Friday, August 14, 2009

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.)

1 comment:

Moderator said...

Roughly 25% of mortgages are underwater, say Citi analysts. This is likely to rise to 35% to 40% by next year. Potential buyers are locked into underwater homes. Unemployment is another problem that is forcing people to stay in the homes they have. Loan modification programs will only help at the margin. The government could extend the tax credit for home buyers to help ease the situation.

Even though there has been some good news about housing - sales are up and price declines are moderating - the "optimism is premature," say Citi analysts on a conference call. "A sustained recovery is still some time away," said Lakhbir Hayre of Citi. House prices are still too high, he said. Declines are likely in the New York-New Jersey area, Hayre pointd out. Inventory is at about 18 months supply. In a strong market, it should be about 6-8 months of supply.