impact from the home buying and "Cash for Clunkers" programs, the average family will spend $548.72 this year on back-to-school merchandise, down 7.7% from $594.24 last year. National Retail Federation Vice President Rachelle Bernstein has voiced concern about already-stretched consumers now being committed to a car payment of $400 or so a month. "What's that going to do for retail sales in the future?" Bernstein said. An economic recovery would be muted by a lack of discretionary spending by Americans. Overall consumer spending makes up 70% of GDP, which is the broad measure of U.S. economic activity. But in July, retail sales excluding autos dropped 0.6%, the Commerce Department said. Economists expected a 0.1% gain, based on better trends showing up in areas like manufacturing and even housing sales. The broad retail category of general merchandise, which includes department stores, tumbled 0.8%. Furniture retailers' sales fell 0.9% and building materials and garden supplies dealers' sales dropped 2.1%. Food and beverage stores posted a 0.3% decline. Electronics and appliance stores were down 1.4%. Sporting goods, hobby, book and music stores fell 1.9%, the Commerce Department said. -By Karen Talley and Ann Zimmerman, Dow Jones Newswires; karen.talley@dowjones.com; 212-416-2196, (Dawn Wotapka contributed to this article.)

CEPR - Though Home Prices Appear to Bottom Out...

WASHINGTON, D.C. - Many recent accounts of the housing market point to stabilization of prices and slight upticks in sales as turning points in the nation's housing crisis. However, a report released today by CEPR and the National Low Income Housing Coalition (NLIHC) shows that in many current bubble-inflated markets, homeownership may remain a costly and risky proposition for some time to come.

The study, "Hitting Bottom? An Updated Analysis of Rents and the Price of Housing in 100 Metropolitan Areas," compares home prices to annual rents for the largest MSAs in the nation. The study extends the methodology from 2 earlier reports, "Ownership, Rental Costs and the Prospects of Building Home Equity: A Comparison of 100 Metropolitan Areas," and "The Cost of Maintaining Home Ownership in the Current Crisis: Comparisons in 20 Cities," to give an up-to-date portrayal of where the housing market is today and determine if we have hit bottom yet.

The new analysis demonstrates that the ratio of house prices to annual rents are closer to an equilibrium ratio of 15 to 1 than they have been at any point in the last 2 years. Due to the strong likelihood of a jobless recovery and declining growth, however, the demand for housing will continue to suffer.

"The good news here is that the bottom of the housing market may be in sight," said Danilo Pelletiere, NLIHC Research Director and a co-author of the report, "but we can't be complacent and we shouldn't waste the opportunity to lock in housing affordability by funding the National housing Trust Fund."

Current homeowners with a mortgage in many communities will continue to remain underwater for sometime to come - almost half of mortgage holder's by recession's end according to Deutsche Bank - increasing the likelihood that under current policies, the rash of foreclosures in bubble markets will continue for some time.

"In communities where foreclosure remains a problem, homeowners should be given the opportunity to remain in their homes as renters paying the fair market rent," said Dean Baker, Co-Director of CEPR and an author of the study. "This 'right to rent' would provide homeowners facing foreclosure in hard-hit areas an important degree of housing security and stability."